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Form N-CSR |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09253
Wells Fargo Funds Trust
(Exact name of registrant as specified in charter)
525 Market St., San Francisco, CA 94105
(Address of principal executive offices) (Zip code)
C. David Messman
Wells Fargo Funds Management, LLC
525 Market St., San Francisco, CA 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: 800-222-8222
Date of fiscal year end: March 31
Registrant is making a filing for 9 of its series:
Wells Fargo Intrinsic Small Cap Value Fund, Wells Fargo Small Cap Core Fund, Wells Fargo Small Cap Opportunities Fund, Wells Fargo Small Cap Value Fund, Wells Fargo Special Small Cap Value Fund
Wells Fargo Traditional Small Cap Growth Fund, Wells Fargo Precious Metals Fund, Wells Fargo Specialized Technology Fund, and Utility and Telecommunications Fund.
Date of reporting period: March 31, 2017
ITEM 1. | REPORT TO STOCKHOLDERS |
Annual Report
Wells Fargo Intrinsic Small Cap Value Fund
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Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Intrinsic Small Cap Value Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Intrinsic Small Cap Value Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Intrinsic Small Cap Value Fund | 3 |
remained at historically low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Intrinsic Small Cap Value Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Intrinsic Small Cap Value Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Ann Miletti‡
Christopher G. Miller, CFA®‡‡
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (WFSMX) | 3-31-2008 | 16.59 | 11.15 | 5.09 | 23.68 | 12.48 | 5.71 | 1.47 | 1.36 | |||||||||||||||||||||||||
Class C (WSCDX) | 3-31-2008 | 21.75 | 11.64 | 4.93 | 22.75 | 11.64 | 4.93 | 2.22 | 2.11 | |||||||||||||||||||||||||
Administrator Class (WFSDX) | 4-8-2005 | – | – | – | 23.86 | 12.71 | 5.95 | 1.39 | 1.21 | |||||||||||||||||||||||||
Institutional Class (WFSSX) | 4-8-2005 | – | – | – | 24.14 | 12.96 | 6.17 | 1.14 | 1.01 | |||||||||||||||||||||||||
Russell 2000® Value Index4 | – | – | – | – | 29.37 | 12.54 | 6.09 | – | – |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Intrinsic Small Cap Value Fund | 7 |
Growth of $10,000 investment as of March 31, 20175 |
‡ | Ms. Miletti became a portfolio manager of the Fund on September 26, 2016. |
‡‡ | Mr. Miller became a portfolio manager of the Fund on March 1, 2017 |
1 | Historical performance shown for Class A shares prior to their inception reflects the performance of the former Investor Class shares, and includes the higher expenses applicable to the former Investor Class shares. If these expenses had not been included, returns for Class A shares would be higher. Historical performance shown for Class C shares prior to their inception reflects the performance of the former Investor Class shares and has been adjusted to reflect the higher expenses applicable to Class C shares. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through July 31, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 1.35% for Class A, 2.10% for Class C, 1.20% for Administrator Class, and 1.00% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. You cannot invest directly in an index. |
5 | The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
6 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
7 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
* | This security was not held in the Fund at the end of the reporting period |
8 | Wells Fargo Intrinsic Small Cap Value Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
The following commentary reflects perspective of the portfolio management team that assumed responsibility for the Fund as of September 2016.
Fund highlights
∎ | The Fund underperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2017. |
∎ | Stock selection in the industrials, consumer discretionary, and materials sectors detracted the most from performance relative to the index. |
∎ | Stock selection in the energy and real estate sectors and underweights to the utilities and real estate sectors contributed to performance relative to the index. |
The small-cap value segment of the U.S. stock market, represented by the Russell 2000® Value Index, rose for most of the 12-month period after overcoming temporary dips related to specific events. The Russell 2000® Value Index hit new all-time highs over the course of the period and ended with a 29.4% gain for the period. All sectors within the index delivered a positive return, with the materials, information technology, and financials sectors gaining the most. Market performance for the period tended to be skewed toward value and small-cap stocks. It has been three years since small caps outperformed large caps over the one-year period and four years since value outperformed growth.
A number of factors affected the U.S. stock market during the period, including monetary policy, geopolitical events, energy prices, and exchange rates. In the early part of 2016, the U.S. Federal Reserve (Fed) had signaled that global uncertainty justified a slower path of interest-rate increases. However, U.S. economic data continued to improve, prompting the Fed to raise rates by 0.25% in December 2016 and again by 0.25% in March 2017. The market was temporarily disrupted at the end of June 2016 when the U.K. voted to exit the European Union through a national referendum. In November, Donald Trump won the U.S. presidential election, and the Republican Party maintained control of both the House of Representatives and the Senate. The stock market generally continued to rise following the November election through the end of the reporting period, with the expectation that many industries potentially would benefit from the new administration’s policies. Crude-oil prices fell to a decade low in mid-February 2016 and then generally moved higher, to end up 47% for the 12-month period. The U.S. economy remained resilient overall, with 11 straight quarters of growth in gross domestic product, and continued to experience favorable trends in employment, wages, disposable income, consumer confidence, and housing. The U.S. dollar rose against most major currencies during the period.
In this environment and with the expectation of tighter U.S. monetary policy to come, we continued to seek well-positioned companies—those with good business models, strong management teams, and healthy cash flows—trading at attractive discounts to their private market values (PMVs). The PMV represents the expected price an investor would pay for the entire company as a stand-alone private entity.
Stock selection in the industrials and consumer discretionary sectors negatively affected Fund performance.
Overall, the Fund’s industrials and consumer discretionary holdings did not keep pace with their respective sectors within the Russell 2000® Value Index. In the industrials sector, Essendant Incorporated and Avis Budget Group, Incorporated, detracted the most from performance. Essendant is a broad-line wholesale distributor of business products that ships to more than 30,000 resellers in North America. We exited the position after Essendant declined on the first report of disappointing financial results and its future outlook. Avis is a vehicle rental/sharing company that continued to suffer from an industry that is over-fleeted and battling pricing pressure. In the consumer discretionary sector, Ascena Retail Group, Incorporated, and Pier 1 Imports, Incorporated*, detracted the most from performance. Ascena, a women’s-apparel retailer, declined after reporting a tough holiday season and reducing future guidance. In addition, the Fund’s cash position hurt performance in a rising stock market.
Results within the Fund’s energy, real estate, and financials sectors contributed to performance.
The Fund’s holdings in the energy sector outperformed the benchmark due to stock selection in the exploration and production and the equipment and services industries. Encana Corporation is a mixed U.S. and Canadian oil and natural gas producer that has developed a potentially superior inventory depth and asset quality compared with most of its peers. U.S. Silica Holdings, Incorporated*, a producer of industrial minerals, including sand and silica products used in the fracking industry, benefited from cost reduction, large increases in demand from increasingly intense fracking
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Intrinsic Small Cap Value Fund | 9 |
techniques, and improvement in operational efficiency measures. Stock selection in the real estate and financials sectors also contributed to relative performance. Zions Bancorporation delivered the Fund’s best relative performance; the company is expected to benefit to a greater extent than its peers from potential regulatory reform and higher interest rates.
Ten largest holdings (%) as of March 31, 20176 | ||||
CNO Financial Group Incorporated |
2.08 | |||
Diebold Incorporated |
2.08 | |||
Zions Bancorporation |
2.03 | |||
TreeHouse Foods Incorporated |
1.95 | |||
Sterling BanCorp |
1.95 | |||
Webster Financial Corporation |
1.84 | |||
Zebra Technologies Corporation Class A |
1.80 | |||
RSP Permian Incorporated |
1.79 | |||
PacWest Bancorp |
1.73 | |||
National General Holdings Corporation |
1.68 |
During the period, we made changes to the Fund’s portfolio based on our investment philosophy.
Our methodology includes buying stocks at a discount to their estimated PMV and selling stocks as they approach or exceed 80% of their PMV. Our disciplined, bottom-up investment process leads us to overweight or underweight certain sectors. This positioning changes over time based on industry-specific and macroeconomic factors. During the latter half of the reporting period, we made changes to the relative positioning of the Fund’s portfolio to better reflect the investment team’s philosophy and conviction. We increased the Fund’s
exposure to the financials, real estate, and materials sectors. We also decreased the Fund’s exposure to the consumer staples sector. The Fund’s cash level was significantly reduced as well.
Relative to the Russell 2000® Value Index, the Fund remains overweight industrials, health care, and energy and underweight financials, real estate, and utilities. All sector weights are the result of individual stock selection rather than tactical allocation decisions.
Sector distribution as of March 31, 20177 |
Our focus remains constant: to add value for shareholders through attractively priced, high-quality holdings in the Fund.
Through our disciplined investment process, we remain keenly aware of both price and enterprise values on a company-by-company basis. Our proprietary database of company acquisitions across industries, sectors, and time frames enables us to maintain a steady foundation for assessing the PMVs of companies compared with their public-market stock prices. We strive to take advantage of those price discrepancies for the benefit of Fund shareholders by purchasing stocks when we believe they are selling at a discount to their PMVs.
The generally improving U.S. economic data and postelection optimism for a pro-business environment caused the stock market to generally surge following the November 2016 U.S. elections through the end of the reporting period. Should this favorable environment continue, we believe investment opportunities potentially will be created. In our view, companies with attractive stock prices relative to their PMVs could be brought to the forefront by our process, which may allow us to add value through our unique, bottom-up research.
Please see footnotes on page 7.
10 | Wells Fargo Intrinsic Small Cap Value Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
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Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,134.88 | $ | 7.19 | 1.35 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.20 | $ | 6.79 | 1.35 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,131.30 | $ | 11.16 | 2.10 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.46 | $ | 10.55 | 2.10 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,135.92 | $ | 6.39 | 1.20 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.95 | $ | 6.04 | 1.20 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,136.79 | $ | 5.33 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,019.95 | $ | 5.04 | 1.00 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Intrinsic Small Cap Value Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 96.92% |
||||||||||||||||
Consumer Discretionary: 9.34% |
||||||||||||||||
Auto Components: 2.93% | ||||||||||||||||
Dana Incorporated |
90,494 | $ | 1,747,436 | |||||||||||||
Tenneco Incorporated |
27,473 | 1,714,865 | ||||||||||||||
3,462,301 | ||||||||||||||||
|
|
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Diversified Consumer Services: 1.34% | ||||||||||||||||
Houghton Mifflin Harcourt Company † |
155,419 | 1,577,503 | ||||||||||||||
|
|
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Hotels, Restaurants & Leisure: 0.91% | ||||||||||||||||
Red Robin Gourmet Burgers Incorporated † |
18,381 | 1,074,369 | ||||||||||||||
|
|
|||||||||||||||
Leisure Products: 1.02% | ||||||||||||||||
Callaway Golf Company |
109,378 | 1,210,814 | ||||||||||||||
|
|
|||||||||||||||
Media: 1.63% | ||||||||||||||||
Lions Gate Entertainment Class B †« |
39,123 | 953,819 | ||||||||||||||
MDC Partners Incorporated Class A |
103,456 | 972,486 | ||||||||||||||
1,926,305 | ||||||||||||||||
|
|
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Specialty Retail: 0.67% | ||||||||||||||||
Ascena Retail Group Incorporated †« |
184,444 | 785,731 | ||||||||||||||
|
|
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Textiles, Apparel & Luxury Goods: 0.84% | ||||||||||||||||
G-III Apparel Group Limited † |
45,488 | 995,732 | ||||||||||||||
|
|
|||||||||||||||
Consumer Staples: 3.24% |
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Food Products: 3.24% | ||||||||||||||||
The Hain Celestial Group Incorporated † |
40,982 | 1,524,530 | ||||||||||||||
TreeHouse Foods Incorporated †« |
27,163 | 2,299,620 | ||||||||||||||
3,824,150 | ||||||||||||||||
|
|
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Energy: 7.49% |
||||||||||||||||
Energy Equipment & Services: 1.55% | ||||||||||||||||
Forum Energy Technologies Incorporated † |
88,342 | 1,828,679 | ||||||||||||||
|
|
|||||||||||||||
Oil, Gas & Consumable Fuels: 5.94% | ||||||||||||||||
Encana Corporation |
128,396 | 1,503,517 | ||||||||||||||
Matador Resources Company †« |
68,228 | 1,623,144 | ||||||||||||||
RSP Permian Incorporated † |
51,036 | 2,114,421 | ||||||||||||||
WPX Energy Incorporated † |
132,730 | 1,777,255 | ||||||||||||||
7,018,337 | ||||||||||||||||
|
|
|||||||||||||||
Financials: 26.60% |
||||||||||||||||
Banks: 17.21% | ||||||||||||||||
Ameris Bancorp |
35,468 | 1,635,075 | ||||||||||||||
First Midwest Bancorp Incorporated |
62,279 | 1,474,767 | ||||||||||||||
LegacyTexas Financial Group |
44,991 | 1,795,141 |
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Intrinsic Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Banks (continued) | ||||||||||||||||
PacWest Bancorp |
38,391 | $ | 2,044,705 | |||||||||||||
Pinnacle Financial Partners Incorporated |
26,767 | 1,778,667 | ||||||||||||||
Renasant Corporation |
36,556 | 1,450,908 | ||||||||||||||
Sterling BanCorp |
97,013 | 2,299,208 | ||||||||||||||
United Community Bank |
60,922 | 1,686,930 | ||||||||||||||
Webster Financial Corporation |
43,483 | 2,175,889 | ||||||||||||||
Wintrust Financial Corporation |
23,110 | 1,597,363 | ||||||||||||||
Zions Bancorporation |
57,176 | 2,401,392 | ||||||||||||||
20,340,045 | ||||||||||||||||
|
|
|||||||||||||||
Capital Markets: 1.53% | ||||||||||||||||
Stifel Financial Corporation † |
35,910 | 1,802,323 | ||||||||||||||
|
|
|||||||||||||||
Insurance: 6.54% | ||||||||||||||||
CNO Financial Group Incorporated |
119,648 | 2,452,784 | ||||||||||||||
Maiden Holdings Limited |
103,002 | 1,442,028 | ||||||||||||||
National General Holdings Corporation |
83,359 | 1,980,610 | ||||||||||||||
Validus Holdings Limited |
32,835 | 1,851,566 | ||||||||||||||
7,726,988 | ||||||||||||||||
|
|
|||||||||||||||
Thrifts & Mortgage Finance: 1.32% | ||||||||||||||||
Essent Group Limited † |
42,993 | 1,555,057 | ||||||||||||||
|
|
|||||||||||||||
Health Care: 9.00% |
||||||||||||||||
Health Care Equipment & Supplies: 4.53% | ||||||||||||||||
Haemonetics Corporation † |
45,850 | 1,860,135 | ||||||||||||||
Integer Holdings Corporation |
41,231 | 1,657,486 | ||||||||||||||
Steris Corporation plc |
26,439 | 1,836,453 | ||||||||||||||
5,354,074 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Providers & Services: 1.41% | ||||||||||||||||
Envision Healthcare Corporation † |
27,162 | 1,665,574 | ||||||||||||||
|
|
|||||||||||||||
Life Sciences Tools & Services: 3.06% | ||||||||||||||||
Bio-Rad Laboratories Incorporated Class A † |
9,316 | 1,857,051 | ||||||||||||||
Bruker Corporation |
75,307 | 1,756,912 | ||||||||||||||
3,613,963 | ||||||||||||||||
|
|
|||||||||||||||
Industrials: 19.17% |
||||||||||||||||
Commercial Services & Supplies: 4.15% | ||||||||||||||||
Interface Incorporated |
88,955 | 1,694,593 | ||||||||||||||
KAR Auction Services Incorporated |
35,640 | 1,556,399 | ||||||||||||||
Steelcase Incorporated Class A |
98,864 | 1,655,972 | ||||||||||||||
4,906,964 | ||||||||||||||||
|
|
|||||||||||||||
Machinery: 4.22% | ||||||||||||||||
Altra Holdings Incorporated |
39,122 | 1,523,802 | ||||||||||||||
ITT Incorporated |
42,759 | 1,753,974 |
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Intrinsic Small Cap Value Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Machinery (continued) | ||||||||||||||||
Rexnord Corporation † |
74,103 | $ | 1,710,297 | |||||||||||||
4,988,073 | ||||||||||||||||
|
|
|||||||||||||||
Marine: 1.48% | ||||||||||||||||
Kirby Corporation † |
24,842 | 1,752,603 | ||||||||||||||
|
|
|||||||||||||||
Professional Services: 1.55% | ||||||||||||||||
On Assignment Incorporated † |
37,745 | 1,831,765 | ||||||||||||||
|
|
|||||||||||||||
Road & Rail: 3.47% | ||||||||||||||||
Avis Budget Group Incorporated † |
50,119 | 1,482,520 | ||||||||||||||
Genesee & Wyoming Incorporated Class A † |
21,499 | 1,458,922 | ||||||||||||||
Old Dominion Freight Line Incorporated |
13,469 | 1,152,542 | ||||||||||||||
4,093,984 | ||||||||||||||||
|
|
|||||||||||||||
Trading Companies & Distributors: 4.30% | ||||||||||||||||
Air Lease Corporation |
41,646 | 1,613,783 | ||||||||||||||
GATX Corporation « |
25,434 | 1,550,457 | ||||||||||||||
MRC Global Incorporated † |
104,672 | 1,918,638 | ||||||||||||||
5,082,878 | ||||||||||||||||
|
|
|||||||||||||||
Information Technology: 12.15% |
||||||||||||||||
Communications Equipment: 1.16% | ||||||||||||||||
Infinera Corporation † |
133,925 | 1,370,053 | ||||||||||||||
|
|
|||||||||||||||
Electronic Equipment, Instruments & Components: 6.27% | ||||||||||||||||
Anixter International Incorporated † |
21,310 | 1,689,883 | ||||||||||||||
Jabil Circuit Incorporated |
67,547 | 1,953,459 | ||||||||||||||
VeriFone Systems Incorporated † |
87,416 | 1,637,302 | ||||||||||||||
Zebra Technologies Corporation Class A † |
23,348 | 2,130,505 | ||||||||||||||
7,411,149 | ||||||||||||||||
|
|
|||||||||||||||
IT Services: 2.64% | ||||||||||||||||
DST Systems Incorporated |
15,259 | 1,869,228 | ||||||||||||||
WEX Incorporated † |
12,117 | 1,254,110 | ||||||||||||||
3,123,338 | ||||||||||||||||
|
|
|||||||||||||||
Technology Hardware, Storage & Peripherals: 2.08% | ||||||||||||||||
Diebold Nixdorf Incorporated |
79,895 | 2,452,777 | ||||||||||||||
|
|
|||||||||||||||
Materials: 4.16% |
||||||||||||||||
Chemicals: 1.46% | ||||||||||||||||
PolyOne Corporation |
50,631 | 1,726,011 | ||||||||||||||
|
|
|||||||||||||||
Metals & Mining: 2.70% | ||||||||||||||||
Reliance Steel & Aluminum Company |
19,532 | 1,562,951 | ||||||||||||||
Royal Gold Incorporated |
23,243 | 1,628,172 | ||||||||||||||
3,191,123 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Intrinsic Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Real Estate: 5.77% |
||||||||||||||||
Equity REITs: 5.77% | ||||||||||||||||
Cousins Properties Incorporated |
198,944 | $ | 1,645,267 | |||||||||||||
Hersha Hospitality Trust |
37,725 | 708,853 | ||||||||||||||
Hudson Pacific Properties Incorporated |
50,005 | 1,732,173 | ||||||||||||||
Outfront Media Incorporated |
54,530 | 1,447,772 | ||||||||||||||
Physicians Realty Trust |
50,473 | 1,002,899 | ||||||||||||||
Retail Opportunity Investment Corporation |
13,394 | 281,591 | ||||||||||||||
6,818,555 | ||||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $98,430,099) |
114,511,218 | |||||||||||||||
|
|
|||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 7.88% | ||||||||||||||||
Investment Companies: 7.88% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) |
0.98 | % | 6,194,706 | 6,195,325 | ||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | 3,115,232 | 3,115,232 | |||||||||||||
Total Short-Term Investments (Cost $9,310,259) |
9,310,557 | |||||||||||||||
|
|
Total investments in securities (Cost $107,740,358) * | 104.80 | % | 123,821,775 | |||||
Other assets and liabilities, net |
(4.80 | ) | (5,669,755 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 118,152,020 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $108,882,425 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 18,424,768 | ||
Gross unrealized losses |
(3,485,418 | ) | ||
|
|
|||
Net unrealized gains |
$ | 14,939,350 |
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities—March 31, 2017 | Wells Fargo Intrinsic Small Cap Value Fund | 15 |
Assets |
||||
Investments |
||||
In unaffiliated securities (including $6,069,378 of securities loaned), at value (cost $98,430,099) |
$ | 114,511,218 | ||
In affiliated securities, at value (cost $9,310,259) |
9,310,557 | |||
|
|
|||
Total investments, at value (cost $107,740,358) |
123,821,775 | |||
Receivable for investments sold |
1,646,366 | |||
Receivable for Fund shares sold |
61,929 | |||
Receivable for dividends |
104,194 | |||
Receivable for securities lending income |
1,610 | |||
Prepaid expenses and other assets |
30,510 | |||
|
|
|||
Total assets |
125,666,384 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
1,109,971 | |||
Payable for Fund shares redeemed |
32,686 | |||
Payable upon receipt of securities loaned |
6,194,810 | |||
Management fee payable |
80,850 | |||
Distribution fee payable |
655 | |||
Administration fees payable |
18,458 | |||
Accrued expenses and other liabilities |
76,934 | |||
|
|
|||
Total liabilities |
7,514,364 | |||
|
|
|||
Total net assets |
$ | 118,152,020 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 110,902,380 | ||
Accumulated net realized losses on investments |
(8,831,777 | ) | ||
Net unrealized gains on investments |
16,081,417 | |||
|
|
|||
Total net assets |
$ | 118,152,020 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 52,817,263 | ||
Shares outstanding – Class A1 |
1,826,391 | |||
Net asset value per share – Class A |
$28.92 | |||
Maximum offering price per share – Class A2 |
$30.68 | |||
Net assets – Class C |
$ | 988,746 | ||
Shares outstanding – Class C1 |
36,435 | |||
Net asset value per share – Class C |
$27.14 | |||
Net assets – Administrator Class |
$ | 4,354,857 | ||
Shares outstanding – Administrator Class1 |
147,971 | |||
Net asset value per share – Administrator Class |
$29.43 | |||
Net assets – Institutional Class |
$ | 59,991,154 | ||
Shares outstanding – Institutional Class1 |
2,017,703 | |||
Net asset value per share – Institutional Class |
$29.73 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Intrinsic Small Cap Value Fund | Statement of operations—year ended March 31, 2017 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $1,376) |
$ | 816,728 | ||
Securities lending income, net |
42,382 | |||
Income from affiliated securities |
27,383 | |||
|
|
|||
Total investment income |
886,493 | |||
|
|
|||
Expenses |
||||
Management fee |
988,359 | |||
Administration fees |
||||
Class A |
111,116 | |||
Class C |
944 | |||
Administrator Class |
6,127 | |||
Institutional Class |
75,663 | |||
Shareholder servicing fees |
||||
Class A |
132,281 | |||
Class C |
1,124 | |||
Administrator Class |
11,783 | |||
Distribution fee |
||||
Class C |
3,372 | |||
Custody and accounting fees |
17,066 | |||
Professional fees |
38,362 | |||
Registration fees |
66,176 | |||
Shareholder report expenses |
40,506 | |||
Trustees’ fees and expenses |
21,183 | |||
Other fees and expenses |
9,388 | |||
|
|
|||
Total expenses |
1,523,450 | |||
Less: Fee waivers and/or expense reimbursements |
(161,110 | ) | ||
|
|
|||
Net expenses |
1,362,340 | |||
|
|
|||
Net investment loss |
(475,847 | ) | ||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains on: |
||||
Unaffiliated securities |
15,786,533 | |||
Affiliated securities |
218 | |||
|
|
|||
Net realized gains on investments |
15,786,751 | |||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
8,093,015 | |||
Affiliated securities |
298 | |||
|
|
|||
Net change in unrealized gains (losses) on investments |
8,093,313 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
23,880,064 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 23,404,217 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets | Wells Fargo Intrinsic Small Cap Value Fund | 17 |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment income (loss) |
$ | (475,847 | ) | $ | 1,272,691 | |||||||||||
Net realized gains (losses) on investments |
15,786,751 | (1,665,408 | ) | |||||||||||||
Net change in unrealized gains (losses) on investments |
8,093,313 | (10,385,846 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from operations |
23,404,217 | (10,778,563 | ) | |||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net investment income |
||||||||||||||||
Class A |
(256,325 | ) | (294,808 | ) | ||||||||||||
Administrator Class |
(23,316 | ) | (41,643 | ) | ||||||||||||
Institutional Class |
(465,017 | ) | (746,490 | ) | ||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(744,658 | ) | (1,082,941 | ) | ||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
94,698 | 2,625,025 | 2,209,930 | 53,774,520 | ||||||||||||
Class C |
26,166 | 698,694 | 3,943 | 90,523 | ||||||||||||
Administrator Class |
20,547 | 548,375 | 49,058 | 1,237,272 | ||||||||||||
Institutional Class |
642,995 | 18,321,155 | 169,210 | 4,119,915 | ||||||||||||
Investor Class |
N/A | N/A | 44,383 | 1 | 1,114,922 | 1 | ||||||||||
|
|
|||||||||||||||
22,193,249 | 60,337,152 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
8,734 | 248,050 | 12,141 | 286,176 | ||||||||||||
Administrator Class |
314 | 9,086 | 975 | 23,360 | ||||||||||||
Institutional Class |
12,540 | 365,784 | 25,479 | 616,346 | ||||||||||||
|
|
|||||||||||||||
622,920 | 925,882 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(401,261 | ) | (10,930,489 | ) | (129,895 | ) | (2,936,083 | ) | ||||||||
Class C |
(2,636 | ) | (65,871 | ) | (3,674 | ) | (79,514 | ) | ||||||||
Administrator Class |
(77,690 | ) | (2,099,588 | ) | (42,116 | ) | (1,034,521 | ) | ||||||||
Institutional Class |
(1,582,608 | ) | (40,376,065 | ) | (474,967 | ) | (11,461,359 | ) | ||||||||
Investor Class |
N/A | N/A | (2,369,816 | )1 | (57,215,074 | )1 | ||||||||||
|
|
|||||||||||||||
(53,472,013 | ) | (72,726,551 | ) | |||||||||||||
|
|
|||||||||||||||
Net decrease in net assets resulting from capital share transactions |
(30,655,844 | ) | (11,463,517 | ) | ||||||||||||
|
|
|||||||||||||||
Total decrease in net assets |
(7,996,285 | ) | (23,325,021 | ) | ||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
126,148,305 | 149,473,326 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 118,152,020 | $ | 126,148,305 | ||||||||||||
|
|
|||||||||||||||
Undistributed net investment income |
$ | 0 | $ | 84,714 | ||||||||||||
|
|
1 | For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Intrinsic Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$23.49 | $25.50 | $23.53 | $22.16 | $15.96 | $14.06 | ||||||||||||||||||
Net investment income (loss) |
(0.15 | )2 | 0.22 | 2 | 0.04 | 0.02 | 0.03 | (0.06 | )2 | |||||||||||||||
Net realized and unrealized gains (losses) on investments |
5.71 | (2.09 | ) | 1.93 | 1.35 | 6.17 | 1.96 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.56 | (1.87 | ) | 1.97 | 1.37 | 6.20 | 1.90 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.13 | ) | (0.14 | ) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||||
Net asset value, end of period |
$28.92 | $23.49 | $25.50 | $23.53 | $22.16 | $15.96 | ||||||||||||||||||
Total return3 |
23.68 | % | (7.36 | )% | 8.37 | % | 6.33 | % | 38.66 | % | 13.51 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.48 | % | 1.47 | % | 1.46 | % | 1.57 | % | 1.56 | % | 1.48 | % | ||||||||||||
Net expenses |
1.35 | % | 1.35 | % | 1.40 | % | 1.44 | % | 1.45 | % | 1.45 | % | ||||||||||||
Net investment income (loss) |
(0.57 | )% | 0.95 | % | 0.15 | % | 0.19 | % | 0.11 | % | (0.38 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
142 | % | 66 | % | 60 | % | 22 | % | 75 | % | 33 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$52,817 | $49,898 | $817 | $908 | $967 | $357 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Intrinsic Small Cap Value Fund | 19 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$22.11 | $24.04 | $22.35 | $21.12 | $15.32 | $13.60 | ||||||||||||||||||
Net investment income (loss) |
(0.39 | )2 | (0.00 | )2,3 | (0.14 | )2 | (0.05 | ) | (0.13 | )2 | (0.16 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
5.42 | (1.93 | ) | 1.83 | 1.28 | 5.93 | 1.88 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.03 | (1.93 | ) | 1.69 | 1.23 | 5.80 | 1.72 | |||||||||||||||||
Net asset value, end of period |
$27.14 | $22.11 | $24.04 | $22.35 | $21.12 | $15.32 | ||||||||||||||||||
Total return4 |
22.75 | % | (8.03 | )% | 7.56 | % | 6.02 | % | 37.60 | % | 12.65 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
2.22 | % | 2.22 | % | 2.21 | % | 2.33 | % | 2.30 | % | 2.22 | % | ||||||||||||
Net expenses |
2.10 | % | 2.12 | % | 2.15 | % | 2.19 | % | 2.20 | % | 2.20 | % | ||||||||||||
Net investment loss |
(1.52 | )% | (0.00 | )% | (0.62 | )% | (0.54 | )% | (0.66 | )% | (1.12 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
142 | % | 66 | % | 60 | % | 22 | % | 75 | % | 33 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$989 | $285 | $304 | $429 | $418 | $89 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Amount is less than $0.005. |
4 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Intrinsic Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$23.89 | $25.95 | $23.90 | $22.49 | $16.16 | $14.20 | ||||||||||||||||||
Net investment income (loss) |
(0.10 | )2 | 0.22 | 2 | 0.07 | 2 | 0.04 | 2 | 0.09 | (0.02 | )2 | |||||||||||||
Net realized and unrealized gains (losses) on investments |
5.80 | (2.08 | ) | 1.98 | 1.37 | 6.24 | 1.98 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.70 | (1.86 | ) | 2.05 | 1.41 | 6.33 | 1.96 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.16 | ) | (0.20 | ) | 0.00 | (0.00 | )3 | 0.00 | 0.00 | |||||||||||||||
Net asset value, end of period |
$29.43 | $23.89 | $25.95 | $23.90 | $22.49 | $16.16 | ||||||||||||||||||
Total return4 |
23.86 | % | (7.17 | )% | 8.58 | % | 6.43 | % | 38.99 | % | 13.80 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.40 | % | 1.37 | % | 1.30 | % | 1.42 | % | 1.40 | % | 1.30 | % | ||||||||||||
Net expenses |
1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | ||||||||||||
Net investment income (loss) |
(0.38 | )% | 0.91 | % | 0.27 | % | 0.45 | % | 0.52 | % | (0.12 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
142 | % | 66 | % | 60 | % | 22 | % | 75 | % | 33 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$4,355 | $4,893 | $5,110 | $10,498 | $11,182 | $6,801 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Amount is less than $0.005. |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Intrinsic Small Cap Value Fund | 21 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$24.13 | $26.22 | $24.19 | $22.78 | $16.32 | $14.32 | ||||||||||||||||||
Net investment income (loss) |
(0.07 | )2 | 0.33 | 0.14 | 2 | 0.06 | 2 | 0.12 | 2 | 0.01 | 2 | |||||||||||||
Net realized and unrealized gains (losses) on investments |
5.89 | (2.17 | ) | 1.99 | 1.39 | 6.34 | 1.99 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.82 | (1.84 | ) | 2.13 | 1.45 | 6.46 | 2.00 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.22 | ) | (0.25 | ) | (0.10 | ) | (0.04 | ) | 0.00 | 0.00 | ||||||||||||||
Net asset value, end of period |
$29.73 | $24.13 | $26.22 | $24.19 | $22.78 | $16.32 | ||||||||||||||||||
Total return3 |
24.14 | % | (7.02 | )% | 8.83 | % | 6.50 | % | 39.40 | % | 13.97 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.15 | % | 1.12 | % | 1.03 | % | 1.15 | % | 1.10 | % | 1.05 | % | ||||||||||||
Net expenses |
1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||||
Net investment income (loss) |
(0.26 | )% | 1.10 | % | 0.57 | % | 0.64 | % | 0.58 | % | 0.07 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
142 | % | 66 | % | 60 | % | 22 | % | 75 | % | 33 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$59,991 | $71,072 | $84,563 | $79,312 | $71,934 | $40,073 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Intrinsic Small Cap Value Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Intrinsic Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.
Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount
Notes to financial statements | Wells Fargo Intrinsic Small Cap Value Fund | 23 |
of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to certain distributions paid, corporate actions, and expiration of capital loss carryforwards. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Paid-in capital | Accumulated net investment loss |
Accumulated net realized losses on investments | ||
$(30,782,469) | $1,135,791 | $29,646,678 |
As of March 31, 2017, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $7,689,710 expiring in 2018.
24 | Wells Fargo Intrinsic Small Cap Value Fund | Notes to financial statements |
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant unobservable inputs (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 11,032,755 | $ | 0 | $ | 0 | $ | 11,032,755 | ||||||||
Consumer staples |
3,824,150 | 0 | 0 | 3,824,150 | ||||||||||||
Energy |
8,847,016 | 0 | 0 | 8,847,016 | ||||||||||||
Financials |
31,424,413 | 0 | 0 | 31,424,413 | ||||||||||||
Health care |
10,633,611 | 0 | 0 | 10,633,611 | ||||||||||||
Industrials |
22,656,267 | 0 | 0 | 22,656,267 | ||||||||||||
Information technology |
14,357,317 | 0 | 0 | 14,357,317 | ||||||||||||
Materials |
4,917,134 | 0 | 0 | 4,917,134 | ||||||||||||
Real estate |
6,818,555 | 0 | 0 | 6,818,555 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
3,115,232 | 0 | 0 | 3,115,232 | ||||||||||||
Investments measured at net asset value* |
6,195,325 | |||||||||||||||
Total assets |
$ | 117,626,450 | $ | 0 | $ | 0 | $ | 123,821,775 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $6,195,325 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
Notes to financial statements | Wells Fargo Intrinsic Small Cap Value Fund | 25 |
4. TRANSACTIONS WITH AFFILIATES AND OTHERS EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase. Prior to July 1, 2016, Metropolitan West Capital Management, LLC was the subadviser and received a fee at the same annual rates. On July 1, 2016, Metropolitan West Capital Management, LLC merged with WellsCap.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class C |
0.21 | % | ||
Administrator Class , Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.35% for Class A shares, 2.10% for Class C shares, 1.20% for Class Administrator shares, and 1.00% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $121 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $3,046 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fee
The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class C shares. For the year ended March 31, 2017, Funds Distributor received $754 from the sale of Class A shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
26 | Wells Fargo Intrinsic Small Cap Value Fund | Notes to financial statements |
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $157,839,610 and $175,704,921, respectively.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $744,658 and $1,082,941 of ordinary income for the years ended March 31, 2017 and March 31, 2016, respectively.
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Unrealized gains |
Capital loss carryforward | |
$14,939,350 | $(7,689,710) |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
Notes to financial statements | Wells Fargo Intrinsic Small Cap Value Fund | 27 |
11. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
28 | Wells Fargo Intrinsic Small Cap Value Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Intrinsic Small Cap Value Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the three-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years in the two-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Intrinsic Small Cap Value Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
Other information (unaudited) | Wells Fargo Intrinsic Small Cap Value Fund | 29 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2017.
Pursuant to Section 854 of the Internal Revenue Code, $744,658 of income dividends paid during the fiscal year ended March 31, 2017 has been designated as qualified dividend income (QDI).
For the fiscal year ended March 31, 2017, $13,039 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
30 | Wells Fargo Intrinsic Small Cap Value Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
Other information (unaudited) | Wells Fargo Intrinsic Small Cap Value Fund | 31 |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
(Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
32 | Wells Fargo Intrinsic Small Cap Value Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302872 05-17 A242/AR242 03-17 |
Annual Report
Wells Fargo Small Cap Core Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Small Cap Core Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Small Cap Core Fund for the period that ended March 31, 2017. We are reporting on a nine-month period at this time because the fiscal year end for the Fund changed from June 30 to March 31, effective March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Small Cap Core Fund | 3 |
remained at historically low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Small Cap Core Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the
future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Small Cap Core Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Golden Capital Management, LLC
Portfolio managers
John R. Campbell, CFA®
Justin P. Carr, CFA®
Greg W. Golden, CFA®
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||||||||||
Inception date | 9 month* | 1 year | 5 year | 10 year | 9 month* | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||||||||
Class A (WOSCX) | 5-20-2016 | 17.15 | 16.48 | 12.04 | 4.59 | 24.30 | 23.58 | 13.37 | 5.21 | 1.33 | 1.33 | |||||||||||||||||||||||||||||||
Class C (WCSCX) | 5-20-2016 | 22.70 | 21.71 | 12.54 | 4.43 | 23.70 | 22.71 | 12.54 | 4.43 | 2.08 | 2.08 | |||||||||||||||||||||||||||||||
Class R6 (WRSCX) | 5-20-2016 | – | – | – | – | 24.73 | 24.14 | 13.79 | 5.59 | 0.90 | 0.90 | |||||||||||||||||||||||||||||||
Administrator Class (WNSCX) | 5-20-2016 | – | – | – | – | 24.47 | 23.77 | 13.50 | 5.32 | 1.25 | 1.25 | |||||||||||||||||||||||||||||||
Institutional Class (WYSCX) | 9-13-2005 | – | – | – | – | 24.67 | 24.08 | 13.78 | 5.58 | 1.00 | 1.00 | |||||||||||||||||||||||||||||||
Russell 2000® Index4 | – | – | – | – | – | 21.60 | 26.22 | 12.35 | 7.12 | – | – |
* | Returns for periods of less than one year are not annualized. |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Class R6, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Small Cap Core Fund | 7 |
Growth of $10,000 investment as of March 31, 20175 |
1 | Historical performance shown for the Class A, Class C, and Administrator Class shares prior to their inception reflects the performance of the Institutional Class shares, and are adjusted to reflect the higher expenses applicable to Class A, Class C, and Administrator shares, respectively. Historical performance shown for the Class R6 shares prior to their inception reflects the performance of the Institutional Class shares, and has not been adjusted to reflect the expenses of the Class R6 shares. If these expenses had been included, returns for Class R6 shares would be higher. Historical performance shown for all classes of the Fund prior to May 20, 2016 is based on the performance of the Fund’s predecessor, Golden Small Cap Core Fund. |
2 | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
3 | The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 1.35% for Class A, 2.10% for Class C, 0.90% for Class R6, 1.25% for Administrator Class, and 1.00% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index. |
5 | The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
6 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
7 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
8 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Small Cap Core Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund outperformed the Russell 2000® Index for the nine-month period that ended March 31, 2017. |
∎ | Stock selection added value in 6 out of 11 sectors. The best relative performance came from the real estate, information technology (IT), consumer discretionary, and industrials sectors. Relative weakness was found in the financials, energy, and materials sectors. |
∎ | From a sector-positioning perspective, the Fund benefited from underweights to the consumer discretionary, real estate, and utilities sectors. Detractors included the Fund’s modest cash position, an overweight to the health care sector, and underweights to the financials and materials sectors. |
Fund positioning during the period included overweights to the health care, IT, industrials, and consumer staples sectors and underweights to the financials, utilities, energy, real estate, and consumer discretionary sectors.
Ten largest holdings (%) as of March 31, 20176 | ||||
Biotelemetry Incorporated |
2.78 | |||
Nutrisystem Incorporated |
2.57 | |||
Supernus Pharmaceuticals Incorporated |
2.40 | |||
Wabash National Corporation |
2.27 | |||
Trinseo SA |
2.20 | |||
The Geo Group Incorporated |
2.18 | |||
FCB Financial Holdings Class A |
2.17 | |||
Advanced Energy Industries Incorporated |
2.09 | |||
Evercore Partners Incorporated Class A |
2.06 | |||
Sanmina Corporation |
2.02 |
Stock selection played a role in the Fund’s outperformance for the period.
Top contributors included Nutrisystem, Incorporated; The GEO Group, Incorporated; BioTelemetry, Incorporated; Argan, Incorporated; and Cirrus Logic Incorporated. Nutrisystem, a leading provider of weight-management products and services, including Nutrisystem and South Beach Diet brands, reported 18% year-over-year revenue growth for 2016. Nutrisystem also reported 36% growth in net income and a 34% increase in diluted income per common share. Nutrisystem acquired South Beach Diet in December 2015 and launched the new structure in January 2017. The GEO Group operates private correctional facilities in the U.S., Australia, Canada, New Zealand, and South Africa. GEO’s U.S. Corrections and Detention
business unit processed over 276,000 admissions and 267,000 releases in 2016 while managing an average daily population of more than 60,000 individuals without any significant incidents at its facilities across the U.S. The company’s 2016 total revenues increased to $2.18 billion compared with $1.84 billion in 2015. BioTelemetry, a leading wireless medical technology company focused on the delivery of health information to improve quality of life and reduce cost of care, reported its 18th consecutive quarter of growth in the fourth quarter of 2016. During the fourth quarter of 2016, revenue grew by 15% to $54 million, achieving the upper end of BioTelemetry’s expected range. Full-year revenue for 2016 was $208 million, up 17% from 2015. Overall, profit margins continued to improve. Argan, a designer and builder of electric power plants, reported fiscal 2017 revenue growth of 63% versus the prior-year period, primarily due to Gemma Power Systems, a wholly owned subsidiary, ramping up work on four large gas-fired power plants and the completion of two large power plants. Cirrus Logic—a semiconductor company that develops audio and voice-integrated circuits and software solutions for mobile communications, automotive entertainment, and consumer audio applications—finished its fiscal 2017 reporting period with strong cash flows and improved prospects for fiscal year 2018. The company continued to expand into other flagship and mid-tier smartphone offerings and may be well positioned for the launch of the next-generation iPhone.
Detractors within the Fund included Xperi Corporation; AmTrust Financial Services, Incorporated; SunCoke Energy, Incorporated; American Outdoor Brands Corporation; and Westmoreland Coal Company.
Xperi licenses its innovative technologies and inventions to global electronic device and manufacturing companies that in turn integrate the technologies into their own enterprise, consumer electronics, and semiconductor products. On December 1, 2016, Xperi completed its acquisition of DTS, Incorporated; the company incurred significant one-time expenses in the fourth quarter of 2016 related to this acquisition, including transaction costs (such as bankers’ fees, legal fees, and consultant fees), severance costs, and stock-based compensation expenses resulting from the acceleration of
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Small Cap Core Fund | 9 |
equity instruments for departing executives. Xperi’s amortization expense also increased significantly due to the acquired intangible assets resulting from the DTS acquisition. AmTrust offers property and casualty insurance, workers’ compensation, special risk, and extended service plans. The company reported weaker-than-expected results for the fourth quarter of 2016 and needed to revise some of its previous financial reports; we exited the position in 2017 in response to weakening fundamentals and the announcement of financial restatements. SunCoke Energy, which produces metallurgical coke, had expected earnings per share of $0.30 for the fourth quarter of 2016 but fell short, delivering only $0.26 per share; the company also missed its expected quarterly revenue by $131.3 million. The company’s domestic coke production declined due to lower production at its Indiana facility. Coal logistics revenue, however, increased due to higher sales volume at its Convent Marine and Kanawha River Terminals. American Outdoor Brands, the maker of Smith & Wesson firearms, declined in the wake of the November presidential election as investors’ concerns regarding the potential for increased gun restrictions lessened with the new Trump administration. Shareholders also approved the company’s name change from Smith & Wesson to American Outdoor Brands to better represent its broad array of brands and businesses in the shooting, hunting, and outdoor-enthusiast markets. Westmoreland Coal declined after reporting a challenging first quarter of 2017 due to low weather-related demand as well as mining-equipment repairs.
Our investment process seeks to identify attractively valued companies likely to exceed earnings expectations.
Our investment process, which we refer to as an active-quant approach, combines quantitative and qualitative evaluations of each company being considered. Our quantitative evaluation looks at valuation, earnings, and momentum-related factors to produce an objective, unbiased review of each company in the investment universe and its ranking compared with other companies being considered. A company’s ranking is the primary basis for our buy and sell decisions. We also place a high value on qualitative analysis; our investment professionals evaluate each company in light of overall market conditions and the company’s potential impact on the Fund from a risk/reward perspective. We have developed measurement tools and tailored our investment process in support of two key tenets of our investment philosophy: Companies purchased should be available at a reasonable price, and they should be profitable and capable of increasing revenues and earnings.
Despite recent and possible future risks, we believe our process will continue to uncover potentially attractive investment opportunities.
U.S. markets recently traded at or near all-time highs. In coming quarters, we believe investors should pay close attention to corporate earnings. With the market trading near full-valuation levels, better-than-expected earnings may be required to propel the markets higher. Regarding monetary policy, we believe the U.S. Federal Reserve may continue its path toward normalizing interest rates, with short-term interest rates moving higher in 2017. Regarding fiscal policy, based on the difficulties experienced in the early attempt to repeal and replace the Affordable Care Act, the Trump administration’s agenda to reduce regulations, cut taxes, and spend on new infrastructure projects may be more difficult to implement than the markets previously anticipated. With higher interest rates and rising inflation, it may be unlikely that investors will be willing to pay more to achieve the same earnings.
Sector distribution as of March 31, 20178 | ||
Please see footnotes on page 7.
10 | Wells Fargo Small Cap Core Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual Expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 948.10 | $ | 6.56 | 1.35 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.20 | $ | 6.79 | 1.35 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 944.30 | $ | 10.18 | 2.10 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.46 | $ | 10.55 | 2.10 | % | ||||||||
Class R6 |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 950.00 | $ | 4.37 | 0.90 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.44 | $ | 4.53 | 0.90 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 948.50 | $ | 6.07 | 1.25 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.70 | $ | 6.29 | 1.25 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 950.00 | $ | 4.86 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,019.95 | $ | 5.04 | 1.00 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Core Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 99.03% |
||||||||||||||||
Consumer Discretionary: 10.37% |
||||||||||||||||
Auto Components: 2.63% | ||||||||||||||||
LCI Industries |
12,236 | $ | 1,221,153 | |||||||||||||
Tower International Incorporated |
37,344 | 1,012,022 | ||||||||||||||
2,233,175 | ||||||||||||||||
|
|
|||||||||||||||
Hotels, Restaurants & Leisure: 3.28% | ||||||||||||||||
Denny’s Corporation † |
100,032 | 1,237,396 | ||||||||||||||
Ruth’s Chris Steak House Incorporated |
77,095 | 1,545,755 | ||||||||||||||
2,783,151 | ||||||||||||||||
|
|
|||||||||||||||
Internet & Direct Marketing Retail: 2.57% | ||||||||||||||||
Nutrisystem Incorporated |
39,280 | 2,180,040 | ||||||||||||||
|
|
|||||||||||||||
Leisure Products: 0.94% | ||||||||||||||||
American Outdoor Brands Corporation † |
40,501 | 802,325 | ||||||||||||||
|
|
|||||||||||||||
Textiles, Apparel & Luxury Goods: 0.95% | ||||||||||||||||
Skechers U.S.A. Incorporated Class A † |
29,497 | 809,693 | ||||||||||||||
|
|
|||||||||||||||
Consumer Staples: 3.53% |
||||||||||||||||
Food Products: 3.53% | ||||||||||||||||
Dean Foods Company |
68,273 | 1,342,247 | ||||||||||||||
Sanderson Farms Incorporated |
15,985 | 1,659,882 | ||||||||||||||
3,002,129 | ||||||||||||||||
|
|
|||||||||||||||
Energy: 4.19% |
||||||||||||||||
Energy Equipment & Services: 1.10% | ||||||||||||||||
Matrix Service Company † |
56,700 | 935,550 | ||||||||||||||
|
|
|||||||||||||||
Oil, Gas & Consumable Fuels: 3.09% | ||||||||||||||||
Callon Petroleum Company † |
116,549 | 1,533,785 | ||||||||||||||
Westmoreland Coal Company † |
74,758 | 1,085,486 | ||||||||||||||
2,619,271 | ||||||||||||||||
|
|
|||||||||||||||
Financials: 16.27% |
||||||||||||||||
Banks: 3.82% | ||||||||||||||||
FCB Financial Holdings Class A † |
37,252 | 1,845,837 | ||||||||||||||
First Merchants Corporation |
35,525 | 1,396,843 | ||||||||||||||
3,242,680 | ||||||||||||||||
|
|
|||||||||||||||
Capital Markets: 5.49% | ||||||||||||||||
Evercore Partners Incorporated Class A |
22,469 | 1,750,335 | ||||||||||||||
Houlihan Lokey Incorporated |
42,712 | 1,471,428 | ||||||||||||||
OM Asset Management plc |
95,222 | 1,439,757 | ||||||||||||||
4,661,520 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Small Cap Core Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Insurance: 6.96% | ||||||||||||||||
Federated National Holding Company |
56,825 | $ | 990,460 | |||||||||||||
Heritage Insurance Holdings Incorporated |
82,861 | 1,058,135 | ||||||||||||||
Maiden Holdings Limited |
75,902 | 1,062,628 | ||||||||||||||
National General Holdings Corporation |
61,964 | 1,472,265 | ||||||||||||||
Universal Insurance Holdings Company |
54,238 | 1,328,831 | ||||||||||||||
5,912,319 | ||||||||||||||||
|
|
|||||||||||||||
Health Care: 16.29% |
||||||||||||||||
Biotechnology: 1.41% | ||||||||||||||||
Xencor Incorporated † |
50,009 | 1,196,215 | ||||||||||||||
|
|
|||||||||||||||
Health Care Equipment & Supplies: 3.93% | ||||||||||||||||
ICU Medical Incorporated † |
10,860 | 1,658,322 | ||||||||||||||
NuVasive Incorporated † |
22,508 | 1,680,897 | ||||||||||||||
3,339,219 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Providers & Services: 6.88% | ||||||||||||||||
Biotelemetry Incorporated † |
81,667 | 2,364,260 | ||||||||||||||
Cross Country Healthcare Incorporated † |
92,056 | 1,321,924 | ||||||||||||||
HealthSouth Corporation |
28,424 | 1,216,831 | ||||||||||||||
PharMerica Corporation † |
40,204 | 940,774 | ||||||||||||||
5,843,789 | ||||||||||||||||
|
|
|||||||||||||||
Life Sciences Tools & Services: 1.67% | ||||||||||||||||
INC Research Holdings Incorporated Class A † |
30,844 | 1,414,197 | ||||||||||||||
|
|
|||||||||||||||
Pharmaceuticals: 2.40% | ||||||||||||||||
Supernus Pharmaceuticals Incorporated † |
65,104 | 2,037,755 | ||||||||||||||
|
|
|||||||||||||||
Industrials: 16.80% |
||||||||||||||||
Airlines: 1.95% | ||||||||||||||||
SkyWest Incorporated |
48,473 | 1,660,200 | ||||||||||||||
|
|
|||||||||||||||
Commercial Services & Supplies: 3.28% | ||||||||||||||||
ACCO Brands Corporation † |
103,543 | 1,361,590 | ||||||||||||||
UniFirst Corporation |
10,061 | 1,423,128 | ||||||||||||||
2,784,718 | ||||||||||||||||
|
|
|||||||||||||||
Construction & Engineering: 5.01% | ||||||||||||||||
Argan Incorporated |
22,730 | 1,503,590 | ||||||||||||||
Comfort Systems USA Incorporated |
37,373 | 1,369,720 | ||||||||||||||
EMCOR Group Incorporated |
21,907 | 1,379,046 | ||||||||||||||
4,252,356 | ||||||||||||||||
|
|
|||||||||||||||
Machinery: 4.05% | ||||||||||||||||
The Greenbrier Companies Incorporated |
35,167 | 1,515,698 | ||||||||||||||
Wabash National Corporation |
93,032 | 1,924,832 | ||||||||||||||
3,440,530 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Core Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Professional Services: 2.51% | ||||||||||||||||
Insperity Incorporated |
15,373 | $ | 1,362,816 | |||||||||||||
RPX Corporation † |
64,060 | 768,720 | ||||||||||||||
2,131,536 | ||||||||||||||||
|
|
|||||||||||||||
Information Technology: 17.86% |
||||||||||||||||
Electronic Equipment, Instruments & Components: 3.58% | ||||||||||||||||
Methode Electronics Incorporated |
29,073 | 1,325,729 | ||||||||||||||
Sanmina Corporation † |
42,219 | 1,714,091 | ||||||||||||||
3,039,820 | ||||||||||||||||
|
|
|||||||||||||||
Internet Software & Services: 3.07% | ||||||||||||||||
J2 Global Incorporated |
17,954 | 1,506,520 | ||||||||||||||
Web.com Group Incorporated † |
57,186 | 1,103,690 | ||||||||||||||
2,610,210 | ||||||||||||||||
|
|
|||||||||||||||
IT Services: 1.98% | ||||||||||||||||
Hackett Group Incorporated |
86,091 | 1,677,914 | ||||||||||||||
|
|
|||||||||||||||
Semiconductors & Semiconductor Equipment: 9.23% | ||||||||||||||||
Advanced Energy Industries Incorporated † |
25,882 | 1,774,470 | ||||||||||||||
Cirrus Logic Incorporated † |
27,994 | 1,698,956 | ||||||||||||||
Inphi Corporation † |
34,804 | 1,699,131 | ||||||||||||||
MaxLinear Incorporated Class A † |
56,199 | 1,576,382 | ||||||||||||||
Xperi Corporation |
32,236 | 1,094,412 | ||||||||||||||
7,843,351 | ||||||||||||||||
|
|
|||||||||||||||
Materials: 4.73% |
||||||||||||||||
Chemicals: 2.20% | ||||||||||||||||
Trinseo SA |
27,843 | 1,868,265 | ||||||||||||||
|
|
|||||||||||||||
Containers & Packaging: 1.34% | ||||||||||||||||
Graphic Packaging Holding Company |
88,219 | 1,135,379 | ||||||||||||||
|
|
|||||||||||||||
Metals & Mining: 1.19% | ||||||||||||||||
Suncoke Energy Incorporated † |
112,885 | 1,011,450 | ||||||||||||||
|
|
|||||||||||||||
Real Estate: 6.01% |
||||||||||||||||
Equity REITs: 6.01% | ||||||||||||||||
Ashford Hospitality Trust Incorporated |
166,531 | 1,060,802 | ||||||||||||||
InfraREIT Incorporated |
54,733 | 985,194 | ||||||||||||||
QTS Realty Trust Incorporated Class A |
24,812 | 1,209,585 | ||||||||||||||
Geo Group Incorporated |
39,914 | 1,850,812 | ||||||||||||||
5,106,393 | ||||||||||||||||
|
|
|||||||||||||||
Utilities: 2.98% |
||||||||||||||||
Electric Utilities: 1.27% | ||||||||||||||||
Spark Energy Incorporated Class A |
33,724 | 1,077,482 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Small Cap Core Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Independent Power & Renewable Electricity Producers: 1.71% | ||||||||||||||||
NRG Yield Incorporated Class A |
83,794 | $ | 1,457,178 | |||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $63,844,524) |
84,109,810 | |||||||||||||||
|
|
|||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 0.94% | ||||||||||||||||
Investment Companies: 0.94% | ||||||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | % | 794,950 | 794,950 | ||||||||||||
|
|
|||||||||||||||
Total Short-Term Investments (Cost $794,950) |
794,950 | |||||||||||||||
|
|
Total investments in securities (Cost $64,639,474) * | 99.97 | % | 84,904,760 | |||||
Other assets and liabilities, net |
0.03 | 25,342 | ||||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 84,930,102 | ||||
|
|
|
|
† | Non-income-earning security |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $65,278,564 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 22,441,806 | ||
Gross unrealized losses |
(2,815,610 | ) | ||
|
|
|||
Net unrealized gains |
$ | 19,626,196 |
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities—March 31, 2017 | Wells Fargo Small Cap Core Fund | 15 |
Assets |
||||
Investments |
||||
In unaffiliated securities, at value (cost $63,844,524) |
$ | 84,109,810 | ||
In affiliated securities, at value (cost $794,950) |
794,950 | |||
|
|
|||
Total investments, at value (cost $64,639,474) |
84,904,760 | |||
Receivable for Fund shares sold |
83,693 | |||
Receivable for dividends |
79,978 | |||
Prepaid expenses and other assets |
11,864 | |||
|
|
|||
Total assets |
85,080,295 | |||
|
|
|||
Liabilities |
||||
Payable for Fund shares redeemed |
58,887 | |||
Management fee payable |
51,034 | |||
Distribution fee payable |
108 | |||
Administration fees payable |
9,914 | |||
Accrued expenses and other liabilities |
30,250 | |||
|
|
|||
Total liabilities |
150,193 | |||
|
|
|||
Total net assets |
$ | 84,930,102 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 118,802,867 | ||
Accumulated net realized losses on investments |
(54,138,051 | ) | ||
Net unrealized gains on investments |
20,265,286 | |||
|
|
|||
Total net assets |
$ | 84,930,102 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 443,305 | ||
Shares outstanding – Class A1 |
21,158 | |||
Net asset value per share – Class A |
$20.95 | |||
Maximum offering price per share – Class A2 |
$22.23 | |||
Net assets – Class C |
$ | 164,027 | ||
Shares outstanding – Class C1 |
7,872 | |||
Net asset value per share – Class C |
$20.84 | |||
Net assets – Class R6 |
$ | 126,845 | ||
Shares outstanding – Class R61 |
6,031 | |||
Net asset value per share – Class R6 |
$21.03 | |||
Net assets – Administrator Class |
$ | 128,825 | ||
Shares outstanding – Administrator Class1 |
6,142 | |||
Net asset value per share – Administrator Class |
$20.98 | |||
Net assets – Institutional Class |
$ | 84,067,100 | ||
Shares outstanding – Institutional Class1 |
3,999,949 | |||
Net asset value per share – Institutional Class |
$21.02 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Small Cap Core Fund | Statement of operations —year ended March 31, 2017 |
Year ended |
Year ended |
|||||||
Investment income |
||||||||
Dividends |
$ | 683,866 | $ | 1,513,654 | ||||
Income from affiliated securities |
2,136 | 2,865 | ||||||
|
|
|||||||
Total investment income |
686,002 | 1,516,519 | ||||||
|
|
|||||||
Expenses |
||||||||
Management fee |
611,780 | 1,220,746 | ||||||
Administration fees |
||||||||
Class A |
383 | 24 | 3 | |||||
Class C |
197 | 23 | 3 | |||||
Class R6 |
26 | 3 | 3 | |||||
Administrator Class |
115 | 14 | 3 | |||||
Institutional Class |
92,980 | 16,192 | ||||||
Shareholder servicing fees |
||||||||
Class A |
456 | 29 | 3 | |||||
Class C |
234 | 27 | 3 | |||||
Administrator Class |
220 | 27 | 3 | |||||
Distribution fee |
||||||||
Class C |
703 | 82 | 3 | |||||
Custody and accounting fees |
13,314 | 1,969 | ||||||
Professional fees |
32,499 | 4,592 | ||||||
Registration fees |
37,804 | 5,342 | ||||||
Shareholder report expenses |
25,709 | 3,633 | ||||||
Trustees’ fees and expenses |
10,615 | 1,500 | ||||||
Other fees and expenses |
6,800 | 961 | ||||||
|
|
|||||||
Total expenses |
833,835 | 1,255,164 | ||||||
Less: Fee waivers and/or expense reimbursements |
(112,292 | ) | (24,517 | ) | ||||
|
|
|||||||
Net expenses |
721,543 | 1,230,647 | ||||||
|
|
|||||||
Net investment income (loss) |
(35,541 | ) | 285,872 | |||||
|
|
|||||||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||||||
Net realized gains (losses) on investments |
5,996,629 | (10,551,715 | ) | |||||
Net change in unrealized gains (losses) on investments |
15,099,348 | (2,795,570 | ) | |||||
|
|
|||||||
Net realized and unrealized gains (losses) on investments |
21,095,977 | (13,347,285 | ) | |||||
|
|
|||||||
Net increase (decrease) in net assets resulting from operations |
$ | 21,060,436 | $ | (13,061,413 | ) | |||
|
|
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | After the close of business on May 20, 2016, the Fund acquired the net assets of Golden Small Cap Core Fund, which became the accounting and performance survivor in the transaction. The information for the period prior to May 20, 2016 is that of Golden Small Cap Core Fund. |
3 | For the period May 20, 2016 (commencement of class operations) to June 30, 2016. |
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets | Wells Fargo Small Cap Core Fund | 17 |
Year ended March 31, 20171 |
Year ended June 30, 20162 |
Year ended June 30, 20152 |
||||||||||||||||||||||
Operations |
||||||||||||||||||||||||
Net investment income (loss) |
$ | (35,541 | ) | $ | 285,872 | $ | 154,172 | |||||||||||||||||
Net realized gains (losses) on investments |
5,996,629 | (10,551,715 | ) | 2,177,443 | ||||||||||||||||||||
Net change in unrealized gains (losses) on investments |
15,099,348 | (2,795,570 | ) | 2,762,213 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||
Net increase (decrease) in net assets resulting from operations |
21,060,436 | (13,061,413 | ) | 5,093,828 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
||||||||||||||||||||||||
Class A |
(604 | ) | 0 | 3 | N/A | |||||||||||||||||||
Class C |
(175 | ) | 0 | 3 | N/A | |||||||||||||||||||
Class R6 |
(284 | ) | 0 | 3 | N/A | |||||||||||||||||||
Administrator Class |
(256 | ) | 0 | 3 | N/A | |||||||||||||||||||
Institutional Class |
(215,546 | ) | (153,914 | ) | (55,322 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Total distributions to shareholders |
(216,865 | ) | (153,914 | ) | (55,322 | ) | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Capital share transactions |
Shares | Shares | Shares | |||||||||||||||||||||
Proceeds from shares sold |
||||||||||||||||||||||||
Class A |
20,038 | 404,696 | 7,790 | 3 | 130,000 | 3 | N/A | N/A | ||||||||||||||||
Class C |
3,008 | 61,918 | 6,017 | 3 | 100,000 | 3 | N/A | N/A | ||||||||||||||||
Class R6 |
0 | 0 | 6,017 | 3 | 100,000 | 3 | N/A | N/A | ||||||||||||||||
Administrator Class |
112 | 2,000 | 6,017 | 3 | 100,000 | 3 | N/A | N/A | ||||||||||||||||
Institutional Class |
249,066 | 4,819,045 | 5,103,153 | 91,283,720 | 3,539,453 | 63,438,443 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
5,287,659 | 91,713,720 | 63,438,443 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Reinvestment of distributions |
||||||||||||||||||||||||
Class A |
30 | 604 | 0 | 3 | 0 | 3 | N/A | N/A | ||||||||||||||||
Class C |
9 | 175 | 0 | 3 | 0 | 3 | N/A | N/A | ||||||||||||||||
Class R6 |
14 | 284 | 0 | 3 | 0 | 3 | N/A | N/A | ||||||||||||||||
Administrator Class |
13 | 256 | 0 | 3 | 0 | 3 | N/A | N/A | ||||||||||||||||
Institutional Class |
2,392 | 48,291 | 1,813 | 32,246 | 293 | 5,120 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
49,610 | 32,246 | 5,120 | ||||||||||||||||||||||
|
|
|||||||||||||||||||||||
Payment for shares redeemed |
||||||||||||||||||||||||
Class A |
(6,700 | ) | (137,246 | ) | 0 | 3 | 0 | 3 | N/A | N/A | ||||||||||||||
Class C |
(1,162 | ) | (23,747 | ) | 0 | 3 | 0 | 3 | N/A | N/A | ||||||||||||||
Institutional Class |
(2,874,456 | ) | (53,427,708 | ) | (2,992,788 | ) | (50,609,931 | ) | (352,069 | ) | (6,234,965 | ) | ||||||||||||
|
|
|||||||||||||||||||||||
(53,588,701 | ) | (50,609,931 | ) | (6,234,965 | ) | |||||||||||||||||||
|
|
|||||||||||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions |
(48,251,432 | ) | 41,136,035 | 57,208,598 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||
Total increase (decrease) in net assets |
(27,407,861 | ) | 27,920,708 | 62,247,104 | ||||||||||||||||||||
|
|
|||||||||||||||||||||||
Net assets |
||||||||||||||||||||||||
Beginning of period |
112,337,963 | 84,417,255 | 22,170,151 | |||||||||||||||||||||
|
|
|||||||||||||||||||||||
End of period |
$ | 84,930,102 | $ | 112,337,963 | $ | 84,417,255 | ||||||||||||||||||
|
|
|||||||||||||||||||||||
Undistributed net investment income |
$ | 0 | $ | 216,815 | $ | 153,878 | ||||||||||||||||||
|
|
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | After the close of business on May 20, 2016, the Fund acquired the net assets of Golden Small Cap Core Fund, which became the accounting and performance survivor in the transaction. The information for the periods prior to May 20, 2016 is that of Golden Small Cap Core Fund. |
3 | For the period May 20, 2016 (commencement of class operations) to June 30, 2016. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Small Cap Core Fund | Financial highlights |
(For a share outstanding throughout each period)
CLASS A | Year ended |
Year ended |
||||||
Net asset value, beginning of period |
$16.89 | 16.62 | ||||||
Net investment income (loss) |
(0.05 | )3 | 0.01 | 3 | ||||
Net realized and unrealized gains (losses) on investments |
4.15 | 0.26 | ||||||
|
|
|
|
|||||
Total from investment operations |
4.10 | 0.27 | ||||||
Distributions to shareholders from |
||||||||
Net investment income |
(0.04 | ) | 0.00 | |||||
Net asset value, end of period |
$20.95 | $16.89 | ||||||
Total return4 |
24.30 | % | 1.62 | % | ||||
Ratios to average net assets (annualized) |
||||||||
Gross expenses |
1.50 | % | 1.46 | % | ||||
Net expenses |
1.35 | % | 1.35 | % | ||||
Net investment income (loss) |
(0.32 | )% | 0.65 | % | ||||
Supplemental data |
||||||||
Portfolio turnover rate |
25 | % | 61 | % | ||||
Net assets, end of period (000s omitted) |
$443 | $132 |
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | For the period May 20, 2016 (commencement of class operations) to June 30, 2016. |
3 | Calculated based upon average shares outstanding |
4 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Small Cap Core Fund | 19 |
(For a share outstanding throughout each period)
CLASS C | Year ended |
Year ended |
||||||
Net asset value, beginning of period |
$16.87 | $16.62 | ||||||
Net investment loss |
(0.12 | ) | (0.00 | )3,4 | ||||
Net realized and unrealized gains (losses) on investments |
4.12 | 0.25 | ||||||
|
|
|
|
|||||
Total from investment operations |
4.00 | 0.25 | ||||||
Distributions to shareholders from |
||||||||
Net investment income |
(0.03 | ) | 0.00 | |||||
Net asset value, end of period |
$20.84 | $16.87 | ||||||
Total return5 |
23.70 | % | 1.50 | % | ||||
Ratios to average net assets (annualized) |
||||||||
Gross expenses |
2.24 | % | 2.21 | % | ||||
Net expenses |
2.10 | % | 2.10 | % | ||||
Net investment loss |
(1.10 | )% | (0.27 | )% | ||||
Supplemental data |
||||||||
Portfolio turnover rate |
25 | % | 61 | % | ||||
Net assets, end of period (000s omitted) |
$164 | $102 |
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | For the period May 20, 2016 (commencement of class operations) to June 30, 2016. |
3 | Calculated based upon average shares outstanding |
4 | Amount is less than $0.005. |
5 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Small Cap Core Fund | Financial highlights |
(For a share outstanding throughout each period)
CLASS R6 | Year ended |
Year ended |
||||||
Net asset value, beginning of period |
$16.90 | $16.62 | ||||||
Net investment income |
0.01 | 0.02 | 3 | |||||
Net realized and unrealized gains (losses) on investments |
4.17 | 0.26 | ||||||
|
|
|
|
|||||
Total from investment operations |
4.18 | 0.28 | ||||||
Distributions to shareholders from |
||||||||
Net investment income |
(0.05 | ) | 0.00 | |||||
Net asset value, end of period |
$21.03 | $16.90 | ||||||
Total return4 |
24.73 | % | 1.68 | % | ||||
Ratios to average net assets (annualized) |
||||||||
Gross expenses |
1.06 | % | 1.03 | % | ||||
Net expenses |
0.90 | % | 0.90 | % | ||||
Net investment income |
0.09 | % | 0.93 | % | ||||
Supplemental data |
||||||||
Portfolio turnover rate |
25 | % | 61 | % | ||||
Net assets, end of period (000s omitted) |
$127 | $102 |
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | For the period May 20, 2016 (commencement of class operations) to June 30, 2016. |
3 | Calculated based upon average shares outstanding |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Small Cap Core Fund | 21 |
(For a share outstanding throughout each period)
ADMINISTRATOR CLASS | Year ended |
Year ended |
||||||
Net asset value, beginning of period |
$16.89 | $16.62 | ||||||
Net investment income (loss) |
(0.04 | ) | 0.01 | 3 | ||||
Net realized and unrealized gains (losses) on investments |
4.17 | 0.26 | ||||||
|
|
|
|
|||||
Total from investment operations |
4.13 | 0.27 | ||||||
Distributions to shareholders from |
||||||||
Net investment income |
(0.04 | ) | 0.00 | |||||
Net asset value, end of period |
$20.98 | $16.89 | ||||||
Total return4 |
24.47 | % | 1.62 | % | ||||
Ratios to average net assets (annualized) |
||||||||
Gross expenses |
1.41 | % | 1.37 | % | ||||
Net expenses |
1.25 | % | 1.25 | % | ||||
Net investment income (loss) |
(0.26 | )% | 0.58 | % | ||||
Supplemental data |
||||||||
Portfolio turnover rate |
25 | % | 61 | % | ||||
Net assets, end of period (000s omitted) |
$129 | $102 |
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | For the period May 20, 2016 (commencement of class operations) to June 30, 2016. |
3 | Calculated based upon average shares outstanding |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Small Cap Core Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended |
Year ended June 30 | |||||||||||||||||||||||
INSTITUTIONAL CLASS | 20162 | 20152 | 20142 | 20132 | 20122 | |||||||||||||||||||
Net asset value, beginning of period |
$16.90 | $18.71 | $16.76 | $13.57 | $10.64 | $11.10 | ||||||||||||||||||
Net investment income (loss) |
(0.01 | )3 | 0.04 | 3 | 0.06 | 3 | 0.05 | 3 | 0.16 | 3 | (0.01 | )3 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
4.18 | (1.83 | ) | 1.92 | 3.36 | 2.77 | (0.45 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
4.17 | (1.79 | ) | 1.98 | 3.41 | 2.93 | (0.46 | ) | ||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.05 | ) | (0.02 | ) | (0.03 | ) | (0.22 | ) | 0.00 | 0.00 | ||||||||||||||
Net asset value, end of period |
$21.02 | $16.90 | $18.71 | $16.76 | $13.57 | $10.64 | ||||||||||||||||||
Total return4 |
24.67 | % | (9.57 | )% | 11.80 | % | 25.21 | % | 27.54 | % | (4.14 | )% | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.16 | % | 1.11 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.11 | % | ||||||||||||
Net expenses |
1.00 | % | 1.09 | % | 1.10 | % | 1.10 | % | 1.10 | % | 1.10 | % | ||||||||||||
Net investment income (loss) |
(0.05 | )% | 0.25 | % | 0.37 | % | 0.30 | % | 1.32 | % | (0.12 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
25 | % | 61 | % | 57 | % | 68 | % | 52 | % | 56 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$84,067 | $111,902 | $84,417 | $22,170 | $20,093 | $27,427 |
1 | For the nine months ended March 31, 2017. The Fund changed its fiscal year end from June 30 to March 31, effective March 31, 2017. |
2 | After the close of business on May 20, 2016, the Fund acquired the net assets of Golden Small Cap Core Fund, which became the accounting and performance survivor in the transaction. The information for the periods prior to May 20, 2016 is that of Golden Small Cap Core Fund. |
3 | Calculated based upon average shares outstanding |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Notes to financial statements | Wells Fargo Small Cap Core Fund | 23 |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Small Cap Core Fund (the “Fund”) which is a diversified series of the Trust.
After the close of business on May 20, 2016, the net assets of Golden Small Cap Core Fund were acquired by the Fund, which was created to receive the assets of Golden Small Cap Core Fund, in an exchange for shares of the Fund. Institutional shares of Golden Small Cap Core Fund received shares of Institutional Class of the Fund in the transaction. Since Golden Small Cap Core Fund contributed all of the net assets and shareholders to the newly created Wells Fargo fund, the accounting and performance history of Golden Small Cap Core Fund has been carried forward in the financial statements contained herein.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date.
24 | Wells Fargo Small Cap Core Fund | Notes to financial statements |
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Paid-in capital | Accumulated net investment loss | |
$(35,591) | $35,591 |
Capital loss carryforwards that do not expire are required to be utilized prior to capital loss carryforwards that expire. As of March 31, 2017, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:
No expiration | ||
2018 | Short-term | |
$49,578,591 | $3,920,370 |
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
Notes to financial statements | Wells Fargo Small Cap Core Fund | 25 |
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 8,808,384 | $ | 0 | $ | 0 | $ | 8,808,384 | ||||||||
Consumer staples |
3,002,129 | 0 | 0 | 3,002,129 | ||||||||||||
Energy |
3,554,821 | 0 | 0 | 3,554,821 | ||||||||||||
Financials |
13,816,519 | 0 | 0 | 13,816,519 | ||||||||||||
Health care |
13,831,175 | 0 | 0 | 13,831,175 | ||||||||||||
Industrials |
14,269,340 | 0 | 0 | 14,269,340 | ||||||||||||
Information technology |
15,171,295 | 0 | 0 | 15,171,295 | ||||||||||||
Materials |
4,015,094 | 0 | 0 | 4,015,094 | ||||||||||||
Real estate |
5,106,393 | 0 | 0 | 5,106,393 | ||||||||||||
Utilities |
2,534,660 | 0 | 0 | 2,534,660 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
794,950 | 0 | 0 | 794,950 | ||||||||||||
Total assets |
$ | 84,904,760 | $ | 0 | $ | 0 | $ | 84,904,760 |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase. For the nine months ended March 31, 2017, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.
Prior to May 20, 2016, Golden Capital Management, LLC, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, was the investment adviser to the predecessor fund and received an advisory fee at an annual rate of 1.10% of the average daily net assets of the predecessor fund. For financial statement purposes, the advisory fee incurred prior to May 20, 2016 has been included in management fee on the Statement of Operations. For the year ended June 30, 2016, the management fee was equivalent to an annual rate of 1.08% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Golden Capital Management, LLC is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.45% as the average daily net assets of the Fund increase.
26 | Wells Fargo Small Cap Core Fund | Notes to financial statements |
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class C |
0.21 | % | ||
Class R6 |
0.03 | |||
Administrator Class, Institutional Class |
0.13 |
Prior to May 20, 2016, the Institutional Class of the predecessor fund did not incur any administration fees.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.35% for Class A shares, 2.10% for Class C shares, 0.90% for Class R6 shares, 1.25% for Administrator Class shares, and 1.00% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fees is charged to Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares. Prior to May 20, 2016, the predecessor fund did not have a distribution plan.
In addition, Funds Distributor is also entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class C shares. For the nine months ended March 31, 2017, Funds Distributor received $35 from the sale of Class A shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the nine months ended March 31, 2017 and the year ended June 30, 2016:
Purchases at cost | Sales Proceeds | |||||||
Nine months ended March 31, 2017 |
$ | 23,858,985 | $ | 71,825,357 | ||||
Year ended June 30, 2016 |
107,650,608 | 67,972,332 |
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or
Notes to financial statements | Wells Fargo Small Cap Core Fund | 27 |
emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the nine months ended March 31, 2017 and the year ended June 30, 2016, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid were as follows:
Nine months ended |
Year ended June 30 | |||||||||||
2016 | 2015 | |||||||||||
Ordinary Income |
$ | 216,865 | $ | 153,914 | $ | 55,322 |
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Unrealized gains |
Capital loss carryforward | |
$19,626,196 | $(53,498,961) |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
10. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
28 | Wells Fargo Small Cap Core Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Small Cap Core Fund (formerly the Golden Small Cap Core Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statements of operations and changes in net assets for the period from July 1, 2016 to March 31, 2017 and year ended June 30, 2016, and the financial highlights for the period from July 1, 2016 to March 31, 2017 and year or period ended June 30, 2016. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. The accompanying financial statements and financial highlights of Wells Fargo Small Cap Core Fund for the four-year period ended June 30, 2015, were audited by other auditors whose report thereon dated August 19, 2015, expressed an unqualified opinion on those statements.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with custodians and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Small Cap Core Fund as of March 31, 2017, the results of its operations and changes in its assets for the period then ended and year ended June 30, 2016, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
Other information (unaudited) | Wells Fargo Small Cap Core Fund | 29 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2017.
Pursuant to Section 854 of the Internal Revenue Code, $216,865 of income dividends paid during the fiscal year ended March 31, 2017 has been designated as qualified dividend income (QDI).
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
30 | Wells Fargo Small Cap Core Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 |
Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
Other information (unaudited) | Wells Fargo Small Cap Core Fund | 31 |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Nancy Wiser1 (Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
32 | Wells Fargo Small Cap Core Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302873 05-17 A269/AR269 03-17 |
Annual Report
Wells Fargo Small Cap Opportunities Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Small Cap Opportunities Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Small Cap Opportunities Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but remained at historically
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Small Cap Opportunities Fund | 3 |
low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Small Cap Opportunities Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
This page is intentionally left blank.
6 | Wells Fargo Small Cap Opportunities Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Schroder Investment Management North America Inc.
Portfolio manager
Jenny B. Jones
Average annual total returns (%) as of March 31, 20171
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class R6 (WSCJX) | 10-31-2016 | 22.45 | 13.18 | 8.49 | 0.96 | 0.86 | ||||||||||||||||
Administrator Class (NVSOX) | 8-1-1993 | 22.13 | 13.04 | 8.42 | 1.31 | 1.21 | ||||||||||||||||
Institutional Class (WSCOX) | 10-31-2014 | 22.43 | 13.18 | 8.49 | 1.06 | 0.96 | ||||||||||||||||
Russell 2000® Index4 | – | 26.22 | 12.35 | 7.12 | – | – |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Class R6, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Small Cap Opportunities Fund | 7 |
Growth of $1,000,000 investment as of March 31, 20175 |
1 | Historical performance shown for Class R6 shares prior to their inception reflects the performance of the Institutional Class shares, and is not adjusted to reflect the expenses of Class R6 shares. If these expenses had been included, returns for Class R6 shares would be higher. Historical performance shown for the Institutional Class shares prior to their inception reflects the performance of the Administrator Class shares, and is not adjusted to reflect the expenses of the Institutional Class shares. If these expenses had been included, returns for the Institutional Class shares would be higher. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through July 31, 2017 (July 31, 2018 for Class R6), to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 0.85% for Class R6, 1.20% for Administrator Class, and 0.95% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index. |
5 | The chart compares the performance of Administrator Class shares for the most recent ten years with the Russell 2000® Index. The chart assumes a hypothetical investment of $1,000,000 in Administrator Class shares and reflects all operating expenses. |
6 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
7 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Small Cap Opportunities Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed its benchmark, the Russell 2000® Index, for the 12-month period that ended March 31, 2017. |
∎ | Negative stock selection occurred most significantly within the health care and financials sectors. The Fund’s allocation to cash also hindered performance. |
∎ | The Fund benefited from positive stock selection in the consumer discretionary sector. |
∎ | The Russell 2000® Index rose by 26.22% for the reporting period. A rapidly rising market is the most difficult environment for the Fund given the defensive nature of our investment approach. |
The reporting period displayed the rise of populism and a surprising 12 months for U.S. stocks.
Populism in various forms swept the world during the reporting period, symbolized by two key events: the Brexit vote in June 2016 and the election of Donald Trump as U.S. president. Pollsters and commentators generally were wrong in predicting the outcomes of those events. Stock markets rose sharply on the heels of the U.S. election—especially U.S. small caps, which soared after the election through the end of 2016. The new administration’s progrowth policies of lower regulation, lower taxes, and fiscal stimulus were received positively by the U.S. stock market. The same cannot be said for the U.S. bond market, which fell on concerns about deficits and inflation during the final months of the calendar year. Over the full 12-month period, these political events occurred against a generally positive economic backdrop. Stock markets tended to be upbeat as improving data for employment, consumer confidence, and manufacturing drove a good outlook for the U.S. economy. Continuing supportive policies by global central banks helped drive investors to risk assets, such as stocks.
We made several changes to the Fund’s portfolio during the period.
The most noteworthy change to the Fund’s portfolio during the period was a weighting shift in the Fund’s consumer discretionary sector from underweight to overweight. The Fund’s weighting to consumer discretionary rose during the period while the benchmark index’s weighting to the sector decreased. In terms of consumer discretionary holdings, initiated positions included Churchill Downs Incorporated and Red Rock Resorts, Incorporated, which are both in the casinos and gambling industry. We also increased the Fund’s position in Cavco Industries, Incorporated, a consumer discretionary company that is sensitive to housing trends. Another notable change to the Fund was a decrease in exposure to the materials sector; the Fund went from overweight the sector to underweight. We sold building-materials holding Louisiana-Pacific Corporation from the Fund. Within the metals and minerals industry, we reduced the Fund’s exposure to Compass Minerals International, Incorporated, and sold Minerals Technologies Incorporated from the Fund.
Ten largest holdings (%) as of March 31, 20176 | ||||
Brunswick Corporation |
1.66 | |||
Western Alliance Bancorp |
1.47 | |||
Catalent Incorporated |
1.42 | |||
Franklin Electric Company Incorporated |
1.37 | |||
Cavco Industries Incorporated |
1.36 | |||
Entegris Incorporated |
1.33 | |||
Reinsurance Group of America Incorporated |
1.30 | |||
Allegiant Travel Company |
1.29 | |||
The Cheesecake Factory Incorporated |
1.25 | |||
IDACORP Incorporated |
1.25 |
Stock selection in the health care and financials sectors detracted from Fund performance.
Stock selection was negative for the reporting period, especially in the health care and financials sectors. Within health care, an underweight to biotechnology, which rose 35% over the period, and an overweight to life sciences detracted from performance. Also, pharmaceuticals holding Catalent, Incorporated, and life sciences holding PAREXEL International Corporation lagged over concerns about the potential impact of new health care legislation.
Within the financials sector, banking detracted the most from performance. While banks overall rose by 43% within the index during the reporting period, the Fund’s bank holdings as a group rose by 40%.
In addition, within the real estate sector, Kennedy-Wilson Holdings, Incorporated, which has exposure to office space in the U.K., declined following the Brexit vote. The Fund’s average cash weight of 7.1% hindered results as well.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Small Cap Opportunities Fund | 9 |
Sector distribution as of March 31, 20177 |
Holdings within the consumer discretionary sector contributed to the Fund’s performance for the period, as did select information technology (IT) and industrials holdings.
Stock selection was strong in the consumer discretionary sector, which delivered the Fund’s best sector performance relative to the index for the period. While outperformance was broad-based, restaurants and leisure holdings Jack in the Box Incorporated and ILG, Incorporated, along with advertising company MDC Partners Incorporated, were among the largest contributors. Select holdings within the IT and industrials sectors also added value, such as Entegris, Incorporated, and DigitalGlobe, Incorporated. Entegris is deeply
involved in building out the communications backbone of the Internet of Things. Digital Globe, a global mapping company, reported a series of better-than-expected earnings during the period. The company also acquired The Radiant Group, Incorporated, which expanded DigitalGlobe’s customer base within major intelligence agencies.
The Fund’s underweights to the real estate, consumer staples, and utilities sectors contributed to results as well. The underweights added value because these were some of the weakest-performing sectors in the index over the reporting period.
Valuations and inflation remain concerns.
While valuations are a point of concern for us, the low level of interest rates does allow for higher price-to-earnings ratios. Although valuations within our area of investment currently are not cheap, the low-rate environment offsets some of our concern regarding valuations. In our view, managing U.S. inflation is a critical economic issue for 2017. Members of the U.S. Federal Open Market Committee have a tricky balancing act this year. If they are too slow in raising interest rates, they create the risk that inflation runs too hot; if they are too aggressive, they face the risk of potentially causing a recession and a declining stock market.
We believe in the underlying strength of the U.S. economy. Given current trends regarding taxes and global trade, smaller stocks may be beneficiaries, in our view, given that they primarily earn their revenues in the U.S. rather than globally. Also, given the higher tax rates for smaller companies relative to larger companies, smaller companies should potentially benefit the most from any reduction in corporate taxes.
Please see footnotes on page 7.
10 | Wells Fargo Small Cap Opportunities Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees and shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class R6 |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,120.30 | $ | 4.49 | 0.85 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.70 | $ | 4.28 | 0.85 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,118.70 | $ | 6.34 | 1.20 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.95 | $ | 6.04 | 1.20 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,120.10 | $ | 5.02 | 0.95 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.19 | $ | 4.78 | 0.95 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Opportunities Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 92.15% |
||||||||||||||||
Consumer Discretionary: 13.30% |
||||||||||||||||
Diversified Consumer Services: 1.69% | ||||||||||||||||
Graham Holdings Company Class B |
3,665 | $ | 2,197,351 | |||||||||||||
ServiceMaster Global Holdings Incorporated † |
63,824 | 2,664,652 | ||||||||||||||
4,862,003 | ||||||||||||||||
|
|
|||||||||||||||
Hotels, Restaurants & Leisure: 4.08% | ||||||||||||||||
Churchill Downs Incorporated |
10,512 | 1,669,831 | ||||||||||||||
Interval Leisure Group Incorporated |
130,577 | 2,736,894 | ||||||||||||||
Jack in the Box Incorporated |
17,720 | 1,802,478 | ||||||||||||||
Red Rock Resorts Incorporated Class A |
85,312 | 1,892,220 | ||||||||||||||
The Cheesecake Factory Incorporated |
56,800 | 3,598,848 | ||||||||||||||
11,700,271 | ||||||||||||||||
|
|
|||||||||||||||
Household Durables: 2.22% | ||||||||||||||||
Cavco Industries Incorporated † |
33,595 | 3,910,458 | ||||||||||||||
Helen of Troy Limited † |
26,205 | 2,468,511 | ||||||||||||||
6,378,969 | ||||||||||||||||
|
|
|||||||||||||||
Leisure Products: 1.66% | ||||||||||||||||
Brunswick Corporation |
77,996 | 4,773,355 | ||||||||||||||
|
|
|||||||||||||||
Media: 2.22% | ||||||||||||||||
AMC Entertainment Holdings Class A |
85,063 | 2,675,231 | ||||||||||||||
Hemisphere Media Group Incorporated † |
84,840 | 996,870 | ||||||||||||||
MDC Partners Incorporated Class A |
151,468 | 1,423,799 | ||||||||||||||
Time Incorporated |
65,996 | 1,277,023 | ||||||||||||||
6,372,923 | ||||||||||||||||
|
|
|||||||||||||||
Textiles, Apparel & Luxury Goods: 1.43% | ||||||||||||||||
Oxford Industries Incorporated |
22,809 | 1,306,043 | ||||||||||||||
Steven Madden Limited † |
72,556 | 2,797,034 | ||||||||||||||
4,103,077 | ||||||||||||||||
|
|
|||||||||||||||
Consumer Staples: 1.57% |
||||||||||||||||
Food & Staples Retailing: 0.49% | ||||||||||||||||
Performance Food Group Company † |
59,280 | 1,410,864 | ||||||||||||||
|
|
|||||||||||||||
Food Products: 1.08% | ||||||||||||||||
Darling Ingredients Incorporated † |
101,054 | 1,467,304 | ||||||||||||||
The Hain Celestial Group Incorporated † |
43,636 | 1,623,259 | ||||||||||||||
3,090,563 | ||||||||||||||||
|
|
|||||||||||||||
Energy: 3.44% |
||||||||||||||||
Energy Equipment & Services: 0.38% | ||||||||||||||||
ProPetro Holding Corporation † |
85,646 | 1,103,977 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Small Cap Opportunities Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Oil, Gas & Consumable Fuels: 3.06% | ||||||||||||||||
Centennial Resource Development Class A †« |
72,962 | $ | 1,330,097 | |||||||||||||
PDC Energy Incorporated † |
31,488 | 1,963,277 | ||||||||||||||
RSP Permian Incorporated † |
63,956 | 2,649,697 | ||||||||||||||
SRC Energy Incorporated †« |
187,293 | 1,580,753 | ||||||||||||||
World Fuel Services Corporation |
34,559 | 1,252,764 | ||||||||||||||
8,776,588 | ||||||||||||||||
|
|
|||||||||||||||
Financials: 17.58% |
||||||||||||||||
Banks: 10.40% | ||||||||||||||||
Chemical Financial Corporation |
42,580 | 2,177,967 | ||||||||||||||
First Citizens BancShares Corporation Class A |
9,084 | 3,046,501 | ||||||||||||||
First Horizon National Corporation |
101,432 | 1,876,492 | ||||||||||||||
First Midwest Bancorp Incorporated |
145,411 | 3,443,332 | ||||||||||||||
Heritage Financial Corporation |
80,705 | 1,997,449 | ||||||||||||||
Lakeland Financial Corporation |
40,842 | 1,761,107 | ||||||||||||||
PrivateBancorp Incorporated |
59,824 | 3,551,751 | ||||||||||||||
Simmons First National Corporation Class A |
32,888 | 1,813,773 | ||||||||||||||
United Community Bank |
70,325 | 1,947,299 | ||||||||||||||
Univest Corporation of Pennsylvania |
66,948 | 1,733,953 | ||||||||||||||
Westamerica Bancorporation « |
40,587 | 2,265,972 | ||||||||||||||
Western Alliance Bancorp † |
86,173 | 4,230,233 | ||||||||||||||
29,845,829 | ||||||||||||||||
|
|
|||||||||||||||
Capital Markets: 1.23% | ||||||||||||||||
Donnelley Financial Solutions † |
69,712 | 1,344,744 | ||||||||||||||
Golub Capital BDC Incorporated « |
110,265 | 2,192,068 | ||||||||||||||
3,536,812 | ||||||||||||||||
|
|
|||||||||||||||
Diversified Financial Services: 0.72% | ||||||||||||||||
Compass Diversified Holdings |
124,735 | 2,070,601 | ||||||||||||||
|
|
|||||||||||||||
Insurance: 4.70% | ||||||||||||||||
Amerisafe Incorporated |
36,096 | 2,342,630 | ||||||||||||||
Brown & Brown Incorporated |
61,678 | 2,573,206 | ||||||||||||||
National General Holdings Corporation |
103,157 | 2,451,010 | ||||||||||||||
ProAssurance Corporation |
39,986 | 2,409,157 | ||||||||||||||
Reinsurance Group of America Incorporated |
29,279 | 3,717,847 | ||||||||||||||
13,493,850 | ||||||||||||||||
|
|
|||||||||||||||
Thrifts & Mortgage Finance: 0.53% | ||||||||||||||||
Kearny Financial Corporation |
101,754 | 1,531,398 | ||||||||||||||
|
|
|||||||||||||||
Health Care: 12.91% |
||||||||||||||||
Biotechnology: 1.61% | ||||||||||||||||
Flexion Therapeutics Incorporated † |
39,062 | 1,051,158 | ||||||||||||||
Otonomy Incorporated † |
76,360 | 935,410 | ||||||||||||||
Puma Biotechnology Incorporated †« |
27,445 | 1,020,954 | ||||||||||||||
Repligen Corporation † |
46,064 | 1,621,453 | ||||||||||||||
4,628,975 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Opportunities Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Health Care Equipment & Supplies: 3.47% | ||||||||||||||||
Dentsply Sirona Incorporated |
26,769 | $ | 1,671,456 | |||||||||||||
K2M Group Holdings Incorporated † |
96,021 | 1,969,391 | ||||||||||||||
Masimo Corporation † |
13,557 | 1,264,326 | ||||||||||||||
Sientra Incorporated †« |
53,032 | 446,529 | ||||||||||||||
The Cooper Companies Incorporated |
9,837 | 1,966,318 | ||||||||||||||
West Pharmaceutical Services Incorporated |
32,400 | 2,644,164 | ||||||||||||||
9,962,184 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Providers & Services: 2.11% | ||||||||||||||||
Envision Healthcare Corporation † |
21,620 | 1,325,738 | ||||||||||||||
HealthSouth Corporation |
45,219 | 1,935,825 | ||||||||||||||
LifePoint Hospitals Incorporated † |
12,953 | 848,422 | ||||||||||||||
Patterson Companies Incorporated |
19,925 | 901,255 | ||||||||||||||
Teladoc Incorporated †« |
41,101 | 1,027,525 | ||||||||||||||
6,038,765 | ||||||||||||||||
|
|
|||||||||||||||
Life Sciences Tools & Services: 3.52% | ||||||||||||||||
INC Research Holdings Incorporated Class A † |
48,575 | 2,227,164 | ||||||||||||||
PAREXEL International Corporation † |
20,395 | 1,287,128 | ||||||||||||||
Patheon NV † |
116,951 | 3,080,489 | ||||||||||||||
VWR Corporation † |
124,562 | 3,512,648 | ||||||||||||||
10,107,429 | ||||||||||||||||
|
|
|||||||||||||||
Pharmaceuticals: 2.20% | ||||||||||||||||
Akorn Incorporated † |
26,545 | 639,204 | ||||||||||||||
Catalent Incorporated † |
144,021 | 4,078,675 | ||||||||||||||
Pacira Pharmaceuticals Incorporated † |
35,035 | 1,597,596 | ||||||||||||||
6,315,475 | ||||||||||||||||
|
|
|||||||||||||||
Industrials: 16.91% |
||||||||||||||||
Aerospace & Defense: 1.63% | ||||||||||||||||
DigitalGlobe Incorporated † |
46,519 | 1,523,497 | ||||||||||||||
Hexcel Corporation |
57,970 | 3,162,264 | ||||||||||||||
4,685,761 | ||||||||||||||||
|
|
|||||||||||||||
Airlines: 1.29% | ||||||||||||||||
Allegiant Travel Company |
23,067 | 3,696,487 | ||||||||||||||
|
|
|||||||||||||||
Building Products: 1.25% | ||||||||||||||||
Fortune Brands Home & Security Incorporated |
36,200 | 2,202,770 | ||||||||||||||
Simpson Manufacturing Company Incorporated |
32,060 | 1,381,465 | ||||||||||||||
3,584,235 | ||||||||||||||||
|
|
|||||||||||||||
Commercial Services & Supplies: 2.60% | ||||||||||||||||
Advanced Disposal Services Incorporated † |
99,795 | 2,255,367 | ||||||||||||||
HNI Corporation |
23,933 | 1,103,072 | ||||||||||||||
Knoll Incorporated |
90,787 | 2,161,638 | ||||||||||||||
Matthews International Corporation Class A |
28,718 | 1,942,773 | ||||||||||||||
7,462,850 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Small Cap Opportunities Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Construction & Engineering: 1.71% | ||||||||||||||||
Dycom Industries Incorporated † |
23,800 | $ | 2,212,210 | |||||||||||||
Valmont Industries Incorporated |
17,228 | 2,678,954 | ||||||||||||||
4,891,164 | ||||||||||||||||
|
|
|||||||||||||||
Electrical Equipment: 1.18% | ||||||||||||||||
Generac Holdings Incorporated † |
90,823 | 3,385,881 | ||||||||||||||
|
|
|||||||||||||||
Machinery: 4.85% | ||||||||||||||||
ESCO Technologies Incorporated |
52,231 | 3,034,621 | ||||||||||||||
Franklin Electric Company Incorporated |
91,480 | 3,938,214 | ||||||||||||||
IDEX Corporation |
36,911 | 3,451,548 | ||||||||||||||
Kornit Digital Limited †« |
123,247 | 2,354,022 | ||||||||||||||
REV Group Incorporated † |
41,772 | 1,151,654 | ||||||||||||||
13,930,059 | ||||||||||||||||
|
|
|||||||||||||||
Professional Services: 0.72% | ||||||||||||||||
Exponent Incorporated |
12,732 | 758,191 | ||||||||||||||
On Assignment Incorporated † |
27,063 | 1,313,367 | ||||||||||||||
2,071,558 | ||||||||||||||||
|
|
|||||||||||||||
Road & Rail: 0.70% | ||||||||||||||||
Ryder System Incorporated |
26,648 | 2,010,325 | ||||||||||||||
|
|
|||||||||||||||
Trading Companies & Distributors: 0.98% | ||||||||||||||||
MSC Industrial Direct Company Class A |
27,424 | 2,818,090 | ||||||||||||||
|
|
|||||||||||||||
Information Technology: 14.25% |
||||||||||||||||
Communications Equipment: 1.53% | ||||||||||||||||
Acacia Communications Incorporated †« |
14,680 | 860,542 | ||||||||||||||
Ciena Corporation † |
149,300 | 3,524,973 | ||||||||||||||
4,385,515 | ||||||||||||||||
|
|
|||||||||||||||
Electronic Equipment, Instruments & Components: 1.13% | ||||||||||||||||
Fabrinet † |
61,018 | 2,564,587 | ||||||||||||||
OSI Systems Incorporated † |
9,480 | 691,945 | ||||||||||||||
3,256,532 | ||||||||||||||||
|
|
|||||||||||||||
Internet Software & Services: 1.73% | ||||||||||||||||
Match Group Incorporated †« |
183,062 | 2,989,402 | ||||||||||||||
Yelp Incorporated † |
59,997 | 1,964,902 | ||||||||||||||
4,954,304 | ||||||||||||||||
|
|
|||||||||||||||
IT Services: 2.02% | ||||||||||||||||
CoreLogic Incorporated † |
67,636 | 2,754,138 | ||||||||||||||
EPAM Systems Incorporated † |
21,000 | 1,585,920 | ||||||||||||||
Leidos Holdings Incorporated |
28,696 | 1,467,513 | ||||||||||||||
5,807,571 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Opportunities Fund | 15 |
Security name | Shares | Value | ||||||||||||||
Semiconductors & Semiconductor Equipment: 4.72% | ||||||||||||||||
Entegris Incorporated † |
162,747 | $ | 3,808,280 | |||||||||||||
Integrated Device Technology Incorporated † |
85,279 | 2,018,554 | ||||||||||||||
MACOM Technology Solutions Holdings Incorporated † |
58,798 | 2,839,943 | ||||||||||||||
ON Semiconductor Corporation † |
224,905 | 3,483,778 | ||||||||||||||
Versum Materials Incorporated |
45,368 | 1,388,261 | ||||||||||||||
13,538,816 | ||||||||||||||||
|
|
|||||||||||||||
Software: 3.12% | ||||||||||||||||
Cadence Design Systems Incorporated † |
88,855 | 2,790,047 | ||||||||||||||
Fortinet Incorporated † |
68,663 | 2,633,226 | ||||||||||||||
PTC Incorporated † |
39,828 | 2,092,961 | ||||||||||||||
Verint Systems Incorporated † |
33,051 | 1,433,587 | ||||||||||||||
8,949,821 | ||||||||||||||||
|
|
|||||||||||||||
Materials: 3.87% |
||||||||||||||||
Chemicals: 0.80% | ||||||||||||||||
Ashland Global Holdings Incorporated |
12,841 | 1,589,844 | ||||||||||||||
Balchem Corporation |
8,396 | 691,998 | ||||||||||||||
2,281,842 | ||||||||||||||||
|
|
|||||||||||||||
Containers & Packaging: 1.69% | ||||||||||||||||
Ardagh Group SA † |
44,572 | 978,801 | ||||||||||||||
Multi Packaging Solutions International Limited † |
125,329 | 2,249,656 | ||||||||||||||
Packaging Corporation of America |
17,821 | 1,632,760 | ||||||||||||||
4,861,217 | ||||||||||||||||
|
|
|||||||||||||||
Metals & Mining: 1.38% | ||||||||||||||||
Compass Minerals International Incorporated « |
21,245 | 1,441,473 | ||||||||||||||
Pretium Resources Incorporated †« |
60,562 | 648,619 | ||||||||||||||
Steel Dynamics Incorporated |
53,776 | 1,869,254 | ||||||||||||||
3,959,346 | ||||||||||||||||
|
|
|||||||||||||||
Real Estate: 5.42% |
||||||||||||||||
Equity REITs: 4.06% | ||||||||||||||||
Douglas Emmett Incorporated |
69,615 | 2,673,216 | ||||||||||||||
Equity Lifestyle Properties Incorporated |
28,375 | 2,186,578 | ||||||||||||||
Gramercy Property Trust |
63,174 | 1,661,476 | ||||||||||||||
Mid-America Apartment Communities Incorporated |
20,928 | 2,129,215 | ||||||||||||||
Terreno Realty Corporation |
107,102 | 2,998,856 | ||||||||||||||
11,649,341 | ||||||||||||||||
|
|
|||||||||||||||
Real Estate Management & Development: 1.36% | ||||||||||||||||
HFF Incorporated Class A |
45,692 | 1,264,298 | ||||||||||||||
Kennedy Wilson Holdings Incorporated |
119,169 | 2,645,552 | ||||||||||||||
3,909,850 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Small Cap Opportunities Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Utilities: 2.90% |
||||||||||||||||
Electric Utilities: 1.69% | ||||||||||||||||
IDACORP Incorporated |
43,141 | $ | 3,578,977 | |||||||||||||
Portland General Electric Company |
28,692 | 1,274,499 | ||||||||||||||
4,853,476 | ||||||||||||||||
|
|
|||||||||||||||
Multi-Utilities: 0.87% | ||||||||||||||||
Vectren Corporation |
42,355 | 2,482,427 | ||||||||||||||
|
|
|||||||||||||||
Water Utilities: 0.34% | ||||||||||||||||
SJW Corporation |
20,288 | 978,287 | ||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $200,022,164) |
|
264,508,663 | ||||||||||||||
|
|
|||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 10.03% |
||||||||||||||||
Investment Companies: 10.03% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) |
0.98 | % | 15,210,362 | 15,211,883 | ||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | 13,563,576 | 13,563,576 | |||||||||||||
Total Short-Term Investments (Cost $28,774,275) |
28,775,459 | |||||||||||||||
|
|
Total investments in securities (Cost $228,796,439) * | 102.18 | % | 293,284,122 | |||||
Other assets and liabilities, net |
(2.18 | ) | (6,244,400 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 287,039,722 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $229,700,146 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 66,270,761 | ||
Gross unrealized losses |
(2,686,785 | ) | ||
|
|
|||
Net unrealized gains |
$ | 63,583,976 |
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities—March 31, 2017 | Wells Fargo Small Cap Opportunities Fund | 17 |
Assets |
||||
Investments |
||||
In unaffiliated securities (including $14,474,407 of securities loaned), at value (cost $200,022,164) |
$ | 264,508,663 | ||
In affiliated securities, at value (cost $28,774,275) |
28,775,459 | |||
|
|
|||
Total investments, at value (cost $228,796,439) |
293,284,122 | |||
Receivable for investments sold |
7,967,034 | |||
Receivable for Fund shares sold |
1,952,045 | |||
Receivable for dividends |
236,757 | |||
Receivable for securities lending income |
31,840 | |||
Prepaid expenses and other assets |
36,785 | |||
|
|
|||
Total assets |
303,508,583 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
71,722 | |||
Payable for Fund shares redeemed |
850,366 | |||
Payable upon receipt of securities loaned |
15,210,634 | |||
Management fee payable |
205,656 | |||
Administration fees payable |
34,737 | |||
Accrued expenses and other liabilities |
95,746 | |||
|
|
|||
Total liabilities |
16,468,861 | |||
|
|
|||
Total net assets |
$ | 287,039,722 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 206,004,329 | ||
Undistributed net investment income |
257,825 | |||
Accumulated net realized gains on investments |
16,289,885 | |||
Net unrealized gains on investments |
64,487,683 | |||
|
|
|||
Total net assets |
$ | 287,039,722 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE PER SHARE1 |
||||
Net assets – Class R6 |
$ | 1,626,052 | ||
Shares outstanding – Class R61 |
68,264 | |||
Net asset value per share – Class R6 |
$23.82 | |||
Net assets – Administrator Class |
$ | 231,039,005 | ||
Shares outstanding – Administrator Class1 |
9,713,575 | |||
Net asset value per share – Administrator Class |
$23.79 | |||
Net assets – Institutional Class |
$ | 54,374,665 | ||
Shares outstanding – Institutional Class1 |
2,283,018 | |||
Net asset value per share – Institutional Class |
$23.82 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Small Cap Opportunities Fund | Statement of operations—year ended March 31, 2017 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $761) |
$ | 3,945,070 | ||
Securities lending income, net |
373,646 | |||
Income from affiliated securities |
77,223 | |||
|
|
|||
Total investment income |
4,395,939 | |||
|
|
|||
Expenses |
||||
Management fee |
2,399,492 | |||
Administration fees |
||||
Class R6 |
3 | 1 | ||
Administrator Class |
339,957 | |||
Institutional Class |
27,009 | |||
Shareholder servicing fees |
||||
Administrator Class |
652,761 | |||
Custody and accounting fees |
26,202 | |||
Professional fees |
41,240 | |||
Registration fees |
40,462 | |||
Shareholder report expenses |
15,208 | |||
Trustees’ fees and expenses |
19,436 | |||
Other fees and expenses |
6,709 | |||
|
|
|||
Total expenses |
3,568,479 | |||
Less: Fee waivers and/or expense reimbursements |
(232,942 | ) | ||
|
|
|||
Net expenses |
3,335,537 | |||
|
|
|||
Net investment income |
1,060,402 | |||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains on: |
||||
Unaffiliated securities |
28,776,565 | |||
Affiliated securities |
65 | |||
|
|
|||
Net realized gains on investments |
28,776,630 | |||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
26,051,250 | |||
Affiiliated securities |
1,184 | |||
|
|
|||
Net change in unrealized gains (losses) on investments |
26,052,434 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
54,829,064 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 55,889,466 | ||
|
|
1 | For the period from October 31, 2016 (commencement of operations) to March 31, 2017 |
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets | Wells Fargo Small Cap Opportunities Fund | 19 |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment income |
$ | 1,060,402 | $ | 707,350 | ||||||||||||
Net realized gains on investments |
28,776,630 | 18,006,376 | ||||||||||||||
Net change in unrealized gains (losses) on investments |
26,052,434 | (32,281,866 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from operations |
55,889,466 | (13,568,140 | ) | |||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net investment income |
||||||||||||||||
Class R6 |
(166 | )1 | N/A | |||||||||||||
Administrator Class |
(757,254 | ) | (247,987 | ) | ||||||||||||
Institutional Class |
(205,414 | ) | (986 | ) | ||||||||||||
Net realized gains |
||||||||||||||||
Class R6 |
(2,149 | )1 | N/A | |||||||||||||
Administrator Class |
(19,845,550 | ) | (32,197,145 | ) | ||||||||||||
Institutional Class |
(2,743,894 | ) | (29,514 | ) | ||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(23,554,427 | ) | (32,475,632 | ) | ||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class R6 |
68,165 | 1 | 1,622,149 | 1 | N/A | N/A | ||||||||||
Administrator Class |
1,687,551 | 38,157,468 | 1,434,836 | 32,820,441 | ||||||||||||
Institutional Class |
2,357,789 | 54,583,111 | 10,971 | 273,479 | ||||||||||||
|
|
|||||||||||||||
94,362,728 | 33,093,920 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class R6 |
99 | 1 | 2,315 | 1 | N/A | N/A | ||||||||||
Administrator Class |
876,609 | 20,454,367 | 1,555,730 | 32,052,257 | ||||||||||||
Institutional Class |
120,565 | 2,820,495 | 1,474 | 30,500 | ||||||||||||
|
|
|||||||||||||||
23,277,177 | 32,082,757 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Administrator Class |
(5,357,915 | ) | (122,878,100 | ) | (2,655,872 | ) | (60,937,965 | ) | ||||||||
Institutional Class |
(207,771 | ) | (4,880,539 | ) | (441 | ) | (10,552 | ) | ||||||||
|
|
|||||||||||||||
(127,758,639 | ) | (60,948,517 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions |
(10,118,734 | ) | 4,228,160 | |||||||||||||
|
|
|||||||||||||||
Total increase (decrease) in net assets |
22,216,305 | (41,815,612 | ) | |||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
264,823,417 | 306,639,029 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 287,039,722 | $ | 264,823,417 | ||||||||||||
|
|
|||||||||||||||
Undistributed net investment income |
$ | 257,825 | $ | 149,952 | ||||||||||||
|
|
1 | For the period from October 31, 2016 (commencement of operations) to March 31, 2017 |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Small Cap Opportunities Fund | Financial highlights |
(For a share outstanding throughout the period)
Year ended March 31, 20171 |
||||
CLASS R6 | ||||
Net asset value, beginning of period |
$22.43 | |||
Net investment income |
0.14 | |||
Net realized and unrealized gains (losses) on investments |
3.32 | |||
|
|
|||
Total from investment operations |
3.46 | |||
Distributions to shareholders from |
||||
Net investment income |
(0.14 | ) | ||
Net realized gains |
(1.93 | ) | ||
|
|
|||
Total distributions to shareholders |
(2.07 | ) | ||
Net asset value, end of period |
$23.82 | |||
Total return2 |
15.63 | % | ||
Ratios to average net assets (annualized) |
||||
Gross expenses |
0.92 | % | ||
Net expenses |
0.85 | % | ||
Net investment income |
0.67 | % | ||
Supplemental data |
||||
Portfolio turnover rate |
73 | % | ||
Net assets, end of period (000s omitted) |
$1,626 |
1 | For the period from October 31, 2016 (commencement of operations) to March 31, 2017 |
2 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Small Cap Opportunities Fund | 21 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$21.15 | $25.19 | $37.93 | $42.43 | $34.45 | $32.50 | ||||||||||||||||||
Net investment income |
0.08 | 2 | 0.06 | 0.02 | 0.02 | 0.11 | 0.05 | |||||||||||||||||
Net realized and unrealized gains (losses) on investments |
4.56 | (1.24 | ) | 3.13 | 2.33 | 10.48 | 3.13 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
4.64 | (1.18 | ) | 3.15 | 2.35 | 10.59 | 3.18 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.07 | ) | (0.02 | ) | 0.00 | (0.02 | ) | (0.08 | ) | 0.00 | ||||||||||||||
Net realized gains |
(1.93 | ) | (2.84 | ) | (15.89 | ) | (6.83 | ) | (2.53 | ) | (1.23 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(2.00 | ) | (2.86 | ) | (15.89 | ) | (6.85 | ) | (2.61 | ) | (1.23 | ) | ||||||||||||
Net asset value, end of period |
$23.79 | $21.15 | $25.19 | $37.93 | $42.43 | $34.45 | ||||||||||||||||||
Total return3 |
22.13 | % | (4.39 | )% | 11.75 | % | 6.26 | % | 33.19 | % | 10.12 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.28 | % | 1.29 | % | 1.24 | % | 1.24 | % | 1.22 | % | 1.22 | % | ||||||||||||
Net expenses |
1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | ||||||||||||
Net investment income |
0.36 | % | 0.25 | % | 0.06 | % | 0.11 | % | 0.31 | % | 0.13 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
73 | % | 59 | % | 60 | % | 26 | % | 76 | % | 78 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$231,039 | $264,560 | $306,628 | $471,330 | $705,671 | $624,844 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Small Cap Opportunities Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 20151 | |||||||||
Net asset value, beginning of period |
$21.18 | $25.22 | $39.04 | |||||||||
Net investment income |
0.09 | 0.16 | 2 | 0.06 | ||||||||
Net realized and unrealized gains (losses) on investments |
4.61 | (1.28 | ) | 2.01 | ||||||||
|
|
|
|
|
|
|||||||
Total from investment operations |
4.70 | (1.12 | ) | 2.07 | ||||||||
Distributions to shareholders from |
||||||||||||
Net investment income |
(0.13 | ) | (0.08 | ) | 0.00 | |||||||
Net realized gains |
(1.93 | ) | (2.84 | ) | (15.89 | ) | ||||||
|
|
|
|
|
|
|||||||
Total distributions to shareholders |
(2.06 | ) | (2.92 | ) | (15.89 | ) | ||||||
Net asset value, end of period |
$23.82 | $21.18 | $25.22 | |||||||||
Total return3 |
22.43 | % | (4.12 | )% | 8.68 | % | ||||||
Ratios to average net assets (annualized) |
||||||||||||
Gross expenses |
1.03 | % | 1.05 | % | 0.92 | % | ||||||
Net expenses |
0.95 | % | 0.95 | % | 0.92 | % | ||||||
Net investment income |
0.56 | % | 0.71 | % | 0.59 | % | ||||||
Supplemental data |
||||||||||||
Portfolio turnover rate |
73 | % | 59 | % | 60 | % | ||||||
Net assets, end of period (000s omitted) |
$54,375 | $263 | $11 |
1 | For the period from October 31, 2014 (commencement of class operations) to March 31, 2015 |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Notes to financial statements | Wells Fargo Small Cap Opportunities Fund | 23 |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Small Cap Opportunities Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities and futures that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
24 | Wells Fargo Small Cap Opportunities Fund | Notes to financial statements |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Futures contracts
The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in security values. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market.
The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to passive foreign investment companies. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income |
Accumulated net realized gains on investments | |
$10,305 | $(10,305) |
Notes to financial statements | Wells Fargo Small Cap Opportunities Fund | 25 |
Class allocations
The separate classes of shares offered by the Fund differ principally in shareholder servicing and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 38,190,598 | $ | 0 | $ | 0 | $ | 38,190,598 | ||||||||
Consumer staples |
4,501,427 | 0 | 0 | 4,501,427 | ||||||||||||
Energy |
9,880,565 | 0 | 0 | 9,880,565 | ||||||||||||
Financials |
50,478,490 | 0 | 0 | 50,478,490 | ||||||||||||
Health care |
37,052,828 | 0 | 0 | 37,052,828 | ||||||||||||
Industrials |
48,536,410 | 0 | 0 | 48,536,410 | ||||||||||||
Information technology |
40,892,559 | 0 | 0 | 40,892,559 | ||||||||||||
Materials |
11,102,405 | 0 | 0 | 11,102,405 | ||||||||||||
Real estate |
15,559,191 | 0 | 0 | 15,559,191 | ||||||||||||
Utilities |
8,314,190 | 0 | 0 | 8,314,190 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
13,563,576 | 0 | 0 | 13,563,576 | ||||||||||||
Investments measured at net asset value* |
15,211,883 | |||||||||||||||
Total assets |
$ | 278,072,239 | $ | 0 | $ | 0 | $ | 293,284,122 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $15,211,883 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
26 | Wells Fargo Small Cap Opportunities Fund | Notes to financial statements |
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Schroder Investment Management North America Inc. is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.50% and declining to 0.45% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class R6 |
0.03 | % | ||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed to waive fees and/or reimburse expenses to the extent necessary to cap expenses as follows:
Expense ratio cap |
Expiration date | |||||||
Class R6 |
0.85 | % | July 31, 2018 | |||||
Administrator Class |
1.20 | % | July 31, 2017 | |||||
Institutional Class |
0.95 | % | July 31, 2017 |
After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $363 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $17,138 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby the Administrator Class of the Fund is charged a fee at an annual rate of 0.25% of its average daily net assets.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $195,921,269 and $207,735,034, respectively.
Notes to financial statements | Wells Fargo Small Cap Opportunities Fund | 27 |
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended March 31, 2017 and March 31, 2016 were as follows:
Year ended March 31 | ||||||||
2017 | 2016 | |||||||
Ordinary income |
$ | 962,834 | $ | 248,973 | ||||
Long-term capital gain |
22,591,593 | 32,226,659 |
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Undistributed long-term |
Unrealized gains | ||
$4,968,468 | $12,482,949 | $63,583,976 |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
10. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
28 | Wells Fargo Small Cap Opportunities Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Small Cap Opportunities Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years or periods in the three-year period then ended, the period from November 1, 2013 to March 31, 2014 and each of the years in the two-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Small Cap Opportunities Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
Other information (unaudited) | Wells Fargo Small Cap Opportunities Fund | 29 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 60.01% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2017.
Pursuant to Section 852 of the Internal Revenue Code, $22,591,593 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2017.
Pursuant to Section 854 of the Internal Revenue Code, $577,064 of income dividends paid during the fiscal year ended March 31, 2017 has been designated as qualified dividend income (QDI).
For the fiscal year ended March 31, 2017, $15,137 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
30 | Wells Fargo Small Cap Opportunities Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) | Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
Other information (unaudited) | Wells Fargo Small Cap Opportunities Fund | 31 |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Nancy Wiser1 (Born 1967) | Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) | Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
32 | Wells Fargo Small Cap Opportunities Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302874 05-17 A243/AR243 03-17 |
Annual Report
Wells Fargo Small Cap Value Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Small Cap Value Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Small Cap Value Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but remained at historically
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Small Cap Value Fund | 3 |
low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Small Cap Value Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Small Cap Value Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Erik C. Astheimer
Michael Schneider, CFA®
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (SMVAX) | 11-30-2000 | 22.45 | 7.95 | 5.52 | 29.92 | 9.23 | 6.15 | 1.36 | 1.30 | |||||||||||||||||||||||||
Class C (SMVCX) | 11-30-2000 | 27.93 | 8.42 | 5.35 | 28.93 | 8.42 | 5.35 | 2.11 | 2.05 | |||||||||||||||||||||||||
Class R6 (SMVRX) | 6-28-2013 | – | – | – | 30.50 | 9.71 | 6.61 | 0.93 | 0.85 | |||||||||||||||||||||||||
Administrator Class (SMVDX) | 7-30-2010 | – | – | – | 30.22 | 9.45 | 6.39 | 1.28 | 1.10 | |||||||||||||||||||||||||
Institutional Class (WFSVX) | 7-31-2007 | – | – | – | 30.41 | 9.67 | 6.59 | 1.03 | 0.90 | |||||||||||||||||||||||||
Russell 2000® Value Index4 | – | – | – | – | 29.37 | 12.54 | 6.09 | – | – |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Class R6, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Small Cap Value Fund | 7 |
Growth of $10,000 investment as of March 31, 20175 |
1 | Historical performance shown for Class R6 shares prior to their inception reflects the performance of Institutional Class shares and includes the higher expenses applicable to Institutional Class shares. If these expenses had not been included, returns for Class R6 shares would be higher. Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for Institutional Class shares prior to their inception reflects the performance of the former Investor Class shares, and includes the higher expenses applicable to the former Investor Class shares. If these expenses had not been included, returns for Institutional Class shares would be higher. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.02% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through July 31, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 1.28% for Class A, 2.03% for Class C, 0.83% for Class R6, 1.08% for Administrator Class, and 0.88% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index. |
5 | The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses. |
6 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
7 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Small Cap Value Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund (Class A, excluding sales charges) outperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2017. |
∎ | Strong stock selection in the consumer discretionary, energy, and real estate sectors drove the outperformance. |
∎ | Weakness in the information technology (IT) and materials sectors, particularly gold-mining companies, detracted from performance. |
Stocks performed well during the reporting period, as measured by the Russell 2000® Value Index. The end of 2016 was especially strong for the market following the surprise election of Donald Trump as the next U.S. president. Stocks responded to investors’ expectations for lower corporate tax rates, less regulation, greater economic growth, and a more normalized interest-rate environment under a new administration. It remains to be seen what changes the new administration is able to accomplish and what the impact of those changes ultimately may be. Any setbacks or delays could disappoint investors and pressure stocks.
The Fund benefited from positive stock selection in the consumer discretionary, energy, and real estate sectors.
Strong stock selection in the consumer discretionary sector helped Fund performance. The Fund’s positions in Scientific Games Corporation and Fox Factory Holding Corporation returned more than 151% and 82%, respectively. Scientific Games, a casino operator, benefited from cost-cutting, which drove improved cash flow. Fox Factory, a manufacturer of premium suspension products, was aided by strong growth in its bike and power vehicle segments and improved margins. Our outlook for both companies remains positive.
The Fund’s energy stocks contributed to performance during the period. The Fund’s largest energy holding, InterOil Corporation, increased 52%. In July 2016, Exxon Mobil Corporation announced the acquisition of InterOil for a fixed payment of $45 per share, paid in Exxon Mobil shares, plus a contingent resource payment (CRP) that allows investors to participate in any positive results from the company’s Elk-Antelope oil field. The transaction closed in February 2017, and we retain the CRP instrument that allows participation in any cash-payment award based on the amount of gas present following certification, which is set for mid-2017. We remain encouraged about the value of the CRP.
Within the real estate sector, strong stock selection aided Fund performance for the period. UMH Properties, Incorporated, which owns manufactured-housing communities, returned 63%. As the manufactured-housing industry has slowly recovered, UMH has increased the occupancy in its communities, which has driven improved margins and profits. We believe the demand for low-cost housing may continue to increase, which could benefit UMH.
Weakness in the IT and materials sectors hindered the Fund’s performance.
The Fund’s holdings in the IT sector detracted from performance during the period. Cray Incorporated, a leader in supercomputers, declined 48% for the period. In mid-2016, Cray lowered its full-year guidance due to a variety of issues outside of the company’s immediate control; specifically, Cray was plagued by chip-availability issues for a third-party’s semiconductor component and also was affected by an unexpected smoke event at one of its facilities. Due to the component delay, Cray reported that its orders slowed at the end of 2016. The company’s supply-chain issue has been rectified, and we remain constructive on the company and its potential to grow faster than the overall supercomputer market.
Within the materials sector, gold-mining companies detracted from relative performance. Gold, which started the period at roughly $1,233 an ounce, climbed above $1,350 an ounce during the summer of 2016. The move was driven by negative government bond yields in many countries and a growing lack of confidence in the ability of global central banks to jump-start economic growth. Gold began to decline in the second half of 2016 as investors sensed that the U.S. Federal Reserve likely would increase interest rates. After the U.S. presidential election in November 2016, gold’s decline accelerated as the U.S. dollar strengthened and U.S. stocks rose materially—especially small-cap stocks. Randgold Resources Limited, one of the Fund’s largest holdings, declined 1%. Randgold, which has been a profitable gold producer, has disciplined management, a strong balance sheet, and high-quality mining assets. The company continues to be a core holding. We hold positions in gold miners partly because we believe they improve the Fund’s diversification given their lower correlation to the broad stock market.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Small Cap Value Fund | 9 |
We believe it is prudent to remain cautious.
We are cautious regarding the stock markets after such strong performance during the 12-month period. Corporate profit margins remain high, and earnings multiples are not cheap. The supply of new companies we find potentially attractive has become smaller. The market may already have discounted a number of the potentially positive changes that might be implemented by the new U.S. administration, including lower corporate taxes and less regulation. Any delays or setbacks regarding implementation could disappoint investors and cause stocks to sell off. In addition, higher interest rates, which the stock markets have been viewing as favorable, could negatively affect stocks at some point.
Given the current environment, we believe it is prudent to remain cautious. The Fund holds a reasonable cash position. We believe this position, along with the Fund’s exposure to gold miners, may provide some stability for the Fund in times of potential volatility in the broader stock market. Although the Fund is somewhat defensively positioned, we remain poised to deploy capital as opportunities present themselves.
Ten largest holdings (%) as of March 31, 20176 | ||||
Cavco Industries Incorporated |
4.84 | |||
Randgold Resources Limited ADR |
4.20 | |||
Coherent Incorporated |
4.13 | |||
Cray Incorporated |
2.36 | |||
OSI Systems Incorporated |
2.29 | |||
Argo Group International Holdings Limited |
2.27 | |||
Enova International Incorporated |
2.23 | |||
ACCO Brands Corporation |
2.02 | |||
Cross Country Healthcare Incorporated |
1.95 | |||
Cincinnati Bell Incorporated |
1.82 |
Sector distribution as of March 31, 20177 |
Please see footnotes on page 7.
10 | Wells Fargo Small Cap Value Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,124.27 | $ | 6.78 | 1.28 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.55 | $ | 6.44 | 1.28 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,120.10 | $ | 10.73 | 2.03 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.81 | $ | 10.20 | 2.03 | % | ||||||||
Class R6 |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,127.09 | $ | 4.40 | 0.83 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.79 | $ | 4.18 | 0.83 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,125.70 | $ | 5.72 | 1.08 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,019.55 | $ | 5.44 | 1.08 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,126.72 | $ | 4.67 | 0.88 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.54 | $ | 4.43 | 0.88 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Value Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 90.65% |
||||||||||||||||
Consumer Discretionary: 18.78% |
||||||||||||||||
Auto Components: 1.33% | ||||||||||||||||
Fox Factory Holding Corporation † |
254,100 | $ | 7,292,670 | |||||||||||||
Gentex Corporation |
310,900 | 6,631,497 | ||||||||||||||
13,924,167 | ||||||||||||||||
|
|
|||||||||||||||
Hotels, Restaurants & Leisure: 6.86% | ||||||||||||||||
Bloomin’ Brands Incorporated |
692,800 | 13,668,944 | ||||||||||||||
Century Casinos Incorporated †(l) |
1,762,300 | 13,322,988 | ||||||||||||||
Denny’s Corporation † |
1,075,300 | 13,301,461 | ||||||||||||||
Peak Resorts Incorporated |
420,500 | 2,375,825 | ||||||||||||||
Scientific Games Corporation Class A † |
467,200 | 11,049,280 | ||||||||||||||
The Wendy’s Company |
1,350,700 | 18,383,027 | ||||||||||||||
72,101,525 | ||||||||||||||||
|
|
|||||||||||||||
Household Durables: 8.13% | ||||||||||||||||
Cavco Industries Incorporated † |
437,200 | 50,890,080 | ||||||||||||||
KB Home Incorporated |
465,300 | 9,250,164 | ||||||||||||||
Nobility Homes Incorporated |
96,700 | 1,523,025 | ||||||||||||||
Skyline Corporation †(l) |
815,200 | 7,679,184 | ||||||||||||||
Taylor Morrison Home Corporation Class A † |
374,200 | 7,977,944 | ||||||||||||||
The New Home Company Incorporated † |
780,000 | 8,158,800 | ||||||||||||||
85,479,197 | ||||||||||||||||
|
|
|||||||||||||||
Media: 1.21% | ||||||||||||||||
Cinemark Holdings Incorporated |
169,300 | 7,506,762 | ||||||||||||||
Entravision Communications Corporation Class A |
736,900 | 4,568,780 | ||||||||||||||
MSG Networks Incorporated Class A † |
27,400 | 639,790 | ||||||||||||||
12,715,332 | ||||||||||||||||
|
|
|||||||||||||||
Multiline Retail: 0.66% | ||||||||||||||||
Fred’s Incorporated Class A |
527,800 | 6,914,180 | ||||||||||||||
|
|
|||||||||||||||
Textiles, Apparel & Luxury Goods: 0.59% | ||||||||||||||||
G-III Apparel Group Limited † |
282,100 | 6,175,169 | ||||||||||||||
|
|
|||||||||||||||
Energy: 4.11% |
||||||||||||||||
Energy Equipment & Services: 0.98% | ||||||||||||||||
Newpark Resources Incorporated † |
772,000 | 6,253,200 | ||||||||||||||
Parker Drilling Company † |
1,156,400 | 2,023,700 | ||||||||||||||
PHI Incorporated (non-voting) † |
166,600 | 1,995,868 | ||||||||||||||
10,272,768 | ||||||||||||||||
|
|
|||||||||||||||
Oil, Gas & Consumable Fuels: 3.13% | ||||||||||||||||
Exxon Mobil Corporation |
21,683 | 1,778,223 | ||||||||||||||
InterOil Corporation †(a) |
1,283,100 | 4,311,216 | ||||||||||||||
Navigator Holdings Limited † |
164,400 | 2,260,500 |
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||||||
Oasis Petroleum Incorporated † |
365,900 | $ | 5,217,734 | |||||||||||||
Range Resources Corporation |
286,300 | 8,331,330 | ||||||||||||||
Sanchez Energy Corporation † |
760,600 | 7,256,124 | ||||||||||||||
Trilogy Energy Corporation †(a) |
1,032,600 | 3,766,016 | ||||||||||||||
32,921,143 | ||||||||||||||||
|
|
|||||||||||||||
Financials: 20.35% |
||||||||||||||||
Banks: 10.46% | ||||||||||||||||
Ameris Bancorp |
183,000 | 8,436,300 | ||||||||||||||
BankUnited Incorporated |
154,800 | 5,775,588 | ||||||||||||||
CenterState Banks Incorporated |
665,200 | 17,228,680 | ||||||||||||||
First Horizon National Corporation |
594,200 | 10,992,700 | ||||||||||||||
Hanmi Financial Corporation |
129,900 | 3,994,425 | ||||||||||||||
Hilltop Holdings Incorporated |
306,600 | 8,422,302 | ||||||||||||||
Hope Bancorp Incorporated |
766,900 | 14,701,473 | ||||||||||||||
IBERIABANK Corporation |
183,700 | 14,530,670 | ||||||||||||||
LegacyTexas Financial Group |
72,800 | 2,904,720 | ||||||||||||||
Pacific Premier Bancorp Incorporated † |
31,800 | 1,225,890 | ||||||||||||||
Park Sterling Corporation |
408,000 | 5,022,480 | ||||||||||||||
Sterling BanCorp |
167,400 | 3,967,380 | ||||||||||||||
The Bancorp Incorporated † |
1,693,200 | 8,635,320 | ||||||||||||||
Valley National Bancorp |
345,300 | 4,074,540 | ||||||||||||||
109,912,468 | ||||||||||||||||
|
|
|||||||||||||||
Capital Markets: 0.36% | ||||||||||||||||
Medley Management Incorporated Class A (l) |
454,000 | 3,768,200 | ||||||||||||||
|
|
|||||||||||||||
Consumer Finance: 2.23% | ||||||||||||||||
Enova International Incorporated † |
1,579,500 | 23,455,575 | ||||||||||||||
|
|
|||||||||||||||
Insurance: 5.40% | ||||||||||||||||
Argo Group International Holdings Limited |
352,200 | 23,879,160 | ||||||||||||||
Conifer Holdings Incorporated † |
102,000 | 729,300 | ||||||||||||||
First Acceptance Corporation † |
124,900 | 168,615 | ||||||||||||||
James River Group Holdings Limited |
165,100 | 7,076,186 | ||||||||||||||
National General Holdings Corporation |
688,000 | 16,346,880 | ||||||||||||||
OneBeacon Insurance Group Limited Class A |
400,200 | 6,403,200 | ||||||||||||||
State National Companies Incorporated |
148,600 | 2,139,840 | ||||||||||||||
56,743,181 | ||||||||||||||||
|
|
|||||||||||||||
Mortgage REITs: 1.02% | ||||||||||||||||
Redwood Trust Incorporated |
647,900 | 10,761,619 | ||||||||||||||
|
|
|||||||||||||||
Thrifts & Mortgage Finance: 0.88% | ||||||||||||||||
Essent Group Limited † |
84,100 | 3,041,897 | ||||||||||||||
Northwest Bancshares Incorporated |
366,000 | 6,163,440 | ||||||||||||||
9,205,337 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Value Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Health Care: 9.14% |
||||||||||||||||
Health Care Equipment & Supplies: 2.66% | ||||||||||||||||
Allied Healthcare Products Incorporated † |
16,100 | $ | 31,073 | |||||||||||||
Cerus Corporation † |
819,800 | 3,648,110 | ||||||||||||||
Hologic Incorporated † |
190,500 | 8,105,775 | ||||||||||||||
OraSure Technologies Incorporated † |
1,253,500 | 16,207,755 | ||||||||||||||
27,992,713 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Providers & Services: 3.69% | ||||||||||||||||
Air Methods Corporation † |
134,400 | 5,779,200 | ||||||||||||||
Cross Country Healthcare Incorporated † |
1,425,400 | 20,468,744 | ||||||||||||||
Tivity Health Incorporated † |
431,800 | 12,565,380 | ||||||||||||||
38,813,324 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Technology: 1.70% | ||||||||||||||||
Allscripts Healthcare Solutions Incorporated † |
415,900 | 5,273,612 | ||||||||||||||
Omnicell Incorporated † |
308,600 | 12,544,590 | ||||||||||||||
17,818,202 | ||||||||||||||||
|
|
|||||||||||||||
Life Sciences Tools & Services: 0.51% | ||||||||||||||||
PAREXEL International Corporation † |
84,800 | 5,351,728 | ||||||||||||||
|
|
|||||||||||||||
Pharmaceuticals: 0.58% | ||||||||||||||||
Akorn Incorporated † |
164,100 | 3,951,528 | ||||||||||||||
Prestige Brands Holdings Incorporated † |
39,100 | 2,172,396 | ||||||||||||||
6,123,924 | ||||||||||||||||
|
|
|||||||||||||||
Industrials: 7.45% |
||||||||||||||||
Building Products: 0.45% | ||||||||||||||||
CSW Industrials Incorporated † |
129,100 | 4,737,970 | ||||||||||||||
|
|
|||||||||||||||
Commercial Services & Supplies: 2.86% | ||||||||||||||||
ABM Industries Incorporated |
2,700 | 117,720 | ||||||||||||||
ACCO Brands Corporation † |
1,614,600 | 21,231,990 | ||||||||||||||
Healthcare Services Group Incorporated |
146,300 | 6,304,067 | ||||||||||||||
SP Plus Corporation † |
72,000 | 2,430,000 | ||||||||||||||
30,083,777 | ||||||||||||||||
|
|
|||||||||||||||
Construction & Engineering: 1.41% | ||||||||||||||||
IES Holdings Incorporated † |
214,700 | 3,886,070 | ||||||||||||||
Tutor Perini Corporation † |
343,600 | 10,926,480 | ||||||||||||||
14,812,550 | ||||||||||||||||
|
|
|||||||||||||||
Electrical Equipment: 0.36% | ||||||||||||||||
Babcock & Wilcox Enterprises Incorporated † |
405,500 | 3,787,370 | ||||||||||||||
|
|
|||||||||||||||
Machinery: 1.22% | ||||||||||||||||
Actuant Corporation Class A |
130,500 | 3,438,675 | ||||||||||||||
Freightcar America Incorporated |
420,700 | 5,271,371 | ||||||||||||||
Mueller Water Products Incorporated Class A |
344,300 | 4,069,626 | ||||||||||||||
12,779,672 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Professional Services: 0.60% | ||||||||||||||||
Hill International Incorporated † |
1,532,700 | $ | 6,360,705 | |||||||||||||
|
|
|||||||||||||||
Trading Companies & Distributors: 0.55% | ||||||||||||||||
Applied Industrial Technologies Incorporated |
93,200 | 5,764,420 | ||||||||||||||
|
|
|||||||||||||||
Information Technology: 16.99% |
||||||||||||||||
Communications Equipment: 1.50% | ||||||||||||||||
Brocade Communications Systems Incorporated |
236,900 | 2,956,512 | ||||||||||||||
Harmonic Incorporated † |
1,566,100 | 9,318,295 | ||||||||||||||
Sandvine Corporation (a) |
1,515,500 | 3,495,649 | ||||||||||||||
15,770,456 | ||||||||||||||||
|
|
|||||||||||||||
Electronic Equipment, Instruments & Components: 7.87% | ||||||||||||||||
Cognex Corporation |
82,500 | 6,925,875 | ||||||||||||||
Coherent Incorporated † |
210,900 | 43,369,476 | ||||||||||||||
Fitbit Incorporated Class A † |
377,500 | 2,234,800 | ||||||||||||||
OSI Systems Incorporated † |
329,900 | 24,079,401 | ||||||||||||||
Zebra Technologies Corporation Class A † |
67,400 | 6,150,250 | ||||||||||||||
82,759,802 | ||||||||||||||||
|
|
|||||||||||||||
Internet Software & Services: 0.87% | ||||||||||||||||
Gogo Incorporated † |
834,100 | 9,175,100 | ||||||||||||||
|
|
|||||||||||||||
IT Services: 0.40% | ||||||||||||||||
TeleTech Holdings Incorporated |
142,100 | 4,206,160 | ||||||||||||||
|
|
|||||||||||||||
Semiconductors & Semiconductor Equipment: 0.97% | ||||||||||||||||
Kulicke & Soffa Industries Incorporated † |
501,400 | 10,188,448 | ||||||||||||||
|
|
|||||||||||||||
Software: 1.14% | ||||||||||||||||
Synchronoss Technologies Incorporated † |
490,800 | 11,975,520 | ||||||||||||||
|
|
|||||||||||||||
Technology Hardware, Storage & Peripherals: 4.24% | ||||||||||||||||
Cray Incorporated † |
1,132,200 | 24,795,180 | ||||||||||||||
Diebold Nixdorf Incorporated |
377,100 | 11,576,970 | ||||||||||||||
Quantum Corporation † |
9,356,699 | 8,140,328 | ||||||||||||||
44,512,478 | ||||||||||||||||
|
|
|||||||||||||||
Materials: 9.91% |
||||||||||||||||
Chemicals: 0.21% | ||||||||||||||||
Calgon Carbon Corporation |
154,736 | 2,259,146 | ||||||||||||||
|
|
|||||||||||||||
Containers & Packaging: 0.28% | ||||||||||||||||
Intertape Polymer Group Incorporated (a) |
169,100 | 2,960,801 | ||||||||||||||
|
|
|||||||||||||||
Metals & Mining: 9.06% | ||||||||||||||||
Agnico-Eagle Mines Limited-U.S. Exchange Traded Shares |
176,700 | 7,499,148 | ||||||||||||||
Carpenter Technology Corporation |
101,100 | 3,771,030 | ||||||||||||||
Nevsun Resources Limited |
1,861,600 | 4,765,696 |
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Small Cap Value Fund | 15 |
Security name | Shares | Value | ||||||||||||||
Metals & Mining (continued) | ||||||||||||||||
NovaGold Resources Incorporated † |
1,306,400 | $ | 6,362,168 | |||||||||||||
Randgold Resources Limited ADR |
505,800 | 44,146,224 | ||||||||||||||
Royal Gold Incorporated |
178,600 | 12,510,930 | ||||||||||||||
Sandstorm Gold Limited † |
1,789,500 | 7,641,165 | ||||||||||||||
Silver Standard Resources Incorporated † |
377,700 | 4,007,397 | ||||||||||||||
Tahoe Resources Incorporated |
558,800 | 4,487,164 | ||||||||||||||
95,190,922 | ||||||||||||||||
|
|
|||||||||||||||
Paper & Forest Products: 0.36% | ||||||||||||||||
Deltic Timber Corporation |
48,400 | 3,781,008 | ||||||||||||||
|
|
|||||||||||||||
Real Estate: 2.09% |
||||||||||||||||
Equity REITs: 2.09% | ||||||||||||||||
Potlatch Corporation |
153,800 | 7,028,660 | ||||||||||||||
UMH Properties Incorporated |
980,700 | 14,916,447 | ||||||||||||||
21,945,107 | ||||||||||||||||
|
|
|||||||||||||||
Telecommunication Services: 1.83% |
||||||||||||||||
Diversified Telecommunication Services: 1.83% | ||||||||||||||||
Cincinnati Bell Incorporated † |
1,083,500 | 19,177,950 | ||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $593,351,760) |
952,679,114 | |||||||||||||||
|
|
|||||||||||||||
Exchange-Traded Funds: 1.19% |
||||||||||||||||
SPDR S&P Regional Banking ETF |
42,387 | 2,314,754 | ||||||||||||||
VanEck Vectors Gold Miners ETF |
272,851 | 6,223,732 | ||||||||||||||
VanEck Vectors Junior Gold Miners ETF |
109,283 | 3,932,002 | ||||||||||||||
Total Exchange-Traded Funds (Cost $11,146,730) |
12,470,488 | |||||||||||||||
|
|
|||||||||||||||
Expiration date | ||||||||||||||||
Warrants: 0.00% | ||||||||||||||||
Health Care: 0.00% |
||||||||||||||||
Health Care Equipment & Supplies: 0.00% | ||||||||||||||||
EnteroMedics Incorporated †(a) |
3-27-2017 | 270,908 | 0 | |||||||||||||
EnteroMedics Incorporated †(a)(i) |
2-27-2018 | 48,280 | 58 | |||||||||||||
Total Warrants (Cost $0) |
58 | |||||||||||||||
|
|
|||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 8.15% | ||||||||||||||||
Investment Companies: 8.15% | ||||||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | % | 85,665,191 | 85,665,191 | ||||||||||||
|
|
|||||||||||||||
Total Short-Term Investments (Cost $85,665,191) |
85,665,191 | |||||||||||||||
|
|
Total investments in securities (Cost $690,163,681) * | 99.99 | % | 1,050,814,851 | |||||
Other assets and liabilities, net |
0.01 | 82,304 | ||||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 1,050,897,155 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
† | Non-income-earning security |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(a) | The security is fair valued in accordance with procedures approved by the Board of Trustees. |
(i) | Illiquid security for which the designation as illiquid is unaudited. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $697,451,670 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 402,200,173 | ||
Gross unrealized losses |
(48,836,992 | ) | ||
|
|
|||
Net unrealized gains |
$ | 353,363,181 |
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities—March 31, 2017 | Wells Fargo Small Cap Value Fund | 17 |
Assets |
||||
Investments |
||||
In unaffiliated securities, at value (cost $582,353,498) |
$ | 940,379,288 | ||
In affiliated securities, at value (cost $107,810,183) |
110,435,563 | |||
|
|
|||
Total investments, at value (cost $690,163,681) |
1,050,814,851 | |||
Foreign currency, at value (cost $39) |
39 | |||
Receivable for investments sold |
2,193,120 | |||
Receivable for Fund shares sold |
1,032,910 | |||
Receivable for dividends |
836,367 | |||
Prepaid expenses and other assets |
144,349 | |||
|
|
|||
Total assets |
1,055,021,636 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
935,104 | |||
Payable for Fund shares redeemed |
1,758,200 | |||
Management fee payable |
732,713 | |||
Distribution fee payable |
24,529 | |||
Administration fees payable |
153,515 | |||
Shareholder report expenses payable |
295,123 | |||
Accrued expenses and other liabilities |
225,297 | |||
|
|
|||
Total liabilities |
4,124,481 | |||
|
|
|||
Total net assets |
$ | 1,050,897,155 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 561,387,617 | ||
Accumulated net investment loss |
(2,079,153 | ) | ||
Accumulated net realized gains on investments |
130,937,521 | |||
Net unrealized gains on investments |
360,651,170 | |||
|
|
|||
Total net assets |
$ | 1,050,897,155 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 494,606,690 | ||
Shares outstanding – Class A1 |
22,810,996 | |||
Net asset value per share – Class A |
$21.68 | |||
Maximum offering price per share – Class A2 |
$23.00 | |||
Net assets – Class C |
$ | 35,469,642 | ||
Shares outstanding – Class C1 |
2,128,166 | |||
Net asset value per share – Class C |
$16.67 | |||
Net assets – Class R6 |
$ | 90,809,254 | ||
Shares outstanding – Class R61 |
3,960,628 | |||
Net asset value per share – Class R6 |
$22.93 | |||
Net assets – Administrator Class |
$ | 12,993,525 | ||
Shares outstanding – Administrator Class1 |
569,845 | |||
Net asset value per share – Administrator Class |
$22.80 | |||
Net assets – Institutional Class |
$ | 417,018,044 | ||
Shares outstanding – Institutional Class1 |
18,207,581 | |||
Net asset value per share – Institutional Class |
$22.90 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Small Cap Value Fund | Statement of operations—year ended March 31, 2017 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $43,508) |
$ | 7,572,781 | ||
Income from affiliated securities |
305,248 | |||
|
|
|||
Total investment income |
7,878,029 | |||
|
|
|||
Expenses |
||||
Management fee |
8,186,269 | |||
Administration fees |
||||
Class A |
1,028,670 | |||
Class C |
75,675 | |||
Class R6 |
27,871 | |||
Administrator Class |
24,173 | |||
Institutional Class |
442,242 | |||
Shareholder servicing fees |
||||
Class A |
1,224,607 | |||
Class C |
90,089 | |||
Administrator Class |
46,278 | |||
Distribution fee |
||||
Class C |
270,267 | |||
Custody and accounting fees |
50,337 | |||
Professional fees |
58,070 | |||
Registration fees |
55,630 | |||
Shareholder report expenses |
13,039 | |||
Trustees’ fees and expenses |
21,796 | |||
Other fees and expenses |
20,879 | |||
|
|
|||
Total expenses |
11,635,892 | |||
Less: Fee waivers and/or expense reimbursements |
(668,856 | ) | ||
|
|
|||
Net expenses |
10,967,036 | |||
|
|
|||
Net investment loss |
(3,089,007 | ) | ||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains on: |
||||
Unaffiliated securities |
169,871,403 | |||
Affiliated securities |
8,601,835 | |||
|
|
|||
Net realized gains on investments |
178,473,238 | |||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
98,397,457 | |||
Affiliated securities |
(22,090,793 | ) | ||
|
|
|||
Net change in unrealized gains (losses) on investments |
76,306,664 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
254,779,902 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 251,690,895 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets | Wells Fargo Small Cap Value Fund | 19 |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment loss |
$ | (3,089,007 | ) | $ | (3,007,195 | ) | ||||||||||
Net realized gains on investments |
178,473,238 | 176,694,661 | ||||||||||||||
Net change in unrealized gains (losses) on investments |
76,306,664 | (222,903,179 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from operations |
251,690,895 | (49,215,713 | ) | |||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net realized gains |
||||||||||||||||
Class A |
(56,388,139 | ) | (147,582,801 | ) | ||||||||||||
Class B |
0 | 1 | (11,299 | ) | ||||||||||||
Class C |
(5,270,387 | ) | (12,940,580 | ) | ||||||||||||
Class R6 |
(10,487,806 | ) | (26,184,650 | ) | ||||||||||||
Administrator Class |
(2,045,288 | ) | (7,973,394 | ) | ||||||||||||
Institutional Class |
(37,253,131 | ) | (84,638,041 | ) | ||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(111,444,751 | ) | (279,330,765 | ) | ||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
1,740,528 | 35,433,223 | 14,405,645 | 371,383,963 | ||||||||||||
Class C |
191,902 | 3,019,730 | 213,694 | 3,522,236 | ||||||||||||
Class R6 |
424,030 | 9,098,907 | 4,913,663 | 136,781,653 | ||||||||||||
Administrator Class |
130,653 | 2,811,213 | 246,541 | 5,884,855 | ||||||||||||
Institutional Class |
4,669,898 | 101,916,638 | 1,822,908 | 45,991,897 | ||||||||||||
Investor Class |
N/A | N/A | 341,179 | 2 | 9,252,444 | 2 | ||||||||||
|
|
|||||||||||||||
152,279,711 | 572,817,048 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
2,776,179 | 55,114,701 | 8,140,152 | 144,569,098 | ||||||||||||
Class B |
0 | 1 | 0 | 1 | 791 | 11,299 | ||||||||||
Class C |
292,458 | 4,514,956 | 767,463 | 10,936,351 | ||||||||||||
Class R6 |
502,696 | 10,487,806 | 1,410,811 | 26,184,650 | ||||||||||||
Administrator Class |
87,246 | 1,799,155 | 392,943 | 7,277,303 | ||||||||||||
Institutional Class |
1,730,984 | 36,212,221 | 4,322,403 | 80,180,580 | ||||||||||||
|
|
|||||||||||||||
108,128,839 | 269,159,281 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(7,484,677 | ) | (152,570,289 | ) | (9,636,099 | ) | (207,634,531 | ) | ||||||||
Class B |
(285 | )1 | (4,290 | )1 | (7,052 | ) | (145,392 | ) | ||||||||
Class C |
(803,103 | ) | (12,684,211 | ) | (2,155,888 | ) | (45,177,913 | ) | ||||||||
Class R6 |
(1,679,233 | ) | (36,127,102 | ) | (3,471,014 | ) | (92,765,963 | ) | ||||||||
Administrator Class |
(1,056,888 | ) | (22,334,104 | ) | (2,015,328 | ) | (51,849,956 | ) | ||||||||
Institutional Class |
(2,762,181 | ) | (58,313,031 | ) | (27,696,737 | ) | (767,867,077 | ) | ||||||||
Investor Class |
N/A | N/A | (17,354,006 | )2 | (466,375,638 | )2 | ||||||||||
|
|
|||||||||||||||
(282,033,027 | ) | (1,631,816,470 | ) | |||||||||||||
|
|
|||||||||||||||
Net asset value of shares issued in acquisition |
||||||||||||||||
Class A |
2,339,168 | 45,638,463 | 0 | 0 | ||||||||||||
Class C |
219,630 | 3,343,096 | 0 | 0 | ||||||||||||
Administrator Class |
141,240 | 2,888,953 | 0 | 0 | ||||||||||||
Institutional Class |
172,399 | 3,537,176 | 0 | 0 | ||||||||||||
|
|
|||||||||||||||
55,407,688 | 0 | |||||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions |
33,783,211 | (789,840,141 | ) | |||||||||||||
|
|
|||||||||||||||
Total increase (decrease) in net assets |
174,029,355 | (1,118,386,619 | ) | |||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
876,867,800 | 1,995,254,419 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 1,050,897,155 | $ | 876,867,800 | ||||||||||||
|
|
|||||||||||||||
Accumulated net investment loss |
$ | (2,079,153 | ) | $ | (2,315,780 | ) | ||||||||||
|
|
1 | For the period from April 1, 2016 to June 6, 2016. Effective June 7, 2016, Class B shares of the Fund are no longer offered to shareholders. |
2 | For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$18.84 | $27.51 | $35.74 | $36.33 | $32.87 | $29.56 | ||||||||||||||||||
Net investment income (loss) |
(0.11 | ) | (0.06 | )2 | 0.01 | 2 | 0.18 | 0.23 | 0.19 | |||||||||||||||
Net realized and unrealized gains (losses) on investments |
5.45 | (1.19 | ) | (2.55 | ) | 2.71 | 4.68 | 3.39 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.34 | (1.25 | ) | (2.54 | ) | 2.89 | 4.91 | 3.58 | ||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
0.00 | 0.00 | (0.13 | ) | (0.11 | ) | (0.24 | ) | (0.12 | ) | ||||||||||||||
Net realized gains |
(2.50 | ) | (7.42 | ) | (5.56 | ) | (3.37 | ) | (1.21 | ) | (0.15 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(2.50 | ) | (7.42 | ) | (5.69 | ) | (3.48 | ) | (1.45 | ) | (0.27 | ) | ||||||||||||
Net asset value, end of period |
$21.68 | $18.84 | $27.51 | $35.74 | $36.33 | $32.87 | ||||||||||||||||||
Total return3 |
29.92 | % | (2.90 | )% | (7.29 | )% | 8.87 | % | 15.67 | % | 12.22 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.32 | % | 1.36 | % | 1.35 | % | 1.33 | % | 1.33 | % | 1.34 | % | ||||||||||||
Net expenses |
1.28 | % | 1.28 | % | 1.29 | % | 1.30 | % | 1.30 | % | 1.30 | % | ||||||||||||
Net investment income (loss) |
(0.48 | )% | (0.27 | )% | 0.02 | % | 1.26 | % | 0.72 | % | 0.61 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
31 | % | 16 | % | 9 | % | 7 | % | 18 | % | 16 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$494,607 | $441,679 | $289,669 | $443,671 | $482,677 | $603,622 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Small Cap Value Fund | 21 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$15.09 | $23.80 | $31.89 | $32.77 | $29.82 | $26.92 | ||||||||||||||||||
Net investment income (loss) |
(0.20 | )2 | (0.24 | )2 | (0.20 | )2 | 0.07 | 2 | (0.02 | )2 | (0.04 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
4.28 | (1.05 | ) | (2.27 | ) | 2.42 | 4.23 | 3.09 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
4.08 | (1.29 | ) | (2.47 | ) | 2.49 | 4.21 | 3.05 | ||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
0.00 | 0.00 | (0.06 | ) | 0.00 | (0.05 | ) | 0.00 | ||||||||||||||||
Net realized gains |
(2.50 | ) | (7.42 | ) | (5.56 | ) | (3.37 | ) | (1.21 | ) | (0.15 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(2.50 | ) | (7.42 | ) | (5.62 | ) | (3.37 | ) | (1.26 | ) | (0.15 | ) | ||||||||||||
Net asset value, end of period |
$16.67 | $15.09 | $23.80 | $31.89 | $32.77 | $29.82 | ||||||||||||||||||
Total return3 |
28.93 | % | (3.58 | )% | (8.00 | )% | 8.53 | % | 14.80 | % | 11.38 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
2.07 | % | 2.11 | % | 2.10 | % | 2.08 | % | 2.08 | % | 2.09 | % | ||||||||||||
Net expenses |
2.03 | % | 2.03 | % | 2.04 | % | 2.05 | % | 2.05 | % | 2.05 | % | ||||||||||||
Net investment income (loss) |
(1.23 | )% | (1.18 | )% | (0.70 | )% | 0.52 | % | (0.06 | )% | (0.14 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
31 | % | 16 | % | 9 | % | 7 | % | 18 | % | 16 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$35,470 | $33,601 | $80,969 | $105,309 | $105,491 | $102,663 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended |
|||||||||||||||||||
CLASS R6 | 2017 | 2016 | 2015 | 20141 | ||||||||||||||||
Net asset value, beginning of period |
$19.72 | $28.29 | $36.52 | $37.13 | $33.69 | |||||||||||||||
Net investment income (loss) |
(0.01 | )3 | 0.03 | 3 | 0.23 | 3 | 0.35 | 0.07 | 3 | |||||||||||
Net realized and unrealized gains (losses) on investments |
5.72 | (1.18 | ) | (2.69 | ) | 2.67 | 3.37 | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
5.71 | (1.15 | ) | (2.46 | ) | 3.02 | 3.44 | |||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
0.00 | 0.00 | (0.21 | ) | (0.26 | ) | 0.00 | |||||||||||||
Net realized gains |
(2.50 | ) | (7.42 | ) | (5.56 | ) | (3.37 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total distributions to shareholders |
(2.50 | ) | (7.42 | ) | (5.77 | ) | (3.63 | ) | 0.00 | |||||||||||
Net asset value, end of period |
$22.93 | $19.72 | $28.29 | $36.52 | $37.13 | |||||||||||||||
Total return4 |
30.50 | % | (2.43 | )% | (6.90 | )% | 9.07 | % | 10.21 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
0.89 | % | 0.92 | % | 0.87 | % | 0.85 | % | 0.85 | % | ||||||||||
Net expenses |
0.83 | % | 0.83 | % | 0.83 | % | 0.85 | % | 0.85 | % | ||||||||||
Net investment income (loss) |
(0.03 | )% | 0.12 | % | 0.72 | % | 2.82 | % | 0.60 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
31 | % | 16 | % | 9 | % | 7 | % | 18 | % | ||||||||||
Net assets, end of period (000s omitted) |
$90,809 | $92,929 | $52,613 | $398 | $28 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | For the period from June 28, 2013 (commencement of class operations) to October 31, 2013. |
3 | Calculated based upon average shares outstanding |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Small Cap Value Fund | 23 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$19.66 | $28.30 | $36.40 | $36.98 | $33.45 | $30.12 | ||||||||||||||||||
Net investment income (loss) |
(0.07 | )2 | (0.06 | )2 | 0.01 | 2 | 0.21 | 0.31 | 0.25 | 2 | ||||||||||||||
Net realized and unrealized gains (losses) on investments |
5.71 | (1.16 | ) | (2.55 | ) | 2.77 | 4.75 | 3.44 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.64 | (1.22 | ) | (2.54 | ) | 2.98 | 5.06 | 3.69 | ||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
0.00 | 0.00 | 0.00 | (0.19 | ) | (0.32 | ) | (0.21 | ) | |||||||||||||||
Net realized gains |
(2.50 | ) | (7.42 | ) | (5.56 | ) | (3.37 | ) | (1.21 | ) | (0.15 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(2.50 | ) | (7.42 | ) | (5.56 | ) | (3.56 | ) | (1.53 | ) | (0.36 | ) | ||||||||||||
Net asset value, end of period |
$22.80 | $19.66 | $28.30 | $36.40 | $36.98 | $33.45 | ||||||||||||||||||
Total return3 |
30.22 | % | (2.70 | )% | (7.16 | )% | 8.97 | % | 15.92 | % | 12.42 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.24 | % | 1.25 | % | 1.19 | % | 1.17 | % | 1.17 | % | 1.17 | % | ||||||||||||
Net expenses |
1.08 | % | 1.08 | % | 1.09 | % | 1.10 | % | 1.10 | % | 1.10 | % | ||||||||||||
Net investment income (loss) |
(0.31 | )% | (0.24 | )% | 0.03 | % | 1.48 | % | 0.87 | % | 0.80 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
31 | % | 16 | % | 9 | % | 7 | % | 18 | % | 16 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$12,994 | $24,927 | $74,820 | $711,869 | $666,812 | $543,683 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
24 | Wells Fargo Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$19.71 | $28.29 | $36.53 | $37.12 | $33.56 | $30.21 | ||||||||||||||||||
Net investment income (loss) |
(0.01 | )2 | (0.01 | )2 | 0.17 | 2 | 0.26 | 0.38 | 2 | 0.34 | ||||||||||||||
Net realized and unrealized gains (losses) on investments |
5.70 | (1.15 | ) | (2.65 | ) | 2.76 | 4.76 | 3.42 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.69 | (1.16 | ) | (2.48 | ) | 3.02 | 5.14 | 3.76 | ||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
0.00 | 0.00 | (0.20 | ) | (0.24 | ) | (0.37 | ) | (0.26 | ) | ||||||||||||||
Net realized gains |
(2.50 | ) | (7.42 | ) | (5.56 | ) | (3.37 | ) | (1.21 | ) | (0.15 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(2.50 | ) | (7.42 | ) | (5.76 | ) | (3.61 | ) | (1.58 | ) | (0.41 | ) | ||||||||||||
Net asset value, end of period |
$22.90 | $19.71 | $28.29 | $36.53 | $37.12 | $33.56 | ||||||||||||||||||
Total return3 |
30.41 | % | (2.46 | )% | (6.95 | )% | 9.05 | % | 16.15 | % | 12.68 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
0.99 | % | 0.99 | % | 0.92 | % | 0.90 | % | 0.90 | % | 0.91 | % | ||||||||||||
Net expenses |
0.88 | % | 0.88 | % | 0.89 | % | 0.90 | % | 0.90 | % | 0.90 | % | ||||||||||||
Net investment income (loss) |
(0.06 | )% | (0.03 | )% | 0.52 | % | 1.66 | % | 1.08 | % | 1.01 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
31 | % | 16 | % | 9 | % | 7 | % | 18 | % | 16 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$417,018 | $283,728 | $1,017,115 | $984,881 | $1,081,869 | $1,143,730 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Notes to financial statements | Wells Fargo Small Cap Value Fund | 25 |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.
Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.
Effective June 7, 2016, Class B shares of the Fund are no longer offered. Information for Class B shares reflected in the financial statements represents activity through June 6, 2016.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2017, such fair value pricing was not used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange
26 | Wells Fargo Small Cap Value Fund | Notes to financial statements |
or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to passive foreign investment companies and net operating losses. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Accumulated net investment loss |
Accumulated net realized gains on investments | |
$3,325,634 | $(3,325,634) |
Notes to financial statements | Wells Fargo Small Cap Value Fund | 27 |
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 195,786,545 | $ | 1,523,025 | $ | 0 | $ | 197,309,570 | ||||||||
Energy |
35,116,679 | 3,766,016 | 4,311,216 | 43,193,911 | ||||||||||||
Financials |
213,846,380 | 0 | 0 | 213,846,380 | ||||||||||||
Health care |
96,099,891 | 0 | 0 | 96,099,891 | ||||||||||||
Industrials |
78,326,464 | 0 | 0 | 78,326,464 | ||||||||||||
Information technology |
175,092,315 | 3,495,649 | 0 | 178,587,964 | ||||||||||||
Materials |
101,231,076 | 2,960,801 | 0 | 104,191,877 | ||||||||||||
Real estate |
21,945,107 | 0 | 0 | 21,945,107 | ||||||||||||
Telecommunication services |
19,177,950 | 0 | 0 | 19,177,950 | ||||||||||||
Exchange-traded funds |
12,470,488 | 0 | 0 | 12,470,488 | ||||||||||||
Warrants |
||||||||||||||||
Health care |
0 | 58 | 0 | 58 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
85,665,191 | 0 | 0 | 85,665,191 | ||||||||||||
Total assets |
$ | 1,034,758,086 | $ | 11,745,549 | $ | 4,311,216 | $ | 1,050,814,851 |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement.
28 | Wells Fargo Small Cap Value Fund | Notes to financial statements |
Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.84% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class B, Class C |
0.21 | % | ||
Class R6 |
0.03 | |||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.28% for Class A shares, 2.03% for Class C shares, 0.83% for Class R6 shares, 1.08% for Administrator Class shares, and 0.88% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $980 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $6,221 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fees
The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2017, Funds Distributor received $4,957 from the sale of Class A shares and $125 in contingent deferred sales charges from redemptions of Class C shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, and Administrator Class, of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
Notes to financial statements | Wells Fargo Small Cap Value Fund | 29 |
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $289,488,137 and $473,541,348, respectively.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. INVESTMENTS IN AFFILIATES
An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.
Shares, beginning of period |
Shares purchased |
Shares sold |
Shares, end of period |
Value, end of period |
Income from securities |
Realized gains (losses) |
||||||||||||||||||||||
Allied Healthcare Products Incorporated* |
588,600 | 28,677 | 617,277 | 0 | $ | 0 | $ | 0 | $ | (652,430 | ) | |||||||||||||||||
Cavco Industries Incorporated* |
587,800 | 19,000 | 169,600 | 437,200 | 50,890,080 | 0 | 10,924,215 | |||||||||||||||||||||
Century Casinos Incorporated |
1,476,500 | 285,800 | 0 | 1,762,300 | 13,322,988 | 0 | 0 | |||||||||||||||||||||
Medley Management Incorporated Class A |
689,100 | 0 | 235,100 | 454,000 | 3,768,200 | 159,457 | (1,936,404 | ) | ||||||||||||||||||||
Skyline Corporation |
626,200 | 193,100 | 4,100 | 815,200 | 7,679,184 | 0 | 15,914 | |||||||||||||||||||||
Webco Industries Incorporated* |
55,400 | 0 | 55,400 | 0 | 0 | 0 | 250,540 | |||||||||||||||||||||
$ | 159,457 | $ | 8,601,835 |
* | No longer an affiliate of the Fund at the end of the period. |
7. ACQUISITION
After the close of business on July 22, 2016, the Fund acquired the net assets of Wells Fargo Small/Mid Cap Value Fund. The purpose of the transaction was to combine two funds with similar investment objectives and strategies. Shareholders holding Class A, Class C, Administrator Class, and Institutional Class shares of Wells Fargo Small/Mid Cap Value Fund received Class A, Class C, Administrator Class, and Institutional Class shares, respectively, of the Fund in the reorganization. The acquisition was accomplished by a tax-free exchange of all of the shares of Wells Fargo Small/Mid Cap Value Fund for 2,872,437 shares of the Fund valued at $55,407,688 at an exchange ratio of 0.63, 0.75, 0.62, and 0.63 for Class A, Class C, Administrator Class, and Institutional Class shares, respectively. The investment portfolio of Wells Fargo Small/Mid Cap Value Fund with a fair value of $45,240,508, identified cost of $27,461,432 and unrealized gains of $17,779,076 at July 22, 2016 were the principal assets acquired by the Fund. The aggregate net assets of Wells Fargo Small/Mid Cap Value Fund and the Fund immediately prior to the acquisition were $55,407,688 and $934,257,976, respectively. The aggregate net assets of the Fund immediately after the acquisition were $989,665,664. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from Wells Fargo Small/Mid Cap Value Fund was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Assuming the acquisition had been completed April 1, 2016, the beginning of the annual reporting period for the Fund, the pro forma results of operations for the year ended March 31, 2017 would have been:
Net investment loss |
$ | (2,807,515 | ) | |
Net realized and unrealized gains (losses) on investments |
$ | 261,166,279 | ||
Net increase in net assets resulting from operations |
$ | 258,358,764 |
Because the combined investment portfolios have been managed as a single integrated portfolio since the acquisition was completed, it is not practicable to separate the amounts of revenue and earnings of Wells Fargo Small/Mid Cap Value Fund that have been included in the Fund’s Statement of Operations since July 25, 2016.
30 | Wells Fargo Small Cap Value Fund | Notes to financial statements |
8. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
9. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $111,444,751 and $279,330,765 of long-term capital gain for the years ended March 31, 2017 and March 31, 2016, respectively.
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Undistributed long-term gain |
Unrealized gains | ||
$1,352,843 | $134,793,514 | $353,363,181 |
10. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
11. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
12. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
Report of independent registered public accounting firm | Wells Fargo Small Cap Value Fund | 31 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Small Cap Value Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for the each of the years in the three-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years or periods in the two-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Small Cap Value Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
32 | Wells Fargo Small Cap Value Fund | Other information (unaudited) |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $111,444,751 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2017.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other information (unaudited) | Wells Fargo Small Cap Value Fund | 33 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
34 | Wells Fargo Small Cap Value Fund | Other information (unaudited) |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
(Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
List of abbreviations | Wells Fargo Small Cap Value Fund | 35 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302875 05-17 A244/AR244 03-17 |
Annual Report
Wells Fargo Special Small Cap Value Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Special Small Cap Value Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Special Small Cap Value Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but remained at historically
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Special Small Cap Value Fund | 3 |
low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Special Small Cap Value Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Special Small Cap Value Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Robert Rifkin, CFA®
James M. Tringas, CFA®, CPA
Bryant VanCronkhite, CFA®, CPA
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (ESPAX) | 5-7-1993 | 16.58 | 11.73 | 6.50 | 23.69 | 13.06 | 7.13 | 1.36 | 1.35 | |||||||||||||||||||||||||
Class B (ESPBX)* | 3-26-1999 | 17.73 | 11.96 | 6.57 | 22.73 | 12.21 | 6.57 | 2.11 | 2.10 | |||||||||||||||||||||||||
Class C (ESPCX) | 12-12-2000 | 21.75 | 12.22 | 6.33 | 22.75 | 12.22 | 6.33 | 2.11 | 2.10 | |||||||||||||||||||||||||
Class R (ESPHX) | 9-30-2015 | – | – | – | 23.47 | 12.80 | 6.84 | 1.61 | 1.60 | |||||||||||||||||||||||||
Class R6 (ESPRX) | 10-31-2014 | – | – | – | 24.22 | 13.53 | 7.52 | 0.93 | 0.90 | |||||||||||||||||||||||||
Administrator Class (ESPIX) | 7-23-1996 | – | – | – | 23.82 | 13.30 | 7.38 | 1.28 | 1.21 | |||||||||||||||||||||||||
Institutional Class (ESPNX) | 7-30-2010 | – | – | – | 24.13 | 13.51 | 7.50 | 1.03 | 0.95 | |||||||||||||||||||||||||
Russell 2000® Value Index4 | – | – | – | – | 29.37 | 12.54 | 6.09 | – | – |
* | At the close of business on May 5, 2017, existing Class B shareholders were converted to Class A shareholders. Effective May 6, 2017, Class B shares are no longer offered by the Fund. |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Class R, Class R6, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Special Small Cap Value Fund | 7 |
Growth of $10,000 investment as of March 31, 20175 |
1 | Historical performance shown for Class R shares prior to their inception reflects the performance of the Institutional Class shares adjusted to reflect the higher expenses applicable to Class R shares. Historical performance for Class R6 shares prior to their inception reflects the performance of the Institutional Class shares, and includes the higher expenses applicable to Institutional Class shares. If these expenses had not been included, returns for Class R6 shares would be higher. Historical performance shown for Institutional Class shares prior to their inception reflects the performance of Administrator Class shares, and includes the higher expenses applicable to Administrator Class shares. If these expenses had not been included, returns for Institutional Class shares would be higher. Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen Special Values Fund. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through July 31, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 1.34% for Class A, 2.09% for Class B, 2.09% for Class C, 1.59% for Class R, 0.89% for Class R6, 1.20% for Administrator Class, and 0.94% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index. |
5 | The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
6 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
7 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Special Small Cap Value Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2017. |
∎ | An underweight to the financials sector and stock selection in the materials and consumer discretionary sectors detracted from performance. |
∎ | Stock selection in the industrials sector and underweights to the real estate and utilities sectors contributed to relative performance. |
Over the 12-month reporting period, small-cap value stocks provided strong returns. The Russell 2000® Value Index rose more than 29% during the period. Through much of 2016, small-cap value stocks were fueled by improving economic data and investors’ increased appetite for risk. After the presidential election in November, small-cap value stocks continued to ascend. Expectations that small-cap stocks could benefit from improving economic data and the new administration’s policies drove much of the postelection rally. In early 2017, investors began to look for hard data to support higher valuations and many of the underlying macro expectations, causing small-cap value stocks to give back some of their 2016 gains.
Ten largest holdings (%) as of March 31, 20176 | ||||
First Citizens BancShares Corporation Class A |
2.07 | |||
Simpson Manufacturing Company Incorporated |
2.00 | |||
TreeHouse Foods Incorporated |
1.97 | |||
Novanta Incorporated |
1.91 | |||
Neenah Paper Incorporated |
1.88 | |||
Mueller Industries Incorporated |
1.79 | |||
DST Systems Incorporated |
1.78 | |||
Korn/Ferry International |
1.74 | |||
Innospec Incorporated |
1.68 | |||
Analogic Corporation |
1.67 |
While we expect the Fund to participate in strong rallies like we saw in 2016, we do not expect the Fund to outperform in that environment given our focus on companies with strong balance sheets and sustainable free cash flow. Rather than trying to predict macro factors or political events, we prefer to invest in companies that control their own destinies via strong competitive advantages, flexible balance sheets, and sustainable free cash flows. We did not make any major changes to portfolio positioning during the reporting period, and we continue to emphasize companies that prudently allocate their capital.
Key detractors included an underweight to financials and stock selection within consumer discretionary.
The Fund’s underweight to the financials sector, especially to banks, detracted from relative performance. Small-cap banks rallied substantially postelection on expectations that they could benefit from a combination of a steeper yield curve, tax reform, and deregulation. Many of these banks do not fit our investment process given that they lack sustainable competitive advantages and sufficient financial flexibility. These underlying expectations began to be scrutinized in the last few months of the reporting period, and bank valuations have compressed.
Stock selection in the consumer discretionary sector detracted from relative performance. Casual-dining company DineEquity, Incorporated, suffered from some execution issues related to a new menu rollout at its Applebee’s restaurants. Although this problem may take some time to fix, we believe the reward-to-risk valuation is potentially attractive. Meanwhile, the IHOP portion of DineEquity’s business has been providing some stability while management repairs the menu issues at Applebee’s.
Multiple sectors contributed to performance.
Stock selection in the industrials sector contributed to relative performance. Long-time holding Mueller Industries, Incorporated—a manufacturer of flow-control and industrial products—benefited the Fund’s performance. We view Mueller as a high-quality, diversified industrial company with a strong balance sheet and stable cash flows. Mueller has used its strong balance sheet to diversify its business, and the company’s stock has benefited from strength across the firm’s end markets as well as from a sizable dividend increase in 2016.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Special Small Cap Value Fund | 9 |
Sector distribution as of March 31, 20177 |
Large underweights to the real estate and utilities sectors contributed to the Fund’s relative performance. As bond yields began to rebound off their July 2016 lows, investors began to sell some of their real estate and utilities holdings that had benefited from lower interest rates. We have found the level of downside risk in a rising interest-rate environment to be substantial for most utilities and real estate investment trusts, leading to less attractive reward-to-risk opportunities. We have continued to remain underweight both sectors.
Our outlook is cautious yet confident.
As we look out over the next 12 months, we think investors may demand more hard data to support the
macroeconomic expectations that drove valuations
higher in 2016. We believe it is prudent to protect the Fund’s downside risks as we look for individual investment opportunities to present themselves. We do not focus on forecasting future macroeconomic news and the short-term direction of the market. Through our bottom-up stock-selection process, we focus on investing in companies that have the potential to generate strong cash flows and have the balance-sheet flexibility to make intelligent investment decisions when other companies may be too skittish to invest in the future. In our view, this approach may better position our investments to reap outsized rewards relative to other stocks. Because of this disciplined investment process, we remain confident in our ability to navigate all economic environments over the long term.
Please see footnotes on page 7.
10 | Wells Fargo Special Small Cap Value Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10- 1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,111.15 | $ | 6.92 | 1.31 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.38 | $ | 6.61 | 1.31 | % | ||||||||
Class B |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,107.05 | $ | 10.85 | 2.07 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.63 | $ | 10.37 | 2.07 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,106.91 | $ | 10.85 | 2.06 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.64 | $ | 10.37 | 2.06 | % | ||||||||
Class R |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,110.41 | $ | 8.22 | 1.56 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,017.14 | $ | 7.85 | 1.56 | % | ||||||||
Class R6 |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,113.43 | $ | 4.66 | 0.88 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.52 | $ | 4.45 | 0.88 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,111.63 | $ | 6.32 | 1.20 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.95 | $ | 6.04 | 1.20 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,113.04 | $ | 4.95 | 0.94 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.24 | $ | 4.73 | 0.94 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Special Small Cap Value Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 91.79% |
||||||||||||||||
Consumer Discretionary: 8.51% |
||||||||||||||||
Diversified Consumer Services: 0.21% | ||||||||||||||||
Liberty Tax Incorporated « |
278,747 | $ | 3,972,145 | |||||||||||||
|
|
|||||||||||||||
Hotels, Restaurants & Leisure: 3.62% | ||||||||||||||||
Denny’s Corporation † |
1,922,018 | 23,775,363 | ||||||||||||||
DineEquity Incorporated |
461,645 | 25,122,721 | ||||||||||||||
Ruby Tuesday Incorporated † |
852,300 | 2,394,963 | ||||||||||||||
The Wendy’s Company |
1,374,400 | 18,705,584 | ||||||||||||||
69,998,631 | ||||||||||||||||
|
|
|||||||||||||||
Household Durables: 1.70% | ||||||||||||||||
Dixie Group Incorporated † |
701,235 | 2,524,446 | ||||||||||||||
Helen of Troy Limited † |
322,500 | 30,379,500 | ||||||||||||||
32,903,946 | ||||||||||||||||
|
|
|||||||||||||||
Leisure Products: 0.15% | ||||||||||||||||
Vista Outdoor Incorporated † |
138,200 | 2,845,538 | ||||||||||||||
|
|
|||||||||||||||
Media: 1.26% | ||||||||||||||||
A.H. Belo Corporation Class A (l) |
1,289,840 | 7,932,516 | ||||||||||||||
Gannett Company Incorporated |
703,721 | 5,897,182 | ||||||||||||||
New Media Investment Group Incorporated |
748,943 | 10,642,480 | ||||||||||||||
24,472,178 | ||||||||||||||||
|
|
|||||||||||||||
Specialty Retail: 1.17% | ||||||||||||||||
Christopher & Banks Corporation Ǡ |
1,017,848 | 1,506,415 | ||||||||||||||
Guess? Incorporated « |
942,550 | 10,509,433 | ||||||||||||||
The Buckle Incorporated « |
573,100 | 10,659,660 | ||||||||||||||
22,675,508 | ||||||||||||||||
|
|
|||||||||||||||
Textiles, Apparel & Luxury Goods: 0.40% | ||||||||||||||||
Delta Apparel Incorporated †(l) |
440,392 | 7,764,111 | ||||||||||||||
|
|
|||||||||||||||
Consumer Staples: 7.75% |
||||||||||||||||
Beverages: 0.85% | ||||||||||||||||
Cott Corporation « |
1,334,200 | 16,490,712 | ||||||||||||||
|
|
|||||||||||||||
Food & Staples Retailing: 0.43% | ||||||||||||||||
SUPERVALU Incorporated † |
2,147,223 | 8,288,281 | ||||||||||||||
|
|
|||||||||||||||
Food Products: 4.18% | ||||||||||||||||
Lamb Weston Holdings Incorporated |
371,200 | 15,612,672 | ||||||||||||||
Nomad Foods Limited † |
1,655,500 | 18,955,475 | ||||||||||||||
Snyders Lance Incorporated |
204,085 | 8,226,666 | ||||||||||||||
TreeHouse Foods Incorporated † |
449,585 | 38,061,866 | ||||||||||||||
80,856,679 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Special Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Household Products: 2.29% | ||||||||||||||||
Central Garden & Pet Company Ǡ |
500,994 | $ | 18,571,848 | |||||||||||||
Energizer Holdings Incorporated |
189,800 | 10,581,350 | ||||||||||||||
HRG Group Incorporated † |
777,200 | 15,015,504 | ||||||||||||||
44,168,702 | ||||||||||||||||
|
|
|||||||||||||||
Energy: 4.82% |
||||||||||||||||
Energy Equipment & Services: 2.59% | ||||||||||||||||
Atwood Oceanics Incorporated Ǡ |
528,677 | 5,038,292 | ||||||||||||||
CARBO Ceramics Incorporated Ǡ |
534,395 | 6,968,511 | ||||||||||||||
Oil States International Incorporated † |
365,600 | 12,119,640 | ||||||||||||||
Patterson-UTI Energy Incorporated |
688,500 | 16,709,895 | ||||||||||||||
Tetra Technologies Incorporated † |
2,266,300 | 9,223,841 | ||||||||||||||
50,060,179 | ||||||||||||||||
|
|
|||||||||||||||
Oil, Gas & Consumable Fuels: 2.23% | ||||||||||||||||
QEP Resources Incorporated † |
817,500 | 10,390,425 | ||||||||||||||
Whiting Petroleum Corporation † |
1,195,500 | 11,309,430 | ||||||||||||||
WPX Energy Incorporated † |
1,602,068 | 21,451,691 | ||||||||||||||
43,151,546 | ||||||||||||||||
|
|
|||||||||||||||
Financials: 17.46% |
||||||||||||||||
Banks: 7.96% | ||||||||||||||||
Associated Banc-Corp |
935,200 | 22,818,880 | ||||||||||||||
First Citizens BancShares Corporation Class A |
119,119 | 39,948,939 | ||||||||||||||
Hancock Holding Company |
483,500 | 22,023,425 | ||||||||||||||
Renasant Corporation |
369,668 | 14,672,123 | ||||||||||||||
TCF Financial Corporation |
1,316,536 | 22,407,443 | ||||||||||||||
UMB Financial Corporation |
425,886 | 32,073,475 | ||||||||||||||
153,944,285 | ||||||||||||||||
|
|
|||||||||||||||
Capital Markets: 2.95% | ||||||||||||||||
Apollo Investment Corporation « |
1,494,066 | 9,801,073 | ||||||||||||||
Artisan Partners Asset Management Incorporated Class A |
676,201 | 18,663,148 | ||||||||||||||
New Mountain Finance Corporation |
622,100 | 9,269,290 | ||||||||||||||
Westwood Holdings Group Incorporated |
361,527 | 19,309,157 | ||||||||||||||
57,042,668 | ||||||||||||||||
|
|
|||||||||||||||
Insurance: 5.80% | ||||||||||||||||
Allied World Assurance Company |
335,200 | 17,799,120 | ||||||||||||||
Brown & Brown Incorporated |
532,500 | 22,215,900 | ||||||||||||||
ProAssurance Corporation |
448,374 | 27,014,534 | ||||||||||||||
Stewart Information Services Corporation |
374,700 | 16,554,246 | ||||||||||||||
Validus Holdings Limited |
506,500 | 28,561,535 | ||||||||||||||
112,145,335 | ||||||||||||||||
|
|
|||||||||||||||
Mortgage REITs: 0.75% | ||||||||||||||||
Apollo Commercial Real Estate Finance Incorporated |
773,837 | 14,555,874 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Special Small Cap Value Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Health Care: 6.45% |
||||||||||||||||
Health Care Equipment & Supplies: 3.59% | ||||||||||||||||
Analogic Corporation |
424,999 | $ | 32,257,424 | |||||||||||||
Haemonetics Corporation † |
461,000 | 18,702,770 | ||||||||||||||
Halyard Health Incorporated † |
84,300 | 3,210,987 | ||||||||||||||
Steris plc |
219,500 | 15,246,470 | ||||||||||||||
69,417,651 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Providers & Services: 1.61% | ||||||||||||||||
Owens & Minor Incorporated |
329,100 | 11,386,860 | ||||||||||||||
Patterson Companies Incorporated |
437,200 | 19,774,556 | ||||||||||||||
31,161,416 | ||||||||||||||||
|
|
|||||||||||||||
Life Sciences Tools & Services: 0.47% | ||||||||||||||||
PAREXEL International Corporation † |
142,400 | 8,986,864 | ||||||||||||||
|
|
|||||||||||||||
Pharmaceuticals: 0.78% | ||||||||||||||||
Innoviva Incorporated Ǡ |
1,096,002 | 15,157,708 | ||||||||||||||
|
|
|||||||||||||||
Industrials: 18.92% |
||||||||||||||||
Building Products: 3.02% | ||||||||||||||||
CSW Industrials Incorporated † |
535,400 | 19,649,180 | ||||||||||||||
Simpson Manufacturing Company Incorporated |
897,095 | 38,655,824 | ||||||||||||||
58,305,004 | ||||||||||||||||
|
|
|||||||||||||||
Commercial Services & Supplies: 5.15% | ||||||||||||||||
ACCO Brands Corporation † |
1,058,611 | 13,920,735 | ||||||||||||||
Brady Corporation Class A |
270,674 | 10,461,550 | ||||||||||||||
Deluxe Corporation |
310,800 | 22,430,436 | ||||||||||||||
Ennis Incorporated (l) |
1,285,320 | 21,850,440 | ||||||||||||||
LSC Communications Incorporated |
503,224 | 12,661,116 | ||||||||||||||
Viad Corporation |
405,850 | 18,344,420 | ||||||||||||||
99,668,697 | ||||||||||||||||
|
|
|||||||||||||||
Electrical Equipment: 1.24% | ||||||||||||||||
Atkore International Incorporated † |
369,892 | 9,720,762 | ||||||||||||||
EnerSys |
180,935 | 14,283,009 | ||||||||||||||
24,003,771 | ||||||||||||||||
|
|
|||||||||||||||
Machinery: 7.77% | ||||||||||||||||
Douglas Dynamics Incorporated |
772,800 | 23,686,320 | ||||||||||||||
ESCO Technologies Incorporated |
177,104 | 10,289,742 | ||||||||||||||
Franklin Electric Company Incorporated |
739,636 | 31,841,330 | ||||||||||||||
Hillenbrand Incorporated |
545,944 | 19,572,092 | ||||||||||||||
Kadant Incorporated |
508,862 | 30,200,960 | ||||||||||||||
Mueller Industries Incorporated |
1,012,255 | 34,649,489 | ||||||||||||||
150,239,933 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Special Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Professional Services: 1.74% | ||||||||||||||||
Korn/Ferry International |
1,071,132 | $ | 33,729,947 | |||||||||||||
|
|
|||||||||||||||
Information Technology: 11.64% |
||||||||||||||||
Communications Equipment: 0.91% | ||||||||||||||||
NETGEAR Incorporated † |
355,502 | 17,615,124 | ||||||||||||||
|
|
|||||||||||||||
Electronic Equipment, Instruments & Components: 5.55% | ||||||||||||||||
AVX Corporation |
841,400 | 13,782,132 | ||||||||||||||
Badger Meter Incorporated |
344,110 | 12,646,043 | ||||||||||||||
Jabil Circuit Incorporated |
224,300 | 6,486,756 | ||||||||||||||
Novanta Incorporated † |
1,389,845 | 36,900,385 | ||||||||||||||
Orbotech Limited † |
450,630 | 14,532,818 | ||||||||||||||
Vishay Intertechnology Incorporated |
1,395,501 | 22,955,991 | ||||||||||||||
107,304,125 | ||||||||||||||||
|
|
|||||||||||||||
IT Services: 3.50% | ||||||||||||||||
Conduent Incorporated † |
899,200 | 15,088,576 | ||||||||||||||
DST Systems Incorporated |
281,800 | 34,520,500 | ||||||||||||||
Sykes Enterprises Incorporated † |
613,900 | 18,048,660 | ||||||||||||||
67,657,736 | ||||||||||||||||
|
|
|||||||||||||||
Semiconductors & Semiconductor Equipment: 0.77% | ||||||||||||||||
DSP Group Incorporated † |
520,615 | 6,247,380 | ||||||||||||||
Exar Corporation † |
670,283 | 8,720,382 | ||||||||||||||
14,967,762 | ||||||||||||||||
|
|
|||||||||||||||
Software: 0.84% | ||||||||||||||||
ACI Worldwide Incorporated † |
336,752 | 7,203,125 | ||||||||||||||
Progress Software Corporation |
309,706 | 8,996,959 | ||||||||||||||
16,200,084 | ||||||||||||||||
|
|
|||||||||||||||
Technology Hardware, Storage & Peripherals: 0.07% | ||||||||||||||||
Glassbridge Enterprises Incorporated †(l) |
305,221 | 1,471,165 | ||||||||||||||
|
|
|||||||||||||||
Materials: 11.76% |
||||||||||||||||
Chemicals: 5.07% | ||||||||||||||||
A. Schulman Incorporated |
365,258 | 11,487,364 | ||||||||||||||
Innospec Incorporated |
500,814 | 32,427,707 | ||||||||||||||
PolyOne Corporation |
355,500 | 12,118,995 | ||||||||||||||
Quaker Chemical Corporation |
160,090 | 21,077,449 | ||||||||||||||
Sensient Technologies Corporation |
263,300 | 20,869,158 | ||||||||||||||
97,980,673 | ||||||||||||||||
|
|
|||||||||||||||
Construction Materials: 1.58% | ||||||||||||||||
Eagle Materials Incorporated |
314,200 | 30,521,388 | ||||||||||||||
|
|
|||||||||||||||
Containers & Packaging: 1.50% | ||||||||||||||||
Silgan Holdings Incorporated |
489,371 | 29,049,063 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Special Small Cap Value Fund | 15 |
Security name | Shares | Value | ||||||||||||||
Metals & Mining: 0.75% | ||||||||||||||||
Compass Minerals International Incorporated « |
213,700 | $ | 14,499,545 | |||||||||||||
|
|
|||||||||||||||
Paper & Forest Products: 2.86% | ||||||||||||||||
Neenah Paper Incorporated |
486,220 | 36,320,634 | ||||||||||||||
Schweitzer-Mauduit International Incorporated |
459,887 | 19,048,520 | ||||||||||||||
55,369,154 | ||||||||||||||||
|
|
|||||||||||||||
Real Estate: 2.75% |
||||||||||||||||
Equity REITs: 2.75% | ||||||||||||||||
Gramercy Property Trust Incorporated |
737,338 | 19,391,989 | ||||||||||||||
LaSalle Hotel Properties |
786,200 | 22,760,490 | ||||||||||||||
Washington Real Estate Investment Trust |
352,757 | 11,034,239 | ||||||||||||||
53,186,718 | ||||||||||||||||
|
|
|||||||||||||||
Telecommunication Services: 0.36% |
||||||||||||||||
Diversified Telecommunication Services: 0.36% | ||||||||||||||||
Fairpoint Communications Incorporated † |
419,500 | 6,963,700 | ||||||||||||||
|
|
|||||||||||||||
Utilities: 1.37% |
||||||||||||||||
Electric Utilities: 1.37% | ||||||||||||||||
Hawaiian Electric Industries Incorporated |
795,536 | 26,499,295 | ||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $1,521,992,246) |
1,775,292,841 | |||||||||||||||
|
|
|||||||||||||||
Interest rate | Maturity date | Principal | ||||||||||||||
Corporate Bonds and Notes: 0.26% | ||||||||||||||||
Industrials: 0.26% |
||||||||||||||||
Machinery: 0.26% | ||||||||||||||||
Mueller Industries Incorporated |
6.00 | % | 3-1-2027 | $ | 5,037,000 | 4,999,223 | ||||||||||
|
|
|||||||||||||||
Total Corporate Bonds and Notes (Cost $5,037,000) |
4,999,223 | |||||||||||||||
|
|
|||||||||||||||
Shares | ||||||||||||||||
Exchange-Traded Funds: 0.25% | ||||||||||||||||
iShares Russell Midcap Value Index ETF |
59,542 | 4,941,391 | ||||||||||||||
|
|
|||||||||||||||
Total Exchange-Traded Funds (Cost $4,653,356) |
4,941,391 | |||||||||||||||
|
|
|||||||||||||||
Dividend yield | ||||||||||||||||
Preferred Stocks: 0.52% | ||||||||||||||||
Financials: 0.52% |
||||||||||||||||
Diversified Financial Services: 0.52% | ||||||||||||||||
Steel Partners Holdings LP |
0.67 | 453,550 | 10,091,488 | |||||||||||||
|
|
|||||||||||||||
Total Preferred Stocks (Cost $11,398,217) |
10,091,488 | |||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Special Small Cap Value Fund | Portfolio of investments—March 31, 2017 |
Security name | Yield | Shares | Value | |||||||||||||
Short-Term Investments: 9.18% |
||||||||||||||||
Investment Companies: 9.18% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) |
0.98 | % | 48,035,648 | $ | 48,040,452 | |||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | 129,441,277 | 129,441,277 | |||||||||||||
Total Short-Term Investments (Cost $177,478,573) |
177,481,729 | |||||||||||||||
|
|
Total investments in securities (Cost $1,720,559,392) * | 102.00 | % | 1,972,806,672 | |||||
Other assets and liabilities, net |
(2.00 | ) | (38,744,581 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 1,934,062,091 | ||||
|
|
|
|
« | All or a portion of this security is on loan. |
† | Non-income-earning security |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $1,732,164,687 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 330,175,517 | ||
Gross unrealized losses |
(89,533,532 | ) | ||
|
|
|||
Net unrealized gains |
$ | 240,641,985 |
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities—March 31, 2017 | Wells Fargo Special Small Cap Value Fund | 17 |
Assets |
||||
Investments |
||||
In unaffiliated securities (including $46,599,769 of securities loaned), at value (cost $1,478,439,028) |
$ | 1,756,306,711 | ||
In affiliated securities, at value (cost $242,120,364) |
216,499,961 | |||
|
|
|||
Total investments, at value (cost $1,720,559,392) |
1,972,806,672 | |||
Receivable for investments sold |
273,008 | |||
Receivable for Fund shares sold |
15,598,087 | |||
Receivable for dividends and interest |
2,828,063 | |||
Receivable for securities lending income |
33,465 | |||
Prepaid expenses and other assets |
139,911 | |||
|
|
|||
Total assets |
1,991,679,206 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
4,868,842 | |||
Payable for Fund shares redeemed |
2,661,083 | |||
Payable upon receipt of securities loaned |
48,035,554 | |||
Management fee payable |
1,363,429 | |||
Distribution fees payable |
41,048 | |||
Administration fees payable |
253,733 | |||
Accrued expenses and other liabilities |
393,426 | |||
|
|
|||
Total liabilities |
57,617,115 | |||
|
|
|||
Total net assets |
$ | 1,934,062,091 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 1,647,697,238 | ||
Undistributed net investment income |
10,432,382 | |||
Accumulated net realized gains on investments |
23,685,191 | |||
Net unrealized gains on investments |
252,247,280 | |||
|
|
|||
Total net assets |
$ | 1,934,062,091 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 575,269,454 | ||
Shares outstanding – Class A1 |
17,353,100 | |||
Net asset value per share – Class A |
$33.15 | |||
Maximum offering price per share – Class A2 |
$35.17 | |||
Net assets – Class B |
$ | 342,148 | ||
Shares outstanding – Class B1 |
11,387 | |||
Net asset value per share – Class B |
$30.05 | |||
Net assets – Class C |
$ | 60,309,080 | ||
Shares outstanding – Class C1 |
1,997,610 | |||
Net asset value per share – Class C |
$30.19 | |||
Net assets – Class R |
$ | 785,448 | ||
Shares outstanding – Class R1 |
23,287 | |||
Net asset value per share – Class R |
$33.73 | |||
Net assets – Class R6 |
$ | 176,361,838 | ||
Shares outstanding – Class R61 |
5,198,335 | |||
Net asset value per share – Class R6 |
$33.93 | |||
Net assets – Administrator Class |
$ | 199,262,139 | ||
Shares outstanding – Administrator Class1 |
5,877,441 | |||
Net asset value per share – Administrator Class |
$33.90 | |||
Net assets – Institutional Class |
$ | 921,731,984 | ||
Shares outstanding – Institutional Class1 |
27,156,188 | |||
Net asset value per share – Institutional Class |
$33.94 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Special Small Cap Value Fund | Statement of operations—year ended March 31, 2017 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $27,362) |
$ | 31,441,611 | ||
Interest |
20,148 | |||
Income from affiliated securities |
2,027,772 | |||
Securities lending income, net |
468,354 | |||
|
|
|||
Total investment income |
33,957,885 | |||
|
|
|||
Expenses |
||||
Management fee |
10,730,420 | |||
Administration fees |
||||
Class A |
1,066,252 | |||
Class B |
1,831 | |||
Class C |
105,519 | |||
Class R |
487 | |||
Class R6 |
28,795 | |||
Administrator Class |
191,434 | |||
Institutional Class |
640,542 | |||
Shareholder servicing fees |
||||
Class A |
1,269,348 | |||
Class B |
2,180 | |||
Class C |
125,618 | |||
Class R |
580 | |||
Administrator Class |
366,531 | |||
Distribution fees |
||||
Class B |
6,540 | |||
Class C |
376,854 | |||
Class R |
580 | |||
Custody and accounting fees |
89,772 | |||
Professional fees |
49,912 | |||
Registration fees |
113,142 | |||
Shareholder report expenses |
101,259 | |||
Trustees’ fees and expenses |
75,875 | |||
Other fees and expenses |
16,508 | |||
|
|
|||
Total expenses |
15,359,979 | |||
Less: Fee waivers and/or expense reimbursements |
(332,155 | ) | ||
|
|
|||
Net expenses |
15,027,824 | |||
|
|
|||
Net investment income |
18,930,061 | |||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains on: |
||||
Unaffiliated securities |
56,936,585 | |||
Affiliated securities |
1,520 | |||
|
|
|||
Net realized gains on investments |
56,938,105 | |||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
181,920,587 | |||
Affiliated securities |
(1,422,173 | ) | ||
|
|
|||
Net change in unrealized gains (losses) on investments |
180,498,414 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
237,436,519 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 256,366,580 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets | Wells Fargo Special Small Cap Value Fund | 19 |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment income |
$ | 18,930,061 | $ | 6,261,146 | ||||||||||||
Net realized gains on investments |
56,938,105 | 22,808,664 | ||||||||||||||
Net change in unrealized gains (losses) on investments |
180,498,414 | (55,230,700 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from operations |
256,366,580 | (26,160,890 | ) | |||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net investment income |
||||||||||||||||
Class A |
(3,100,647 | ) | (2,938,290 | ) | ||||||||||||
Class R |
(1,857 | ) | (265 | )1 | ||||||||||||
Class R6 |
(1,263,592 | ) | (217,106 | ) | ||||||||||||
Administrator Class |
(1,252,758 | ) | (835,904 | ) | ||||||||||||
Institutional Class |
(4,942,668 | ) | (2,207,665 | ) | ||||||||||||
Net realized gains |
||||||||||||||||
Class A |
(9,755,571 | ) | (6,366,306 | ) | ||||||||||||
Class B |
(14,723 | ) | (27,232 | ) | ||||||||||||
Class C |
(1,021,360 | ) | (685,591 | ) | ||||||||||||
Class R |
(4,214 | ) | (393 | )1 | ||||||||||||
Class R6 |
(2,330,686 | ) | (270,846 | ) | ||||||||||||
Administrator Class |
(3,021,363 | ) | (1,261,351 | ) | ||||||||||||
Institutional Class |
(9,439,217 | ) | (2,891,540 | ) | ||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(36,148,656 | ) | (17,702,489 | ) | ||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
6,332,575 | 198,916,138 | 2,676,891 | 72,673,241 | ||||||||||||
Class B |
753 | 22,742 | 311 | 7,784 | ||||||||||||
Class C |
671,919 | 19,355,935 | 213,185 | 5,190,192 | ||||||||||||
Class R |
23,263 | 763,546 | 936 | 1 | 24,829 | 1 | ||||||||||
Class R6 |
4,344,349 | 138,461,632 | 1,344,998 | 37,189,066 | ||||||||||||
Administrator Class |
4,235,478 | 132,626,330 | 2,198,004 | 61,025,708 | ||||||||||||
Institutional Class |
23,307,034 | 756,707,717 | 4,632,711 | 126,970,664 | ||||||||||||
|
|
|||||||||||||||
1,246,854,040 | 303,081,484 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
368,285 | 12,346,246 | 341,445 | 9,032,174 | ||||||||||||
Class B |
435 | 13,247 | 1,077 | 25,725 | ||||||||||||
Class C |
29,455 | 902,197 | 25,222 | 605,329 | ||||||||||||
Class R |
178 | 6,071 | 24 | 1 | 658 | 1 | ||||||||||
Class R6 |
104,957 | 3,594,278 | 18,009 | 487,952 | ||||||||||||
Administrator Class |
122,938 | 4,212,480 | 76,324 | 2,067,731 | ||||||||||||
Institutional Class |
352,682 | 12,086,229 | 143,387 | 3,887,014 | ||||||||||||
|
|
|||||||||||||||
33,160,748 | 16,106,583 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(4,570,348 | ) | (144,377,311 | ) | (3,135,092 | ) | (84,541,811 | ) | ||||||||
Class B |
(40,390 | ) | (1,132,998 | ) | (53,053 | ) | (1,328,642 | ) | ||||||||
Class C |
(320,882 | ) | (9,162,909 | ) | (274,875 | ) | (6,736,107 | ) | ||||||||
Class R |
(1,114 | ) | (37,538 | ) | 0 | 1 | 0 | 1 | ||||||||
Class R6 |
(548,575 | ) | (18,002,089 | ) | (66,301 | ) | (1,738,734 | ) | ||||||||
Administrator Class |
(1,872,525 | ) | (58,288,811 | ) | (1,223,745 | ) | (34,959,438 | ) | ||||||||
Institutional Class |
(5,644,752 | ) | (181,693,370 | ) | (1,981,648 | ) | (55,623,071 | ) | ||||||||
|
|
|||||||||||||||
(412,695,026 | ) | (184,927,803 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase in net assets resulting from capital share transactions |
867,319,762 | 134,260,264 | ||||||||||||||
|
|
|||||||||||||||
Total increase in net assets |
1,087,537,686 | 90,396,885 | ||||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
846,524,405 | 756,127,520 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 1,934,062,091 | $ | 846,524,405 | ||||||||||||
|
|
|||||||||||||||
Undistributed net investment income |
$ | 10,432,382 | $ | 2,063,843 | ||||||||||||
|
|
1 | For the period from September 30, 2015 (commencement of class operations) to March 31, 2016. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Special Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$27.40 | $29.27 | $32.59 | $31.35 | $22.97 | $20.97 | ||||||||||||||||||
Net investment income (loss) |
0.35 | 2 | 0.20 | 0.26 | 0.10 | (0.01 | )2 | (0.05 | ) | |||||||||||||||
Net realized and unrealized gains (losses) on investments |
6.15 | (1.46 | ) | 1.81 | 3.14 | 8.37 | 2.05 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
6.50 | (1.26 | ) | 2.07 | 3.24 | 8.38 | 2.00 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.18 | ) | (0.19 | ) | (0.21 | ) | (0.03 | ) | 0.00 | 0.00 | ||||||||||||||
Net realized gains |
(0.57 | ) | (0.42 | ) | (5.18 | ) | (1.97 | ) | 0.00 | 0.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(0.75 | ) | (0.61 | ) | (5.39 | ) | (2.00 | ) | 0.00 | 0.00 | ||||||||||||||
Net asset value, end of period |
$33.15 | $27.40 | $29.27 | $32.59 | $31.35 | $22.97 | ||||||||||||||||||
Total return3 |
23.69 | % | (4.21 | )% | 7.56 | % | 10.74 | % | 36.48 | % | 9.54 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.32 | % | 1.36 | % | 1.39 | % | 1.41 | % | 1.40 | % | 1.38 | % | ||||||||||||
Net expenses |
1.32 | % | 1.34 | % | 1.34 | % | 1.34 | % | 1.34 | % | 1.34 | % | ||||||||||||
Net investment income (loss) |
1.14 | % | 0.73 | % | 0.90 | % | 0.75 | % | (0.04 | )% | (0.16 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
51 | % | 46 | % | 79 | % | 37 | % | 65 | % | 69 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$575,269 | $417,161 | $448,980 | $429,089 | $409,557 | $366,320 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Special Small Cap Value Fund | 21 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS B | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$24.94 | $26.69 | $30.19 | $29.23 | $21.58 | $19.85 | ||||||||||||||||||
Net investment income (loss) |
0.00 | 2,3 | (0.02 | )2 | 0.03 | 2 | 0.00 | 2,3 | (0.16 | )2 | (0.19 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
5.68 | (1.31 | ) | 1.65 | 2.93 | 7.81 | 1.92 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.68 | (1.33 | ) | 1.68 | 2.93 | 7.65 | 1.73 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net realized gains |
(0.57 | ) | (0.42 | ) | (5.18 | ) | (1.97 | ) | 0.00 | 0.00 | ||||||||||||||
Net asset value, end of period |
$30.05 | $24.94 | $26.69 | $30.19 | $29.23 | $21.58 | ||||||||||||||||||
Total return4 |
22.73 | % | (4.92 | )% | 6.76 | % | 10.42 | % | 35.45 | % | 8.72 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
2.08 | % | 2.11 | % | 2.14 | % | 2.16 | % | 2.14 | % | 2.12 | % | ||||||||||||
Net expenses |
2.07 | % | 2.09 | % | 2.09 | % | 2.09 | % | 2.09 | % | 2.09 | % | ||||||||||||
Net investment income (loss) |
0.01 | % | (0.08 | )% | 0.09 | % | 0.02 | % | (0.64 | )% | (0.89 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
51 | % | 46 | % | 79 | % | 37 | % | 65 | % | 69 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$342 | $1,262 | $2,729 | $4,224 | $4,770 | $9,171 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Amount is less than $0.005. |
4 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Special Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$25.05 | $26.81 | $30.31 | $29.34 | $21.66 | $19.92 | ||||||||||||||||||
Net investment income (loss) |
0.12 | 2 | (0.03 | ) | 0.04 | 2 | 0.00 | 2,3 | (0.18 | )2 | (0.19 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
5.59 | (1.31 | ) | 1.65 | 2.94 | 7.86 | 1.93 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
5.71 | (1.34 | ) | 1.69 | 2.94 | 7.68 | 1.74 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
0.00 | 0.00 | (0.01 | ) | 0.00 | 0.00 | 0.00 | |||||||||||||||||
Net realized gains |
(0.57 | ) | (0.42 | ) | (5.18 | ) | (1.97 | ) | 0.00 | 0.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(0.57 | ) | (0.42 | ) | (5.19 | ) | (1.97 | ) | 0.00 | 0.00 | ||||||||||||||
Net asset value, end of period |
$30.19 | $25.05 | $26.81 | $30.31 | $29.34 | $21.66 | ||||||||||||||||||
Total return4 |
22.75 | % | (4.93 | )% | 6.75 | % | 10.42 | % | 35.46 | % | 8.73 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
2.07 | % | 2.11 | % | 2.14 | % | 2.16 | % | 2.15 | % | 2.13 | % | ||||||||||||
Net expenses |
2.07 | % | 2.09 | % | 2.09 | % | 2.09 | % | 2.09 | % | 2.09 | % | ||||||||||||
Net investment income (loss) |
0.42 | % | (0.02 | )% | 0.15 | % | 0.00 | % | (0.71 | )% | (0.91 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
51 | % | 46 | % | 79 | % | 37 | % | 65 | % | 69 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$60,309 | $40,512 | $44,327 | $42,816 | $39,620 | $33,478 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Amount is less than $0.005. |
4 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Special Small Cap Value Fund | 23 |
(For a share outstanding throughout each period)
Year ended March 31 |
||||||||
CLASS R | 2017 | 20161 | ||||||
Net asset value, beginning of period |
$27.97 | $26.72 | ||||||
Net investment income |
0.63 | 2 | 0.08 | 2 | ||||
Net realized and unrealized gains (losses) on investments |
5.94 | 1.87 | ||||||
|
|
|
|
|||||
Total from investment operations |
6.57 | 1.95 | ||||||
Distributions to shareholders from |
||||||||
Net investment income |
(0.24 | ) | (0.28 | ) | ||||
Net realized gains |
(0.57 | ) | (0.42 | ) | ||||
|
|
|
|
|||||
Total distributions to shareholders |
(0.81 | ) | (0.70 | ) | ||||
Net asset value, end of period |
$33.73 | $27.97 | ||||||
Total return3 |
23.47 | % | 7.40 | % | ||||
Ratios to average net assets (annualized) |
||||||||
Gross expenses |
1.56 | % | 1.59 | % | ||||
Net expenses |
1.56 | % | 1.58 | % | ||||
Net investment income |
1.86 | % | 0.56 | % | ||||
Supplemental data |
||||||||
Portfolio turnover rate |
51 | % | 46 | % | ||||
Net assets, end of period (000s omitted) |
$785 | $27 |
1 | For the period from September 30, 2015 (commencement of class operations) to March 31, 2016. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
24 | Wells Fargo Special Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||
CLASS R6 | 2017 | 2016 | 20151 | |||||||||
Net asset value, beginning of period |
$28.01 | $29.91 | $33.38 | |||||||||
Net investment income |
0.61 | 2 | 0.39 | 0.26 | 2 | |||||||
Net realized and unrealized gains (losses) on investments |
6.18 | (1.54 | ) | 1.80 | ||||||||
|
|
|
|
|
|
|||||||
Total from investment operations |
6.79 | (1.15 | ) | 2.06 | ||||||||
Distributions to shareholders from |
||||||||||||
Net investment income |
(0.30 | ) | (0.33 | ) | (0.35 | ) | ||||||
Net realized gains |
(0.57 | ) | (0.42 | ) | (5.18 | ) | ||||||
|
|
|
|
|
|
|||||||
Total distributions to shareholders |
(0.87 | ) | (0.75 | ) | (5.53 | ) | ||||||
Net asset value, end of period |
$33.93 | $28.01 | $29.91 | |||||||||
Total return3 |
24.22 | % | (3.74 | )% | 7.42 | % | ||||||
Ratios to average net assets (annualized) |
||||||||||||
Gross expenses |
0.89 | % | 0.93 | % | 0.89 | % | ||||||
Net expenses |
0.89 | % | 0.89 | % | 0.89 | % | ||||||
Net investment income |
1.87 | % | 1.56 | % | 2.19 | % | ||||||
Supplemental data |
||||||||||||
Portfolio turnover rate |
51 | % | 46 | % | 79 | % | ||||||
Net assets, end of period (000s omitted) |
$176,362 | $36,344 | $27 |
1 | For the period from October 31, 2014 (commencement of class operations) to March 31, 2015 |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Special Small Cap Value Fund | 25 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$28.02 | $29.94 | $33.21 | $31.85 | $23.28 | $21.21 | ||||||||||||||||||
Net investment income |
0.44 | 2 | 0.26 | 2 | 0.35 | 2 | 0.14 | 2 | 0.08 | 2 | 0.02 | 2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
6.24 | (1.49 | ) | 1.83 | 3.21 | 8.49 | 2.05 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
6.68 | (1.23 | ) | 2.18 | 3.35 | 8.57 | 2.07 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.23 | ) | (0.27 | ) | (0.27 | ) | (0.02 | ) | (0.00 | )3 | 0.00 | |||||||||||||
Net realized gains |
(0.57 | ) | (0.42 | ) | (5.18 | ) | (1.97 | ) | 0.00 | 0.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(0.80 | ) | (0.69 | ) | (5.45 | ) | (1.99 | ) | (0.00 | )3 | 0.00 | |||||||||||||
Net asset value, end of period |
$33.90 | $28.02 | $29.94 | $33.21 | $31.85 | $23.28 | ||||||||||||||||||
Total return4 |
23.82 | % | (4.01 | )% | 7.78 | % | 10.91 | % | 36.82 | % | 9.76 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.24 | % | 1.26 | % | 1.23 | % | 1.24 | % | 1.23 | % | 1.22 | % | ||||||||||||
Net expenses |
1.20 | % | 1.17 | % | 1.09 | % | 1.09 | % | 1.09 | % | 1.09 | % | ||||||||||||
Net investment income |
1.36 | % | 0.95 | % | 1.10 | % | 1.04 | % | 0.30 | % | 0.10 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
51 | % | 46 | % | 79 | % | 37 | % | 65 | % | 69 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$199,262 | $95,030 | $70,100 | $78,563 | $96,940 | $232,283 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Amount is less than $0.005. |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
26 | Wells Fargo Special Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 | |||||||||||||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$28.03 | $29.93 | $33.21 | $31.94 | $23.36 | $21.24 | ||||||||||||||||||
Net investment income |
0.60 | 2 | 0.30 | 0.43 | 2 | 0.15 | 0.10 | 0.05 | 2 | |||||||||||||||
Net realized and unrealized gains (losses) on investments |
6.17 | (1.46 | ) | 1.80 | 3.22 | 8.53 | 2.07 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
6.77 | (1.16 | ) | 2.23 | 3.37 | 8.63 | 2.12 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net investment income |
(0.29 | ) | (0.32 | ) | (0.33 | ) | (0.13 | ) | (0.05 | ) | 0.00 | |||||||||||||
Net realized gains |
(0.57 | ) | (0.42 | ) | (5.18 | ) | (1.97 | ) | 0.00 | 0.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total distributions to shareholders |
(0.86 | ) | (0.74 | ) | (5.51 | ) | (2.10 | ) | (0.05 | ) | 0.00 | |||||||||||||
Net asset value, end of period |
$33.94 | $28.03 | $29.93 | $33.21 | $31.94 | $23.36 | ||||||||||||||||||
Total return3 |
24.13 | % | (3.79 | )% | 7.96 | % | 10.97 | % | 37.02 | % | 9.98 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
0.99 | % | 1.01 | % | 0.96 | % | 0.98 | % | 0.97 | % | 0.95 | % | ||||||||||||
Net expenses |
0.94 | % | 0.94 | % | 0.94 | % | 0.94 | % | 0.94 | % | 0.94 | % | ||||||||||||
Net investment income |
1.86 | % | 1.17 | % | 1.36 | % | 1.15 | % | 0.42 | % | 0.21 | % | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
51 | % | 46 | % | 79 | % | 37 | % | 65 | % | 69 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$921,732 | $256,190 | $189,965 | $146,162 | $138,638 | $88,067 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Notes to financial statements | Wells Fargo Special Small Cap Value Fund | 27 |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Special Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Debt securities are valued at the evaluated bid price provided by an independent pricing service or, if a reliable price is
not available, the quoted bid price from an independent broker-dealer.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
28 | Wells Fargo Special Small Cap Value Fund | Notes to financial statements |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has been determined to be doubtful based on consistently applied procedures and the fair value has decreased. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
Notes to financial statements | Wells Fargo Special Small Cap Value Fund | 29 |
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 164,632,057 | $ | 0 | $ | 0 | $ | 164,632,057 | ||||||||
Consumer staples |
149,804,374 | 0 | 0 | 149,804,374 | ||||||||||||
Energy |
93,211,725 | 0 | 0 | 93,211,725 | ||||||||||||
Financials |
337,688,162 | 0 | 0 | 337,688,162 | ||||||||||||
Health care |
124,723,639 | 0 | 0 | 124,723,639 | ||||||||||||
Industrials |
365,947,352 | 0 | 0 | 365,947,352 | ||||||||||||
Information technology |
225,215,996 | 0 | 0 | 225,215,996 | ||||||||||||
Materials |
227,419,823 | 0 | 0 | 227,419,823 | ||||||||||||
Real estate |
53,186,718 | 0 | 0 | 53,186,718 | ||||||||||||
Telecommunication services |
6,963,700 | 0 | 0 | 6,963,700 | ||||||||||||
Utilities |
26,499,295 | 0 | 0 | 26,499,295 | ||||||||||||
Corporate bonds and notes |
0 | 4,999,223 | 0 | 4,999,223 | ||||||||||||
Exchange-traded funds |
4,941,391 | 0 | 0 | 4,941,391 | ||||||||||||
Preferred stocks |
||||||||||||||||
Financials |
10,091,488 | 0 | 0 | 10,091,488 | ||||||||||||
Short term investments |
||||||||||||||||
Investment companies |
129,441,277 | 0 | 0 | 129,441,277 | ||||||||||||
Investments measured at net asset value* |
48,040,452 | |||||||||||||||
Total assets |
$ | 1,919,766,997 | $ | 4,999,223 | $ | 0 | $ | 1,972,806,672 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $48,040,452 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.83% of the Fund’s average daily net assets.
30 | Wells Fargo Special Small Cap Value Fund | Notes to financial statements |
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class B, Class C, Class R |
0.21 | % | ||
Class R6 |
0.03 | |||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.34% for Class A shares, 2.09% for Class B shares, 2.09% for Class C shares, 1.59% for Class R shares, 0.89% for Class R6 shares, 1.20% for Administrator Class shares, and 0.94% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $15,132 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $23,350 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fees
The Trust has adopted a distribution plan for Class B, Class C, and Class R shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B, Class C, and Class R shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares and 0.25% of the average daily net assets of Class R shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2017, Funds Distributor received $41,902 from the sale of Class A shares and $229 in contingent deferred sales charges from redemptions of Class C shares, respectively.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, Class R, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $1,455,742,935 and $627,935,557, respectively.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
Notes to financial statements | Wells Fargo Special Small Cap Value Fund | 31 |
6. INVESTMENTS IN AFFILIATES
An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.
Shares, beginning of period |
Shares purchased |
Shares sold |
Shares, of period |
Value, end of period |
Income from securities |
Realized losses |
||||||||||||||||||||||
A.H. Belo Corporation Class A |
939,929 | 349,911 | 0 | 1,289,840 | $ | 7,932,516 | $ | 267,573 | $ | 0 | ||||||||||||||||||
Delta Apparel Incorporated |
248,339 | 192,053 | 0 | 440,392 | 7,764,111 | 0 | 0 | |||||||||||||||||||||
Ennis Incorporated |
0 | 1,285,320 | 0 | 1,285,320 | 21,850,440 | 1,330,352 | 0 | |||||||||||||||||||||
Glassbridge Enterprises Incorporated |
0 | 305,223 | 2 | 305,221 | 1,471,165 | 0 | (222 | ) | ||||||||||||||||||||
Imation Corporation* |
1,929,730 | 1,122,488 | 3,052,218 | 0 | 0 | 0 | 0 | |||||||||||||||||||||
$ | 1,597,925 | $ | (222 | ) |
* | No longer an affiliate of the Fund at the end of the period. |
7. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended March 31, 2017 and March 31, 2016 were as follows:
Year ended March 31 | ||||||||
2017 | 2016 | |||||||
Ordinary income |
$ | 20,122,971 | $ | 6,199,230 | ||||
Long-term capital gain |
16,025,685 | 11,503,259 |
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Undistributed long-term |
Unrealized gains | ||
$26,526,413 | $19,233,620 | $240,641,985 |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a
32 | Wells Fargo Special Small Cap Value Fund | Notes to financial statements |
change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
11. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
Report of independent registered public accounting firm | Wells Fargo Special Small Cap Value Fund | 33 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Special Small Cap Value Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the three-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years in the two-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Special Small Cap Value Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
34 | Wells Fargo Special Small Cap Value Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 63.03% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2017.
Pursuant to Section 852 of the Internal Revenue Code, $16,025,685 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2017.
Pursuant to Section 854 of the Internal Revenue Code, $13,018,649 of income dividends paid during the fiscal year ended March 31, 2017 has been designated as qualified dividend income (QDI).
For the fiscal year ended March 31, 2017, $9,561,449 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.
For the fiscal year ended March 31, 2017, $107,165 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other information (unaudited) | Wells Fargo Special Small Cap Value Fund | 35 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 |
Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
36 | Wells Fargo Special Small Cap Value Fund | Other information (unaudited) |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
(Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 |
Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 |
Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 |
Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
List of abbreviations | Wells Fargo Special Small Cap Value Fund | 37 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302876 05-17 A246/AR246 03-17 |
Annual Report
Wells Fargo Traditional Small Cap Growth Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Traditional Small Cap Growth Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Traditional Small Cap Growth Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but remained at historically
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Traditional Small Cap Growth Fund | 3 |
low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Traditional Small Cap Growth Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Traditional Small Cap Growth Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio manager
Alexi Makkas
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (EGWAX) | 6-5-1995 | 13.15 | 7.96 | 5.96 | 20.10 | 9.25 | 6.59 | 1.48 | 1.33 | |||||||||||||||||||||||||
Class C (EGWCX) | 7-30-2010 | 18.26 | 8.44 | 5.80 | 19.26 | 8.44 | 5.80 | 2.23 | 2.08 | |||||||||||||||||||||||||
Administrator Class (EGWDX) | 7-30-2010 | – | – | – | 20.56 | 9.45 | 6.73 | 1.40 | 1.20 | |||||||||||||||||||||||||
Institutional Class (EGRYX) | 11-19-1997 | – | – | – | 20.62 | 9.64 | 6.94 | 1.15 | 0.98 | |||||||||||||||||||||||||
Russell 2000® Growth Index4 | – | – | – | – | 23.03 | 12.10 | 8.06 | – | – |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Traditional Small Cap Growth Fund | 7 |
Growth of $10,000 investment as of March 31, 20175 |
1 | Historical performance shown for Class C shares prior to their inception reflects the performance of Class A shares and has been adjusted to reflect the higher expenses applicable to Class C shares. Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen Growth Fund. |
2 | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
3 | The manager has contractually committed through July 31, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at the amounts shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index. |
5 | The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Growth Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
6 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
7 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
* | This security was not held in the Fund at the end of the reporting period. |
8 | Wells Fargo Traditional Small Cap Growth Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed its benchmark, the Russell 2000® Growth Index, for the 12-month period that ended March 31, 2017. |
∎ | Relative weakness within the industrials sector and an underweight to the materials sector weighed on the Fund’s performance. |
∎ | Holdings within the financials and consumer staples sectors generated strong relative performance; an underweight to the real estate sector also contributed positively. In addition, the Fund benefited from merger and acquisition (M&A) activity by several holdings. |
The U.S. experienced steady economic growth and favorable stock-market results despite some increased volatility.
While 2016 continued to see steady but low economic growth, several macroeconomic factors contributed to periods of increased market volatility. While the U.K.’s Brexit decision ultimately proved to be a short-term issue, certain Fund holdings were negatively affected due to U.K. and European exposures. The U.S. presidential election contributed significantly to optimism for accelerated economic growth, a more efficient tax system, and fiscal stimulus. The Fund’s underweights to cyclicals in the industrials and materials sectors detracted from performance in the weeks following the election. However, as expectations and interest rates normalized, investors searched for sustainable growth. This shift began a period of relative outperformance for the Fund that continued through the end of the reporting period
The number of Fund holdings increased during the period.
While the Fund did not undergo major strategic changes, we did increase the number of holdings, which corresponded with small sector-weight changes. In an effort to reduce overall volatility and stock-specific risk in biotech/pharmaceuticals, we increased the number of positions and reduced sizing in these industries. We also added new positions in consumer and mortgage finance: Green Dot Corporation and LendingTree, Incorporated. These additions, coupled with Heartland Financial USA, Incorporated, in the banking industry, increased the Fund’s overall overweight to financials during the period. We also increased the Fund’s exposure to the consumer-experiences trend that we had identified earlier, with new positions in Cedar Fair, L.P., and Boyd Gaming Corporation. These new positions helped take the Fund’s slight consumer discretionary underweight to a small overweight.
The Fund’s weightings in the materials and industrials sectors detracted from performance.
The main contributing factor to underperformance was the Fund’s general underweight to economic cyclical growth. We maintained an underweight to the materials sector and to cyclical industries, such as construction and engineering, within the industrials sector for much of 2016. As economic data began to improve into and beyond the presidential election, the negative impact of the Fund’s underweights became more pronounced. Also, two industrials holdings—Echo Global Logistics, Incorporated, and Mobile Mini, Incorporated—experienced growth pressure during the reporting period. Echo Global, a provider of transportation logistics, was pressured by adverse rates for much of the period while Mobile Mini, which offers portable storage solutions, was negatively affected by internal sales inefficiencies. As economic data continued to improve into the fourth quarter of 2016, optimism around potential fiscal stimulus and infrastructure spending accelerated further. We decided not to chase the cyclical momentum, and this created a headwind for the Fund’s performance.
Multiple contributors benefited Fund performance.
Last year saw continued M&A activity, especially in small caps. Several of the Fund’s holdings were acquired for various reasons. Krispy Kreme Doughnuts, Incorporated*, was bought by JAB Holdings, the owner of coffee-related brands such as Keurig, Peet’s Coffee & Tea, and Caribou Coffee, which continued to build out its portfolio of coffee brands. Imprivata, Incorporated*, was acquired by private-equity firm Thoma Bravo, and Fleetmatics Group PLC* and ZELTIQ Aesthetics, Incorporated, both were acquired by larger companies looking to increase product offerings and accelerate growth. While banks were a strongly performing industry within the financials sector, the Fund’s holdings in niche consumer growth areas contributed to performance. Both Green Dot Corporation and LendingTree, Incorporated, have been benefiting from a broad consumer migration to alternative sources of banking, loans, and payments. We also began to
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Traditional Small Cap Growth Fund | 9 |
see our patience in Freshpet, Incorporated, pay off as the impact of new management and a new strategy began to be reflected in the stock. Finally, the Fund’s underweight to the real estate sector contributed strongly as interest rates began to normalize by the end of 2016.
We remain optimistic and careful.
Following a year of strong returns for small-cap growth stocks, we remain optimistic regarding the potential for accelerating economic growth but cautious about what currently may be reflected in stock prices. Our approach leads us to companies that we believe may deliver sustainable and self-funded earnings growth, which we believe may be positioned to perform well in an environment of interest-rate normalization and potential pro-growth policy changes from the new administration. We are constantly balancing earnings potential with valuations as we are aware of the risks associated with growth that is somewhat dependent on government action. The Fund’s underweight to cyclical growth continues to be a potential risk if the more economically sensitive industries experience a sharp and sustained move higher that is driven by fiscal stimulus.
Ten largest holdings (%) as of March 31, 20176 | ||||
Euronet Worldwide Incorporated |
3.75 | |||
Blackhawk Network Incorporated |
3.03 | |||
WageWorks Incorporated |
2.70 | |||
Boyd Gaming Corporation |
2.66 | |||
Methode Electronics Incorporated |
2.50 | |||
AMN Healthcare Services Incorporated |
2.45 | |||
Deluxe Corporation |
2.38 | |||
Generac Holdings Incorporated |
2.33 | |||
EPAM Systems Incorporated |
2.32 | |||
Franklin Electric Company Incorporated |
2.24 |
Sector distribution as of March 31, 20177 |
|
Please see footnotes on page 7.
10 | Wells Fargo Traditional Small Cap Growth Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,096.33 | $ | 6.95 | 1.33 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.30 | $ | 6.69 | 1.33 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,092.31 | $ | 10.85 | 2.08 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.56 | $ | 10.45 | 2.08 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,098.90 | $ | 6.28 | 1.20 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.95 | $ | 6.04 | 1.20 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,098.35 | $ | 5.13 | 0.98 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.04 | $ | 4.94 | 0.98 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Traditional Small Cap Growth Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 94.43% |
| |||||||||||||||
Consumer Discretionary: 15.62% |
||||||||||||||||
Auto Components: 3.53% | ||||||||||||||||
Cooper-Standard Holdings Incorporated † |
11,000 | $ | 1,220,230 | |||||||||||||
Motorcar Parts of America Incorporated † |
65,000 | 1,997,450 | ||||||||||||||
3,217,680 | ||||||||||||||||
|
|
|||||||||||||||
Hotels, Restaurants & Leisure: 9.03% | ||||||||||||||||
BJ’s Restaurants Incorporated † |
22,500 | 909,000 | ||||||||||||||
Boyd Gaming Corporation † |
110,000 | 2,421,100 | ||||||||||||||
Cedar Fair Entertainment Company |
30,000 | 2,034,300 | ||||||||||||||
ClubCorp Holdings Incorporated |
100,000 | 1,605,000 | ||||||||||||||
Papa John’s International Incorporated |
4,000 | 320,160 | ||||||||||||||
Sonic Corporation |
15,000 | 380,400 | ||||||||||||||
Zoe’s Kitchen Incorporated «† |
30,000 | 555,000 | ||||||||||||||
8,224,960 | ||||||||||||||||
|
|
|||||||||||||||
Internet & Direct Marketing Retail: 1.06% | ||||||||||||||||
Shutterfly Incorporated † |
20,000 | 965,800 | ||||||||||||||
|
|
|||||||||||||||
Leisure Products: 2.00% | ||||||||||||||||
Nautilus Group Incorporated † |
100,000 | 1,825,000 | ||||||||||||||
|
|
|||||||||||||||
Consumer Staples: 1.51% |
||||||||||||||||
Food Products: 1.51% | ||||||||||||||||
Freshpet Incorporated Ǡ |
125,000 | 1,375,000 | ||||||||||||||
|
|
|||||||||||||||
Energy: 0.59% |
||||||||||||||||
Energy Equipment & Services: 0.59% | ||||||||||||||||
Aspen Aerogels Incorporated † |
130,000 | 539,500 | ||||||||||||||
|
|
|||||||||||||||
Financials: 8.79% |
||||||||||||||||
Banks: 1.92% | ||||||||||||||||
Heartland Financial USA Incorporated |
35,000 | 1,748,250 | ||||||||||||||
|
|
|||||||||||||||
Consumer Finance: 2.20% | ||||||||||||||||
Green Dot Corporation Class A † |
60,000 | 2,001,600 | ||||||||||||||
|
|
|||||||||||||||
Insurance: 2.03% | ||||||||||||||||
Stewart Information Services Corporation |
42,000 | 1,855,560 | ||||||||||||||
|
|
|||||||||||||||
Thrifts & Mortgage Finance: 2.64% | ||||||||||||||||
Bofi Holding Incorporated Ǡ |
44,000 | 1,149,720 | ||||||||||||||
LendingTree Incorporated Ǡ |
10,000 | 1,253,500 | ||||||||||||||
2,403,220 | ||||||||||||||||
|
|
|||||||||||||||
Health Care: 18.32% |
||||||||||||||||
Biotechnology: 3.20% | ||||||||||||||||
ACADIA Pharmaceuticals Incorporated Ǡ |
7,500 | 257,850 | ||||||||||||||
Emergent BioSolutions Incorporated |
15,000 | 435,600 |
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Traditional Small Cap Growth Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Biotechnology (continued) | ||||||||||||||||
Ligand Pharmaceuticals Incorporated Ǡ |
12,000 | $ | 1,270,080 | |||||||||||||
Repligen Corporation † |
27,000 | 950,400 | ||||||||||||||
2,913,930 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Equipment & Supplies: 4.59% | ||||||||||||||||
Globus Medical Incorporated † |
23,000 | 681,260 | ||||||||||||||
Halyard Health Incorporated † |
20,000 | 761,800 | ||||||||||||||
Inogen Incorporated † |
13,000 | 1,008,280 | ||||||||||||||
NxStage Medical Incorporated † |
17,000 | 456,110 | ||||||||||||||
Zeltiq Aesthetics Incorporated † |
23,000 | 1,279,030 | ||||||||||||||
4,186,480 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Providers & Services: 4.01% | ||||||||||||||||
AMN Healthcare Services Incorporated † |
55,000 | 2,233,000 | ||||||||||||||
Ensign Group Incorporated |
46,800 | 879,840 | ||||||||||||||
LHC Group Incorporated † |
10,000 | 539,000 | ||||||||||||||
UnitedHealth Group Incorporated |
1 | 102 | ||||||||||||||
3,651,942 | ||||||||||||||||
|
|
|||||||||||||||
Health Care Technology: 1.27% | ||||||||||||||||
Medidata Solutions Incorporated † |
20,000 | 1,153,800 | ||||||||||||||
|
|
|||||||||||||||
Life Sciences Tools & Services: 3.18% | ||||||||||||||||
Charles River Laboratories International Incorporated † |
22,000 | 1,978,900 | ||||||||||||||
INC Research Holdings Incorporated Class A † |
20,000 | 917,000 | ||||||||||||||
2,895,900 | ||||||||||||||||
|
|
|||||||||||||||
Pharmaceuticals: 2.07% | ||||||||||||||||
Horizon Pharma plc † |
35,000 | 517,300 | ||||||||||||||
Intersect ENT Incorporated † |
45,000 | 771,750 | ||||||||||||||
TherapeuticsMD Incorporated Ǡ |
83,700 | 602,640 | ||||||||||||||
1,891,690 | ||||||||||||||||
|
|
|||||||||||||||
Industrials: 16.74% |
||||||||||||||||
Air Freight & Logistics: 0.70% | ||||||||||||||||
Echo Global Logistics Incorporated † |
30,000 | 640,500 | ||||||||||||||
|
|
|||||||||||||||
Commercial Services & Supplies: 5.17% | ||||||||||||||||
Deluxe Corporation |
30,000 | 2,165,100 | ||||||||||||||
Healthcare Services Group Incorporated |
45,000 | 1,939,050 | ||||||||||||||
Mobile Mini Incorporated |
20,000 | 610,000 | ||||||||||||||
4,714,150 | ||||||||||||||||
|
|
|||||||||||||||
Electrical Equipment: 2.33% | ||||||||||||||||
Generac Holdings Incorporated † |
57,000 | 2,124,960 | ||||||||||||||
|
|
|||||||||||||||
Machinery: 3.82% | ||||||||||||||||
Astec Industries Incorporated |
12,000 | 737,940 | ||||||||||||||
Franklin Electric Company Incorporated |
47,500 | 2,044,875 |
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Traditional Small Cap Growth Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Machinery (continued) | ||||||||||||||||
Rexnord Corporation † |
30,000 | $ | 692,400 | |||||||||||||
3,475,215 | ||||||||||||||||
|
|
|||||||||||||||
Professional Services: 2.70% | ||||||||||||||||
WageWorks Incorporated † |
34,020 | 2,459,646 | ||||||||||||||
|
|
|||||||||||||||
Trading Companies & Distributors: 2.02% | ||||||||||||||||
Siteone Landscape Supply Incorporated Ǡ |
38,000 | 1,839,580 | ||||||||||||||
|
|
|||||||||||||||
Information Technology: 31.16% |
||||||||||||||||
Communications Equipment: 1.47% | ||||||||||||||||
NETGEAR Incorporated † |
27,000 | 1,337,850 | ||||||||||||||
|
|
|||||||||||||||
Electronic Equipment, Instruments & Components: 5.08% | ||||||||||||||||
II-VI Incorporated † |
12,000 | 432,600 | ||||||||||||||
Littelfuse Incorporated |
12,000 | 1,918,920 | ||||||||||||||
Methode Electronics Incorporated |
50,000 | 2,280,000 | ||||||||||||||
4,631,520 | ||||||||||||||||
|
|
|||||||||||||||
Internet Software & Services: 3.91% | ||||||||||||||||
Cimpress NV Ǡ |
17,000 | 1,465,230 | ||||||||||||||
LogMeIn Incorporated |
12,000 | 1,170,000 | ||||||||||||||
The Trade Desk Incorporated † |
25,000 | 931,250 | ||||||||||||||
3,566,480 | ||||||||||||||||
|
|
|||||||||||||||
IT Services: 9.44% | ||||||||||||||||
Blackhawk Network Incorporated † |
68,000 | 2,760,800 | ||||||||||||||
EPAM Systems Incorporated † |
28,000 | 2,114,560 | ||||||||||||||
Euronet Worldwide Incorporated † |
40,000 | 3,420,800 | ||||||||||||||
WEX Incorporated † |
3,000 | 310,500 | ||||||||||||||
8,606,660 | ||||||||||||||||
|
|
|||||||||||||||
Semiconductors & Semiconductor Equipment: 3.68% | ||||||||||||||||
Advanced Energy Industries Incorporated † |
10,000 | 685,600 | ||||||||||||||
Integrated Device Technology Incorporated † |
38,000 | 899,460 | ||||||||||||||
Monolithic Power Systems Incorporated |
10,000 | 921,000 | ||||||||||||||
Xperi Corporation |
25,000 | 848,750 | ||||||||||||||
3,354,810 | ||||||||||||||||
|
|
|||||||||||||||
Software: 7.58% | ||||||||||||||||
Bottomline Technologies (de) Incorporated † |
30,000 | 709,500 | ||||||||||||||
Ellie Mae Incorporated † |
13,000 | 1,303,510 | ||||||||||||||
Guidewire Software Incorporated † |
12,000 | 675,960 | ||||||||||||||
PTC Incorporated † |
20,000 | 1,051,000 | ||||||||||||||
Rapid7 Incorporated Ǡ |
90,000 | 1,348,200 | ||||||||||||||
Silver Spring Networks Incorporated † |
120,000 | 1,354,800 | ||||||||||||||
Ultimate Software Group Incorporated † |
2,374 | 463,429 | ||||||||||||||
6,906,399 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Traditional Small Cap Growth Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Materials: 1.70% |
||||||||||||||||
Construction Materials: 1.70% | ||||||||||||||||
Summit Materials Incorporated Class A † |
62,751 | $ | 1,550,576 | |||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $72,522,563) |
86,058,658 | |||||||||||||||
|
|
|||||||||||||||
Exchange-Traded Funds: 1.75% |
||||||||||||||||
SPDR S&P Biotech ETF « |
23,000 | 1,594,820 | ||||||||||||||
|
|
|||||||||||||||
Total Exchange-Traded Funds (Cost $1,539,672) |
1,594,820 | |||||||||||||||
|
|
|||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 16.21% | ||||||||||||||||
Investment Companies: 16.21% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) |
0.98 | % | 11,600,829 | 11,601,989 | ||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | 3,170,531 | 3,170,531 | |||||||||||||
Total Short-Term Investments (Cost $14,771,665) |
14,772,520 | |||||||||||||||
|
|
Total investments in securities (Cost $88,833,900) * | 112.39 | % | 102,425,998 | |||||
Other assets and liabilities, net |
(12.39 | ) | (11,293,239 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 91,132,759 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $89,394,582 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 16,071,291 | ||
Gross unrealized losses |
(3,039,875 | ) | ||
|
|
|||
Net unrealized gains |
$ | 13,031,416 |
The accompanying notes are an integral part of these financial statements.
Statement of assets and liabilities—March 31, 2017 | Wells Fargo Traditional Small Cap Growth Fund | 15 |
Assets |
||||
Investments |
||||
In unaffiliated securities (including $11,314,582 of securities loaned), at value (cost $74,062,235) |
$ | 87,653,478 | ||
In affiliated securities, at value (cost $14,771,665) |
14,772,520 | |||
|
|
|||
Total investments, at value (cost $88,833,900) |
102,425,998 | |||
Receivable for investments sold |
679,496 | |||
Receivable for Fund shares sold |
260,807 | |||
Receivable for dividends |
5,705 | |||
Receivable for securities lending income |
10,018 | |||
Prepaid expenses and other assets |
24,898 | |||
|
|
|||
Total assets |
103,406,922 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
196,260 | |||
Payable for Fund shares redeemed |
313,258 | |||
Payable upon receipt of securities loaned |
11,601,000 | |||
Management fee payable |
55,000 | |||
Distribution fee payable |
150 | |||
Administration fees payable |
16,730 | |||
Accrued expenses and other liabilities |
91,765 | |||
|
|
|||
Total liabilities |
12,274,163 | |||
|
|
|||
Total net assets |
$ | 91,132,759 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 73,931,548 | ||
Accumulated net investment loss |
(12,593 | ) | ||
Accumulated net realized gains on investments |
3,621,706 | |||
Net unrealized gains on investments |
13,592,098 | |||
|
|
|||
Total net assets |
$ | 91,132,759 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 82,733,511 | ||
Shares outstanding – Class A1 |
5,873,981 | |||
Net asset value per share – Class A |
$14.08 | |||
Maximum offering price per share – Class A2 |
$14.94 | |||
Net assets – Class C |
$ | 225,098 | ||
Shares outstanding – Class C1 |
17,323 | |||
Net asset value per share – Class C |
$12.99 | |||
Net assets – Administrator Class |
$ | 173,598 | ||
Shares outstanding – Administrator Class1 |
11,105 | |||
Net asset value per share – Administrator Class |
$15.63 | |||
Net assets – Institutional Class |
$ | 8,000,552 | ||
Shares outstanding – Institutional Class1 |
502,013 | |||
Net asset value per share – Institutional Class |
$15.94 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Traditional Small Cap Growth Fund | Statement of operations—year ended March 31, 2017 |
Investment income |
||||
Dividends |
$ | 397,886 | ||
Securities lending income, net |
109,561 | |||
Income from affiliated securities |
14,460 | |||
|
|
|||
Total investment income |
521,907 | |||
|
|
|||
Expenses |
||||
Management fee |
795,537 | |||
Administration fees |
||||
Class A |
174,019 | |||
Class C |
382 | |||
Administrator Class |
1,956 | |||
Institutional Class |
11,751 | |||
Shareholder servicing fees |
||||
Class A |
207,165 | |||
Class C |
455 | |||
Administrator Class |
3,762 | |||
Distribution fee |
||||
Class C |
1,366 | |||
Custody and accounting fees |
16,144 | |||
Professional fees |
51,181 | |||
Registration fees |
60,243 | |||
Shareholder report expenses |
33,652 | |||
Trustees’ fees and expenses |
18,104 | |||
Other fees and expenses |
6,991 | |||
|
|
|||
Total expenses |
1,382,708 | |||
Less: Fee waivers and/or expense reimbursements |
(170,157 | ) | ||
|
|
|||
Net expenses |
1,212,551 | |||
|
|
|||
Net investment loss |
(690,644 | ) | ||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains on: |
||||
Unaffiliated securities |
8,140,680 | |||
Affiliated securities |
134 | |||
|
|
|||
Net realized gains on investments |
8,140,814 | |||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
9,694,482 | |||
Affiliated securities |
855 | |||
|
|
|||
Net change in unrealized gains (losses) on investments |
9,695,337 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
17,836,151 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 17,145,507 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Statement of changes in net assets | Wells Fargo Traditional Small Cap Growth Fund | 17 |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment loss |
$ | (690,644 | ) | $ | (835,586 | ) | ||||||||||
Net realized gains on investments |
8,140,814 | 16,977,555 | ||||||||||||||
Net change in unrealized gains (losses) on investments |
9,695,337 | (32,455,316 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from operations |
17,145,507 | (16,313,347 | ) | |||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net realized gains |
||||||||||||||||
Class A |
(2,281,810 | ) | (21,823,283 | ) | ||||||||||||
Class C |
(5,379 | ) | (43,293 | ) | ||||||||||||
Administrator Class |
(4,301 | ) | (612,282 | ) | ||||||||||||
Institutional Class |
(251,489 | ) | (2,120,374 | ) | ||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(2,542,979 | ) | (24,599,232 | ) | ||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
89,073 | 1,166,255 | 205,629 | 2,995,422 | ||||||||||||
Class C |
3,789 | 47,755 | 3,267 | 48,895 | ||||||||||||
Administrator Class |
6,204 | 87,459 | 41,278 | 790,645 | ||||||||||||
Institutional Class |
270,621 | 4,080,166 | 170,790 | 2,840,853 | ||||||||||||
|
|
|||||||||||||||
5,381,635 | 6,675,815 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
164,284 | 2,217,829 | 1,707,521 | 20,985,437 | ||||||||||||
Class C |
388 | 4,844 | 3,346 | 38,407 | ||||||||||||
Administrator Class |
269 | 4,025 | 44,979 | 609,919 | ||||||||||||
Institutional Class |
15,888 | 242,297 | 128,519 | 1,773,561 | ||||||||||||
|
|
|||||||||||||||
2,468,995 | 23,407,324 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(1,362,749 | ) | (17,646,891 | ) | (1,788,888 | ) | (27,309,379 | ) | ||||||||
Class C |
(1,303 | ) | (15,835 | ) | (5,663 | ) | (84,188 | ) | ||||||||
Administrator Class |
(176,884 | ) | (2,575,835 | ) | (65,656 | ) | (1,048,305 | ) | ||||||||
Institutional Class |
(447,579 | ) | (6,776,181 | ) | (236,206 | ) | (3,918,807 | ) | ||||||||
|
|
|||||||||||||||
(27,014,742 | ) | (32,360,679 | ) | |||||||||||||
|
|
|||||||||||||||
Net decrease in net assets resulting from capital share transactions |
(19,164,112 | ) | (2,277,540 | ) | ||||||||||||
|
|
|||||||||||||||
Total decrease in net assets |
(4,561,584 | ) | (43,190,119 | ) | ||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
95,694,343 | 138,884,462 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 91,132,759 | $ | 95,694,343 | ||||||||||||
|
|
|||||||||||||||
Accumulated net investment loss |
$ | (12,593 | ) | $ | (147,798 | ) | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Traditional Small Cap Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 |
|||||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$12.05 | $18.04 | $20.37 | $23.11 | $17.08 | $15.31 | ||||||||||||||||||
Net investment loss |
(0.10 | )2 | (0.12 | )2 | (0.18 | ) | (0.09 | )2 | (0.11 | )2 | (0.11 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
2.51 | (2.13 | ) | 1.33 | 0.96 | 6.34 | 1.88 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
2.41 | (2.25 | ) | 1.15 | 0.87 | 6.23 | 1.77 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net realized gains |
(0.38 | ) | (3.74 | ) | (3.48 | ) | (3.61 | ) | (0.20 | ) | 0.00 | |||||||||||||
Net asset value, end of period |
$14.08 | $12.05 | $18.04 | $20.37 | $23.11 | $17.08 | ||||||||||||||||||
Total return3 |
20.10 | % | (12.86 | )% | 6.77 | % | 4.14 | % | 36.98 | % | 11.56 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.51 | % | 1.50 | % | 1.47 | % | 1.54 | % | 1.48 | % | 1.48 | % | ||||||||||||
Net expenses |
1.33 | % | 1.33 | % | 1.33 | % | 1.33 | % | 1.33 | % | 1.33 | % | ||||||||||||
Net investment loss |
(0.77 | )% | (0.74 | )% | (0.87 | )% | (1.04 | )% | (0.58 | )% | (0.69 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
113 | % | 123 | % | 73 | % | 36 | % | 77 | % | 57 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$82,734 | $84,139 | $123,712 | $141,446 | $141,933 | $119,490 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Traditional Small Cap Growth Fund | 19 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 |
|||||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$11.22 | $17.21 | $19.73 | $22.56 | $16.80 | $15.18 | ||||||||||||||||||
Net investment loss |
(0.18 | )2 | (0.18 | ) | (0.29 | )2 | (0.15 | )2 | (0.26 | ) | (0.25 | ) | ||||||||||||
Net realized and unrealized gains (losses) on investments |
2.33 | (2.07 | ) | 1.25 | 0.93 | 6.22 | 1.87 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
2.15 | (2.25 | ) | 0.96 | 0.78 | 5.96 | 1.62 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net realized gains |
(0.38 | ) | (3.74 | ) | (3.48 | ) | (3.61 | ) | (0.20 | ) | 0.00 | |||||||||||||
Net asset value, end of period |
$12.99 | $11.22 | $17.21 | $19.73 | $22.56 | $16.80 | ||||||||||||||||||
Total return3 |
19.26 | % | (13.55 | )% | 5.98 | % | 3.85 | % | 35.92 | % | 10.74 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
2.26 | % | 2.25 | % | 2.22 | % | 2.30 | % | 2.23 | % | 2.23 | % | ||||||||||||
Net expenses |
2.08 | % | 2.08 | % | 2.08 | % | 2.08 | % | 2.08 | % | 2.08 | % | ||||||||||||
Net investment loss |
(1.52 | )% | (1.49 | )% | (1.61 | )% | (1.81 | )% | (1.36 | )% | (1.44 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
113 | % | 123 | % | 73 | % | 36 | % | 77 | % | 57 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$225 | $162 | $232 | $403 | $150 | $116 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Traditional Small Cap Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 |
|||||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$13.29 | $19.44 | $21.65 | $24.33 | $17.94 | $16.06 | ||||||||||||||||||
Net investment loss |
(0.09 | )2 | (0.10 | )2 | (0.15 | )2 | (0.08 | )2 | (0.09 | )2 | (0.09 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
2.81 | (2.31 | ) | 1.42 | 1.01 | 6.68 | 1.97 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
2.72 | (2.41 | ) | 1.27 | 0.93 | 6.59 | 1.88 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net realized gains |
(0.38 | ) | (3.74 | ) | (3.48 | ) | (3.61 | ) | (0.20 | ) | 0.00 | |||||||||||||
Net asset value, end of period |
$15.63 | $13.29 | $19.44 | $21.65 | $24.33 | $17.94 | ||||||||||||||||||
Total return3 |
20.56 | % | (12.76 | )% | 6.93 | % | 4.18 | % | 37.21 | % | 11.71 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.43 | % | 1.39 | % | 1.29 | % | 1.32 | % | 1.26 | % | 1.26 | % | ||||||||||||
Net expenses |
1.20 | % | 1.20 | % | 1.19 | % | 1.19 | % | 1.17 | % | 1.17 | % | ||||||||||||
Net investment loss |
(0.64 | )% | (0.61 | )% | (0.73 | )% | (0.90 | )% | (0.43 | )% | (0.54 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
113 | % | 123 | % | 73 | % | 36 | % | 77 | % | 57 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$174 | $2,413 | $3,128 | $3,896 | $3,882 | $3,063 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Traditional Small Cap Growth Fund | 21 |
(For a share outstanding throughout each period)
Year ended March 31 | Year ended October 31 |
|||||||||||||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 2015 | 20141 | 2013 | 2012 | ||||||||||||||||||
Net asset value, beginning of period |
$13.54 | $19.69 | $21.84 | $24.50 | $18.03 | $16.11 | ||||||||||||||||||
Net investment income (loss) |
(0.06 | )2 | (0.07 | )2 | (0.11 | )2 | (0.07 | )2 | 0.00 | 2,3 | (0.06 | )2 | ||||||||||||
Net realized and unrealized gains (losses) on investments |
2.84 | (2.34 | ) | 1.44 | 1.02 | 6.67 | 1.98 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
Total from investment operations |
2.78 | (2.41 | ) | 1.33 | 0.95 | 6.67 | 1.92 | |||||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||||||
Net realized gains |
(0.38 | ) | (3.74 | ) | (3.48 | ) | (3.61 | ) | (0.20 | ) | 0.00 | |||||||||||||
Net asset value, end of period |
$15.94 | $13.54 | $19.69 | $21.84 | $24.50 | $18.03 | ||||||||||||||||||
Total return4 |
20.62 | % | (12.58 | )% | 7.16 | % | 4.29 | % | 37.42 | % | 11.92 | % | ||||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||||||
Gross expenses |
1.18 | % | 1.14 | % | 1.04 | % | 1.10 | % | 1.04 | % | 1.05 | % | ||||||||||||
Net expenses |
0.98 | % | 0.98 | % | 0.98 | % | 0.98 | % | 0.98 | % | 0.98 | % | ||||||||||||
Net investment income (loss) |
(0.43 | )% | (0.39 | )% | (0.52 | )% | (0.69 | )% | 0.01 | % | (0.35 | )% | ||||||||||||
Supplemental data |
||||||||||||||||||||||||
Portfolio turnover rate |
113 | % | 123 | % | 73 | % | 36 | % | 77 | % | 57 | % | ||||||||||||
Net assets, end of period (000s omitted) |
$8,001 | $8,980 | $11,812 | $17,086 | $17,997 | $43,160 |
1 | For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014. |
2 | Calculated based upon average shares outstanding |
3 | Amount is less than $0.005. |
4 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Traditional Small Cap Growth Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Traditional Small Cap Growth Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
Notes to financial statements | Wells Fargo Traditional Small Cap Growth Fund | 23 |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends from certain securities and net operating losses. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Accumulated net |
Accumulated net | |
$825,849 | $(825,849) |
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
24 | Wells Fargo Traditional Small Cap Growth Fund | Notes to financial statements |
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 14,233,440 | $ | 0 | $ | 0 | $ | 14,233,440 | ||||||||
Consumer staples |
1,375,000 | 0 | 0 | 1,375,000 | ||||||||||||
Energy |
539,500 | 0 | 0 | 539,500 | ||||||||||||
Financials |
8,008,630 | 0 | 0 | 8,008,630 | ||||||||||||
Health care |
16,693,742 | 0 | 0 | 16,693,742 | ||||||||||||
Industrials |
15,254,051 | 0 | 0 | 15,254,051 | ||||||||||||
Information technology |
28,403,719 | 0 | 0 | 28,403,719 | ||||||||||||
Materials |
1,550,576 | 0 | 0 | 1,550,576 | ||||||||||||
Exchange-traded funds |
1,594,820 | 0 | 0 | 1,594,820 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
3,170,531 | 0 | 0 | 3,170,531 | ||||||||||||
Investments measured at net asset value* |
11,601,989 | |||||||||||||||
Total assets |
$ | 90,824,009 | $ | 0 | $ | 0 | $ | 102,425,998 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $11,601,989 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.
Notes to financial statements | Wells Fargo Traditional Small Cap Growth Fund | 25 |
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class C |
0.21 | % | ||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.33% for Class A shares, 2.08% for Class C shares, 1.20% for Administrator Class shares, and 0.98% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $11,553 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $8,346 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fee
The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class C shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class C shares. For the year ended March 31, 2017 Funds Distributor received $811 from the sale of Class A shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $106,631,604 and $115,052,816, respectively.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged
26 | Wells Fargo Traditional Small Cap Growth Fund | Notes to financial statements |
to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $2,542,979 and $24,599,232 of long-term capital gain for the years ended March 31, 2017 and March 31, 2016, respectively.
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Undistributed long-term gain |
Unrealized | ||
$1,545,311 |
$2,637,077 | $13,031,416 |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
11. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
Report of independent registered public accounting firm | Wells Fargo Traditional Small Cap Growth Fund | 27 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Traditional Small Cap Growth Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the three-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years in the two-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Traditional Small Cap Growth Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
28 | Wells Fargo Traditional Small Cap Growth Fund | Other information (unaudited) |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $2,542,979 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2017.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other information (unaudited) | Wells Fargo Traditional Small Cap Growth Fund | 29 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
30 | Wells Fargo Traditional Small Cap Growth Fund | Other information (unaudited) |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
(Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
List of abbreviations | Wells Fargo Traditional Small Cap Growth Fund | 31 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302877 05-17 A247/AR247 03-17 |
Annual Report
Wells Fargo Precious Metals Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Precious Metals Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Precious Metals Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but remained at historically
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Precious Metals Fund | 3 |
low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Precious Metals Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Precious Metals Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Michael Bradshaw, CFA®
Oleg Makhorine
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (EKWAX) | 1-20-1998 | 4.83 | (12.66 | ) | (2.13 | ) | 11.24 | (11.62 | ) | (1.54 | ) | 1.22 | 1.09 | |||||||||||||||||||||
Class B (EKWBX)* | 1-30-1978 | 5.54 | (12.60 | ) | (2.06 | ) | 10.54 | (12.27 | ) | (2.06 | ) | 1.97 | 1.84 | |||||||||||||||||||||
Class C (EKWCX) | 1-29-1998 | 9.42 | (12.28 | ) | (2.28 | ) | 10.42 | (12.28 | ) | (2.28 | ) | 1.97 | 1.84 | |||||||||||||||||||||
Administrator Class (EKWDX) | 7-30-2010 | – | – | – | 11.37 | (11.50 | ) | (1.42 | ) | 1.14 | 0.95 | |||||||||||||||||||||||
Institutional Class (EKWYX) | 2-29-2000 | – | – | – | 11.49 | (11.36 | ) | (1.25 | ) | 0.89 | 0.79 | |||||||||||||||||||||||
FTSE Gold Mines Index4 | – | – | – | – | 14.35 | (12.36 | ) | (3.03 | ) | – | – | |||||||||||||||||||||||
S&P 500 Index5 | – | – | – | – | 17.17 | 13.30 | 7.51 | – | – |
* | At the close of business on May 5, 2017, existing Class B shareholders were converted to Class A shareholders. Effective May 6, 2017, Class B shares are no longer offered by the Fund. |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in precious metals related stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. Funds that concentrate their investments in limited sectors, such as gold-related investments, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk, geographic, non-diversification risk, smaller-company securities risk, and subsidiary risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Precious Metals Fund | 7 |
Growth of $10,000 investment as of March 31, 20176 |
1 | Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for all classes of the Fund prior July 19, 2010, is based on the Fund’s predecessor Evergreen Precious Metals Fund. |
2 | Reflect the expense ratios as stated in the most recent prospectuses. The expense ratios are subject to change and may differ from the annualized expense ratio shown in the financial highlights of this report. |
3 | The manager has contractually committed through July 31, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at the amounts shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | FTSE Gold Mines Index is an unmanaged, open-ended index designed to reflect the performance of the worldwide market in the shares of companies whose principal activity is the mining of gold. You cannot invest directly in an index. |
5 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
6 | The chart compares the performance of Class A shares for the most recent ten years with the FTSE Gold Mines Index and the S&P 500 Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
7 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
8 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Precious Metals Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed the FTSE Gold Mines Index for the 12-month period that ended March 31, 2017. |
∎ | The Fund’s positions in Tahoe Resources Incorporated, Detour Gold Corporation, and SEMAFO Incorporated detracted from results, as did its underweight to Barrick Gold Corporation and Newmont Mining Corporation. |
∎ | The Fund’s holdings in Torex Gold Resources Incorporated; Royal Gold, Incorporated; and Hochschild Mining plc aided results during the period. Overweights to B2Gold Corporation and Alamos Gold Incorporated also helped results. |
∎ | The price of gold rose approximately 1.4% during the 12-month period, and the share prices of precious metals stocks rose more sharply. |
Gold prices rose 7% during the first two quarters of the reporting period. The U.K.’s unexpected vote on June 24, 2016, to leave the European Union caused the price of gold to rise as investors speculated that a divided Europe would slow global economic growth. During the second half of the reporting period, gold prices fell 5%. The U.S. election on November 8, 2016, caused a rally in stocks and in the U.S. dollar as investors speculated the new Republican administration would be a positive catalyst for economic growth.
Purchases and sales of gold exchange-traded funds (ETFs) have an impact on gold prices. Purchases of gold ETFs increased during the first two quarters of the reporting period, positively affecting the prices of gold and gold stocks. During the second half of the reporting period, gold-backed ETF sales accelerated as improving economic conditions caused the Federal Open Market Committee to raise the short-term interest rate twice during the last four months of the reporting period.
Ten largest holdings (%) as of March 31, 20177 | ||||
Randgold Resources Limited ADR |
8.81 | |||
Newmont Mining Corporation |
6.61 | |||
Barrick Gold Corporation |
5.67 | |||
Kinross Gold Corporation |
4.49 | |||
Gold Bullion |
4.43 | |||
Royal Gold Incorporated |
4.41 | |||
B2Gold Corporation |
4.31 | |||
Newcrest Mining Limited |
3.81 | |||
Fresnillo plc |
3.79 | |||
Silver Wheaton Corporation-U.S. Exchange Traded Shares |
3.71 |
Gold-mining stocks outperformed relative to the price of gold.
The prices of gold-mining stocks typically rise or fall more sharply than the price of gold. This remained the case during the 12-month reporting period. Companies that delivered better-than-expected operating and financial results fared the best, while those with assets domiciled in stable political jurisdictions, such as Australia and Canada, also outperformed.
Two of the Fund’s most noteworthy detractors were Tahoe Resources and Detour Gold. Tahoe declined after the firm provided a weaker-than-expected operating outlook for 2017. Detour Gold dropped based on news of a flood at its Detour Lake Mine, the delay of an expected
environmental permit, and the resulting negative impact to its 2017 operating mine plan. The Fund’s underweight to Barrick Gold also detracted from performance as the company benefited from better-than-expected operating and financial results during the reporting period.
Torex Gold was among the Fund’s best contributors. The company benefited from the successful commissioning of its Mexico-based El Limon Mine along with the discovery of a new gold deposit. The discovery is expected to potentially result in higher production for the company. B2Gold benefited from better-than-expected operating results throughout the reporting period and from the announcement that construction of its new Fekola Mine was three months ahead of schedule. Other key contributors included Alamos Gold, Royal Gold, and Hochschild Mining.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Precious Metals Fund | 9 |
Country allocation as of March 31, 20178 |
In our view, investment in gold and precious metals companies likely will remain a perceived hedge against economic and political uncertainty.
We believe the short-term outlook for gold prices depends largely on economic data and their resulting impact on U.S. interest rates and the U.S. dollar. If the current period of weaker-than-expected U.S. economic growth continues beyond the first quarter of 2017, the U.S. Federal Reserve could delay further interest-rate increases until the end of 2017. Should this occur, we believe the economic environment likely would continue to support gold prices and gold stocks. We also believe gold prices may benefit from political uncertainty in Europe and any delays in the implementation of the Trump administration’s agenda.
Over the longer term, eventual inflationary pressures could bode well for precious metals prices. In addition, gold prices could benefit from emerging markets investors’ investments in gold rather than in their local currencies or securities denominated in their local currencies. Also, Chinese investors could continue to diversify their U.S. dollar exposure into gold.
We believe gold-related stocks may have better appreciation potential than the metal itself. However, stock selection will remain important because company fundamentals tend to drive stock prices; higher-quality companies with internal growth catalysts, such as effective execution of business plans and mining successes, are most likely to outperform.
Please see footnotes on page 7.
10 | Wells Fargo Precious Metals Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges or the expenses of the Fund’s wholly owned subsidiary. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning 10-1-2016 |
Ending 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 845.92 | $ | 5.02 | 1.09 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,019.50 | $ | 5.49 | 1.09 | % | ||||||||
Class B |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 842.85 | $ | 8.45 | 1.84 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,015.76 | $ | 9.25 | 1.84 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 842.74 | $ | 8.45 | 1.84 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,015.76 | $ | 9.25 | 1.84 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 846.51 | $ | 4.37 | 0.95 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.19 | $ | 4.78 | 0.95 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 847.06 | $ | 3.64 | 0.79 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.99 | $ | 3.98 | 0.79 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Consolidated portfolio of investments—March 31, 2017 | Wells Fargo Precious Metals Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 92.91% |
||||||||||||||||
Australia: 3.81% | ||||||||||||||||
Newcrest Mining Limited (Materials, Metals & Mining) |
888,440 | $ | 15,116,161 | |||||||||||||
|
|
|||||||||||||||
Canada: 58.00% | ||||||||||||||||
Agnico-Eagle Mines Limited (Materials, Metals & Mining) |
266,370 | 11,300,970 | ||||||||||||||
Agnico-Eagle Mines Limited-Legend Shares (Materials, Metals & Mining) |
35,000 | 1,485,400 | ||||||||||||||
Agnico-Eagle Mines Limited-U.S. Exchange Traded Shares (Materials, Metals & Mining) |
325,164 | 13,799,960 | ||||||||||||||
Alamos Gold Incorporated Class A (Materials, Metals & Mining) |
1,538,980 | 12,359,519 | ||||||||||||||
B2Gold Corporation (Materials, Metals & Mining) † |
6,000,000 | 17,099,673 | ||||||||||||||
Barrick Gold Corporation (Materials, Metals & Mining) |
1,184,083 | 22,485,736 | ||||||||||||||
Centerra Gold Incorporated-Legend Shares (Materials, Metals & Mining) 144A |
350,000 | 2,013,385 | ||||||||||||||
Continental Gold Incorporated (Materials, Metals & Mining) † |
400,000 | 1,206,151 | ||||||||||||||
Detour Gold Corporation (Materials, Metals & Mining) † |
271,057 | 3,106,297 | ||||||||||||||
Detour Gold Corporation-Legend Shares (Materials, Metals & Mining) 144A† |
525,000 | 6,016,468 | ||||||||||||||
Detour Gold Corporation-Legend Shares (Materials, Metals & Mining) † |
90,000 | 1,031,395 | ||||||||||||||
Eldorado Gold Corporation (Materials, Metals & Mining) |
2,026,044 | 6,931,985 | ||||||||||||||
Exeter Resource Corporation-Legend Shares (Materials, Metals & Mining) |
585,000 | 1,011,768 | ||||||||||||||
Fortuna Silver Mines Incorporated (Materials, Metals & Mining) † |
300,000 | 1,557,401 | ||||||||||||||
Franco-Nevada Corporation (Materials, Metals & Mining) 144A |
142,948 | 9,364,688 | ||||||||||||||
Franco-Nevada Corporation (Materials, Metals & Mining) |
72,000 | 4,716,803 | ||||||||||||||
Goldcorp Incorporated (Materials, Metals & Mining) |
547,254 | 7,983,402 | ||||||||||||||
Goldcorp Incorporated-U.S. Exchange Traded Shares (Materials, Metals & Mining) |
526,694 | 7,684,465 | ||||||||||||||
IAMGOLD Corporation (Materials, Metals & Mining) † |
300,000 | 1,200,135 | ||||||||||||||
Kinross Gold Corporation (Materials, Metals & Mining) † |
5,050,553 | 17,811,854 | ||||||||||||||
Kirkland Lake Gold Limited (Materials, Metals & Mining) |
325,000 | 2,397,451 | ||||||||||||||
Mag Silver Corporation (Materials, Metals & Mining) † |
690,000 | 9,033,274 | ||||||||||||||
Mag Silver Corporation-Legend Shares (Materials, Metals & Mining) † |
100,000 | 1,309,170 | ||||||||||||||
OceanaGold Corporation (Materials, Metals & Mining) |
2,300,000 | 6,814,302 | ||||||||||||||
Osisko Gold Royalties Limited (Materials, Metals & Mining) |
306,700 | 3,408,675 | ||||||||||||||
Platinum Group Metals Limited-Legend Shares (Materials, Metals & Mining) |
80,000 | 131,744 | ||||||||||||||
Pretium Resources Incorporated (Materials, Metals & Mining) † |
200,000 | 2,144,603 | ||||||||||||||
Semafo Incorporated (Materials, Metals & Mining) † |
4,460,400 | 13,449,791 | ||||||||||||||
Silver Wheaton Corporation (Materials, Metals & Mining) |
12,950 | 269,838 | ||||||||||||||
Silver Wheaton Corporation-U.S. Exchange Traded Shares (Materials, Metals & Mining) |
705,000 | 14,692,200 | ||||||||||||||
Tahoe Resources Incorporated (Materials, Metals & Mining) |
504,820 | 4,054,200 | ||||||||||||||
Tahoe Resources Incorporated-Legend Shares (Materials, Metals & Mining) |
280,000 | 2,248,675 | ||||||||||||||
Torex Gold Resources Incorporated (Materials, Metals & Mining) † |
510,000 | 10,055,420 | ||||||||||||||
Torex Gold Resources Incorporated-Legend Shares (Materials, Metals & Mining) (i)† |
266,250 | 5,249,521 | ||||||||||||||
Torex Gold Resources Incorporated-Legend Shares (Materials, Metals & Mining) (i)144A† |
185,000 | 3,647,554 | ||||||||||||||
Yamana Gold Incorporated (Materials, Metals & Mining) |
302,731 | 835,450 | ||||||||||||||
229,909,323 | ||||||||||||||||
|
|
|||||||||||||||
France: 0.69% | ||||||||||||||||
Endeavour Mining Corporation (Materials, Metals & Mining) † |
140,000 | 2,716,096 | ||||||||||||||
|
|
|||||||||||||||
Peru: 0.32% | ||||||||||||||||
Compania de Minas Buenaventura SA ADR (Materials, Metals & Mining) † |
104,644 | 1,259,914 | ||||||||||||||
|
|
|||||||||||||||
South Africa: 3.19% | ||||||||||||||||
AngloGold Ashanti Limited ADR (Materials, Metals & Mining) † |
1,175,591 | 12,661,115 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Precious Metals Fund | Consolidated portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
United Kingdom: 15.88% | ||||||||||||||||
African Barrick Gold Limited (Materials, Metals & Mining) |
800,000 | $ | 4,505,430 | |||||||||||||
Centamin plc (Materials, Metals & Mining) |
750,000 | 1,622,819 | ||||||||||||||
Fresnillo plc (Materials, Metals & Mining) |
770,000 | 15,011,251 | ||||||||||||||
Hochschild Mining plc (Materials, Metals & Mining) |
1,986,470 | 6,916,512 | ||||||||||||||
Randgold Resources Limited ADR (Materials, Metals & Mining) |
400,000 | 34,912,000 | ||||||||||||||
62,968,012 | ||||||||||||||||
|
|
|||||||||||||||
United States: 11.02% | ||||||||||||||||
Newmont Mining Corporation (Materials, Metals & Mining) |
795,455 | 26,218,197 | ||||||||||||||
Royal Gold Incorporated (Materials, Metals & Mining) |
249,436 | 17,472,992 | ||||||||||||||
43,691,189 | ||||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $280,624,129) |
368,321,810 | |||||||||||||||
|
|
|||||||||||||||
Troy ounces | ||||||||||||||||
Commodities: 4.43% | ||||||||||||||||
Gold Bullion †** |
14,090 | 17,577,359 | ||||||||||||||
|
|
|||||||||||||||
Total Commodities (Cost $8,521,996) |
17,577,359 | |||||||||||||||
|
|
|||||||||||||||
Yield | Shares | |||||||||||||||
Short-Term Investments: 2.94% | ||||||||||||||||
Investment Companies: 2.94% | ||||||||||||||||
Wells Fargo Government Money Market Select Class (l)(u) |
0.63 | % | 11,654,511 | 11,654,511 | ||||||||||||
|
|
|||||||||||||||
Total Short-Term Investments (Cost $11,654,511) |
11,654,511 | |||||||||||||||
|
|
Total investments in securities (Cost $300,800,636) * | 100.28 | % | 397,553,680 | |||||
Other assets and liabilities, net |
(0.28 | ) | (1,115,012 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 396,438,668 | ||||
|
|
|
|
† | Non-income-earning security |
144A | The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933. |
(i) | Illiquid security for which the designation as illiquid is unaudited. |
** | Represents an investment held in Wells Fargo Special Investments (Cayman) SPC, the consolidated entity. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $322,500,189 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 127,296,297 | ||
Gross unrealized losses |
(52,242,806 | ) | ||
|
|
|||
Net unrealized gains |
$ | 75,053,491 |
The accompanying notes are an integral part of these financial statements.
Consolidated statement of assets and liabilities—March 31, 2017 | Wells Fargo Precious Metals Fund | 13 |
Assets |
||||
Investments |
||||
In unaffiliated securities, at value (cost $280,624,129) |
$ | 368,321,810 | ||
In commodities, at value (cost $8,521,996) |
17,577,359 | |||
In affiliated securities, at value (cost $11,654,511) |
11,654,511 | |||
|
|
|||
Total investments, at value (cost $300,800,636) |
397,553,680 | |||
Cash |
116,624 | |||
Foreign currency, at value (cost $542,451) |
548,503 | |||
Receivable for investments sold |
6,990,376 | |||
Receivable for Fund shares sold |
1,741,870 | |||
Receivable for dividends |
622,454 | |||
Prepaid expenses and other assets |
89,262 | |||
|
|
|||
Total assets |
407,662,769 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
9,374,263 | |||
Payable for Fund shares redeemed |
1,265,112 | |||
Management fee payable |
168,777 | |||
Distribution fees payable |
33,237 | |||
Administration fees payable |
66,754 | |||
Accrued expenses and other liabilities |
315,958 | |||
|
|
|||
Total liabilities |
11,224,101 | |||
|
|
|||
Total net assets |
$ | 396,438,668 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 484,790,113 | ||
Undistributed net investment income |
4,610,365 | |||
Accumulated net realized losses on investments |
(189,720,861 | ) | ||
Net unrealized gains on investments |
96,759,051 | |||
|
|
|||
Total net assets |
$ | 396,438,668 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 242,422,509 | ||
Shares outstanding – Class A1 |
6,735,267 | |||
Net asset value per share – Class A |
$35.99 | |||
Maximum offering price per share – Class A2 |
$38.19 | |||
Net assets – Class B |
$ | 301,171 | ||
Shares outstanding – Class B1 |
9,235 | |||
Net asset value per share – Class B |
$32.61 | |||
Net assets – Class C |
$ | 48,709,948 | ||
Shares outstanding – Class C1 |
1,518,894 | |||
Net asset value per share – Class C |
$32.07 | |||
Net assets – Administrator Class |
$ | 15,324,562 | ||
Shares outstanding – Administrator Class1 |
422,569 | |||
Net asset value per share – Administrator Class |
$36.27 | |||
Net assets – Institutional Class |
$ | 89,680,478 | ||
Shares outstanding – Institutional Class1 |
2,459,212 | |||
Net asset value per share – Institutional Class |
$36.47 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Precious Metals Fund | Consolidated statement of operations—year ended March 31, 2017 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $230,634) |
$ | 2,335,644 | ||
Income from affiliated securities |
47,017 | |||
|
|
|||
Total investment income |
2,382,661 | |||
|
|
|||
Expenses |
||||
Management fee |
2,901,240 | |||
Administration fees |
||||
Class A |
589,575 | |||
Class B |
2,382 | |||
Class C |
126,979 | |||
Administrator Class |
25,374 | |||
Institutional Class |
110,676 | |||
Shareholder servicing fees |
||||
Class A |
701,875 | |||
Class B |
2,836 | |||
Class C |
151,165 | |||
Administrator Class |
48,796 | |||
Distribution fees |
||||
Class B |
8,508 | |||
Class C |
453,496 | |||
Custody and accounting fees |
57,926 | |||
Professional fees |
59,461 | |||
Registration fees |
94,323 | |||
Shareholder report expenses |
62,071 | |||
Trustees’ fees and expenses |
18,100 | |||
Other fees and expenses |
135,040 | |||
|
|
|||
Total expenses |
5,549,823 | |||
Less: Fee waivers and/or expense reimbursements |
(475,881 | ) | ||
|
|
|||
Net expenses |
5,073,942 | |||
|
|
|||
Net investment loss |
(2,691,281 | ) | ||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains (losses) on: |
||||
Unaffiliated securities |
(14,478,298 | ) | ||
Commodities |
997,575 | |||
|
|
|||
Net realized losses on investments |
(13,480,723 | ) | ||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
54,579,794 | |||
Commodities |
(710,772 | ) | ||
|
|
|||
Net change in unrealized gains (losses) on investments |
53,869,022 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
40,388,299 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 37,697,018 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Consolidated statement of changes in net assets | Wells Fargo Precious Metals Fund | 15 |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment loss |
$ | (2,691,281 | ) | $ | (937,574 | ) | ||||||||||
Net realized losses on investments |
(13,480,723 | ) | (15,594,137 | ) | ||||||||||||
Net change in unrealized gains (losses) on investments |
53,869,022 | 55,876,759 | ||||||||||||||
|
|
|||||||||||||||
Net increase in net assets resulting from operations |
37,697,018 | 39,345,048 | ||||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net investment income |
||||||||||||||||
Class A |
(2,528,219 | ) | 0 | |||||||||||||
Class C |
(93,205 | ) | 0 | |||||||||||||
Administrator Class |
(171,836 | ) | 0 | |||||||||||||
Institutional Class |
(1,107,568 | ) | 0 | |||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(3,900,828 | ) | 0 | |||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
3,226,333 | 129,043,997 | 2,573,064 | 68,840,471 | ||||||||||||
Class B |
0 | 0 | 564 | 12,571 | ||||||||||||
Class C |
176,439 | 6,487,911 | 240,087 | 5,729,445 | ||||||||||||
Administrator Class |
400,135 | 16,365,612 | 339,710 | 9,337,859 | ||||||||||||
Institutional Class |
2,035,032 | 80,762,220 | 1,329,839 | 35,409,488 | ||||||||||||
|
|
|||||||||||||||
232,659,740 | 119,329,834 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
73,573 | 2,335,195 | 0 | 0 | ||||||||||||
Class C |
2,603 | 73,806 | 0 | 0 | ||||||||||||
Administrator Class |
5,281 | 168,842 | 0 | 0 | ||||||||||||
Institutional Class |
32,082 | 1,030,807 | 0 | 0 | ||||||||||||
|
|
|||||||||||||||
3,608,650 | 0 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(3,783,850 | ) | (149,375,218 | ) | (2,647,478 | ) | (70,141,452 | ) | ||||||||
Class B |
(43,303 | ) | (1,545,178 | ) | (54,779 | ) | (1,360,269 | ) | ||||||||
Class C |
(469,094 | ) | (15,888,846 | ) | (705,445 | ) | (16,527,142 | ) | ||||||||
Administrator Class |
(471,423 | ) | (17,496,401 | ) | (602,465 | ) | (15,285,251 | ) | ||||||||
Institutional Class |
(1,419,312 | ) | (56,098,146 | ) | (985,059 | ) | (26,874,701 | ) | ||||||||
|
|
|||||||||||||||
(240,403,789 | ) | (130,188,815 | ) | |||||||||||||
|
|
|||||||||||||||
Net decrease in net assets resulting from capital share transactions |
(4,135,399 | ) | (10,858,981 | ) | ||||||||||||
|
|
|||||||||||||||
Total increase in net assets |
29,660,791 | 28,486,067 | ||||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
366,777,877 | 338,291,810 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 396,438,668 | $ | 366,777,877 | ||||||||||||
|
|
|||||||||||||||
Undistributed net investment income |
$ | 4,610,365 | $ | 2,431,266 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Precious Metals Fund | Consolidated financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 20141 | 20131 | |||||||||||||||
Net asset value, beginning of period |
$32.73 | $28.99 | $36.65 | $53.59 | $70.30 | |||||||||||||||
Net investment income (loss) |
(0.22 | )2 | (0.05 | ) | (0.11 | )2 | 0.05 | 2 | (0.01 | )2 | ||||||||||
Net realized and unrealized gains (losses) on investments |
3.85 | 3.79 | (7.55 | ) | (16.78 | ) | (14.47 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
3.63 | 3.74 | (7.66 | ) | (16.73 | ) | (14.48 | ) | ||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.37 | ) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
Net realized gains |
0.00 | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total distributions to shareholders |
(0.37 | ) | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | ||||||||||||
Net asset value, end of period |
$35.99 | $32.73 | $28.99 | $36.65 | $53.59 | |||||||||||||||
Total return3 |
11.24 | % | 12.90 | % | (20.90 | )% | (31.17 | )% | (21.14 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.20 | % | 1.23 | % | 1.23 | % | 1.22 | % | 1.18 | % | ||||||||||
Net expenses |
1.09 | % | 1.10 | % | 1.10 | % | 1.09 | % | 1.09 | % | ||||||||||
Net investment income (loss) |
(0.57 | )% | (0.24 | )% | (0.30 | )% | 0.12 | % | (0.02 | )% | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
21 | %4 | 18 | %4 | 9 | %4 | 16 | % | 6 | % | ||||||||||
Net assets, end of period (000s omitted) |
$242,423 | $236,310 | $211,477 | $300,906 | $498,874 |
1 | Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. |
4 | Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary. |
The accompanying notes are an integral part of these financial statements.
Consolidated financial highlights | Wells Fargo Precious Metals Fund | 17 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS B | 2017 | 2016 | 2015 | 20141 | 20131 | |||||||||||||||
Net asset value, beginning of period |
$29.51 | $26.33 | $33.54 | $49.44 | $65.53 | |||||||||||||||
Net investment loss |
(0.51 | )2 | (0.25 | )2 | (0.36 | )2 | (0.22 | )2 | (0.47 | )2 | ||||||||||
Net realized and unrealized gains (losses) on investments |
3.61 | 3.43 | (6.85 | ) | (15.47 | ) | (13.39 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
3.10 | 3.18 | (7.21 | ) | (15.69 | ) | (13.86 | ) | ||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net realized gains |
0.00 | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | |||||||||||||
Net asset value, end of period |
$32.61 | $29.51 | $26.33 | $33.54 | $49.44 | |||||||||||||||
Total return3 |
10.50 | %4 | 12.08 | %4 | (21.50 | )% | (31.68 | )% | (21.74 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.94 | % | 1.99 | % | 1.98 | % | 1.96 | % | 1.93 | % | ||||||||||
Net expenses |
1.84 | % | 1.85 | % | 1.85 | % | 1.84 | % | 1.84 | % | ||||||||||
Net investment loss |
(1.42 | )% | (1.01 | )% | (1.08 | )% | (0.60 | )% | (0.78 | )% | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
21 | %5 | 18 | %5 | 9 | %5 | 16 | % | 6 | % | ||||||||||
Net assets, end of period (000s omitted) |
$301 | $1,550 | $2,811 | $7,304 | $20,570 |
1 | Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. |
4 | Total return reflects adjustments to conform with generally accepted accounting principles. |
5 | Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Precious Metals Fund | Consolidated financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 20141 | 20131 | |||||||||||||||
Net asset value, beginning of period |
$29.10 | $25.97 | $33.08 | $48.76 | $64.66 | |||||||||||||||
Net investment loss |
(0.46 | )2 | (0.24 | )2 | (0.35 | )2 | (0.22 | )2 | (0.46 | )2 | ||||||||||
Net realized and unrealized gains (losses) on investments |
3.49 | 3.37 | (6.76 | ) | (15.25 | ) | (13.21 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
3.03 | 3.13 | (7.11 | ) | (15.47 | ) | (13.67 | ) | ||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.06 | ) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
Net realized gains |
0.00 | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total distributions to shareholders |
(0.06 | ) | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | ||||||||||||
Net asset value, end of period |
$32.07 | $29.10 | $25.97 | $33.08 | $48.76 | |||||||||||||||
Total return3 |
10.42 | % | 12.05 | % | (21.49 | )% | (31.67 | )% | (21.74 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.95 | % | 1.99 | % | 1.98 | % | 1.97 | % | 1.93 | % | ||||||||||
Net expenses |
1.84 | % | 1.85 | % | 1.85 | % | 1.84 | % | 1.84 | % | ||||||||||
Net investment loss |
(1.32 | )% | (0.99 | )% | (1.06 | )% | (0.62 | )% | (0.77 | )% | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
21 | %4 | 18 | %4 | 9 | %4 | 16 | % | 6 | % | ||||||||||
Net assets, end of period (000s omitted) |
$48,710 | $52,648 | $59,074 | $94,865 | $191,782 |
1 | Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary. |
2 | Calculated based upon average shares outstanding |
3 | Total return calculations do not include any sales charges. |
4 | Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary. |
The accompanying notes are an integral part of these financial statements.
Consolidated financial highlights | Wells Fargo Precious Metals Fund | 19 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 20141 | 20131 | |||||||||||||||
Net asset value, beginning of period |
$32.98 | $29.17 | $36.82 | $53.75 | $70.42 | |||||||||||||||
Net investment income (loss) |
(0.17 | )2 | (0.03 | )2 | (0.06 | )2 | 0.10 | 2 | 0.08 | 2 | ||||||||||
Net realized and unrealized gains (losses) on investments |
3.87 | 3.84 | (7.59 | ) | (16.82 | ) | (14.52 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
3.70 | 3.81 | (7.65 | ) | (16.72 | ) | (14.44 | ) | ||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.41 | ) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
Net realized gains |
0.00 | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total distributions to shareholders |
(0.41 | ) | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | ||||||||||||
Net asset value, end of period |
$36.27 | $32.98 | $29.17 | $36.82 | $53.75 | |||||||||||||||
Total return |
11.37 | % | 13.06 | % | (20.78 | )% | (31.06 | )% | (21.05 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.12 | % | 1.13 | % | 1.07 | % | 1.04 | % | 1.01 | % | ||||||||||
Net expenses |
0.95 | % | 0.96 | % | 0.96 | % | 0.95 | % | 0.95 | % | ||||||||||
Net investment income (loss) |
(0.44 | )% | (0.10 | )% | (0.17 | )% | 0.26 | % | 0.13 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
21 | %3 | 18 | %3 | 9 | %3 | 16 | % | 6 | % | ||||||||||
Net assets, end of period (000s omitted) |
$15,325 | $16,114 | $21,917 | $32,230 | $53,142 |
1 | Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary. |
2 | Calculated based upon average shares outstanding |
3 | Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Precious Metals Fund | Consolidated financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 2015 | 20141 | 20131 | |||||||||||||||
Net asset value, beginning of period |
$33.21 | $29.33 | $36.96 | $53.87 | $70.43 | |||||||||||||||
Net investment income (loss) |
(0.09 | )2 | 0.02 | 2 | 0.01 | 2 | 0.16 | 2 | 0.19 | |||||||||||
Net realized and unrealized gains (losses) on investments |
3.85 | 3.86 | (7.64 | ) | (16.86 | ) | (14.52 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
3.76 | 3.88 | (7.63 | ) | (16.70 | ) | (14.33 | ) | ||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.50 | ) | 0.00 | 0.00 | 0.00 | 0.00 | ||||||||||||||
Net realized gains |
0.00 | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total distributions to shareholders |
(0.50 | ) | 0.00 | 0.00 | (0.21 | ) | (2.23 | ) | ||||||||||||
Net asset value, end of period |
$36.47 | $33.21 | $29.33 | $36.96 | $53.87 | |||||||||||||||
Total return |
11.49 | % | 13.23 | % | (20.64 | )% | (30.95 | )% | (20.89 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
0.88 | % | 0.88 | % | 0.80 | % | 0.79 | % | 0.75 | % | ||||||||||
Net expenses |
0.79 | % | 0.80 | % | 0.79 | % | 0.78 | % | 0.75 | % | ||||||||||
Net investment income (loss) |
(0.24 | )% | 0.06 | % | 0.03 | % | 0.41 | % | 0.32 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
21 | %3 | 18 | %3 | 9 | %3 | 16 | % | 6 | % | ||||||||||
Net assets, end of period (000s omitted) |
$89,680 | $60,156 | $43,014 | $41,993 | $59,349 |
1 | Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary. |
2 | Calculated based upon average shares outstanding |
3 | Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary. |
The accompanying notes are an integral part of these financial statements.
Notes to consolidated financial statements | Wells Fargo Precious Metals Fund | 21 |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Precious Metals Fund (the “Fund”) which is a non-diversified series of the Trust.
2. INVESTMENT IN SUBSIDIARY
The Fund invests in precious metals and minerals through Wells Fargo Special Investments (Cayman) SPC (the “Subsidiary”), a wholly owned subsidiary incorporated on May 3, 2005 under the laws of the Cayman Islands as an exempted segregated portfolio company with limited liability. As of March 31, 2017, the Subsidiary held $17,577,359 in gold bullion representing 100% of its net assets. The Fund is the sole shareholder of the Subsidiary. As of March 31, 2017, the Fund held $17,553,096 in the Subsidiary, representing 4.43% of the Fund’s net assets.
The consolidated financial statements of the Fund include the financial results of its wholly-owned subsidiary. The Consolidated Portfolio of Investments includes positions of the Fund and the Subsidiary and the consolidated financial statements include the accounts of the Fund and the Subsidiary. Accordingly, all interfund balances and transactions between the Fund and the Subsidiary have been eliminated in consolidation.
3. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in commodities are valued at their lasted traded price.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2017, such fair value pricing was not used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to
22 | Wells Fargo Precious Metals Fund | Notes to consolidated financial statements |
make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally
Notes to consolidated financial statements | Wells Fargo Precious Metals Fund | 23 |
accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends from certain securities and passive foreign investment companies. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net |
Accumulated net realized losses on investments | |
$8,771,208 | $(8,771,208) |
As of March 31, 2017, the Fund had capital loss carryforwards which consist of $15,269,334 in short-term capital losses and $152,751,974 in long-term capital losses.
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
4. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Australia |
$ | 15,116,161 | $ | 0 | $ | 0 | $ | 15,116,161 | ||||||||
Canada |
196,399,555 | 33,509,768 | 0 | 229,909,323 | ||||||||||||
France |
2,716,096 | 0 | 0 | 2,716,096 | ||||||||||||
Peru |
1,259,914 | 0 | 0 | 1,259,914 | ||||||||||||
South Africa |
12,661,115 | 0 | 0 | 12,661,115 | ||||||||||||
United Kingdom |
62,968,012 | 0 | 0 | 62,968,012 | ||||||||||||
United States |
43,691,189 | 0 | 0 | 43,691,189 | ||||||||||||
Commodities |
17,577,359 | 0 | 0 | 17,577,359 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
11,654,511 | 0 | 0 | 11,654,511 | ||||||||||||
Total assets |
$ | 364,043,912 | $ | 33,509,768 | $ | 0 | $ | 397,553,680 |
24 | Wells Fargo Precious Metals Fund | Notes to consolidated financial statements |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
5. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.65% and declining to 0.48% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.
The Subsidiary has entered into separate advisory contract with Funds Management to manage the investment and reinvestment of its assets in conformity with its investment objectives and restrictions. Under this agreement, the Subsidiary does not pay Funds Management a fee for its services.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.40% and declining to 0.30% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class B, Class C |
0.21 | % | ||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.09% for Class A shares, 1.84% for Class B shares, 1.84% for Class C shares, 0.95% for Administrator Class shares, and 0.79% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $13,326 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $7,200 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fees
The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive
Notes to consolidated financial statements | Wells Fargo Precious Metals Fund | 25 |
the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2017, Funds Distributor received $24,914 from the sale of Class A shares and $88 in contingent deferred sales charges from redemptions of Class C shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
6. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $90,172,109 and $102,378,264, respectively. These amounts include purchases and sales transactions of the Subsidiary.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
7. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid for the year ended March 31, 2017 was $3,900,828 of ordinary income. For the year ended March 31, 2016, the Fund did not pay any distributions to shareholders.
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Unrealized gains |
Capital loss carryforward | ||
$4,629,947 |
$75,053,032 | $(168,021,308) |
9. CONCENTRATION RISK
The Fund invests a substantial portion of its assets in precious metals companies and, therefore, may be more affected by changes in the precious metals sector than a fund whose investments are not heavily weighted in any sector.
10. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
26 | Wells Fargo Precious Metals Fund | Notes to consolidated financial statements |
11. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
12. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
Report of independent registered public accounting firm | Wells Fargo Precious Metals Fund | 27 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated portfolio of investments, of the Wells Fargo Precious Metals Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the years in the two-year period then ended, and the consolidated financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Precious Metals Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
28 | Wells Fargo Precious Metals Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 61.52% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2017.
Pursuant to Section 854 of the Internal Revenue Code, $3,366,289 of income dividends paid during the fiscal year ended March 31, 2017 has been designated as qualified dividend income (QDI).
Pursuant to Section 853 of the Internal Revenue Code, the Fund expects to designate amounts as foreign taxes paid for the fiscal year ended March 31, 2017. Additional details will be available in the semiannual report.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other information (unaudited) | Wells Fargo Precious Metals Fund | 29 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or | |||
William R. Ebsworth (Born 1957) |
Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
30 | Wells Fargo Precious Metals Fund | Other information (unaudited) |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
(Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
List of abbreviations | Wells Fargo Precious Metals Fund | 31 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
This page is intentionally left blank.
For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals:
1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302878 05-17 A316/AR316 03-17 |
Annual Report
Wells Fargo Specialized Technology Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Specialized Technology Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Specialized Technology Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Specialized Technology Fund | 3 |
remained at historically low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Specialized Technology Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Specialized Technology Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Allianz Global Investors U.S. LLC
Portfolio managers
Huachen Chen, CFA®
Walter C. Price, Jr., CFA®
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (WFSTX) | 9-18-2000 | 16.48 | 12.42 | 10.68 | 23.55 | 13.75 | 11.34 | 1.45 | 1.45 | |||||||||||||||||||||||||
Class C (WFTCX) | 9-18-2000 | 21.59 | 12.89 | 10.50 | 22.59 | 12.89 | 10.50 | 2.20 | 2.20 | |||||||||||||||||||||||||
Administrator Class (WFTDX) | 7-30-2010 | – | – | – | 23.65 | 13.93 | 11.46 | 1.37 | 1.34 | |||||||||||||||||||||||||
Institutional Class (WFTIX) | 10-31-2016 | – | – | – | 23.65 | 13.93 | 11.46 | 1.12 | 1.09 | |||||||||||||||||||||||||
S&P North American Technology Index4 | – | – | – | – | 26.74 | 15.91 | 11.69 | – | – | |||||||||||||||||||||||||
S&P 500 Index5 | – | – | – | – | 17.17 | 13.30 | 7.51 | – | – |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in technology related stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Funds that concentrate their investments in limited sectors, such as information technology, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to convertible securities risk, foreign investment risk, non-diversification risk, and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Specialized Technology Fund | 7 |
Growth of $10,000 investment as of March 31, 20176 |
1 | Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Class A shares, and includes the higher expenses applicable to Class A shares. If these expenses had not been included, returns for Administrator Class shares would be higher. Historical performance shown for the Institutional Class shares prior to their inception reflects the performance of the Administrator Class shares, and is not adjusted to reflect Institutional Class expenses. If these expenses had been included, returns for Institutional Class shares would be higher. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through July 31, 2017 (July 31, 2018 for Institutional Class), to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 1.50% for Class A, 2.25% for Class C, 1.33% for Administrator Class, and 1.08% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The S&P North American Technology Index (formerly known as the Goldman Sachs Technology Index) is a modified market-capitalization-weighted index of select technology stocks. You cannot invest directly in an index. |
5 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
6 | The chart compares the performance of Class A shares for the most recent ten years with the S&P North American Technology Index and the S&P 500 Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
7 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
8 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Specialized Technology Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed the S&P North American Technology Index for the 12-month period that ended March 31, 2017. |
∎ | A significant portion of the Fund’s relative underperformance was due to underweights to Apple Incorporated and Facebook, Incorporated, which have relatively large weightings in the benchmark index. |
∎ | The Fund’s relative and absolute performance benefited from positions in several semiconductor companies. The semiconductor industry has performed well due to lower product inventories and disciplined pricing. |
Global equities surged over the period, with indexes in the U.S. breaking previous record highs while many markets outside the U.S. reached multimonth peaks. Donald Trump’s surprise victory in the U.S. presidential election raised hopes that his progrowth stance would boost company profits, outweighing fears about greater protectionism. Stocks within the information technology (IT) sector initially declined sharply after the U.S. election, but the sector rallied higher in the first three months of 2017. While many of the larger IT companies are multinationals, we believe better economic growth in the U.S. could generally benefit the overall IT sector.
We believe one of the most attractive qualities of the IT sector is the regular emergence of new and disruptive trends. Many of these new technologies could potentially expand the influence of technology into other areas of the economy as well as draw value from predecessor technologies within the sector. Our primary goal always has been to identify these major trends ahead of the crowd and invest in the emerging leaders.
Over the 12-month period, we increased our exposure to some semiconductor companies benefiting from multiple major growth themes in IT, including cloud computing, artificial intelligence (AI), connected devices, and active safety/autonomous driving. These new technologies require more high-processing chips, data storage, and sensors that are supplied by semiconductor companies. While these companies are mature, we see the semiconductor industry as an attractive way to have diversified exposure to new, major growth themes in technology. We also reduced exposure to companies with management teams that were spending heavily to produce more revenue growth instead of focusing on generating profit growth. Most of these companies were in the internet software industry. As profits and cash-flow generation became pushed farther out into the future, their high valuations became difficult to justify.
Underweights to Facebook and Apple were the primary detractors from the Fund’s performance.
The Fund’s underweight to Facebook was among the largest relative detractors. Facebook has been a sizable position in the portfolio and a significant outperformer for the past few years. While we believe the company’s long-term fundamentals and competitive positioning remain strong, we tactically reduced the position size relative to the benchmark because we believe the company’s ad-revenue growth rate may moderate in the near term. We continue to closely monitor Facebook’s growth prospects relative to market expectations.
The Fund’s underweight to Apple, a large holding in the benchmark, also detracted from relative performance. Although Apple was among the Fund’s largest holdings during the period, the benchmark index’s very large (nearly 9%) weighting to Apple made it difficult for the Fund to outperform relative to the index. We maintain a positive view of the company given its attractive valuation, ability to execute, and massive cash-generation capability. Apple’s next product cycle appears very attractive to us and is a key reason that Apple currently has the largest weighting within the Fund—although the position still is underweight relative to the benchmark.
Overweights to Skyworks Solutions, Incorporated, and Imperva, Incorporated, and an underweight to NVIDIA Corporation detracted from relative returns as well.
Semiconductor holdings contributed significantly to the Fund’s performance.
The Fund’s top contributors included memory-chip manufacturer Micron Technology, Incorporated. Shares surged as the company’s earnings and forward guidance topped expectations. Over the course of several years, consolidation in the memory-chip industry has helped Micron and others rationalize supply and more effectively preserve profitability through the ups and downs of the demand environment. We view the reported and forecasted results for these companies as evidence of the improvement in the industry’s structure.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Specialized Technology Fund | 9 |
Applied Materials, Incorporated, the largest producer of machinery used to manufacture semiconductors, also was among the top relative performers. The company’s performance has been driven by increased business from equipment upgrades being made by semiconductor companies and by stronger demand from producers of flat-panel screens. The Fund’s overweights to Lam Research Corporation; Computer Sciences Corporation; and NetEase, Incorporated, added to relative returns as well.
We retain an optimistic outlook for the IT sector and for the Fund.
Looking forward, we continue to believe the IT sector may provide some of the stock markets’ best absolute- and relative-return opportunities, especially for bottom-up stock pickers like us. We have observed a wave of innovation within the sector that we believe could produce attractive returns for companies offering best-in-class solutions. We also see a number of companies with present valuations that in our view do not fully reflect positive company-specific and/or industry-specific tailwinds. We believe some of the attractive growth themes include cloud computing, auto technology, AI, and virtual reality.
Ten largest holdings (%) as of March 31, 20177 | ||||
Apple Incorporated |
8.14 | |||
Amazon.com Incorporated |
7.16 | |||
Microsoft Corporation |
5.15 | |||
Facebook Incorporated Class A |
4.46 | |||
Broadcom Limited |
3.11 | |||
Micron Technology Incorporated |
2.94 | |||
ServiceNow Incorporated |
2.77 | |||
Applied Materials Incorporated |
2.72 | |||
Adobe Systems Incorporated |
2.56 | |||
Samsung Electronics Company Limited |
2.44 |
Industry distribution as of March 31, 20178 |
Please see footnotes on page 7.
10 | Wells Fargo Specialized Technology Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,111.21 | $ | 7.56 | 1.44 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,017.77 | $ | 7.22 | 1.44 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,105.79 | $ | 11.47 | 2.19 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,014.04 | $ | 10.97 | 2.19 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,111.53 | $ | 7.00 | 1.33 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,018.30 | $ | 6.69 | 1.33 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,111.60 | $ | 5.69 | 1.08 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,019.55 | $ | 5.44 | 1.08 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Specialized Technology Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 96.90% |
|
|||||||||||||||
Consumer Discretionary: 12.41% |
||||||||||||||||
Household Durables: 1.64% | ||||||||||||||||
Garmin Limited « |
108,541 | $ | 5,547,531 | |||||||||||||
|
|
|||||||||||||||
Internet & Direct Marketing Retail: 10.77% | ||||||||||||||||
Amazon.com Incorporated † |
27,355 | 24,251,302 | ||||||||||||||
Netflix Incorporated † |
37,775 | 5,583,523 | ||||||||||||||
The Priceline Group Incorporated † |
3,742 | 6,660,648 | ||||||||||||||
36,495,473 | ||||||||||||||||
|
|
|||||||||||||||
Information Technology: 84.49% |
|
|||||||||||||||
Communications Equipment: 1.83% | ||||||||||||||||
Cisco Systems Incorporated |
159,193 | 5,380,723 | ||||||||||||||
Juniper Networks Incorporated |
11,750 | 327,003 | ||||||||||||||
Palo Alto Networks Incorporated † |
4,290 | 483,397 | ||||||||||||||
6,191,123 | ||||||||||||||||
|
|
|||||||||||||||
Electronic Equipment, Instruments & Components: 2.52% | ||||||||||||||||
CDW Corporation of Delaware |
60,465 | 3,489,435 | ||||||||||||||
Cognex Corporation |
10,945 | 918,833 | ||||||||||||||
Corning Incorporated |
146,680 | 3,960,360 | ||||||||||||||
Tech Data Corporation † |
1,935 | 181,697 | ||||||||||||||
8,550,325 | ||||||||||||||||
|
|
|||||||||||||||
Internet Software & Services: 8.50% | ||||||||||||||||
Alibaba Group Holding Limited ADR † |
3,705 | 399,510 | ||||||||||||||
Alphabet Incorporated Class A † |
7,035 | 5,964,273 | ||||||||||||||
Alphabet Incorporated Class C † |
7,250 | 6,014,310 | ||||||||||||||
Facebook Incorporated Class A † |
106,505 | 15,129,035 | ||||||||||||||
Mulesoft Incorporated Class A † |
4,440 | 108,025 | ||||||||||||||
NetEase Incorporated ADR |
2,843 | 807,412 | ||||||||||||||
Tencent Holdings Limited |
13,400 | 384,163 | ||||||||||||||
28,806,728 | ||||||||||||||||
|
|
|||||||||||||||
IT Services: 13.36% | ||||||||||||||||
Automatic Data Processing Incorporated |
20,951 | 2,145,173 | ||||||||||||||
Booz Allen Hamilton Holding Corporation |
33,780 | 1,195,474 | ||||||||||||||
Computer Sciences Corporation |
82,981 | 5,726,519 | ||||||||||||||
CSRA Incorporated |
7,693 | 225,328 | ||||||||||||||
Fidelity National Information Services Incorporated |
47,890 | 3,813,002 | ||||||||||||||
First Data Corporation Class A † |
10,610 | 164,455 | ||||||||||||||
Fiserv Incorporated † |
18,135 | 2,091,147 | ||||||||||||||
Global Payments Incorporated |
54,380 | 4,387,378 | ||||||||||||||
MasterCard Incorporated Class A |
53,140 | 5,976,656 | ||||||||||||||
Paychex Incorporated |
18,705 | 1,101,725 | ||||||||||||||
Square Incorporated Class A † |
378,755 | 6,544,886 | ||||||||||||||
Total System Services Incorporated |
32,505 | 1,737,717 | ||||||||||||||
Vantiv Incorporated Class A † |
62,090 | 3,981,211 |
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Specialized Technology Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
IT Services (continued) | ||||||||||||||||
Visa Incorporated Class A |
69,450 | $ | 6,172,022 | |||||||||||||
45,262,693 | ||||||||||||||||
|
|
|||||||||||||||
Semiconductors & Semiconductor Equipment: 22.08% | ||||||||||||||||
Analog Devices Incorporated |
21,900 | 1,794,705 | ||||||||||||||
Applied Materials Incorporated |
236,805 | 9,211,715 | ||||||||||||||
Broadcom Limited |
48,086 | 10,528,911 | ||||||||||||||
Cypress Semiconductor Corporation |
449,180 | 6,180,717 | ||||||||||||||
Infineon Technologies AG |
189,837 | 3,877,209 | ||||||||||||||
KLA-Tencor Corporation |
24,840 | 2,361,539 | ||||||||||||||
Lam Research Corporation |
50,243 | 6,449,191 | ||||||||||||||
Marvell Technology Group Limited |
210,450 | 3,211,467 | ||||||||||||||
Maxim Integrated Products Incorporated |
25,045 | 1,126,023 | ||||||||||||||
Microchip Technology Incorporated |
94,243 | 6,953,249 | ||||||||||||||
Micron Technology Incorporated † |
344,175 | 9,946,658 | ||||||||||||||
NVIDIA Corporation |
36,340 | 3,958,516 | ||||||||||||||
Skyworks Solutions Incorporated |
43,870 | 4,298,383 | ||||||||||||||
Teradyne Incorporated |
69,475 | 2,160,673 | ||||||||||||||
Texas Instruments Incorporated |
17,720 | 1,427,523 | ||||||||||||||
Tokyo Electron Limited |
12,200 | 1,331,995 | ||||||||||||||
74,818,474 | ||||||||||||||||
|
|
|||||||||||||||
Software: 20.28% | ||||||||||||||||
Activision Blizzard Incorporated |
40,298 | 2,009,258 | ||||||||||||||
Adobe Systems Incorporated † |
66,632 | 8,670,822 | ||||||||||||||
Dell Technologies Incorporated Class V † |
671 | 42,998 | ||||||||||||||
Electronic Arts Incorporated † |
38,704 | 3,464,782 | ||||||||||||||
Fortinet Incorporated † |
33,230 | 1,274,371 | ||||||||||||||
Intuit Incorporated |
49,255 | 5,713,087 | ||||||||||||||
Microsoft Corporation |
264,870 | 17,444,338 | ||||||||||||||
Paycom Software Incorporated Ǡ |
98,370 | 5,657,259 | ||||||||||||||
Proofpoint Incorporated † |
72,897 | 5,420,621 | ||||||||||||||
Salesforce.com Incorporated † |
55,500 | 4,578,195 | ||||||||||||||
ServiceNow Incorporated † |
107,345 | 9,389,467 | ||||||||||||||
Tableau Software Incorporated Class A † |
31,765 | 1,573,956 | ||||||||||||||
Workday Incorporated Class A † |
23,955 | 1,994,972 | ||||||||||||||
Zendesk Incorporated † |
52,825 | 1,481,213 | ||||||||||||||
68,715,339 | ||||||||||||||||
|
|
|||||||||||||||
Technology Hardware, Storage & Peripherals: 15.92% | ||||||||||||||||
Apple Incorporated |
192,095 | 27,596,368 | ||||||||||||||
Hewlett Packard Enterprise Company |
117,640 | 2,788,068 | ||||||||||||||
HP Incorporated |
117,655 | 2,103,671 | ||||||||||||||
NetApp Incorporated |
175,780 | 7,356,393 | ||||||||||||||
Samsung Electronics Company Limited |
4,493 | 8,276,473 | ||||||||||||||
Western Digital Corporation |
70,865 | 5,848,484 | ||||||||||||||
53,969,457 | ||||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $227,313,269) |
|
328,357,143 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Specialized Technology Fund | 13 |
Security name | Yield | Shares | Value | |||||||||||||
Short-Term Investments: 7.63% |
|
|||||||||||||||
Investment Companies: 7.63% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) |
0.98 | % | 10,457,879 | $ | 10,458,925 | |||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | 15,382,494 | 15,382,494 | |||||||||||||
Total Short-Term Investments (Cost $25,841,419) |
|
25,841,419 | ||||||||||||||
|
|
Total investments in securities (Cost $253,154,688) * | 104.53 | % | 354,198,562 | |||||
Other assets and liabilities, net |
(4.53 | ) | (15,340,913 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 338,857,649 | ||||
|
|
|
|
« | All or a portion of this security is on loan. |
† | Non-income-earning security |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $254,357,036 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 101,173,395 | ||
Gross unrealized losses |
(1,331,869 | ) | ||
|
|
|||
Net unrealized gains |
$ | 99,841,526 |
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Specialized Technology Fund | Statement of assets and liabilities—March 31, 2017 |
Assets |
||||
Investments |
||||
In unaffiliated securities (including $10,255,558 of securities loaned), at value (cost $227,313,269) |
$ | 328,357,143 | ||
In affiliated securities, at value (cost $25,841,419) |
25,841,419 | |||
|
|
|||
Total investments, at value (cost $253,154,688) |
354,198,562 | |||
Cash |
19,375 | |||
Foreign currency, at value (cost $14) |
14 | |||
Receivable for investments sold |
2,797,676 | |||
Receivable for Fund shares sold |
361,081 | |||
Receivable for dividends |
232,094 | |||
Receivable for securities lending income |
3,135 | |||
Prepaid expenses and other assets |
30,291 | |||
|
|
|||
Total assets |
357,642,228 | |||
|
|
|||
Liabilities |
||||
Payable for investments purchased |
7,465,084 | |||
Payable for Fund shares redeemed |
375,791 | |||
Payable upon receipt of securities loaned |
10,458,925 | |||
Management fee payable |
271,510 | |||
Distribution fees payable |
8,714 | |||
Administration fees payable |
59,619 | |||
Accrued expenses and other liabilities |
144,936 | |||
|
|
|||
Total liabilities |
18,784,579 | |||
|
|
|||
Total net assets |
$ | 338,857,649 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 209,247,581 | ||
Accumulated net realized gains on investments |
28,562,762 | |||
Net unrealized gains on investments |
101,047,306 | |||
|
|
|||
Total net assets |
$ | 338,857,649 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 266,328,577 | ||
Shares outstanding – Class A1 |
24,329,712 | |||
Net asset value per share – Class A |
$10.95 | |||
Maximum offering price per share – Class A2 |
$11.62 | |||
Net assets – Class C |
$ | 12,827,210 | ||
Shares outstanding – Class C1 |
1,415,207 | |||
Net asset value per share – Class C |
$9.06 | |||
Net assets – Administrator Class |
$ | 39,832,936 | ||
Shares outstanding – Administrator Class1 |
3,582,899 | |||
Net asset value per share – Administrator Class |
$11.12 | |||
Net assets – Institutional Class |
$ | 19,868,926 | ||
Shares outstanding – Institutional Class1 |
1,786,846 | |||
Net asset value per share – Institutional Class |
$11.12 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
Statement of operations—year ended March 31, 2017 | Wells Fargo Specialized Technology Fund | 15 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $13,804) |
$ | 3,643,555 | ||
Securities lending income, net |
33,960 | |||
Income from affiliated securities |
27,123 | |||
|
|
|||
Total investment income |
3,704,638 | |||
|
|
|||
Expenses |
||||
Management fee |
2,875,531 | |||
Administration fees |
||||
Class A |
566,577 | |||
Class B |
180 | 1 | ||
Class C |
28,036 | |||
Administrator Class |
44,009 | |||
Institutional Class |
3,140 | 2 | ||
Shareholder servicing fees |
||||
Class A |
674,496 | |||
Class B |
214 | 1 | ||
Class C |
33,376 | |||
Administrator Class |
84,633 | |||
Distribution fees |
||||
Class B |
642 | 1 | ||
Class C |
100,128 | |||
Custody and accounting fees |
43,085 | |||
Professional fees |
42,744 | |||
Registration fees |
62,676 | |||
Shareholder report expenses |
66,434 | |||
Trustees’ fees and expenses |
17,954 | |||
Other fees and expenses |
12,010 | |||
|
|
|||
Total expenses |
4,655,865 | |||
Less: Fee waivers and/or expense reimbursements |
(9,714 | ) | ||
|
|
|||
Net expenses |
4,646,151 | |||
|
|
|||
Net investment loss |
(941,513 | ) | ||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains (losses) on: |
||||
Unaffiliated securities |
34,116,803 | |||
Forward foreign currency contract transactions |
(20,797 | ) | ||
|
|
|||
Net realized gains on investments |
34,096,006 | |||
Net change in unrealized gains (losses) on investments |
34,389,614 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
68,485,620 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 67,544,107 | ||
|
|
1 | For the period from April 1, 2016 to December 5, 2016. Effective at the close of business on December 5, 2016, Class B shares were converted to Class A shares and are no longer offered by the Fund. |
2 | For the period from October 31, 2016 (commencement of class operations) to March 31, 2017 |
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Specialized Technology Fund | Statement of changes in net assets |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment loss |
$ | (941,513 | ) | $ | (2,076,157 | ) | ||||||||||
Net realized gains on investments |
34,096,006 | 14,521,859 | ||||||||||||||
Net change in unrealized gains (losses) on investments |
34,389,614 | (15,139,717 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from operations |
67,544,107 | (2,694,015 | ) | |||||||||||||
|
|
|||||||||||||||
Distributions to shareholders from |
||||||||||||||||
Net realized gains |
||||||||||||||||
Class A |
(14,880,730 | ) | (33,866,092 | ) | ||||||||||||
Class B |
0 | 1 | (18,254 | ) | ||||||||||||
Class C |
(848,385 | ) | (2,084,431 | ) | ||||||||||||
Administrator Class |
(1,833,645 | ) | (3,712,334 | ) | ||||||||||||
Institutional Class |
(171,234 | )2 | N/A | |||||||||||||
|
|
|||||||||||||||
Total distributions to shareholders |
(17,733,994 | ) | (39,681,111 | ) | ||||||||||||
|
|
|||||||||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
1,119,979 | 11,186,546 | 12,556,326 | 135,884,127 | ||||||||||||
Class B |
3,850 | 1 | 30,758 | 1 | 2,502 | 23,835 | ||||||||||
Class C |
126,948 | 1,060,179 | 330,874 | 3,019,167 | ||||||||||||
Administrator Class |
1,074,890 | 11,187,307 | 964,355 | 9,840,317 | ||||||||||||
Institutional Class |
1,879,809 | 2 | 20,363,858 | 2 | N/A | N/A | ||||||||||
Investor Class |
N/A | N/A | 822,710 | 3 | 8,868,739 | 3 | ||||||||||
|
|
|||||||||||||||
43,828,648 | 157,636,185 | |||||||||||||||
|
|
|||||||||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
1,487,581 | 14,459,290 | 3,418,828 | 32,889,128 | ||||||||||||
Class B |
0 | 1 | 0 | 1 | 2,234 | 18,254 | ||||||||||
Class C |
96,557 | 779,219 | 233,582 | 1,901,356 | ||||||||||||
Administrator Class |
165,740 | 1,635,859 | 335,670 | 3,272,786 | ||||||||||||
Institutional Class |
17,366 | 2 | 171,234 | 2 | N/A | N/A | ||||||||||
|
|
|||||||||||||||
17,045,602 | 38,081,524 | |||||||||||||||
|
|
|||||||||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(6,802,529 | ) | (69,234,485 | ) | (3,097,245 | ) | (30,864,012 | ) | ||||||||
Class B |
(19,232 | )1 | (163,421 | )1 | (9,094 | ) | (82,246 | ) | ||||||||
Class C |
(549,746 | ) | (4,592,945 | ) | (338,441 | ) | (2,967,650 | ) | ||||||||
Administrator Class |
(1,059,277 | ) | (10,759,802 | ) | (830,486 | ) | (8,685,149 | ) | ||||||||
Institutional Class |
(110,329 | )2 | (1,179,831 | )2 | N/A | N/A | ||||||||||
Investor Class |
N/A | N/A | (12,028,498 | )3 | (129,965,727 | )3 | ||||||||||
|
|
|||||||||||||||
(85,930,484 | ) | (172,564,784 | ) | |||||||||||||
|
|
|||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions |
(25,056,234 | ) | 23,152,925 | |||||||||||||
|
|
|||||||||||||||
Total increase (decrease) in net assets |
24,753,879 | (19,222,201 | ) | |||||||||||||
|
|
|||||||||||||||
Net assets |
||||||||||||||||
Beginning of period |
314,103,770 | 333,325,971 | ||||||||||||||
|
|
|||||||||||||||
End of period |
$ | 338,857,649 | $ | 314,103,770 | ||||||||||||
|
|
|||||||||||||||
Undistributed (accumulated) net investment income (loss) |
$ | 0 | $ | (250,851 | ) | |||||||||||
|
|
1 | For the period from April 1, 2016 to December 5, 2016. Effective at the close of business on December 5, 2016, Class B shares were converted to Class A shares and are no longer offered by the Fund. |
2 | For the period from October 31, 2016 (commencement of class operations) to March 31, 2017 |
3 | For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Specialized Technology Fund | 17 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$9.39 | $10.74 | $10.65 | $8.15 | $8.40 | |||||||||||||||
Net investment loss |
(0.03 | )1 | (0.06 | ) | (0.06 | ) | (0.06 | ) | (0.03 | )1 | ||||||||||
Net realized and unrealized gains (losses) on investments |
2.17 | 0.02 | 1.43 | 3.07 | (0.00 | )2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
2.14 | (0.04 | ) | 1.37 | 3.01 | (0.03 | ) | |||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net realized gains |
(0.58 | ) | (1.31 | ) | (1.28 | ) | (0.51 | ) | (0.22 | ) | ||||||||||
Net asset value, end of period |
$10.95 | $9.39 | $10.74 | $10.65 | $8.15 | |||||||||||||||
Total return3 |
23.55 | % | (0.66 | )% | 13.24 | % | 37.27 | % | (0.17 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.44 | % | 1.45 | % | 1.52 | % | 1.60 | % | 1.64 | % | ||||||||||
Net expenses |
1.44 | % | 1.45 | % | 1.51 | % | 1.56 | % | 1.63 | % | ||||||||||
Net investment loss |
(0.28 | )% | (0.53 | )% | (0.58 | )% | (0.63 | )% | (0.34 | )% | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
131 | % | 153 | % | 119 | % | 132 | % | 127 | % | ||||||||||
Net assets, end of period (000s omitted) |
$266,329 | $267,811 | $168,108 | $154,833 | $115,145 |
1 | Calculated based upon average shares outstanding |
2 | Amount is less than $0.005. |
3 | Total return calculations do not include any sales charges. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Specialized Technology Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$7.92 | $9.33 | $9.47 | $7.35 | $7.65 | |||||||||||||||
Net investment loss |
(0.09 | )1 | (0.12 | )1 | (0.13 | )1 | (0.12 | )1 | (0.08 | )1 | ||||||||||
Net realized and unrealized gains (losses) on investments |
1.81 | 0.02 | 1.27 | 2.75 | (0.00 | )2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
1.72 | (0.10 | ) | 1.14 | 2.63 | (0.08 | ) | |||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net realized gains |
(0.58 | ) | (1.31 | ) | (1.28 | ) | (0.51 | ) | (0.22 | ) | ||||||||||
Net asset value, end of period |
$9.06 | $7.92 | $9.33 | $9.47 | $7.35 | |||||||||||||||
Total return3 |
22.59 | % | (1.45 | )% | 12.44 | % | 36.14 | % | (0.84 | )% | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
2.19 | % | 2.20 | % | 2.27 | % | 2.35 | % | 2.39 | % | ||||||||||
Net expenses |
2.19 | % | 2.20 | % | 2.26 | % | 2.31 | % | 2.38 | % | ||||||||||
Net investment loss |
(1.03 | )% | (1.34 | )% | (1.33 | )% | (1.38 | )% | (1.09 | )% | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
131 | % | 153 | % | 119 | % | 132 | % | 127 | % | ||||||||||
Net assets, end of period (000s omitted) |
$12,827 | $13,797 | $14,143 | $10,907 | $6,563 |
1 | Calculated based upon average shares outstanding |
2 | Amount is less than $0.005. |
3 | Total return calculations do not include any sales charges. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Specialized Technology Fund | 19 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$9.52 | $10.86 | $10.74 | $8.20 | $8.43 | |||||||||||||||
Net investment loss |
(0.02 | ) | (0.05 | ) | (0.05 | ) | (0.05 | ) | (0.01 | )1 | ||||||||||
Net realized and unrealized gains (losses) on investments |
2.20 | 0.02 | 1.45 | 3.10 | (0.00 | )2 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
2.18 | (0.03 | ) | 1.40 | 3.05 | (0.01 | ) | |||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net realized gains |
(0.58 | ) | (1.31 | ) | (1.28 | ) | (0.51 | ) | (0.22 | ) | ||||||||||
Net asset value, end of period |
$11.12 | $9.52 | $10.86 | $10.74 | $8.20 | |||||||||||||||
Total return |
23.65 | % | (0.56 | )% | 13.42 | % | 37.54 | % | 0.07 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.36 | % | 1.35 | % | 1.36 | % | 1.44 | % | 1.48 | % | ||||||||||
Net expenses |
1.33 | % | 1.33 | % | 1.35 | % | 1.40 | % | 1.42 | % | ||||||||||
Net investment loss |
(0.17 | )% | (0.48 | )% | (0.42 | )% | (0.48 | )% | (0.14 | )% | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
131 | % | 153 | % | 119 | % | 132 | % | 127 | % | ||||||||||
Net assets, end of period (000s omitted) |
$39,833 | $32,373 | $31,842 | $31,681 | $17,008 |
1 | Calculated based upon average shares outstanding |
2 | Amount is less than $0.005. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Specialized Technology Fund | Financial highlights |
(For a share outstanding throughout the period)
Year ended | ||||
INSTITUTIONAL CLASS | March 31, 20171 | |||
Net asset value, beginning of period |
$10.42 | |||
Net investment income |
0.01 | 2 | ||
Net realized and unrealized gains (losses) on investments |
1.27 | |||
|
|
|||
Total from investment operations |
1.28 | |||
Distributions to shareholders from |
||||
Net realized gains |
(0.58 | ) | ||
Net asset value, end of period |
$11.12 | |||
Total return3 |
12.97 | % | ||
Ratios to average net assets (annualized) |
||||
Gross expenses |
1.11 | % | ||
Net expenses |
1.08 | % | ||
Net investment income |
0.17 | % | ||
Supplemental data |
||||
Portfolio turnover rate |
131 | % | ||
Net assets, end of period (000s omitted) |
$19,869 |
1 | For the period from October 31, 2016 (commencement of class operations) to March 31, 2017 |
2 | Calculated based upon average shares outstanding |
3 | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Notes to financial statements | Wells Fargo Specialized Technology Fund | 21 |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Specialized Technology Fund (the “Fund”) which is a non-diversified series of the Trust.
Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.
Effective at the close of business on December 5, 2016, Class B shares were converted to Class A shares and are no longer offered by the Fund. Information for Class B shares reflected in the financial statements represents activity through December 5, 2016.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2017, such fair value pricing was not used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
22 | Wells Fargo Specialized Technology Fund | Notes to financial statements |
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Forward foreign currency contracts
The Fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on forward foreign currency contract transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains on the contracts. This risk may be mitigated if there is a master netting arrangement between the Fund and the counterparty.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Notes to financial statements | Wells Fargo Specialized Technology Fund | 23 |
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Accumulated net investment loss |
Accumulated net realized gains on investments | |
$1,192,364 | $(1,192,364) |
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
24 | Wells Fargo Specialized Technology Fund | Notes to financial statements |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 42,043,004 | $ | 0 | $ | 0 | $ | 42,043,004 | ||||||||
Information technology |
286,314,139 | 0 | 0 | 286,314,139 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
15,382,494 | 0 | 0 | 15,382,494 | ||||||||||||
Investments measured at net asset value* |
10,458,925 | |||||||||||||||
Total assets |
$ | 343,739,637 | $ | 0 | $ | 0 | $ | 354,198,562 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $10,458,925 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.90% and declining to 0.78% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.90% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Allianz Global Investors U.S. LLC, which is not an affliliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.80% and declining to 0.55% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class B, Class C |
0.21 | % | ||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of
Notes to financial statements | Wells Fargo Specialized Technology Fund | 25 |
expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed to waive fees and/or reimburse expenses to the extent necessary to cap expenses as follows:
Expense ratio cap |
Expiration date | |||||
Class A |
1.50% | July 31, 2017 | ||||
Class C |
2.25% | July 31, 2017 | ||||
Administrator Class |
1.33% | July 31, 2017 | ||||
Institutional Class |
1.08% | July 31, 2018 |
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $15,222 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $6,904 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fees
The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2017, Funds Distributor received $6,643 from the sale of Class A shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $413,763,855 and $448,468,006, respectively.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. DERIVATIVE TRANSACTIONS
During the year ended March 31, 2017, the Fund entered into forward foreign currency contracts for economic hedging purposes.
As of March 31, 2017, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $19,269 and $6,717 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended March 31, 2017.
The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the corresponding financial statement captions.
7. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or
26 | Wells Fargo Specialized Technology Fund | Notes to financial statements |
the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $17,733,994 and $39,681,111 of long-term capital gain for the years ended March 31, 2017 and March 31, 2016, respectively.
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Undistributed long-term gain |
Unrealized | ||
$7,805,312 | $21,959,798 | $99,844,958 |
9. CONCENTRATION RISK
The Fund invests a substantial portion of its assets in technology companies and, therefore, would be more affected by changes in the technology sector than would be a fund whose investments are not heavily weighted in the sector.
10. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
11. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
12. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
Report of independent registered public accounting firm | Wells Fargo Specialized Technology Fund | 27 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Specialized Technology Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Specialized Technology Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
28 | Wells Fargo Specialized Technology Fund | Other information (unaudited) |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $17,733,994 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2017.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other information (unaudited) | Wells Fargo Specialized Technology Fund | 29 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
William R. Ebsworth (Born 1957) | Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) | Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 |
Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
30 | Wells Fargo Specialized Technology Fund | Other information (unaudited) |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
(Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
(Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
List of abbreviations | Wells Fargo Specialized Technology Fund | 31 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302879 05-17 A317/AR317 03-17 |
Annual Report
Wells Fargo Utility and Telecommunications Fund
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The views expressed and any forward-looking statements are as of March 31, 2017, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
2 | Wells Fargo Utility and Telecommunications Fund | Letter to shareholders (unaudited) |
President
Wells Fargo Funds
U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Dear Shareholder:
As the new president of Wells Fargo Funds now that Karla Rabusch is retiring from that position after nearly 14 years, I am pleased to offer you this annual report for the Wells Fargo Utility and Telecommunications Fund for the 12-month period that ended March 31, 2017. Despite heightened market volatility at times, global stocks delivered double-digit results overall. U.S. and international stocks returned 17.17% and 13.13% for the 12-month period, respectively, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2; within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 0.44%.
Worries over interest rates and the U.K.’s Brexit vote largely drove markets during the second quarter of 2016.
U.S. stocks were in positive territory in April, plunged briefly in May on worries of a possible June interest-rate increase, then rallied until early June. The first three weeks of June brought heightened volatility, spurred largely by a disappointing jobs report and uncertainty over whether the U.K. would remain in the European Union (E.U.). The U.K.’s Brexit vote on June 23 shocked countries worldwide. Stock markets fell as investors worried that the U.K.’s departure from the E.U. would slow global growth and prolong the low-interest-rate environment. Following the initial rout, however, U.S. stocks rose as investors seemed to decide that any negative effects would be more localized and not create a serious risk for global growth. Similarly, government bonds rallied immediately post-Brexit, and non-Treasury sectors rallied soon after as investors regained their appetite for risk. As a result, most bond markets remained in a situation of ultralow yields and tight credit spreads. Interestingly, U.S. bonds continued to be supported by demand from both domestic and nontraditional foreign buyers looking for positive yield since U.S. interest rates were the highest among developed-country bonds. Also notable was the rebound in oil prices to nearly $50 per barrel in June, driven by a lower rig count, unplanned supply outages, anticipated demand ahead of the summer driving season, and a weaker dollar.
Globally, stocks delivered positive results in the third quarter of 2016; bonds’ interest rates remained low.
Stocks’ upward trend continued into August and then lost some steam. Ever since the Great Recession, markets worldwide have been supported to varying degrees by accommodative policies from leading central banks, including the U.S. Federal Reserve (Fed), European Central Bank, Bank of England, and Bank of Japan. As a result, investors have watched closely for any signs that global central banks might tighten their measures. In the U.S., early-September comments by several Fed officials appeared to suggest a September interest-rate increase, which sent stock and bond prices down. However, stocks surged following the Fed’s September 20 meeting on news that the Fed had decided to delay a rate increase to later in 2016. In bond markets, interest rates rose during the quarter but
1 | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index (formerly known as Barclays U.S. Aggregate Bond Index) is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
Letter to shareholders (unaudited) | Wells Fargo Utility and Telecommunications Fund | 3 |
remained at historically low levels as a result of easy monetary policies, subdued global growth, and modest inflation expectations. Yields did rise, however, after bottoming in early July, because market participants felt that yields had overshot the real risks of the U.K.’s Brexit vote and as economic activity strengthened.
During the fourth quarter of 2016, prospects for faster growth and higher interest rates in the U.S. influenced markets.
Early in the fourth quarter of 2016, U.S. stocks tended to trade lower amid concerns such as a likely interest-rate increase and uncertainty over the approaching general election. However, following Donald Trump’s election as president in early November, U.S. stocks began to rally. Investors appeared optimistic that the new administration would usher in a series of progrowth policies, and supportive economic news helped the rally carry through the quarter. The buoyant environment sent interest rates higher as well. At its mid-December meeting, Fed officials raised their short-term target interest rate for the first time in a year by a quarter percentage point to between 0.50% and 0.75%. The fourth quarter also saw the implementation of the U.S. Securities and Exchange Commission’s new rules for money market funds, which included floating net asset values (NAVs) for institutional prime and municipal money market funds as well as liquidity fees and redemption gates. In the year leading up to money market fund reform implementation, nearly $1 trillion in assets moved from these types of money market funds into government money market funds, which continued to transact at a stable $1 NAV. Outside of the U.S., the prospects for faster U.S. growth appeared to trigger some acceleration in Europe. The improvement may be partly attributable to expectations for further strengthening of the U.S. dollar, which in turn could improve demand for European goods in the U.S. due to weakening of the euro relative to the dollar.
Globally, stocks delivered positive results and economies showed some improvement in the first quarter of 2017.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. U.S. economic data released during the quarter reflected a healthy economy. Hiring remained strong, and business and consumer sentiment improved. Meanwhile, inflation inched up during the quarter. Along with the pickup in inflation, investors appeared to shift from a mindset of very gradual interest-rate increases by the Fed to an anticipation of three or four increases in 2017. The first of these occurred in March; Fed officials raised their short-term target rate by a quarter percentage point to between 0.75% and 1.00%. With the Fed’s target-rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside of the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets. Thus far in 2017, emerging markets overall have benefited from both global economic growth and recent weakening in the U.S. dollar. European stocks also outperformed the U.S. market, despite investors’ concern over uncertainties such as the potential impact of an upcoming election in France; a contender for president of France, Marine Le Pen, favored exiting the European Union, which could potentially destabilize or topple the organization.
4 | Wells Fargo Utility and Telecommunications Fund | Letter to shareholders (unaudited) |
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest in Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
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6 | Wells Fargo Utility and Telecommunications Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks total return, consisting of current income and capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Crow Point Partners, LLC
Portfolio manager
Timothy P. O’Brien, CFA®
Average annual total returns (%) as of March 31, 20171
Including sales charge | Excluding sales charge | Expense ratios2 (%) | ||||||||||||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | 1 year | 5 year | 10 year | Gross | Net3 | ||||||||||||||||||||||||||
Class A (EVUAX) | 1-4-1994 | 2.61 | 8.59 | 5.11 | 8.87 | 9.88 | 5.74 | 1.19 | 1.15 | |||||||||||||||||||||||||
Class B (EVUBX)* | 1-4-1994 | 3.00 | 8.77 | 5.18 | 8.00 | 9.05 | 5.18 | 1.94 | 1.90 | |||||||||||||||||||||||||
Class C (EVUCX) | 9-2-1994 | 7.04 | 9.06 | 4.94 | 8.04 | 9.06 | 4.94 | 1.94 | 1.90 | |||||||||||||||||||||||||
Administrator Class (EVUDX) | 7-30-2010 | – | – | – | 9.04 | 10.09 | 5.89 | 1.11 | 0.96 | |||||||||||||||||||||||||
Institutional Class (EVUYX) | 2-28-1994 | – | – | – | 9.26 | 10.24 | 6.04 | 0.86 | 0.79 | |||||||||||||||||||||||||
S&P 500 Utilities Index4 | – | – | – | – | 7.06 | 12.10 | 6.69 | – | – | |||||||||||||||||||||||||
S&P 500 Index5 | – | – | – | – | 17.17 | 13.30 | 7.51 | – | – |
* | At the close of business on May 5, 2017, existing Class B shareholders were converted to Class A shareholders. Effective May 6, 2017, Class B shares are no longer offered by the Fund. |
Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.
While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in utilities and telecommunication services stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
For Class A shares, the maximum front-end sales charge is 5.75%. Flor Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. The use of derivatives may reduce returns and/or increase volatility. Funds that concentrate their investments in limited sectors, such as utilities and telecommunication services, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to convertible securities risk, foreign investment risk, high-yield securities risk, smaller-company securities risk, non-diversification risk and subsidiary risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Utility and Telecommunications Fund | 7 |
Growth of $10,000 investment as of March 31, 20176 |
1 | Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen Utility and Telecommunications Fund. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through July 31, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 1.14% for Class A, 1.89% for Class B, 1.89% for Class C, 0.95% for Administrator Class, and 0.78% for Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The S&P 500 Utilities Index is a market-value-weighted index, measures the performance of all stocks within the utilities. sector of the S&P 500 Index. You cannot invest directly in an index. |
5 | The S&P 500 Utilities Index is a market-value-weighted index that measures the performance of all stocks within the utilities sector of the S&P 500 Index |
6 | The chart compares the performance of Class A shares for the most recent ten years with the S&P Utilities Index and the S&P 500 Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%. |
7 | The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
8 | Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified. |
8 | Wells Fargo Utility and Telecommunications Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund outperformed the S&P 500 Utilities Index for the 12-month period that ended March 31, 2017. |
∎ | The Fund benefited from strength in regulated utilities and telecommunication services firms. |
∎ | Holdings with greater sensitivity to energy and commodity prices detracted from returns, as did certain real estate investment trusts (REITs). |
Regulated utilities posted strong returns.
Some of the Fund’s best-performing utilities holdings were regulated network companies with little commodities exposure, including Edison International; South Jersey Industries, Incorporated; American Water Works Company, Incorporated; and PNM Resources, Incorporated. Spark Energy, Incorporated, an electric and gas energy-services company, contributed significantly to performance. The Fund’s long-term holdings of Visa Incorporated and MasterCard Incorporated did relatively well in the period. In June 2016, Visa completed its previously announced acquisition of Visa Europe from a consortium of European banks. The long-anticipated acquisition shows promise to be materially beneficial for Visa.
Some of the Fund’s energy and REIT positions negatively affected relative performance while others contributed.
Energy prices recovered substantially during the 12-month reporting period. Oil prices rose following producer-output reductions and modestly higher demand. The recovery in natural gas prices was less robust, with demand depressed by comparatively warm winter weather. Energy-sensitive holdings that detracted from performance included Dynegy Incorporated in particular and, to a lesser extent, EQT Corporation. Investment in REIT holding Chatham Lodging Trust also weighed on performance. Cash provided a modest drag on results.
We made only moderate changes to the Fund during the reporting period.
The Fund’s composition did not change dramatically during the reporting period, and turnover remained low. We initiated a position in Perma-Pipe International Holdings, Incorporated. We also added to holdings of Spark Energy; reduced the position in Preferred Apartment Communities, Incorporated; and eliminated positions in Global Medical REIT Incorporated; American Campus Communities, Incorporated; DuPont Fabros Technology, Incorporated; and the common stock of Ashford Hospitality Prime, Incorporated.
Our outlook for utilities remains, on balance, favorable.
In our view, the fundamentals of regulated network utilities appear strong. Regulated utilities may have abundant opportunities to invest in their core businesses at returns we view as attractive. While the U.S. retains adequate power-generation capacity, current regulatory mandates are requiring utilities to increase renewable-energy sources and reduce the country’s historical reliance on fossil fuels in general and coal in particular. The development of U.S. shale-gas production has been providing investors with opportunities to make investments in gas gathering, processing, and transport infrastructure. Overall, utilities may be growing faster than at any time since the 1950s, and their growth could be sustainable for the intermediate term or longer. Our outlook for telecommunication services companies generally is less robust, with the legacy local-exchange telephone business in secular decline, cable under pressure, and wireless approaching saturation; however, select telecom stocks likely present opportunities.
Short-term interest rates have begun to normalize after years of central-bank suppression. We do not believe that rates are likely to go up much on the short or the long end of the yield curve as inflation seems well contained. A continued low-interest-rate environment likely will help support the prices of utilities stocks because income-seeking investors favor their relatively generous dividends. Also, the tax environment has remained reasonably favorable for utilities investors. While the tax rate on qualified dividend income increased to 23.8% from 15.0% in 2013, it remains well below the top marginal tax rate for ordinary income and has had little visible impact on the performance of utilities stocks. For now, we view the outlook for utilities as reasonably bright, with many important positives outweighing a few limited concerns.
Please see footnotes on page 7.
Performance highlights (unaudited) | Wells Fargo Utility and Telecommunications Fund | 9 |
Ten largest holdings (%) as of March 31, 20177 | ||||
CMS Energy Corporation |
6.89 | |||
Edison International |
6.64 | |||
Eversource Energy |
6.41 | |||
Visa Incorporated Class A |
6.16 | |||
Alliant Energy Corporation |
5.90 | |||
PNM Resources Incorporated |
5.70 | |||
Sempra Energy |
5.67 | |||
NextEra Energy Incorporated |
5.44 | |||
Dominion Resources Incorporated |
5.18 | |||
Comcast Corporation Class A |
4.34 |
Industry distribution as of March 31, 20178 |
Please see footnotes on page 7.
10 | Wells Fargo Utility and Telecommunications Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2016 to March 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
Beginning account value 10-1-2016 |
Ending account value 3-31-2017 |
Expenses paid during the period¹ |
Annualized net expense ratio |
|||||||||||||
Class A |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,062.89 | $ | 5.86 | 1.14 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,019.25 | $ | 5.74 | 1.14 | % | ||||||||
Class B |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,058.72 | $ | 9.70 | 1.89 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,015.51 | $ | 9.50 | 1.89 | % | ||||||||
Class C |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,058.43 | $ | 9.70 | 1.89 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,015.51 | $ | 9.50 | 1.89 | % | ||||||||
Administrator Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,063.47 | $ | 4.89 | 0.95 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,020.19 | $ | 4.78 | 0.95 | % | ||||||||
Institutional Class |
||||||||||||||||
Actual |
$ | 1,000.00 | $ | 1,064.23 | $ | 4.01 | 0.78 | % | ||||||||
Hypothetical (5% return before expenses) |
$ | 1,000.00 | $ | 1,021.04 | $ | 3.93 | 0.78 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period). |
Portfolio of investments—March 31, 2017 | Wells Fargo Utility and Telecommunications Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 93.52% |
||||||||||||||||
Consumer Discretionary: 4.34% |
||||||||||||||||
Media: 4.34% | ||||||||||||||||
Comcast Corporation Class A |
450,200 | $ | 16,923,018 | |||||||||||||
|
|
|||||||||||||||
Energy: 0.92% |
||||||||||||||||
Oil, Gas & Consumable Fuels: 0.92% | ||||||||||||||||
EQT Corporation |
58,600 | 3,580,460 | ||||||||||||||
|
|
|||||||||||||||
Industrials: 0.29% |
||||||||||||||||
Machinery: 0.29% | ||||||||||||||||
Perma Pipe International Holdings Incorporated † |
141,500 | 1,117,850 | ||||||||||||||
|
|
|||||||||||||||
Information Technology: 8.46% |
||||||||||||||||
IT Services: 8.46% | ||||||||||||||||
MasterCard Incorporated Class A |
80,000 | 8,997,600 | ||||||||||||||
Visa Incorporated Class A |
270,000 | 23,994,900 | ||||||||||||||
32,992,500 | ||||||||||||||||
|
|
|||||||||||||||
Real Estate: 4.64% |
||||||||||||||||
Equity REITs: 4.64% | ||||||||||||||||
Chatham Lodging Trust |
650,000 | 12,837,500 | ||||||||||||||
Clipper Realty Incorporated |
100,000 | 1,282,000 | ||||||||||||||
Preferred Apartment Communities Incorporated Series A |
300,000 | 3,963,000 | ||||||||||||||
18,082,500 | ||||||||||||||||
|
|
|||||||||||||||
Telecommunication Services: 5.20% |
||||||||||||||||
Diversified Telecommunication Services: 1.60% | ||||||||||||||||
AT&T Incorporated |
150,000 | 6,232,500 | ||||||||||||||
|
|
|||||||||||||||
Wireless Telecommunication Services: 3.60% | ||||||||||||||||
Shenandoah Telecommunications Company |
500,000 | 14,025,000 | ||||||||||||||
|
|
|||||||||||||||
Utilities: 69.67% |
||||||||||||||||
Electric Utilities: 37.83% | ||||||||||||||||
ALLETE Incorporated |
10,000 | 677,100 | ||||||||||||||
Alliant Energy Corporation |
580,000 | 22,973,800 | ||||||||||||||
American Electric Power Company Incorporated |
175,000 | 11,747,750 | ||||||||||||||
Edison International |
325,000 | 25,873,250 | ||||||||||||||
Eversource Energy |
425,000 | 24,981,500 | ||||||||||||||
Great Plains Energy Incorporated |
210,000 | 6,136,200 | ||||||||||||||
NextEra Energy Incorporated |
165,000 | 21,181,050 | ||||||||||||||
PNM Resources Incorporated |
600,000 | 22,200,000 | ||||||||||||||
Spark Energy Incorporated Class A (l) |
364,503 | 11,645,871 | ||||||||||||||
147,416,521 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
12 | Wells Fargo Utility and Telecommunications Fund | Portfolio of investments—March 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Gas Utilities: 3.53% | ||||||||||||||||
Snam SpA |
500,000 | $ | 2,162,403 | |||||||||||||
South Jersey Industries Incorporated |
325,000 | 11,586,250 | ||||||||||||||
13,748,653 | ||||||||||||||||
|
|
|||||||||||||||
Independent Power & Renewable Electricity Producers: 1.00% | ||||||||||||||||
Dynegy Incorporated |
66,500 | 3,906,875 | ||||||||||||||
|
|
|||||||||||||||
Multi-Utilities: 23.32% | ||||||||||||||||
CenterPoint Energy Incorporated |
250,000 | 6,892,500 | ||||||||||||||
CMS Energy Corporation |
600,000 | 26,844,000 | ||||||||||||||
Dominion Resources Incorporated |
260,000 | 20,168,200 | ||||||||||||||
Northwestern Corporation |
102,411 | 6,011,526 | ||||||||||||||
Public Service Enterprise Group Incorporated |
200,000 | 8,870,000 | ||||||||||||||
Sempra Energy |
200,000 | 22,100,000 | ||||||||||||||
90,886,226 | ||||||||||||||||
|
|
|||||||||||||||
Water Utilities: 3.99% | ||||||||||||||||
American Water Works Company Incorporated |
200,000 | 15,554,000 | ||||||||||||||
|
|
|||||||||||||||
Total Common Stocks (Cost $178,099,924) |
364,466,103 | |||||||||||||||
|
|
|||||||||||||||
Exchange-Traded Funds: 0.13% |
||||||||||||||||
Horizons NASDAQ 100 Covered Call ETF |
21,500 | 499,875 | ||||||||||||||
|
|
|||||||||||||||
Total Exchange-Traded Funds (Cost $512,990) |
499,875 | |||||||||||||||
|
|
|||||||||||||||
Dividend yield | ||||||||||||||||
Preferred Stocks: 3.92% | ||||||||||||||||
Real Estate: 1.39% |
||||||||||||||||
Equity REITs: 1.39% | ||||||||||||||||
Ashford Hospitality Prime Incorporated «± |
6.72 | % | 11,100 | 218,337 | ||||||||||||
Wheeler REIT Incorporated ± |
4.44 | 200,000 | 5,202,000 | |||||||||||||
5,420,337 | ||||||||||||||||
|
|
|||||||||||||||
Utilities: 2.53% |
||||||||||||||||
Electric Utilities: 2.53% | ||||||||||||||||
Southern Company ± |
2.98 | 25,000 | 598,750 | |||||||||||||
Southern Company ± |
5.92 | 350,000 | 9,240,000 | |||||||||||||
9,838,750 | ||||||||||||||||
|
|
|||||||||||||||
Total Preferred Stocks (Cost $15,053,865) |
15,259,087 | |||||||||||||||
|
|
|||||||||||||||
Expiration date | ||||||||||||||||
Warrants: 0.00% | ||||||||||||||||
Energy: 0.00% |
||||||||||||||||
Oil, Gas & Consumable Fuels: 0.00% | ||||||||||||||||
Energy & Exploration Partners Incorporated † |
N/A | 9 | 0 | |||||||||||||
Kinder Morgan Incorporated † |
5-27-2017 | 496,000 | 1,190 | |||||||||||||
|
|
|||||||||||||||
Total Warrants (Cost $553,300) |
1,190 | |||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Portfolio of investments—March 31, 2017 | Wells Fargo Utility and Telecommunications Fund | 13 |
Security name | Yield | Shares | Value | |||||||||||||
Short-Term Investments: 2.44% |
||||||||||||||||
Investment Companies: 2.44% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) |
0.98 | % | 40,496 | $ | 40,500 | |||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) |
0.63 | 9,484,804 | 9,484,804 | |||||||||||||
Total Short-Term Investments (Cost $9,525,304) |
9,525,304 | |||||||||||||||
|
|
Total investments in securities (Cost $203,745,383) * | 100.01 | % | 389,751,559 | |||||
Other assets and liabilities, net |
(0.01 | ) | (37,814 | ) | ||||
|
|
|
|
|||||
Total net assets | 100.00 | % | $ | 389,713,745 | ||||
|
|
|
|
† | Non-income-earning security |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
« | All or a portion of this security is on loan. |
± | Variable rate investment. The rate shown is the rate in effect at period end. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $208,745,168 and unrealized gains (losses) consists of: |
Gross unrealized gains |
$ | 196,614,483 | ||
Gross unrealized losses |
(15,608,092 | ) | ||
|
|
|||
Net unrealized gains |
$ | 181,006,391 |
The accompanying notes are an integral part of these financial statements.
14 | Wells Fargo Utility and Telecommunications Fund | Statement of assets and liabilities—March 31, 2017 |
Assets |
||||
Investments |
||||
In unaffiliated securities (including $38,596 of securities loaned), at value (cost $187,464,038) |
$ | 368,580,384 | ||
In affiliated securities, at value (cost $16,281,345) |
21,171,175 | |||
|
|
|||
Total investments, at value (cost $203,745,383) |
389,751,559 | |||
Segregated cash |
2,000 | |||
Foreign currency, at value (cost $27,214) |
26,656 | |||
Receivable for Fund shares sold |
84,537 | |||
Receivable for dividends |
810,308 | |||
Receivable for securities lending income |
722 | |||
Prepaid expenses and other assets |
37,536 | |||
|
|
|||
Total assets |
390,713,318 | |||
|
|
|||
Liabilities |
||||
Payable for Fund shares redeemed |
443,614 | |||
Payable upon receipt of securities loaned |
39,479 | |||
Management fee payable |
212,691 | |||
Distribution fees payable |
35,233 | |||
Administration fees payable |
71,703 | |||
Shareholder report expenses payable |
51,008 | |||
Shareholder servicing fees payable |
82,472 | |||
Accrued expenses and other liabilities |
63,373 | |||
|
|
|||
Total liabilities |
999,573 | |||
|
|
|||
Total net assets |
$ | 389,713,745 | ||
|
|
|||
NET ASSETS CONSIST OF |
||||
Paid-in capital |
$ | 209,380,169 | ||
Undistributed net investment income |
779,965 | |||
Accumulated net realized losses on investments |
(6,452,007 | ) | ||
Net unrealized gains on investments |
186,005,618 | |||
|
|
|||
Total net assets |
$ | 389,713,745 | ||
|
|
|||
COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE |
||||
Net assets – Class A |
$ | 308,152,331 | ||
Shares outstanding – Class A1 |
15,402,717 | |||
Net asset value per share – Class A |
$20.01 | |||
Maximum offering price per share – Class A2 |
$21.23 | |||
Net assets – Class B |
$ | 695,454 | ||
Shares outstanding – Class B1 |
34,601 | |||
Net asset value per share – Class B |
$20.10 | |||
Net assets – Class C |
$ | 51,123,275 | ||
Shares outstanding – Class C1 |
2,555,221 | |||
Net asset value per share – Class C |
$20.01 | |||
Net assets – Administrator Class |
$ | 5,167,819 | ||
Shares outstanding – Administrator Class1 |
258,000 | |||
Net asset value per share – Administrator Class |
$20.03 | |||
Net assets – Institutional Class |
$ | 24,574,866 | ||
Shares outstanding – Institutional Class1 |
1,228,762 | |||
Net asset value per share – Institutional Class |
$20.00 |
1 | The Fund has an unlimited number of authorized shares. |
2 | Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced. |
The accompanying notes are an integral part of these financial statements.
Statement of operations—year ended March 31, 2017 | Wells Fargo Utility and Telecommunications Fund | 15 |
Investment income |
||||
Dividends (net of foreign withholding taxes of $27,468) |
$ | 10,980,007 | ||
Income from affiliated securities |
584,915 | |||
Securities lending income, net |
62,523 | |||
|
|
|||
Total investment income |
11,627,445 | |||
|
|
|||
Expenses |
||||
Management fee |
2,584,168 | |||
Administration fees |
||||
Class A |
659,552 | |||
Class B |
3,792 | |||
Class C |
114,556 | |||
Administrator Class |
8,611 | |||
Institutional Class |
26,665 | |||
Shareholder servicing fees |
||||
Class A |
785,182 | |||
Class B |
4,514 | |||
Class C |
136,376 | |||
Administrator Class |
16,561 | |||
Distribution fees |
||||
Class B |
13,542 | |||
Class C |
409,129 | |||
Custody and accounting fees |
28,950 | |||
Professional fees |
53,123 | |||
Registration fees |
80,766 | |||
Shareholder report expenses |
89,181 | |||
Trustees’ fees and expenses |
16,313 | |||
Other fees and expenses |
10,874 | |||
|
|
|||
Total expenses |
5,041,855 | |||
Less: Fee waivers and/or expense reimbursements |
(173,383 | ) | ||
|
|
|||
Net expenses |
4,868,472 | |||
|
|
|||
Net investment income |
6,758,973 | |||
|
|
|||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS |
||||
Net realized gains on: |
||||
Unaffiliated securities |
8,345,670 | |||
Affiliated securities |
1,021 | |||
Written options |
739,141 | |||
|
|
|||
Net realized gains on investments |
9,085,832 | |||
|
|
|||
Net change in unrealized gains (losses) on: |
||||
Unaffiliated securities |
11,852,361 | |||
Affiliated securities |
4,889,339 | |||
Written options |
(129,497 | ) | ||
|
|
|||
Net change in unrealized gains (losses) on investments |
16,612,203 | |||
|
|
|||
Net realized and unrealized gains (losses) on investments |
25,698,035 | |||
|
|
|||
Net increase in net assets resulting from operations |
$ | 32,457,008 | ||
|
|
The accompanying notes are an integral part of these financial statements.
16 | Wells Fargo Utility and Telecommunications Fund | Statement of changes in net assets |
Year ended March 31, 2017 |
Year ended March 31, 2016 |
|||||||||||||||
Operations |
||||||||||||||||
Net investment income |
$ | 6,758,973 | $ | 6,383,200 | ||||||||||||
Net realized gains on investments |
9,085,832 | 806,427 | ||||||||||||||
Net change in unrealized gains (losses) on investments |
16,612,203 | 6,875,618 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net increase in net assets resulting from operations |
32,457,008 | 14,065,245 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Distributions to shareholders from |
||||||||||||||||
Net investment income |
||||||||||||||||
Class A |
(5,455,227 | ) | (5,017,303 | ) | ||||||||||||
Class B |
(13,658 | ) | (37,027 | ) | ||||||||||||
Class C |
(530,072 | ) | (553,510 | ) | ||||||||||||
Administrator Class |
(123,585 | ) | (117,637 | ) | ||||||||||||
Institutional Class |
(469,463 | ) | (272,938 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total distributions to shareholders |
(6,592,005 | ) | (5,998,415 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Capital share transactions |
Shares | Shares | ||||||||||||||
Proceeds from shares sold |
||||||||||||||||
Class A |
856,994 | 16,502,586 | 921,079 | 16,278,558 | ||||||||||||
Class B |
931 | 17,537 | 552 | 9,644 | ||||||||||||
Class C |
133,306 | 2,547,241 | 133,314 | 2,345,310 | ||||||||||||
Administrator Class |
167,059 | 3,222,053 | 89,892 | 1,573,242 | ||||||||||||
Institutional Class |
1,186,116 | 22,755,310 | 337,439 | 5,942,211 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
45,044,727 | 26,148,965 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Reinvestment of distributions |
||||||||||||||||
Class A |
261,582 | 5,117,059 | 274,180 | 4,706,483 | ||||||||||||
Class B |
526 | 10,337 | 1,759 | 30,109 | ||||||||||||
Class C |
24,081 | 472,936 | 28,775 | 491,914 | ||||||||||||
Administrator Class |
6,212 | 121,579 | 6,530 | 112,501 | ||||||||||||
Institutional Class |
21,471 | 420,106 | 12,478 | 214,732 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
6,142,017 | 5,555,739 | |||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Payment for shares redeemed |
||||||||||||||||
Class A |
(2,573,856 | ) | (49,397,946 | ) | (3,057,415 | ) | (53,748,727 | ) | ||||||||
Class B |
(121,956 | ) | (2,335,058 | ) | (261,426 | ) | (4,631,829 | ) | ||||||||
Class C |
(673,370 | ) | (12,905,384 | ) | (577,794 | ) | (10,133,822 | ) | ||||||||
Administrator Class |
(275,364 | ) | (5,137,966 | ) | (194,700 | ) | (3,370,659 | ) | ||||||||
Institutional Class |
(797,063 | ) | (15,174,155 | ) | (308,285 | ) | (5,341,959 | ) | ||||||||
|
|
|
|
|
|
|
|
|||||||||
(84,950,509 | ) | (77,226,996 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net decrease in net assets resulting from capital share transactions |
(33,763,765 | ) | (45,522,292 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total decrease in net assets |
(7,898,762 | ) | (37,455,462 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Net assets |
||||||||||||||||
Beginning of period |
397,612,507 | 435,067,969 | ||||||||||||||
|
|
|
|
|
|
|
|
|||||||||
End of period |
$ | 389,713,745 | $ | 397,612,507 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Undistributed net investment income |
$ | 779,965 | $ | 646,272 | ||||||||||||
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Utility and Telecommunications Fund | 17 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS A | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$18.70 | $18.23 | $17.71 | $15.85 | $13.78 | |||||||||||||||
Net investment income |
0.35 | 0.31 | 0.29 | 0.36 | 0.36 | |||||||||||||||
Net realized and unrealized gains (losses) on investments |
1.30 | 0.45 | 0.57 | 1.84 | 2.07 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
1.65 | 0.76 | 0.86 | 2.20 | 2.43 | |||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.34 | ) | (0.29 | ) | (0.34 | ) | (0.34 | ) | (0.36 | ) | ||||||||||
Net asset value, end of period |
$20.01 | $18.70 | $18.23 | $17.71 | $15.85 | |||||||||||||||
Total return1 |
8.87 | % | 4.30 | % | 4.82 | % | 14.12 | % | 17.94 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.18 | % | 1.20 | % | 1.22 | % | 1.22 | % | 1.23 | % | ||||||||||
Net expenses |
1.14 | % | 1.14 | % | 1.14 | % | 1.14 | % | 1.14 | % | ||||||||||
Net investment income |
1.79 | % | 1.73 | % | 1.57 | % | 2.21 | % | 2.47 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
22 | % | 15 | % | 29 | % | 20 | % | 21 | % | ||||||||||
Net assets, end of period (000s omitted) |
$308,152 | $315,238 | $341,342 | $350,029 | $316,551 |
1 | Total return calculations do not include any sales charges. |
The accompanying notes are an integral part of these financial statements.
18 | Wells Fargo Utility and Telecommunications Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS B | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$18.76 | $18.28 | $17.75 | $15.87 | $13.79 | |||||||||||||||
Net investment income |
0.18 | 1 | 0.21 | 1 | 0.16 | 1 | 0.24 | 1 | 0.24 | 1 | ||||||||||
Net realized and unrealized gains (losses) on investments |
1.32 | 0.42 | 0.55 | 1.85 | 2.09 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
1.50 | 0.63 | 0.71 | 2.09 | 2.33 | |||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.16 | ) | (0.15 | ) | (0.18 | ) | (0.21 | ) | (0.25 | ) | ||||||||||
Net asset value, end of period |
$20.10 | $18.76 | $18.28 | $17.75 | $15.87 | |||||||||||||||
Total return2 |
8.00 | % | 3.52 | % | 3.98 | % | 13.32 | % | 17.08 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.93 | % | 1.95 | % | 1.97 | % | 1.97 | % | 1.97 | % | ||||||||||
Net expenses |
1.89 | % | 1.89 | % | 1.89 | % | 1.89 | % | 1.89 | % | ||||||||||
Net investment income |
0.95 | % | 1.16 | % | 0.86 | % | 1.46 | % | 1.70 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
22 | % | 15 | % | 29 | % | 20 | % | 21 | % | ||||||||||
Net assets, end of period (000s omitted) |
$695 | $2,909 | $7,573 | $13,698 | $17,240 |
1 | Calculated based upon average shares outstanding |
2 | Total return calculations do not include any sales charges. |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Utility and Telecommunications Fund | 19 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
CLASS C | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$18.70 | $18.25 | $17.73 | $15.86 | $13.79 | |||||||||||||||
Net investment income |
0.16 | 0.17 | 1 | 0.15 | 0.24 | 1 | 0.23 | |||||||||||||
Net realized and unrealized gains (losses) on investments |
1.34 | 0.45 | 0.57 | 1.85 | 2.09 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
1.50 | 0.62 | 0.72 | 2.09 | 2.32 | |||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.19 | ) | (0.17 | ) | (0.20 | ) | (0.22 | ) | (0.25 | ) | ||||||||||
Net asset value, end of period |
$20.01 | $18.70 | $18.25 | $17.73 | $15.86 | |||||||||||||||
Total return2 |
8.04 | % | 3.49 | % | 4.04 | % | 13.31 | % | 17.03 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.93 | % | 1.95 | % | 1.97 | % | 1.97 | % | 1.98 | % | ||||||||||
Net expenses |
1.89 | % | 1.89 | % | 1.89 | % | 1.89 | % | 1.89 | % | ||||||||||
Net investment income |
1.02 | % | 0.99 | % | 0.82 | % | 1.46 | % | 1.71 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
22 | % | 15 | % | 29 | % | 20 | % | 21 | % | ||||||||||
Net assets, end of period (000s omitted) |
$51,123 | $57,431 | $63,632 | $61,329 | $57,431 |
1 | Calculated based upon average shares outstanding |
2 | Total return calculations do not include any sales charges. |
The accompanying notes are an integral part of these financial statements.
20 | Wells Fargo Utility and Telecommunications Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
ADMINISTRATOR CLASS | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$18.72 | $18.25 | $17.73 | $15.86 | $13.79 | |||||||||||||||
Net investment income |
0.38 | 0.34 | 0.33 | 0.40 | 0.39 | |||||||||||||||
Net realized and unrealized gains (losses) on investments |
1.30 | 0.45 | 0.56 | 1.84 | 2.07 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
1.68 | 0.79 | 0.89 | 2.24 | 2.46 | |||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.37 | ) | (0.32 | ) | (0.37 | ) | (0.37 | ) | (0.39 | ) | ||||||||||
Net asset value, end of period |
$20.03 | $18.72 | $18.25 | $17.73 | $15.86 | |||||||||||||||
Total return |
9.04 | % | 4.49 | % | 5.01 | % | 14.41 | % | 18.16 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
1.10 | % | 1.09 | % | 1.06 | % | 1.04 | % | 1.04 | % | ||||||||||
Net expenses |
0.95 | % | 0.95 | % | 0.95 | % | 0.95 | % | 0.95 | % | ||||||||||
Net investment income |
1.93 | % | 1.93 | % | 1.79 | % | 2.38 | % | 2.66 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
22 | % | 15 | % | 29 | % | 20 | % | 21 | % | ||||||||||
Net assets, end of period (000s omitted) |
$5,168 | $6,740 | $8,365 | $9,383 | $5,803 |
The accompanying notes are an integral part of these financial statements.
Financial highlights | Wells Fargo Utility and Telecommunications Fund | 21 |
(For a share outstanding throughout each period)
Year ended March 31 | ||||||||||||||||||||
INSTITUTIONAL CLASS | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period |
$18.69 | $18.23 | $17.74 | $15.87 | $13.80 | |||||||||||||||
Net investment income |
0.42 | 0.36 | 1 | 0.35 | 1 | 0.42 | 0.46 | |||||||||||||
Net realized and unrealized gains (losses) on investments |
1.30 | 0.45 | 0.54 | 1.85 | 2.03 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|||||||||||
Total from investment operations |
1.72 | 0.81 | 0.89 | 2.27 | 2.49 | |||||||||||||||
Distributions to shareholders from |
||||||||||||||||||||
Net investment income |
(0.41 | ) | (0.35 | ) | (0.40 | ) | (0.40 | ) | (0.42 | ) | ||||||||||
Net asset value, end of period |
$20.00 | $18.69 | $18.23 | $17.74 | $15.87 | |||||||||||||||
Total return |
9.26 | % | 4.63 | % | 5.02 | % | 14.58 | % | 18.34 | % | ||||||||||
Ratios to average net assets (annualized) |
||||||||||||||||||||
Gross expenses |
0.85 | % | 0.84 | % | 0.79 | % | 0.79 | % | 0.80 | % | ||||||||||
Net expenses |
0.78 | % | 0.78 | % | 0.78 | % | 0.78 | % | 0.78 | % | ||||||||||
Net investment income |
2.18 | % | 2.03 | % | 1.89 | % | 2.56 | % | 2.97 | % | ||||||||||
Supplemental data |
||||||||||||||||||||
Portfolio turnover rate |
22 | % | 15 | % | 29 | % | 20 | % | 21 | % | ||||||||||
Net assets, end of period (000s omitted) |
$24,575 | $15,295 | $14,156 | $10,325 | $8,317 |
1 | Calculated based upon average shares outstanding |
The accompanying notes are an integral part of these financial statements.
22 | Wells Fargo Utility and Telecommunications Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Utility and Telecommunications Fund (the “Fund”) which is a non-diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities and options that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Non-listed options are valued at the evaluated price provided by an independent pricing service or, if a reliable price is not available, the quoted bid price from an independent broker-dealer.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2017, such fair value pricing was not used in pricing foreign securities.
Debt securities are valued at the evaluated bid price provided by an independent pricing service or, if a reliable price is not available, the quoted bid price from an independent broker-dealer.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant
Notes to financial statements | Wells Fargo Utility and Telecommunications Fund | 23 |
changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Options
The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may write covered call options or secured put options on individual securities and/or indexes. When the Fund writes an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from written options that expire unexercised are recognized as realized gains on the expiration date. For exercised options, the difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in calculating the realized gain or loss on the sale. If a put option is exercised, the premium reduces the cost of the security purchased. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security and/or index underlying the written option.
24 | Wells Fargo Utility and Telecommunications Fund | Notes to financial statements |
The Fund may also purchase call or put options. Premiums paid are included in the Statement of Assets and Liabilities as investments, the values of which are subsequently adjusted based on the current market values of the options. Premiums paid for purchased options that expire are recognized as realized losses on the expiration date. Premiums paid for purchased options that are exercised or closed are added to the amount paid or offset against the proceeds received for the underlying security to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.
Options traded on an exchange are regulated and terms of the options are standardized. Purchased options traded over-the-counter expose the Fund to counterparty risk in the event the counterparty does not perform. This risk can be mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior the Fund’s fiscal year end may be categorized as a tax return of capital.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to expiration of capital loss carryforwards. At March 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Paid-in capital | Undistributed net investment income |
Accumulated net realized losses on investments | ||
$(8,506,419) | $(33,275) | $8,539,694 |
As of March 31, 2017, the Fund had current year deferred post-October capital losses consisting of $1,452,222 in short-term losses which were recognized on the first day of the current fiscal year.
Class allocations
The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
Notes to financial statements | Wells Fargo Utility and Telecommunications Fund | 25 |
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2017:
Quoted prices (Level 1) |
Other significant observable inputs (Level 2) |
Significant (Level 3) |
Total | |||||||||||||
Assets |
||||||||||||||||
Investments in: |
||||||||||||||||
Common stocks |
||||||||||||||||
Consumer discretionary |
$ | 16,923,018 | $ | 0 | $ | 0 | $ | 16,923,018 | ||||||||
Energy |
3,580,460 | 0 | 0 | 3,580,460 | ||||||||||||
Industrials |
1,117,850 | 0 | 0 | 1,117,850 | ||||||||||||
Information technology |
32,992,500 | 0 | 0 | 32,992,500 | ||||||||||||
Real estate |
18,082,500 | 0 | 0 | 18,082,500 | ||||||||||||
Telecommunication services |
20,257,500 | 0 | 0 | 20,257,500 | ||||||||||||
Utilities |
271,512,275 | 0 | 0 | 271,512,275 | ||||||||||||
Exchange-traded funds |
499,875 | 0 | 0 | 499,875 | ||||||||||||
Preferred stocks |
||||||||||||||||
Real estate |
0 | 5,420,337 | 0 | 5,420,337 | ||||||||||||
Utilities |
9,838,750 | 0 | 9,838,750 | |||||||||||||
Warrants |
||||||||||||||||
Energy |
0 | 1,190 | 0 | 1,190 | ||||||||||||
Short-term investments |
||||||||||||||||
Investment companies |
9,484,804 | 0 | 0 | 9,484,804 | ||||||||||||
Investments measured at net asset value* |
40,500 | |||||||||||||||
Total assets |
$ | 384,289,532 | $ | 5,421,527 | $ | 0 | $ | 389,751,559 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $40,500 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
26 | Wells Fargo Utility and Telecommunications Fund | Notes to financial statements |
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.65% and declining to 0.48% as the average daily net assets of the Fund increase. For the year ended March 31, 2017, the management fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Crow Point Partners, LLC, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.20% and declining to 0.10% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:
Class-level administration fee |
||||
Class A, Class B, Class C |
0.21 | % | ||
Administrator Class, Institutional Class |
0.13 |
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.14% for Class A shares, 1.89% for Class B shares, 1.89% for Class C shares, 0.95% for Administrator Class shares, and 0.78% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
During the year ended March 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $18,185 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations. In addition, Funds Management was also reimbursed $19,486 for waivers/reimbursements it made to the Fund during the period the Fund was erroneously billed.
Distribution fees
The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.
In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2017, Funds Distributor received $11,842 from the sale of Class A shares and $1,177 in contingent deferred sales charges from redemptions of Class C shares.
Shareholder servicing fees
The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.
Notes to financial statements | Wells Fargo Utility and Telecommunications Fund | 27 |
A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2017 were $85,319,124 and $92,809,027, respectively.
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 of the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which generally do not incur broker commissions, are effected at current market prices. Interfund trades are included within the respective purchases and sales amounts shown.
6. INVESTMENTS IN AFFILIATES
An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.
Shares, beginning of period |
Shares purchased |
Shares sold |
Shares, end of period |
Value, end of period |
Income from affiliated securities |
Realized gain |
||||||||||||||||||||||
Spark Energy Incorporated Class A |
281,837 | 82,666 | 0 | 364,503 | $ | 11,645,871 | $ | 528,529 | $ | 0 |
7. DERIVATIVE TRANSACTIONS
During the year ended March 31, 2017, the Fund entered into written options for economic hedging purposes.
During the year ended March 31, 2017, the Fund had written call option activities as follows:
Call options | ||||||||
Number of |
Premiums received |
|||||||
Options outstanding at March 31, 2016 |
4,795 | $ | 302,831 | |||||
Options written |
5,150 | 507,165 | ||||||
Options expired |
(3,500 | ) | (346,356 | ) | ||||
Options closed |
(6,445 | ) | (463,640 | ) | ||||
Options exercised |
0 | 0 | ||||||
Options outstanding at March 31, 2017 |
0 | $ | 0 |
As of March 31, 2017, the Fund did not have any open written options. The Fund had an average of 1,018 written option contracts during the year ended March 31, 2017. As of March 31, 2017, the Fund had segregated $2,000 as cash collateral for written options.
The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the corresponding financial statement captions.
8. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $250,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 30, 2016, the revolving credit agreement amount was $200,000,000 and the annual commitment fee was equal to 0.20% of the unused balance which was allocated to each participating fund.
For the year ended March 31, 2017, there were no borrowings by the Fund under the agreement.
28 | Wells Fargo Utility and Telecommunications Fund | Notes to financial statements |
9. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $6,592,005 and $5,998,415 of ordinary income for the years ended March 31, 2017 and March 31,2016, respectively.
As of March 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income |
Unrealized gains |
Post-October capital losses deferred | ||
$788,018 | $181,005,833 | $(1,452,222) |
10. CONCENTRATION RISK
The Fund invests a substantial portion of its assets in utility and telecommunications companies and, therefore, may be more affected by changes in the utility and telecommunications sectors than would be a fund whose investments are not heavily weighted in any sector.
11. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
12. NEW ACCOUNTING PRONOUNCEMENT
In December 2016, FASB issued Accounting Standards Update (“ASU”) No. 2016-19, Technical Corrections and Improvements. ASU 2016-19 includes an amendment to FASB ASC Topic 820, Fair Value Measurement which clarifies the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when there has been a change in either or both a valuation approach and/or a valuation technique. The disclosure requirements are effective for fiscal years and interim periods within those fiscal years beginning after December 15, 2016. Management is currently evaluating the potential impact of this new guidance to the financial statements.
13. REGULATORY CHANGES
In October 2016, the Securities and Exchange Commission (“SEC”) adopted new rules and forms and amended existing rules and forms (together, “final rules”) intended to modernize and enhance the reporting and disclosure of information by registered investment companies and to enhance liquidity risk management by open-end mutual funds and exchange-traded funds. The final rules will enhance the quality of information available to investors and will allow the SEC to more effectively collect and use data reported by funds. In part, the final rules amend Regulation S-X and require standardized, enhanced disclosure about derivatives in the Fund’s financial statements, as well as other amendments. The compliance date for the amendments to Regulation S-X is August 1, 2017 while the compliance date for the new form types is June 1, 2018 and the compliance date for the liquidity risk management program requirements is December 1, 2018. Management is currently assessing the potential impact of these enhancements and their impact on the financial statement disclosures and reporting requirements.
Report of independent registered public accounting firm | Wells Fargo Utility and Telecommunications Fund | 29 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Utility and Telecommunications Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2017, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2017, by correspondence with custodian and brokers. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Utility and Telecommunications Fund as of March 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
30 | Wells Fargo Utility and Telecommunications Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2017.
Pursuant to Section 854 of the Internal Revenue Code, $6,592,005 of income dividends paid during the fiscal year ended March 31, 2017 has been designated as qualified dividend income (QDI).
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Other information (unaudited) | Wells Fargo Utility and Telecommunications Fund | 31 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 138 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
William R. Ebsworth (Born 1957) | Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Board member of the Fonté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College. | Asset Allocation Trust | |||
Jane A. Freeman (Born 1953) |
Trustee, since 2015 | Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst. | Asset Allocation Trust | |||
Peter G. Gordon** (Born 1942) |
Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | Asset Allocation Trust | |||
Isaiah Harris, Jr. (Born 1952) |
Trustee, since 2009 | Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status). | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) |
Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
David F. Larcker (Born 1950) |
Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust |
32 | Wells Fargo Utility and Telecommunications Fund | Other information (unaudited) |
Name and year of birth |
Position held and length of service* |
Principal occupations during past five years or longer | Current other public company or investment company directorships | |||
Olivia S. Mitchell (Born 1953) |
Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) |
Trustee, since 1996 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) |
Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Peter Gordon is expected to retire on December 31, 2017. |
Officers
Name and year of birth |
Position held and length of service |
Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) |
President, since 2017 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Nancy Wiser1 (Born 1967) |
Treasurer, since 2012 | Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011. | ||||
C. David Messman (Born 1960) |
Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013. | ||||
Michael Whitaker (Born 1967) |
Chief Compliance Officer, since 2016 | Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016. | ||||
David Berardi (Born 1975) |
Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. | ||||
Jeremy DePalma1 (Born 1974) |
Assistant Treasurer, since 2009 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. |
1 | Nancy Wiser acts as Treasurer of 69 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 69 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com. |
List of abbreviations | Wells Fargo Utility and Telecommunications Fund | 33 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Colombian peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has Fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
302880 05-17 A318/AR318 03-17 |
ITEM 2. | CODE OF ETHICS |
(a) As of the end of the period covered by the report, Wells Fargo Funds Trust has adopted a code of ethics that applies to its President and Treasurer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
(c) During the period covered by this report, there were no amendments to the provisions of the code of ethics adopted in Item 2(a) above.
(d) During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
The Board of Trustees of Wells Fargo Funds Trust has determined that Judith Johnson is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mrs. Johnson is independent for purposes of Item 3 of Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
(a), (b), (c), (d) The following table presents aggregate fees billed in each of the last two fiscal years for services rendered
to the Registrant by the Registrant’s principal accountant. These fees were billed to the registrant and were approved by
the Registrant’s audit committee.
Fiscal year ended March 31, 2017 |
Fiscal year ended March 31, 2016 |
|||||||
Audit fees |
$ | 286,125 | $ | 267,703 | ||||
Audit-related fees |
— | — | ||||||
Tax fees (1) |
68,070 | 38,125 | ||||||
All other fees |
— | — | ||||||
|
|
|
|
|||||
$ | 354,195 | $ | 305,828 | |||||
|
|
|
|
(1) | Tax fees consist of fees for tax compliance, tax advice, tax planning and excise tax. |
(e) The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services for the mutual funds of Wells Fargo Funds Trust; (2) non-audit tax or compliance consulting or training services provided to the Funds by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.
(f) Not applicable
(g) Not applicable
(h) Not applicable
ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
Not applicable.
ITEM 6. | INVESTMENTS |
A Portfolio of Investments for each series of Wells Fargo Funds Trust is included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees that have been implemented since the registrant’s last provided disclosure in response to the requirements of this Item.
ITEM 11. | CONTROLS AND PROCEDURES |
(a) The President and Treasurer have concluded that the Wells Fargo Funds Trust (the “Trust”) disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) provide reasonable assurances that material information relating to the Trust is made known to them by the appropriate persons based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.
(b) There were no significant changes in the Trust’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. | EXHIBITS |
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as Exhibit COE.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Wells Fargo Funds Trust |
By: |
/s/ Andrew Owen |
Andrew Owen |
President |
Date: May 24, 2017 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Wells Fargo Funds Trust |
By: |
/s/ Andrew Owen |
Andrew Owen |
President |
Date: May 24, 2017 |
By: |
/s/ Nancy Wiser |
Nancy Wiser |
Treasurer |
Date: May 24, 2017 |