Table of Contents

	•	There is no public trading market for our common stock. If you are able to sell your shares, you would likely have to sell them at a substantial discount from their public offering price.
	•	We have no operating history, do not currently own any properties and have not identified any properties to acquire with the proceeds from this offering, which make our future performance and the performance of your investment difficult to predict.
	•	If we raise substantially less than the maximum offering proceeds, we may not be able to invest in a diverse portfolio of properties, and the value of your investment may vary more widely with the performance of specific properties.
	•	Our charter limits a person from owning more than 9.8% of our common stock without prior approval of our board of directors.
	•	We are dependent upon our advisor and its affiliates to conduct our operations and this offering. Adverse changes in the financial health of our advisor or its affiliates or our relationship with them could cause our operations to suffer.
	•	We will pay substantial fees and expenses to our advisor, its affiliates and participating broker/ dealers, which payments increase the risk that you will not earn a profit on your investment.
	•	Our advisor and its affiliates will face conflicts of interest, including significant conflicts in allocating time among us and similar programs sponsored by our sponsor.
	•	Our failure to qualify as a REIT for federal income tax purposes would limit our ability to make distributions to our stockholders.

			Price to				Selling				Dealer-				Net Proceeds
			Public*				Commissions*				Manager Fee*				(Before Expenses)
Primary Offering
	Per Share		$	10.00			$	0.70			$	0.18			$	9.12
	Total Minimum			2,000,000				140,000				36,000				1,824,0000
	Total Maximum		$	750,000,000			$	52,500,000			$	13,500,000			$	684,000,000
Distribution Reinvestment Plan
	Per Share			9.55				—				—				9.55
	Total Maximum		$	95,500,000			$	—			$	—			$	95,500,000

*	The selling commissions and all or a portion of the dealer-manager fee will not be charged with regard to shares sold in our primary offering to or for the account of certain categories of purchasers. The reduction in these fees will be accompanied by a corresponding reduction in the per share purchase price. See “Plan of Distribution.”

---

Table of Contents

	•	a net worth of at least $150,000; or
	•	gross annual income of at least $45,000 and a net worth of at least $45,000.

i

---

Table of Contents

PROSPECTUS SUMMARY					1
	Wells Timberland REIT, Inc.				1
	Our Advisor				1
	Our Sponsor				1
	Investment Objectives				1
	Summary Risk Factors				2
	Our Corporate Structure				2
	Conflicts of Interest				4
	Compensation of the Advisor and its Affiliates				6
	Description of Investments				7
	Sources of Income				8
	Board of Directors and Executive Officers				8
QUESTIONS AND ANSWERS ABOUT THE OFFERING					9
	What is a REIT?				9
	What will you do with the money raised in this offering?				9
	What kind of offering is this?				9
	How does a “best efforts” offering work?				10
	How long will this offering last?				10
	Who can buy shares?				10
	For whom is an investment in our shares recommended?				10
	Are there any special restrictions on the ownership or transfer of shares?				10
	Are there any special considerations that apply to employee benefit plans subject to ERISA or other retirement plans that are investing in shares?				10
	Is there any minimum investment required?				11
	How do I subscribe for shares?				11
	What happens if you do not raise a minimum of $2,000,000 in this offering?				11
	What are your exit strategies?				11
	If I buy shares in this offering, how may I later sell them?				12
	If I buy shares, will I receive distributions and how often?				12
	How will you calculate the payment of distributions to stockholders?				13
	May I reinvest my distributions in shares of Wells Timberland REIT?				13
	Will the distributions I receive be taxable as ordinary income?				13
	Will I be notified of how the company and my investment are performing?				14
	When will I get my detailed tax information?				14
	Who can help answer my questions?				15
RISK FACTORS					16
	Risks Related to Investing in this Offering				16
		There is no public trading market for your shares; therefore, it will be difficult for you to sell your shares			16
		If we are unable to find suitable investments, we may not be able to achieve our investment objectives or pay distributions			16

ii

---

Table of Contents

	We have not yet identified any of the properties that we will purchase with the proceeds of this offering, which makes your investment more speculative			16
	If we are unable to raise substantial funds, we will be limited in the number and type of investments we may make, and the value of your investment in us will fluctuate with the performance of the specific properties we acquire			17
	We have no operating history, which makes our future performance and the performance of your investment difficult to predict			17
	We expect our real estate investments to be concentrated in timberland properties, making us more vulnerable economically than if our investments were diversified			17
	We expect the majority of our income to qualify as capital gains income and, as a result, we may not be required to make substantial distributions.			17
	Our cash distributions are not guaranteed and may fluctuate			17
	The loss of or inability to obtain key personnel of our advisor or its manager could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of your investment			18
	Our operating performance could suffer if Wells Capital incurs significant losses, including those losses that may result from being the general partner of other entities			18
	Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses			18
Risks Related to Conflicts of Interest				19
	Wells Capital, its affiliates and our officers will face competing demands on their time, and this may cause our operations and your investment to suffer			19
	Our officers and some of our directors face conflicts of interest related to the positions they hold with Wells Capital, its affiliates and other Wells-sponsored programs, which could hinder our ability to successfully implement our business strategy and to generate returns to you			19
	Wells TIMO and its affiliates, including our officers and two of our directors, will face conflicts of interest caused by compensation arrangements with us and other Wells-sponsored programs, which could result in actions that are not in the long-term best interests of our stockholders. The amounts payable to Wells TIMO upon termination of the advisory agreement may also influence decisions about terminating Wells TIMO or our acquisition or disposition of investments.			19
	The fees we pay Wells TIMO under the advisory agreement and the amounts payable to Wells TIMO under the Wells Timberland OP partnership agreement were not determined on an arm’s-length basis and therefore may not be on the same terms as those we could negotiate with a third party. Because the advisory agreement must be renewed annually, the fees and other amounts that we pay to Wells TIMO may increase in future renewals.			20
Risks Related to Our Corporate Structure				21
	Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders			21
	Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring our company in a manner that could result in a premium price to our stockholders			21
	Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we become an unregistered investment company, we could not continue our business			21
	You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder			22

iii

---

Table of Contents

	You may not be able to sell your shares under the share redemption plan and, if you are able to sell your shares under the plan, you may not be able to recover the amount of your investment in our shares			22
	The offering price was not established on an independent basis; the actual value of your investment may be substantially less than what you pay			22
	Because the dealer-manager is one of our affiliates, you will not have the benefit of an independent review of our company or the prospectus customarily undertaken in underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty you face as a stockholder			23
	Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment			23
	Payment of fees to Wells TIMO and its affiliates will reduce cash available for investment and distribution and increases the risk that you will not be able to recover the amount of your investment in our shares			23
	You may be more likely to sustain a loss on your investment because our sponsor does not have as strong an economic incentive to avoid losses as do sponsors who have made more significant equity investments in the companies they organize			23
Risks Related to Investments in Timberland				24
	We will be subject to the credit risk of our anticipated customers. The failure of any of our anticipated customers to make payments due to us under our supply agreements could reduce our distributions to our stockholders			24
	Changes in demand for “higher and better use” property may reduce our anticipated land sale revenues			24
	Large-scale increases in the supply of timber may affect timber prices and reduce our revenues			24
	The cyclical nature of the forest products industry could impair our ability to make distributions to our stockholders			24
	Uninsured losses relating to timberland properties we acquire may reduce our stockholders’ returns			25
	The forest products industry and the market for timberland properties are highly competitive, which could force us to pay higher prices for our properties or limit the amount of suitable timberland investments we are able to acquire and thereby reduce our profitability and the return on an investment in us			25
	Harvesting our timber may be subject to limitations which could impair our ability to receive income and make distributions to our stockholders			26
	We face possible liability for environmental clean up costs and wildlife protection laws related to the timberland properties we acquire, which could increase our costs and reduce our profitability and cash distributions to our stockholders			26
	Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and reduce distributions to our stockholders			27
	If we sell properties and provide financing to purchasers, defaults by the purchasers would decrease our cash flows and limit our ability to make distributions to our stockholders			27
	We may be unable to obtain accurate data on the volume and quality of the standing timber on a property that we intend to acquire, which may impair our ability to derive the anticipated benefits from the timberland property			28
	Our estimates of the timber growth rates on our properties may be inaccurate, which would impair our ability to realize expected revenues from those properties			28

iv

---

Table of Contents

		Changes in assessments, property tax rates and state property tax laws may reduce our net income and our ability to make distributions to our stockholders			28
		Changes in land uses in the vicinity of our timberland properties may increase the amount of the property that we classify as HBU property, and property tax regulations may reduce our ability to realize the values of those HBU properties			29
		We may be unable to properly estimate non-timber revenues from the properties that we acquire, which would impair our ability to acquire attractive properties, as well as our ability to derive the anticipated revenues from those properties			29
		Our international investments will be subject to changes in global market trends that could adversely impact our ability to make distributions to our stockholders			29
	Risks Associated with Debt Financing				29
		We are likely to incur mortgage and other indebtedness, which may increase our business risks and may reduce the value of your investment			29
		High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make			30
		Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders			30
		Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders			30
		We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of your investment			30
		Actions of our joint venture partners could reduce the returns on our joint venture investments and decrease your overall return			31
Federal Income Tax Risks					31
		Failure to qualify as a REIT would reduce our net income and cash available for distributions			31
		You may have current tax liability on distributions you elect to reinvest in our common stock			31
		Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to you			32
		To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders, which could increase our operating costs and decrease the value of your investment			32
		To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which could delay or hinder our ability to meet our investment objectives and lower the return on your investment			32
		The extent of our use of taxable REIT subsidiaries may affect the value of our common stock relative to the share price of other REITs			32
		Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment			33
	Retirement Plan Risks				33
		If you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, you could be subject to criminal and civil penalties			33
		The annual statement of value that we will send to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not reflect the actual value of our shares			33
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS					34

v

---

Table of Contents

ESTIMATED USE OF PROCEEDS				35
MANAGEMENT				37
	Board of Directors			37
	Committees of the Board of Directors			37
	Audit Committee			38
	Nominating and Corporate Governance Committee			38
	Executive Officers and Directors			38
	Compensation of Directors			41
	2005 Long-Term Incentive Plan			42
	Limited Liability and Indemnification of Directors, Officers, Employees and Other Agents			43
	Our Sponsor			44
	Our Advisor			47
	The Advisory Agreement			47
	Initial Investment by Our Sponsor			48
	Dealer-Manager			49
	Management Decisions			49
MANAGEMENT COMPENSATION				50
STOCK OWNERSHIP				56
CONFLICTS OF INTEREST				57
	Our Sponsor’s Interests in Other Wells Real Estate Programs			57
	Receipt of Fees and Other Compensation by Wells TIMO and its Affiliates			58
	Fiduciary Duties Owed by Affiliates of Our Advisor to Other Entities			58
	Affiliated Dealer-Manager			59
	Certain Conflict Resolution Procedures			59
INDUSTRY OVERVIEW				63
	General			63
	Supply and Demand Dynamics			64
	Stages of Biological Growth			66
	Biological Growth Compared to Value Growth			67
	Market Opportunity			67
BUSINESS AND POLICIES				68
	Our Business			68
	Investment Objectives			68
	Investment Strategy			68
	Operational Strategy			69
	Joint Venture Investments			69
	Borrowing Policies			70
	Disposition Policies			70
	Our Higher and Better Use Land Sales			71
	Investment Limitations			71
	Changes in Investment Objectives and Limitations			72
	Issuing Securities for Property			72

vi

---

Table of Contents

	Acquisitions of Our Common Stock			73
	Liquidity Event			73
PLAN OF OPERATION				74
	General			74
	Liquidity and Capital Resources			75
	Results of Operations			75
	Inflation			75
	Critical Accounting Policies			75
PRIOR PERFORMANCE SUMMARY				78
	Prior Public Programs			78
	Prior Private Programs			80
	Adverse Business Developments or Conditions			80
	Summary of Recent Acquisitions by Wells Prior Programs			82
	Additional Information			82
FEDERAL INCOME TAX CONSIDERATIONS				83
	Federal Income Taxation of the Company			83
	Requirements for Qualification			85
	Annual Distribution Requirements			91
	Earnings and Profits			92
	Statutory Relief			92
	Failure to Qualify			92
	Taxable REIT Subsidiaries			92
	Taxation of U.S. Stockholders			93
	Special Tax Considerations for Non-U.S. Stockholders			95
	Information Reporting Requirements and Backup Withholding Tax			97
	Tax Aspects of Wells Timberland OP			99
	State and Local Taxes			99
ERISA CONSIDERATIONS				100
	Prohibited Transactions			100
	Plan Asset Considerations			101
	Other Prohibited Transactions			102
	Annual Valuation			102
DESCRIPTION OF SHARES				104
	Common Stock			104
	Preferred Stock			104
	Meetings and Special Voting Requirements			104
	Restriction on Ownership of Shares			105
	Distributions			107
	Distribution Reinvestment Plan			108
	Share Redemption Plan			110
	Registrar and Transfer Agent			112
	Restrictions on Roll-Up Transactions			112

vii

---

Table of Contents

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS				114
	Business Combinations			114
	Control Share Acquisitions			114
	Subtitle 8			115
	Advance Notice of Director Nominations and New Business			116
	Anti-takeover Effect of Certain Provisions of Maryland Law and of the Charter and Bylaws			116
THE OPERATING PARTNERSHIP AGREEMENT				117
	General			117
	Capital Contributions			117
	Operations			117
	Distributions and Allocations of Profits and Losses			117
	Rights, Obligations and Powers of the General Partner			118
	Redemption Rights			119
	Change in General Partner			119
	Transferability of Interests			120
	Amendment of Limited Partnership Agreement			120
PLAN OF DISTRIBUTION				121
	General			121
	Compensation of Dealer-Manager and Participating Broker/ Dealers			121
	Subscription Procedures			124
	Stockholder Suitability			125
	Minimum Purchase Requirements			126
	Special Notice to Pennsylvania Investors			126
LEGAL MATTERS				127
EXPERTS				127
WHERE YOU CAN FIND MORE INFORMATION				127
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES				F-1
Appendix A — Subscription Agreement (Sample) with Instructions				A-1
Appendix B — Distribution Reinvestment Plan				B-1

viii

---

Table of Contents

1

---

Table of Contents

2

---

Table of Contents

3

---

Table of Contents

4

---

Table of Contents

5

---

Table of Contents

6

---

Table of Contents

7

---

Table of Contents

8

---

Table of Contents

	•	combines the capital of many investors to acquire or provide financing for real estate properties;
	•	allows individual investors to invest in a large-scale diversified real estate portfolio through the purchase of interests, typically shares, in the REIT;
	•	is required to pay distributions to investors of at least 90% of its annual REIT taxable income (computed without regard to the dividends paid deduction and excluding net capital gain); and
	•	avoids the “double taxation” treatment of income that would normally result from investments in a corporation because a REIT does not generally pay federal corporate income taxes on the net income it distributes, provided certain income tax requirements are satisfied.

9

---

Table of Contents

10

---

Table of Contents

	•	listing our common stock on a national securities exchange; or
	•	our sale or merger in a transaction that provides our stockholders with cash and/or securities of a publicly traded company.

11

---

Table of Contents

	•	seek stockholder approval of an extension or amendment of this listing deadline; or
	•	commence an orderly liquidation.

12

---

Table of Contents

	•	our actual results of operations;
	•	the timing of the investment of the net proceeds of this offering; and
	•	whether the income from our harvesting activities is ordinary income or capital gains.

13

---

Table of Contents

		Timberland
		REIT				Traditional REIT				C Corporation
Pre-Tax Cash Flow		$	100			$	100			$	100
Corporate Taxes*			—				—				35
Cash Available for Distributions			100				100				65
Taxes Paid by Stockholders*			15				35				10
Net Cash to Stockholders		$	85			$	65			$	55

*

Illustrates distributions of income from timber-cutting contracts for timberland properties held more than one year and assumes (1) a 35% corporate tax rate, a 35% ordinary income tax rate for individuals and a 15% capital gains and qualified dividend income tax rate for individuals; (2) that our cash flow will equal our taxable income; (3) that our distributions qualify as dividends for federal income tax purposes and not as a return of capital; and (4) that no foreign, state or local taxes apply. The 15% rates for capital gains and qualified dividend income will apply only through 2010 unless legislation extending the favorable rates is enacted.

	•	Four quarterly investor statements, which will generally include a summary of the amount you have invested, the quarterly distributions declared, and the amount of distributions reinvested under our distribution reinvestment plan, if applicable;
	•	An annual report; and
	•	An annual IRS Form 1099-DIV, if required.

14

---

Table of Contents

15

---

Table of Contents

	There is no public trading market for your shares; therefore, it will be difficult for you to sell your shares.

	If we are unable to find suitable investments, we may not be able to achieve our investment objectives or pay distributions.

	We have not yet identified any of the properties that we will purchase with the proceeds of this offering, which makes your investment more speculative.

16

---

Table of Contents

	If we are unable to raise substantial funds, we will be limited in the number and type of investments we may make, and the value of your investment in us will fluctuate with the performance of the specific properties we acquire.

	We have no operating history, which makes our future performance and the performance of your investment difficult to predict.

	We expect our real estate investments to be concentrated in timberland properties, making us more vulnerable economically than if our investments were diversified.

	We expect the majority of our income to qualify as capital gains income and, as a result, we may not be required to make substantial distributions.

	Our cash distributions are not guaranteed and may fluctuate.

17

---

Table of Contents

	The loss of or inability to obtain key personnel of our advisor or its manager could delay or hinder implementation of our investment strategies, which could limit our ability to make distributions and decrease the value of your investment.

	Our operating performance could suffer if Wells Capital incurs significant losses, including those losses that may result from being the general partner of other entities.

	Our rights and the rights of our stockholders to recover claims against our independent directors are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.

18

---

Table of Contents

	Wells Capital, its affiliates and our officers will face competing demands on their time, and this may cause our operations and your investment to suffer.

	Our officers and some of our directors face conflicts of interest related to the positions they hold with Wells Capital, its affiliates and other Wells-sponsored programs, which could hinder our ability to successfully implement our business strategy and to generate returns to you.

Wells TIMO and its affiliates, including our officers and two of our directors, will face conflicts of interest caused by compensation arrangements with us and other Wells-sponsored programs, which could result in actions that are not in the long-term best interests of our stockholders. The amounts payable to Wells TIMO upon termination of the advisory agreement may also influence decisions about terminating Wells TIMO or our acquisition or disposition of investments.

19

---

Table of Contents

	•	the continuation, renewal or enforcement of our agreements with Wells TIMO and its affiliates, including the advisory agreement and the dealer-manager agreement;
	•	public offerings of equity by us, which entitle Wells Investment Securities to dealer-manager fees and entitle Wells TIMO to increased asset management fees;
	•	property sales, which entitle Wells TIMO to real estate commissions and possible success-based payments;
	•	the valuation of our timberland properties, which determines the amount of the asset management fee payable to Wells TIMO and affects the likelihood of any success-based payments;
	•	property acquisitions from third parties, which utilize proceeds from our public offerings, thereby increasing the likelihood of continued equity offerings and related fee income for Wells Investment Securities and Wells TIMO;
	•	whether and when we seek to list our common stock on a national securities exchange, which listing could entitle Wells TIMO to a success-based payment but could also hinder its sales efforts for other programs if the price at which our shares trade is lower than the price at which we offered shares to the public; and
	•	whether and when we seek to sell the company or our assets, which sale could entitle Wells TIMO to a success-based payment from Wells Timberland OP but could also hinder its sales efforts for other programs if the sales price for the company or its assets results in proceeds less than the amount needed to preserve our stockholders’ capital.

The fees we pay Wells TIMO under the advisory agreement and the amounts payable to Wells TIMO under the Wells Timberland OP partnership agreement were not determined on an arm’s-length basis and therefore may not be on the same terms as those we could negotiate with a third party. Because the advisory agreement must be renewed annually, the fees and other amounts that we pay to Wells TIMO may increase in future renewals.

20

---

Table of Contents

	Our charter limits the number of shares a person may own, which may discourage a takeover that could otherwise result in a premium price to our stockholders.

	Our charter permits our board of directors to issue stock with terms that may subordinate the rights of our common stockholders or discourage a third party from acquiring our company in a manner that could result in a premium price to our stockholders.

	Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we become an unregistered investment company, we could not continue our business.

	•	limitations on capital structure;
	•	restrictions on specified investments;
	•	prohibitions on transactions with affiliates; and
	•	compliance with reporting, record-keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

21

---

Table of Contents

	You will have limited control over changes in our policies and operations, which increases the uncertainty and risks you face as a stockholder.

	You may not be able to sell your shares under the share redemption plan and, if you are able to sell your shares under the plan, you may not be able to recover the amount of your investment in our shares.

	The offering price was not established on an independent basis; the actual value of your investment may be substantially less than what you pay.

	•	the range of offering prices of comparable unlisted REITs; and
	•	the recommendation of our dealer-manager.

22

---

Table of Contents

	Because the dealer-manager is one of our affiliates, you will not have the benefit of an independent review of our company or the prospectus customarily undertaken in underwritten offerings; the absence of an independent due diligence review increases the risks and uncertainty you face as a stockholder.

	Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment.

	Payment of fees to Wells TIMO and its affiliates will reduce cash available for investment and distribution and increases the risk that you will not be able to recover the amount of your investment in our shares.

	You may be more likely to sustain a loss on your investment because our sponsor does not have as strong an economic incentive to avoid losses as do sponsors who have made more significant equity investments in the companies they organize.

23

---

Table of Contents

	We will be subject to the credit risk of our anticipated customers. The failure of any of our anticipated customers to make payments due to us under our supply agreements could reduce our distributions to our stockholders.

	Changes in demand for “higher and better use” property may reduce our anticipated land sale revenues.

	Large-scale increases in the supply of timber may affect timber prices and reduce our revenues.

	The cyclical nature of the forest products industry could impair our ability to make distributions to our stockholders.

24

---

Table of Contents

	•	changes in domestic and international economic conditions;
	•	interest and currency rates;
	•	population growth and changing demographics; and
	•	seasonal weather cycles (for example, dry summers and wet winters).

	Uninsured losses relating to the timberland properties we acquire may reduce our stockholders’ returns.

	The forest products industry and the market for timberland properties are highly competitive, which could force us to pay higher prices for our properties or limit the amount of suitable timberland investments we are able to acquire and thereby reduce our profitability and the return on an investment in us.

25

---

Table of Contents

	Harvesting our timber may be subject to limitations which could impair our ability to receive income and make distributions to our stockholders.

	We face possible liability for environmental clean up costs and wildlife protection laws related to the timberland properties we acquire, which could increase our costs and reduce our profitability and cash distributions to our stockholders.

	•	forestry activities, including harvesting, planting, and road building use and maintenance;
	•	the generation of air emissions;
	•	the discharge of industrial wastewater and storm water; and
	•	the generation and disposal of both hazardous and nonhazardous wastes.

26

---

Table of Contents

	Illiquidity of real estate investments could significantly impede our ability to respond to adverse changes in the performance of our properties and reduce distributions to our stockholders.

	•	changes in international, national, regional and local economic and market conditions;
	•	changes in interest rates and in the availability, cost and terms of debt financing;
	•	changes in governmental laws and regulations, fiscal policies and zoning ordinances, and the related costs of compliance with laws and regulations, fiscal policies and ordinances;
	•	forestry costs associated with maintaining and managing timberland properties;
	•	changes in operating expenses; and
	•	fires, hurricanes, earthquakes, floods and other natural disasters as well as civil unrest, acts of war and terrorism, each of which may result in uninsured losses.

	If we sell properties and provide financing to purchasers, defaults by the purchasers would decrease our cash flows and limit our ability to make distributions to our stockholders.

27

---

Table of Contents

	We may be unable to obtain accurate data on the volume and quality of the standing timber on a property that we intend to acquire, which may impair our ability to derive the anticipated benefits from the timberland property.

	Our estimates of the timber growth rates on our properties may be inaccurate, which would impair our ability to realize expected revenues from those properties.

	Changes in assessments, property tax rates and state property tax laws may reduce our net income and our ability to make distributions to our stockholders.

28

---

Table of Contents

	Changes in land uses in the vicinity of our timberland properties may increase the amount of the property that we classify as HBU property, and property tax regulations may reduce our ability to realize the values of those HBU properties.

	We may be unable to properly estimate non-timber revenues from the properties that we acquire, which would impair our ability to acquire attractive properties, as well as our ability to derive the anticipated revenues from those properties.

	Our international investments will be subject to changes in global market trends that could adversely impact our ability to make distributions to our stockholders.

	•	effects of exposure to currency other than United States dollars, due to having non-U.S. customers and foreign operations;
	•	regulatory, social, political, labor, or economic conditions in a specific country or region; and
	•	trade protection laws, policies and measures, and other regulatory requirements affecting trade and investment, including loss or modification of exemptions for taxes and tariffs, and import and export licensing requirements.

	We are likely to incur mortgage and other indebtedness, which may increase our business risks and may reduce the value of your investment.

29

---

Table of Contents

	High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our net income and the amount of cash distributions we can make.

	Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

	Increases in interest rates could increase the amount of our debt payments and limit our ability to pay distributions to our stockholders.

	We have broad authority to incur debt, and high debt levels could hinder our ability to make distributions and could decrease the value of your investment.

30

---

Table of Contents

	Actions of our joint venture partners could reduce the returns on our joint venture investments and decrease your overall return.

	•	the possibility that our co-venturer, co-tenant or partner in an investment might become bankrupt;
	•	that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; or
	•	that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives.

	Failure to qualify as a REIT would reduce our net income and cash available for distributions.

	You may have current tax liability on distributions you elect to reinvest in our common stock.

31

---

Table of Contents

	Even if we qualify as a REIT for federal income tax purposes, we may be subject to other tax liabilities that reduce our cash flow and our ability to make distributions to you.

	•	In order to qualify as a REIT, we must distribute annually at least 90% of our REIT taxable income to our stockholders (which is determined without regard to the dividends paid deduction or net capital gain). To the extent that we satisfy the distribution requirement but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on the undistributed income.
	•	We will be subject to a 4% nondeductible excise tax on the amount, if any, by which distributions we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income and 100% of our undistributed income from prior years.
	•	If we have net income from the sale of foreclosure property that we hold primarily for sale to customers in the ordinary course of business or other nonqualifying income from foreclosure property, we must pay a tax on that income at the highest corporate income tax rate.
	•	If we sell a property, other than foreclosure property, that we hold primarily for sale to customers in the ordinary course of business, our gain would be subject to the 100% “prohibited transaction” tax.
	•	Our taxable REIT subsidiaries will be subject to tax on their taxable income.

	To maintain our REIT status, we may be forced to borrow funds during unfavorable market conditions to make distributions to our stockholders, which could increase our operating costs and decrease the value of your investment.

	To maintain our REIT status, we may be forced to forego otherwise attractive opportunities, which could delay or hinder our ability to meet our investment objectives and lower the return on your investment.

	The extent of our use of taxable REIT subsidiaries may affect the value of our common stock relative to the share price of other REITs.

32

---

Table of Contents

	Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

	If you fail to meet the fiduciary and other standards under ERISA or the Internal Revenue Code as a result of an investment in our stock, you could be subject to criminal and civil penalties.

	•	your investment is consistent with your fiduciary obligations under ERISA and the Internal Revenue Code;
	•	your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan’s investment policy;
	•	your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Internal Revenue Code;
	•	your investment will not impair the liquidity of the plan or IRA;
	•	your investment will not produce “unrelated business taxable income” for the plan or IRA;
	•	you will be able to value the assets of the plan annually in accordance with ERISA requirements and applicable provisions of the plan or IRA; and
	•	your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

	The annual statement of value that we will send to stockholders subject to ERISA and to certain other plan stockholders is only an estimate and may not reflect the actual value of our shares.

33

---

Table of Contents

	•	a value included in the annual statement may not actually be realized by us or by our stockholders upon liquidation;
	•	stockholders may not realize that value if they attempted to sell their shares; and
	•	using the estimated statement of value, or the method used to establish the value, may not comply with any reporting and disclosure or annual valuation requirements under ERISA or other applicable law.

34

---

Table of Contents

																		85,000,000 Shares of Common Stock
																										Dividend
		Primary Offering																								Reinvestment Plan								Total
		200,000 shares								37,500,000 shares								75,000,000 shares								10,000,000 shares								85,000,000
		($10.00/share)								($10.00/share)								($10.00/share)								($9.55/share)								shares
		$				%				$				%				$				%				$				%				$				%
Gross Offering Proceeds			2,000,000				100.0				375,000,000				100.0				750,000,000				100.00				95,500,000				100.00				845,500,000				100.0
Less Offering Expenses Selling Commissions			140,000				7.0				26,250,000				7.0				52,500,000				7.0				—				—				52,500,000				6.2
Dealer-Manager Fee			36,000				1.8				6,750,000				1.8				13,500,000				1.8				—				—				13,500,000				1.6
Organization and Other Offering Expenses(1)			24,000				1.2				4,850,000				1.2				9,000,000				1.2				—				—				9,000,000				1.1
Estimated Amount to be Invested(2)(3)			1,800,000				90.0				337,850,000				90.0				675,000,000				90.0				95,500,000				100.00				770,500,000				91.1

(1)

Includes all expenses (other than selling commissions and the dealer-manager fee) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, reimbursing the due diligence expenses of broker/ dealers, and amounts to reimburse Wells TIMO for the salaries of its employees and other costs in connection with preparing supplemental sales materials, holding educational conferences and attending retail seminars conducted by broker/ dealers.

35

---

Table of Contents

	Wells TIMO has agreed to reimburse us to the extent organizational and offering expenses incurred by us, other than selling commissions and the dealer-manager fee, exceed 1.2% of the aggregate gross offering proceeds from our primary offering. We will not reimburse Wells TIMO for any organization and offering expenses from proceeds of sales pursuant to our distribution reinvestment plan.
(2)	Amount available for investment will include customary third-party acquisition expenses, such as legal fees and expenses, costs of appraisals, accounting fees and expenses, title insurance premiums and other closing costs and miscellaneous expenses relating to the acquisition of real estate. We estimate that these third-party costs will average 0.5% of the contract purchase prices of property acquisitions.
(3)	Although it is possible that the net proceeds from the sale of shares under our distribution reinvestment plan will be available for investment, we expect that all of these proceeds will instead be used to repurchase shares of our common stock under the share redemption plan. See “Description of Shares — Share Redemption Plan.” Until required in connection with the acquisition and development of properties, substantially all of the net proceeds of the offering and, thereafter, our working capital reserves, may be invested in short-term, highly liquid investments including government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts or other authorized investments as determined by our board of directors.

36

---

Table of Contents

37

---

Table of Contents

Name		Age				Positions
Leo F. Wells, III			63			President and Director
Douglas P. Williams			56			Executive Vice President, Secretary, Treasurer and Director
Randall D. Fretz			54			Senior Vice President
Michael P. McCollum			51			Independent Director
E. Nelson Mills			46			Independent Director
Donald S. Moss			72			Independent Director
Willis J. Potts, Jr.			60			Independent Director

38

---

Table of Contents

In 2001 and 2002, Wells Investment Securities sponsored conferences attended by registered representatives who sold its real estate investment products. Wells Investment Securities also paid for certain expenses of guests of the registered representatives who attended the conferences. In 2001, Wells Investment Securities paid the costs of travel to the conference and meals for many of the guests and paid the costs of playing golf for some of the registered representatives and their guests. Wells Investment Securities later invoiced registered representatives for the cost of golf and for travel expenses of guests, but was not fully reimbursed for such. In 2002, Wells Investment Securities paid for meals for the guests. Wells Investment Securities also conditioned most of the 2001 conference invitations on attainment by the registered representatives of a predetermined sales goal for Wells Investment Securities products. This conduct violated the prohibitions against payment and receipt of noncash compensation in connection with the sales of these products contained in NASD’s Conduct Rules 2710, 2810 and 3060. In addition, Wells Investment Securities and Mr. Wells failed to adhere to all of the terms of their written undertaking made in March 2001 not to engage in the conduct described above, and thereby failing to observe high standards of commercial honor and just and equitable principles of trade in violation of NASD Conduct Rule 2110.

39

---

Table of Contents

40

---

Table of Contents

	•	$2,000 per in-person board meeting;
	•	$1,500 per in-person committee meeting;
	•	$250 per telephonic board or committee meeting; and
	•	an additional $500 to a committee chair for each in-person committee meeting.

41

---

Table of Contents

	•	options to purchase shares of our common stock, which may be nonstatutory stock options or incentive stock options under the Internal Revenue Code;
	•	stock appreciation rights, which give the holder the right to receive the difference between the fair market value per share on the date of exercise over the grant price;
	•	performance awards, which are payable in cash or stock upon the attainment of specified performance goals;
	•	restricted stock, which is subject to restrictions on transferability and other restrictions set by the board of directors, or a committee of its independent directors;
	•	restricted stock units, which give the holder the right to receive shares of stock, or the equivalent value in cash or other property, in the future;
	•	deferred stock units, which give the holder the right to receive shares of stock, or the equivalent value in cash or other property, at a future time;
	•	dividend equivalents, which entitle the participant to payments equal to any dividends paid on the shares of stock underlying an award; and
	•	other stock-based awards at the discretion of the board of directors or a committee of its independent directors, including unrestricted stock grants.

42

---

Table of Contents

	•	the party seeking exculpation or indemnification has determined, in good faith, that the course of conduct that caused the loss or liability was in our best interest;
	•	the party seeking exculpation or indemnification was acting on our behalf or performing services for us;
	•	in the case of an independent director, the liability or loss was not the result of gross negligence or willful misconduct by the independent director;
	•	in the case of a nonindependent director, Wells TIMO or one of its affiliates, the liability or loss was not the result of negligence or misconduct by the party seeking indemnification or exculpation; and
	•	the indemnification is recoverable only out of our net assets and not from the stockholders.

43

---

Table of Contents

	•	there has been a successful adjudication on the merits of each count involving alleged securities law violations;
	•	such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction; or
	•	a court of competent jurisdiction approves a settlement of the claims against the indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the SEC and of the published position of any state securities regulatory authority in which the securities were offered or sold as to indemnification for violations of securities laws.

	•	the proceeding relates to acts or omissions with respect to the performance of duties or services on our behalf;
	•	such person provides us with written affirmation of his good faith belief that he has met the standard of conduct necessary for indemnification;
	•	the legal proceeding was initiated by a third party who is not a stockholder or, if by a stockholder acting in his or her capacity as such, a court of competent jurisdiction approves the advancement; and
	•	the person seeking the advancement undertakes to repay the amount paid or reimbursed by us, together with the applicable legal rate of interest thereon, if it is ultimately determined that such person is not entitled to indemnification.

44

---

Table of Contents

Name		Age				Positions
Leo F. Wells, III			63			President, Treasurer and sole Director
Douglas P. Williams			56			Senior Vice President and Assistant Secretary
Stephen G. Franklin			58			Senior Vice President
Randall D. Fretz			54			Senior Vice President
Jess E. Jarratt			50			Senior Vice President
Robert E. Bowers			50			Senior Vice President

45

---

Table of Contents

46

---

Table of Contents

Name		Age				Position
Jess E. Jarratt			50			President
John C. Iverson			60			Vice President and Controller

	•	find, present and recommend to our board of directors real estate investment opportunities consistent with our investment policies and objectives;
	•	structure the terms and conditions of our real estate acquisitions, sales or joint ventures;
	•	at the direction of our management, prepare all reports and regulatory filings, including those required by federal and state securities laws;
	•	arrange for financing and refinancing of properties;
	•	enter into supply agreements, service contracts and leases for our properties;
	•	review and analyze the properties’ operating and capital budgets;
	•	generate an annual budget for us;

47

---

Table of Contents

	•	review and analyze financial information for each property and the overall portfolio;
	•	if a transaction requires approval by the board of directors, deliver to the board of directors all documents requested by the board in its evaluation of the proposed transaction;
	•	actively oversee the management of our properties for purposes of meeting our investment objectives;
	•	perform cash management services;
	•	perform transfer agent functions; and
	•	engage our agents.

48

---

Table of Contents

Name		Age				Positions
Thomas E. Larkin			49			President and Director
Douglas P. Williams			56			Vice President, CFO, Treasurer and Director
Randall D. Fretz			54			Director

49

---

Table of Contents

Form of Compensation				Estimated Amount for
and Entity Receiving		Determination of Amount		Maximum Offering(1)
Organization and Offering Stage
Selling Commissions — Wells Investment Securities(2)		7% of gross offering proceeds from the primary offering, before reallowance of commissions earned by participating broker/ dealers. Wells Investment Securities, our dealer-manager, will reallow 100% of commissions earned to participating broker/ dealers.		$52,500,000
Dealer-Manager Fee — Wells Investment Securities(2)		1.8% of gross offering proceeds from the primary offering, before reallowance to participating broker/ dealers. Wells Investment Securities will reallow a portion of its dealer-manager fee to participating broker/ dealers. See “Plan of Distribution.”		$13,500,000
Reimbursement of Organization and Offering Expenses — Wells TIMO(3)		Up to 1.2% of gross offering proceeds from the primary offering. Wells TIMO will incur or pay our organization and offering expenses (excluding selling commissions and the dealer-manager fee). We will then reimburse Wells TIMO for these amounts up to 1.2% gross offering proceeds from the primary offering.		$9,000,000
Acquisition and Operations Stage
Asset Management Fee — Wells TIMO(4)		Monthly fee equal to one-twelfth of 1% of the greater of cost or value of investments.		Actual amounts are dependent upon total equity and debt capital we raise and results of operations and therefore cannot be determined at this time.
Other Operating Expenses(5)		We will reimburse the expenses incurred by Wells TIMO in connection with its provision of services, including related personnel, rent, utilities and information technology costs. We will not reimburse for personnel costs in connection with services for which Wells TIMO receives real estate disposition fees, or costs associated with hiring or retaining timber managers. Our operating expenses will not exceed the greater of (i) 2% of our average invested assets or (ii) 25% of our net income.		Actual amounts are dependent upon results of operations and therefore cannot be determined at this time.

50

---

Table of Contents

Form of Compensation				Estimated Amount for
and Entity Receiving		Determination of Amount		Maximum Offering(1)
Independent Director Compensation(6)		We will pay our independent directors: (i) $2,000 for each in-person board meeting, (ii) $1,500 for each in-person committee meeting, (iii) $250 for each telephonic board or committee meeting and (iv) an additional $500 to each committee chair for each in-person committee meeting. When committee meetings occur on the same day as board meetings, no additional committee meeting attendance fee is payable. All directors will receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings. Each independent director also receives (i) an initial grant of options upon his appointment to the board to purchase 2,500 shares of our common stock and (ii) an additional grant of options upon each subsequent re-election to purchase 1,000 shares of our common stock. Option grants will be exercisable at the greater of $10 per share or the fair market value of the shares on the date of grant.		Actual amounts are dependent upon the total number of board and committee meetings that each independent director attends and the future value of our common stock upon the exercise of options granted.
Liquidity Stage
Real Estate Disposition Fees — Wells TIMO or its Affiliates(7)		For substantial assistance in connection with the sale of properties, we will pay Wells TIMO or its affiliates an amount as determined by our board of directors to be appropriate based on market norms and not to exceed (1) for any property sold for $20 million or less, 2% of the contract price of the property sold and (2) for any property sold for more than $20 million, 1% of the contract price of the property sold; provided, however, in no event may the real estate commissions paid to Wells TIMO, its affiliates and unaffiliated third parties exceed 6% of the contract sales price.		Actual amounts are dependent upon results of operations and therefore cannot be determined at this time.
Special Units — Wells TIMO (8)(9)		So long as the special units remain outstanding, the holder of the special units will receive 15% of the net sales proceeds received by Wells Timberland OP on dispositions of its assets after the holders of common units, including us, have received in the aggregate, cumulative distributions with respect to their common units equal to their capital contributions (less any amounts received in redemption of their common units) plus a 7% cumulative non-compounded annual pre-tax return on their net capital contributions.

51

---

Table of Contents

Form of Compensation				Estimated Amount for
and Entity Receiving		Determination of Amount		Maximum Offering(1)
		In addition, the special units will be redeemed by Wells Timberland OP, resulting in a one time payment to the holder of the special units upon the earliest to occur of the following events:
		(i)  The listing of our common stock on a national      securities exchange, which we refer to as a      “listing event.”
		(ii)  The termination or non-renewal of the      advisory agreement which we refer to as a      “termination event,” (a) not for “cause,” as      defined in the advisory agreement, (b) in      connection with a merger, sale of assets or      transaction involving us pursuant to which a      majority of our directors then in office are      replaced or removed, (c) by our advisor for      “good reason,” as defined in the advisory      agreement, or (d) by us or Wells Timberland      OP other than for “cause.”
		Upon a listing event, the one time payment to the holder of the special units will be the amount that would have been distributed with respect to the special units as described above if Wells Timberland OP had distributed to the holders of units upon liquidation an amount equal to the market value of the listed shares. The market value of the listed shares shall be equal to the average closing price or, if the average closing price is not available, the average of bid and asked prices, for the 30 day period beginning 150 days after such listing event. Upon a listing event, the one time payment shall be made in the form of shares of our common stock valued based upon the market value of the listed shares on a per share basis. Upon a termination event (other than for “cause,” as defined in the advisory agreement), the one time payment to the holder of the special units will be the amount that would have been distributed with respect to the special units as described above if Wells Timberland OP sold all of its assets for their then fair market values (as determined by appraisal, except for cash and those assets which can be readily marked to market), paid all of its liabilities and distributed any remaining amount to the holders of units in liquidation of Wells Timberland OP. Upon a termination event for “cause,” the one time cash payment to the holder of the special units will be $1.

52

---

Table of Contents

Form of Compensation				Estimated Amount for
and Entity Receiving		Determination of Amount		Maximum Offering(1)
		Upon a termination event (other than for “cause”), the one time payment to the holder of the special units will be made in the form of a non interest bearing promissory note that will be repaid using the entire net proceeds from each sale of Wells Timberland OP’s assets in connection with or following the occurrence of the particular event. Payments may not be made under a promissory note issued in connection with a termination event until either (a) the closing of asset sales that result in aggregate, cumulative distributions to the holders of our common units (solely with respect to their common units), including us, in an amount equal to their capital contributions (less amounts paid to redeem their common units) plus a 7% cumulative non-compounded annual pre-tax return on their net capital contributions or (b) a listing event, each of which we refer to as a “subsequent liquidity event.” In addition, the amount of the promissory note issued in connection with a termination event will be subject to reduction as of the date of the subsequent liquidity event by an amount that will ensure that, in connection with the subsequent liquidity event, the holder of the promissory note does not receive in excess of 15% of the distributions of net sales proceeds that are made or are deemed to be made after holders of our common units (solely with respect to their common units), including us, have received or are deemed to have received aggregate, cumulative distributions equal to their capital contributions (less amounts paid to redeem their common units) plus a 7% cumulative non-compounded annual pre-tax return on their net capital contributions.
		Except as described above, the holder of the special units shall not be entitled to receive any redemption or other payment from us or Wells Timberland OP with respect to the special units, including any participation in the quarterly distributions we intend to make to our stockholders. In addition, it is possible that certain of our stockholders would receive more or less than the 7% cumulative non-compounded annual pre-tax return on net contributions described above prior to the commencement of distributions to the holder of the special units or the redemption of the special units.

(1)	The estimated maximum dollar amounts are based on the sale of the maximum of 85 million shares to the public, including 10 million shares through our distribution reinvestment plan.
(2)	Selling commissions and, in some cases, all or a portion of the dealer-manager fee will not be charged with regard to shares sold to or for the account of certain categories of purchasers. See “Plan of Distribution.”
(3)	These organization and offering expenses include all expenses (other than selling commissions and the dealer-manager fee) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, due diligence expense reimbursements to broker/dealers and amounts to reimburse Wells TIMO for the salaries of its employees and other costs in connection with preparing supplemental sales materials, the cost of educational conferences held by us (including travel, meal and lodging costs of registered representatives of broker/dealers) and certain of the attendance fees and cost reimbursements for representatives of our dealer-manager and our advisor to attend retail seminars conducted by broker/dealers. The portion of these organization and offering expenses for which we (as opposed to Wells TIMO) would be responsible could not be increased above 1.2% of our gross offering proceeds without entering into a new or an amended advisory

53

---

Table of Contents

	agreement, which under our charter would require the approval of a majority of our independent directors. We will not reimburse Wells TIMO for any organization and offering expenses from proceeds of sales pursuant to our distribution reinvestment plan.
(4)	The asset management fee is based on the actual amount invested on our behalf in properties, including any incurred or assumed indebtedness related to the properties, plus, with respect to joint ventures, the actual amount invested on our behalf in the joint venture plus our share of capital improvements, if applicable, made by the joint venture from cash flows generated by the joint venture, until such time as our advisor has estimated the value of all interests we hold in properties or joint ventures for ERISA reporting purposes. After such time, our asset management fee will be based on the greater of the amount as calculated above or the aggregate value of our interest in properties and joint ventures as established in connection with the most recent estimated valuation for ERISA fiduciaries. In performing the valuation, our advisor, or an unaffiliated appraiser chosen by our advisor, will consider the volume of timber on the timberland when it was originally acquired, subsequent biological growth of the timber, any timber losses from harvesting or otherwise, and the market value of timber then current at the time of the valuation. The asset management fee is payable, at the election of our advisor, either in cash or, subject to the ownership limitations in our charter, in shares of our common stock. If the fee is paid in shares, the shares will be valued at a price equal to the average closing price of the shares over the 10 trading days immediately preceding the date of such election, if the shares are then listed on a national securities exchange at such time. If the shares are not listed on a national securities exchange at such time, then the shares will be valued at a price equal to the fair market value for the shares on the date of the advisor’s election to receive the fee in the form of shares as determined in good faith by our board of directors, including a majority of our independent directors.
(5)	Wells TIMO must reimburse us the amount by which our aggregate annual total operating expenses exceed the greater of 2% of our average invested assets or 25% of our net income unless a majority of our independent directors has determined that such excess expenses were justified based on unusual and nonrecurring factors. “Average invested assets” means the average monthly book value of our assets for a specified period before deducting depreciation, bad debts or other noncash reserves. “Total operating expenses” means all costs and expenses paid or incurred by us, as determined under GAAP, that are in any way related to our operation, including advisory fees, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses, and taxes incurred in connection with the issuance, distribution, transfer, registration and stock exchange listing of our stock; (b) interest payments; (c) taxes; (d) noncash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain from the sale of our assets; and (f) acquisition fees, acquisition expenses (including expenses relating to potential acquisitions that we do not close), real estate disposition fees on the resale of property and other expenses connected with the acquisition, disposition, management and ownership of real estate interests or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property). Within 60 days after the end of any of our fiscal quarters for which total operating expenses for the 12 months then-ended exceeded the limitation, we will send to our stockholders a written disclosure, together with an explanation of the factors the independent directors considered in arriving at the conclusion that the excess expenses were justified.
(6)	Although we anticipate that we will pay most of the compensation payable to independent directors during our acquisition and operations stage, we will also compensate our independent directors for their service during our organization and offering stage and our liquidity stage.
(7)	Although we are most likely to pay real estate disposition fees to Wells TIMO or an affiliate in the event of our liquidation, these fees also may be earned during our acquisition and operations stage.
(8)	If at any time our shares become listed on a national securities exchange, we will negotiate in good faith with Wells TIMO a fee structure appropriate for an entity with a perpetual life. A majority of our independent directors must approve the new fee structure negotiated with Wells TIMO. In

54

---

Table of Contents

	negotiating a new fee structure, our independent directors must consider all of the factors these directors deem relevant, including but not limited to:

	•	the size of the advisory fee in relation to the size, composition and profitability of our portfolio;
	•	the success of Wells TIMO in generating opportunities that meet our investment objectives;
	•	the rates charged to other REITs and to investors other than REITs by advisors performing similar services;
	•	additional revenues realized by Wells TIMO through its relationship with us;
	•	the quality and extent of service and advice furnished by Wells TIMO;
	•	the performance of our investment portfolio, including income, conservation or appreciation of capital, frequency of problem investments and competence in dealing with distress situations; and
	•	the quality of our portfolio in relationship to the investments generated by Wells TIMO for the account of other clients.

(9)

Under our charter, we could not amend Wells Timberland OP’s partnership agreement to increase these success-based payments without the approval of a majority of our independent directors, and any increase would have to be reasonable. Our charter provides that such payments are “presumptively reasonable” if the amount does not exceed 15% of the balance of such net proceeds after investors have received a return on their net capital contributions and a 6% per year cumulative, noncompounded return.

55

---

Table of Contents

		Shares Beneficially
		Owned
Name of Beneficial Owners		Shares				Percentage
Wells Timberland Management Organization, LLC(1)			20,000				100	%
Leo F. Wells, III, President and Director(1)			20,000				100	%
Douglas P. Williams, Executive Vice President, Secretary, Treasurer and Director			—				—
Randall D. Fretz, Senior Vice President			—				—
Michael P. McCollum(2)			833				4.0	%
E. Nelson Mills(2)			833				4.0	%
Donald S. Moss(2)			833				4.0	%
Willis J. Potts, Jr.(2)			833				4.0	%
All directors and executive officers as a group (7 persons)			23,332				100	%

(1)	As the sole stockholder of Wells Real Estate Funds, Inc., which directly or indirectly owns Wells Capital, Inc., the sole owner of Wells Timberland Management Organization, LLC, Mr. Wells may be deemed the beneficial owner of the shares held by Wells Timberland Management Organization, LLC. Wells Timberland Management Organization, LLC also holds 200 common units in Wells Timberland OP and 100 special units in Wells Timberland OP.
(2)	Includes shares issuable upon the exercise of options which are immediately exercisable.

56

---

Table of Contents

	General

	1. Wells Real Estate Fund I
	2. Wells Real Estate Fund II
	3. Wells Real Estate Fund II-OW
	4. Wells Real Estate Fund III, L.P.
	5. Wells Real Estate Fund IV, L.P.
	6. Wells Real Estate Fund V, L.P.
	7. Wells Real Estate Fund VI, L.P.
	8. Wells Real Estate Fund VII, L.P.
	9. Wells Real Estate Fund VIII, L.P.
	10. Wells Real Estate Fund IX, L.P.
	11. Wells Real Estate Fund X, L.P.
	12. Wells Real Estate Fund XI, L.P.
	13. Wells Real Estate Fund XII, L.P.
	14. Wells Real Estate Fund XIII, L.P.
	15. Wells Real Estate Fund XIV, L.P.
	16. Wells Real Estate Investment Trust, Inc.
	17. Wells Real Estate Investment Trust II, Inc.
	18. Institutional REIT, Inc.

	Allocation of Time of our Sponsor’s Personnel

57

---

Table of Contents

	•	the continuation, renewal or enforcement of our agreements with Wells TIMO and its affiliates, including the advisory agreement and the dealer-manager agreement;
	•	public offerings of equity by us, which entitle Wells Investment Securities to dealer-manager fees and entitle Wells TIMO to increased asset management fees;
	•	the valuation of our timberland properties, which determines the amount of the asset management fee payable to Wells TIMO and affects the likelihood of any success-based payments;
	•	property sales, which entitle Wells TIMO to real estate disposition fees and possible success-based sale payments;
	•	property acquisitions from other Wells-sponsored programs, which might entitle Wells TIMO to real estate disposition fees and possible success-based sale fees in connection with its services for the seller;
	•	property acquisitions from third parties, which utilize proceeds from our public offerings, thereby increasing the likelihood of continued equity offerings and related fee income for Wells Investment Securities and Wells TIMO;
	•	whether and when we apply to list our common shares on a national securities exchange, which listing could entitle Wells TIMO to a success-based payment upon the redemption of the special units of Wells Timberland OP that it holds, which is due upon listing, but also could adversely affect its sales efforts for other programs depending on the price at which the shares trade; and
	•	whether and when we seek to sell our company or our assets, which sale could entitle Wells TIMO to a success-based payment on the special units of Wells Timberland OP that it holds, but could also adversely affect its sales efforts for other programs depending upon the sales price for our company or our assets.

	•	Wells REIT I, Wells REIT II and Institutional REIT;
	•	Wells Capital, our sponsor and the general partner of the various real estate programs sponsored by Wells Capital (described above); and
	•	Wells Investment Securities, our dealer-manager.

58

---

Table of Contents

	Independent Directors

	•	the continuation, renewal or enforcement of our agreements with Wells TIMO and its affiliates, including the advisory agreement and the dealer-manager agreement;
	•	public offerings of securities;
	•	transactions with affiliates;
	•	compensation of our officers and directors who are affiliated with our advisor;
	•	whether and when we apply to list our shares of common stock on a national securities exchange; and
	•	whether and when we seek to sell our company or our assets.

	Other Charter Provisions Relating to Conflicts of Interest

	•	the amount of the fees paid to Wells TIMO and its affiliates in relation to the size, composition and performance of our investments;
	•	the success of Wells TIMO in generating appropriate investment opportunities;

59

---

Table of Contents

	•	the rates charged to other REITs and others by advisors performing similar services;
	•	additional revenues realized by Wells TIMO and its affiliates through their relationship with us, including whether we pay them or they are paid by others with whom we do business;
	•	the quality and extent of service and advice furnished by Wells TIMO and its affiliates;
	•	the performance of our investment portfolio; and
	•	the quality of our portfolio relative to the investments generated by Wells TIMO for its own account and for its other clients.

60

---

Table of Contents

	•	the ratio of the costs of raising capital during the year to the capital raised;
	•	the aggregate amount of advisory fees and the aggregate amount of other fees paid to Wells TIMO and any affiliate of Wells TIMO by us or third parties doing business with us during the year;
	•	our total operating expenses for the year, stated as a percentage of our average invested assets and as a percentage of our net income;
	•	a report from our independent directors that our policies are in the best interests of our stockholders and the basis for such determination; and
	•	separately stated, full disclosure of all material terms, factors and circumstances surrounding any and all transactions involving us and our advisor, a director or any affiliate thereof during the year, including commentary by our independent directors following the independent directors’ examination of these matters regarding the fairness of the transactions.

61

---

Table of Contents

	Allocation of Investment Opportunities

	•	the investment objectives and criteria of each program;
	•	the cash requirements of each program;
	•	the effect of the acquisition both on diversification of each program’s investments by type of property and geographic area and, if applicable, on diversification of the lessees of its properties;
	•	the policy of each program relating to leverage of properties;
	•	the anticipated cash flow of each program;
	•	the income tax effects of the purchase on each program;
	•	the size of the investment; and
	•	the amount of funds available to each program and the length of time such funds have been available for investment.

62

---

Table of Contents

63

---

Table of Contents

64

---

Table of Contents

65

---

Table of Contents

66

---

Table of Contents

67

---

Table of Contents

	•	to provide current income for you through the payment of cash distributions;
	•	to preserve and return your capital contribution; and
	•	to realize capital appreciation upon the ultimate sale of our assets.

	•	comprised of trees from different age classes;
	•	located in a variety of different geographic regions; and
	•	comprised of a variety of species of trees.

68

---

Table of Contents

69

---

Table of Contents

70

---

Table of Contents

	•	a change in the best use of the property, such that it becomes classified as HBU property;
	•	an opportunity to reinvest in a more attractive timberland investment; or
	•	a need to rebalance our investment portfolio among age classes, species or geographic regions.

	•	borrow in excess of our net assets limitation (described in “Borrowing Policies” above), which is generally expected to approximate 75% of the cost of our properties before noncash reserves and depreciation, unless approved by a majority of our independent directors;
	•	make investments in unimproved property or mortgage loans on unimproved property in excess of 10% of our total assets;
	•	make or invest in mortgage loans unless an appraisal is obtained concerning the underlying property, except for those mortgage loans insured or guaranteed by a government or government agency;
	•	make or invest in mortgage loans on any one property if the aggregate amount of all mortgage loans on such property would exceed an amount equal to 85% of the appraised value of such property as determined by an appraisal, unless substantial justification exists for exceeding such limit because of the presence of other underwriting criteria;

71

---

Table of Contents

	•	invest in equity securities unless a majority of our independent directors approves such investment as being fair, competitive and commercially reasonable;
	•	invest in real estate contracts of sale, otherwise known as land sale contracts, unless the contract is in recordable form and is appropriately recorded in the chain of title;
	•	invest in commodities or commodity futures contracts, except for futures contracts used solely for the purpose of hedging in connection with our ordinary business of investing in real estate assets and mortgages;
	•	issue equity securities on a deferred payment basis or other similar arrangement;
	•	issue debt securities in the absence of adequate cash flow to cover debt service;
	•	issue equity securities redeemable solely at the option of the holder, which restriction has no effect on our share redemption plan or the ability of our operating partnership to issue redeemable partnership interests;
	•	issue options or warrants to Wells TIMO, our directors, our sponsor, or any of their affiliates except on the same terms as such options or warrants are sold to the general public;
	•	pay acquisition fees and acquisition expenses which aggregate in excess of 6% of the contract purchase price of any investment in real property, or, in the case of a mortgage, 6% of the funds advanced, unless a majority of our directors (including a majority of our independent directors) not otherwise interested in the transaction approve fees and expenses in excess of this limit following a determination that the transaction is commercially competitive, fair and reasonable to us; or
	•	make any investment that we believe will be inconsistent with our objectives of qualifying and remaining qualified as a REIT, unless our board of directors determines that REIT qualification is not in our best interest.

72

---

Table of Contents

	•	listing our common stock on a national securities exchange; or
	•	a sale or merger of our company in a transaction that provides our stockholders with cash or securities of a publicly traded company.

	•	seek stockholder approval of an extension or amendment of this listing deadline; or
	•	commence an orderly liquidation.

73

---

Table of Contents

74

---

Table of Contents

75

---

Table of Contents

	Merchantable inventory and depletion costs as determined by forestry timber harvest models

	Impairment of Long-Lived Assets

76

---

Table of Contents

	(1) Timber and Timberlands Used in Our Business. SFAS No. 144 provides that for assets used in a business, an impairment loss is recorded only when the carrying value of such assets is not recoverable through future operations. The recoverability test is based on undiscounted future cash flows over the expected life of the assets. We intend to use one harvest cycle for evaluating the recoverability of our timber and timberlands.
	(2) Timber and Timberlands Held for Sale. SFAS No. 144 provides that an impairment loss is recognized for long-lived assets held for sale when the carrying value of such asset exceeds an amount equal to its fair value less selling costs. An asset is generally considered to be held for sale when we have committed to plan to sell the asset, the asset is available for immediate sale in its present condition, we have initiated an active program to locate a buyer, and the sale is expected to close within one year.

	Realizability of both recorded and unrecorded tax assets and liabilities

	Revenue recognition

77

---

Table of Contents

78

---

Table of Contents

			Properties Purchased
							As a Percentage
							of Aggregate
Location			Number				Purchase Price
Southeast				27				9.4	%
Mideast				28				18.2
Northeast				26				21.1
Mountain				16				3.9
Southwest				23				10.1
West North Central				6				3.5
East North Central				29				22.6
Pacific				20				11.2
	Total			175				100.0	%

Type of Property		Existing				Construction
Office Buildings			94.6	%			2.7	%
Industrial Buildings			2.2				0.0
Hotels			0.5				0.0

79

---

Table of Contents

			Properties Purchased
							As a Percentage
							of Aggregate
Location			Number				Purchase Price
Southeast				3				21.2	%
Mideast				0				0.0
Northeast				0				0.0
Mountain				1				9.6
Southwest				2				16.9
West North Central				1				9.5
East North Central				5				34.2
Pacific				1				8.6
	Total			13				100.0	%

80

---

Table of Contents

	•	market conditions caused an ongoing deterioration of a property’s value and the sale price of the property, though lower than the purchase price, was the highest price reasonably expected;
	•	costs required to re-lease a property to levels that would allow for a sales price greater than the original purchase price would exceed the benefit of the higher sales price; and
	•	the costs savings at the liquidation of a portfolio by selling a property as a part of a portfolio sale at lower than the property’s purchase price outweighs costs that would be incurred in order to sell that property individually at greater than purchase price.

Date of Sale		Property Name		Purchase Price				Gross Sale Price				Wells Program Owners
October 1, 2001		Cherokee Commons		$	8,907,596			$	8,660,000			Wells Real Estate Fund I
												Wells Real Estate Fund II
												Wells Real Estate Fund II-OW
												Wells Real Estate Fund VI, L.P.
												Wells Real Estate Fund VII, L.P.
September 30, 2002		Greenville Center		$	3,820,520			$	2,400,000			Wells Real Estate Fund III, L.P.
September 11, 2003		Cort Furniture		$	6,566,430			$	5,770,000			Wells Real Estate Fund X, L.P.
												Wells Real Estate Fund XI, L.P.
April 29, 2004		Stockbridge Village II		$	2,945,262			$	2,740,385			Wells Real Estate Fund V, L.P.
												Wells Real Estate Fund VI, L.P.

81

---

Table of Contents

Office			66
Distribution			0
Warehouse			4
Hotel			1
Mixed use			2
Total			73

All cash			50
All debt			0
Combination of cash and debt			23
Total			73

Southeast			10
Mideast			10
Northeast			13
Mountain			3
Southwest			8
West North Central			4
East North Central			18
Pacific			7
Total			73

82

---

Table of Contents

83

---

Table of Contents

	•	We will be taxed at regular corporate rates on our undistributed REIT taxable income, including undistributed net capital gains.
	•	We may elect to retain and pay income tax on our net long-term capital gain. In that case, a U.S. stockholder would be taxed on its proportionate share of our undistributed long-term capital gain (to the extent that we make a timely designation of such gains to our stockholders) and would receive a credit or refund for its proportionate share of the tax we paid.
	•	We may be subject to the “alternative minimum tax” on our items of tax preference.
	•	We will be subject to tax at the highest corporate income tax rate on net income from “foreclosure property” (generally property we acquire through foreclosure or after default on a loan secured by the property or a lease of the property) held primarily for sale to customers in the ordinary course of business and other nonqualifying income from foreclosure property.
	•	We will be subject to a 100% tax on any net income from prohibited transactions (which are, in general, certain sales or other dispositions of property, other than foreclosure property, that is held primarily for sale to customers in the ordinary course of business).
	•	If we fail to satisfy either the 75% gross income test or the 95% gross income test (discussed below) but have nonetheless maintained our qualification as a REIT because we have met certain other requirements, we will be subject to a 100% tax on the net income attributable to the greater of (a) the amount by which we fail the 75% gross income test or (b) the amount by which we fail the 95% gross income test, in either case multiplied by a fraction intended to reflect our profitability.
	•	If we (1) fail to satisfy the REIT asset tests (discussed below) and continue to qualify as a REIT because we meet certain other requirements, we will have to pay a tax equal to the greater of $50,000 or the highest corporate income tax rate multiplied by the net income generated by the nonqualifying assets during the period of time we failed to satisfy the asset tests or (2) if we fail to satisfy REIT requirements other than the gross income tests and the asset tests and continue to qualify as a REIT because we meet other requirements, we will have to pay $50,000 for each other failure.
	•	If we fail to distribute each year at least the sum of:

	(1) 85% of our REIT ordinary income for such year;
	(2) 95% of our REIT capital gain net income for such year; and
	(3) any undistributed taxable income from prior periods,

	we will be subject to a 4% excise tax on the excess of the required distribution over the sum of (a) the amounts actually distributed and (b) retained amounts on which we pay income tax at the corporate level.

	•	If we acquire assets from a corporation generally subject to full corporate-level tax in a merger or other transaction in which our initial basis in the assets is determined by reference to the transferor corporation’s basis in the assets, the fair market value of the assets acquired in any such transaction exceeds the aggregate basis of such assets, and we subsequently recognize gain on the disposition of any such asset during the 10-year period beginning on the date on which we acquired the asset,

84

---

Table of Contents

		then we generally will be subject to tax at the highest regular corporate income tax rate on the lesser of the amount of gain that we recognize at the time of the sale or disposition and the amount of gain that we would have recognized if we had sold the asset at the time we acquired the asset, which is referred to as the “Built-In Gain Rules.”
	•	We will be subject to a 100% tax on transactions with our “taxable REIT subsidiaries” if such transactions are not at arm’s length.

	Organizational Requirements

	(1) is managed by one or more trustees or directors;
	(2) uses transferable shares or transferable certificates to evidence beneficial ownership;
	(3) would be taxable as a domestic corporation but for Sections 856 through 860 of the Internal Revenue Code;
	(4) is neither a financial institution nor an insurance company within the meaning of the applicable provisions of the Internal Revenue Code;
	(5) has at least 100 persons as beneficial owners;
	(6) during the last half of each taxable year, not more than 50% of the value of its outstanding stock is owned, directly or indirectly, by five or fewer “individuals,” as defined in the Internal Revenue Code to include certain entities;
	(7) files an election or continues such election to be taxed as a REIT on its return for each taxable year; and
	(8) meets other tests described below, including with respect to the nature of its assets and income and the amount of its distributions.

85

---

Table of Contents

	Income Tests

86

---

Table of Contents

87

---

Table of Contents

88

---

Table of Contents

	Asset Tests

89

---

Table of Contents

90

---

Table of Contents

	(1) the sum of (a) 90% of our “REIT taxable income” (computed without regard to the dividends paid deduction and by excluding our net capital gain) and (b) 90% of the net income, if any, from foreclosure property in excess of the excise tax on income from foreclosure property, minus
	(2) the sum of certain items of noncash income.

	•	85% of our REIT ordinary income for such year,
	•	95% of our REIT capital gain net income for such year, and
	•	any undistributed taxable income from prior periods,

91

---

Table of Contents

92

---

Table of Contents

	(1) is a citizen or resident of the United States;
	(2) is a corporation (including an entity treated as a corporation for United States federal income tax purposes) created or organized in or under the laws of the United States or any of its political subdivisions;
	(3) is an estate the income of which is subject to federal income taxation regardless of its source; or
	(4) is a trust, provided that a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

	Distributions Generally

93

---

Table of Contents

	Capital Gain Distributions

	Certain Dispositions of Shares

94

---

Table of Contents

	Passive Activity Loss and Investment Interest Limitations

	Treatment of Tax-Exempt Stockholders

95

---

Table of Contents

	•	a lower treaty rate applies and the non-U.S. Stockholder files with us an IRS Form W-8BEN evidencing eligibility for that reduced treaty rate;
	•	the non-U.S. Stockholder files with us an IRS Form W-8ECI claiming that the distribution is income effectively connected with the non-U.S. Stockholder’s trade or business so that no withholding tax is required; or
	•	the distributions are treated for FIRPTA withholding tax purposes as attributable to a sale of a U.S. real property interest, in which case tax will be withheld at a 35% rate.

96

---

Table of Contents

	U.S. Stockholders

	(1) the payee fails to furnish his or her taxpayer identification number (which, for an individual, would be his or her Social Security number) to the payor as required;
	(2) the IRS notifies the payor that the taxpayer identification number furnished by the payee is incorrect;

97

---

Table of Contents

	(3) the IRS has notified the payee that such payee has failed to properly include reportable interest and dividends in the payee’s return or has failed to file the appropriate return and the IRS has assessed a deficiency with respect to such underreporting; or
	(4) the payee has failed to certify to the payor, under penalties of perjury, that the payee is not subject to withholding.

	Non-U.S. Stockholders

98

---

Table of Contents

99

---

Table of Contents

	•	whether the investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code;
	•	whether, under the facts and circumstances pertaining to the Benefit Plan in question, the fiduciary’s responsibility to the plan has been satisfied;
	•	whether the investment will produce “unrelated business taxable income” (UBTI) to the Benefit Plan (see “Federal Income Tax Considerations — Taxation of U.S. Stockholders — Treatment of Tax-Exempt Stockholders”); and
	•	the need to value the assets of the Benefit Plan annually.

	•	to act solely in the interest of plan participants and beneficiaries and for the exclusive purpose of providing benefits to them, as well as defraying reasonable expenses of plan administration;
	•	to invest plan assets prudently;
	•	to diversify the investments of the plan, unless it is clearly prudent not to do so;
	•	to ensure sufficient liquidity for the plan;
	•	to ensure the plan investments are made in accordance with plan documents; and
	•	to consider whether an investment would constitute or give rise to a prohibited transaction under ERISA or the Internal Revenue Code.

100

---

Table of Contents

	•	sold as part of a public offering registered under the Securities Act of 1933, as amended, and be part of a class of securities registered under the Securities Exchange Act of 1934, as amended, within a specified time period;
	•	part of a class of securities that is owned by 100 or more persons who are independent of the issuer and one another; and
	•	“freely transferable.”

101

---

Table of Contents

102

---

Table of Contents

	•	the estimated values may not be realized by us or by you upon liquidation (in part because estimated values do not necessarily indicate the price at which assets could be sold and because the estimates may not take into account the expenses of selling our assets);
	•	you may not realize these values if you were to attempt to sell your shares; and
	•	the estimated values, or the method used to establish values, may not comply with the ERISA or IRA requirements described above.

103

---

Table of Contents

104

---

Table of Contents

	•	amend the charter to adversely affect the rights, preferences and privileges of the stockholders;
	•	amend charter provisions relating to director qualifications, fiduciary duties, liability and indemnification, conflicts of interest, investment policies or investment restrictions;
	•	cause our liquidation or dissolution after our initial investment in property;
	•	sell all or substantially all of our assets other than in the ordinary course of business; or
	•	cause our merger or reorganization.

	Ownership Limit

105

---

Table of Contents

106

---

Table of Contents

	Suitability Standards and Minimum Purchase Requirements

107

---

Table of Contents

	•	our actual results of operations;
	•	the timing of the investment of the net proceeds of this offering; and
	•	whether the income from our harvesting activities is ordinary income or capital gains.

	Eligibility

	Election to Participate

108

---

Table of Contents

	Stock Purchases

	Excluded Distributions

	Account Statements

	•	each distribution reinvested for your account during the quarter;
	•	the date of the reinvestment; and
	•	the number and price of the shares purchased by you.

	Fees and Commissions

109

---

Table of Contents

	Voting

	Tax Consequences of Participation

	Termination of Participation

	Amendment or Termination of Plan

110

---

Table of Contents

111

---

Table of Contents

	•	a transaction involving our securities that have been listed for at least 12 months on a national securities exchange; or
	•	a transaction involving the conversion to corporate, trust, or association form of only us if, as a consequence of the transaction, there will be no significant adverse change in stockholder voting rights, the term of our existence, compensation to Wells TIMO or our investment objectives.

	(1) accepting the securities of the Roll-up Entity offered in the proposed Roll-up Transaction; or
	(2) one of the following:

	(A) remaining as stockholders of us and preserving their interests therein on the same terms and conditions as existed previously; or
	(B) receiving cash in an amount equal to the stockholder’s pro rata share of the appraised value of our net assets.

112

---

Table of Contents

	•	that would result in the stockholders having democracy rights in a Roll-up Entity that are less than those provided in our charter and described elsewhere in this prospectus, including rights with respect to the election and removal of directors, annual reports, annual and special meetings, amendment of our charter, and dissolution of us;
	•	that includes provisions that would operate to materially impede or frustrate the accumulation of shares by any purchaser of the securities of the Roll-up Entity, except to the minimum extent necessary to preserve the tax status of the Roll-up Entity, or that would limit the ability of an investor to exercise the voting rights of its securities of the Roll-up Entity on the basis of the number of shares held by that investor;
	•	in which investors’ rights of access to records of the Roll-up Entity will be less than those provided in our charter and described in the section of this prospectus entitled “Description of Shares — Meetings and Special Voting Requirements;” or
	•	in which any of the costs of the Roll-up Transaction would be borne by us if the Roll-up Transaction is not approved by the stockholders.

113

---

Table of Contents

	•	any person who beneficially owns 10% or more of the voting power of the corporation’s shares; or
	•	an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding voting stock of the corporation.

	•	80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and
	•	two-thirds of the votes entitled to be cast by holders of voting stock of the corporation other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected or held by an affiliate or associate of the interested stockholder.

114

---

Table of Contents

	•	one-tenth or more but less than one-third,
	•	one-third or more but less than a majority, or
	•	a majority or more of all voting power.

	•	a classified board,
	•	a two-thirds vote requirement for removing a director,
	•	a requirement that the number of directors be fixed only by vote of the directors,
	•	a requirement that a vacancy on the board be filled only by the remaining directors and for the remainder of the full term of the class of directors in which the vacancy occurred, and
	•	a majority requirement for the calling of a special meeting of stockholders.

115

---

Table of Contents

116

---

Table of Contents

117

---

Table of Contents

	•	acquire, purchase, own, operate, lease and dispose of any real property and any other property;
	•	construct buildings and make other improvements on owned or leased properties;
	•	authorize, issue, sell, redeem or otherwise purchase any debt or other securities;
	•	borrow money;
	•	make or revoke any tax election;
	•	maintain insurance coverage in amounts and types as we determine is necessary;
	•	retain employees or other service providers;

118

---

Table of Contents

	•	form or acquire interests in joint ventures; and
	•	merge, consolidate or combine Wells Timberland OP with another entity.

	•	all expenses relating to our formation and continuity of existence;
	•	all expenses relating to the public offering and registration of our securities;
	•	all expenses associated with the preparation and filing of our periodic reports under federal, state or local laws or regulations;
	•	all expenses associated with our compliance with applicable laws, rules and regulations; and
	•	all of our other operating or administrative costs incurred in the ordinary course of business.

	•	result in any person owning shares in excess of the ownership limit in our charter (unless exempted by our board of directors);
	•	result in our shares being owned by fewer than 100 persons;
	•	result in us being “closely held” within the meaning of Section 856(h) of the Internal Revenue Code; or
	•	cause us to own 10% or more of the ownership interests in a lessee within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code.

119

---

Table of Contents

	•	any amendment affecting the redemption right to the detriment of the limited partners (except for certain business combinations where we merge with another entity and leave Wells Timberland OP in existence to hold all the assets of the surviving entity);
	•	any amendment that would adversely affect the limited partners’ rights to receive distributions, except for amendments we make to create and issue preferred partnership units;
	•	any amendment that would alter how we allocate profits and losses, except for amendments we make to create and issue preferred partnership units; and
	•	any amendment that would impose on the limited partners any obligation to make additional capital contributions.

120

---

Table of Contents

121

---

Table of Contents

Dealer-manager fee (maximum)		$	13,500,000
Selling commissions (maximum)			52,500,000
Salary allocations of sales managers and their support personnel(1)(2)			405,000
Expense reimbursements for retail seminars(1)(3)(4)			2,060,000
Expense reimbursements for educational conferences (1)(4)(5)			700,000
Legal fees allocable to dealer-manager(1)(4)			125,000
Reimbursement of due diligence expenses(1)(4)(6)			25,000
Total		$	69,315,000

(1)	Amounts shown are estimates.
(2)	These costs are borne by Wells TIMO and are not reimbursed by us.
(3)	These amounts consist primarily of reimbursements for travel, meals, lodging and attendance fees incurred by employees of Wells Investment Securities, Wells TIMO or one of their affiliates to attend retail seminars sponsored by participating broker/dealers.
(4)	Subject to the cap on organization and offering expenses described below, we will reimburse Wells Investment Securities or its affiliates for these expenses. In some cases, these payments will serve to

122

---

Table of Contents

	reimburse Wells Investment Securities for amounts it has paid to participating broker/dealers for the items noted.
(5)	These amounts consist of expense reimbursements for actual costs incurred in connection with attending educational conferences hosted by us. The expenses consist of the travel, meals and lodging of (a) representatives of participating broker/ dealers and (b) wholesalers and other NASD-registered personnel associated with Wells Investment Securities. All conferences will be held in the vicinity of our headquarters, which is in Norcross, Georgia, unless the NASD permits a conference in another location.
(6)	We may reimburse the dealer-manager for reimbursements it may make to broker/ dealers for reasonable bona fide due diligence expenses up to a maximum of 0.5% of our gross offering proceeds. In many cases, however, a marketing fee agreement between the dealer-manager and the participating broker/ dealer will provide that neither we nor the dealer-manager will be obligated to reimburse the due diligence expenses of the participating broker/ dealer. Because of those marketing fee arrangements, we expect the total amount of our reimbursement of bona fide due diligence expenses of broker/ dealers will be far less than the 0.5% of gross offering proceeds permitted by the NASD.

		Maximum Percent
		of Gross Offering
Expense		Proceeds
Selling commissions			7.0	%
Dealer-manager fee			1.8
All other organization and offering expenses			1.2
Total			10.0	%

123

---

Table of Contents

		Commission				Price per
Shares Purchased		Rate				Share
1 to 50,000			7.0	%		$	10.00
50,001 to 100,000			6.0				9.90
100,001 to 200,000			5.0				9.80
200,001 to 300,000			4.0				9.70
300,001 to 400,000			3.0				9.60
400,001 to 500,000			2.0				9.50
500,001 and up			1.0				9.40

	•	50,000 shares at $10.00 per share (total: $500,000) and a 7% commission;
	•	50,000 shares at $9.90 per share (total: $495,000) and a 6% commission; and
	•	26,020 shares at $9.80 per share (total: $254,996) and a 5% commission.

124

---

Table of Contents

	Client Services Department
	Wells Real Estate Funds, Inc.
	6200 The Corners Parkway
	Norcross, Georgia 30092-3365
	Telephone: (800) 557-4830 or (770) 243-8282
	Fax: (770) 243-8198
	E-mail: clientservices@wellsref.com
	www.wellsref.com

	•	the amount of the investment;
	•	the date of the investment; and
	•	the number and price of the shares purchased by you.

	•	meets the minimum income and net worth standards set forth under “Suitability Standards” on page i of this prospectus;
	•	can reasonably benefit from an investment in our shares based on the prospective stockholder’s overall investment objectives and portfolio structure;
	•	is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation;
	•	is in a financial position appropriate to enable the prospective stockholder to realize to a significant extent the benefits described in this prospectus of an investment in the shares; and

125

---

Table of Contents

	•	has an apparent understanding of:

	—	the fundamental risks of the investment;
	—	the risk that the stockholder may lose the entire investment;
	—	the lack of liquidity of the shares;
	—	the restrictions on transferability of the shares;
	—	the background and qualifications of Wells TIMO and its affiliates; and
	—	the tax consequences of the investment.

126

---

Table of Contents

	Client Services Department
	Wells Real Estate Funds, Inc.
	6200 The Corners Parkway
	Norcross, Georgia 30092-3365
	Telephone: (800) 557-4830 or (770) 243-8282

127

---

Table of Contents

Report of Independent Registered Public Accounting Firm			F-2
Consolidated Balance Sheets			F-3
Consolidated Statements of Loss			F-4
Consolidated Statements of Stockholder’s Equity			F-5
Consolidated Statements of Cash Flows			F-6
Notes to Consolidated Financial Statements			F-7
Prior Performance Tables (Unaudited)			F-18

F-1

---

Table of Contents

	/s/ Deloitte & Touche LLP

F-2

---

Table of Contents

			December 31,				December 31,
			2006				2005
Assets:
Cash and cash equivalents			$	202,829			$	203,000
Prepaid expenses and other assets				126,078				—
	Total assets		$	328,907			$	203,000
Liabilities:
Due to affiliate			$	776,918				—
Commitments and Contingencies				—				—
Minority Interest in Operating Partnership				—				3,000
Stockholder’s (Deficit) Equity:
Common stock, $0.01 par value; 900 million shares authorized, 20,000 shares issued and outstanding				200				200
Additional paid-in capital				220,800				199,800
Accumulated deficit				(669,011	)			—
	Total stockholder’s (deficit) equity			(448,011	)			200,000
	Total liabilities, minority interest, and stockholder’s (deficit) equity		$	328,907			$	203,000

F-3

---

Table of Contents

							Period From
							November 10, 2005
			Year Ended				(Date of Inception)
			December 31,				through
			2006				December 31, 2005
REVENUES:			$	—			$	—
EXPENSES:
	General and administrative			(672,011	)			—
Loss before minority interest				(672,011	)			—
Minority interest in loss of operating partnership				3,000				—
NET LOSS			$	(669,011	)		$	—
Per-share information — basic and diluted:
	Net loss allocated to common stockholder		$	(33.45	)		$	—
Weighted-average common shares outstanding — basic and diluted				20,000				20,000

F-4

---

Table of Contents

																			Total
			Common Stock								Additional								Stockholder’s
											Paid-In				Accumulated				Equity
			Shares				Amount				Capital				Deficit				(Deficit)
BALANCE, November 10, 2005 (date of inception)				—			$	—			$	—			$	—			$	—
	Issuance of common stock			20,000				200				199,800				—				200,000
BALANCE, December 31, 2005				20,000				200				199,800				—				200,000
	Net loss			—				—				—				(669,011	)			(669,011	)
	Amortization of stock options			—				—				21,000				—				21,000
BALANCE, December 31, 2006				20,000			$	200			$	220,800			$	(669,011	)		$	(448,011	)

F-5

---

Table of Contents

									Period From
									November 10,
									2005
									(Date of
									Inception)
					Year Ended				Through
					December 31,				December 31,
					2006				2005
CASH FLOWS FROM OPERATING ACTIVITIES:
	Net loss				$	(669,011	)		$	—
	Adjustments to reconcile net loss to net cash used in operating activities:
		Minority interest in loss of operating partnership				(3,000	)			—
		Stock-based compensation expense				21,000				—
		Increase in prepaid expenses				(126,078	)			—
			Net cash used in operating activities			(777,089	)			—
CASH FLOWS FROM FINANCING ACTIVITIES:
	Due to affiliate					776,918				—
	Issuance of common stock					—				200,000
	Contribution from minority interest partner					—				3,000
			Net cash provided by financing activities			776,918				203,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS						(171	)			203,000
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR						203,000				—
CASH AND CASH EQUIVALENTS, END OF YEAR					$	202,829			$	203,000
SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITY:
	Amortization of stock options				$	21,000			$	—

F-6

---

Table of Contents

1.	Organization

2.	Summary of Significant Accounting Policies

	Basis of Presentation and Principles of Consolidation

F-7

---

Table of Contents

	Use of Estimates

	Cash and Cash Equivalents

	Prepaid Expenses

	Stock-based Compensation

	Per Share Information

	Income Taxes

F-8

---

Table of Contents

	Recent Accounting Pronouncements

F-9

---

Table of Contents

3.	Related-Party Transactions

	Advisory Agreement

F-10

---

Table of Contents

	Dealer-Manager Agreement

	Due to Affiliate

	Conflicts of Interest

F-11

---

Table of Contents

4.	Minority Interest

5.	Special Units

	(i) the listing of the Company’s common stock on a national securities exchange (the “Listing Liquidity Event”); or
	(ii) the termination or nonrenewal of the Advisory Agreement (a “Termination Event”).

F-12

---

Table of Contents

6.	Stockholder’s Equity

	General

	Stock Incentive Plan

F-13

---

Table of Contents

		Options granted on				Options granted on
		May 25, 2006				February 2, 2006
Risk-free rate			4.86	%			4.42	%
Projected future dividend yield			3.00	%			3.00	%
Expected life of the options			5.5 years				5.5 years
Volatility			0.272				0.283

	Distribution Reinvestment Plan

F-14

---

Table of Contents

	Share Redemption Plan

7.	Income Taxes

		2006				2005
Net loss, GAAP basis		$	(669,011	)		$	—
Decrease in net loss resulting from:
Expenses for financial reporting purposes in excess of expenses for income tax purposes			669,011				—
Net loss, income tax basis		$	—			$	—

F-15

---

Table of Contents

			2006				2005
Start-up and organization costs capitalized for income tax purposes			$	225,683			$	—
Valuation allowance				(225,683	)			—
	Deferred tax asset, net		$	—			$	—

8.	Quarterly Financial Data

		2006 (Unaudited)
		First				Second				Third				Fourth
Revenues		$	0			$	0			$	0			$	0
Net loss		$	(108,957	)		$	(88,573	)		$	(254,019	)		$	(217,462	)
Basic and diluted earnings per share		$	(5.45	)		$	(4.43	)		$	(12.70	)		$	(10.87	)

9.	Economic Dependency

F-16

---

Table of Contents

10.	Commitments and Contingencies

11.	Subsequent Events

F-17

---

Table of Contents

	Table IV —	Results of Completed Programs has been omitted since none of the Wells Public Programs have been liquidated

F-18

---

Table of Contents

				Wells Real				Wells Real				Wells Real
				Estate				Estate				Estate
				Fund XIV,				Investment				Investment
				L.P.				Trust, Inc.				Trust II, Inc.
Dollar Amount Offered				$	45,000,000	(4)		$	5,991,150,000	(5)		$	12,600,000,000	(6)
Dollar Amount Raised				$	34,741,238	(4)		$	5,227,264,630	(5)		$	2,856,027,868	(6)
	Percentage Amount Raised				100.0	%(4)			100.0	%(6)			100.0	%(6)
	Less Offering Expenses Selling Commissions and Discounts(1)				9.5	%			9.5	%			9.5	%
		Organizational Expenses			3.0	%			1.1	%			1.5	%
		Reserves(2)			0.0	%			0.0	%			0.0	%
	Percent Available for Investment				87.5	%			89.4	%			89.0	%
Acquisition and Development Costs Prepaid Items and Fees related to Purchase of Property					0.0	%			0.0	%			0.0	%
		Cash Down Payment			84.0	%			83.1	%			86.4	%
		Acquisition Fees(3)			3.5	%			3.5	%			2.0	%
		Development and Construction Costs			0.0	%			2.8	%			0.6	%
	Reserve for Payment of Indebtedness				0.0	%			0.0	%			0.0	%
	Total Acquisition and Development Cost				87.5	%			89.4	%			89.0	%
	Percent Leveraged				0.0	%			27.0	%			24.1	%
	Date Offering Began				05/14/03					(5)				(6)
	Length of Offering				24 mo.					(5)				(6)
Months to Invest 90% of Amount Available for Investment (Measured from Beginning of Offering)					10 mo.					(5)				(6)
	Number of Investors as of 12/31/06				647				109,000				91,000

(1)	Includes selling commissions, discounts and dealer-manager fees, including those reallowed to participating broker/ dealers.
(2)	Does not include general partner contributions held as part of reserves.
(3)	Includes acquisition fees, real estate commissions, general contractor fees and/or architectural fees paid to advisor or affiliates of the general partners.
(4)	The total dollar amount registered and available to be offered was $45 million. Wells Real Estate Fund XIV, L.P. closed its offering on April 30, 2005, and the total dollar amount raised was $34,741,238.

F-19

---

Table of Contents

(5)	These amounts include proceeds raised in Wells REIT I’s first, second, third and fourth public offerings and sales pursuant to its dividend reinvestment plan offered under a registration statement filed on Form S-3, which became effective on April 5, 2004. Wells REIT I began its first offering on January 30, 1998 and closed its first offering on December 19, 1999. The total dollar amount registered and available to be offered in the fourth offering was $165.0 million. The total dollar amount raised in the first offering was $132,181,919. Wells REIT I invested 90% of the amount available for investment in its first offering within 21 months. Wells REIT I began its second offering on December 20, 1999 and closed its second offering on December 19, 2000. The total dollar amount registered and available to be offered in the second offering was $230.0 million. The total dollar amount raised in the second offering was $175,229,193. Wells REIT I invested 90% of the amount available for investment in its second offering within 10 months. Wells REIT I began its third offering on December 20, 2000 and closed its third offering on July 26, 2002. The total dollar amount registered and available to be offered in the third offering was $1.35 billion. Wells REIT I invested 90% of the amount available for investment in its third offering within 21 months. The total dollar amount raised in its third offering was $1,282,976,862. Wells REIT I began its fourth offering on July 26, 2002 and closed its fourth offering on July 7, 2004. The total dollar amount registered and available to be offered in the fourth offering was $3.3 billion. The total dollar amount raised in the fourth offering was $3,225,125,063. Wells REIT I invested 90% of the amount available for investment in its fourth offering within 18 months. The total dollar amount registered and available to be offered in the dividend reinvestment plan was $1 billion. The total dollar amount raised through the dividend reinvestment plan was $411,751,593.
(6)	These amounts include proceeds raised in Wells REIT II first and second public offerings. Wells REIT II began its first offering on December 1, 2003 and closed its first offering on November 26, 2005. The total dollar amount registered and available to be offered in the first offering was $7.85 billion. The total dollar amount raised in the first offering was $1,952,284,699. Wells REIT II invested 90% of the amount available for investment in its first offering within 8 months. Wells REIT II began its second offering on November 10, 2005 and was currently offering shares under this second offering as of December 31, 2006. The total dollar amount registered and available to be offered in the second offering was $4.75 billion. The total dollar amount raised in the second offering as of December 31, 2006 was $903,743,169.

F-20

---

Table of Contents

				Wells Real
				Estate				Wells Real Estate				Wells Real Estate
				Fund XIV,				Investment				Investment
				L.P.				Trust, Inc.(1)				Trust II, Inc.
Date Offering Commenced					05/14/03				12/20/00				12/1/03
Dollar Amount Raised				$	34,741,238			$	5,227,264,633			$	2,856,027,868
	Amount paid to Sponsor from Proceeds of Offering:
		Selling Commission(2)		$	459,000			$	52,272,646			$	28,560,279
		Acquisition Fees			—				—				—
		Real Estate Commissions			—				—				—
		Acquisition and Advisory Fee(3)		$	1,215,943			$	178,983,613			$	57,120,557
Dollar Amount of Cash Generated from Operations Before Deducting Payments to Sponsor(4)				$	4,806,000			$	1,441,074,069			$	234,460,967
Amount Paid to Sponsor from Operations:
	Property Management Fee and Leasing Commissions			$	236,000			$	49,074,253			$	991,327
	Asset Management Fee				—			$	40,008,690			$	33,401,213
	Reimbursements			$	188,000			$	31,354,310			$	9,208,397
	General Partner Distributions				—				—				—
	Other
Dollar Amount of Property Sales Payments to Sponsors:
		Cash			—				—				—
		Notes			—				—				—
Amount Paid to Sponsor from Property Sates and Refinancing:
		Real Estate Commissions			—				—				—
		Incentive Fees							—				—
		Other			—				—				—

(1)	These amounts include proceeds raised in Wells REIT’s first, second, third and fourth public offerings and sales pursuant to its dividend reinvestment plan offered under a registration statement filed on Form S-3, which became effective on April 5, 2004. Wells REIT I began its first offering on January 30, 1998 and closed its first offering on December 19, 1999. The total dollar amount raised in the first offering was $132,181,919. Wells REIT I began its second offering on December 20, 1999 and closed its second offering on December 19, 2000. The total dollar amount raised in the second offering was $175,229,193. Wells REIT I began its third offering on December 20, 2000 and closed its third offering on July 26, 2002. The total dollar amount raised in its third offering was $1,282,976,862. Wells REIT I began its fourth offering on July 26, 2002 and closed its fourth offering on July 7, 2004. The total dollar amount raised in the fourth offering was $3,225,125,063. The total dollar amount raised through the dividend reinvestment plan was $411,751,593.
(2)	Includes net selling commissions paid to Wells Investment Securities, Inc. in connection with the offering that were not reallowed to participating broker/ dealers.
(3)	Fees paid to the general partners or their affiliates for acquisition and advisory services in connection with the review and evaluation of potential real property acquisitions.

F-21

---

Table of Contents

					2006				2005				2004				2003
Gross Revenues(1)					$	2,214,420			$	1,508,479			$	480,724			$	31,420
Profit on Sale of Properties(1)						—				—				—				—
Less: Operating Expenses(2)						694,487				415,511				191,525				84,349
	Depreciation & Amortization(3)					1,103,842				585,177				—				—
Net Income GAAP Basis(4)					$	416,091			$	507,791			$	289,199			$	(52,929	)
Taxable Income: Operations					$	1,489,764			$	1,263,502			$	673,416			$	41,334
Cash Generated (Used By):
	Operations					2,202,765				1,695,836				714,196				(67,404	)
	Net Sale Proceeds from Joint Ventures					—				—				—				—
						2,202,765				1,695,830				714,196				(67,404	)
Less Cash Distributions to Investors:
	Operating Cash Flow					2,088,112				1,402,622				686,351				—
	Return of Capital					—				—				—				—
	Undistributed Cash Flow from Prior Year Operations					—				—				—				—
Cash Surplus (Deficiency) after Cash Distributions of Special Items (not including sales and financing):						114,653				293,214				27,845				(67,404	)
	Source of Funds:
		General Partner Contributions				—				—				—				—
		Increase in Limited Partner Contributions				—				4,236,155				14,938,545				15,162,434
						114,653				4,529,369				14,966,390				15,095,030
Use of Funds:
	Sales Commissions and Offering Expenses									621,400				1,610,813				1,659,167
	Return of Original Limited Partner’s Investment									—				—				—
	Property Acquisition and Deferred Project Costs					4,215,771				11,804,575				4,634,071				9,641,316
Cash Surplus (Deficiency) after Cash Distributions and Special Items						(4,101,118	)		$	(7,896,606	)		$	8,721,506			$	3,794,447
	Net Income and Distributions Data per $1,000 Invested:
	Net Income on GAAP Basis
		Ordinary Income (Loss):
		— Cash Preferred Units			$	85			$	70			$	63			$	12
		— Tax Preferred Units				(208	)			(141	)			(105	)			(22	)
		— Recapture				—				—				—				—
	Capital Gain (Loss):					—				—				—				—
Tax and Distribution Data per $1,000 Invested:
	Federal Income Tax Results:
		Ordinary Income (loss):
		— Cash Preferred Units				82				68				60				15
		— Tax Preferred Units				(74	)			(52	)			(41	)			(7	)
		— Recapture				—				—				—				—
		Capital Gain (Loss):				—				—				—				—
			— Cash Preferred Units			—				—				—				—
			— Tax Preferred Units			—				—				—				—
		Deferred Gain:
			— Capital			—				—				—				—
			— Ordinary			—				—				—				—

F-22

---

Table of Contents

					2006				2005				2004				2003
	Cash Distributions to Investors:
		Source (on GAAP Basis):
			— Investment Income to Cash Preferred Units			82				64				56				15
			— Return of Capital to Cash Preferred Units			—				—				—				—
			— Return of Capital to Tax Preferred Units			—				—				—				—
		Source (on Cash Basis):
			— Sales to Cash Preferred Units			—				—				—				—
			— Sales to Tax Preferred Units			—				—				—				—
			— Refinancing											—				—
			— Operations to Cash Preferred Units			82				64				56				15
			— Other			—				—				—				—
		Source (on a Priority Distribution Basis)(5):
			— Investment Income to Cash Preferred Units			82				64				56				15
			— Return of Capital to Cash Preferred Units			—				—				—				—
			— Investment Income to Preferred Units			—				—				—				—
			— Return of Capital to Tax Preferred Units			—				—				—				—
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table						100	%

(1)	Includes $18,205 of equity in earnings of joint ventures in 2003; $427,890 of equity in earnings of joint ventures in 2004; $510,288 in equity in earnings of joint ventures in 2005; and $560,990 in equity of earnings of joint ventures in 2006. As of December 31, 2006, the occupancy percentage of all properties owned by Wells Real Estate Fund XIV, L.P. was 100%.
(2)	Includes partnership administrative expenses.
(3)	Included in equity in earnings of joint ventures in gross revenues is depreciation of $85,391 for 2003; $708,782 for 2004; $684,660 for 2005; and $692,970 for 2006.
(4)	In accordance with the partnership agreement, net income or loss, depreciation and amortization are allocated $57,392 to Cash Preferred Limited Partners, $(109,860) to Tax Preferred Limited Partners, and $(461) to the General Partners for 2003; $992,650 to Cash Preferred Limited Partners, $(703,451) to Tax Preferred Limited Partners and $0 to the General Partners for 2004; $1,761,888 to Cash Preferred Limited Partners, $(1,254,097) to Tax Preferred Limited Partners and $0 to the General Partners in 2005 and $2,212,221 to Cash Preferred Limited Partners, $(1,796,130) to Tax Preferred Limited Partners and $0 to the General Partners in 2006.
(5)	Pursuant to the terms of the partnership agreement, an amount equal to the cash distributions paid to Cash Preferred Limited Partners is payable as priority distributions out of net proceeds from the sale of partnership properties to Tax Preferred Limited Partners. Such distributions are characterized as return of capital distributions to Tax Preferred Limited Partners. As of December 31, 2006, the aggregate amount of such priority distributions payable to Tax Preferred Limited Partners was $0.00 per unit

F-23

---

Table of Contents

				2006				2005				2004				2003				2002
				(In thousands, except per share amounts)
Gross Revenues(1)				$	583,918			$	593,963			$	564,625			$	327,965			$	100,515
Operating Income from Discontinued Operations					4,626				12,358				34,517				26,597				17,205
Profit on Sale of Properties					27,922				177,678				11,489				—				—
Less: Operating Expenses					324,476				300,541				257,703				135,676				30,207
	Depreciation and Amortization(2)				158,666				154,323				143,206				98,201				27,659
Net Income GAAP Basis				$	133,324			$	329,135			$	209,722			$	120,685			$	59,854
Taxable Income: Operations				$	201,001			$	365,290			$	230,670			$	153,511			$	80,521
Cash Generated (Used By):
	Operations				276,204				271,494				329,818				237,238				111,960
	Sales				111,778				756,768				40,506				2,409				—
	Financing				207,498				146,130				193,679				(26,046	)			150,071
					595,480				1,174,392				564,003				213,601				262,031
Less Cash Distributions to Investors:
	Operating Cash Flow				269,575				286,643				326,372				219,121				104,996
	Return of Capital				—				748,526				—				—				—
Cash Surplus (Deficiency) after Cash Distributions					325,905				139,223				237,631				(5,520	)			157,035
Special Items (not including sales and financing):
	Issuance of common stock				150,379				159,459				194,942				2,531,345				1,340,293
	Redemptions of common stock				(178,907	)			(215,015	)			(96,806	)			(43,690	)			(15,362	)
	Deferred financing costs paid and other				(1,038	)			(984	)			(10,473	)			(8,346	)			(1,674	)
	Proceeds from master leases				963				—				—				—				—
	Repurchase of shares upon settlement				—				—				(12,842	)			—				—
					297,302				82,683				312,452				2,473,789				1,480,292
Use of Funds:
	Sales Commissions and Offering Expenses				3,747				8,301				32,877				254,926				140,488
	Return of Investors’ Investment				—				—				—				—				—
	Property Acquisitions and Deferred Project Costs				297,602				64,550				292,778				2,186,787				1,361,016
	Contributions to joint ventures				795				528				395				24,059				8,910
Cash Surplus (Deficiency) after Cash Distributions and Special Items				$	(4,842	)		$	9,304			$	(13,598	)		$	8,017			$	(30,122	)
Tax and Distribution Data Per $1,000 Invested Federal Income Tax Results:
	Ordinary Income (Loss):
		— Operations		$	29			$	15			$	—			$	—			$	—
		— Recapture			1				3				—				—				—
	Return of capital				11				50				—				—				—
	Capital Gain (Loss)				3				10				—				—				—
	Deferred Gain:
		— Capital			—				—				—				—				—
		— Ordinary			—				—				—				—				—
Cash Distributions to Investors:
	Source (on GAAP Basis):
		— Investment Income			58				61				70				70				76
		— Return of capital			—				162				—				—				—
	Source (on Cash Basis):
		— Sales			15				34				2				—				—
		— Refinancing			—				—				—				—				—
		— Operations			38				61				49				49				53
		— Return of capital			5				128				19				21				23
		— Other			—				—				—				—				—
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table					83.8	% (3)			—				—				—				—

F-24

---

Table of Contents

(1)	Includes $4,700 in equity in earnings of joint ventures in 2002; $4,751 in equity in earnings of joint ventures in 2003; $6,634 in equity in earnings of joint ventures in 2004; $14,765 in equity in earnings of joint ventures in 2005; and $2,197 in equity in earnings of joint ventures in 2006.
(2)	Included in equity in earnings of joint ventures in gross revenues is depreciation and amortization of $2,818 for 2002; $3,730 for 2003; $4,160 for 2004; $2,777 for 2005; and $2,558 for 2006.
(3)	Wells REIT I disposed of 27 properties during 2005 and distributed the net sales proceeds to stockholders in the amount of $1.62 per share. This special distribution reduced the amount of program proceeds invested in properties to 83.8%.

F-25

---

Table of Contents

			2006				2005				2004				2003
			(In thousands, except per share amounts)
Gross Revenues(1)			$	336,190			$	173,565				53,622				—
Profit on Sale of Properties				—				—				—				—
Less: Operating Expenses				195,128				93,329				38,700				—
	Depreciation and Amortization(2)			131,187				67,715				19,484				—
Net Income GAAP Basis			$	9,875			$	12,521				(4,562	)			—
Taxable Income: Operations			$	76,187			$	43,376				3,879				—
Cash Generated (Used By):
	Operations			151,084				76,351				22,722				(44	)
	Sales			—				—				—				—
	Financing			(60,911	)			231,687				235,987				—
				90,173				308,038				258,709				(44	)
Less Cash Distributions to Investors:
	Operating Cash Flow			140,260				80,586				16,613				—
	Return of Capital			—				—				—				—
Cash Surplus (Deficiency) after Cash Distributions				(50,087	)			227,452				242,096
Special Items (not including sales and financing):
	Issuance of common stock			859,961				1,194,594				790,270				—
	Redemptions of common stock			(32,421	)			(15,320	)			(690	)			—
	Deferred financing costs paid and other			(1,626	)			(3,650	)			(6,382	)
				775,827				1,403,076				1,025,294				—
Use of Funds:
	Sales Commissions and Offering Expenses			82,601				126,971				84,917				—
	Return of Investors’ Investment			—				—				—				—
	Property Acquisitions and Deferred Project Costs			682,478				1,262,128				919,658				—
	Contributions to joint ventures
Cash Surplus (Deficiency) after Cash Distributions and Special Items			$	10,748			$	13,977				20,719				(44	)
Tax and Distribution Data Per $1,000 Invested Federal Income Tax Results:
	Ordinary Income (Loss):
	— Operations		$	17			$	17				3				—
	— Recapture			—				—				—				—
	Return of capital			15				14				6				—
	Capital Gain (Loss)			—				—				—				—
	Deferred Gain:
	— Capital			—				—				—				—
	— Ordinary			—				—				—				—
Cash Distributions to Investors:
	Source (on GAAP Basis):
	— Investment Income			60				60				49				—
	— Return of capital			—				—				—				—
	Source (on Cash Basis):
	— Sales			—				—				—				—
	— Refinancing			—				—				—				—
	— Operations			32				33				12				—
	— Return of capital			28				27				37				—
	— Other			—				—				—				—
Amount (in Percentage Terms) Remaining Invested in Program Properties at the end of the Last Year Reported in the Table				100	%			—				—				—

F-26

---

Table of Contents

										Selling Price, Net of Closing Costs and GAAP																				Cost of Properties Including Closing and Soft
										Adjustments																				Costs
																																										Excess
																																										(Deficiency)
																		Purchase																Total								of Property
										Cash								Money				Adjustments												Acquisition								Operating
										Received				Mortgage				Mortgage				Resulting												Cost, Capital								Cash
										Net of				Balance				Taken				from								Original				Improvement,								Receipts
		Date				Date of				Closing				at Time				Back by				Application								Mortgage				Closing and								Over Cash
Property		Acquired				Sale				Costs				of Sale				Program				of GAAP				Total				Financing				Soft Costs(1)				Total				Expenditures
Stockbridge Village II, Stockbridge, GA			11/12/93				04/29/04			$	2,705,451				—				—				—			$	2,705,451	(1)			—			$	3,075,946			$	3,075,946				—
Stockbridge Village III, Stockbridge, GA			04/01/94				04/29/04			$	2,909,853				—				—				—				2,909,853	(2)			—				3,034,378				3,034,378				—
Stockbridge Village I Expansion, Stockbridge, GA			06/07/95				04/29/04			$	4,108,277				—				—				—				4,108,277	(3)			—				3,222,355				3,222,355				—
Hannover Center, Clayton County, GA			04/01/96				04/29/04			$	1,703,431				—				—				—				1,703,431	(4)			—				1,682,069				1,682,069				—
Stockbridge Village Shopping Center, Stockbridge, GA			04/04/91				04/29/04			$	12,024,223				—				—				—				12,024,223	(5)			—				10,639,795				10,639,795				—
5104 Eisenhower Boulevard Building, Tampa, FL			12/31/98				06/03/04			$	30,514,310				—				—				—				30,514,310	(6)			—				24,162,456				24,162,456				—
Peachtree Place II, Norcross, GA			01/01/85				06/18/04			$	857,826				—				—				—				857,826	(7)			—				1,295,536				1,295,536				—
Brookwood Grill, Roswell, GA			01/31/90				07/01/04			$	2,318,115				—				—				—			$	2,318,115	(8)			—			$	2,114,124			$	2,114,124				—
880 Holcomb Bridge, Roswell, GA			01/31/90				07/01/04				6,889,379				—				—				—			$	6,889,379	(9)			—				7,171,261				7,171,261				—
Johnson Matthey Building, Wayne, PA			08/17/99				10/05/04				9,675,000				—				—				—				9,675,000	(10)			—				8,392,077				8,392,077				—
15253 Bake Parkway, Irvine, CA			01/10/97				12/02/04				11,892,035				—				—				—				11,892,035	(11)			—				10,579,865				10,579,865				—
Marathon Building, Appleton, WI			09/16/94				12/29/04				9,927,330				—				—				—				9,927,330	(12)			—				9,333,483				9,333,483				—
Alstom Power — Knoxville Building, Knoxville, TN			12/10/96				03/15/05				11,646,089				—				—				—				11,646,089	(13)			—				8,133,347				8,133,347				—
AT&T Oklahoma Building, Oklahoma City, OK			12 28/00				04/13/05				21,307,577				—				—				—				21,307,577	(14)			—				15,973,132				15,973,132				—
AT&T Pennsylvania, Harrisburg, PA			02/04/99				04/13/05				8,524,584				—				—				—				8,524,584	(15)			—				13,173,835				13,173,835				—
Allstate Indianapolis, Indianapolis, IN			09/27/02				04/13/05				15,790,699				—				—				—				15,790,699	(16)			—				11,398,100				11,398,100				—
Alstom Power Richmond, Midlothian, VA			07/22/99				04/13/05				15,646,879				—				—				—				15,646,879	(17)			—				10,911,372				10,911,372				—
AmeriCredit Building, Orange Park, FL			07/16/01				04/13/05				14,301,802				—				—				—				14,301,802	(18)			—				13,063,258				13,063,258				—
ASML, Tempe, AZ			03/29/00				04/13/05				20,883,739				—				—				—				20,883,739	(19)			—				18,124,318				18,124,318				—
Bank Of America, Brea, CA			12/18/03				04/13/05				114,069,409				—				—				—				114,069,409	(20)			—				92,928,622				92,928,622				—
Capital One Richmond I, Glen Allen, VA			11/26/02				04/13/05				10,033,685				—				—				—				10,033,685	(21)-			—				8,989,934				8,989,934				—
Capital One Richmond II, Glen Allen, VA			11/26/02				04/13/05				11,314,581				—				—				—				11,314,581	(22)			—				10,464,969				10,464,969				—
Capital One Richmond III, Glen Allen, VA			11/26/02				04/13/05				11,315,903				—				—				—				11,315,903	(23)			—				10,374,378				10,374,378				—
Daimler Chrysler Dallas, Westlake, TX			09/30/02				04/13/05				31,962,415				—				—				—				31,962,415	(24)			—				26,206,605				26,206,605				—
Dana Detroit, Farmington Hills, MI			03/29/02				04/13/05				30,211,213				—				—				—				30,211,213	(25)			—				24,883,938				24,883,938				—

F-27

---

Table of Contents

										Selling Price, Net of Closing Costs and GAAP																				Cost of Properties Including Closing and Soft
										Adjustments																				Costs
																																										Excess
																																										(Deficiency)
																		Purchase																Total								of Property
										Cash								Money				Adjustments												Acquisition								Operating
										Received				Mortgage				Mortgage				Resulting												Cost, Capital								Cash
										Net of				Balance				Taken				from								Original				Improvement,								Receipts
		Date				Date of				Closing				at Time				Back by				Application								Mortgage				Closing and								Over Cash
Property		Acquired				Sale				Costs				of Sale				Program				of GAAP				Total				Financing				Soft Costs(1)				Total				Expenditures
Dana Kalamazoo, Kalamazoo, MI			03/29/02				04/13/05				20,997,036				—				—				—				20,997,036	(26)			—				19,255,544				19,255,544				—
Dial, Scottsdale, AZ			03/29/00				04/13/05				21,683,256				—				—				—				21,683,256	(27)			—				14,886,573				14,886,573				—
EDS Des Moines, Des Moines, IA			09/27/02				04/13/05				33,735,843				—				—				—				33,735,843	(28)			—				27,659,014				27,659,014				—
Experian/ TRW, Allen, TX			05/01/02				04/13/05				46,742,128				—				—				—				46,742,128	(29)			—				37,147,417				37,147,417				—
Gartner Building, Fort Myers, FL			09/20/99				04/13/05				12,396,859				—				—				—				12,396,859	(25)			—				9,181,850				9,181,850				—
Gartner Parking Deck, Fort Myers, FL			09/30/04				04/13/05				1,135,876				—				—				—				1,135,876	(11)			—				933,251				933,251				—
Ikon, Houston, TX			09/07/01				04/13/05				26,587,092				—				—				—				26,587,092	(32)			—				21,639,972				21,639,972				—
Ingram Micro, Millington, TN			09/26/01				04/13/05				27,654,696				—				—				—				27,654,696	(33)			—				21,923,060				21,923,060				—
ISS Atlanta, Atlanta, GA			07/01/02				04/13/05				61,374,003				—				—				—				61,374,003	(34)			—				42,424,206				42,424,206				—
ISS Atlanta III, Atlanta, GA			07/01/03				04/13/05				14,815,427				—				—				—				14,815,427	(35)			—				8,818,753				8,818,753				—
John Wiley Building, Fishers, IN			12/12/02				04/13/05				21,427,599				—				—				—				21,427,599	(36)			—				18,316,778				18,316,778				—
Kerr Mcgee, Houston, TX			07/29/02				04/13/05				21,760,086				—				—				—				21,760,086	(37)			—				14,081,555				14,081,555				—
Kraft Atlanta, Suwanee, GA			07/31/02				04/13/05				16,452,223				—				—				—				16,452,223	(38)			—				12,150,948				12,150,948				—
Lucent, Cary, NC			09/28/01				04/13/05				22,213,160				—				—				—				22,213,160	(39)			—				18,760,392				18,760,392				—
Metris Tulsa, Tulsa, OK			02/11/00				04/13/05				13,008,856				—				—				—				13,008,856	(40)			—				13,261,072				13,261,072				—
Nissan, Irving, TX			09/19/01				04/13/05				59,881,046				—				—				—				59,881,096	(41)			—				38,519,092				38,519,092				—
Pacificare San Antonio, San Antonio, TX			07/12/02				04/13/05				19,670,204				—				—				—				19,670,204	(42)			—				15,287,669				15,287,669				—
Transocean Houston, Houston, TX			03/15/02				04/13/05				22,855,716				—				—				—				22,855,716	(43)			—				22,928,458				22,928,458				—
Travelers Express Denver, Lakewood, CO			04/10/02				04/13/05				11,519,192				—				—				—				11,519,192	(44)			—				10,993,334				10,993,334				—
Tanglewood Commons (shopping center), Clemmons, NC			05/31/95				04/21/05				11,236,283				—				—				—				11,236,283	(45)			—				7,745,425				7,745,425				—
4400 Cox Road, Richmond, VA			07/01/92				06/21/05				6,308,796				—				—				—				6,308,796	(46)			—				6,349,364				6,349,364				—
CH2M Hill Building, Gainesville, FL			01/01/96				12/07/05				7,935,259				—				—				—				7,935,259	(47)			—				5,843,204				5,843,204				—
IRS Daycare, Holtsville, NY			09/16/02				03/22/06				3,605,461				—				—				—				3,605,461	(48)			—				2,569,948				2,569,948				—
Heritage Place (office), Tucker, GA			09/4/86				05/10/06				4,028,043				—				—				—				4,028,043	(49)			—				7,862,538				7,862,538				—
10407 Centurion Pkwy North, Jacksonville, FL			06/8/92				05/15/06				10,370,779				—				—				—				10,370,779	(50)							11,260,183				11,260,183				—
BellSouth Building, Jacksonville, FL			04/25/95				05/15/06				12,846,928				—				—				—				12,846,928	(51)							8,722,587				8,722,587				—
Northrop Grumman, Aurora, CO			05/29/02				07/6/06				44,896,765				—				—				—				44,896,765	(52)			—				16,754,413				16,754,413				—
Paces Pavilion, Atlanta, GA			12/27/85				11/6/06				4,065,700				—				—				—				4,065,700	(53)							5,673,586				5,673,586				—
FedEx Excess Land Parcel, Colorado Springs, CO			09/27/02				11/20/06				1,114,831				—				—				—				1,114,831	(54)			—				1,900,000				1,900,000				—
Frank Russell, Tacoma, WA			01/9/04				12/15/06				61,863,807				—				—				—				61,863,807	(55)			—				51,995,443				51,995,443				—
1315 West Century Drive, Louisville, CO			02/13/98				12/22/06				8,059,625				—				—				—				8,059,625	(56)			—				10,718,611				10,718,611				—

	(1)	Includes taxable gain from this sale in the amount of $204,519, all of which is allocated to capital gain.
	(2)	Includes taxable gain from this sale in the amount of $1,831,250, all of which is allocated to capital gain.

F-28

---

Table of Contents

	(3)	Includes taxable gain from this sale in the amount of $1,465,912, all of which is allocated to capital gain.
	(4)	Includes taxable gain from this sale in the amount of $337,421, all of which is allocated to capital gain.
	(5)	Includes taxable gain from this sale in the amount of $4,050,688, all of which is allocated to capital gain.
	(6)	Includes taxable gain from this sale in the amount of $7,684,705, all of which is allocated to capital gain.
	(7)	Includes taxable gain from this sale in the amount of $347,537, all of which is allocated to capital gain.
	(8)	Includes taxable gain from this sale in the amount of $665,199, all of which is allocated to capital gain.
	(9)	Includes taxable gain from this sale in the amount of $1,164,002, all of which is allocated to capital gain.

(10)	Includes taxable gain from this sale in the amount of $2,114,572, all of which is allocated to capital gain.
(11)	Includes taxable gain from this sale in the amount of $1,699,607, all of which is allocated to capital gain.
(12)	Includes taxable gain from this sale in the amount of $2,753,041, all of which is allocated to capital gain.
(13)	Includes taxable gain from this sale in the amount of $4,290,651, all of which is allocated to capital gain.
(14)	Includes taxable gain from this sale in the amount of $6,798,154, all of which is allocated to capital gain.
(15)	Includes a taxable loss from this sale $(2,634,299).
(16)	Includes taxable gain from this sale in the amount of $5,144,469, all of which is allocated to capital gain.
(17)	Includes taxable gain from this sale in the amount of $5,242,003, all of which is allocated to capital gain.
(18)	Includes taxable gain from this sale in the amount of $2,304,984, all of which is allocated to capital gain.
(19)	Includes taxable gain from this sale in the amount of $5,092,422, all of which is allocated to capital gain.
(20)	Includes taxable gain from this sale in the amount of $18,896,175, all of which is allocated to capital gain.
(21)	Includes taxable gain from this sale in the amount of $1,557,153, all of which is allocated to capital gain.
(22)	Includes taxable gain from this sale in the amount of $1,397,465, all of which is allocated to capital gain.
(23)	Includes taxable gain from this sale in the amount of $1,497,835, all of which is allocated to capital gain.
(24)	Includes taxable gain from this sale in the amount of $7,273,433, all of which is allocated to capital gain.
(25)	Includes taxable gain from this sale in the amount of $6,892,438, all of which is allocated to capital gain.
(26)	Includes taxable gain from this sale in the amount of $2,972,661, all of which is allocated to capital gain.

F-29

---

Table of Contents

(27)	Includes taxable gain from this sale in the amount of $8,345,282 all of which is allocated to capital gain.
(28)	Includes taxable gain from this sale in the amount of $7,806,011 all of which is allocated to capital gain.
(29)	Includes taxable gain from this sale in the amount of $11,999,840 all of which is allocated to capital gain.
(30)	Includes taxable gain from this sale in the amount of $4,155,567 all of which is allocated to capital gain.
(31)	Includes taxable gain from this sale in the amount of $187,625 all of which is allocated to capital gain.
(32)	Includes taxable gain from this sale in the amount of $6,545,326 all of which is allocated to capital gain.
(33)	Includes taxable gain from this sale in the amount of $7,664,259 all of which is allocated to capital gain.
(34)	Includes taxable gain from this sale in the amount of $21,673,281 all of which is allocated to capital gain.
(35)	Includes taxable gain from this sale in the amount of $4,961,842 all of which is allocated to capital gain.
(36)	Includes taxable gain from this sale in the amount of $4,157,855 all of which is allocated to capital gain.
(37)	Includes taxable gain from this sale in the amount of $6,946,994 all of which is allocated to capital gain.
(38)	Includes taxable gain from this sale in the amount of $4,924,013 all of which is allocated to capital gain.
(39)	Includes taxable gain from this sale in the amount of $4,481,579 all of which is allocated to capital gain.
(40)	Includes taxable gain from this sale in the amount of $1,305,941 all of which is allocated to capital gain.
(41)	Includes taxable gain from this sale in the amount of $19,209,804 all of which is allocated to capital gain.
(42)	Includes taxable gain from this sale in the amount of $5,229,866 all of which is allocated to capital gain.
(43)	Includes taxable gain from this sale in the amount of $1,626,903 all of which is allocated to capital gain.
(44)	Includes taxable gain from this sale in the amount of $1,356,025 all of which is allocated to capital gain.
(45)	Includes taxable gain from this sale in the amount of $4,821,336 all of which is allocated to capital gain.
(46)	Includes taxable gain from this sale in the amount of $1,003,858 all of which is allocated to capital gain.
(47)	Includes taxable gain from this sale in the amount of $3,478,342 all of which is allocated to capital gain.
(48)	Includes taxable gain from this sale in the amount of $1,117,752, of which $900,460 is allocated to capital gain and $217,292 is allocated to unrecaptured Section 1250 gain.
(49)	Includes taxable loss from this sale in the amount of $1,899,816 all of which is allocated to ordinary loss.

F-30

---

Table of Contents

(50)	Includes taxable gain from this sale in the amount of $1,169,557 all of which is allocated to capital gain.
(51)	Includes taxable gain from this sale in the amount of $5,569,044 all of which is allocated to capital gain.
(52)	Includes taxable gain from this sale in the amount of $11,321,758, of which $8,799,448 is allocated to capital gain and $2,522,310 is allocated to unrecaptured Section 1250 gain.
(53)	Includes taxable gain from this sale in the amount of $795,430 all of which is allocated to capital gain.
(54)	Resulted in a taxable long-term capital loss on sale of $785,169.
(55)	Includes taxable gain from this sale in the amount of $11,223,449, of which $7,521,308 is allocated to capital gain and $3,702,141 is allocated to unrecaptured Section 1250 gain.
(56)	Includes taxable loss from this sale in the amount of $1,211,841, all of which is allocated to ordinary loss.

F-31

---

Table of Contents

A-1

---

Table of Contents

---

Table of Contents

---

Table of Contents

---

Table of Contents

---

Table of Contents

B-1

---

Table of Contents

B-2

---

Table of Contents

		Page
Suitability Standards			i
Prospectus Summary			1
Questions and Answers About the Offering			9
Risk Factors			16
Cautionary Note Regarding Forward-Looking Statements			34
Estimated Use of Proceeds			35
Management			37
Management Compensation			50
Stock Ownership			56
Conflicts of Interest			57
Industry Overview			63
Business and Policies			68
Plan of Operation			74
Prior Performance Summary			78
Federal Income Tax Considerations			83
ERISA Considerations			100
Description of Shares			104
Certain Provisions of Maryland Law and of Our Charter and Bylaws			114
The Operating Partnership Agreement			117
Plan of Distribution			121
Legal Matters			127
Experts			127
Where You Can Find More Information			127
Index to Consolidated Financial Statements and Prior Performance Tables			F-1
Appendix A — Subscription Agreement (Sample) with Instructions			A-1
Appendix B — Distribution Reinvestment Plan			B-1