WELLS S&P REIT INDEX FUND
312 Walnut Street, 21st Floor
Cincinnati, Ohio 45202-4094
BOARD OF TRUSTEES ----------------------------------------
Leo F. Wells III
John L. Bell WELLS
Richard W. Carpenter
Bud Carter S&P
Donald S. Moss REIT INDEX FUND
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 SEMI-ANNUAL REPORT
Arthur Andersen LLP June 30, 2000
425 Walnut Street (Unaudited)
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 WELLS
Real Estate Funds
[LOGO]
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----------------------------------------
<PAGE>
LETTER TO SHAREHOLDERS AUGUST 15, 2000
================================================================================
Dear Shareholder,
The first half of 2000 has clearly redefined the role REITs play in portfolio
diversification. While volatility in technology and other high-growth sectors
has rocked the boat, REITs have offered investors shelter from a stormy stock
market. And, as more investors have moved toward REITs, the undervalued REIT
share price has rallied. In fact, for the six months ended June 30, 2000, the
return for the Wells S&P REIT Index Fund was 12.58%. Through July 31, 2000, the
year-to-date return was 22.6%.
Industry observers attribute this REIT rebirth to many different factors. First,
REITs simply are moving up when almost everything else is moving down. Secondly,
many investors are not getting enough cash flow from stocks and are finding it
hard to access the money they have tied up in investments. While the average
stock dividend yield is only around 1-2%, the Wells S&P REIT Index Fund is
currently generating a 6.31% dividend yield as of July 31, 2000.
In addition, REITs are once again receiving well-deserved endorsements by
industry experts after a two-year slump. This renewed interest in REITs by
market analysts is significant for investors across the board who closely
monitor investment trends.
Lastly, it appears there may be an overall shift in investment styles. After
several years of momentum investing in technology stocks, investors are
re-focusing their attention on "value" stocks. REITs fall nicely into this
"value" category because they are backed by hard assets and because they kick
off consistent dividends.
With the dramatic fluctuations in the overall market and with many of the major
indices in negative territory for 2000, it is important to note that the key
focus from an investor standpoint should continue to be long-term results. Real
estate plays an important role in asset allocation as studies show that REITs
can assist investors in reducing overall portfolio risk and generating higher
returns.
Looking forward, REITs are expected to maintain this growth as continued
strength in the economy is likely to keep buildings occupied and rents rising.
Further, the National Association of Real Estate Investment Trusts reports that
real estate fundamentals (supply is balanced with demand) are quite solid.
At Wells, we believe that REITs are right for any investor who aspires to have a
healthy portfolio. As always, we thank you for your support and look forward to
a rewarding future. Your questions and comments are always welcome. Contact us
at (800) 282-1581 or on the web at www.wellsref.com.
Yours truly,
/s/ Leo F. Wells, III
Leo F. Wells, III
President
1
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF ASSETS AND LIABILITIES
June 30, 2000 (Unaudited)
================================================================================
ASSETS
Investment securities:
At acquisition cost .................................. $ 28,764,399
============
At market value (Note 1) ............................. $ 28,847,180
Dividends receivable ......................................... 219,971
Receivable from Adviser (Note 3) ............................. 26,077
Receivable for capital shares sold ........................... 340,963
Organization expenses, net (Note 1) .......................... 20,197
Other assets ................................................. 35,683
------------
TOTAL ASSETS ......................................... 29,490,071
------------
LIABILITIES
Dividends payable ............................................ 73,765
Payable for capital shares redeemed .......................... 3,200
Payable for securities purchased ............................. 354,714
Payable to Administrator (Note 3) ............................ 12,145
Other accrued expenses and liabilities ....................... 9,995
------------
TOTAL LIABILITIES .................................... 453,819
------------
NET ASSETS ................................................... $ 29,036,252
============
NET ASSETS CONSIST OF:
Paid-in capital .............................................. $ 31,063,258
Accumulated net realized losses from security transactions ... (2,109,787)
Net unrealized depreciation on investments ................... (82,781)
------------
Net assets ................................................... $ 29,036,252
============
PRICING OF CLASS A SHARES
Net assets applicable to Class A shares ...................... $ 23,875,347
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ...... 3,228,487
============
Net asset value and redemption price per share (Note 1) ...... $ 7.40
============
Maximum offering price per share (Note 1) .................... $ 7.71
============
PRICING OF CLASS B SHARES
Net assets applicable to Class B shares ...................... $ 2,895,571
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ...... 386,335
============
Net asset value, offering price and redemption
price per share (Note 1) ................................... $ 7.49
============
PRICING OF CLASS C SHARES
Net assets applicable to Class C shares ...................... $ 2,265,334
============
Shares of beneficial interest outstanding
(unlimited number of shares authorized, no par value) ...... 303,166
============
Net asset value, offering price and redemption
price per share (Note 1) ................................... $ 7.47
============
See accompanying notes to financial statements.
2
<PAGE>
WELLS S&P REIT INDEX FUND
STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 2000 (Unaudited)
================================================================================
INVESTMENT INCOME
Dividends ................................................... $ 1,007,900
-----------
EXPENSES
Investment advisory fees (Note 3) ......................... 61,998
Custodian fees ............................................ 24,687
Transfer agent fees, Class A (Note 3) ..................... 14,590
Transfer agent fees, Class B (Note 3) ..................... 7,200
Transfer agent fees, Class C (Note 3) ..................... 7,200
Accounting services fees (Note 3) ......................... 24,000
Insurance expense ......................................... 2,325
Registration fees, Common ................................. 2,667
Registration fees, Class A ................................ 6,090
Registration fees, Class B ................................ 8,485
Registration fees, Class C ................................ 8,335
Administrative services fees (Note 3) ..................... 18,724
Professional fees ......................................... 5,513
Postage and supplies ...................................... 9,439
Amortization of organization expenses (Note 1) ............ 3,787
Reports to shareholders ................................... 4,952
Pricing expenses .......................................... 1,098
Distribution expenses, Class A (Note 3) ................... 2,108
Distribution expenses, Class B (Note 3) ................... 141
Distribution expenses, Class C (Note 3) ................... 196
Other Expenses ............................................ 770
-----------
TOTAL EXPENSES ......................................... 214,305
Fees waived and/or common expenses reimbursed by
the Adviser (Note 3) .................................... (75,574)
Class B expenses waived by the Adviser (Note 3) ........... (3,616)
Class C expenses waived by the Adviser (Note 3) ........... (3,603)
-----------
NET EXPENSES ........................................... 131,512
-----------
NET INVESTMENT INCOME ....................................... 876,388
-----------
REALIZED AND UNREALIZED GAINS ON INVESTMENTS
Net realized losses from security transactions ............ (913,854)
Net change in unrealized appreciation/depreciation
on investments .......................................... 3,043,502
-----------
NET REALIZED AND UNREALIZED GAINS ON INVESTMENTS ............ 2,129,648
-----------
NET INCREASE IN NET ASSETS FROM OPERATIONS .................. $ 3,006,036
===========
See accompanying notes to financial statements.
3
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND
STATEMENTS OF CHANGES IN NET ASSETS
===========================================================================================================
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
2000 DECEMBER 31,
(UNAUDITED) 1999
-----------------------------------------------------------------------------------------------------------
FROM OPERATIONS:
<S> <C> <C>
Net investment income ............................................ $ 876,388 $ 970,382
Net realized losses from security transactions ................... (913,854) (1,010,275)
Net change in unrealized appreciation/depreciation on investments 3,043,502 (1,502,786)
------------ ------------
Net increase (decrease) in net assets from operations .................... 3,006,036 (1,542,679)
------------ ------------
FROM DISTRIBUTIONS TO SHAREHOLDERS:
Dividends from net investment income, Class A .................... (752, 210) (914,054)
Dividends from net investment income, Class B .................... (66,359) (27,091)
Dividends from net investment income, Class C .................... (57,819) (29,237)
Return of capital, Class A ....................................... -- (232,688)
Return of capital, Class B ....................................... -- (11,705)
Return of capital, Class C ....................................... -- (8,711)
------------ ------------
Decrease in net assets from distributions to shareholders ................ (876,388) (1,223,486)
------------ ------------
FROM CAPITAL SHARE TRANSACTIONS (Note 4):
CLASS A
Proceeds from shares sold ........................................ 5,061,068 11,937,533
Net asset value of shares issued in reinvestment
of distributions to shareholders ............................... 653,598 1,010,353
Payments for shares redeemed ..................................... (2,910,105) (3,137,252)
------------ ------------
Net increase in net assets from Class A share transactions ............... 2,804,561 9,810,634
------------ ------------
CLASS B
Proceeds from shares sold ........................................ 1,409,395 1,398,817
Net asset value of shares issued in reinvestment
of distributions to shareholders ............................... 40,591 27,124
Payments for shares redeemed ..................................... (37,987) (7,741)
------------ ------------
Net increase in net assets from Class B share transactions ............... 1,411,999 1,418,200
------------ ------------
CLASS C
Proceeds from shares sold ........................................ 929,315 1,692,064
Net asset value of shares issued in reinvestment
of distributions to shareholders ............................... 47,159 29,453
Payments for shares redeemed ..................................... (148,790) (307,505)
------------ ------------
Net increase in net assets from Class C share transactions ............... 827,684 1,414,012
------------ ------------
TOTAL INCREASE IN NET ASSETS ............................................. 7,173,893 9,876,681
NET ASSETS:
Beginning of period (Note 1) ............................................. 21,862,359 11,985,678
------------ ------------
End of period ............................................................ $ 29,036,252 $ 21,862,359
============ ============
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND-- CLASS A
FINANCIAL HIGHLIGHTS
==============================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
----------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR PERIOD
JUNE 30, ENDED ENDED
2000 DECEMBER 31, DECEMBER 31,
(UNAUDITED) 1999 1998(A)
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net asset value at beginning of period ....... $ 6.80 $ 7.75 $ 10.00
------------ ------------ ------------
Income (loss) from investment operations:
Net investment income ................ 0.24 0.38 0.26
Net realized and unrealized gains
(losses) on investments ............ 0.60 (0.85) (2.20)
------------ ------------ ------------
Total from investment operations ............. 0.84 (0.47) (1.94)
------------ ------------ ------------
Less distributions:
Dividends from net investment income . (0.24) (.38) (0.26)
Return of capital .................... -- (0.10) (0.05)
------------ ------------ ------------
Total distributions .......................... (0.24) (0.48) (0.31)
------------ ------------ ------------
Net asset value at end of period ............. $ 7.40 $ 6.80 $ 7.75
============ ============ ============
Total return(B) .............................. 12.58%(D) (6.24%) (19.62%)(D)
============ ============ ============
Net assets at end of period (000's) .......... $ 23,875 $ 19,281 $ 11,986
============ ============ ============
Ratio of net expenses to average net assets(C) 0.96%(E) 0.99% 0.99%(E)
Ratio of net investment income to average
net assets ................................... 7.15%(E) 5.58% 5.33%(E)
Portfolio turnover rate ...................... 14%(E) 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 1.48%(E), 2.11% and 3.30%(E)
for the periods ended June 30, 2000, December 31, 1999 and 1998,
respectively (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
5
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND-- CLASS B
FINANCIAL HIGHLIGHTS
===========================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
-----------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
2000 DECEMBER 31,
(UNAUDITED) 1999
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period ................................... $ 6.88 $ 8.16
------------ ------------
Income (loss) from investment operations:
Net investment income ............................................ 0.20 0.17
Net realized and unrealized gains (losses) on investments ........ 0.61 (1.20)
------------ ------------
Total from investment operations ......................................... 0.81 (1.03)
------------ ------------
Less distributions:
Dividends from net investment income ............................. (0.20) (0.17)
Return of capital ................................................ -- (0.08)
------------ ------------
Total distributions ...................................................... (0.20) (0.25)
------------ ------------
Net asset value at end of period ......................................... $ 7.49 $ 6.88
------------ ------------
Total return(B) .......................................................... 11.98%(D) (12.73%)(D)
------------ ------------
Net assets at end of period (000's) ...................................... $ 2,896 $ 1,306
------------ ------------
Ratio of net expenses to average net assets(C) ........................... 1.59%(E) 1.72%(E)
Ratio of net investment income to average net assets ..................... 9.67%(E) 5.77%(E)
Portfolio turnover rate .................................................. 14%(E) 17%(E)
</TABLE>
(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 2.47%(E) and 3.28%(E) for
the periods ended June 30, 2000 and December 31, 1999, respectively (Note
3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
6
<PAGE>
<TABLE>
<CAPTION>
WELLS S&P REIT INDEX FUND-- CLASS C
FINANCIAL HIGHLIGHTS
===========================================================================================================
Per Share Data for a Share Outstanding Throughout Each Period
-----------------------------------------------------------------------------------------------------------
SIX MONTHS
ENDED YEAR
JUNE 30, ENDED
2000 DECEMBER 31,
(UNAUDITED) 1999(A)
-----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net asset value at beginning of period ................................... $ 6.86 $ 8.09
------------ ------------
Income (loss) from investment operations:
Net investment income ............................................ 0.21 0.20
Net realized and unrealized gains (losses) on investments ........ 0.61 (1.17)
------------ ------------
Total from investment operations ......................................... 0.82 (0.97)
------------ ------------
Less distributions:
Dividends from net investment income ............................. (0.21) (0.20)
Return of capital ................................................ -- (0.06)
------------ ------------
Total distributions ...................................................... (0.21) (0.26)
------------ ------------
Net asset value at end of period ......................................... $ 7.47 $ 6.86
------------ ------------
Total return(B) .......................................................... 12.11%(D) (12.06%)(D)
------------ ------------
Net assets at end of period (000's) ...................................... $ 2,265 $ 1,275
------------ ------------
Ratio of net expenses to average net assets(C) ........................... 1.58%(E) 1.73%(E)
Ratio of net investment income to average net assets ..................... 3.03%(E) 5.59%(E)
Portfolio turnover rate .................................................. 14%(E) 17%(E)
</TABLE>
(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 2.49%(E) and for the periods
ended June 30, 2000 and December 31, 1999, respectively (Note 3).
(D) Not annualized.
(E) Annualized.
See accompanying notes to financial statements.
7
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS
June 30, 2000 (Unaudited)
================================================================================
MARKET
COMMON STOCKS -- 97.0% SHARES VALUE
--------------------------------------------------------------------------------
APARTMENT/RESIDENTIAL-- 23.6%
Alexandria Real Estate ............................. 3,600 $ 123,525
AMLI Residential Properties Trust .................. 4,300 101,318
Apartment Investment & Management Company - Class A 16,900 730,925
Archstone Communities Trust ........................ 35,000 737,187
Associated Estates Realty Corp. .................... 4,900 34,300
Avalon Bay Communities, Inc. ....................... 16,674 696,139
BRE Properties, Inc. - Class A ..................... 11,300 326,288
Camden Property Trust .............................. 9,575 281,266
Chateau Communities, Inc. .......................... 7,200 203,400
Colonial Properties Trust .......................... 5,500 150,562
Cornerstone Realty Income Trust, Inc. .............. 9,100 91,000
Equity Residential Properties Trust ................ 32,255 1,483,730
Essex Property Trust, Inc. ......................... 4,600 193,200
Gables Residential Trust ........................... 6,100 157,456
Home Properties of NY, Inc. ........................ 5,100 153,000
Manufactured Home Communities, Inc. ................ 5,600 134,050
Mid-America Apartment Communities, Inc. ............ 4,400 105,600
Pennsylvania Real Estate Investment Trust .......... 3,400 58,225
Post Properties, Inc. .............................. 9,900 435,600
Smith (Charles E.) Residential Realty, Inc. ........ 5,300 201,400
Summit Properties, Inc. ............................ 6,600 138,600
Sun Communities, Inc. .............................. 4,400 147,125
United Dominion Realty Trust, Inc. ................. 26,000 286,000
------------
6,969,896
------------
DIVERSIFIED-- 9.8%
Capital Automotive Realty .......................... 5,200 73,450
Duke-Weeks Realty Corp. ............................ 31,840 712,420
Franchise Finance Corp. of America ................. 14,200 326,600
Glenborough Realty Trust, Inc. ..................... 7,400 129,037
Liberty Property Trust ............................. 16,900 438,343
National Golf Properties, Inc. ..................... 3,400 71,825
Pacific Gulf Properties, Inc. ...................... 5,200 130,325
Spieker Properties, Inc. ........................... 16,400 774,900
U.S. Restaurant Properties, Inc. ................... 3,900 34,856
Washington Real Estate Investment Trust ............ 9,000 160,875
------------
2,852,632
------------
HEALTH CARE-- 4.0%
Health Care Property Investors, Inc. ............... 12,878 350,925
Health Care REIT, Inc. ............................. 7,200 117,000
Healthcare Realty Trust, Inc. ...................... 10,133 172,894
HRPT Properties Trust .............................. 33,200 230,325
LTC Properties, Inc. ............................... 6,500 38,594
8
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
================================================================================
MARKET
COMMON STOCKS -- 97.0% (Continued) SHARES VALUE
--------------------------------------------------------------------------------
HEALTH CARE-- 4.0% (Continued)
National Health Investors, Inc. 6,100 $ 67,100
Nationwide Health Properties, Inc. 11,600 161,675
OMEGA Healthcare Investors, Inc. 5,000 22,500
------------
1,161,013
------------
HOTEL-- 5.2%
Equity Inns, Inc. .................................. 9,100 55,737
FelCor Lodging Trust, Inc. ......................... 13,800 255,300
Hospitality Properties Trust ....................... 14,200 320,388
Host Marriott Corp. ................................ 55,400 519,375
MeriStar Hospitality Corp. ......................... 11,600 243,600
RFS Hotel Investors, Inc. .......................... 6,200 72,850
Winston Hotels, Inc. ............................... 4,200 31,500
------------
1,498,750
------------
INDUSTRIAL/OFFICE-- 30.0%
AMB Property Corp. ................................. 21,100 481,343
Arden Realty, Inc. ................................. 15,900 373,650
Bedford Property Investors, Inc. ................... 4,700 87,244
Boston Properties, Inc. ............................ 17,100 660,488
Brandywine Realty Trust ............................ 9,100 174,038
Cabot Industrial Trust ............................. 10,200 200,813
CarrAmerica Realty Corp. ........................... 16,900 447,850
CenterPoint Properties Corp. ....................... 5,200 211,900
Cousins Properties, Inc. ........................... 8,200 315,700
Crescent Real Estate Equities Co. .................. 29,100 596,550
EastGroup Properties, Inc. ......................... 3,900 82,144
Equity Office Properties Trust ..................... 75,071 2,069,146
First Industrial Realty Trust, Inc. ................ 9,800 289,100
Highwoods Properties, Inc. ......................... 15,000 360,000
Kilroy Realty Corp. ................................ 6,600 171,188
Koger Equity, Inc. ................................. 6,700 113,063
Mack-Cali Realty Corp. ............................. 14,800 380,175
Parkway Properties, Inc. ........................... 2,500 76,250
Prentiss Properties Trust .......................... 9,100 218,400
ProLogis Trust ..................................... 40,890 871,468
Reckson Associates Realty Corp. .................... 12,900 306,375
SL Green Realty Corp. .............................. 6,100 163,175
------------
8,650,060
------------
MORTGAGE-- 1.0%
Thornburg Mortgage, Inc. ........................... 5,300 38,094
------------
9
<PAGE>
WELLS S&P REIT INDEX FUND
PORTFOLIO OF INVESTMENTS (Continued)
================================================================================
MARKET
COMMON STOCKS -- 97.0% (Continued) SHARES VALUE
--------------------------------------------------------------------------------
RETAIL CENTERS-- 20.5%
Bradley Real Estate, Inc. .......................... 5,600 $ 119,350
Burnham Pacific Properties, Inc. ................... 8,000 55,000
CBL & Associates Properties, Inc. .................. 6,300 157,106
Chelsea GCA Realty, Inc. ........................... 4,000 138,250
Commercial Net Lease Realty ........................ 7,600 79,800
Developers Diversified Realty Corp. ................ 15,500 231,531
Federal Realty Investment Trust .................... 9,900 198,000
General Growth Properties, Inc. .................... 13,100 415,925
Glimcher Realty Trust .............................. 6,000 86,250
IRT Property Co. ................................... 8,000 68,000
JDN Realty Corp. ................................... 8,500 86,594
JP Realty, Inc. .................................... 4,100 73,031
Kimco Realty Corp. ................................. 15,300 627,300
Kramont Realty Trust ............................... 6,600 61,875
Macerich Co. (The) ................................. 8,600 189,738
Mills Corp. ........................................ 6,000 112,875
New Plan Excel Realty Trust ........................ 22,060 286,780
Pan Pacific Retail PPTYS ........................... 5,400 108,675
Realty Income Corp. ................................ 6,700 157,869
Rouse Co. Reits-Reg. Malls ......................... 17,700 438,075
Simon Property Group, Inc. ......................... 42,900 951,844
Taubman Centers, Inc. .............................. 13,200 145,200
Urban Shopping Centers, Inc. ....................... 4,500 151,594
Vornado Realty Trust ............................... 21,800 757,550
Weingarten Realty Investors ........................ 6,700 270,513
------------
5,968,725
------------
SELF STORAGE-- 4.2%
Public Storage, Inc. ............................... 32,434 760,172
Public Storage - Class A ........................... 888 18,426
Shurgard Storage Centers, Inc. - Class A ........... 7,400 166,500
Sovran Self Storage, Inc. .......................... 3,100 66,456
Storage USA, Inc. .................................. 7,000 206,500
------------
1,218,054
------------
TOTAL COMMON STOCKS (Cost $28,274,443) ............. $ 28,357,224
------------
CASH EQUIVALENTS-- 1.7% (Cost $489,956)
Firstar Stellar Treasury Fund ...................... 489,956 $ 489,956
------------
TOTAL INVESTMENT SECURITIES-- 99.0% (Cost $28,764,399) $ 28,847,180
OTHER ASSETS IN EXCESS OF LIABILITIES-- 1.0% ....... 189,072
------------
NET ASSETS-- 100.0% ................................ $ 29,036,252
============
See accompanying notes to financial statements.
10
<PAGE>
WELLS S&P REIT INDEX FUND
NOTES TO FINANCIAL STATEMENTS
June 30, 2000 (Unaudited)
================================================================================
1. SIGNIFICANT ACCOUNTING POLICIES
The Wells S&P REIT Index Fund (the Fund) is a diversified series of the Wells
Family of Real Estate Funds (the Trust), an open-end management investment
company registered under the Investment Company Act of 1940. The Trust was
organized as an Ohio business trust on June 4, 1997. The Fund was capitalized on
December 22, 1997, when Leo F. Wells III, the President of the Fund's investment
adviser, Wells Asset Management, Inc. (the Adviser), purchased the initial
10,000 shares of the Fund at $10 per share. The public offering of Class A
shares of the Fund commenced on March 2, 1998. The Fund had no operations prior
to the public offering of Class A shares except for the initial issuance of
shares. The public offering of Class B shares and Class C shares commenced on
May 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.
11
<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 the current and future years to offset
net realized capital gains, if any, prior to distribution to shareholders.
As of June 30, 2000, net unrealized depreciation on investments was $809,680 for
federal income tax purposes, of which $1,711,483 related to appreciated
securities and $2,521,163 related to depreciated securities based on a federal
income tax cost basis of $29,656,860. The difference between the federal income
tax cost of portfolio investments and the acquisition cost is due to certain
timing differences in the recognition of capital losses under income tax
regulations and generally accepted accounting principles.
2. INVESTMENT TRANSACTIONS
During the six months ended June 30, 2000, cost of purchases and proceeds from
sales of portfolio securities, other than short-term investments, amounted to
$6,622,480 and $1,654,949, respectively.
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<PAGE>
3. TRANSACTIONS WITH AFFILIATES
Certain trustees and officers of the Trust are also officers of the Adviser or
of Integrated Fund Services, Inc. (IFS), 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 entire investment advisory fees of $61,998 and reimbursed the Fund
for $13,576 of other common operating expenses, reimbursed $3,616 and $3,603 of
Class B and Class C expenses, respectively, during the six months ended June 30,
2000.
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, IFS supplies non-investment
related administrative and compliance services for the Fund. IFS 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, IFS
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, IFS 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, IFS 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 IFS out-of-pocket expenses including, but not
limited to, postage and supplies.
ACCOUNTING SERVICES AGREEMENT
Under the terms of an Accounting Services Agreement, IFS calculates the daily
net asset value per share and maintains the financial books and records of the
Fund. For these services, IFS 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 IFS certain out-of-pocket expenses incurred by IFS 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 $15,642, $1,611 and $228
from underwriting and broker commissions on the sale of Class A, Class B and
Class C shares of the Fund, respectively, during the six months ended June 30,
2000. The Underwriter is an affiliate of the Adviser.
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<PAGE>
PLANS OF DISTRIBUTION
The Trust has adopted three separate plans of distribution under which each
class of shares of the Fund may directly incur or reimburse the Underwriter for
certain expenses related to the distribution of its shares. The annual
limitation for payment of expenses pursuant to the Class A Plan is 0.25% of the
Fund's average daily net assets attributable to Class A shares. The annual
limitation for payment of expenses pursuant to the Class B Plan and the Class C
Plan is 1.00% of the Fund's average daily net assets attributable to Class B
shares and Class C shares, respectively. For the six months ended June 30, 2000,
the Fund paid Class A, Class B and Class C distribution expenses of $2,108, $141
and $196, 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:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Six Months
Ended Period
June 30, Ended
2000 Dec. 31,
(Unaudited) 1999
------------------------------------------------------------------------------------------
CLASS A
<S> <C> <C>
Shares sold .................................................. 719,920 1,582,826
Shares issued in reinvestment of distributions to shareholders 91,679 141,650
Shares redeemed .............................................. (417,119) (437,158)
-------- ----------
Net increase in shares outstanding ........................... 394,480 1,287,318
Shares outstanding, beginning of period (Note 1) ............. 2,834,007 1,546,689
-------- ----------
Shares outstanding, end of period ............................ 3,228,487 2,834,007
======== ==========
CLASS B
Shares sold .................................................. 196,077 186,532
Shares issued in reinvestment of distributions to shareholders 5,647 3,888
Shares redeemed .............................................. (5,152) (657)
-------- ----------
Net increase in shares outstanding ........................... 196,572 189,763
Shares outstanding, beginning of period ...................... 189,763 --
-------- ----------
Shares outstanding, end of period ............................ 386,355 189,763
======== ==========
CLASS C
Shares sold .................................................. 132,671 225,698
Shares issued in reinvestment of distributions to shareholders 6,541 4,226
Shares redeemed .............................................. (21,881) (44,089)
-------- ----------
Net increase in shares outstanding ........................... 117,331 185,835
Shares outstanding, beginning of period ...................... 185,835 --
-------- ----------
Shares outstanding, end of period ............................ 303,166 185,835
======== ==========
</TABLE>
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