• Why should I consider timberland as an investment?
• Timberland is a real asset that tends to have little connection to the performance of other assets such as stocks, bonds, and other types of commercial real estate. Therefore, it may help to provide additional portfolio diversification. It’s also an investment in a renewable and sustainable natural resource that offers long-term investors the opportunity for competitive total returns and a partial inflation hedge.
  
  Please speak with your financial representative about the suitability, time horizon, and fees and expenses of a timberland investment before making an investment decision.
• What “green” characteristics do timberland investments offer?
• Timber is a renewable and sustainable resource, unlike nonrenewable natural resources such as oil, minerals, and coal. Moreover, timber requires less energy to produce than other products. While timber is growing, the trees refresh our atmosphere by consuming carbon dioxide and releasing oxygen.
  
  Also, timberlands under professional management are generally healthier and more sustainable long-term than publicly owned lands. Replanting trees renews wildlife habitats and preserves forestlands for future generations, while silvicultural programs help trees grow healthier and stronger.
• What risks are involved with investing in timberland?
• Economic risks include changes in pricing, supply, demand, regulations, and liquidity. Physical risks include natural disasters, pest infestation, disease, and wind, which average 0.8% on private timberlands on an annual basis.¹
  
  Diversification is the greatest means of mitigating these risks, because it minimizes the impact of any one risk on the full timberland portfolio. Also, exposure to certain risks can be reduced through forest management techniques such as silvicultural practices and harvest timing. In fact, privately managed lands are far less likely to experience forest fires than federally managed public areas because of the many preventative measures professional forest managers use to keep timberland safe and productive long-term. Moreover, history has shown that, even after a forest fire, the majority of the wood is often salvageable. ²
  
  While all timberland investments involve these risks, there are additional risks that are unique to Wells Timberland. Wells Timberland is still in the initial stage of its offering program and has not yet achieved its targeted level of diversification. Currently, the portfolio includes only one property that comprises many parcels. That property is Mahrt Timberland, located in Georgia and Alabama. In order to acquire this significant property, Wells Timberland’s independent Board of Directors felt that it would be in our stockholders’ best interest to assume a much higher level of debt than our general leverage limitation of 300% of net assets.
  
  In addition, Wells Timberland has not yet qualified for REIT tax status. Also, until certain loans and financial targets are satisfied, Wells Timberland is prohibited from making distributions or redeeming shares under its share redemption plan, except in cases of qualified disabilities or death.
• How much money have institutional investors placed in timberland investments?
• Since 1990, $50 billion has been allocated to timberland investments by large investors such as Harvard and Yale Universities, the California Public Employees’ Retirement System (CalPERS), and the Kentucky Teachers’ Retirement System.³
• How may the housing industry affect timber returns?
• While nearly two-thirds of the timber harvested in the U.S. is used in home construction and remodeling, three factors can serve to balance how this affects timberland return potential.
  
  First, if the market for timber is weak, trees can be “stored on the stump” to continue growing in volume and potential value until more favorable market conditions return. Second, while demand for the lumber used in housing may be weak, demand can remain strong for other products such as pulpwood and chip-n-saw, which are used to make paper and paperboard, fuel, and thousands of other wood products. Third, timberland returns don’t solely rely on timber sales; returns also may be realized through nontimber revenue sources and land sales.
• Where does timberland fit in an investment portfolio?
• Timberland is most commonly placed within a real estate or real asset portion of a portfolio, but it also may be incorporated as an alternative or natural resource allocation. In a diversified portfolio, timberland can complement other asset classes of shorter time horizons, including real asset investments focused on long-term growth. This is because timberland returns have a low to negative correlation to both public and private real estate, as well as to stocks and bonds.
• What types of investors might want to consider timberland?
• Timberland may be appropriate for investors seeking long-term capital appreciation with no need for immediate income, an opportunity for greater portfolio diversification, and a partial hedge against inflation. Timberland also may appeal to investors who wish to invest in a sustainable and renewable natural resource.
  
  Note that timberland is not suitable for all investors. If you are interested in a timberland investment, please read the prospectus carefully and completely and speak with your financial representative.
• What contributes to timberland returns?
• A tree’s biological growth typically contributes almost two-thirds (~61%) of the return from a timberland investment.⁴ Changes in timber prices make up another third (~33%), while changes in land value compose the remainder of the return, approximately 6%.⁴ It’s important to remember that a product’s fees and expenses, combined with its cost of debt and operational expenses, directly impact returns as well.
  
  Because trees continue to grow regardless of economic forces, the overall value of a timberland investment may grow steadily through market fluctuations. Furthermore, unlike farmed crops such as wheat or corn, timber does not have to be harvested at a set time, but can be stored “on the stump” through periods of weak pricing or demand. This unique aspect of timber production helps to regulate the prices of timber products and may in turn help to smooth out investment returns over the long-term.
  
  More importantly, trees typically grow in value as they grow in size, and that creates the potential for both income returns from timber harvests and long-term capital appreciation, since the value of the land usually increases along with the value of the trees growing on it. Leasing rights for activities such as harvesting minerals or hunting on timberland or selling the land for a higher-and-better-use such as resort development or conservation also may contribute to timberland investment returns.
• What are the historical returns for timberland vs. other asset classes?
• As an asset class, investment timberland has provided returns that are competitive with most major asset classes.
  
  

  Historical Returns for Timberland vs. Other Asset Classes*
  	1-Year	5-Year	10-Year	20-Year
  U.S. Timberland	3.3%	13.6%	8.7%	12.8%
  Large Cap Stocks	-26.2%	-2.2%	-2.2%	7.8%
  Small Cap Stocks	-23.5%	-3.1%	5.8%	9.3%
  International Stocks	-31.0%	2.8%	1.6%	4.2%
  Direct Real Estate	-19.6%	7.6%	8.5%	7.0%
  U.S. 30-Day T-Bills	0.59%	3.0%	3.0%	4.0%

  * Returns are for 7/1/89 through 3/31/09.
  
  Historical performance is reflective of various indices. The above indices reflect gross returns and do not reflect the deduction of sales loads, fees, or expenses; if those deductions had been subtracted, performance would be lower. One cannot invest directly in an index.
  
  * NCRIEF index returns do not account for expenses and are based upon tax-exempt institutions invested without leverage. The historical data represented by the NCREIF Timberland Index should not be used to project future returns. The Index reports actual performance of institutional timberland assets for three regions of the U.S. The NCREIF Index aggregates member-submitted data to produce rates of return for the asset class. The NCREIF Index is not directly analogous to the Wells Timberland offering.
  
  Sources: U.S. Timberland — NCREIF Timberland Index; Large Cap Stocks — S&P 500^®; Small Cap Stocks — IA SBBI U.S. Small Stock Index; International Stocks —MSCI EAFE^® Index; Direct Real Estate — NCREIF Property Index; T-Bills — IA SBBI U.S. 30-day T-Bills.

• How is a nontraded REIT different from a traded REIT?
• Nontraded REITs are not traded on a public securities exchange, thereby avoiding the daily share price volatility of traded investments. Nontraded REITs are long-term, illiquid investments, and therefore may complement a long-term, “buy-and-hold” investment strategy.

¹ “An Overview of Fire as a Forest Damage Agent,“ and “An Overview of Insects & Diseases as Forest Damage Agents,” Dr. Jack Lutz and Dr. Donald MacKay, 8/25/08. Dr. Jack Lutz has been commissioned by Wells to perform timber research.
² Hancock Timber Resource Group (HTRG), “Frequently Asked Questions,” 2008. Retrieved on August 20, 2008, from http://www.htrg.com/educate_invest_questions.htm.
³ “Prospects for Change in International Investment Patterns in Forestry,” Dennis Neilson, DANA Limited, 10/17/07.
⁴ Forest Investment Associates, “Illustrative Drivers of Timberland Returns,” (n.d.). Retrieved August 20, 2008, from http://www.forestinvest.com/html/client_res/TimberlandReturnDrivers.pdf.