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Wells Fargo Funds Trust – ‘N-CSR’ for 3/31/17

On:  Tuesday, 5/30/17, at 4:57pm ET   ·   Effective:  5/30/17   ·   For:  3/31/17   ·   Accession #:  1193125-17-187524   ·   File #:  811-09253

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  As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 5/30/17  Wells Fargo Funds Trust           N-CSR       3/31/17    4:10M                                    Donnelley … Solutions/FAAllspring Disciplined Small Cap Fund Administrator Class (NVSOX) — Class R6 (WSCJX) — Institutional Class (WSCOX)Allspring Discovery Innovation Fund Administrator (WFTDX) — Class A (WFSTX) — Class B (WFTBX) — Class C (WFTCX) — Institutional Class (WFTIX)Allspring Discovery Small Cap Growth Fund Administrator Class (EGWDX) — Class A (EGWAX) — Class C (EGWCX) — Institutional Class (EGRYX)Allspring Precious Metals Fund Administrator Class (EKWDX) — Class A (EKWAX) — Class C (EKWCX) — Institutional Class (EKWYX)Allspring Small Cap Fund Administrator Class (WFSDX) — Class A (WFSMX) — Class C (WSCDX) — Institutional Class (WFSSX)Allspring Special Small Cap Value Fund Administrator Class (ESPIX) — Class A (ESPAX) — Class C (ESPCX) — Class R (ESPHX) — Class R6 (ESPRX) — Institutional Class (ESPNX)Allspring Utility & Telecommunications Fund Administrator Class (EVUDX) — Class A (EVUAX) — Class C (EVUCX) — Institutional Class (EVUYX)Wells Fargo Small Cap Core Fund Administrator Class (WNSCX) — Class A (WOSCX) — Class C (WCSCX) — Class R6 (WRSCX) — Class TInstitutional Class (WYSCX)Wells Fargo Small Cap Value Fund Administrator Class (SMVDX) — Class A (SMVAX) — Class C (SMVCX) — Class R6 (SMVRX) — Institutional Class (WFSVX)

Certified Annual Shareholder Report by a Management Investment Company   —   Form N-CSR
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report by a            HTML   3.76M 
                          Management Investment Company                          
 2: EX-99.(A)(1)  Code of Ethics                                    HTML    218K 
 4: EX-99.906CERT  Section 906 Certifications                       HTML      8K 
 3: EX-99.CERT  Section 302 Certifications                          HTML     13K 


N-CSR   —   Certified Annual Shareholder Report by a Management Investment Company
Document Table of Contents

Page (sequential) | (alphabetic) Top
 
11st Page   -   Filing Submission
"Table of Contents
"Letter to shareholders
"Performance highlights
"Fund expenses
"Portfolio of investments
"Statement of assets and liabilities
"Statement of operations
"Statement of changes in net assets
"Financial highlights
"Notes to financial statements
"Report of independent registered public accounting firm
"Other information
"List of abbreviations
"Consolidated portfolio of investments
"Consolidated statement of assets and liabilities
"Consolidated statement of operations
"Consolidated statement of changes in net assets
"Consolidated financial highlights
"Notes to consolidated financial statements

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  Form N-CSR  
Table of Contents

LOGO

 

 

 

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

 

 

 


Table of Contents
ITEM 1. REPORT TO STOCKHOLDERS


Table of Contents

Annual Report

March 31, 2017

 

LOGO

 

Wells Fargo Intrinsic Small Cap Value Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    15  

Statement of operations

    16  

Statement of changes in net assets

    17  

Financial highlights

    18  

Notes to financial statements

    22  

Report of independent registered public accounting firm

    28  

Other information

    29  

List of abbreviations

    32  

 

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



Table of Contents

 

2   Wells Fargo Intrinsic Small Cap Value Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


Table of Contents

 

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.


Table of Contents

 

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,

 

LOGO

Andrew Owen

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.


Table of Contents

 

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Table of Contents

 

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.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Intrinsic Small Cap Value Fund     7  
Growth of $10,000 investment as of March 31, 20175
LOGO

 

 

  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


Table of Contents

 

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.


Table of Contents

 

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
LOGO

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.


Table of Contents

 

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
 

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).


Table of Contents

 

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  
          

 

 

 
Diversified Consumer Services: 1.34%           

Houghton Mifflin Harcourt Company †

          155,419        1,577,503  
          

 

 

 
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  
          

 

 

 
Specialty Retail: 0.67%           

Ascena Retail Group Incorporated †«

          184,444        785,731  
          

 

 

 
Textiles, Apparel & Luxury Goods: 0.84%           

G-III Apparel Group Limited †

          45,488        995,732  
          

 

 

 

Consumer Staples: 3.24%

          
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  
          

 

 

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


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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.


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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


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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.


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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.


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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.


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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.


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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.


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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.

 

LOGO

Boston, Massachusetts

May 24, 2017


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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.


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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
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


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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    

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.


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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
 


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LOGO

 

 

LOGO

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

Boston, MA 02266-8266

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.

 

LOGO     

302872 05-17

A242/AR242 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

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Wells Fargo Small Cap Core Fund

 

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Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    15  

Statement of operations

    16  

Statement of changes in net assets

    17  

Financial highlights

    18  

Notes to financial statements

    23  

Report of independent registered public accounting firm

    28  

Other information

    29  

List of abbreviations

    32  

 

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



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2   Wells Fargo Small Cap Core Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.


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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,

 

LOGO

Andrew Owen

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.


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Performance highlights (unaudited)   Wells Fargo Small Cap Core Fund     7  
Growth of $10,000 investment as of March 31, 20175
LOGO

 

 

 

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.


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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.


Table of Contents

 

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
LOGO
 

 

 

Please see footnotes on page 7.


Table of Contents

 

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).


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

16   Wells Fargo Small Cap Core Fund   Statement of operations —year ended March 31, 2017
    

Year ended

March 31, 20171

      

Year ended

June 30, 20162

 

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.


Table of Contents

 

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.


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18   Wells Fargo Small Cap Core Fund   Financial highlights

(For a share outstanding throughout each period)

 

CLASS A  

Year ended

March 31, 20171

   

Year ended

June 30, 20162

 

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.


Table of Contents

 

Financial highlights   Wells Fargo Small Cap Core Fund     19  

(For a share outstanding throughout each period)

 

CLASS C  

Year ended

March 31, 20171

   

Year ended

June 30, 20162

 

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.


Table of Contents

 

20   Wells Fargo Small Cap Core Fund   Financial highlights

(For a share outstanding throughout each period)

 

CLASS R6  

Year ended

March 31, 20171

   

Year ended

June 30, 20162

 

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.


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Financial highlights   Wells Fargo Small Cap Core Fund     21  

(For a share outstanding throughout each period)

 

ADMINISTRATOR CLASS  

Year ended

March 31, 20171

   

Year ended

June 30, 20162

 

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.


Table of Contents

 

22   Wells Fargo Small Cap Core Fund   Financial highlights

(For a share outstanding throughout each period)

 

   

Year ended

March 31, 20171

    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.


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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.


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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:


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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
unobservable inputs

(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.


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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


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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

March 31, 2017

     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.


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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.

 

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Boston, Massachusetts

May 24, 2017


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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.


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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
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


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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
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.


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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
 


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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

Boston, MA 02266-8266

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.

 

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302873 05-17

A269/AR269 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

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Wells Fargo Small Cap Opportunities Fund

 

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Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    17  

Statement of operations

    18  

Statement of changes in net assets

    19  

Financial highlights

    20  

Notes to financial statements

    23  

Report of independent registered public accounting firm

    28  

Other information

    29  

List of abbreviations

    32  

 

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



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2   Wells Fargo Small Cap Opportunities Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.


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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,

 

LOGO

Andrew Owen

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 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.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Opportunities Fund     7  
Growth of $1,000,000 investment as of March 31, 20175
LOGO

 

 

 

 

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.


Table of Contents

 

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.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Opportunities Fund     9  
Sector distribution as of March 31, 20177
LOGO

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.


Table of Contents

 

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).


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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)


Table of Contents

 

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
unobservable inputs

(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.


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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.


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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
gain

   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.


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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.

 

LOGO

Boston, Massachusetts

May 24, 2017


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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.


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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


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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    

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.


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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
 


Table of Contents

LOGO

 

 

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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

Boston, MA 02266-8266

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.

 

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302874 05-17

A243/AR243 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

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Wells Fargo Small Cap Value Fund

 

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Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    17  

Statement of operations

    18  

Statement of changes in net assets

    19  

Financial highlights

    20  

Notes to financial statements

    25  

Report of independent registered public accounting firm

    31  

Other information

    32  

List of abbreviations

    35  

 

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



Table of Contents

 

2   Wells Fargo Small Cap Value Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.


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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,

 

LOGO

Andrew Owen

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.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Value Fund     7  
Growth of $10,000 investment as of March 31, 20175
LOGO

 

 

 

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.


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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.


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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
LOGO
 

 

 

Please see footnotes on page 7.


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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).


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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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

22   Wells Fargo Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31    

Year ended

October 31, 20132

 
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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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


Table of Contents

 

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)


Table of Contents

 

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
unobservable inputs

(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.


Table of Contents

 

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.


Table of Contents

 

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
affiliated

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.


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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.


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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.

 

LOGO

Boston, Massachusetts

May 24, 2017


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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.


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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


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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    

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.


Table of Contents

 

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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LOGO

 

 

LOGO

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

Boston, MA 02266-8266

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.

 

LOGO     

302875 05-17

A244/AR244 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

LOGO

 

Wells Fargo Special Small Cap Value Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    17  

Statement of operations

    18  

Statement of changes in net assets

    19  

Financial highlights

    20  

Notes to financial statements

    27  

Report of independent registered public accounting firm

    33  

Other information

    34  

List of abbreviations

    37  

 

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



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2   Wells Fargo Special Small Cap Value Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.

    

 


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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,

 

LOGO

Andrew Owen

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.


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Performance highlights (unaudited)   Wells Fargo Special Small Cap Value Fund     7  
Growth of $10,000 investment as of March 31, 20175
LOGO

 

 

 

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.


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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.


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Performance highlights (unaudited)   Wells Fargo Special Small Cap Value Fund     9  
Sector distribution as of March 31, 20177
LOGO

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.


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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).


Table of Contents

 

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 «†

          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.


Table of Contents

 

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 «†

          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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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:


Table of Contents

 

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
unobservable inputs

(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.


Table of Contents

 

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.


Table of Contents

 

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,
end

of period

   

Value, end

of period

   

Income

from
affiliated

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
gain

  

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


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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.


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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.

 

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Boston, Massachusetts

May 24, 2017


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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.


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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


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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    

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.


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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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LOGO

 

 

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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

Boston, MA 02266-8266

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.

 

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302876 05-17

A246/AR246 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

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Wells Fargo Traditional Small Cap Growth Fund

 

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Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    15  

Statement of operations

    16  

Statement of changes in net assets

    17  

Financial highlights

    18  

Notes to financial statements

    22  

Report of independent registered public accounting firm

    27  

Other information

    28  

List of abbreviations

    31  

 

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



Table of Contents

 

2   Wells Fargo Traditional Small Cap Growth Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.


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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,

 

LOGO

Andrew Owen

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.


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Performance highlights (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     7  
Growth of $10,000 investment as of March 31, 20175
LOGO

 

 

 

 

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.


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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.


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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

 

LOGO

 

 

 

 

Please see footnotes on page 7.


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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).


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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.


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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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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
investment loss

  

Accumulated net
realized gains
on investments

$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.


Table of Contents

 

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
unobservable inputs

(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.


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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


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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
gains

$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.


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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.

 

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Boston, Massachusetts

May 24, 2017


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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.


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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


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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    

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.


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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

Boston, MA 02266-8266

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.

 

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302877 05-17

A247/AR247 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

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Wells Fargo Precious Metals Fund

 

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Table of Contents

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Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Consolidated portfolio of investments

    11  
Financial statements  

Consolidated statement of assets and liabilities

    13  

Consolidated statement of operations

    14  

Consolidated statement of changes in net assets

    15  

Consolidated financial highlights

    16  

Notes to consolidated financial statements

    21  

Report of independent registered public accounting firm

    27  

Other information

    28  

List of abbreviations

    31  

 

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



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2   Wells Fargo Precious Metals Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.

    

 


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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,

 

LOGO

Andrew Owen

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.


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Performance highlights (unaudited)   Wells Fargo Precious Metals Fund     7  
Growth of $10,000 investment as of March 31, 20176
LOGO

 

 

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.


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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.


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Performance highlights (unaudited)   Wells Fargo Precious Metals Fund     9  
Country allocation as of March 31, 20178
LOGO

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.


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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
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      $ 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).


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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.


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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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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


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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


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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
investment income

   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
unobservable inputs

(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  


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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


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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.


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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.


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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.

 

LOGO

Boston, Massachusetts

May 24, 2017


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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.


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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
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


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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
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.


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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
 


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LOGO

 

 

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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

Boston, MA 02266-8266

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.

 

LOGO     

302878 05-17

A316/AR316 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

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Wells Fargo Specialized Technology Fund

 

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Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    14  

Statement of operations

    15  

Statement of changes in net assets

    16  

Financial highlights

    17  

Notes to financial statements

    21  

Report of independent registered public accounting firm

    27  

Other information

    28  

List of abbreviations

    31  

 

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



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2   Wells Fargo Specialized Technology Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.


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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,

 

LOGO

Andrew Owen

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.


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Performance highlights (unaudited)   Wells Fargo Specialized Technology Fund     7  
Growth of $10,000 investment as of March 31, 20176
LOGO

 

 

 

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.


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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.


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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
LOGO
 

 

 

Please see footnotes on page 7.


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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).


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


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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.


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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.


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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.


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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)


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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
unobservable inputs

(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


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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


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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
gains

$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.


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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.

 

LOGO

Boston, Massachusetts

May 24, 2017


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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.


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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


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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    

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.


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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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LOGO

 

 

LOGO

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

Boston, MA 02266-8266

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.

 

LOGO     

302879 05-17

A317/AR317 03-17

 


Table of Contents

Annual Report

March 31, 2017

 

LOGO

 

Wells Fargo Utility and Telecommunications Fund

 

LOGO

 

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to shareholders

    2  

Performance highlights

    6  

Fund expenses

    10  

Portfolio of investments

    11  
Financial statements  

Statement of assets and liabilities

    14  

Statement of operations

    15  

Statement of changes in net assets

    16  

Financial highlights

    17  

Notes to financial statements

    22  

Report of independent registered public accounting firm

    29  

Other information

    30  

List of abbreviations

    33  

 

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



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2   Wells Fargo Utility and Telecommunications Fund   Letter to shareholders (unaudited)

 

LOGO

Andrew Owen

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.


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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.


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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,

 

LOGO

Andrew Owen

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.


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Performance highlights (unaudited)   Wells Fargo Utility and Telecommunications Fund     7  
Growth of $10,000 investment as of March 31, 20176
LOGO

 

 

 

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.


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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.


Table of Contents

 

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
LOGO
 

 

 

Please see footnotes on page 7.


Table of Contents

 

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).


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


Table of Contents

 

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.


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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.


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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.


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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.


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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.


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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


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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.


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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.


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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
unobservable inputs

(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.


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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.


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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

contracts

    

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.


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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.


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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.

 

LOGO

Boston, Massachusetts

May 24, 2017


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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.


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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


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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.


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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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LOGO

 

 

LOGO

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

Boston, MA 02266-8266

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.

 

LOGO     

302880 05-17

A318/AR318 03-17

 


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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.


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(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.


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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.

 


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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

 


Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
7/31/19
12/1/18
7/31/18
6/1/18
12/31/17
8/1/17
7/31/17
Filed on / Effective on:5/30/17
5/24/17DEF 14A
5/6/17
5/5/17485APOS,  497,  497K,  N-MFP2
For Period End:3/31/17497,  497K,  N-MFP2,  N-Q,  NSAR-A,  NSAR-B
3/1/17485BPOS,  497,  497J,  497K
12/15/16
12/5/16497K
12/1/16485APOS,  485BPOS,  497,  497J,  497K,  DEF 14C
11/8/16
10/31/1624F-2NT,  497K,  N-CSR,  N-CSRS,  N-MFP2,  N-MFP2/A,  N-Q,  NSAR-A,  NSAR-B
10/1/16485BPOS
9/26/16485BPOS,  497,  497K,  AW
8/30/16
7/25/16485BPOS,  497,  497K
7/22/16497,  497K,  DEF 14A,  NSAR-B
7/1/16
6/30/1624F-2NT,  N-CSR,  N-CSRS,  N-MFP1,  N-MFP1/A,  N-PX,  N-Q,  NSAR-A,  NSAR-B
6/24/16
6/7/16485BPOS,  497K
6/6/16497,  N-MFP1
5/20/16485BPOS,  497K
4/1/16485BPOS,  497,  497K
3/31/1624F-2NT,  485BPOS,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
10/23/15497
9/30/1524F-2NT,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B
8/19/15
6/30/1524F-2NT,  485BPOS,  497,  DEFA14A,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-PX,  N-Q,  NSAR-A,  NSAR-B
4/1/15
3/31/1524F-2NT,  485APOS,  497,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B
10/31/1424F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B,  NSAR-B/A
3/31/1424F-2NT,  N-CSR,  N-CSR/A,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-A/A,  NSAR-B
11/1/13485BPOS,  N-CSR,  N-CSRS
10/31/13N-CSR,  N-MFP,  N-MFP/A,  N-Q,  NSAR-B
6/28/13497,  NSAR-A
7/19/10485BPOS,  497,  497K
5/3/05
3/10/99
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Filing Submission 0001193125-17-187524   –   Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

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