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Wells Fargo Funds Trust – ‘N-CSR’ for 10/31/16

On:  Tuesday, 1/3/17, at 2:11pm ET   ·   Effective:  1/3/17   ·   For:  10/31/16   ·   Accession #:  1193125-17-644   ·   File #:  811-09253

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

 1/03/17  Wells Fargo Funds Trust           N-CSR      10/31/16    4:8.6M                                   Donnelley … Solutions/FAAllspring Emerging Markets Equity Fund Administrator Class (EMGYX) — Class A (EMGAX) — Class B (EMGBX) — Class C (EMGCX) — Class R6 (EMGDX) — Institutional Class (EMGNX)Allspring Emerging Markets Equity Income Fund Administrator Class (EQIDX) — Class A (EQIAX) — Class C (EQICX) — Class R (EQIHX) — Class R6 (EQIRX) — Institutional Class (EQIIX)Allspring International Equity Fund Administrator Class (WFEDX) — Class A (WFEAX) — Class B (WFEBX) — Class C (WFEFX) — Class R (WFERX) — Class R6 (WFEHX) — Institutional Class (WFENX)Allspring Special Global Small Cap Fund Administrator Class (EKGYX) — Class A (EKGAX) — Class B (EKGBX) — Class C (EKGCX) — Institutional Class (EKGIX)Wells Fargo Asia Pacific Fund Administrator Class (WFADX) — Class A (WFAAX) — Class C (WFCAX) — Institutional Class (WFPIX)Wells Fargo Diversified International Fund Administrator Class (WFIEX) — Class A (SILAX) — Class C (WFECX) — Class R (WDIHX) — Class R6 (WDIRX) — Institutional Class (WFISX)Wells Fargo Intrinsic World Equity Fund Administrator Class (EWEIX) — Class A (EWEAX) — Class C (EWECX) — Institutional Class (EWENX)

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   3.34M 
                          Management Investment Company                          
 2: EX-99.(A)(1)  Code of Ethics                                    HTML    217K 
 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

This is an HTML Document rendered as filed.  [ Alternative Formats ]



  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: October 31

 

 

Registrant is making a filing for 7 of its series:

Wells Fargo Asia Pacific Fund, Wells Fargo Diversified International Fund, Wells Fargo Emerging Markets Equity Fund, Wells Fargo Emerging Markets Equity Income Fund, Wells Fargo Global Opportunities Fund, Wells Fargo International Equity Fund, and Wells Fargo Intrinsic World Equity Fund.

Date of reporting period: October 31, 2016

 

 

 


Table of Contents

ITEM 1. REPORT TO STOCKHOLDERS

 


Table of Contents

Annual Report

October 31, 2016

 

LOGO

 

Wells Fargo Asia Pacific Fund

 

LOGO

 

 

LOGO


Table of Contents

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
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

    34   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 Asia Pacific Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Central bank policies in major markets were accommodative of business growth and economic conditions improved in smaller markets.

 

 

 

 

Equity markets throughout the region by and large delivered favorable returns in U.S. dollar terms for investors during the period.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Asia Pacific Fund for the 12-month period that ended October 31, 2016. Early in the reporting period, concerns about slowing economic growth in the major markets of China and Japan restrained equity returns in the region. The Morgan Stanley Capital International (MSCI) All Country (AC) Asia Pacific Index (Net)1 recorded a -1.43% return for the first six months of the period. During the second half of the period, investors were more optimistic. Central bank policies in major markets were accommodative of business growth and economic conditions improved in smaller markets. The index reflected the improved investment sentiment, recording a 7.52% gain for the second six months of the period to achieve a 5.98% return for the full 12-month period.

The People’s Bank of China, Reserve Bank of India, and the Bank of Japan remained accommodative.

Central bank policies influenced investor sentiment globally throughout the reporting period, particularly in three of the region’s largest economies. The People’s Bank of China (PBOC) remained in an actively-easing mode throughout the reporting period, reducing short-term borrowing costs for banks and implementing policies to encourage lending rather than holding assets on deposit. Despite concerns that the PBOC’s accommodative policies indicated that China’s economy was slowing more quickly than anticipated, China’s growth rate remained higher than that of most other economies. Investor sentiment towards China improved during the period. While the MSCI China Index2 had a 1.54% return for the full 12-month reporting period, its return in the second half of the period was 12.07%, reflecting improved investor confidence as the period progressed.

In Japan, soft consumer spending weighed on growth. In response, the Bank of Japan (BOJ) increased its monetary easing program, imposing a negative interest rate on surplus bank reserves in early 2016. The central bank also continued to purchase shares and bonds in an attempt to support the asset markets. The BOJ’s stimulus program weakened the yen, which supported export growth. The weaker currency benefited Japan’s information technology, materials, and industrials sectors, and many Japanese companies reported strong earnings and improving fundamentals in the latter half of the period. The MSCI Japan Index3 gained 6.21% during the last six months of the reporting period after declining 2.84% during the first six months of the period.

Equity markets throughout the region by and large delivered favorable returns in U.S. dollar terms for investors during the period. Indonesia, New Zealand, and Taiwan delivered double-digit positive returns while markets in Australia, Korea, and Malaysia were also positive although less dramatically. Several countries that export commodities benefited from a mid-year rebound in the price of oil and other natural resources. In addition, as the U.S. dollar strengthened during the period, exporters benefited as their products became more attractive overseas. While stocks in the Philippines were essentially flat, Singapore’s equity market was

 

 

 

1  The Morgan Stanley Capital International (MSCI) All Country (AC) Asia Pacific Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI AC Asia Pacific Index (Net) consists of the following 12 developed and emerging markets countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand. 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.

 

2  The MSCI China Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure equity market performance in China. You cannot invest directly in an index.

 

3  The MSCI Japan Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of Japan. You cannot invest directly in an index.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Asia Pacific Fund     3   

the notable laggard in the region, falling 7.72%. India’s economy showed growth with moderate inflation. In April 2016, the Reserve Bank of India (RBI) cut its key interest rate to the lowest level in five years, lowered the percentage of deposits that banks must keep at the central bank, and purchased bonds to help provide bank liquidity. Late in the period, the appointment of a new RBI governor, advancement of a goods and services tax provision, and a new bankruptcy law were considered positive by many investors because steps like these may allow further monetary policy accommodation and attract more foreign direct investment.

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 and other investments 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

    

 

 

 

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

 

4   Wells Fargo Asia Pacific 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

Anthony L.T. Cragg

Alison Shimada

Average annual total returns (%) as of October 31, 20161

 

        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 (WFAAX)   7-31-2007     (2.50     6.11        2.95        3.47        7.38        3.56        1.68        1.61   
Class C (WFCAX)   7-31-2007     1.75        6.59        2.78        2.75        6.59        2.78        2.43        2.36   
Administrator Class (WFADX)   7-30-2010                          3.60        7.56        3.68        1.60        1.51   
Institutional Class (WFPIX)   7-30-2010                          3.83        7.74        3.78        1.35        1.26   
MSCI AC Asia Pacific Index (Net)4                            5.98        5.29        2.93                 

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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. 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 geographic risk and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Asia Pacific Fund     5   
Growth of $10,000 investment as of October 31, 20165

LOGO

 

 

1  Historical performance shown for the Class A shares prior to its 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 has not been included, returns would be higher. Historical performance shown for the Class C shares prior to its inception is based on the performance of the former Investor Class shares, and has been adjusted to reflect the higher expenses applicable to Class C shares. Historical performance shown for Administrator and Institutional 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 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 February 28, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver at 1.60% for Class A, 2.35% for Class C, 1.50% for Administrator Class, and 1.25% 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 fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Morgan Stanley Capital International (MSCI) All Country (AC) Asia Pacific Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of the developed and emerging markets in the Pacific region. The MSCI AC Asia Pacific Index (Net) consists of the following 12 developed and emerging markets countries: Australia, China, Hong Kong, Indonesia, Japan, Korea, Malaysia, New Zealand, the Philippines, Singapore, Taiwan, and Thailand. 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.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI AC Asia Pacific Index (Net). 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.


Table of Contents

 

6   Wells Fargo Asia Pacific Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its benchmark, the Morgan Stanley Capital International (MSCI) All Country (AC) Asia Pacific Index (Net), for the 12-month period that ended October 31, 2016.

 

n   Overall country allocation contributed to relative returns for the period led by an overweight position to Indonesia and New Zealand; however, stock selection in China/Hong Kong and Japan detracted from relative returns.

 

n   Among sectors, underweight positions in consumer discretionary and financial stocks contributed to relative returns. Unfavorable stock selection in industrials and information technology (IT) detracted from relative performance.

The Fund underperformed its benchmark during a volatile market.

During the 12-month period, returns in Asian markets fluctuated according to factors that included the introduction of negative interest rates in Japan, a general resurgence in commodities prices, measures to reduce volatility in the Chinese stock market, and the election of new leaders in Taiwan and the Philippines.

In the financial sector, the Fund benefited from investments in Korean shares such as Hana Financial Group Incorporated, KB Financial Group Incorporated, and Macquarie Korea Infrastructure Fund. Health care equipment and services companies were key drivers within health care benefiting from investments in M3, Incorporated, Tsukui Corporation, and St. Shine Optical Company, Limited. In the industrials sector, the Fund’s investments in the capital goods industry detracted, with notable weakness in Indian wind turbine manufacturers Suzlon Energy Limited and Inox Wind Limited.

 

Ten largest holdings (%) as of October 31, 20166  

Alibaba Group Holding Limited ADR

     2.95   

China Construction Bank H Shares

     2.36   

Tencent Holdings Limited

     1.93   

Samsung Electronics Company Limited

     1.92   

Baidu Incorporated ADR

     1.84   

Industrial & Commercial Bank of China Limited H Shares

     1.81   

Taiwan Semiconductor Manufacturing Company Limited

     1.71   

Mitsui Fudosan Company Limited

     1.55   

Mitsubishi UFJ Financial Group Incorporated

     1.54   

China Mobile Limited

     1.50   

Looking at individual countries, notable areas of success included Taiwan, Singapore, and India. In Taiwan, stock selection and an overweight position to IT resulted in strong performance relative to the index. The Fund also benefited from an overweight to Indonesia as it was the best performing market during the period. In Japan, an average underweight of approximately 10.5% was positive but offset by negative stock selection. China/Hong Kong underperformed the index due to the Fund’s overweight position coupled with weak stock selection.

 

 

Sector distribution as of October 31, 20167
LOGO
Country allocation as of October 31, 20167
LOGO
 

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Asia Pacific Fund     7   

Our investment outlook on the Asia Pacific region remains positive.

We believe Chinese equity performance will continue to perform, driven by earnings growth. Cyclical earnings recovery has been unfolding, and industrial reflation, continued policy support, and weaker prior year earnings are expected to drive upside to earnings. Equity risk premium is narrowing as currency and financial sector risks are increasingly contained. The corporate sector is conscientiously deleveraging and banks are derisking loan exposures. With household debt at only 26% of gross domestic product, the structural shift towards consumption has momentum. We are convinced that some of the best value for growth opportunities can be found in China.

Earnings growth remains challenging for Korea, and the export sector is not getting help from the recent strengthening of the won, but the market and our value names are performing on narrowing of deep discount valuations. The IT sector has enjoyed a period of new product launches and strengthening seasonality causing us to revisit our positioning in Taiwanese IT shares.

Although we are cautious near term on valuation grounds, we remain constructive on India over the medium term. Reform momentum has accelerated over the past five months with approval of the Goods and Services Tax bill by the government’s Upper House, the Reserve Bank of India’s (RBI) new monetary policy committee, and the passage of new bankruptcy laws. A relatively good monsoon season this year has also lifted sentiments on the ground, especially in rural India where growth has been sluggish; a tangible recovery is expected by December after the harvest season. Under the new governor Urjit Patel and the newly-established monetary policy committee, the RBI appears to be more dovish than market expectations. We believe there will be more room for monetary easing over the next six to twelve months if inflation remains benign.

We are structurally bullish in Indonesia notwithstanding strong year-to-date performance. The tax amnesty program was an overwhelming success and has several positive implications including a widening of the tax base, currency stabilization, increased confidence, a boost to the president’s credibility, an increase in liquidity, and potential for easing of funding costs. Indonesia is also undergoing a rate-cut cycle and is expected to benefit from the recent recovery in coal prices.

While we see many value-added technologies originating in Japan, we are cognizant of the fact that negative interest rates along with weakening global growth weighs on the market. Therefore, we foresee remaining underweight on a country basis. In the current environment, we favor restructuring plays, unique service models, domestic-related stocks, including tourism, as well as globally competitive companies that can potentially withstand currency volatility. Valuations are supportive, and companies are in the process of adjusting expectations to the prospect of a stronger yen.

We are cautious on the Australian market. Australasia stock valuations are expensive relative to the rest of Asia Pacific, and we see deterioration in earnings momentum due to imbalances in the economy and lack of consumer affordability. New Zealand’s macroeconomic environment is supportive of a stronger market and corporate strategic execution is solid. Therefore, within Australasia, we continue to prefer New Zealand.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Asia Pacific 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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period¹
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,053.96       $ 8.26         1.60

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.09       $ 8.11         1.60

Class C

           

Actual

   $ 1,000.00       $ 1,050.51       $ 12.11         2.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.32       $ 11.89         2.35

Administrator Class

           

Actual

   $ 1,000.00       $ 1,055.06       $ 7.75         1.50

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.60       $ 7.61         1.50

Institutional Class

           

Actual

   $ 1,000.00       $ 1,055.95       $ 6.46         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.85       $ 6.34         1.25

 

 

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—October 31, 2016   Wells Fargo Asia Pacific Fund     9   

    

 

 

Security name                 Shares      Value  

Common Stocks: 92.68%

          
Australia: 5.01%           

AMP Limited (Financials, Diversified Financial Services)

          198,057       $ 688,525   

Australia & New Zealand Banking Group Limited (Financials, Banks)

          61,431         1,301,446   

BHP Billiton Limited (Materials, Metals & Mining)

          48,500         851,143   

Healthscope Limited (Health Care, Health Care Providers & Services)

          482,300         810,817   

Medibank Private Limited (Financials, Insurance)

          306,927         602,373   

MYOB Group Limited (Information Technology, Internet Software & Services) «

          256,900         723,068   

Rio Tinto Limited (Materials, Metals & Mining)

          19,800         816,051   

Suncorp Group Limited (Financials, Insurance)

          156,300         1,423,202   
             7,216,625   
          

 

 

 
China: 25.27%           

Alibaba Group Holding Limited ADR (Information Technology, Internet Software & Services) †

          41,700         4,240,473   

AviChina Industry & Technology Company Limited H Shares (Industrials, Aerospace & Defense)

          2,137,000         1,452,120   

Baidu Incorporated ADR (Information Technology, Internet Software & Services) †

          14,941         2,642,465   

Bank of China Limited H Shares (Financials, Banks)

          2,630,000         1,180,110   

Beijing Enterprises Water Group Limited (Utilities, Water Utilities)

          1,608,000         1,167,298   

BYD Company Limited H Shares (Consumer Discretionary, Automobiles) †

          110,000         723,353   

China Communications Construction Company Limited H Shares (Industrials, Construction & Engineering)

          647,000         712,442   

China Construction Bank H Shares (Financials, Banks)

          4,635,000         3,394,576   

China Everbright International Limited (Industrials, Commercial Services & Supplies)

          579,000         694,303   

China Galaxy Securities Company Limited H Shares (Financials, Capital Markets)

          817,000         777,438   

China Longyuan Power Group Corporation H Shares (Utilities, Independent Power & Renewable Electricity Producers)

          1,470,000         1,123,982   

China Merchants Bank Company Limited H Shares (Financials, Banks)

          344,000         839,203   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          189,000         2,165,243   

China Petroleum & Chemical Corporation H Shares (Energy, Oil, Gas & Consumable Fuels)

          2,854,000         2,079,169   

China Power International Development Limited (Utilities, Independent Power & Renewable Electricity Producers)

          1,238,000         451,746   

China State Construction International Holdings Limited (Industrials, Construction & Engineering)

          798,000         1,166,819   

CNOOC Limited (Energy, Oil, Gas & Consumable Fuels)

          609,000         775,036   

Huaneng Renewables Corporation Limited H Shares (Utilities, Independent Power & Renewable Electricity Producers)

          4,424,000         1,488,823   

Industrial & Commercial Bank of China Limited H Shares (Financials, Banks)

          4,315,000         2,598,275   

PetroChina Company Limited H Shares (Energy, Oil, Gas & Consumable Fuels)

          2,298,000         1,582,263   

Ping An Insurance (Group) Company of China Limited H Shares (Financials, Insurance)

          154,500         815,774   

Shanghai Fosun Pharmaceutical Company Limited (Health Care, Pharmaceuticals)

          235,000         722,676   

Sinotrans Limited H Shares (Industrials, Air Freight & Logistics)

          176,000         83,058   

Tencent Holdings Limited (Information Technology, Internet Software & Services)

          104,800         2,780,956   

Yum China Holdings Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure) †

          29,400         718,533   
             36,376,134   
          

 

 

 
Hong Kong: 1.12%           

China Overseas Land & Investment Limited (Real Estate, Real Estate Management & Development)

          522,000         1,611,994   
          

 

 

 
India: 5.23%           

Bharti Infratel Limited (Telecommunication Services, Diversified Telecommunication Services)

          131,466         684,037   

Coal India Limited (Energy, Oil, Gas & Consumable Fuels)

          221,249         1,077,979   

Emami Limited (Consumer Staples, Personal Products)

          43,300         780,465   

Gateway Distriparks Limited (Industrials, Transportation Infrastructure)

          9,500         35,561   

HDFC Bank Limited (Financials, Banks)

          79,600         1,493,755   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo Asia Pacific Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  
India (continued)           

Hindalco Industries Limited (Materials, Metals & Mining)

          489,600       $ 1,097,791   

Larsen & Toubro Limited (Industrials, Construction & Engineering)

          33,400         737,774   

Maruti Suzuki India Limited (Consumer Discretionary, Automobiles)

          9,700         856,351   

Reliance Industries Limited (Energy, Oil, Gas & Consumable Fuels)

          48,700         766,524   
             7,530,237   
          

 

 

 
Indonesia: 4.15%           

PT Bank Rakyat Indonesia Tbk (Financials, Banks)

          1,694,300         1,584,186   

PT Blue Bird Tbk (Industrials, Road & Rail)

          1,221,000         262,017   

PT Bumi Serpong Damai Tbk (Real Estate, Real Estate Management & Development)

          6,551,800         1,089,623   

PT Cikarang Listrindo Tbk (Utilities, Independent Power & Renewable Electricity Producers) †

          9,528,700         1,095,421   

PT Telekomunikasi Indonesia Persero Tbk (Telecommunication Services, Diversified Telecommunication Services)

          6,008,300         1,943,212   
             5,974,459   
          

 

 

 
Japan: 29.83%           

Bridgestone Corporation (Consumer Discretionary, Auto Components)

          48,900         1,825,532   

FUJIFILM Holdings Corporation (Information Technology, Technology Hardware, Storage & Peripherals)

          40,700         1,542,696   

Hitachi Limited (Information Technology, Electronic Equipment, Instruments & Components)

          249,000         1,327,747   

Isuzu Motors Limited (Consumer Discretionary, Automobiles)

          93,500         1,158,608   

Japan Airlines Company Limited (Industrials, Airlines)

          51,000         1,505,636   

Japan Hotel REIT Investment Corporation (Real Estate, Equity REITs)

          2,300         1,554,973   

Japan Rental Housing Investment Incorporated (Real Estate, Equity REITs)

          2,400         1,856,012   

Japan Tobacco Incorporated (Consumer Staples, Tobacco)

          28,300         1,077,813   

Kubota Corporation (Industrials, Machinery)

          51,000         824,063   

Kyushu Railway Company (Industrials, Road & Rail) †

          14,400         424,297   

LINE Corporation (Information Technology, Software) Ǡ

          17,900         734,810   

Matsumotokiyoshi Holdings Company Limited (Consumer Staples, Food & Staples Retailing)

          31,600         1,630,171   

Mitsubishi UFJ Financial Group Incorporated (Financials, Banks)

          427,800         2,221,607   

Mitsui Fudosan Company Limited (Real Estate, Real Estate Management & Development)

          98,000         2,233,899   

Nagoya Railroad Company Limited (Industrials, Road & Rail)

          303,000         1,600,667   

Nintendo Company Limited (Information Technology, Software)

          3,300         800,534   

Nippon Telegraph & Telephone Corporation (Telecommunication Services, Diversified Telecommunication Services)

          18,900         839,840   

NTT DOCOMO Incorporated (Telecommunication Services, Wireless Telecommunication Services)

          28,900         727,667   

Obayashi Corporation (Industrials, Construction & Engineering)

          196,200         1,895,209   

ORIX Corporation (Financials, Diversified Financial Services)

          73,600         1,168,883   

Otsuka Corporation (Information Technology, IT Services)

          23,200         1,106,131   

Panasonic Corporation (Consumer Discretionary, Household Durables)

          139,700         1,461,342   

Recruit Holdings Company Limited (Industrials, Professional Services)

          18,700         752,494   

Resona Holdings Incorporated (Financials, Banks)

          295,600         1,313,527   

Ryohin Keikaku Company Limited (Consumer Discretionary, Multiline Retail)

          6,400         1,369,467   

Sekisui House Limited (Consumer Discretionary, Household Durables)

          115,400         1,910,862   

Skylark Company Limited (Consumer Discretionary, Hotels, Restaurants & Leisure)

          113,100         1,592,912   

Sony Corporation (Consumer Discretionary, Household Durables)

          45,500         1,458,239   

Sumitomo Mitsui Trust Holdings Incorporated (Financials, Banks)

          48,600         1,645,180   

Suzuki Motor Corporation (Consumer Discretionary, Automobiles)

          55,600         1,977,572   

Tsukui Corporation (Health Care, Health Care Providers & Services)

          212,900         1,398,761   
             42,937,151   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Asia Pacific Fund     11   

    

 

 

Security name                 Shares      Value  
Malaysia: 0.99%           

IHH Healthcare Bhd (Health Care, Health Care Providers & Services)

          493,400       $ 752,744   

Tenaga Nasional Bhd (Utilities, Electric Utilities)

          196,300         671,023   
             1,423,767   
          

 

 

 
New Zealand: 1.15%           

Air New Zealand Limited (Industrials, Airlines)

          533,800         736,720   

Fletcher Building Limited (Materials, Construction Materials)

          124,700         924,724   
             1,661,444   
          

 

 

 
Philippines: 0.71%           

Globe Telecom Incorporated (Telecommunication Services, Wireless Telecommunication Services)

          27,675         1,017,327   
          

 

 

 
Singapore: 3.79%           

CapitaLand Commercial Trust Limited (Real Estate, Equity REITs)

          642,000         726,792   

CapitaLand Mall Trust (Real Estate, Equity REITs)

          472,700         703,316   

Jardine Cycle & Carriage Limited (Consumer Discretionary, Distributors)

          35,000         1,062,138   

Singapore Post Limited (Industrials, Air Freight & Logistics)

          999,700         1,149,700   

Singapore Technologies Engineering Limited (Industrials, Aerospace & Defense)

          322,000         724,428   

Singapore Telecommunications Limited (Telecommunication Services, Diversified Telecommunication Services)

          387,700         1,081,241   
             5,447,615   
          

 

 

 
South Korea: 6.58%           

Hana Financial Group Incorporated (Financials, Banks)

          51,790         1,484,564   

Hyundai Motor Company (Consumer Discretionary, Automobiles)

          9,200         1,125,628   

KB Financial Group Incorporated (Financials, Banks)

          39,500         1,460,214   

Korea Electric Power Corporation (Utilities, Electric Utilities)

          26,890         1,157,380   

LG Chem Limited (Materials, Chemicals)

          7,700         1,658,772   

POSCO (Materials, Metals & Mining)

          3,400         704,217   

Samsung Biologics Company Limited (Health Care, Life Sciences Tools & Services) †

          500         60,022   

Samsung Electronics Company Limited (Information Technology, Technology Hardware, Storage & Peripherals)

          763         1,092,905   

SK Telecom Company Limited (Telecommunication Services, Wireless Telecommunication Services)

          3,700         722,700   
             9,466,402   
          

 

 

 
Taiwan: 7.32%           

Advanced Semiconductor Engineering Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          612,000         719,487   

Chicony Electronics Company Limited (Information Technology, Technology Hardware, Storage & Peripherals)

          265,410         679,557   

Hon Hai Precision Industry Company Limited (Information Technology, Electronic Equipment, Instruments & Components)

          747,085         2,019,373   

Largan Precision Company Limited (Information Technology, Electronic Equipment, Instruments & Components)

          7,000         828,488   

MediaTek Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          97,000         737,701   

Siliconware Precision Industries Company (Information Technology, Semiconductors & Semiconductor Equipment)

          493,000         745,964   

Taiwan Semiconductor Manufacturing Company Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          413,000         2,466,941   

Uni-President Enterprises Corporation (Consumer Staples, Food Products)

          413,000         799,629   

United Microelectronics Corporation (Information Technology, Semiconductors & Semiconductor Equipment)

          2,180,000         811,693   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Asia Pacific Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                Shares      Value  
Taiwan (continued)          

WPG Holdings Company Limited (Information Technology, Electronic Equipment, Instruments & Components)

         619,000       $ 725,755   
            10,534,588   
         

 

 

 
Thailand: 1.04%          

Bumrungrad Hospital PCL (Health Care, Health Care Providers & Services)

         150,500         786,956   

Land & Houses PCL (Real Estate, Real Estate Management & Development)

         2,679,400         704,350   
            1,491,306   
         

 

 

 
United States: 0.49%          

Samsonite International SA (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

         225,300         708,824   
         

 

 

 

Total Common Stocks (Cost $127,062,813)

            133,397,873   
         

 

 

 
          Expiration date                
Participation Notes: 2.65%          
China: 2.65%          

HSBC Bank plc (Han’s Laser Technology Industry Group Company Limited Class A) (Industrials, Machinery) †

      3-18-2019         229,000         763,570   

HSBC Bank plc (Hangzhou Hikvision Digital Technology Company Limited Class A) (Information Technology, Electronic Equipment, Instruments & Components) †

      12-7-2022         192,000         696,386   

HSBC Bank plc (Inner Mongolia Yili Industrial Group Company Limited Class A) (Consumer Staples, Food Products) †

      9-25-2023         344,600         916,265   

HSBC Bank plc (Tasly Pharmaceutical Group Company Limited Class A) (Health Care, Pharmaceuticals) †

      12-14-2022         112,000         683,995   

UBS AG (GoerTek Incorporated Class A) (Information Technology, Electronic Equipment, Instruments & Components) †

      7-26-2017         165,700         752,347   

Total Participation Notes (Cost $3,705,382)

            3,812,563   
         

 

 

 
    Dividend yield                      
Preferred Stocks: 1.92%          
South Korea: 1.92%          

Samsung Electronics Company Limited (Information Technology, Technology Hardware, Storage & Peripherals) ±

    1.56        2,400         2,762,333   
         

 

 

 

Total Preferred Stocks (Cost $1,866,044)

            2,762,333   
         

 

 

 
    Yield                      
Short-Term Investments: 2.29%          
Investment Companies: 2.29%          

Securities Lending Cash Investment LLC (l)(r)(u)

    0.69           1,315,692         1,315,824   

Wells Fargo Government Money Market Fund Select Class (l)(u)

    0.32           1,975,446         1,975,446   

Total Short-Term Investments (Cost $3,291,211)

            3,291,270        
         

 

 

 

 

Total investments in securities (Cost $135,925,450) *     99.54        143,264,039   

Other assets and liabilities, net

    0.46           660,471   
 

 

 

      

 

 

 
Total net assets     100.00      $ 143,924,510   
 

 

 

      

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Asia Pacific Fund     13   

    

 

 

 

 

« All or a portion of this security is on loan.

 

Non-income-earning security

 

± Variable rate investment. The rate shown is the rate in effect at period end.

 

(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 $137,194,189 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 14,207,264   

Gross unrealized losses

     (8,137,414
  

 

 

 

Net unrealized gains

   $ 6,069,850   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Asia Pacific Fund   Statement of assets and liabilities—October 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $1,251,920 of securities loaned), at value (cost $132,634,239)

  $ 139,972,769   

In affiliated securities, at value (cost $3,291,211)

    3,291,270   
 

 

 

 

Total investments, at value (cost $135,925,450)

    143,264,039   

Cash

    1,452,436   

Foreign currency, at value (cost $1,007,541)

    1,004,686   

Receivable for investments sold

    2,287,671   

Receivable for Fund shares sold

    41,266   

Receivable for dividends

    282,948   

Receivable for securities lending income

    746   

Prepaid expenses and other assets

    34,339   
 

 

 

 

Total assets

    148,368,131   
 

 

 

 

Liabilities

 

Payable for investments purchased

    2,634,321   

Payable for Fund shares redeemed

    223,409   

Payable upon receipt of securities loaned

    1,315,763   

Management fee payable

    115,289   

Distribution fee payable

    1,455   

Administration fees payable

    24,367   

Accrued expenses and other liabilities

    129,017   
 

 

 

 

Total liabilities

    4,443,621   
 

 

 

 

Total net assets

  $ 143,924,510   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 220,688,325   

Undistributed net investment income

    1,270,787   

Accumulated net realized losses on investments

    (85,358,301

Net unrealized gains on investments

    7,323,699   
 

 

 

 

Total net assets

  $ 143,924,510   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 120,107,719   

Shares outstanding – Class A1

    9,916,323   

Net asset value per share – Class A

    $12.11   

Maximum offering price per share – Class A2

    $12.85   

Net assets – Class C

  $ 2,222,545   

Shares outstanding – Class C1

    194,325   

Net asset value per share – Class C

    $11.44   

Net assets – Administrator Class

  $ 11,357,479   

Shares outstanding – Administrator Class1

    955,745   

Net asset value per share – Administrator Class

    $11.88   

Net assets – Institutional Class

  $ 10,236,767   

Shares outstanding – Institutional Class1

    860,805   

Net asset value per share – Institutional Class

    $11.89   

 

 

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 October 31, 2016   Wells Fargo Asia Pacific Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $443,005)

  $ 3,751,141   

Securities lending income, net

    12,806   

Income from affiliated securities

    9,842   
 

 

 

 

Total investment income

    3,773,789   
 

 

 

 

Expenses

 

Management fee

    1,474,349   

Administration fees

  

Class A

    259,511   

Class C

    5,649   

Administrator Class

    15,241   

Institutional Class

    12,278   

Shareholder servicing fees

  

Class A

    308,652   

Class C

    6,724   

Administrator Class

    29,310   

Distribution fee

  

Class C

    20,174   

Custody and accounting fees

    115,671   

Professional fees

    54,413   

Registration fees

    74,113   

Shareholder report expenses

    43,461   

Trustees’ fees and expenses

    22,173   

Other fees and expenses

    24,513   
 

 

 

 

Total expenses

    2,466,232   

Less: Fee waivers and/or expense reimbursements

    (135,943
 

 

 

 

Net expenses

    2,330,289   
 

 

 

 

Net investment income

    1,443,500   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized (gains) losses on:

 

Unaffiliated securities

    (3,319,118

Affiiliated securities

    2   
 

 

 

 

Net realized losses on investments

    (3,319,116
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    5,861,361   

Affiiliated securities

    59   
 

 

 

 

Net change in unrealized gains (losses) on investments

    5,861,420   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    2,542,304   
 

 

 

 

Net increase in net assets resulting from operations

  $ 3,985,804   
 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Asia Pacific Fund   Statement of changes in net assets
     Year ended
October 31, 2016
    Year ended
October 31, 2015
 

Operations

       

Net investment income

    $ 1,443,500        $ 1,087,833   

Net realized gains (losses) on investments

      (3,319,116       5,808,777   

Net change in unrealized gains (losses) on investments

      5,861,420          (10,236,642
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      3,985,804          (3,340,032
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (2,403,259       (82,320

Class C

      (44,466       (18,378

Administrator Class

      (274,359       (197,300

Institutional Class

      (250,376       (18,960

Investor Class

      N/A          (1,661,776 )1 
 

 

 

 

Total distributions to shareholders

      (2,972,460       (1,978,734
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    1,604,531        18,556,341        11,260,731        136,016,227   

Class C

    13,686        149,151        140,676        1,691,622   

Administrator Class

    70,112        783,199        1,087,437        13,023,913   

Institutional Class

    334,375        3,796,409        971,690        10,822,354   

Investor Class

    N/A        N/A        3,572,603 1      44,979,487 1 
 

 

 

 
      23,285,100          206,533,603   
 

 

 

 

Reinvestment of distributions

       

Class A

    203,382        2,336,858        6,243        74,538   

Class C

    3,274        35,719        1,201        13,666   

Administrator Class

    24,161        272,051        16,772        196,572   

Institutional Class

    20,214        227,203        687        8,043   

Investor Class

    N/A        N/A        138,610 1      1,630,058 1 
 

 

 

 
      2,871,831          1,922,877   
 

 

 

 

Payment for shares redeemed

       

Class A

    (3,431,646     (39,403,961     (281,262     (3,389,825

Class C

    (132,110     (1,420,868     (42,158     (493,632

Administrator Class

    (337,011     (3,756,219     (1,069,973     (12,472,235

Institutional Class

    (434,461     (4,818,709     (73,533     (850,292

Investor Class

    N/A        N/A        (16,272,754 )1      (194,126,550 )1 
 

 

 

 
      (49,399,757       (211,332,534
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (23,242,826       (2,876,054
 

 

 

 

Total decrease in net assets

      (22,229,482       (8,194,820
 

 

 

 

Net assets

       

Beginning of period

      166,153,992          174,348,812   
 

 

 

 

End of period

    $ 143,924,510        $ 166,153,992   
 

 

 

 

Undistributed net investment income

    $ 1,270,787        $ 2,254,942   
 

 

 

 

 

 

1  For the period from November 1, 2014 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 Asia Pacific Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.92        $12.18        $11.72        $10.19        $9.30   

Net investment income

    0.11 1      0.04 1      0.09 1      0.12 1      0.10 1 

Net realized and unrealized gains (losses) on investments

    0.29        (0.16     0.67        1.79        0.79   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.40        (0.12     0.76        1.91        0.89   

Distributions to shareholders from

         

Net investment income

    (0.21     (0.14     (0.30     (0.38     0.00   

Net asset value, end of period

    $12.11        $11.92        $12.18        $11.72        $10.19   

Total return2

    3.47     (0.95 )%      6.61     19.24     9.57

Ratios to average net assets (annualized)

         

Gross expenses

    1.69     1.72     1.71     1.79     1.86

Net expenses

    1.60     1.60     1.60     1.60     1.60

Net investment income

    0.97     0.34     0.80     1.08     1.04

Supplemental data

         

Portfolio turnover rate

    52     113     113     187     163

Net assets, end of period (000s omitted)

    $120,108        $137,578        $6,755        $8,720        $5,699   

 

 

 

 

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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18   Wells Fargo Asia Pacific Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.29        $11.57        $11.15        $9.73        $8.98   

Net investment income (loss)

    0.02 1      (0.00 )1,2      0.01 1      0.05        0.09 1 

Net realized and unrealized gains (losses) on investments

    0.28        (0.20     0.63        1.69        0.69   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.30        (0.20     0.64        1.74        0.78   

Distributions to shareholders from

         

Net investment income

    (0.15     (0.08     (0.22     (0.32     (0.03

Net asset value, end of period

    $11.44        $11.29        $11.57        $11.15        $9.73   

Total return3

    2.75     (1.71 )%      5.76     18.44     8.78

Ratios to average net assets (annualized)

         

Gross expenses

    2.44     2.46     2.46     2.54     2.62

Net expenses

    2.35     2.35     2.35     2.35     2.35

Net investment income (loss)

    0.14     (0.01 )%      0.12     0.37     0.92

Supplemental data

         

Portfolio turnover rate

    52     113     113     187     163

Net assets, end of period (000s omitted)

    $2,223        $3,495        $2,427        $1,980        $1,673   

 

 

 

 

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.


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Financial highlights   Wells Fargo Asia Pacific Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.72        $11.99        $11.54        $10.04        $9.29   

Net investment income

    0.12        0.11 1      0.12 1      0.14 1      0.17   

Net realized and unrealized gains (losses) on investments

    0.29        (0.21     0.65        1.77        0.71   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.41        (0.10     0.77        1.91        0.88   

Distributions to shareholders from

         

Net investment income

    (0.25     (0.17     (0.32     (0.41     (0.13

Net asset value, end of period

    $11.88        $11.72        $11.99        $11.54        $10.04   

Total return

    3.60     (0.83 )%      6.86     19.57     9.66

Ratios to average net assets (annualized)

         

Gross expenses

    1.61     1.56     1.52     1.61     1.67

Net expenses

    1.47     1.40     1.40     1.40     1.40

Net investment income

    1.07     0.87     1.04     1.26     1.74

Supplemental data

         

Portfolio turnover rate

    52     113     113     187     163

Net assets, end of period (000s omitted)

    $11,357        $14,048        $13,956        $12,577        $12,860   

 

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


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20   Wells Fargo Asia Pacific Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.73        $12.00        $11.55        $10.05        $9.30   

Net investment income

    0.13        0.15 1      0.14 1      0.18 1      0.18   

Net realized and unrealized gains (losses) on investments

    0.30        (0.23     0.65        1.74        0.71   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.43        (0.08     0.79        1.92        0.89   

Distributions to shareholders from

         

Net investment income

    (0.27     (0.19     (0.34     (0.42     (0.14

Net asset value, end of period

    $11.89        $11.73        $12.00        $11.55        $10.05   

Total return

    3.83     (0.65 )%      6.99     19.70     9.90

Ratios to average net assets (annualized)

         

Gross expenses

    1.36     1.36     1.27     1.33     1.42

Net expenses

    1.25     1.25     1.25     1.25     1.25

Net investment income

    1.28     1.27     1.15     1.62     1.86

Supplemental data

         

Portfolio turnover rate

    52     113     113     187     163

Net assets, end of period (000s omitted)

    $10,237        $11,034        $502        $129        $12   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Notes to financial statements   Wells Fargo Asia Pacific 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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Asia Pacific 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.

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 October 31, 2016, 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 vehicles 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 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


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22   Wells Fargo Asia Pacific Fund   Notes to financial statements

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 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.

Participation notes

The Fund may invest in participation notes to gain exposure to securities in certain foreign markets. Participation notes are issued by banks or broker-dealers and are designed to offer a return linked to a particular underlying foreign security. Participation notes involve transaction costs, which may be higher than those applicable to the underlying foreign security. The holder of the participation note is entitled to receive from the bank or broker-dealer, an amount equal to the dividend paid by the issuer of the underlying foreign security; however, the holder is not entitled to the same rights (i.e. dividends, voting rights) as an owner of the underlying foreign security. Investments in participation notes involve risks beyond those normally associated with a direct investment in an underlying security. The Fund has no rights against the issuer of the underlying foreign security and participation notes expose the Fund to counterparty risk in the event the counterparty does not perform. There is also no assurance there will be a secondary trading market for the participation note or that the trading price of the participation note will equal the underlying value of the foreign security that it seeks to replicate.

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


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Notes to financial statements   Wells Fargo Asia Pacific Fund     23   

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, 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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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 and passive foreign investment companies. At October 31, 2016, 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

$(32,386,341)    $544,805    $31,841,536

Capital loss carryforwards that do not expire are required to be utilized prior to capital loss carryforwards that expire. As of October 31, 2016, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:

 

     No expiration
2017    Short-term    Long-term
$80,817,204    $463,465    $3,353,112

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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24   Wells Fargo Asia Pacific 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 significant 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:

 

n   Level 1 – quoted prices in active markets for identical securities

 

n   Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.)

 

n   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 October 31, 2016:

 

    

Quoted prices

(Level 1)

    

Other significant

observable inputs

(Level 2)

    

Significant

unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Australia

   $ 7,216,625       $ 0       $ 0       $ 7,216,625   

China

     36,376,134         0         0         36,376,134   

Hong Kong

     1,611,994         0         0         1,611,994   

India

     7,530,237         0         0         7,530,237   

Indonesia

     5,974,459         0         0         5,974,459   

Japan

     42,937,151         0         0         42,937,151   

Malaysia

     1,423,767         0         0         1,423,767   

New Zealand

     1,661,444         0         0         1,661,444   

Philippines

     1,017,327         0         0         1,017,327   

Singapore

     5,447,615         0         0         5,447,615   

South Korea

     9,406,380         60,022         0         9,466,402   

Taiwan

     10,534,588         0         0         10,534,588   

Thailand

     1,491,306         0         0         1,491,306   

United States

     708,824         0         0         708,824   

Participation notes

           

China

     0         3,812,563         0         3,812,563   

Preferred stocks

           

South Korea

     2,762,333         0         0         2,762,333   

Short-term investments

           

Investment companies

     1,975,446         0         0         1,975,446   

Investments measured at net asset value*

                                1,315,824   

Total assets

   $ 138,075,630       $ 3,872,585       $ 0       $ 143,264,039   

 

* 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 $1,315,824 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. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $87,776,363 and preferred stocks valued at $2,762,333 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund did not have any transfers into/out of Level 3.


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Notes to financial statements   Wells Fargo Asia Pacific Fund     25   

4. TRANSACTIONS WITH AFFILIATES

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 1.00% and declining to 0.83% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, the management fee was equivalent to an annual rate of 1.00% 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 0.65% 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 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 February 28, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.60% for Class A shares, 2.35% for Class C shares, 1.50% for Administrator Class shares, and 1.25% 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. Prior to March 1, 2016, the Fund’s expenses were capped at 1.40% for Administrator Class shares.

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 October 31, 2016, Funds Distributor received $1,090 from the sale of Class A shares and $179 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 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.


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26   Wells Fargo Asia Pacific Fund   Notes to financial statements

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended October 31, 2016 were $75,487,467 and $99,710,756, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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 October 31, 2016, there were no borrowings by the Fund under the agreement.

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $2,972,460 and $1,978,734 of ordinary income for the years ended October 31, 2016 and October 31, 2015, respectively.

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

  

Unrealized

gains

  

Capital loss

carryforward

$1,815,006    $6,054,960    $(84,633,781)

8. CONCENTRATION RISK

Concentration risks result from exposure to a limited number of sectors or geographic region. Funds that invest a substantial portion of their assets in any sector or geographic region may be more affected by changes in that sector or geographic region than would be a fund whose investments are not heavily weighted in any sector or geographic region.

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. 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 Asia Pacific 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 Asia Pacific Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 Asia Pacific Fund as of October 31, 2016, 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.

 

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Boston, Massachusetts

December 22, 2016


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28   Wells Fargo Asia Pacific Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $2,605,384 of income dividends paid during the fiscal year ended October 31, 2016 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 October 31, 2016. 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 Asia Pacific 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 139 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 investment 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. 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 Chair of Taproot Foundation (non-profit organization), 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 Asia Pacific 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    

Karla M. Rabusch

(Born 1959)

  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    

Jeremy DePalma1

(Born 1974)

  Treasurer, since 2012   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.    

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 Whitaker3

(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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Other information (unaudited)   Wells Fargo Asia Pacific Fund     31   

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo Asia Pacific Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); and (ii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Wells Capital Management Incorporated (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Adviser and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Adviser were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Adviser about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Adviser under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Adviser to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Adviser. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe.


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32   Wells Fargo Asia Pacific Fund   Other information (unaudited)

The Board noted that the performance of the Fund (Class A) was higher than the average performance of the Universe for all periods under review. The Board also noted that the performance of the Fund was higher than its benchmark, the MSCI AC Asia Pacific Index (Net), for all periods under review.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were lower than the median net operating expense ratios of the expense Groups.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Adviser for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were equal to or in range of the sum of these average rates for the Fund’s expense Groups for all share classes.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Adviser for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Adviser, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Adviser, the Board ascribed limited relevance to the allocation of fees between them.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Adviser to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Adviser under the Sub-Advisory Agreement was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also received and considered information concerning the profitability of the Sub-Adviser from providing services to the fund family as a whole, noting that the Sub-Adviser’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis.

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.


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Other information (unaudited)   Wells Fargo Asia Pacific Fund     33   

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Adviser

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Adviser’s business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Adviser, fees earned by Funds Management and the Sub-Adviser from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


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34   Wells Fargo Asia Pacific 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

 

 

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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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

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247339 12-16

A236/AR236 10-16

 


Table of Contents

Annual Report

October 31, 2016

 

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Wells Fargo Diversified International 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

    4   

Fund expenses

    9   

Portfolio of investments

    10   
Financial statements  

Statement of assets and liabilities

    19   

Statement of operations

    20   

Statement of changes in net assets

    21   

Financial highlights

    22   

Notes to financial statements

    29   

Report of independent registered public accounting firm

    37   

Other information

    38   

List of abbreviations

    44   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 Diversified International Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Diversified International Fund for the 12-month period that ended October 31, 2016. Significant volatility in international equity markets during the final months of 2015 and early 2016 subsided during the last half of the period. The performance contrast in each half of the reporting period as measured by key benchmark indexes shows the improving investment environment during the previous 12 months.

 

    November 1, 2015 through
April 30, 2016 (%)
    May 1, 2016 through
October 31, 2016 (%)
 

Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net)1

    (3.07     (0.16

MSCI World Index (Net)2

    (1.05     2.25   

MSCI All Country World Index (ACWI) ex USA Index (Net)3

    (1.75     2.01   

S&P Developed SmallCap Index4

    1.05        2.36   

Past performance is no guarantee of future results.

Central bank policies demonstrated resolve to reignite global economic growth.

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China. They also were uncertain if governments and their central banks could successfully address concerns about recessionary pressures and global business activity through monetary and economic policy. The December 2015 decision of the U.S. Federal Reserve (Fed) to increase its key interest rate caused elevated levels of volatility in global equity markets and sometimes drove significant fluctuations in the relative values of currencies around the world. The U.S. dollar tended to gain strength, which helped exporters in other countries but pressured importers who paid higher prices for goods and services.

The European Central Bank (ECB) pushed the interest rate it pays on deposits further into negative territory in late 2015. In January 2016, the Bank of Japan followed the ECB’s lead by setting a negative deposit rate. During the period, the People’s Bank of China guided its currency’s value lower relative to a basket of foreign currencies to enhance exports. Investors viewed the actions of major central banks as consistent with efforts to spark business activity. Observing the actions of central banks overseas to implement policies that would accommodate

 

 

 

1  The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) 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. The MSCI EAFE Index (Net) consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 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.

 

2  The MSCI World Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (Net) consists of the following 23 developed markets country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. You cannot invest directly in an index.

 

3  The 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. You cannot invest directly in an index.

 

4  The S&P Developed SmallCap Index is a free-float-adjusted market-capitalization-weighted index designed to measure the equity market performance of small-capitalization companies located in developed markets. The index is composed of companies within the bottom 15% of the cumulative market capitalization in developed markets. The index covers all publicly listed equities with float-adjusted market values of U.S. $100 million or more and annual dollar value traded of at least U.S. $50 million in all included countries. You cannot invest directly in an index.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Diversified International Fund     3   

higher levels of business activity, the Fed acknowledged that risks to global growth existed and indicated it would base further rate increases on data that indicated successful management of the risks.

Investors closely watched changing sentiment in global markets during the period.

In the second quarter of 2016, equity market volatility levels declined and remained relatively low until the end of June, when voters in the United Kingdom surprised market participants and approved the Brexit referendum to leave the European Union. Investors reacted to the news negatively and fled to assets such as precious metals and U.S. Treasury bonds. As a result, interest rates fell sharply, and equity markets declined across the globe. In the weeks to follow, signs of resilience in major markets worldwide offset concerns stemming from the Brexit referendum.

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets. The third-quarter saw a rotation that favored company fundamentals over macroeconomic fears, creating a more favorable market dynamic for active managers. Dispersion of returns from both the sector and country perspective tended to confirm the changing views of the markets among investors. On an improved perception of business health, economically sensitive sectors such as consumer discretionary, materials, financials, and industrials gained while traditionally defensive sectors (utilities, telecommunication services, health care, and consumer staples) benefited less during the market rally.

Don’t let short-term uncertainty derail long-term investment goals.

Periods of investment 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets.

 

 

 

 

 

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

 

4   Wells Fargo Diversified International Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadvisers

Artisan Partners Limited Partnership

LSV Asset Management

Wells Capital Management Incorporated

Portfolio managers

Josef Lakonishok, Ph.D.

Puneet Mansharamani, CFA®

Menno Vermeulen, CFA®

Dale A. Winner, CFA®

Mark L. Yockey, CFA®

Average annual total returns (%) as of October 31, 20161

 

        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 (SILAX)   9-24-1997     (9.48     4.01        0.13        (3.96     5.25        0.73        1.82        1.35   
Class B (SILBX)*   9-24-1997     (9.67     4.14        0.21        (4.67     4.48        0.21        2.57        2.10   
Class C (WFECX)   4-1-1998     (5.72     4.45        (0.01     (4.72     4.45        (0.01     2.57        2.10   
Class R (WDIHX)   9-30-2015                          (4.16     5.04        0.56        2.07        1.60   
Class R6 (WDIRX)   9-30-2015                          (3.55     5.48        0.95        1.39        0.89   
Administrator Class (WFIEX)   11-8-1999                          (3.90     5.41        0.91        1.74        1.25   
Institutional Class (WFISX)   8-31-2006                          (3.63     5.60        1.11        1.49        0.99   
MSCI EAFE Index (Net)4                            (3.23     4.99        1.22                 
*   At the close of business on December 5, 2016, existing Class B shareholders were converted to Class A shareholders. Effective December 6, 2016, 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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. 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 smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Diversified International Fund     5   
Growth of $10,000 investment as of October 31, 20165
LOGO

 

 

1  Historical performance shown for the Class R shares prior to their inception reflects the performance of the Administrator Class shares, adjusted to reflect the higher expenses applicable to Class R shares. Historical performance shown for the Class R6 shares prior to their inception reflects the performance of the Administrator Class shares, and includes the higher expenses applicable to Administrator Class shares. If these expenses had not been included, returns for Class R6 would be higher. If these expenses had not been included, returns would be higher.

 

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 February 28, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver 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.

 

4  The Morgan Stanley Capital International (MSCI) Europe, Australasia, and Far East (EAFE) 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 U.S. and Canada. The MSCI EAFE Index (Net) consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 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.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI EAFE Index (Net). 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.


Table of Contents

 

6   Wells Fargo Diversified International Fund   Performance highlights (unaudited)

MANAGERS’ DISCUSSION

Fund highlights

  The Diversified International Fund underperformed its benchmark, the MSCI EAFE Index (Net) for the 12-month period that ended October 31, 2016.

 

  Results from stock selection were mixed, but on balance slightly detracted from relative performance. Stronger results in the consumer staples and health care sectors were offset by weakness in the consumer discretionary, energy and industrials sectors.

 

  All three teams continued to execute their disciplined investment approaches to identify investment opportunities in the current market that are consistent with their principal investment strategies.

During the 12-month reporting period, the MSCI EAFE Index (Net) declined 1.9% in local-currency terms while the effect of an appreciating dollar caused the index to decline 3.2% in U.S. dollar terms. The Fund’s investments were modestly biased toward value stocks, which was a slight performance headwind because value shares tended to trail growth peers. Results from stock selection were mixed, but on balance detracted from relative performance. Stronger results in consumer staples and health care were offset by weakness in consumer discretionary, energy, and industrials. Strength in the consumer discretionary sector was concentrated in Asia, while weakness in the sector was attributable to auto related companies and investments in the textile apparel and luxury goods industry.

 

Ten largest holdings (%) as of October 31, 20166  

Medtronic plc

     1.73   

Nestle SA

     1.57   

Japan Tobacco Incorporated

     1.53   

Muenchener Rueckversicherungs Gesellschaft AG

     1.51   

Linde AG

     1.38   

Nippon Telegraph & Telephone Corporation

     1.24   

Deutsche Boerse AG

     1.24   

Wolseley plc

     1.24   

Metro AG

     1.22   

AIA Group Limited

     1.21   

Artisan Partners

Artisan Partners invests in what the team considers to be dominant, high-quality companies that are exposed to positive secular growth trends or themes at reasonable valuations.

The Artisan Partners portion of the Fund was hampered particularly by stock selection in the industrials and information technology (IT) sectors. The Fund’s above-benchmark exposures to the consumer discretionary and consumer staples sectors and lack of exposure to energy were headwinds. Conversely, the Fund’s lighter exposure to financials was beneficial, as was stock selection in health care.

 

 

The Fund’s largest individual detractors included German health care and agricultural products company Bayer AG and global IT services outsourcer Cognizant Technology Solutions Corporation. The price of Bayer’s stock came under pressure on confirmation of its $66 billion takeover offer for U.S. agro-conglomerate Monsanto Company. The merger would come at a hefty price for Bayer—one that would likely dilute the value of existing shareholders’ holdings and reduce Bayer’s ability to invest in its health care businesses. As such, we exited our position. Cognizant struggled with budget cuts across its financial sector customers and delayed discretionary spending by its health care business in light of pending merger and acquisition activity. In late September, shares again fell on questions surrounding the unexpected resignation of the company’s president. Given these headwinds, we exited our position in this holding as well.

Conversely, top individual contributors included global medical device company Medtronic plc and global risk management and insurance services provider Aon plc. We believe Medtronic’s sustainable growth potential is underpinned by several competitive advantages, including its market-leading positions across multiple product lines. Aon benefited from solid organic revenue growth, effective capital management, and a lower tax rate gained by moving its headquarters from Chicago to London. The company is highly cash generative and has a record of driving increased cost efficiencies and margin expansion.

Looking forward, the outcomes of several anticipated events—including the U.S. Federal Reserve’s December 2016 meeting, the U.S. presidential election, and a November Organization of Petroleum Exporting Countries meeting—are capable of influencing the direction of equities markets over the short term. That said, we remain focused on factors within our control: finding companies with sustainable competitive advantages exposed to long-term areas of secular growth trading at reasonable valuations.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Diversified International Fund     7   
Sector distribution as of October 31, 20167
LOGO

LSV

LSV seeks to add value through a quantitative selection process that favors deep-value stocks.

The overweight in the LSV portion of the Fund to financials had a negative impact on results as did an underweight to consumer staples. The LSV portion of the Fund benefited from exposure to emerging markets and stock selection across several sectors. Stock selection contributed to performance particularly in the financials, telecommunication services, and consumer staples sectors. Notable contributors included Challenger Limited, Banco do Brasil S.A., and Swiss Life Holding AG in the financials sector, NTT DOCOMO, and China

 

Communications Services Corporation Limited in the telecommunication services sector, and grocery stores Delhaize Group S.A. and Royal Ahold Delhaize N.V., which merged during the period, in the consumer staples sector. Detractors included Credit Suisse Group AG, easyJet PLC, The Berkeley Group Holdings PLC, Magna International Incorporated, and LM Ericsson Telefon AB.

The LSV portion of the Fund is overweight financials while underweight consumer staples, IT, and real estate. The portfolio is constructed from the bottom up and will overweight sectors and industries where the most attractive stocks are identified.

 

Country allocation as of October 31, 20167
LOGO

WellsCap

WellsCap maintains a blend equity style that emphasizes bottom-up stock selection based on rigorous, in-depth fundamental company research and incorporates consideration of top-down factors and developments as they affect market and economic activity within regions, countries, and sectors.

The WellsCap portion of the Fund was negatively impacted by performance of the stocks of investment managers and banks, as well as holdings in the apparel, motor vehicle, pharmaceutical, and real estate industries and sectors. The Fund remained overweight in the stocks

 

of a number of companies in Germany, the U.S., the Netherlands, Hong Kong (China), and South Korea and increased its positions in select undervalued European company stocks. The Fund benefited from positive stock-specific and sector allocation attribution across Korea, the Netherlands, Germany, and Norway as well as partial hedges of British pound and euro currency exposures. Industrial conglomerates, consumer products, electric equipment, agricultural commodity, and telecommunication services stocks contributed to performance.

Some of the best stock performances came from under-appreciated stock in each region of the world. In Asia, Coca-Cola East Japan Company Limited, Xinyi Glass Holdings Limited, and Hana Financial Group Incorporated were top performers; in Europe, sizable positive returns from Prysmian S.p.A., Smiths Group plc, Siemens AG, and Royal Philips N.V. were notable; and in the Americas, Lundin Mining Corporation was a positive standout. We have gradually increased our emerging markets equity exposure, notably in Korea and Brazil. Outside these countries and China and Hong Kong, we are evaluating a number of opportunities amid increasing emerging markets company, country, and currency risk and opportunity divergences. Negative performance effects came from stocks such as ANIMA Holding S.p.A., HUGO BOSS AG, Mitsubishi UFJ Financial Group, Incorporated, Cameco Corporation, Dongfeng Motor Group Company, Limited, Nomura Holdings, Incorporated, and Hitachi, Limited.

In Europe, opportunities arose amid signs of a cyclical economic recovery in the context of an alert European Central Bank (ECB) that is focused on managing systematic risks in banking and financial markets. The ECB’s actions continue to address challenges facing the European Union member states as they seek further political cooperation to secure their currency union. Companies engaged in self-help restructuring through operational efficiencies such as careful

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Diversified International Fund   Performance highlights (unaudited)

investment of corporate resources, cost-cutting, and portfolio reshaping bolstered their profitability and benefited from the additional impetus of structural reforms and economic recovery.

In Asia, our base-case assessment suggests that while the policy challenges of transitioning from an exclusively state-controlled to more market-driven economy are not without difficulty in China, government officials have several policy levers at their disposal to accomplish an orderly and flexible liberalization, especially ahead of next year’s National People’s Congress milestone. We believe policy easing remains incremental, leaving room for further growth enhancement measures. In Hong Kong, we continued to build positions in undervalued and restructuring state-owned enterprises. In South Korea, positions provide long-term attractive total return upside based on micro restructuring benefits. And in Japan, where we are now underweight as of the beginning of this year, compared to an overweight in the portfolio years ago, we continue to find bifurcation between the new and old corporate regimes.

 

 

Please see footnotes on page 5.


Table of Contents

 

Fund expenses (unaudited)   Wells Fargo Diversified International Fund     9   

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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period¹
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,003.62       $ 6.79         1.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.36       $ 6.84         1.35

Class B

           

Actual

   $ 1,000.00       $ 1,000.00       $ 10.30         2.05

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.83       $ 10.38         2.05

Class C

           

Actual

   $ 1,000.00       $ 999.02       $ 10.55         2.10

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.58       $ 10.63         2.10

Class R

           

Actual

   $ 1,000.00       $ 1,002.67       $ 8.06         1.60

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.09       $ 8.11         1.60

Class R6

           

Actual

   $ 1,000.00       $ 1,005.32       $ 4.49         0.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.66       $ 4.52         0.89

Administrator Class

           

Actual

   $ 1,000.00       $ 1,003.56       $ 6.30         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.85       $ 6.34         1.25

Institutional Class

           

Actual

   $ 1,000.00       $ 1,004.74       $ 4.99         0.99

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.16       $ 5.03         0.99

 

 

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

 

10   Wells Fargo Diversified International Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  

Common Stocks: 91.82%

          
Australia: 1.79%           

Arrium Limited (Materials, Metals & Mining) †(a)

          397,400       $ 6,651   

Asaleo Care Limited (Consumer Staples, Personal Products)

          114,700         127,388   

Automotive Holdings Group Limited (Consumer Discretionary, Specialty Retail)

          29,300         90,268   

Bendigo Bank Limited (Financials, Banks)

          26,100         220,978   

BHP Billiton Limited (Materials, Metals & Mining)

          5,275         92,573   

BHP Billiton Limited ADR (Materials, Metals & Mining)

          1,878         65,768   

Challenger Financial Services Group Limited (Financials, Diversified Financial Services)

          27,000         220,999   

CSR Limited (Materials, Construction Materials)

          59,900         166,771   

Downer EDI Limited (Industrials, Commercial Services & Supplies)

          42,300         187,595   

Lendlease Corporation Limited (Real Estate, Real Estate Management & Development)

          24,500         251,974   

Metcash Limited (Consumer Staples, Food & Staples Retailing) †

          28,500         43,143   

Mineral Resources Limited (Industrials, Metals & Mining)

          14,900         131,139   

Primary Health Care Limited (Health Care, Health Care Providers & Services)

          25,700         75,072   

Qantas Airways Limited (Industrials, Airlines)

          59,300         138,035   

Seven Group Holdings Limited (Industrials, Trading Companies & Distributors)

          15,300         105,796   
             1,924,150   
          

 

 

 
Austria: 0.30%           

OMV AG (Energy, Oil, Gas & Consumable Fuels)

          5,300         165,670   

Voestalpine AG (Materials, Metals & Mining)

          4,300         152,136   
             317,806   
          

 

 

 
Belgium: 0.43%           

Telenet Group Holding NV (Consumer Discretionary, Media) †

          6,648         355,879   

UCB SA (Health Care, Pharmaceuticals)

          1,559         105,576   
             461,455   
          

 

 

 
Brazil: 0.47%           

Banco do Brasil SA (Financials, Banks)

          19,000         174,345   

Companhia de Saneamento de Minas Gerais SA (Utilities, Water Utilities)

          5,300         55,325   

Cosan Limited Class A (Energy, Oil, Gas & Consumable Fuels)

          7,976         70,986   

JBS SA (Consumer Staples, Food Products)

          67,500         205,334   
             505,990   
          

 

 

 
Canada: 2.45%           

Canadian Pacific Railway Limited (Industrials, Road & Rail)

          7,249         1,036,317   

Lundin Mining Corporation (Materials, Metals & Mining) †

          206,170         806,973   

Magna International Incorporated (Consumer Discretionary, Auto Components)

          9,100         373,620   

Rogers Communications Incorporated Class B (Telecommunication Services, Wireless Telecommunication Services)

          6,633         266,843   

WestJet Airlines Limited (Industrials, Airlines)

          9,200         150,555   
             2,634,308   
          

 

 

 
China: 5.38%           

Alibaba Group Holding Limited ADR (Information Technology, Internet Software & Services) †

          12,219         1,242,550   

China Communications Services Corporation Limited H Shares (Telecommunication Services, Diversified Telecommunication Services)

          220,000         130,771   

China Construction Bank H Shares (Financials, Banks)

          135,289         99,083   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Diversified International Fund     11   

    

 

 

Security name                 Shares      Value  
China (continued)           

China Everbright Limited (Financials, Capital Markets)

          348,000       $ 682,041   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          101,000         1,157,087   

China Petroleum & Chemical Corporation H Shares (Energy, Oil, Gas & Consumable Fuels)

          218,000         158,815   

China Railway Construction Corporation Limited H Shares (Industrials, Construction & Engineering)

          141,500         177,341   

Ctrip.com International Limited ADR (Consumer Discretionary, Internet & Direct Marketing Retail) †

          5,725         252,759   

Dongfeng Motor Group Company Limited H Shares (Consumer Discretionary, Automobiles)

          106,000         110,298   

Industrial & Commercial Bank of China Limited H Shares (Financials, Banks)

          721,000         434,150   

PICC Property & Casualty Company Limited H Shares (Financials, Insurance)

          89,000         144,134   

Shanghai Pharmaceuticals Holding Company Limited H Shares (Health Care, Health Care Providers & Services)

          245,000         631,806   

Shenzhen International Holdings Limited H Shares (Industrials, Transportation Infrastructure)

          49,500         76,590   

Universal Health International Group Holding Limited (Health Care, Health Care Providers & Services) †

          382,000         17,239   

Xinyi Solar Holdings Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          562,000         208,697   

Xtep International Holdings Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          468,050         206,398   

Yantai Changyu Pioneer Wine Company Limited Class B (Consumer Staples, Beverages)

          23,400         64,447   
             5,794,206   
          

 

 

 
Czech Republic: 0.09%   

CEZ AS (Utilities, Electric Utilities)

          4,900         92,350   
          

 

 

 
Denmark: 0.84%   

Danske Bank AS (Financials, Banks)

          9,300         287,134   

ISS AS (Industrials, Commercial Services & Supplies)

          4,528         178,025   

Novo Nordisk AS Class B (Health Care, Pharmaceuticals)

          8,910         318,750   

Sydbank AS (Financials, Banks)

          4,000         125,092   
             909,001   
          

 

 

 
Finland: 0.09%   

Tieto Oyj (Information Technology, IT Services)

          3,500         96,015   
          

 

 

 
France: 5.50%   

Arkema SA (Materials, Chemicals)

          910         86,290   

AXA SA (Financials, Insurance)

          11,300         254,728   

BNP Paribas SA (Financials, Banks)

          4,400         255,223   

Cie Generale des Establissements Michelin (Consumer Discretionary, Auto Components)

          2,200         238,196   

Compagnie de Saint-Gobain SA (Industrials, Building Products)

          25,134         1,115,912   

Credit Agricole SA (Financials, Banks)

          13,900         150,024   

Electricite de France SA (Utilities, Electric Utilities) «

          12,500         140,100   

Engie SA (Utilities, Multi-Utilities) «

          13,300         191,772   

LVMH Moet Hennessy Louis Vuitton SA (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          1,108         201,360   

Orange SA (Telecommunication Services, Diversified Telecommunication Services)

          14,100         222,113   

Pernod-Ricard SA (Consumer Staples, Beverages)

          3,672         436,752   

Renault SA (Consumer Discretionary, Automobiles)

          3,100         269,213   

Sanofi SA (Health Care, Pharmaceuticals)

          8,600         669,909   

SCOR SE (Financials, Insurance)

          7,700         249,269   

Societe Generale SA (Financials, Banks)

          3,700         144,433   

Thales SA (Industrials, Aerospace & Defense)

          1,600         150,646   

Total SA (Energy, Oil, Gas & Consumable Fuels)

          7,000         335,955   

Zodiac Aerospace SA (Industrials, Aerospace & Defense)

          33,010         803,368   
             5,915,263   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Diversified International Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  
Germany: 13.43%   

Allianz AG (Financials, Insurance)

          8,330       $ 1,298,484   

Aurubis AG (Materials, Metals & Mining)

          2,300         119,651   

BASF SE (Materials, Chemicals)

          3,500         308,523   

Bayer AG (Health Care, Pharmaceuticals)

          11,644         1,154,105   

Bayerische Motoren Werke AG (Consumer Discretionary, Automobiles)

          2,200         191,683   

Beiersdorf AG (Consumer Staples, Personal Products)

          7,640         672,622   

Daimler AG (Consumer Discretionary, Automobiles)

          6,200         441,781   

Deutsche Bank AG (Financials, Capital Markets) †

          9,100         131,412   

Deutsche Boerse AG (Financials, Diversified Financial Services)

          17,153         1,334,650   

Deutsche Post AG (Industrials, Air Freight & Logistics)

          12,179         377,421   

E.ON SE (Utilities, Multi-Utilities)

          8,100         59,326   

Hannover Rueck SE (Financials, Insurance)

          1,200         133,772   

Linde AG (Materials, Chemicals)

          9,001         1,485,092   

Metro AG (Consumer Staples, Food & Staples Retailing)

          43,835         1,313,192   

Muenchener Rueckversicherungs Gesellschaft AG (Financials, Insurance)

          8,370         1,622,631   

Rheinmetall AG (Industrials, Industrial Conglomerates)

          7,868         545,087   

SAP SE (Information Technology, Software)

          8,445         743,865   

Siemens AG (Industrials, Industrial Conglomerates)

          7,723         877,041   

Stada Arzneimittel AG (Health Care, Pharmaceuticals)

          2,600         130,164   

Uniper SE (Utilities, Independent Power & Renewable Electricity Producers)

          810         10,781   

Volkswagen AG (Consumer Discretionary, Automobiles)

          1,600         238,870   

Vonovia SE (Real Estate, Real Estate Management & Development)

          15,669         551,883   

Wirecard AG (Information Technology, IT Services) «

          14,878         705,802   
             14,447,838   
          

 

 

 
Hong Kong: 2.77%            

AIA Group Limited (Financials, Insurance)

          206,400         1,302,716   

China Resources Cement Holdings Limited (Materials, Construction Materials)

          168,000         68,018   

Kingboard Laminates Holdings Limited (Information Technology, Electronic Equipment, Instruments & Components)

          226,500         203,266   

Skyworth Digital Holdings Limited (Consumer Discretionary, Household Durables)

          320,000         207,129   

Value Partners Group Limited (Financials, Capital Markets)

          375,000         358,775   

Wheelock & Company Limited (Real Estate, Real Estate Management & Development)

          22,000         135,877   

Xinyi Automobile Glass Hong Kong Enterprises Limited (Consumer Discretionary, Auto Components) †

          77,250         15,041   

Xinyi Glass Holdings Limited (Consumer Discretionary, Auto Components)

          618,000         531,498   

Yue Yuen Industrial Holdings Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          42,000         160,027   
             2,982,347   
          

 

 

 
Hungary: 0.07%            

Richter Gedeon (Health Care, Pharmaceuticals)

          3,500         75,227   
          

 

 

 
India: 0.14%            

Tata Motors Limited ADR (Consumer Discretionary, Automobiles)

          3,700         145,817   
          

 

 

 
Indonesia: 0.09%            

PT Bank Rakyat Indonesia Tbk (Financials, Banks)

          98,800         92,379   
          

 

 

 
Ireland: 2.00%            

Allegion plc (Industrials, Building Products)

          519         33,133   

C&C Group plc (Consumer Staples, Beverages)

          18,600         71,464   

Medtronic plc (Health Care, Health Care Equipment & Supplies)

          22,671         1,859,475   

Smurfit Kappa Group plc (Materials, Containers & Packaging)

          8,800         192,818   
             2,156,890   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Diversified International Fund     13   

    

 

 

Security name                 Shares      Value  
Israel: 0.38%            

Bank Hapoalim Limited (Financials, Banks)

          38,000       $ 219,305   

Teva Pharmaceutical Industries Limited (Health Care, Pharmaceuticals)

          4,600         192,691   
             411,996   
          

 

 

 
Italy: 2.37%            

A2A SpA (Utilities, Multi-Utilities)

          104,600         142,497   

Atlantia SpA (Industrials, Transportation Infrastructure)

          14,348         351,394   

Enel SpA (Utilities, Electric Utilities)

          48,100         206,983   

Eni SpA (Energy, Oil, Gas & Consumable Fuels)

          80,985         1,174,386   

Mediobanca SpA (Financials, Banks)

          23,400         171,463   

Prysmian SpA (Industrials, Electrical Equipment)

          20,306         505,335   
             2,552,058   
          

 

 

 
Japan: 17.09%            

Adeka Corporation (Materials, Chemicals)

          13,000         197,101   

Aisin Seiki Company Limited (Consumer Discretionary, Auto Components)

          3,300         145,223   

Alpine Electronics Incorporated (Consumer Discretionary, Household Durables)

          7,500         100,124   

Aoyama Trading Company Limited (Consumer Discretionary, Specialty Retail)

          1,800         63,507   

Aozora Bank Limited (Financials, Banks)

          41,000         135,663   

Astellas Pharma Incorporated (Health Care, Pharmaceuticals)

          17,100         254,291   

Bridgestone Corporation (Consumer Discretionary, Auto Components)

          6,500         242,658   

CALBEE Incorporated (Consumer Staples, Food Products)

          7,700         279,746   

Calsonic Kansei Corporation (Consumer Discretionary, Auto Components)

          26,000         326,023   

Central Glass Company Limited (Industrials, Building Products)

          34,000         139,411   

Coca-Cola East Japan Company Limited (Consumer Staples, Beverages)

          47,100         1,040,179   

Daiwa Securities Group Incorporated (Financials, Capital Markets)

          130,000         778,116   

DCM Holdings Company Limited (Consumer Discretionary, Specialty Retail)

          14,100         123,696   

Denka Company Limited (Materials, Chemicals)

          50,000         227,424   

DIC Incorporated (Materials, Chemicals)

          5,300         160,966   

Eizo Corporation (Information Technology, Technology Hardware, Storage & Peripherals)

          7,300         231,105   

Fuji Oil Company Limited (Consumer Staples, Food Products)

          8,800         170,009   

Fujikura Limited (Industrials, Electrical Equipment)

          25,000         147,325   

Hitachi Limited (Information Technology, Electronic Equipment, Instruments & Components)

          171,000         911,826   

Isuzu Motors Limited (Consumer Discretionary, Automobiles)

          16,500         204,460   

Itochu Corporation (Industrials, Trading Companies & Distributors)

          14,600         184,954   

Japan Airlines Company Limited (Industrials, Airlines)

          6,300         185,990   

Japan Tobacco Incorporated (Consumer Staples, Tobacco)

          43,320         1,649,853   

KDDI Corporation (Telecommunication Services, Wireless Telecommunication Services)

          29,500         897,912   

Kyorin Company Limited (Health Care, Pharmaceuticals)

          7,900         177,029   

Maeda Road Construction Company Limited (Industrials, Construction & Engineering)

          11,000         203,910   

Marubeni Corporation (Industrials, Trading Companies & Distributors)

          36,300         191,313   

Matsumotokiyoshi Holdings Company Limited (Consumer Staples, Food & Staples Retailing)

          3,000         154,763   

Miraca Holdings Incorporated (Health Care, Health Care Providers & Services)

          1,800         87,194   

Mitsubishi Gas Chemical Company Incorporated (Materials, Chemicals)

          21,000         324,001   

Mitsubishi UFJ Financial Group Incorporated (Financials, Banks)

          203,000         1,054,199   

Mitsui Fudosan Company Limited (Real Estate, Real Estate Management & Development)

          17,000         387,513   

Mizuho Financial Group Incorporated (Financials, Banks)

          171,600         289,791   

Nippon Telegraph & Telephone Corporation (Telecommunication Services, Diversified Telecommunication Services)

          30,100         1,337,523   

Nissan Motor Company Limited (Consumer Discretionary, Automobiles)

          32,200         328,080   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Diversified International Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  
Japan (continued)            

Nisshinbo Holdings Incorporated (Industrials, Industrial Conglomerates)

          12,400       $ 123,799   

Nomura Holdings Incorporated (Financials, Capital Markets)

          173,400         870,555   

NTT DOCOMO Incorporated (Telecommunication Services, Wireless Telecommunication Services)

          47,803         1,203,622   

Resona Holdings Incorporated (Financials, Banks)

          75,000         333,270   

S Foods Incorporated (Consumer Staples, Food Products)

          7,500         200,963   

Sankyu Incorporated (Industrials, Road & Rail)

          28,000         165,271   

Sawai Pharmaceutical Company Limited (Health Care, Pharmaceuticals)

          2,100         135,968   

SEINO Holdings Company Limited (Industrials, Road & Rail)

          3,000         33,327   

Seven & I Holdings Company Limited (Consumer Staples, Food & Staples Retailing)

          2,700         112,845   

Sojitz Corporation (Industrials, Trading Companies & Distributors)

          77,400         203,704   

Sumitomo Corporation (Industrials, Trading Companies & Distributors)

          19,900         229,513   

Sumitomo Heavy Industries Limited (Industrials, Machinery)

          30,000         158,482   

Sumitomo Mitsui Financial Group Incorporated (Financials, Banks)

          8,000         278,669   

Sumitomo Osaka Cement Company (Materials, Construction Materials)

          37,600         155,965   

Toho Holdings Company Limited (Health Care, Health Care Providers & Services)

          6,200         130,361   

Toyo Ink SC Holding Company Limited (Materials, Chemicals)

          36,800         171,595   

Toyo Tire & Rubber Company Limited (Consumer Discretionary, Auto Components)

          5,900         91,085   

Tsumura & Company (Health Care, Pharmaceuticals)

          3,800         108,199   

UBE Industries Limited (Materials, Chemicals)

          79,000         163,469   

Yokohama Rubber Company Limited (Consumer Discretionary, Auto Components)

          10,500         182,626   
             18,386,166   
          

 

 

 
Liechtenstein: 0.11%            

VP Bank AG (Financials, Capital Markets)

          1,177         115,494   
          

 

 

 
Luxembourg: 0.11%            

RTL Group SA (Consumer Discretionary, Media)

          1,513         118,588   
          

 

 

 
Netherlands: 3.57%   

Aegon NV (Financials, Insurance)

          23,200         100,038   

Akzo Nobel NV (Materials, Chemicals)

          5,295         342,245   

ASML Holding NV (Information Technology, Semiconductors & Semiconductor Equipment)

          2,229         236,124   

Heineken NV (Consumer Staples, Beverages)

          1,030         84,858   

ING Groep NV (Financials, Banks)

          44,997         592,499   

Koninklijke Ahold NV (Consumer Staples, Food & Staples Retailing)

          22,000         502,210   

Koninklijke Philips NV (Industrials, Industrial Conglomerates) «

          34,831         1,049,953   

NN Group NV (Financials, Insurance)

          30,802         928,164   
             3,836,091   
          

 

 

 
Norway: 0.81%   

DNB Nor ASA (Financials, Banks)

          12,100         175,005   

Frontline Limited (Energy, Oil, Gas & Consumable Fuels) «

          17,543         128,669   

Marine Harvest ASA (Consumer Staples, Food Products)

          22,503         408,261   

Yara International ASA (Materials, Chemicals)

          4,600         162,569   
             874,504   
          

 

 

 
Poland: 0.07%   

Asseco Poland SA (Information Technology, Software)

          5,900         78,727   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Diversified International Fund     15   

    

 

 

Security name                 Shares      Value  
Russia: 0.33%   

Gazprom Neft Sponsored ADR (Energy, Oil, Gas & Consumable Fuels)

          10,500       $ 152,775   

LUKOIL OAO ADR (Energy, Oil, Gas & Consumable Fuels)

          4,200         204,162   
             356,937   
          

 

 

 
Singapore: 0.30%   

DBS Group Holdings Limited (Financials, Banks)

          17,000         183,288   

United Overseas Bank Limited (Financials, Banks)

          10,700         144,436   
             327,724   
          

 

 

 
South Africa: 0.29%   

Barclays Africa Group Limited (Financials, Banks)

          12,600         146,112   

Imperial Holdings Limited (Consumer Discretionary, Distributors)

          5,700         72,000   

Omnia Holdings Limited (Materials, Chemicals)

          7,600         92,099   
             310,211   
          

 

 

 
South Korea: 3.06%   

BNK Financial Group Incorporated (Financials, Banks)

          1,018         8,265   

Hana Financial Group Incorporated (Financials, Banks)

          37,692         1,080,444   

Industrial Bank of Korea (Financials, Banks)

          16,600         191,497   

KT&G Corporation (Consumer Staples, Tobacco)

          2,300         227,136   

Kwangju Bank (Financials, Banks)

          1,044         9,215   

Orion Corporation (Consumer Staples, Food Products)

          3         1,875   

Samsung Electronics Company Limited GDR (Information Technology, Technology Hardware, Storage & Peripherals) 144A

          578         407,779   

SK Telecom Company Limited (Telecommunication Services, Wireless Telecommunication Services)

          6,237         1,218,238   

Woori Bank (Financials, Banks)

          13,760         150,317   
             3,294,766   
          

 

 

 
Spain: 1.24%   

Banco Santander Central Hispano SA (Financials, Banks)

          29,500         144,982   

Distribuidora Internacional SA (Consumer Staples, Food & Staples Retailing)

          33,900         181,491   

Gas Natural SDG SA (Utilities, Gas Utilities)

          15,700         309,793   

Grifols SA (Health Care, Biotechnology)

          11,464         226,649   

Grifols SA ADR (Health Care, Biotechnology)

          26,016         371,769   

International Consolidated Airlines Group SA (Industrials, Airlines)

          17,900         95,175   
             1,329,859   
          

 

 

 
Sweden: 1.03%   

Boliden AB (Materials, Metals & Mining)

          11,400         264,170   

Nordea Bank AB (Financials, Banks)

          15,000         157,687   

Swedbank AB Class A (Financials, Banks)

          17,288         405,013   

Telefonaktiebolaget LM Ericsson Class B (Information Technology, Communications Equipment)

          25,000         121,012   

Telia Company AB (Telecommunication Services, Diversified Telecommunication Services)

          40,300         161,072   
             1,108,954   
          

 

 

 
Switzerland: 6.61%   

Actelion Limited (Health Care, Biotechnology)

          3,028         437,577   

Aryzta AG (Consumer Staples, Food Products)

          3,400         149,393   

Baloise Holding AG (Financials, Insurance)

          2,000         246,173   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Diversified International Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  
Switzerland (continued)   

Credit Suisse Group AG (Financials, Capital Markets)

          20,800       $ 290,492   

Georg Fischer AG (Industrials, Machinery)

          300         266,030   

LafargeHolcim Limited (Materials, Construction Materials)

          1,649         88,070   

Nestle SA (Consumer Staples, Food Products)

          23,337         1,692,112   

Novartis AG (Health Care, Pharmaceuticals)

          13,026         926,715   

Roche Holding AG (Health Care, Pharmaceuticals)

          1,893         435,206   

Swiss Life Holding AG (Financials, Insurance)

          1,500         397,150   

Swiss Reinsurance AG (Financials, Insurance)

          5,600         520,075   

UBS Group AG (Financials, Capital Markets)

          18,822         266,291   

Valiant Holding AG (Financials, Banks)

          1,900         180,198   

Zurich Insurance Group AG (Financials, Insurance)

          4,645         1,215,290   
             7,110,772   
          

 

 

 
Taiwan: 1.01%   

Pegatron Corporation (Information Technology, Technology Hardware, Storage & Peripherals)

          83,000         223,560   

Taiwan Semiconductor Manufacturing Company Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          124,000         740,680   

Zhen Ding Technology Holding (Information Technology, Electronic Equipment, Instruments & Components)

          55,000         125,311   
             1,089,551   
          

 

 

 
Thailand: 0.30%   

Bangchak Petroleum PCL (Energy, Oil, Gas & Consumable Fuels)

          135,400         117,033   

Thai Beverage PCL (Consumer Staples, Beverages)

          80,000         55,490   

Thai Oil PCL (Energy, Oil, Gas & Consumable Fuels)

          75,100         150,211   
             322,734   
          

 

 

 
United Kingdom: 14.22%   

3i Group plc (Financials, Capital Markets)

          27,100         222,574   

Aon plc (Financials, Insurance)

          9,712         1,076,381   

AstraZeneca plc (Health Care, Pharmaceuticals)

          2,700         151,624   

Aviva plc (Financials, Insurance)

          22,000         119,237   

Babcock International Group plc (Industrials, Commercial Services & Supplies)

          1,206         14,599   

BAE Systems plc (Industrials, Aerospace & Defense)

          70,700         469,462   

Barclays plc (Financials, Banks)

          66,900         155,828   

Barratt Developments plc (Consumer Discretionary, Household Durables)

          23,400         129,947   

Bellway plc (Consumer Discretionary, Household Durables)

          4,200         121,631   

Berkeley Group Holdings plc (Consumer Discretionary, Household Durables)

          4,400         127,046   

BHP Billiton plc (Materials, Metals & Mining)

          11,966         180,810   

BHP Billiton plc ADR (Materials, Metals & Mining)

          527         15,936   

Bovis Homes Group plc (Consumer Discretionary, Household Durables)

          8,600         79,738   

BP plc (Energy, Oil, Gas & Consumable Fuels)

          91,700         542,909   

British American Tobacco plc (Consumer Staples, Tobacco)

          9,939         570,737   

BT Group plc (Telecommunication Services, Diversified Telecommunication Services)

          18,500         85,130   

Carillion plc (Industrials, Construction & Engineering)

          30,400         93,433   

Centrica plc (Utilities, Multi-Utilities)

          68,900         180,643   

Coca-Cola European Partners plc (Consumer Staples, Beverages)

          19,177         737,164   

Conva Tec Limited (Health Care, Health Care Equipment & Supplies) †144A

          91,891         281,187   

Crest Nicholson Holdings plc (Consumer Discretionary, Household Durables)

          20,500         102,099   

Debenhams plc (Consumer Discretionary, Multiline Retail)

          93,500         61,456   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Diversified International Fund     17   

    

 

 

Security name                 Shares      Value  
United Kingdom (continued)           

Delphi Automotive plc (Consumer Discretionary, Auto Components)

          4,979       $ 323,984   

easyJet plc (Industrials, Airlines)

          6,900         79,135   

Firstgroup plc (Industrials, Road & Rail) †

          54,400         72,978   

Galliford Try plc (Industrials, Construction & Engineering)

          6,500         97,541   

GlaxoSmithKline plc (Health Care, Pharmaceuticals)

          8,800         174,332   

Imperial Tobacco Group plc (Consumer Staples, Tobacco)

          6,931         335,567   

J Sainsbury plc (Consumer Staples, Food & Staples Retailing)

          90,900         279,156   

Kingfisher plc (Consumer Discretionary, Specialty Retail)

          29,100         128,689   

Liberty Global plc Class A (Consumer Discretionary, Media)

          17,830         581,258   

Liberty Global plc Class C (Consumer Discretionary, Media)

          27,948         888,746   

Liberty Latin America and Caribbean Group Class A (Consumer Discretionary, Media) †

          2,356         65,120   

Liberty Latin America and Caribbean Group Class C (Consumer Discretionary, Media) †

          3,601         99,532   

Lloyds Banking Group plc (Financials, Banks)

          134,900         94,546   

Marks & Spencer Group plc (Consumer Discretionary, Multiline Retail)

          33,900         141,286   

Mitie Group plc (Industrials, Commercial Services & Supplies) «

          31,900         82,230   

Mondi plc (Materials, Paper & Forest Products)

          4,200         82,047   

Old Mutual plc (Financials, Insurance)

          59,600         146,995   

Qinetiq Group plc (Industrials, Aerospace & Defense)

          47,700         134,402   

Reckitt Benckiser Group plc (Consumer Staples, Household Products)

          4,124         369,144   

Redrow plc (Consumer Discretionary, Household Durables)

          24,200         112,381   

Royal Dutch Shell plc Class B (Energy, Oil, Gas & Consumable Fuels)

          13,800         357,249   

Royal Mail plc (Industrials, Air Freight & Logistics)

          20,900         125,606   

Smiths Group plc (Industrials, Industrial Conglomerates)

          61,544         1,068,178   

St. James’s Place plc (Financials, Insurance)

          2,900         33,544   

Tullett Prebon plc (Financials, Capital Markets)

          20,600         89,511   

Unilever plc (Consumer Staples, Personal Products)

          17,720         741,340   

United Business Media plc (Consumer Discretionary, Media)

          62,639         550,875   

Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services)

          399,658         1,099,680   

William Morrison Supermarkets plc (Consumer Staples, Food & Staples Retailing)

          34,200         94,815   

Wolseley plc (Industrials, Trading Companies & Distributors)

          25,632         1,333,691   
             15,303,129   
          

 

 

 
United States: 3.08%           

Amazon.com Incorporated (Consumer Discretionary, Internet & Direct Marketing Retail) †

          563         444,669   

Apple Incorporated (Information Technology, Technology Hardware, Storage & Peripherals)

          5,011         568,949   

Coach Incorporated (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          20,243         726,521   

Pfizer Incorporated (Health Care, Pharmaceuticals)

          25,399         805,402   

WABCO Holdings Incorporated (Industrials, Machinery) †

          3,212         316,254   

Willis Towers Watson plc (Financials, Insurance)

          3,626         456,513   
             3,318,308   
          

 

 

 

Total Common Stocks (Cost $97,593,519)

             98,797,611   
          

 

 

 

Exchange-Traded Funds: 0.51%

          
United States: 0.51%           

iShares MSCI ACWI ex US ETF

          13,300         541,975   
          

 

 

 

Total Exchange-Traded Funds (Cost $542,282)

             541,975   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

18   Wells Fargo Diversified International Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name         Expiration date      Shares      Value  

Participation Notes: 1.15%

         
China: 0.53%          

HSBC Bank plc (Kweichow Moutai Company Limited Class A) (Consumer Staples, Beverages) †

      2-19-2019         12,090       $ 568,145   
         

 

 

 
Ireland: 0.62%          

HSBC Bank plc (Ryanair Holdings plc) (Industrials, Airlines)

      10-29-2018         48,787         672,816   
         

 

 

 

Total Participation Notes (Cost $957,954)

            1,240,961   
         

 

 

 
    Dividend yield                      
Preferred Stocks: 0.63%          
Brazil: 0.04%          

Companhia Energetica de Minas Gerais SA (Utilities, Electric Utilities) ±

    3.23        13,600         41,541   
         

 

 

 
Germany: 0.59%          

Henkel AG & Company KGaA (Consumer Staples, Household Products) ±

    1.30           4,924         631,882   
         

 

 

 

Total Preferred Stocks (Cost $560,256)

            673,423   
         

 

 

 

Rights: 0.00%

         
Spain: 0.00%          

Banco Santander SA (Financials, Banks) †

      1-27-2017         29,500         1,652   
         

 

 

 

Total Rights (Cost $1,461)

            1,652   
         

 

 

 
    Yield                      
Short-Term Investments: 5.93%          
Investment Companies: 5.93%          

Securities Lending Cash Investment LLC (l)(r)(u)

    0.69           1,251,365         1,251,490   

Wells Fargo Government Money Market Fund Select
Class (l)(u)

    0.32           5,132,495         5,132,495   

Total Short-Term Investments (Cost $6,383,931)

            6,383,985          
         

 

 

 

 

Total investments in securities (Cost $106,039,403) *     100.04        107,639,607   

Other assets and liabilities, net

    (0.04        (38,140
 

 

 

      

 

 

 
Total net assets     100.00      $ 107,601,467   
 

 

 

      

 

 

 

 

 

Non-income-earning security

 

(a) The security is fair valued in accordance with procedures approved by the Board of Trustees.

 

« All or a portion of this security is on loan.

 

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.

 

± Variable rate investment. The rate shown is the rate in effect at period end.

 

(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 $107,016,742 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 9,751,435   

Gross unrealized losses

     (9,128,570
  

 

 

 

Net unrealized gains

   $ 622,865   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Statement of assets and liabilities—October 31, 2016   Wells Fargo Diversified International Fund     19   
         

Assets

 

Investments

 

In unaffiliated securities (including $1,188,558 of securities loaned), at value (cost $99,655,472)

  $ 101,255,622   

In affiliated securities, at value (cost $6,383,931)

    6,383,985   
 

 

 

 

Total investments, at value (cost $106,039,403)

    107,639,607   

Foreign currency, at value (cost $811,352)

    786,251   

Receivable for investments sold

    1,074,691   

Receivable for Fund shares sold

    73,092   

Receivable for dividends

    402,969   

Receivable for securities lending income

    3,599   

Unrealized gains on forward foreign currency contracts

    117,922   

Prepaid expenses and other assets

    56,971   
 

 

 

 

Total assets

    110,155,102   
 

 

 

 

Liabilities

 

Payable for investments purchased

    1,013,952   

Payable for Fund shares redeemed

    78,142   

Payable upon receipt of securities loaned

    1,251,423   

Due to custodian bank

    43,018   

Management fee payable

    34,736   

Distribution fees payable

    2,906   

Administration fees payable

    16,067   

Accrued expenses and other liabilities

    113,391   
 

 

 

 

Total liabilities

    2,553,635   
 

 

 

 

Total net assets

  $ 107,601,467   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 208,519,009   

Undistributed net investment income

    2,027,832   

Accumulated net realized losses on investments

    (104,625,041

Net unrealized gains on investments

    1,679,667   
 

 

 

 

Total net assets

  $ 107,601,467   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 61,031,144   

Shares outstanding – Class A1

    5,510,248   

Net asset value per share – Class A

    $11.08   

Maximum offering price per share – Class A2

    $11.76   

Net assets – Class B

  $ 9,409   

Shares outstanding – Class B1

    870   

Net asset value per share – Class B

    $10.81   

Net assets – Class C

  $ 4,350,630   

Shares outstanding – Class C1

    428,057   

Net asset value per share – Class C

    $10.16   

Net assets – Class R

  $ 25,521   

Shares outstanding – Class R1

    2,269   

Net asset value per share – Class R

    $11.25   

Net assets – Class R6

  $ 5,523,159   

Shares outstanding – Class R61

    487,311   

Net asset value per share – Class R6

    $11.33   

Net assets – Administrator Class

  $ 12,333,612   

Shares outstanding – Administrator Class1

    1,093,423   

Net asset value per share – Administrator Class

    $11.28   

Net assets – Institutional Class

  $ 24,327,992   

Shares outstanding – Institutional Class1

    2,292,868   

Net asset value per share – Institutional Class

    $10.61   

 

 

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

 

20   Wells Fargo Diversified International Fund   Statement of operations—year ended October 31, 2016
         

Investment income

 

Dividends (net of foreign withholding taxes of $279,088)

  $ 3,181,332   

Securities lending income, net

    86,060   

Income from affiliated securities

    15,491   
 

 

 

 

Total investment income

    3,282,883   
 

 

 

 

Expenses

 

Management fee

    964,927   

Administration fees

 

Class A

    138,194   

Class B

    29   

Class C

    9,148   

Class R

    53   

Class R6

    1,450   

Administrator Class

    15,923   

Institutional Class

    25,910   

Shareholder servicing fees

 

Class A

    164,161   

Class B

    35   

Class C

    10,891   

Class R

    63   

Administrator Class

    30,622   

Distribution fees

 

Class B

    104   

Class C

    32,673   

Class R

    63   

Custody and accounting fees

    177,781   

Professional fees

    50,195   

Registration fees

    103,931   

Shareholder report expenses

    59,456   

Trustees’ fees and expenses

    18,027   

Other fees and expenses

    50,531   
 

 

 

 

Total expenses

    1,854,167   

Less: Fee waivers and/or expense reimbursements

    (480,828
 

 

 

 

Net expenses

    1,373,339   
 

 

 

 

Net investment income

    1,909,544   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (2,372,926

Forward foreign currency contract transactions

    269,813   
 

 

 

 

Net realized losses on investments

    (2,103,113
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (4,103,959

Affiiliated securities

    54   

Forward foreign currency contract transactions

    (5,369
 

 

 

 

Net change in unrealized gains (losses) on investments

    (4,109,274
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (6,212,387
 

 

 

 

Net decrease in net assets resulting from operations

  $ (4,302,843
 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Statement of changes in net assets   Wells Fargo Diversified International Fund     21   
    

Year ended

October 31, 2016

   

Year ended

October 31, 2015

 

Operations

       

Net investment income

    $ 1,909,544        $ 992,143   

Net realized gains (losses) on investments

      (2,103,113       2,645,943   

Net change in unrealized gains (losses) on investments

      (4,109,274       (4,768,915
 

 

 

 

Net decrease in net assets resulting from operations

      (4,302,843       (1,130,829
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (692,930       (567,395

Class C

      (30,743       (25,962

Class R

      (268       0 1 

Class R6

      (54,538       0 1 

Administrator Class

      (136,524       (172,327

Institutional Class

      (249,898       (79,049

Investor Class

      N/A          (1,116,769 )2 
 

 

 

 

Total distributions to shareholders

      (1,164,901       (1,961,502
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    322,484        3,510,932        4,606,846        54,061,650   

Class B

    0        0        4,423        54,704   

Class C

    281,595        2,860,258        226,478        2,559,311   

Class R

    0        0        2,246 1      25,000 1 

Class R6

    517,935        6,092,247        2,246 1      25,000 1 

Administrator Class

    459,760        5,176,981        459,323        5,711,707   

Institutional Class

    1,803,946        19,585,715        523,640        5,896,811   

Investor Class

    N/A        N/A        772,749 2      9,262,576 2 
 

 

 

 
      37,226,133          77,596,759   
 

 

 

 

Reinvestment of distributions

       

Class A

    60,092        682,650        45,755        531,212   

Class C

    2,596        27,233        2,080        22,425   

Class R

    23        268        0 1      0 1 

Class R6

    4,710        54,538        0 1      0 1 

Administrator Class

    11,807        136,486        14,509        171,495   

Institutional Class

    21,007        227,935        5,648        62,524   

Investor Class

    N/A        N/A        94,956 2      1,098,641 2 
 

 

 

 
      1,129,110          1,886,297   
 

 

 

 

Payment for shares redeemed

       

Class A

    (1,217,038     (13,371,782     (383,282     (4,674,632

Class B

    (3,553     (39,685     (3,247     (36,560

Class C

    (188,833     (1,877,720     (41,808     (464,550

Class R6

    (37,580     (419,983     0 1      0 1 

Administrator Class

    (266,367     (2,965,371     (180,963     (2,216,207

Institutional Class

    (169,927     (1,825,525     (124,691     (1,439,122

Investor Class

    N/A        N/A        (4,980,967 )2      (58,064,112 )2 
 

 

 

 
      (20,500,066       (66,895,183
 

 

 

 

Net increase in net assets resulting from capital share transactions

      17,855,177          12,587,873   
 

 

 

 

Total increase in net assets

      12,387,433          9,495,542   
 

 

 

 

Net assets

       

Beginning of period

      95,214,034          85,718,492   
 

 

 

 

End of period

    $ 107,601,467        $ 95,214,034   
 

 

 

 

Undistributed net investment income

    $ 2,027,832        $ 1,033,199   
 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

2  For the period from November 1, 2014 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

 

22   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.65        $12.01        $12.25        $10.25        $9.69   

Net investment income

    0.17        0.13 1      0.24 1      0.19 1      0.19 1 

Net realized and unrealized gains (losses) on investments

    (0.63     (0.21     (0.29     2.41        0.51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.46     (0.08     (0.05     2.60        0.70   

Distributions to shareholders from

         

Net investment income

    (0.11     (0.28     (0.19     (0.60     (0.14

Net asset value, end of period

    $11.08        $11.65        $12.01        $12.25        $10.25   

Total return2

    (3.96 )%      (0.66 )%      (0.49 )%      26.59     7.45

Ratios to average net assets (annualized)

         

Gross expenses

    1.79     1.85     1.76     1.92     1.68

Net expenses

    1.35     1.40     1.41     1.41     1.41

Net investment income

    1.67     1.07     1.93     1.75     1.96

Supplemental data

         

Portfolio turnover rate

    50     31     33     40     57

Net assets, end of period (000s omitted)

    $61,031        $73,891        $24,921        $28,928        $22,434   

 

 

 

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.


Table of Contents

 

Financial highlights   Wells Fargo Diversified International Fund     23   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.34        $11.50        $11.71        $9.80        $9.19   

Net investment income

    0.09 1      0.03 1      0.13 1      0.09 1      0.10 1 

Net realized and unrealized gains (losses) on investments

    (0.62     (0.19     (0.27     2.32        0.51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.53     (0.16     (0.14     2.41        0.61   

Distributions to shareholders from

         

Net investment income

    0.00        0.00        (0.07     (0.50     (0.00 )2 

Net asset value, end of period

    $10.81        $11.34        $11.50        $11.71        $9.80   

Total return3

    (4.67 )%      (1.39 )%      (1.25 )%      25.70     6.69

Ratios to average net assets (annualized)

         

Gross expenses

    2.52     2.59     2.52     2.68     2.35

Net expenses

    2.08     2.15     2.16     2.16     2.12

Net investment income

    0.84     0.29     1.10     0.88     1.11

Supplemental data

         

Portfolio turnover rate

    50     31     33     40     57

Net assets, end of period (000s omitted)

    $9        $50        $37        $174        $299   

 

 

 

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

 

24   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.74        $11.08        $11.35        $9.54        $9.01   

Net investment income

    0.10 1      0.04 1      0.13 1      0.09 1      0.11 1 

Net realized and unrealized gains (losses) on investments

    (0.60     (0.20     (0.27     2.25        0.48   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.50     (0.16     (0.14     2.34        0.59   

Distributions to shareholders from

         

Net investment income

    (0.08     (0.18     (0.13     (0.53     (0.06

Net asset value, end of period

    $10.16        $10.74        $11.08        $11.35        $9.54   

Total return2

    (4.72 )%      (1.44 )%      (1.24 )%      25.67     6.67

Ratios to average net assets (annualized)

         

Gross expenses

    2.54     2.60     2.51     2.66     2.43

Net expenses

    2.10     2.15     2.16     2.16     2.16

Net investment income

    1.01     0.33     1.15     0.84     1.21

Supplemental data

         

Portfolio turnover rate

    50     31     33     40     57

Net assets, end of period (000s omitted)

    $4,351        $3,573        $1,616        $1,746        $628   

 

 

 

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.


Table of Contents

 

Financial highlights   Wells Fargo Diversified International Fund     25   

(For a share outstanding throughout each period)

 

    

  Year ended October 31  

 
CLASS R    2016      20151  

Net asset value, beginning of period

     $11.86         $11.13   

Net investment income (loss)1

     0.16 2       (0.01

Net realized and unrealized gains (losses) on investments

     (0.65      0.74   
  

 

 

    

 

 

 

Total from investment operations

     (0.49      0.73   

Distributions to shareholders from

     

Net investment income

     (0.12      0.00   

Net asset value, end of period

     $11.25         $11.86   

Total return3

     (4.16 )%       6.56

Ratios to average net assets (annualized)

     

Gross expenses

     2.04      2.15

Net expenses

     1.60      1.60

Net investment income (loss)

     1.42      (0.65 )% 

Supplemental data

     

Portfolio turnover rate

     50      31

Net assets, end of period (000s omitted)

     $26         $27   

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 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

 

26   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    

  Year ended October 31  

 
CLASS R6    2016      20151  

Net asset value, beginning of period

     $11.87         $11.13   

Net investment income

     0.26 2       0.00 3 

Net realized and unrealized gains (losses) on investments

     (0.68      0.74   
  

 

 

    

 

 

 

Total from investment operations

     (0.42      0.74   

Distributions to shareholders from

     

Net investment income

     (0.12      0.00   

Net asset value, end of period

     $11.33         $11.87   

Total return4

     (3.55 )%       6.65

Ratios to average net assets (annualized)

     

Gross expenses

     1.36      1.46

Net expenses

     0.89      0.89

Net investment income

     2.30      0.05

Supplemental data

     

Portfolio turnover rate

     50      31

Net assets, end of period (000s omitted)

     $5,523         $27   

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005 per share.

 

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 Diversified International Fund     27   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.87        $12.23        $12.47        $10.42        $9.68   

Net investment income

    0.20 1      0.16 1      0.26 1      0.19 1      0.21 1 

Net realized and unrealized gains (losses) on investments

    (0.66     (0.22     (0.30     2.47        0.53   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.46     (0.06     (0.04     2.66        0.74   

Distributions to shareholders from

         

Net investment income

    (0.13     (0.30     (0.20     (0.61     0.00   

Net asset value, end of period

    $11.28        $11.87        $12.23        $12.47        $10.42   

Total return

    (3.90 )%      (0.46 )%      (0.39 )%      26.85     7.64

Ratios to average net assets (annualized)

         

Gross expenses

    1.71     1.72     1.60     1.74     1.52

Net expenses

    1.25     1.25     1.25     1.25     1.25

Net investment income

    1.83     1.31     2.10     1.72     2.11

Supplemental data

         

Portfolio turnover rate

    50     31     33     40     57

Net assets, end of period (000s omitted)

    $12,334        $10,540        $7,283        $8,195        $3,504   

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


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28   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.14        $11.50        $11.79        $10.20        $9.69   

Net investment income

    0.23 1      0.17 1      0.26 1      0.20 1      0.19 1 

Net realized and unrealized gains (losses) on investments

    (0.63     (0.20     (0.27     2.37        0.51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.40     (0.03     (0.01     2.57        0.70   

Distributions to shareholders from

         

Net investment income

    (0.13     (0.33     (0.28     (0.98     (0.19

Net asset value, end of period

    $10.61        $11.14        $11.50        $11.79        $10.20   

Total return

    (3.63 )%      (0.23 )%      (0.18 )%      27.28     7.51

Ratios to average net assets (annualized)

         

Gross expenses

    1.46     1.47     1.33     1.50     1.20

Net expenses

    0.99     0.99     0.99     0.99     0.99

Net investment income

    2.16     1.45     2.23     1.94     1.96

Supplemental data

         

Portfolio turnover rate

    50     31     33     40     57

Net assets, end of period (000s omitted)

    $24,328        $7,106        $2,683        $2,406        $7,367   

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Notes to financial statements   Wells Fargo Diversified International Fund     29   

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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Diversified International 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.

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 October 31, 2016, 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 vehicles 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 changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange


Table of Contents

 

30   Wells Fargo Diversified International 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 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.

Participation notes

The Fund may invest in participation notes to gain exposure to securities in certain foreign markets. Participation notes are issued by banks or broker-dealers and are designed to offer a return linked to a particular underlying foreign security. Participation notes involve transaction costs, which may be higher than those applicable to the underlying foreign security. The holder of the participation note is entitled to receive from the bank or broker-dealer, an amount equal to the dividend paid by the issuer of the underlying foreign security; however, the holder is not entitled to the same rights (i.e. dividends, voting rights) as an owner of the underlying foreign security. Investments in participation notes involve risks beyond those normally associated with a direct investment in an underlying security. The Fund has no rights against the issuer of the underlying foreign security and participation notes expose the Fund to counterparty risk in the event the counterparty does not perform. There is also no assurance there will be a secondary trading market for the participation note or that the trading price of the participation note will equal the underlying value of the foreign security that it seeks to replicate.

Forward foreign currency contracts

The Fund is subject to foreign currency 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


Table of Contents

 

Notes to financial statements   Wells Fargo Diversified International Fund     31   

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, 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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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 foreign currency transactions. At October 31, 2016, 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
$249,990    $(249,990)

Capital loss carryforwards that do not expire are required to be utilized prior to capital loss carryforwards that expire. As of October 31, 2016, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:

 

     No expiration
2017    Short-term    Long-term
$89,306,475    $11,620,385    $2,744,226

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

 

32   Wells Fargo Diversified International 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 significant 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, use of amortized cost, 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 October 31, 2016:

 

     Quoted prices
(Level 1)
    

Other significant
observable inputs

(Level 2)

    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Australia

   $ 1,917,499       $ 0       $ 6,651       $ 1,924,150   

Austria

     317,806         0         0         317,806   

Belgium

     461,455         0         0         461,455   

Brazil

     505,990         0         0         505,990   

Canada

     2,634,308         0         0         2,634,308   

China

     5,794,206         0         0         5,794,206   

Czech Republic

     92,350         0         0         92,350   

Denmark

     909,001         0         0         909,001   

Finland

     96,015         0         0         96,015   

France

     5,915,263         0         0         5,915,263   

Germany

     14,447,838         0         0         14,447,838   

Hong Kong

     2,982,347         0         0         2,982,347   

Hungary

     75,227         0         0         75,227   

India

     145,817         0         0         145,817   

Indonesia

     92,379         0         0         92,379   

Ireland

     2,156,890         0         0         2,156,890   

Israel

     411,996         0         0         411,996   

Italy

     2,552,058         0         0         2,552,058   

Japan

     18,386,166         0         0         18,386,166   

Liechtenstein

     115,494         0         0         115,494   

Luxembourg

     118,588         0         0         118,588   

Netherlands

     3,836,091         0         0         3,836,091   

Norway

     874,504         0         0         874,504   

Poland

     78,727         0         0         78,727   

Russia

     356,937         0         0         356,937   

Singapore

     327,724         0         0         327,724   

South Africa

     310,211         0         0         310,211   

South Korea

     3,294,766         0         0         3,294,766   

Spain

     1,329,859         0         0         1,329,859   

Sweden

     1,108,954         0         0         1,108,954   


Table of Contents

 

Notes to financial statements   Wells Fargo Diversified International Fund     33   
     Quoted prices
(Level 1)
    

Other significant
observable inputs

(Level 2)

    

Significant
unobservable inputs

(Level 3)

     Total  

Common stocks (continued)

           

Switzerland

   $ 7,110,772       $ 0       $ 0       $ 7,110,772   

Taiwan

     1,089,551         0         0         1,089,551   

Thailand

     322,734         0         0         322,734   

United Kingdom

     15,303,129         0         0         15,303,129   

United States

     3,318,308         0         0         3,318,308   

Exchange-traded funds

           

United States

     541,975         0         0         541,975   

Participation notes

           

China

     0         568,145         0         568,145   

Ireland

     0         672,816         0         672,816   

Preferred stocks

           

Brazil

     41,541         0         0         41,541   

Germany

     631,882         0         0         631,882   

Rights

           

Spain

     0         1,652         0         1,652   

Short-term investments

           

Investment companies

     5,132,495         0         0         5,132,495   

Investments measured at net asset value*

                       0         1,251,490   
     105,138,853         1,242,613         6,651         107,639,607   

Forward foreign currency contracts

     0         117,922         0         117,922   

Total assets

   $ 105,138,853       $ 1,360,535       $ 6,651       $ 107,757,529   

 

* 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 $1,251,490 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

Forward foreign currency contracts are reported at their unrealized gains (losses) at measurement date, which represents the change in the contract’s value from trade date. All other assets and liabilities are reported at their market value at measurement date.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $69,597,499 and preferred stocks valued at $673,423 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund had no material transfers into/out of 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. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadvisers, 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 0.73% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, 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 certain subadvisers to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Artisan Partners Limited Partnership, LSV Asset


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34   Wells Fargo Diversified International Fund   Notes to financial statements

Management, and Wells Cap are the subadvisers to the Fund and are each entitled to receive a fee from Funds Management which is calculated based on the average daily net assets of the Fund as follows:

 

     Annual subadvisory fee  
     starting at      declining to  

Artisan Partners Limited Partnership

     0.80      0.50

LSV Asset Management

     0.35         0.30   

WellsCap

     0.45         0.40   

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 February 28, 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 B shares, 2.10% for Class C shares, 1.60% for Class R shares, 0.89% for Class R6 shares, 1.25% for Administrator Class shares, and 0.99% 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. Prior to March 1, 2016, the Fund’s expenses were capped at 1.41% for Class A shares, 2.16% for Class B shares, and 2.16% for Class C shares.

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 October 31, 2016, Funds Distributor received $719 from the sale of Class A shares and $46 in contingent deferred sales charges from redemptions of Class A.

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 October 31, 2016 were $68,974,551 and $50,831,615, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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 Diversified International Fund     35   

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2016, the Fund entered into forward foreign currency contracts for economic hedging purposes.

At October 31, 2016, the Fund had forward foreign currency contracts outstanding as follows:

Forward foreign currency contracts to sell:

 

Exchange date   Counterparty  

Contracts to

deliver

   

U.S. value at

October 31, 2016

   

In exchange

for U.S. $

    Unrealized
gains
 
12-15-2016   Barclays     2,450,000   EUR    $ 2,694,621      $ 2,763,281      $ 68,660   
12-22-2016   Morgan Stanley     595,000   GBP      729,160        772,422        43,262   
1-13-2017   Credit Suisse     500,000   EUR      550,740        556,740        6,000   

The Fund had average contract amounts of $661,441 and $4,614,055 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2016.

The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate financial statements.

For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, are reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, are noted in the Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:

 

Derivative type      Counterparty      Gross amounts
of assets in the
Statement of
Assets and
Liabilities
       Amounts
subject to
netting
agreements
       Collateral
received
       Net amount
of assets
 

Forward foreign currency contracts

     Barclays        $68,660*         $ 0         $ 0         $ 68,660   
     Morgan Stanley        43,262        0           0           43,262   
     Credit Suisse        6,000        0           0           6,000   
  * Amount represents net unrealized gains.  

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 October 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $1,164,901 and $1,961,502 of ordinary income for the years ended October 31, 2016 and October 31, 2015, respectively.


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36   Wells Fargo Diversified International Fund   Notes to financial statements

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income
   Unrealized
gains
  

Capital loss

carryforward

$2,170,230    $583,314    $(103,671,086)

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. 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 Diversified International Fund     37   

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 Diversified International Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 Diversified International Fund as of October 31, 2016, 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

December 22, 2016


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38   Wells Fargo Diversified International Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 1.37% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended October 31, 2016. 

Pursuant to Section 854 of the Internal Revenue Code, $1,164,902 of income dividends paid during the fiscal year ended October 31, 2016 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 October 31, 2016. 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 Diversified International Fund     39   

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 139 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 investment 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. 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 Chair of Taproot Foundation (non-profit organization), 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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40   Wells Fargo Diversified International 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    

Karla M. Rabusch

(Born 1959)

  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    

Jeremy DePalma1

(Born 1974)

  Treasurer, since 2012   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.    

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 Whitaker3

(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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Other information (unaudited)   Wells Fargo Diversified International Fund     41   

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo Diversified International Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment sub-advisory agreement with Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management; (iii) an investment sub-advisory agreement with Artisan Partners, LP ( “Artisan”); and (iv) an investment sub-advisory agreement with LSV Asset Management (“LSV”). The sub-advisory agreements with WellsCap, Artisan and LSV (the “Sub-Advisers”) are collectively referred to as the “Sub-Advisory Agreements,” and the Management Agreement and the Sub-Advisory Agreements are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Advisers and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Advisers were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Advisers about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Advisers under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Advisers under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Advisers to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Advisers. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by


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42   Wells Fargo Diversified International Fund   Other information (unaudited)

Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe. The Board noted that the performance of the Fund (Administrator Class) was higher than or in range of the average performance of the Universe for all periods under review. The Board also noted that the performance of the Fund was higher than or in range of its benchmark, the MSCI EAFE Index (Net), for all periods under review except the one-year period.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were lower than or equal to the median net operating expense ratios of the expense Groups for all share classes except Class R.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to each of the Sub-Advisers for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were higher than the sum of these average rates for the Fund’s expense Groups for all share classes except Class A and Class R6. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Advisers for sub-advisory services. The Board considered this amount in comparison to the median amount retained by advisers to funds in a sub-advised expense universe that was determined by Broadridge to be similar to the Fund. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Advisers, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and WellsCap, the Board ascribed limited relevance to the allocation of fees between them. The Board also considered that the sub-advisory fees paid to Artisan and LSV had been negotiated by Funds Management on an arm’s length basis.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Advisers to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Advisers under the Sub-Advisory Agreements was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also


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Other information (unaudited)   Wells Fargo Diversified International Fund     43   

received and considered information concerning the profitability of WellsCap from providing services to the fund family as a whole, noting that WellsCap’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis. The Board did not consider profitability with respect to Artisan or LSV, as the sub-advisory fees paid to the Artisan and LSV had been negotiated by Funds Management on an arm’s-length basis.

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Advisers

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates including WellsCap, and Artisan and LSV, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Advisers’ business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by WellsCap and Artisan, fees earned by Funds Management and WellsCap from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including WellsCap, or either Artisan or LSV were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Advisers under each of the Advisory Agreements was reasonable.


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44   Wells Fargo Diversified International 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

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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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

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247340 12-16

A237/AR237 10-16

 


Table of Contents

Annual Report

October 31, 2016

 

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Wells Fargo Emerging Markets Equity Fund

 

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Table of Contents

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Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
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

    23   

Report of independent registered public accounting firm

    30   

Other information

    31   

List of abbreviations

    37   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 Emerging Markets Equity Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Political events in some countries prompted investor concern.

 

 

 

 

The business-supportive stance of major central banks helped offset volatility following the U.S. rate increase.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Emerging Markets Equity Fund for the 12-month period that ended October 31, 2016. Entering the reporting period, many emerging markets commentaries focused on the potential effect of the U.S. Federal Reserve (Fed) raising its key interest rate in December 2015 and concerns about slowing economic growth in China. Political events in some countries prompted investor concern. Throughout the period, the European Central Bank (ECB), the Bank of Japan (BOJ), and the People’s Bank of China (PBOC), maintained policies intended to encourage business activity including low—even negative—interest rates to boost lending and bond-buying programs to enhance liquidity. As the period ended, it appeared that these efforts, the Fed’s hesitancy to raise rates further, and effective resolution of some of the political issues contributed to improving economic data and investment results in several countries in the emerging markets.

In early 2016, emerging markets economies endured challenges.

Following the Fed’s decision in December 2015 to increase rates, the relative value of the U.S. dollar increased. The stronger U.S. dollar pressured emerging markets importers and benefited exporters. In November 2015, the PBOC reduced short-term borrowing costs. The ECB pushed interest rates paid on deposits further into negative territory in late 2015. In January 2016, the BOJ followed the ECB’s lead by setting a negative deposit rate. The Fed indicated that it would be cautious about further rate increases in consideration of global growth risks. The business-supportive stance of major central banks helped offset volatility following the U.S. rate increase.

Political issues affected some emerging markets during the period. Brazil endured a bribery scandal involving the state-owned oil company, Petróleo Brasileiro S.A., and the president was impeached after a scandal related to unauthorized loans from state-owned banks. In addition, a June 2016 referendum approved the U.K.’s exit from the European Union (Brexit), casting uncertainty, particularly on European emerging markets, such as the Czech Republic, Greece, Hungary, and Poland. Despite dire news headlines, each event appeared to have little lasting effect on the markets as governments worked to minimize any negative influence. The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net)1 finished the first half of the period with a (0.13)% return.

A second-half turnaround benefited investments in emerging markets.

Investors’ sentiments improved during the third quarter of 2016, which led to positive returns across global equity markets. The MSCI EM Index (Net) reflected the improved investment climate over the last six months of the period, gaining 9.41%. For the full 12-month period, the index gained 9.27%.

Equity market volatility levels, as measured by the Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX),2 remained relatively low throughout the second half of the period with a brief spike following the Brexit vote. A recovery in commodity prices benefited oil-sensitive economies such as Colombia and other producers and exporters of natural resources in Asia. As political issues were resolved, equity markets

 

 

 

 

1  The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 23 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. 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.

 

2  The Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX) is a popular measure of the implied volatility of S&P 500 Index options. It represents one measure of the market’s expectation of stock market volatility over the next 30-day period. You cannot invest directly in an index.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Emerging Markets Equity Fund     3   

in the respective countries moved higher; Brazilian shares advanced on the installation of a new government, and Peruvian shares gained on a market-friendly election outcome. Also, throughout the period and in several emerging markets countries, the passage of legislative and regulatory reforms that seek to enhance the structure, operations, and oversight of businesses tended to benefit investor confidence and encourage increased investment activity.

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 and other investments 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

    

 

 

 

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

 

4   Wells Fargo Emerging Markets Equity 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

Derrick Irwin, CFA®

Richard Peck, CFA®

Yi (Jerry) Zhang, Ph.D., CFA®

Average annual total returns (%) as of October 31, 20161

 

        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 (EMGAX)   9-6-1994     7.40        (0.91     3.95        13.93        0.27        4.57        1.61        1.61   
Class B (EMGBX)*   9-6-1994     8.05        (0.87     4.03        13.05        (0.47     4.03        2.36        2.36   
Class C (EMGCX)   9-6-1994     12.09        (0.47     3.79        13.09        (0.47     3.79        2.36        2.36   
Class R6 (EMGDX)   6-28-2013                          14.43        0.73        4.97        1.18        1.18   
Administrator Class (EMGYX)   9-6-1994                          14.07        0.43        4.77        1.53        1.49   
Institutional Class (EMGNX)   7-30-2010                          14.40        0.70        4.95        1.28        1.22   
MSCI EM Index (Net)4                            9.27        0.55        3.49                 
*   Class B shares are closed to investment, except in connection with the reinvestment of any distributors and permitted exchanges.

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 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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. 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 smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Emerging Markets Equity Fund     5   
Growth of $10,000 investment as of October 31, 20165
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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 would have been 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 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 Emerging Markets 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 February 28, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver 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.

 

4  The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 23 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. 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

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI EM Index (Net). 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.


Table of Contents

 

6   Wells Fargo Emerging Markets Equity Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

  The Fund outperformed its benchmark, the Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net), for the 12-month period that ended October 31, 2016.

 

  The largest relative contributors among sectors included information technology (IT), consumer discretionary, and financials. China/Hong Kong and Korea were among the most notable contributors on a country basis.

 

  Top detracting sectors included telecommunication services and real estate. Among countries, detractors included Mexico, Indonesia, and Turkey.

Conditions turned positive for emerging markets equities by the spring of 2016.

Despite significant macroeconomic and political news during the period under review, we noted a shift towards stock-specific issues as drivers of emerging markets equity performance. This shift is an important change, in our view, from prior periods, when macroeconomic drivers dominated.

Emerging market equites began the period extending a decline than began in the spring of 2015 and fell decisively below their long-term trading range that had been in place since 2011. China was in the spotlight, with investors around the world watching the worrying outflow of foreign exchange reserves and speculating whether this circumstance might lead to an economic crisis. This toxic environment combined with fears of a global growth slowdown to weigh more broadly on emerging markets currencies and share prices. Between November 2015 and late January 2016, emerging markets equities fell 20%, as measured by the MSCI EM Index (Net).

Then, as if on cue, everything changed on January 21, 2016. The initial catalyst was the announcement that the People’s Bank of China would inject 600 billion yuan into the banking system, shoring up concerns over an imminent banking crisis. Financial markets rallied and dragged crude oil prices along for the ride, as investors also cheered better-than-expected U.S. crude inventory data.

By spring 2016, conditions turned supportive for emerging markets equities. Global central banks’ policies remained accommodative, the U.S. dollar continued to weaken, and commodity prices continued to rise. Volatility increased in June as investors focused on a referendum in the U.K. to leave the European Union, dubbed “Brexit.” However, it was not long before a more ebullient mood reemerged. With most of the major global central banks indicating that interest rates would remain low, funds flowed into both emerging markets bond and equity funds as investors began to search for higher yielding assets. With these events as a backdrop, stocks responded to positive earnings announcements and signs of stabilizing returns on capital at many companies.

In recent months, markets focused to a greater degree on global drivers including the U.S. Federal Reserve and speculation about a fourth quarter interest-rate hike. The U.S. presidential debates drew investor attention to the November presidential election, and concerns over potential protectionism in the U.S. led to increased volatility for the Mexican peso.

We made limited changes to the portfolio over the year, adding China’s Want Want China Holdings Limited and Gridsum Holding Incorporated, as well as AES Gener S.A. in Chile. Brazil’s Petroleo Brasileiro S.A. and Vale S.A., and South Africa’s Sasol Limited were eliminated while China’s Mindray Medical International Limited was removed because it was taken private.

 

Ten largest holdings (%) as of October 31, 20166  

Samsung Electronics Company Limited

    5.05   

Taiwan Semiconductor Manufacturing Company Limited ADR

    3.18   

China Mobile Limited

    3.06   

Fomento Economico Mexicano SAB de CV ADR

    2.60   

SINA Corporation

    2.21   

Uni-President Enterprises Corporation

    2.13   

New Oriental Education & Technology Group Incorporated

    2.02   

China Life Insurance Company Limited H Shares

    1.91   

AIA Group Limited

    1.86   

WH Group Limited

    1.83   

In the portfolio, positive stock selection in China/Hong Kong, Korea, and Brazil was offset by weaker results among portfolio stocks in Mexico and Indonesia. In China/Hong Kong, the Fund benefited from strong performances from such companies as SINA Corporation, Weibo Corporation, New Oriental Education & Technology Group Incorporated, and WH Group Limited. Our biggest challenges were related to the Fund’s positions in China Life Insurance Company Limited and Belle International Holdings Limited, as well as our underweight positioning in Tencent Holdings Limited. Our overweight position in Mexico was impaired by a weak Mexican peso.

 

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Emerging Markets Equity Fund     7   

Among sectors, IT was a key performance driver across a number of regions and business types. This included SINA, Weibo, Taiwan Semiconductor Manufacturing Company Limited, and Russia’s Yandex N.V. In consumer discretionary, portfolio performance benefited from the strong performance of New Oriental Education and Ctrip.com International, Limited, in China, and Lojas Americanas S.A. in Brazil. The Fund lagged in the telecommunication services sector, as America Movil, S.A.B. de C.V., in Mexico, China Mobile Limited, and Bharti Airtel Limited in India all underperformed. Our real estate holding in Mexico, Fibra Uno Administracion S.A. de C.V. also detracted.

 

Sector distribution as of October 31, 20167
LOGO

 

Country allocation as of October 31, 20167

LOGO

We remain cautiously optimistic about the opportunities in emerging markets.

Emerging markets equities have staged an impressive rally off of late-January 2016 lows. While fundamental drivers offer important support, markets clearly enjoy a tailwind from low interest rates and high levels of liquidity globally. Overall, it seems that many of the global macroeconomic trends currently in place should likely remain market drivers into 2017, although to a lesser degree perhaps. Declining margins, a key driver of the lower returns in emerging markets, are projected to stabilize in 2017 which should support returns on capital across the asset class.

While we are encouraged by signs of economic recovery and gradually improving company fundamentals in emerging markets, speculation about global interest rates may increase into 2017. Further, while growth in China has stabilized, the presence of speculative mini-bubbles could be indicative of larger problems below the surface that need to be monitored closely. Our approach has been to use market movements to continually improve the quality of our portfolios and to focus on the longer-term prospects of the companies in which we invest. We think this should be more profitable over time than trying to outguess short-term volatility.

 

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Emerging Markets Equity 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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period1
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,114.80       $ 8.50         1.60

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.10       $ 8.10         1.60

Class B

           

Actual

   $ 1,000.00       $ 1,110.33       $ 12.45         2.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.33       $ 11.88         2.35

Class C

           

Actual

   $ 1,000.00       $ 1,110.54       $ 12.46         2.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.33       $ 11.89         2.35

Class R6

           

Actual

   $ 1,000.00       $ 1,117.13       $ 6.22         1.17

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.26       $ 5.93         1.17

Administrator Class

           

Actual

   $ 1,000.00       $ 1,114.97       $ 7.92         1.49

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.64       $ 7.56         1.49

Institutional Class

           

Actual

   $ 1,000.00       $ 1,116.55       $ 6.49         1.22

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.00       $ 6.19         1.22

 

 

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—October 31, 2016   Wells Fargo Emerging Markets Equity Fund     9   

    

 

 

Security name                 Shares      Value  

Common Stocks: 96.25%

  

Argentina: 0.44%   

MercadoLibre Incorporated (Information Technology, Internet Software & Services)

          82,800       $ 13,911,228   
          

 

 

 
Brazil: 7.33%   

Ambev SA ADR (Consumer Staples, Beverages)

          5,922,000         34,939,800   

B2W Cia Digital (Consumer Discretionary, Internet & Direct Marketing Retail) †

          3,001,424         14,743,837   

Banco Bradesco SA ADR (Financials, Banks)

          3,201,773         33,330,457   

BM&F Bovespa SA (Financials, Capital Markets)

          5,839,000         34,390,100   

BRF Brasil Foods SA ADR (Consumer Staples, Food Products) «

          976,078         16,320,024   

CETIP SA (Financials, Capital Markets)

          2,441,437         34,319,323   

Lojas Renner SA (Consumer Discretionary, Multiline Retail)

          2,927,500         24,762,688   

Multiplan Empreendimentos Imobiliarios SA (Real Estate, Real Estate Management & Development)

          756,200         15,197,440   

Raia Drogasil SA (Consumer Staples, Food & Staples Retailing)

          701,600         15,574,992   

Rumo Logistica Operadora Multimodal SA (Industrials, Road & Rail) †

          2,395,351         5,358,022   
             228,936,683   
          

 

 

 
Chile: 2.30%   

AES Gener SA (Utilities, Independent Power & Renewable Electricity Producers)

          16,613,250         5,656,013   

Banco Santander Chile SA ADR (Financials, Banks) «

          1,407,392         32,158,907   

SACI Falabella (Consumer Discretionary, Multiline Retail)

          4,357,228         34,185,716   
             72,000,636   
          

 

 

 
China: 24.83%   

51Job Incorporated ADR (Industrials, Professional Services) †

          1,058,941         36,003,994   

Alibaba Group Holding Limited ADR (Information Technology, Internet Software & Services) †

          292,037         29,697,243   

Baidu Incorporated ADR (Information Technology, Internet Software & Services) †

          108,540         19,196,384   

Belle International Holdings Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          52,059,000         31,548,672   

China Auto Rental Incorporated (Industrials, Road & Rail) «†

          1,256,469         1,276,631   

China International Capital Corporation Limited H Shares (Financials, Diversified Financial Services) Ǡ

          1,334,904         1,962,196   

China Life Insurance Company Limited H Shares (Financials, Insurance)

          24,018,290         59,646,610   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          8,350,165         95,662,095   

CNOOC Limited (Energy, Oil, Gas & Consumable Fuels)

          24,574,000         31,273,782   

Ctrip.com International Limited ADR (Consumer Discretionary, Internet & Direct Marketing Retail) †

          1,082,632         47,798,203   

Gridsum Holding Incorporated ADR (Information Technology, Software) †

          391,040         5,501,933   

Hengan International Group Company Limited (Consumer Staples, Personal Products)

          4,527,000         36,044,155   

Legend Holdings Corporation H Shares (Financials, Diversified Financial Services)

          908,901         2,266,525   

Li Ning Company Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods) †

          25,884,207         18,489,792   

New Oriental Education & Technology Group Incorporated (Consumer Discretionary, Diversified Consumer Services) †

          1,260,182         63,172,924   

PetroChina Company Limited H Shares (Energy, Oil, Gas & Consumable Fuels)

          11,566,000         7,963,644   

Shandong Weigao Group Medical Polymer Company Limited H Shares (Health Care, Health Care Equipment & Supplies)

          18,024,000         11,759,506   

SINA Corporation (Information Technology, Internet Software & Services) «†

          955,907         68,959,131   

Tencent Holdings Limited (Information Technology, Internet Software & Services)

          1,678,800         44,548,361   

Tingyi Holding Corporation (Consumer Staples, Food Products) «

          15,898,000         17,157,553   

Tsingtao Brewery Company Limited H Shares (Consumer Staples, Beverages)

          7,910,000         31,617,358   

Vipshop Holdings Limited ADR (Consumer Discretionary, Internet & Direct Marketing Retail) †

          3,404,738         46,542,768   

Want Want China Holdings Limited (Consumer Staples, Food Products) «

          32,004,000         19,518,786   

Weibo Corporation ADR (Information Technology, Internet Software & Services) «†

          1,052,436         48,422,557   
             776,030,803   
          

 

 

 
Colombia: 0.54%   

Bancolombia SA ADR (Financials, Banks)

          442,400         16,935,072   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo Emerging Markets Equity Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  
Hong Kong: 4.65%   

AIA Group Limited (Financials, Insurance)

          9,201,400       $ 58,075,640   

Johnson Electric Holdings Limited (Industrials, Electrical Equipment)

          4,214,250         10,193,904   

Sun Art Retail Group Limited (Consumer Staples, Food & Staples Retailing) «

          28,090,500         19,812,268   

WH Group Limited (Consumer Staples, Food Products) 144A

          70,405,500         57,101,120   
             145,182,932   
          

 

 

 
India: 8.97%   

Bharti Airtel Limited (Telecommunication Services, Wireless Telecommunication Services)

          3,738,728         17,840,920   

Bharti Infratel Limited (Telecommunication Services, Diversified Telecommunication Services)

          3,253,851         16,930,266   

HDFC Bank Limited ADR (Financials, Banks)

          123,826         8,764,404   

Housing Development Finance Corporation Limited (Financials, Thrifts & Mortgage Finance)

          1,825,700         37,655,840   

ICICI Bank Limited ADR (Financials, Banks)

          3,281,775         27,205,915   

Indusind Bank Limited (Financials, Banks)

          817,217         14,622,331   

Infosys Limited ADR (Information Technology, IT Services)

          2,217,460         33,838,440   

ITC Limited (Consumer Staples, Tobacco)

          15,268,960         55,246,857   

Reliance Industries Limited (Energy, Oil, Gas & Consumable Fuels)

          744,200         11,713,491   

Reliance Industries Limited GDR (Energy, Oil, Gas & Consumable Fuels) 144A

          1,246,587         39,516,808   

Ultra Tech Cement Limited (Materials, Construction Materials)

          286,000         16,976,118   
             280,311,390   
          

 

 

 
Indonesia: 2.68%   

PT Astra International Tbk (Consumer Discretionary, Automobiles)

          14,651,000         9,235,475   

PT Bank Central Asia Tbk (Financials, Banks)

          9,549,500         11,362,353   

PT Blue Bird Tbk (Industrials, Road & Rail)

          13,605,309         2,919,594   

PT Link Net Tbk (Telecommunication Services, Diversified Telecommunication Services)

          42,078,161         16,124,372   

PT Matahari Department Store Tbk (Consumer Discretionary, Multiline Retail)

          10,474,600         14,470,008   

PT Telekomunikasi Indonesia Persero ADR Tbk (Telecommunication Services, Diversified Telecommunication Services) «

          907,754         29,492,927   
             83,604,729   
          

 

 

 
Malaysia: 1.04%   

Genting Bhd (Consumer Discretionary, Hotels, Restaurants & Leisure)

          8,480,900         15,849,882   

Genting Malaysia Bhd (Consumer Discretionary, Hotels, Restaurants & Leisure)

          14,396,300         16,335,253   

Sime Darby Bhd (Industrials, Industrial Conglomerates)

          115,937         226,347   
             32,411,482   
          

 

 

 
Mexico: 9.27%   

America Movil SAB de CV ADR (Telecommunication Services, Wireless Telecommunication Services) «

          2,782,320         36,559,685   

Cemex SAB de CV ADR (Materials, Construction Materials) †

          2,616,393         22,710,291   

Fibra Uno Administracion SAB de CV (Real Estate, Equity REITs)

          25,336,922         48,218,035   

Fomento Economico Mexicano SAB de CV ADR (Consumer Staples, Beverages)

          850,100         81,329,067   

Grupo Financiero Banorte SAB de CV (Financials, Banks)

          7,568,188         44,645,943   

Grupo Financiero Santander SAB de CV ADR (Financials, Banks)

          2,048,441         18,538,391   

Grupo Sanborns SAB de CV (Consumer Discretionary, Multiline Retail)

          814,226         1,012,775   

Grupo Televisa SAB ADR (Consumer Discretionary, Media)

          722,000         17,710,660   

Telesites SAB de CV (Telecommunication Services, Diversified Telecommunication Services) †

          3,052,320         1,760,240   

Wal-Mart de Mexico SAB de CV (Consumer Staples, Food & Staples Retailing)

          8,127,100         17,190,702   
             289,675,789   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Emerging Markets Equity Fund     11   

    

 

 

Security name                 Shares      Value  
Peru: 0.49%   

Compania de Minas Buenaventura SA ADR (Materials, Metals & Mining) †

          1,152,495       $ 15,316,659   
          

 

 

 
Philippines: 0.91%   

Ayala Corporation (Financials, Diversified Financial Services)

          647,624         11,167,660   

Metropolitan Bank & Trust Company (Financials, Banks)

          4,287,486         7,198,567   

SM Investments Corporation (Industrials, Industrial Conglomerates)

          732,873         10,170,699   
             28,536,926   
          

 

 

 
Russia: 2.65%   

LUKOIL PJSC ADR (Energy, Oil, Gas & Consumable Fuels)

          434,249         21,169,639   

Magnit (Consumer Staples, Food & Staples Retailing) (a)

          95,300         15,979,161   

Mobile Telesystems ADR (Telecommunication Services, Wireless Telecommunication Services)

          1,217,800         9,389,238   

Sberbank of Russia ADR (Financials, Banks)

          1,571,195         14,910,641   

Yandex NV Class A (Information Technology, Internet Software & Services) †

          1,090,106         21,464,187   
             82,912,866   
          

 

 

 
South Africa: 4.38%   

AngloGold Ashanti Limited ADR (Materials, Metals & Mining) †

          878,071         12,064,696   

Clicks Group Limited (Consumer Staples, Food & Staples Retailing)

          720,000         6,701,400   

Impala Platinum Holdings Limited (Materials, Metals & Mining) †

          610,758         2,455,035   

MTN Group Limited (Telecommunication Services, Wireless Telecommunication Services)

          2,102,643         18,146,626   

Shoprite Holdings Limited (Consumer Staples, Food & Staples Retailing)

          2,838,100         41,886,115   

Standard Bank Group Limited (Financials, Banks)

          1,710,190         18,144,788   

Tiger Brands Limited (Consumer Staples, Food Products)

          1,320,333         37,599,441   
             136,998,101   
          

 

 

 
South Korea: 11.60%   

Amorepacific Corporation (Consumer Staples, Personal Products)

          29,300         9,192,659   

KT Corporation ADR (Telecommunication Services, Diversified Telecommunication Services) «

          3,274,813         52,364,260   

KT&G Corporation (Consumer Staples, Tobacco)

          218,091         21,537,499   

Naver Corporation (Information Technology, Internet Software & Services)

          59,700         44,713,043   

Samsung Biologics Company Limited (Health Care, Life Sciences Tools & Services) †(a)

          18,099         2,172,671   

Samsung Electronics Company Limited (Information Technology, Technology Hardware, Storage & Peripherals)

          110,236         157,899,763   

Samsung Life Insurance Company Limited (Financials, Insurance)

          445,337         43,006,107   

SK Hynix Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          883,000         31,639,065   
             362,525,067   
          

 

 

 
Taiwan: 9.06%   

104 Corporation (Industrials, Professional Services)

          1,655,000         7,184,821   

Far Eastern New Century Corporation (Industrials, Industrial Conglomerates)

          7,466,448         5,784,826   

MediaTek Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          2,959,881         22,510,384   

President Chain Store Corporation (Consumer Staples, Food & Staples Retailing)

          4,235,000         31,671,077   

Taiwan Semiconductor Manufacturing Company Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          8,385,224         50,086,817   

Taiwan Semiconductor Manufacturing Company Limited ADR (Information Technology, Semiconductors & Semiconductor Equipment)

          3,192,852         99,297,697   

Uni-President Enterprises Corporation (Consumer Staples, Food Products)

          34,362,368         66,530,640   
             283,066,262   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Emerging Markets Equity Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                Shares      Value  
Thailand: 3.54%   

Bangkok Bank PCL (Financials, Banks)

         1,959,800       $ 8,903,727   

PTT Exploration & Production PCL (Energy, Oil, Gas & Consumable Fuels)

         4,128,139         9,819,775   

PTT PCL (Energy, Oil, Gas & Consumable Fuels)

         2,115,900         20,918,677   

Siam Commercial Bank PCL (Financials, Banks)

         7,405,100         30,363,079   

Thai Beverage PCL (Consumer Staples, Beverages)

         58,527,000         40,595,547   
            110,600,805   
         

 

 

 
Turkey: 0.80%   

Anadolu Efes Biracilik Ve Malt Sanayii AS (Consumer Staples, Beverages)

         2,690,453         16,442,261   

Avivasa Emeklilik Ve Hayat AS (Financials, Insurance)

         1,246,853         8,413,764   
            24,856,025   
         

 

 

 
United Arab Emirates: 0.08%   

Emaar Malls Group (Real Estate, Real Estate Management & Development)

         3,773,147         2,640,109   
         

 

 

 
United Kingdom: 0.69%   

Standard Chartered plc (Financials, Banks) †

         2,475,244         21,568,437   
         

 

 

 

Total Common Stocks (Cost $2,672,714,109)

  

     3,008,022,001   
         

 

 

 
    Interest rate    

Maturity date

    

Principal

        
Convertible Debentures: 0.00%   
Brazil: 0.00%    

Lupatech SA (Energy, Energy Equipment &
Services) (a)(i)(s)

    6.50     4-15-2018       $ 303,000         1,519   
         

 

 

 

Total Convertible Debentures (Cost $160,691)

  

     1,519   
         

 

 

 
    Dividend yield            Shares         
Preferred Stocks: 1.67%   
Brazil: 1.67%   

Lojas Americanas SA (Consumer Discretionary, Multiline Retail) ±

    0.15           8,039,193         52,133,864   
         

 

 

 

Total Preferred Stocks (Cost $31,353,641)

  

     52,133,864   
         

 

 

 
    Yield                      
Short-Term Investments: 6.51%   
Investment Companies: 6.51%   

Securities Lending Cash Investment LLC (l)(r)(u)

    0.69           156,094,383         156,109,992   

Wells Fargo Government Money Market Fund Select Class (l)(u)

    0.32           47,363,740         47,363,740   

Total Short-Term Investments (Cost $203,464,225)

  

     203,473,732        
         

 

 

 

 

Total investments in securities (Cost $2,907,692,666) *     104.43        3,263,631,116   

Other assets and liabilities, net

    (4.43        (138,505,464
 

 

 

      

 

 

 
Total net assets     100.00      $ 3,125,125,652   
 

 

 

      

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Emerging Markets Equity Fund     13   

    

 

 

 

 

 

 

 

Non-income-earning security

 

« All or a portion of this security is on loan.

 

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.

 

(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.

 

(s) The security is currently in default with regards to scheduled interest and/or principal payments. The Fund has stopped accruing interest on the security.

 

± Variable rate investment. The rate shown is the rate in effect at period end.

 

(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 $2,930,369,338 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 746,868,811   

Gross unrealized losses

     (413,607,033
  

 

 

 

Net unrealized gains

   $ 333,261,778   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Emerging Markets Equity Fund   Statement of assets and liabilities—October 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $143,197,872 of securities loaned), at value (cost $2,704,228,441)

  $ 3,060,157,384   

In affiliated securities, at value (cost $203,464,225)

    203,473,732   
 

 

 

 

Total investments, at value (cost $2,907,692,666)

    3,263,631,116   

Cash

    323,286   

Foreign currency, at value (cost $9,938,839)

    9,155,872   

Restricted cash held in escrow

    11,064,943   

Receivable for investments sold

    10,256,084   

Receivable for Fund shares sold

    4,654,383   

Receivable for dividends

    2,706,565   

Receivable for securities lending income

    98,518   

Prepaid expenses and other assets

    110,589   
 

 

 

 

Total assets

    3,302,001,356   
 

 

 

 

Liabilities

 

Payable for investments purchased

    4,538,225   

Payable for Fund shares redeemed

    10,748,060   

Payable upon receipt of securities loaned

    156,099,665   

Management fee payable

    2,817,657   

Distribution fees payable

    47,148   

Administration fees payable

    404,599   

Custodian and accounting fees payable

    1,535,958   

Accrued expenses and other liabilities

    684,392   
 

 

 

 

Total liabilities

    176,875,704   
 

 

 

 

Total net assets

  $ 3,125,125,652   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 3,108,905,007   

Undistributed net investment income

    7,243,488   

Accumulated net realized losses on investments

    (346,196,487

Net unrealized gains on investments

    355,173,644   
 

 

 

 

Total net assets

  $ 3,125,125,652   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 874,624,893   

Shares outstanding – Class A1

    42,680,170   

Net asset value per share – Class A

    $20.49   

Maximum offering price per share – Class A2

    $21.74   

Net assets – Class B

  $ 595,752   

Shares outstanding – Class B1

    34,219   

Net asset value per share – Class B

    $17.41   

Net assets – Class C

  $ 71,900,137   

Shares outstanding – Class C1

    4,161,187   

Net asset value per share – Class C

    $17.28   

Net assets – Class R6

  $ 191,250,086   

Shares outstanding – Class R61

    8,911,512   

Net asset value per share – Class R6

    $21.46   

Net assets – Administrator Class

  $ 160,657,324   

Shares outstanding – Administrator Class1

    7,460,643   

Net asset value per share – Administrator Class

    $21.53   

Net assets – Institutional Class

  $ 1,826,097,460   

Shares outstanding – Institutional Class1

    85,092,527   

Net asset value per share – Institutional Class

    $21.46   

 

 

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 October 31, 2016   Wells Fargo Emerging Markets Equity Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $7,221,075)

  $ 69,834,741   

Securities lending income, net

    845,953   

Income from affiliated securities

    196,657   
 

 

 

 

Total investment income

    70,877,351   
 

 

 

 

Expenses

 

Management fee

    33,409,160   

Administration fees

 

Class A

    1,795,073   

Class B

    1,868   

Class C

    149,226   

Class R6

    37,650   

Administrator Class

    202,999   

Institutional Class

    2,508,236   

Shareholder servicing fees

 

Class A

    2,136,991   

Class B

    2,224   

Class C

    177,650   

Administrator Class

    383,836   

Distribution fees

 

Class B

    6,673   

Class C

    532,950   

Custody and accounting fees

    2,417,080   

Professional fees

    73,861   

Registration fees

    178,039   

Shareholder report expenses

    868,080   

Trustees’ fees and expenses

    23,886   

Interest expense

    3,358   

Other fees and expenses

    47,907   
 

 

 

 

Total expenses

    44,956,747   

Less: Fee waivers and/or expense reimbursements

    (2,211,823
 

 

 

 

Net expenses

    42,744,924   
 

 

 

 

Net investment income

    28,132,427   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (78,866,315

Forward foreign currency contract transactions

    3,514   
 

 

 

 

Net realized losses on investments

    (78,862,801
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    488,238,560   

Affiiliated securities

    (1,861,168
 

 

 

 

Net change in unrealized gains (losses) on investments

    486,377,392   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    407,514,591   
 

 

 

 

Net increase in net assets resulting from operations

  $ 435,647,018   
 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Emerging Markets Equity Fund   Statement of changes in net assets
     Year ended
October 31, 2016
    Year ended
October 31, 2015
 

Operations

       

Net investment income

    $ 28,132,427        $ 28,129,814   

Net realized losses on investments

      (78,862,801       (251,701,617

Net change in unrealized gains (losses) on investments

      486,377,392          (488,939,528
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      435,647,018          (712,511,331
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (4,821,280       (9,924,128

Class R6

      (1,207,067       (428,978

Administrator Class

      (915,237       (2,112,578

Institutional Class

      (22,745,172       (32,080,756
 

 

 

 

Total distributions to shareholders

      (29,688,756       (44,546,440
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    14,276,408        257,431,388        18,081,212        353,509,537   

Class B

    0        0        251        4,375   

Class C

    284,656        4,423,556        176,868        2,961,953   

Class R6

    4,886,774        94,696,839        3,603,754        73,604,149   

Administrator Class

    2,473,929        47,026,221        4,842,916        101,861,997   

Institutional Class

    25,310,308        470,045,141        43,932,979        875,566,645   
 

 

 

 
      873,623,145          1,407,508,656   
 

 

 

 

Reinvestment of distributions

       

Class A

    275,442        4,701,801        489,710        9,691,371   

Class R6

    66,974        1,193,482        20,724        428,978   

Administrator Class

    49,021        878,463        97,246        2,017,592   

Institutional Class

    1,178,702        21,004,467        1,420,577        29,405,954   
 

 

 

 
      27,778,213          41,543,895   
 

 

 

 

Payment for shares redeemed

       

Class A

    (20,179,942     (375,408,750     (40,351,435     (778,700,113

Class B

    (60,187     (925,067     (200,667     (3,410,499

Class C

    (1,621,268     (24,542,512     (2,307,745     (38,097,771

Class R6

    (1,051,876     (20,911,449     (211,230     (4,141,231

Administrator Class

    (4,603,140     (87,710,425     (16,085,608     (308,944,371

Institutional Class

    (54,409,985     (1,055,274,030     (61,121,682     (1,222,764,057
 

 

 

 
      (1,564,772,233       (2,356,058,042
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (663,370,875       (907,005,491
 

 

 

 

Total decrease in net assets

      (257,412,613       (1,664,063,262
 

 

 

 

Net assets

       

Beginning of period

      3,382,538,265          5,046,601,527   
 

 

 

 

End of period

    $ 3,125,125,652        $ 3,382,538,265   
 

 

 

 

Undistributed net investment income

    $ 7,243,488        $ 6,664,024   
 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo Emerging Markets Equity Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.09        $21.44        $21.77        $20.48        $20.93   

Net investment income

    0.12        0.08        0.07        0.02        0.10   

Net realized and unrealized gains (losses) on investments

    2.38        (3.29     (0.40     1.33        (0.19
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.50        (3.21     (0.33     1.35        (0.09

Distributions to shareholders from

         

Net investment income

    (0.10     (0.14     0.00        (0.06     (0.14

Net realized gains

    0.00        0.00        0.00        0.00        (0.22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.10     (0.14     0.00        (0.06     (0.36

Net asset value, end of period

    $20.49        $18.09        $21.44        $21.77        $20.48   

Total return1

    13.93     (15.02 )%      (1.52 )%      6.62     (0.31 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.64     1.64     1.64     1.65     1.67

Net expenses

    1.60     1.64     1.64     1.65     1.67

Net investment income

    0.64     0.37     0.36     0.15     0.51

Supplemental data

         

Portfolio turnover rate

    8     8     7     13     7

Net assets, end of period (000s omitted)

    $874,625        $873,992        $1,502,597        $1,306,269        $920,709   

 

 

 

 

 

1  Total returns calculations do not include any sales charges.

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

18   Wells Fargo Emerging Markets Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $15.40        $18.25        $18.67        $17.64        $18.06   

Net investment loss

    (0.03 )1      (0.08 )1      (0.08 )1      (0.12 )1      (0.05 )1 

Net realized and unrealized gains (losses) on investments

    2.04        (2.77     (0.34     1.15        (0.15
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.01        (2.85     (0.42     1.03        (0.20

Distributions to shareholders from

         

Net realized gains

    0.00        0.00        0.00        0.00        (0.22

Net asset value, end of period

    $17.41        $15.40        $18.25        $18.67        $17.64   

Total return2

    13.05     (15.62 )%      (2.25 )%      5.84     (1.06 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.39     2.38     2.39     2.39     2.41

Net expenses

    2.35     2.38     2.39     2.39     2.41

Net investment loss

    (0.22 )%      (0.46 )%      (0.46 )%      (0.64 )%      (0.28 )% 

Supplemental data

         

Portfolio turnover rate

    8     8     7     13     7

Net assets, end of period (000s omitted)

    $596        $1,453        $5,380        $11,071        $15,408   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Total returns 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 Emerging Markets Equity Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $15.28        $18.11        $18.53        $17.51        $17.92   

Net investment loss

    (0.02 )1      (0.06 )1      (0.08 )1      (0.11 )1      (0.06

Net realized and unrealized gains (losses) on investments

    2.02        (2.77     (0.34     1.13        (0.13
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.00        (2.83     (0.42     1.02        (0.19

Distributions to shareholders from

         

Net realized gains

    0.00        0.00        0.00        0.00        (0.22

Net asset value, end of period

    $17.28        $15.28        $18.11        $18.53        $17.51   

Total return2

    13.09     (15.63 )%      (2.27 )%      5.83     (1.01 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.39     2.39     2.39     2.39     2.42

Net expenses

    2.35     2.39     2.39     2.39     2.42

Net investment loss

    (0.12 )%      (0.39 )%      (0.42 )%      (0.62 )%      (0.24 )% 

Supplemental data

         

Portfolio turnover rate

    8     8     7     13     7

Net assets, end of period (000s omitted)

    $71,900        $84,004        $138,169        $173,454        $183,471   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Total returns calculations do not include any sales charges.

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

20   Wells Fargo Emerging Markets Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS R6   2016     2015     2014     20131  

Net asset value, beginning of period

    $19.00        $22.53        $22.86        $20.89   

Net investment income

    0.23 2      0.19        0.21        0.01 2 

Net realized and unrealized gains (losses) on investments

    2.46        (3.46     (0.44     1.96   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.69        (3.27     (0.23     1.97   

Distributions to shareholders from

       

Net investment income

    (0.23     (0.26     (0.10     0.00   

Net asset value, end of period

    $21.46        $19.00        $22.53        $22.86   

Total return3

    14.43     (14.61 )%      (1.01 )%      9.43

Ratios to average net assets (annualized)

       

Gross expenses

    1.20     1.19     1.17     1.17

Net expenses

    1.17     1.18     1.17     1.17

Net investment income

    1.16     0.84     0.88     0.15

Supplemental data

       

Portfolio turnover rate

    8     8     7     13

Net assets, end of period (000s omitted)

    $191,250        $95,190        $35,967        $4,809   

 

 

 

 

 

1  For the period from June 28, 2013 (commencement of class operations) to October 31, 2013

 

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 Emerging Markets Equity Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.99        $22.44        $22.79        $21.44        $21.90   

Net investment income

    0.15 1      0.12 1      0.13 1      0.05        0.14   

Net realized and unrealized gains (losses) on investments

    2.50        (3.46     (0.44     1.40        (0.18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.65        (3.34     (0.31     1.45        (0.04

Distributions to shareholders from

         

Net investment income

    (0.11     (0.11     (0.04     (0.10     (0.20

Net realized gains

    0.00        0.00        0.00        0.00        (0.22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.11     (0.11     (0.04     (0.10     (0.42

Net asset value, end of period

    $21.53        $18.99        $22.44        $22.79        $21.44   

Total return

    14.07     (14.91 )%      (1.36 )%      6.83     (0.13 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.56     1.49     1.48     1.48     1.47

Net expenses

    1.49     1.48     1.48     1.48     1.47

Net investment income

    0.76     0.58     0.57     0.35     0.72

Supplemental data

         

Portfolio turnover rate

    8     8     7     13     7

Net assets, end of period (000s omitted)

    $160,657        $181,224        $464,135        $1,050,660        $634,428   

 

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

22   Wells Fargo Emerging Markets Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.99        $22.52        $22.86        $21.50        $21.96   

Net investment income

    0.20 1      0.17        0.15        0.11        0.22   

Net realized and unrealized gains (losses) on investments

    2.49        (3.45     (0.40     1.40        (0.22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.69        (3.28     (0.25     1.51        0.00   

Distributions to shareholders from

         

Net investment income

    (0.22     (0.25     (0.09     (0.15     (0.24

Net realized gains

    0.00        0.00        0.00        0.00        (0.22
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.22     (0.25     (0.09     (0.15     (0.46

Net asset value, end of period

    $21.46        $18.99        $22.52        $22.86        $21.50   

Total return

    14.40     (14.66 )%      (1.09 )%      7.07     0.13

Ratios to average net assets (annualized)

         

Gross expenses

    1.31     1.24     1.21     1.22     1.24

Net expenses

    1.22     1.22     1.21     1.22     1.24

Net investment income

    1.04     0.82     0.77     0.57     1.04

Supplemental data

         

Portfolio turnover rate

    8     8     7     13     7

Net assets, end of period (000s omitted)

    $1,826,097        $2,146,675        $2,900,353        $2,183,281        $1,176,567   

 

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Notes to financial statements   Wells Fargo Emerging Markets Equity 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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Emerging Markets Equity 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.

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 October 31, 2016, 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 vehicles 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 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


Table of Contents

 

24   Wells Fargo Emerging Markets Equity Fund   Notes to financial statements

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 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.

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.


Table of Contents

 

Notes to financial statements   Wells Fargo Emerging Markets Equity Fund     25   

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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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 October 31, 2016, 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
$2,135,793    $(2,135,793)

Capital loss carryforwards that do not expire are required to be utilized prior to capital loss carryforwards that expire. As of October 31, 2016, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:

 

     No expiration
2017    Short-term    Long-term
$10,889,490    $28,743,201    $302,353,927

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 significant 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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26   Wells Fargo Emerging Markets Equity Fund   Notes to financial statements
n   Level 1 – quoted prices in active markets for identical securities

 

n   Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.)

 

n   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 October 31, 2016:

 

    

Quoted prices

(Level 1)

     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Argentina

   $ 13,911,228       $ 0       $ 0       $ 13,911,228   

Brazil

     228,936,683         0         0         228,936,683   

Chile

     72,000,636         0         0         72,000,636   

China

     776,030,803         0         0         776,030,803   

Colombia

     16,935,072         0         0         16,935,072   

Hong Kong

     145,182,932         0         0         145,182,932   

India

     280,311,390         0         0         280,311,390   

Indonesia

     83,604,729         0         0         83,604,729   

Malaysia

     32,411,482         0         0         32,411,482   

Mexico

     289,675,789         0         0         289,675,789   

Peru

     15,316,659         0         0         15,316,659   

Philippines

     28,536,926         0         0         28,536,926   

Russia

     66,933,705         15,979,161         0         82,912,866   

South Africa

     136,998,101         0         0         136,998,101   

South Korea

     360,352,396         2,172,671         0         362,525,067   

Taiwan

     283,066,262         0         0         283,066,262   

Thailand

     110,600,805         0         0         110,600,805   

Turkey

     24,856,025         0         0         24,856,025   

United Arab Emirates

     2,640,109         0         0         2,640,109   

United Kingdom

     21,568,437         0         0         21,568,437   

Convertible debentures

        0         1,519         1,519   

Preferred stocks

           

Brazil

     52,133,864         0         0         52,133,864   

Short-term investments

           

Investment companies

     47,363,740         0         0         47,363,740   

Investments measured at net asset value*

                                156,109,992   

Total assets

   $ 3,089,367,773       $ 18,151,832       $ 1,519       $ 3,263,631,116   

 

* 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 $156,109,992 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. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $1,686,213,019 and preferred stocks valued at $52,133,864 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund did not have any transfers into/out of Level 3.


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Notes to financial statements   Wells Fargo Emerging Markets Equity Fund     27   

4. TRANSACTIONS WITH AFFILIATES

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 1.15% and declining to 0.955% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, the management fee was equivalent to an annual rate of 1.06% 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 0.65% 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 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 February 28, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.61% for Class A shares, 2.36% for Class B shares, 2.36% for Class C shares, 1.18% for Class R6 shares, 1.49% for Administrator Class shares, and 1.22% 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 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”), and 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 year ended October 31, 2016, Funds Distributor received $9,124 from the sale of Class A shares and $1,170 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.


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28   Wells Fargo Emerging Markets Equity Fund   Notes to financial statements

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended October 31, 2016 were $252,819,210 and $770,833,429, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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  

104 Corporation*

    1,655,000        0        0        1,655,000      $ 7,184,821      $ 0      $ 0   

 

* No longer an affiliate of the Fund at the end of the period.

7. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2016, the Fund entered into forward foreign currency contracts for economic hedging purposes.

As of October 31, 2016, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $6,985 in forward foreign currency contracts to sell during the year ended October 31, 2016.

The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate 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.

During the year ended October 31, 2016, the Fund had average borrowings outstanding of $258,308 at an average rate of 1.30% and paid interest in the amount of $3,358.

9. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $29,688,756 and $44,546,440 of ordinary income for the years ended October 31, 2016 and October 31, 2015, respectively.

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income
   Unrealized
gains
   Capital loss
carryforward
$25,721,343    $332,495,070    $(341,986,618)

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


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Notes to financial statements   Wells Fargo Emerging Markets Equity Fund     29   

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. 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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30   Wells Fargo Emerging Markets Equity 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 Emerging Markets Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 Emerging Markets Equity Fund as of October 31, 2016, 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

December 22, 2016


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Other information (unaudited)   Wells Fargo Emerging Markets Equity Fund     31   

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $29,688,756 of income dividends paid during the fiscal year ended October 31, 2016 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 October 31, 2016. 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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32   Wells Fargo Emerging Markets Equity 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 139 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 investment 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. 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 Chair of Taproot Foundation (non-profit organization), 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 Emerging Markets Equity Fund     33   

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 G. 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    

Karla M. Rabusch

(Born 1959)

  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    

Jeremy DePalma1

(Born 1974)

  Treasurer, since 2012   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.    

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 Whitaker3

(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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34   Wells Fargo Emerging Markets Equity Fund   Other information (unaudited)

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo Emerging Markets Equity Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); and (ii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Wells Capital Management Incorporated (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Adviser and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Adviser were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Adviser about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Adviser under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Adviser to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Adviser. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe. The Board noted that the performance of the Fund (Administrator Class) was higher than or in range of the


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Other information (unaudited)   Wells Fargo Emerging Markets Equity Fund     35   

average performance of the Universe for all periods under review except the three-year period under review. The Board also noted that the performance of the Fund was higher than or in range of its benchmark, the MSCI Emerging Markets Index (Net), for all periods under review.

The Board received information concerning, and discussed factors contributing to, the underperformance of the Fund relative to the Universe for the period noted above. The Board took note of the explanations for the relative underperformance in these periods, including with respect to market factors and investment decisions that affected the Fund’s performance and of outperformance relative to the benchmark index.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were in range of the median net operating expense ratios of the expense Groups. The Board discussed and accepted Funds Management’s proposal to reduce the net operating expense ratio caps for the Class A, Class B, Class C, Administrator Class, Institutional Class and Class R6.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Adviser for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were in range of the sum of these average rates for the Fund’s expense Groups for all share classes except the Institutional Class. The Board noted that the net operating expense ratios of the Fund were in range of the median net operating expense ratios of the expense Groups for all share classes, including Institutional Class. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Adviser for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Adviser, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Adviser, the Board ascribed limited relevance to the allocation of fees between them.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Adviser to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Adviser under the Sub-Advisory Agreement was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also received and considered information concerning the profitability of the Sub-Adviser from providing services to the fund family as a whole, noting that the Sub-Adviser’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis.


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36   Wells Fargo Emerging Markets Equity Fund   Other information (unaudited)

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board discussed and accepted Funds Management’s proposal to reduce the net operating expense ratio caps for the Class A, Class B, Class C, Administrator Class, Institutional Class and Class R6. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Adviser

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Adviser’s business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Adviser, fees earned by Funds Management and the Sub-Adviser from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


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List of abbreviations   Wells Fargo Emerging Markets Equity 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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

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247341 12-16

A238/AR238 10-16

 


Table of Contents

Annual Report

October 31, 2016

 

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Wells Fargo

Emerging Markets Equity Income 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

    4   

Fund expenses

    8   

Portfolio of investments

    9   
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

    23   

Report of independent registered public accounting firm

    30   

Other information

    31   

List of abbreviations

    37   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 Emerging Markets Equity Income Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Political events in some countries prompted investor concern.

 

 

 

 

The business-supportive stance of major central banks helped offset volatility following the U.S. rate increase.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Emerging Markets Equity Income Fund for the 12-month period that ended October 31, 2016. Entering the reporting period, many emerging markets commentaries focused on the potential effect of the U.S. Federal Reserve (Fed) raising its key interest rate in December 2015 and concerns about slowing economic growth in China. Political events in some countries prompted investor concern. Throughout the period, the European Central Bank (ECB), the Bank of Japan (BOJ), and the People’s Bank of China (PBOC), maintained policies intended to encourage business activity including low—even negative—interest rates to boost lending and bond-buying programs to enhance liquidity. As the period ended, it appeared that these efforts, the Fed’s hesitancy to raise rates further, and effective resolution of some of the political issues contributed to improving economic data and investment results in several countries in the emerging markets.

In early 2016, emerging markets economies endured challenges.

Following the Fed’s decision in December 2015 to increase rates, the relative value of the U.S. dollar increased. The stronger U.S. dollar pressured emerging markets importers and benefited exporters. In November 2015, the PBOC reduced short-term borrowing costs. The ECB pushed interest rates paid on deposits further into negative territory in late 2015. In January 2016, the BOJ followed the ECB’s lead by setting a negative deposit rate. The Fed indicated that it would be cautious about further rate increases in consideration of global growth risks. The business-supportive stance of major central banks helped offset volatility following the U.S. rate increase.

Political issues affected some emerging markets during the period. Brazil endured a bribery scandal involving the state-owned oil company, Petróleo Brasileiro S.A., and the president was impeached after a scandal related to unauthorized loans from state-owned banks. In addition, a June 2016 referendum approved the U.K.’s exit from the European Union (Brexit), casting uncertainty, particularly on European emerging markets, such as the Czech Republic, Greece, Hungary, and Poland. Despite dire news headlines, each event appeared to have little lasting effect on the markets as governments worked to minimize any negative influence. The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net)1 finished the first half of the period with a -0.13% return.

A second-half turnaround benefited investments in emerging markets.

Investors’ sentiments improved during the third quarter of 2016, which led to positive returns across global equity markets. The MSCI EM Index (Net) reflected the improved investment climate over the last six months of the period, gaining 9.41%. For the full 12-month period, the index gained 9.27%.

Equity market volatility levels, as measured by the Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX),2 remained relatively low throughout the second half of the period with a brief spike following the Brexit vote. A recovery in commodity

 

 

 

 

 

1  The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 23 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. 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.

 

2  The Chicago Board Options Exchange (CBOE) Market Volatility Index (VIX) is a popular measure of the implied volatility of S&P 500 Index options. It represents one measure of the market’s expectation of stock market volatility over the next 30-day period. You cannot invest directly in an index.


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Letter to shareholders (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     3   

prices benefited oil-sensitive economies such as Colombia and other producers and exporters of natural resources in Asia. As political issues were resolved, equity markets in the respective countries moved higher; Brazilian shares advanced on the installation of a new government, and Peruvian shares gained on a market-friendly election outcome. Also, throughout the period and in several emerging markets countries, the passage of legislative and regulatory reforms that seek to enhance the structure, operations, and oversight of businesses tended to benefit investor confidence and encourage increased investment activity.

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 and other investments 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

    

 

 

 

 

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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4   Wells Fargo Emerging Markets Equity Income Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation and current income.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Anthony L.T. Cragg

Alison Shimada

Average annual total returns (%) as of October 31, 20161

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     Since inception     1 year     Since inception     Gross     Net3  
Class A (EQIAX)   5-31-2012     (0.78     2.93        5.29        4.32        1.88        1.67   
Class C (EQICX)   5-31-2012     3.53        3.57        4.53        3.57        2.63        2.42   
Class R (EQIHX)   9-30-2015                   5.13        4.08        2.13        1.92   
Class R6 (EQIRX)   9-30-2015                   5.90        4.77        1.45        1.22   
Administrator Class (EQIDX)   5-31-2012                   5.56        4.56        1.80        1.47   
Institutional Class (EQIIX)   5-31-2012                   5.84        4.77        1.55        1.27   
MSCI EM Index (Net)4                     9.27        2.47                 

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 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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of investment (relative to the broader market). The Fund is exposed to smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     5   
Growth of $10,000 investment as of October 31, 20165
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1 Historical performance shown for the Class R shares prior to their inception reflects the performance of the Administrator Class shares, adjusted to reflect the higher expenses applicable to Class R shares. Historical performance shown for the 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.

 

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 February 28, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver at 1.65% for Class A, 2.40% for Class C, 1.90% for Class R, 1.20% for Class R6, 1.45% for Administrator Class, and 1.25% 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.

 

4 The Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 23 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. 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.

 

5 The chart compares the performance of Class A shares for the most recent ten years with the MSCI EM Index (Net). 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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6   Wells Fargo Emerging Markets Equity Income Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its benchmark, the Morgan Stanley Capital International (MSCI) Emerging Markets (EM) Index (Net), for the 12-month period that ended October 31, 2016.

 

n   On a sector basis, stock selection contributed to relative returns for the period. However, stock selection within energy and an underweight to information technology (IT) and overweight to telecommunication services detracted from relative returns.

 

n   Among countries, strong stock selection helped the Fund’s relative outperformance in Mexico, Korea, and the Czech Republic. Unfavorable stock selection in Brazil, India, and the Philippines detracted from relative performance, as did an overweight to Mexico.

The Fund underperformed its benchmark during a volatile market.

During the 12-month period, returns in emerging markets fluctuated as a result of factors including the impeachment of the Brazilian president, the lead-up to the U.S. presidential election, a general resurgence in commodities prices, measures to reduce volatility in the Chinese stock market, and the election of new leaders in Taiwan and the Philippines.

Against this backdrop, stock selection in telecommunication services, real estate, and industrials aided relative results but was partially offset by overweight positions to those sectors that underperformed the broad index. On the opposite side of the spectrum, stock selection within energy and utilities as well as an underweight to IT detracted from relative results.

Outperformance in the telecommunication services sector was primarily driven by the Fund’s exposure to Telekomunikasi Indonesia. Chinese real estate names such as China Vanke Company Limited and China Jinmao Holdings Group Limited also contributed to relative returns. Within energy, Coal India Limited and Oil & Natural Gas Corporation Limited detracted from returns as did an underweight to Petroleo Brasileiro S.A. in Brazil.

 

Ten largest holdings (%) as of October 31, 20166  

China Construction Bank H Shares

    2.77   

Industrial & Commercial Bank of China Limited H Shares

    2.37   

Banco Bradesco SA

    2.26   

Itausa Investimentos Itau SA

    2.25   

Taiwan Semiconductor Manufacturing Company Limited

    2.09   

China Mobile Limited

    2.04   

China Petroleum & Chemical Corporation H Shares

    1.85   

SK Telecom Company Limited ADR

    1.82   

BB Seguridade Participacoes SA

    1.82   

Hon Hai Precision Industry Company Limited

    1.73   
Sector distribution as of October 31, 20167

 

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Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     7   
Country allocation as of October 31, 20167
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On a country basis, notable areas of success included Indonesia, Korea, and Mexico. In Korea, the Fund benefited from holdings in materials and financials. In Mexico, the Fund also benefited from holdings in the industrials sector, principally two airport companies. In China, negative attribution was due to allocations to utilities companies such as China Power International Development Limited and Huaneng Power International, Incorporated, as well as the Fund’s lack of investment in internet companies due to their below average dividend yields which are inconsistent with seeking the potential for maximum portfolio dividend yield while maintaining a controlled level of risk.

 

 

Our investment outlook on the emerging markets region remains positive.

We believe Chinese equities should continue to perform driven by earnings growth. Cyclical earnings recovery has been unfolding, and efforts to support industrial prices, continued monetary policy support, and weaker prior-year earnings should drive upside to earnings. Earnings growth remains challenging for Korea, and the export sector is not getting help from the recent strengthening of the won, but the market and our value names are performing on narrowing of deep discount valuations. The IT sector has enjoyed a period of new product launches and strengthening seasonality causing us to revisit our positioning in Taiwanese IT shares. Although we are cautious near term on valuation grounds, we remain positive on India over the medium term. Reform momentum has accelerated over the past five months with approval of the Goods and Services Tax by the Upper House, a new monetary policy committee in the Reserve Bank of India, and the passing of a new bankruptcy law. We are structurally bullish in Indonesia notwithstanding strong year-to-date performance. The tax amnesty program was an overwhelming success and has several positive implications including a widening of the tax base, currency stabilization, increased confidence, a boost to the president’s credibility, an increase in liquidity, and potential for easing of funding costs.

Latin America is experiencing another year of decelerating economic growth. We perceive the limits for faster growth to be cyclical in nature in Mexico, Peru, and Colombia. Conversely, we perceive the growth gap in Brazil and Chile to be structural. Despite the depressed price of crude oil, Mexico’s economic outlook stands out again, this time because of its diversification and visibility of economic policies. In Brazil, our long-held assumption that President Dilma Rousseff would retain her position proved overly conservative. The political climate hopefully will stabilize following the impeachment of President Rousseff so that reform can move forward. Specifically, current President Michel Temer is outlining the proper economic initiatives which, if approved, could start a virtuous cycle in Brazil that could earn a re-rating in the medium term similar to Mexico’s accomplishments over the past 15 years. We remain cautious on Colombia and Peru due to their exposure to commodities and rising taxation. Valuations in Chile could justify revisiting selected names.

Russia continues to be among the better market performers year to date. However, higher oil prices and/or higher visibility into sanctions removals next year in addition to supportive global macroeconomic drivers would be needed to sustain the market rally. We are more cautious on CEE3—the stock markets of the Czeck Republic, Hungary, and Poland—in the aftermath of the U.K.’s vote to leave the European Union (Brexit) and its potential negative effect on the region’s economic growth. We continue to closely monitor macroeconomic and political risks in Turkey, keeping a defensive bias. We are selective buyers of quality names in South Africa, as the overall market does not appear cheap and the economic picture remains weak. In addition, political risks have resurfaced in South Africa, bringing back our concerns about a sovereign credit rating downgrade by at least one credit rating agency.

 

 

Please see footnotes on page 5.


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8   Wells Fargo Emerging Markets Equity Income 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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period¹
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,053.35       $ 8.52         1.65

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,016.84       $ 8.36         1.65

Class C

           

Actual

   $ 1,000.00       $ 1,050.27       $ 12.37         2.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.07       $ 12.14         2.40

Class R

           

Actual

   $ 1,000.00       $ 1,053.14       $ 9.81         1.90

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.58       $ 9.63         1.90

Class R6

           

Actual

   $ 1,000.00       $ 1,056.22       $ 6.20         1.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.10       $ 6.09         1.20

Administrator Class

           

Actual

   $ 1,000.00       $ 1,055.60       $ 7.49         1.45

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.85       $ 7.35         1.45

Institutional Class

           

Actual

   $ 1,000.00       $ 1,056.85       $ 6.46         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.85       $ 6.34         1.25

 

 

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—October 31, 2016   Wells Fargo Emerging Markets Equity Income Fund     9   

      

 

 

Security name                 Shares      Value  

Common Stocks: 88.12%

          
Brazil: 7.09%           

Ambev SA (Consumer Staples, Beverages)

          638,100       $ 3,764,230   

Banco do Brasil SA (Financials, Banks)

          586,300         5,379,927   

BB Seguridade Participacoes SA (Financials, Insurance)

          940,696         9,471,795   

Energisa SA (Utilities, Electric Utilities)

          401,000         2,811,523   

Petroleo Brasileiro SA ADR Class A (Energy, Oil, Gas & Consumable Fuels) †

          608,011         6,724,602   

Telefonica Brasil ADR (Telecommunication Services, Diversified Telecommunication Services)

          342,402         4,930,589   

WEG SA (Industrials, Machinery)

          686,300         3,784,110   
             36,866,776   
          

 

 

 
Cayman Islands: 1.14%           

KWG Property Holding Limited (Real Estate, Real Estate Management & Development)

          10,187,500         5,911,089   
          

 

 

 
Chile: 0.44%           

Aguas Andinas SA Class A (Utilities, Water Utilities)

          3,464,597         2,287,826   
          

 

 

 
China: 19.62%           

Anhui Conch Cement Company Limited H Shares (Materials, Construction Materials)

          1,446,500         4,009,999   

Bank of China Limited H Shares (Financials, Banks)

          12,870,000         5,774,910   

Beijing Capital International Airport Company Limited H Shares (Industrials, Transportation Infrastructure)

          3,998,000         4,191,030   

China Communications Construction Company Limited H Shares (Industrials, Construction & Engineering)

          3,758,000         4,138,110   

China Construction Bank H Shares (Financials, Banks)

          19,705,000         14,431,523   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          924,500         10,591,360   

China Petroleum & Chemical Corporation H Shares (Energy, Oil, Gas & Consumable Fuels)

          13,193,600         9,611,677   

China Power International Development Limited (Utilities, Independent Power & Renewable Electricity Producers)

          18,561,000         6,772,908   

China Resources Land Limited (Real Estate, Real Estate Management & Development)

          1,298,000         3,236,820   

China State Construction International Holdings Limited (Industrials, Construction & Engineering)

          4,172,000         6,100,210   

CNOOC Limited (Energy, Oil, Gas & Consumable Fuels)

          3,613,000         4,598,038   

Huaneng Power International Incorporated H Shares (Utilities, Independent Power & Renewable Electricity Producers)

          4,580,000         2,816,899   

Industrial & Commercial Bank of China Limited H Shares (Financials, Banks)

          20,473,000         12,327,805   

PetroChina Company Limited H Shares (Energy, Oil, Gas & Consumable Fuels)

          9,000,000         6,196,853   

PICC Property & Casualty Company Limited H Shares (Financials, Insurance)

          1,554,000         2,516,680   

Sinotrans Limited H Shares (Industrials, Air Freight & Logistics)

          10,025,000         4,730,999   
             102,045,821   
          

 

 

 
Cyprus: 0.31%           

Ros Agro plc (Consumer Staples, Food & Staples Retailing)

          121,961         1,591,591   
          

 

 

 
Czech Republic: 0.77%           

Moneta Money Bank (Financials, Banks) †

          1,154,968         4,027,466   
          

 

 

 
India: 5.88%           

Bharti Infratel Limited (Telecommunication Services, Diversified Telecommunication Services)

          1,221,462         6,355,447   

Coal India Limited (Energy, Oil, Gas & Consumable Fuels)

          1,398,996         6,816,247   

Credit Analysis & Research Limited (Financials, Capital Markets)

          27,249         610,880   

HCL Technologies Limited (Information Technology, IT Services)

          218,837         2,515,660   

Hero Honda Motors Limited (Consumer Discretionary, Automobiles)

          124,736         6,260,660   

Infosys Technologies Limited (Information Technology, IT Services)

          172,719         2,591,567   

NTPC Limited (Utilities, Independent Power & Renewable Electricity Producers)

          1,415,662         3,201,781   

Oil & Natural Gas Corporation Limited (Energy, Oil, Gas & Consumable Fuels)

          516,440         2,236,297   
             30,588,539   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo Emerging Markets Equity Income Fund   Portfolio of investments—October 31, 2016

      

 

 

Security name                 Shares      Value  
Indonesia: 4.67%           

PT Bank Rakyat Indonesia Tbk (Financials, Banks)

          6,080,200       $ 5,685,043   

PT Cikarang Listrindo Tbk (Utilities, Independent Power & Renewable Electricity Producers) †

          33,924,800         3,900,000   

PT Hanjaya Mandala Sampoerna Tbk (Consumer Staples, Tobacco)

          9,716,000         2,941,309   

PT Matahari Department Store Tbk (Consumer Discretionary, Multiline Retail)

          2,154,000         2,975,617   

PT Perusahaan Gas Negara Persero Tbk (Utilities, Gas Utilities)

          11,698,300         2,295,191   

PT Telekomunikasi Indonesia Persero Tbk (Telecommunication Services, Diversified Telecommunication Services)

          20,081,200         6,494,686   
             24,291,846   
          

 

 

 
Luxembourg: 0.70%           

Ternium SA (Materials, Metals & Mining)

          152,332         3,642,258   
          

 

 

 
Malaysia: 2.40%           

Malakoff Corporation Bhd (Utilities, Independent Power & Renewable Electricity Producers)

          9,032,375         3,337,350   

Telecom Malaysia Bhd (Telecommunication Services, Diversified Telecommunication Services)

          2,531,281         3,946,264   

Tenaga Nasional Bhd (Utilities, Electric Utilities)

          1,516,100         5,182,568   
             12,466,182   
          

 

 

 
Mexico: 4.99%           

Bolsa Mexicana de Valores SAB de CV (Financials, Capital Markets)

          2,390,167         3,825,329   

Grupo Aeroportuario del Centro Norte SAB de CV (Industrials, Transportation Infrastructure)

          1,107,912         6,465,409   

Grupo Financiero Santander SAB de CV Class B (Financials, Banks)

          3,111,784         5,635,488   

Macquarie Mexico Real Estate Management SA de CV (Real Estate, Equity REITs) 144A†

          4,101,276         5,159,957   

Wal-Mart de Mexico SAB de CV (Consumer Staples, Food & Staples Retailing)

          2,312,751         4,892,005   
             25,978,188   
          

 

 

 
Panama: 0.43%           

Banco Latinoamericano de Comercio Exterior SA (Financials, Banks)

          82,853         2,234,545   
          

 

 

 
Philippines: 1.78%           

Globe Telecom Incorporated (Telecommunication Services, Wireless Telecommunication Services)

          117,250         4,310,083   

Semirara Mining and Power Corporation (Energy, Oil, Gas & Consumable Fuels)

          1,898,130         4,935,197   
             9,245,280   
          

 

 

 
Russia: 4.84%           

Aeroflot PJSC (Industrials, Airlines) †(a)

          1,444,631         2,961,160   

LUKOIL PJSC ADR (Energy, Oil, Gas & Consumable Fuels)

          142,550         6,949,313   

MegaFon OAO (Telecommunication Services, Wireless Telecommunication Services)

          36,593         349,254   

MMC Norilsk Nickel PJSC (Materials, Metals & Mining)

          167,343         2,523,532   

Moscow Exchange MICEX-RTS OAO (Financials, Diversified Financial Services) (a)

          2,021,753         3,721,894   

Severstal OAO GDR (Materials, Metals & Mining)

          318,315         4,488,242   

Tatneft ADR (Energy, Oil, Gas & Consumable Fuels)

          124,922         4,181,139   
             25,174,534   
          

 

 

 
Singapore: 4.25%           

Asian Pay Television Trust (Consumer Discretionary, Media)

          5,628,000         2,083,321   

CapitaRetail China Trust (Real Estate, Equity REITs)

          4,153,300         4,463,025   

Jardine Cycle & Carriage Limited (Consumer Discretionary, Distributors)

          157,600         4,782,657   

Lippo Malls Indonesia Retail Trust (Real Estate, Equity REITs)

          10,093,700         2,829,501   

Singapore Telecommunications Limited (Telecommunication Services, Diversified Telecommunication Services)

          2,856,200         7,965,539   
             22,124,043   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Emerging Markets Equity Income Fund     11   

      

 

 

Security name                 Shares      Value  
South Africa: 4.41%           

Barclays Africa Group Limited (Financials, Banks)

          450,976       $ 5,229,599   

Foschini Limited (Consumer Discretionary, Specialty Retail)

          347,268         3,574,732   

MTN Group Limited (Telecommunication Services, Wireless Telecommunication Services)

          228,136         1,968,902   

Sanlam Limited (Financials, Insurance)

          820,069         3,975,134   

Sasol Limited (Energy, Oil, Gas & Consumable Fuels)

          151,687         4,212,081   

Truworths International Limited (Consumer Discretionary, Specialty Retail)

          755,722         4,004,549   
             22,964,997   
          

 

 

 
South Korea: 9.09%           

Hana Financial Group Incorporated (Financials, Banks)

          93,764         2,687,751   

Hite Jinro Company Limited (Consumer Staples, Beverages)

          96,034         1,846,404   

Hyundai Motor Company (Consumer Discretionary, Automobiles)

          36,265         4,437,055   

Kangwon Land Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure)

          57,518         1,907,632   

KB Financial Group Incorporated (Financials, Banks)

          166,680         6,161,734   

Korea Electric Power Corporation (Utilities, Electric Utilities)

          101,139         4,353,153   

Korea Reinsurance Company (Financials, Insurance)

          407,475         4,202,058   

POSCO (Materials, Metals & Mining)

          33,449         6,928,043   

Shinhan Financial Group Company Limited (Financials, Banks)

          136,986         5,249,584   

SK Telecom Company Limited ADR (Telecommunication Services, Wireless Telecommunication Services)

          434,031         9,483,577   
             47,256,991   
          

 

 

 
Taiwan: 13.30%           

Advanced Semiconductor Engineering Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          4,274,000         5,024,650   

Cathay Financial Holding Company Limited (Financials, Insurance)

          2,484,000         3,223,316   

Chicony Electronics Company Limited (Information Technology, Technology Hardware, Storage & Peripherals)

          2,500,996         6,403,564   

CTBC Financial Holding Company Limited (Financials, Banks)

          5,140,130         2,768,984   

CTCI Corporation (Industrials, Construction & Engineering)

          2,467,000         3,623,400   

Delta Electronics Incorporated (Information Technology, Electronic Equipment, Instruments & Components)

          535,283         2,824,198   

Far Eastone Telecommunications Company Limited (Telecommunication Services, Wireless Telecommunication Services)

          1,089,000         2,574,329   

Hon Hai Precision Industry Company Limited (Information Technology, Electronic Equipment, Instruments & Components)

          3,326,630         8,991,889   

Largan Precision Company Limited (Information Technology, Electronic Equipment, Instruments & Components)

          22,000         2,603,818   

MediaTek Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          299,000         2,273,944   

Namchow Chemical Industrial Company Limited (Consumer Staples, Food Products)

          745,000         1,588,798   

Novatek Microelectronics Corporation Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          619,000         2,324,376   

Siliconware Precision Industries Company (Information Technology, Semiconductors & Semiconductor Equipment)

          2,519,000         3,811,527   

Taiwan Semiconductor Manufacturing Company Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          1,820,000         10,871,267   

Teco Electric & Machinery Company Limited (Industrials, Electrical Equipment)

          2,253,000         2,002,587   

Uni-President Enterprises Corporation (Consumer Staples, Food Products)

          1,131,000         2,189,784   

United Microelectronics Corporation ADR (Information Technology, Semiconductors & Semiconductor Equipment)

          2,024,690         3,846,911   

WPG Holdings Company Limited (Information Technology, Electronic Equipment, Instruments & Components)

          1,921,000         2,252,301   
             69,199,643   
          

 

 

 
Thailand: 0.81%           

Land & Houses PCL (Real Estate, Real Estate Management & Development)

          8,448,500         2,220,907   

Major Cineplex Group PCL (Consumer Discretionary, Media)

          2,423,400         2,008,103   
             4,229,010   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Emerging Markets Equity Income Fund   Portfolio of investments—October 31, 2016

      

 

 

Security name                Shares      Value  
Turkey: 0.61%          

Emlak Konut Gayrimenkul Yati (Real Estate, Equity REITs)

         3,111,109       $ 3,177,217   
         

 

 

 
United Arab Emirates: 0.59%          

Abu Dhabi Commercial Bank PJSC (Financials, Banks)

         1,849,537         3,091,835   
         

 

 

 

Total Common Stocks (Cost $448,633,335)

            458,395,677   
         

 

 

 

Exchange-Traded Funds: 0.61%

         
United States: 0.61%          

VanEck Vectors Russia ETF

         170,835         3,174,114   
         

 

 

 

Total Exchange-Traded Funds (Cost $2,861,163)

            3,174,114   
         

 

 

 
          Expiration date                
Participation Notes: 3.35%          
China: 3.35%          

HSBC Bank plc (China State Construction Engineering Corporation Limited) (Industrials, Construction & Engineering) †

      4-19-2017         1,798,736         1,908,826   

HSBC Bank plc (Huayu Automotive Systems Company Limited) (Consumer Discretionary, Auto Components) †

      3-24-2017         1,016,000         2,477,719   

HSBC Bank plc (Inner Mongolia Yili Industrial Group Company Limited Class A) (Consumer Staples, Food Products) †

      4-6-2017         1,101,500         2,928,802   

HSBC Bank plc (Midea Group Company Limited) (Consumer Discretionary, Household Durables) †

      4-1-2017         512,000         2,054,538   

UBS AG (Baoshan Iron & Steel Company Limited) (Materials, Metals & Mining) †

      4-6-2017         3,179,000         2,635,893   

UBS AG (China State Construction Engineering Corporation Limited) (Industrials, Construction & Engineering) †

      4-19-2017         2,205,000         2,339,955   

UBS AG (Midea Group Company Limited Class A) (Consumer Discretionary, Household Durables) †

      4-1-2017         770,029         3,089,949   

Total Participation Notes (Cost $16,523,094)

            17,435,682   
         

 

 

 
    Dividend yield                      

Preferred Stocks: 4.52%

         
Brazil: 4.52%          

Banco Bradesco SA (Financials, Banks)

    15.53        1,123,000         11,764,762   

Itausa Investimentos Itau SA (Financials, Banks)

    8.21           3,965,450         11,727,396   

Total Preferred Stocks (Cost $17,922,043)

            23,492,158   
         

 

 

 
    Yield                      
Short-Term Investments: 4.06%          
Investment Companies: 4.06%          

Wells Fargo Government Money Market Fund Select Class (l)(u)

    0.32           21,137,527         21,137,527   
         

 

 

 

Total Short-Term Investments (Cost $21,137,527)

            21,137,527        
         

 

 

 

 

Total investments in securities (Cost $507,077,162) *     100.66        523,635,158   

Other assets and liabilities, net

    (0.66        (3,458,339
 

 

 

      

 

 

 
Total net assets     100.00      $ 520,176,819   
 

 

 

      

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Emerging Markets Equity Income Fund     13   

      

 

 

 

 

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.

 

(a) The security is fair valued in accordance with procedures approved by the Board of Trustees.

 

(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 $508,934,120 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 33,400,040   

Gross unrealized losses

     (18,699,002
  

 

 

 

Net unrealized gains

   $ 14,701,038   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Emerging Markets Equity Income Fund   Statement of assets and liabilities—October 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $485,939,635)

  $ 502,497,631   

In affiliated securities, at value (cost $21,137,527)

    21,137,527   
 

 

 

 

Total investments, at value (cost $507,077,162)

    523,635,158   

Foreign currency, at value (cost $2,452,370)

    2,465,982   

Receivable for investments sold

    9,400,481   

Receivable for Fund shares sold

    2,981,700   

Receivable for dividends

    479,239   

Prepaid expenses and other assets

    60,011   
 

 

 

 

Total assets

    539,022,571   
 

 

 

 

Liabilities

 

Payable for investments purchased

    7,233,237   

Payable for Fund shares redeemed

    10,921,187   

Management fee payable

    445,299   

Distribution fees payable

    8,559   

Administration fees payable

    60,406   

Accrued expenses and other liabilities

    177,064   
 

 

 

 

Total liabilities

    18,845,752   
 

 

 

 

Total net assets

  $ 520,176,819   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 523,709,732   

Undistributed net investment income

    407,795   

Accumulated net realized losses on investments

    (20,529,396

Net unrealized gains on investments

    16,588,688   
 

 

 

 

Total net assets

  $ 520,176,819   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 26,459,208   

Shares outstanding – Class A1

    2,575,174   

Net asset value per share – Class A

    $10.27   

Maximum offering price per share – Class A2

    $10.90   

Net assets – Class C

  $ 13,326,684   

Shares outstanding – Class C1

    1,302,493   

Net asset value per share – Class C

    $10.23   

Net assets – Class R

  $ 27,820   

Shares outstanding – Class R1

    2,701   

Net asset value per share – Class R

    $10.30   

Net assets – Class R6

  $ 2,592,468   

Shares outstanding – Class R61

    251,915   

Net asset value per share – Class R6

    $10.29   

Net assets – Administrator Class

  $ 50,969,934   

Shares outstanding – Administrator Class1

    4,940,154   

Net asset value per share – Administrator Class

    $10.32   

Net assets – Institutional Class

  $ 426,800,705   

Shares outstanding – Institutional Class1

    41,455,437   

Net asset value per share – Institutional Class

    $10.30   

 

 

 

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 October 31, 2016   Wells Fargo Emerging Markets Equity Income Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $1,419,068)

  $ 12,679,043   

Income from affiliated securities

    53,494   
 

 

 

 

Total investment income

    12,732,537   
 

 

 

 

Expenses

 

Management fee

    3,658,424   

Administration fees

 

Class A

    49,013   

Class C

    25,637   

Class R

    55   

Class R6

    677   

Administrator Class

    61,428   

Institutional Class

    303,090   

Shareholder servicing fees

 

Class A

    58,349   

Class C

    30,521   

Class R

    65   

Administrator Class

    116,704   

Distribution fees

 

Class C

    91,562   

Class R

    65   

Custody and accounting fees

    281,036   

Professional fees

    51,577   

Registration fees

    134,377   

Shareholder report expenses

    57,367   

Trustees’ fees and expenses

    22,985   

Other fees and expenses

    17,195   
 

 

 

 

Total expenses

    4,960,127   

Less: Fee waivers and/or expense reimbursements

    (654,959
 

 

 

 

Net expenses

    4,305,168   
 

 

 

 

Net investment income

    8,427,369   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (12,760,087

Forward foreign currency contract transactions

    9,640   
 

 

 

 

Net realized losses on investments

    (12,750,447

Net change in unrealized gains (losses) on investments

    27,078,980   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    14,328,533   
 

 

 

 

Net increase in net assets resulting from operations

  $ 22,755,902   
 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Emerging Markets Equity Income Fund   Statement of changes in net assets
     Year ended
October 31, 2016
    Year ended
October 31, 2015
 

Operations

       

Net investment income

    $ 8,427,369        $ 3,115,405   

Net realized losses on investments

      (12,750,447       (5,853,265

Net change in unrealized gains (losses) on investments

      27,078,980          (14,976,313
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      22,755,902          (17,714,173
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (520,415       (384,317

Class C

      (196,473       (127,515

Class R

      (512       (10 )1 

Class R6

      (62,106       (19 )1 

Administrator Class

      (1,092,920       (1,016,111

Institutional Class

      (6,378,435       (1,553,325
 

 

 

 

Total distributions to shareholders

      (8,250,861       (3,081,297
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    1,710,525        16,669,000        1,696,774        18,394,271   

Class C

    735,242        7,145,583        795,767        8,556,504   

Class R

    0        0        2,648 1      25,000 1 

Class R6

    280,056        2,733,901        2,654 1      25,000 1 

Administrator Class

    3,295,035        31,905,381        5,721,244        61,488,744   

Institutional Class

    42,218,845        417,403,734        12,481,918        130,171,618   
 

 

 

 
      475,857,599          218,661,137   
 

 

 

 

Reinvestment of distributions

       

Class A

    50,509        495,441        36,083        380,492   

Class C

    16,592        161,956        11,577        122,069   

Class R

    52        512        1 1      10 1 

Class R6

    6,334        62,106        2 1      19 1 

Administrator Class

    110,594        1,087,476        94,283        997,261   

Institutional Class

    526,646        5,191,655        77,609        795,126   
 

 

 

 
      6,999,146          2,294,977   
 

 

 

 

Payment for shares redeemed

       

Class A

    (1,479,305     (14,314,963     (675,914     (7,063,488

Class C

    (474,574     (4,639,504     (346,771     (3,609,550

Class R6

    (37,131     (356,931     0 1      0 1 

Administrator Class

    (2,859,314     (27,376,015     (6,081,753     (63,197,111

Institutional Class

    (14,607,459     (140,452,239     (2,337,484     (24,746,171
 

 

 

 
      (187,139,652       (98,616,320
 

 

 

 

Net increase in net assets resulting from capital share transactions

      295,717,093          122,339,794   
 

 

 

 

Total increase in net assets

      310,222,134          101,544,324   
 

 

 

 

Net assets

       

Beginning of period

      209,954,685          108,410,361   
 

 

 

 

End of period

    $ 520,176,819        $ 209,954,685   
 

 

 

 

Undistributed net investment income

    $ 407,795        $ 85,687   
 

 

 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo Emerging Markets Equity Income Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     20121  

Net asset value, beginning of period

    $9.97        $11.33        $11.79        $11.17        $10.00   

Net investment income

    0.23 2      0.20        0.33        0.31        0.13   

Net realized and unrealized gains (losses) on investments

    0.29        (1.36     (0.11     0.88        1.15   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.52        (1.16     0.22        1.19        1.28   

Distributions to shareholders from

         

Net investment income

    (0.22     (0.20     (0.31     (0.34     (0.11

Net realized gains

    0.00        0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.22     (0.20     (0.68     (0.57     (0.11

Net asset value, end of period

    $10.27        $9.97        $11.33        $11.79        $11.17   

Total return3

    5.29     (10.34 )%      2.05     10.94     12.80

Ratios to average net assets (annualized)

         

Gross expenses

    1.79     1.89     2.09     2.88     4.29

Net expenses

    1.65     1.65     1.65     1.65     1.65

Net investment income

    2.34     2.22     3.12     2.64     2.94

Supplemental data

         

Portfolio turnover rate

    64     84     91     85     39

Net assets, end of period (000s omitted)

    $26,459        $22,866        $14,010        $8,658        $628   

 

 

 

 

 

 

 

1  For the period from May 31, 2012 (commencement of class operations) to October 31, 2012

 

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

 

18   Wells Fargo Emerging Markets Equity Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     20121  

Net asset value, beginning of period

    $9.94        $11.32        $11.79        $11.16        $10.00   

Net investment income

    0.16 2      0.14        0.23        0.22        0.10   

Net realized and unrealized gains (losses) on investments

    0.28        (1.38     (0.08     0.89        1.13   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.44        (1.24     0.15        1.11        1.23   

Distributions to shareholders from

         

Net investment income

    (0.15     (0.14     (0.25     (0.25     (0.07

Net realized gains

    0.00        0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.15     (0.14     (0.62     (0.48     (0.07

Net asset value, end of period

    $10.23        $9.94        $11.32        $11.79        $11.16   

Total return3

    4.53     (10.95 )%      1.27     10.11     12.49

Ratios to average net assets (annualized)

         

Gross expenses

    2.54     2.64     2.83     3.81     5.03

Net expenses

    2.40     2.40     2.40     2.40     2.41

Net investment income

    1.62     1.45     2.17     1.80     2.24

Supplemental data

         

Portfolio turnover rate

    64     84     91     85     39

Net assets, end of period (000s omitted)

    $13,327        $10,190        $6,390        $2,028        $562   

 

 

 

 

 

 

1  For the period from May 31, 2012 (commencement of class operations) to October 31, 2012

 

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 Emerging Markets Equity Income Fund     19   

(For a share outstanding throughout each period)

 

     Year ended October 31  
CLASS R    2016        20151  

Net asset value, beginning of period

     $9.99           $9.44   

Net investment income (loss)

     0.20 2         (0.01 )2 

Net realized and unrealized gains (losses) on investments

     0.30           0.56   
  

 

 

      

 

 

 

Total from investment operations

     0.50           0.55   

Distributions to shareholders from

       

Net investment income

     (0.19        (0.00 )3 

Net asset value, end of period

     $10.30           $9.99   

Total return4

     5.13        5.87

Ratios to average net assets (annualized)

       

Gross expenses

     2.04        2.10

Net expenses

     1.90        1.90

Net investment income (loss)

     2.08        (0.90 )% 

Supplemental data

       

Portfolio turnover rate

     64        84

Net assets, end of period (000s omitted)

     $28           $26   

 

 

 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

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

 

20   Wells Fargo Emerging Markets Equity Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS R6   2016        20151  

Net asset value, beginning of period

    $9.97           $9.42   

Net investment income (loss)

    0.30 2         (0.00 )2,3 

Net realized and unrealized gains (losses) on investments

    0.27           0.56   
 

 

 

      

 

 

 

Total from investment operations

    0.57           0.56   

Distributions to shareholders from

      

Net investment income

    (0.25        (0.01

Net asset value, end of period

    $10.29           $9.97   

Total return4

    5.90        5.91

Ratios to average net assets (annualized)

      

Gross expenses

    1.36        1.40

Net expenses

    1.20        1.20

Net investment income (loss)

    3.05        (0.19 )% 

Supplemental data

      

Portfolio turnover rate

    64        84

Net assets, end of period (000s omitted)

    $2,592           $26   

 

 

 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

2  Amount is less than $0.005 per share.

 

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 Emerging Markets Equity Income Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     20121  

Net asset value, beginning of period

    $10.00        $11.35        $11.80        $11.17        $10.00   

Net investment income

    0.25 2      0.23        0.33 2      0.32        0.14   

Net realized and unrealized gains (losses) on investments

    0.29        (1.37     (0.08     0.89        1.14   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.54        (1.14     0.25        1.21        1.28   

Distributions to shareholders from

         

Net investment income

    (0.22     (0.21     (0.33     (0.35     (0.11

Net realized gains

    0.00        0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.22     (0.21     (0.70     (0.58     (0.11

Net asset value, end of period

    $10.32        $10.00        $11.35        $11.80        $11.17   

Total return3

    5.56     (10.12 )%      2.30     11.13     12.89

Ratios to average net assets (annualized)

         

Gross expenses

    1.71     1.76     1.91     2.94     4.14

Net expenses

    1.45     1.45     1.45     1.45     1.45

Net investment income

    2.54     2.38     2.89     2.70     3.17

Supplemental data

         

Portfolio turnover rate

    64     84     91     85     39

Net assets, end of period (000s omitted)

    $50,970        $43,928        $52,896        $13,527        $5,285   

 

 

 

 

 

 

1  For the period from May 31, 2012 (commencement of class operations) to October 31, 2012

 

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 Emerging Markets Equity Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     20121  

Net asset value, beginning of period

    $9.98        $11.34        $11.79        $11.17        $10.00   

Net investment income

    0.27 2      0.25 2      0.35        0.34        0.15   

Net realized and unrealized gains (losses) on investments

    0.30        (1.36     (0.07     0.89        1.14   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.57        (1.11     0.28        1.23        1.29   

Distributions to shareholders from

         

Net investment income

    (0.25     (0.25     (0.36     (0.38     (0.12

Net realized gains

    0.00        0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.25     (0.25     (0.73     (0.61     (0.12

Net asset value, end of period

    $10.30        $9.98        $11.34        $11.79        $11.17   

Total return3

    5.84     (9.95 )%      2.52     11.32     12.98

Ratios to average net assets (annualized)

         

Gross expenses

    1.45     1.51     1.62     2.74     3.92

Net expenses

    1.25     1.25     1.25     1.25     1.25

Net investment income

    2.75     2.41     3.69     2.88     3.39

Supplemental data

         

Portfolio turnover rate

    64     84     91     85     39

Net assets, end of period (000s omitted)

    $426,801        $132,918        $35,114        $6,077        $5,082   

 

 

 

 

 

 

1  For the period from May 31, 2012 (commencement of class operations) to October 31, 2012

 

2  Calculated based upon average shares outstanding

 

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

 

Notes to financial statements   Wells Fargo Emerging Markets Equity Income 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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Emerging Markets Equity Income 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.

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 October 31, 2016, 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 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.


Table of Contents

 

24   Wells Fargo Emerging Markets Equity Income Fund   Notes to financial statements

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 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.

Participation notes

The Fund may invest in participation notes to gain exposure to securities in certain foreign markets. Participation notes are issued by banks or broker-dealers and are designed to offer a return linked to a particular underlying foreign security. Participation notes involve transaction costs, which may be higher than those applicable to the underlying foreign security. The holder of the participation note is entitled to receive from the bank or broker-dealer, an amount equal to the dividend paid by the issuer of the underlying foreign security; however, the holder is not entitled to the same rights (i.e. dividends, voting rights) as an owner of the underlying foreign security. Investments in participation notes involve risks beyond those normally associated with a direct investment in an underlying security. The Fund has no rights against the issuer of the underlying foreign security and participation notes expose the Fund to counterparty risk in the event the counterparty does not perform. There is also no assurance there will be a secondary trading market for the participation note or that the trading price of the participation note will equal the underlying value of the foreign security that it seeks to replicate.

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 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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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.


Table of Contents

 

Notes to financial statements   Wells Fargo Emerging Markets Equity Income Fund     25   

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 foreign currency transactions and passive foreign investment companies. At October 31, 2016, 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
$145,600    $(145,600)

As of October 31, 2016, the Fund had capital loss carryforwards which consist of $14,095,175 in short-term capital losses and $5,166,871 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.

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 significant 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, use of amortized cost, 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.


Table of Contents

 

26   Wells Fargo Emerging Markets Equity Income Fund   Notes to financial statements

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Brazil

   $ 36,866,776       $ 0       $ 0       $ 36,866,776   

Cayman Islands

     5,911,089         0         0         5,911,089   

Chile

     2,287,826         0         0         2,287,826   

China

     102,045,821         0         0         102,045,821   

Cyprus

     1,591,591         0         0         1,591,591   

Czech Republic

     4,027,466         0         0         4,027,466   

India

     30,588,539         0         0         30,588,539   

Indonesia

     24,291,846         0         0         24,291,846   

Luxembourg

     3,642,258         0         0         3,642,258   

Malaysia

     12,466,182         0         0         12,466,182   

Mexico

     25,978,188         0         0         25,978,188   

Panama

     2,234,545         0         0         2,234,545   

Philippines

     9,245,280         0         0         9,245,280   

Russia

     18,491,480         6,683,054         0         25,174,534   

Singapore

     22,124,043         0         0         22,124,043   

South Africa

     22,964,997         0         0         22,964,997   

South Korea

     47,256,991         0         0         47,256,991   

Taiwan

     69,199,643         0         0         69,199,643   

Thailand

     4,229,010         0         0         4,229,010   

Turkey

     3,177,217         0         0         3,177,217   

United Arab Emirates

     3,091,835         0         0         3,091,835   

Exchange-traded funds

           

United States

     3,174,114         0         0         3,174,114   

Participation notes

           

China

     0         17,435,682         0         17,435,682   

Preferred stocks

           

Brazil

     23,492,158         0         0         23,492,158   

Short-term investments

           

Investment companies

     21,137,527         0         0         21,137,527   

Total assets

   $ 499,516,422       $ 24,118,736       $ 0       $ 523,635,158   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $231,879,884 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund did not have any transfers into/out of 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 1.15% and


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Notes to financial statements   Wells Fargo Emerging Markets Equity Income Fund     27   

declining to 0.955% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, the management fee was equivalent to an annual rate of 1.15% 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 0.65% 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 A, 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 February 28, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.65% for Class A shares, 2.40% for Class C shares, 1.90% for Class R shares, 1.20% for Class R6 shares, 1.45% for Administrator Class shares, and 1.25% 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 fees

The Trust has adopted a distribution plan for Class C and Class R shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to 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 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 C shares. For the year ended October 31, 2016, Funds Distributor received $15,414 from the sale of Class A shares and $500 in contingent deferred sales charges from redemptions 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, 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 October 31, 2016 were $486,111,265 and $195,494,914, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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.


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28   Wells Fargo Emerging Markets Equity Income Fund   Notes to financial statements

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2016, the Fund entered into forward foreign currency contracts for economic hedging purposes.

As of October 31, 2016, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $10,397 in forward foreign currency contracts to sell during the year ended October 31, 2016.

The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate financial statements.

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 October 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $8,250,861 and $3,081,297 of ordinary income for the years ended October 31, 2016 and October 31, 2015, respectively.

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary income
   Unrealized
gains
   Capital loss
carryforward
$1,004,246    $14,724,887    $(19,262,046)

9. 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.

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. 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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Notes to financial statements   Wells Fargo Emerging Markets Equity Income Fund     29   

12. SUBSEQUENT DISTRIBUTIONS

On November 23, 2016, the Fund declared distributions from net investment income to shareholders of record on November 22, 2016. The per share amounts payable on November 25, 2016 were as follows:

 

     Net
investment
income
 

Class A

     $0.00795   

Class C

     0.00000   

Class R

     0.00457   

Class R6

     0.01338   

Administrator Class

     0.00000   

Institutional Class

     0.01205   

These distributions are not reflected in the accompanying financial statements. The final determination of the source of all distributions is subject to change and made after the Fund’s tax year-end.


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30   Wells Fargo Emerging Markets Equity Income 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 Emerging Markets Equity Income Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 Emerging Markets Equity Income Fund as of October 31, 2016 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

December 22, 2016


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Other information (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     31   

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $7,213,995 of income dividends paid during the fiscal year ended October 31, 2016 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 October 31, 2016. 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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32   Wells Fargo Emerging Markets Equity Income 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 139 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 investment 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. 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 Chair of Taproot Foundation (non-profit organization), 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 Emerging Markets Equity Income Fund     33   

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    
Karla M. Rabusch
(Born 1959)
  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Jeremy DePalma1
(Born 1974)
  Treasurer, since 2012   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.    
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 Whitaker3

(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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34   Wells Fargo Emerging Markets Equity Income Fund   Other information (unaudited)

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo Emerging Markets Equity Income Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); and (ii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Wells Capital Management Incorporated (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Adviser and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Adviser were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Adviser about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Adviser under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Adviser to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Adviser. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe. The Board noted that the performance of the Fund (Administrator Class) was higher than the average performance of the


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Other information (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     35   

Universe for all periods under review. The Board also noted that the performance of the Fund was higher than its benchmark, the MSCI Emerging Markets Index (Net), for all periods under review.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were equal to or in range of the median net operating expense ratios of the expense Groups. The Board discussed and accepted Funds Management’s proposal to reduce the net operating expense ratio caps for the Class A, Class C, Class R, Institutional Class and Class R6.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Adviser for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were higher than the sum of these average rates for the Fund’s expense Groups for all share classes except Class A and Class R6. The Board noted that the net operating expense ratios of the Fund were equal to or in range of the median net operating expense ratios of the expense Groups for all share classes. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Adviser for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Adviser, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Adviser, the Board ascribed limited relevance to the allocation of fees between them.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Adviser to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Adviser under the Sub-Advisory Agreement was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also received and considered information concerning the profitability of the Sub-Adviser from providing services to the fund family as a whole, noting that the Sub-Adviser’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis.

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.


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36   Wells Fargo Emerging Markets Equity Income Fund   Other information (unaudited)

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board discussed and accepted Funds Management’s proposal to reduce the net operating expense ratio caps for the Class A, Class C, Class R, Institutional Class and Class R6. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Adviser

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Adviser’s business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Adviser, fees earned by Funds Management and the Sub-Adviser from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


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List of abbreviations   Wells Fargo Emerging Markets Equity Income 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

 

 

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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

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247342 12-16

A262/AR262 10-16

 


Table of Contents

Annual Report

October 31, 2016

 

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Wells Fargo Global 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

    4   

Fund expenses

    8   

Portfolio of investments

    9   
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

    28   

Other information

    29   

List of abbreviations

    35   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 Global Opportunities Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Global Opportunities Fund for the 12-month period that ended October 31, 2016. Significant volatility in international equity markets during the final months of 2015 and early 2016 subsided during the last half of the period. The performance contrast in each half of the reporting period as measured by key benchmark indexes shows the improving investment environment during the previous 12 months.

 

    November 1, 2015 through
April 30, 2016 (%)
    May 1, 2016 through
October 31, 2016 (%)
 

Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net)1

    (3.07     (0.16

MSCI World Index (Net)2

    (1.05     2.25   

MSCI All Country World Index (ACWI) ex USA Index (Net)3

    (1.75     2.01   

S&P Developed SmallCap Index4

    1.05        2.36   

Past performance is no guarantee of future results.

Central bank policies demonstrated resolve to reignite global economic growth.

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China. They also were uncertain if governments and their central banks could successfully address concerns about recessionary pressures and global business activity through monetary and economic policy. The December 2015 decision of the U.S. Federal Reserve (Fed) to increase its key interest rate caused elevated levels of volatility in global equity markets and sometimes drove significant fluctuations in the relative values of currencies around the world. The U.S. dollar tended to gain strength, which helped exporters in other countries but pressured importers who paid higher prices for goods and services.

The European Central Bank (ECB) pushed the interest rate it pays on deposits further into negative territory in late 2015. In January 2016, the Bank of Japan followed the ECB’s lead by setting a negative deposit rate. During the period, the People’s Bank of China guided its currency’s value lower relative to a basket of foreign currencies to enhance exports. Investors viewed the actions of major central banks as consistent with efforts to spark business activity. Observing the actions of central banks overseas to implement policies that would accommodate

 

 

 

1  The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) 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. The MSCI EAFE Index (Net) consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 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.

 

2  The MSCI World Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (Net) consists of the following 23 developed markets country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. You cannot invest directly in an index.

 

3  The 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. You cannot invest directly in an index.

 

4  The S&P Developed SmallCap Index is a free-float-adjusted market-capitalization-weighted index designed to measure the equity market performance of small-capitalization companies located in developed markets. The index is composed of companies within the bottom 15% of the cumulative market capitalization in developed markets. The index covers all publicly listed equities with float-adjusted market values of U.S. $100 million or more and annual dollar value traded of at least U.S. $50 million in all included countries. You cannot invest directly in an index.


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Letter to shareholders (unaudited)   Wells Fargo Global Opportunities Fund     3   

higher levels of business activity, the Fed acknowledged that risks to global growth existed and indicated it would base further rate increases on data that indicated successful management of the risks.

Investors closely watched changing sentiment in global markets during the period.

In the second quarter of 2016, equity market volatility levels declined and remained relatively low until the end of June, when voters in the United Kingdom surprised market participants and approved the Brexit referendum to leave the European Union. Investors reacted to the news negatively and fled to assets such as precious metals and U.S. Treasury bonds. As a result, interest rates fell sharply, and equity markets declined across the globe. In the weeks to follow, signs of resilience in major markets worldwide offset concerns stemming from the Brexit referendum.

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets. The third-quarter saw a rotation that favored company fundamentals over macroeconomic fears, creating a more favorable market dynamic for active managers. Dispersion of returns from both the sector and country perspective tended to confirm the changing views of the markets among investors. On an improved perception of business health, economically sensitive sectors such as consumer discretionary, materials, financials, and industrials gained while traditionally defensive sectors (utilities, telecommunication services, health care, and consumer staples) benefited less during the market rally.

Don’t let short-term uncertainty derail long-term investment goals.

Periods of investment 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets.

 

 

 

 

 

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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4   Wells Fargo Global Opportunities 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

Oleg Makhorine

Robert Rifkin, CFA®

James M. Tringas, CFA®, CPA

Bryant VanCronkhite, CFA®, CPA

Average annual total returns (%) as of October 31, 20161

 

        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 (EKGAX)   3-16-1988     2.84        8.88        5.03        9.12        10.18        5.65        1.55        1.55   
Class B (EKGBX)*   2-1-1993     3.32        9.08        5.10        8.32        9.36        5.10        2.30        2.30   
Class C (EKGCX)   2-1-1993     7.31        9.36        4.86        8.31        9.36        4.86        2.30        2.30   
Administrator Class (EKGYX)   1-13-1997                          9.30        10.36        5.86        1.47        1.41   
Institutional Class (EKGIX)   7-30-2010                          9.56        10.63        6.03        1.22        1.16   
S&P Developed SmallCap Index4                            3.43        10.25        5.43                 
*   Class B shares are closed to investment, except in connection with the reinvestment of any distributions and permitted exchanges.

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. 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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. 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 geographic risk and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Global Opportunities Fund     5   
Growth of $10,000 investment as of October 31, 20165
LOGO

 

 

 

1  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 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 Global Opportunities 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 February 28, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver at 1.55% for Class A, 2.30% for Class B, 2.30% for Class C, 1.40% for Administrator Class, and 1.15% 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.

 

4  The S&P Developed SmallCap Index is a free-float-adjusted market-capitalization-weighted index designed to measure the equity market performance of small-capitalization companies located in developed markets. The index is composed of companies within the bottom 15% of the cumulative market capitalization in developed markets. The index covers all publicly listed equities with float-adjusted market values of U.S. $100 million or more and annual dollar value traded of at least U.S. $50 million in all included countries. 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 S&P Developed SmallCap 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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6   Wells Fargo Global Opportunities Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

  The Fund outperformed its benchmark, the S&P Developed SmallCap Index, for the 12-month period that ended October 31, 2016.

 

  Stock selection in the consumer staples, consumer discretionary, and information technology (IT) sectors contributed to relative performance. However, these gains were partly offset by an underweight to the utilities and real estate investment trust (REIT) sectors and stock selection in the financial sector.

 

  Geographically, security selection in the U.S., Canada, Japan, and Europe were all positive contributors. A slight overweight to the U.K. and an underweight to Asia ex-Japan detracted from performance.

The 3.43% return of the S&P Developed SmallCap Index does not reflect the high level of market volatility during the reporting period, which included several swings of 10% or more up or down, driven largely by investor reactions to macroeconomic headlines. The U.S. Federal Open Market Committee’s (FOMC) decision to raise interest rates in December of 2015 and comments that several potential rate increases might follow in 2016 caused global markets to plunge until February. FOMC Chair Janet Yellen subsequently stated that further rate increases were likely on hold, which caused global markets to move higher for the next several months. Investors then turned their attention towards the U.K.’s referendum in June to leave the European Union. After quickly digesting the news, the markets rallied back through the summer of 2016 until October when uncertainty surrounding the upcoming U.S. presidential election led to a decline during the final month of the period.

As bottom-up investors, we evaluate how these global macroeconomic events might affect the Fund’s holdings, but we do not derive our security selection from macroeconomic bets. We aim to use market volatility opportunistically, and we will seek to use any future volatility to the advantage of our bottom-up stock-selection process. This volatile period proved to be a great example of why we prefer to have security selection determine our fate as investors.

 

Ten largest holdings (%) as of October 31, 20166  

Popeyes Louisiana Kitchen Incorporated

     2.22   

Novanta Incorporated

     2.20   

TreeHouse Foods Incorporated

     1.86   

Mueller Industries Incorporated

     1.84   

ICU Medical Incorporated

     1.84   

Analogic Corporation

     1.82   

Douglas Dynamics Incorporated

     1.80   

Denny’s Corporation

     1.71   

Vishay Intertechnology Incorporated

     1.56   

Helen of Troy Limited

     1.53   

 

Stock selection in the consumer staples, consumer discretionary, and IT sectors contributed to performance during the period.

In the consumer staples sector, Maple Leaf Foods, Incorporated, a Canadian packaged meat company contributed. The company’s multi-year capital reallocation effort led to very strong operational and financial results. Additionally, FamilyMart UNY Holdings Company Limited, a Japan-based holding company which operates convenience stores, saw its stock rewarded for solid performance and stronger than expected store expansions.

 

 

Within the consumer discretionary sector, a notable contributor was Krispy Kreme Doughnuts, Incorporated, a U.S.-based retailer and wholesaler of doughnuts and other food and beverage products. The shares appreciated after JAB Holding Company announced a merger agreement in May of 2016. Kuoni Reisen Holding AG, the Switzerland-based provider of global travel services, contributed after the company was acquired by EQT Partners AB.

Security selection in the IT sector was a contributor and was positively affected by our exposure to Coherent Incorporated. The U.S.-based supplier of photonics-based solutions consistently delivered strong results from its core organic light emitting diodes business. Also, Coherent’s acquisition of Rofin-Sinar Technologies Incorporated, an industrial laser manufacturer, expands and diversifies the company’s market reach.

An underweight to the interest rate sensitive utility and REIT sectors detracted from relative performance. Although we recognize our underweight to these sectors has been a detractor as investors looked for yield-oriented securities, our disciplined reward-to-risk valuation process continues to keep us underweight the utility and REIT sectors at this time.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Global Opportunities Fund     7   

Stock selection in the financial sector was also a detractor for the period. BinckBank N.V., a Netherlands-based provider of online brokerage services, underperformed due to a slowdown in its European retail brokerage transactions. Azimut Holding S.p.A, an Italian-based asset manager and provider of financial advisory services, also detracted from performance as investors expressed concerns about financial market volatility and the sustainability of its performance fees.

 

Sector distribution as of October 31, 20167
LOGO

 

Country allocation as of October 31, 20167
LOGO

Our investment philosophy focuses on company-specific factors rather than on headline-dominating macroeconomic events.

We will continue to invest in companies that we believe control their destiny via distinct long-term competitive advantages, flexible balance sheets, and strong, sustainable free cash flow generation. We expect that our stock selection based on these attributes, along with thoughtful portfolio construction, should allow us to continue to strive toward our goal of consistent alpha generation with a low risk profile. As we look to the end of 2016, there are numerous market forces that could bring further volatility. Perhaps the biggest question mark facing investors over the next six to twelve months is how and when the U.S. Federal Reserve chooses to raise interest rates. Central banks around the globe are struggling with similar issues, and the recent attempt by the Bank of Japan to put a floor under long-term rates while still remaining accommodating will be worth watching to see if it is successful.

We believe our fundamental analysis, risk management, and active investment process are well suited to take advantage of new opportunities as the equity market evolves. While volatility may increase, the strong balance sheets and stable cash flow of the companies in our portfolio should support consistent long-term performance.

 

 

 

Please see footnotes on page 5.


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8   Wells Fargo Global Opportunities 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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period¹
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,058.11       $ 8.01         1.55

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.36       $ 7.85         1.55

Class B

           

Actual

   $ 1,000.00       $ 1,054.21       $ 11.86         2.30

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.59       $ 11.62         2.30

Class C

           

Actual

   $ 1,000.00       $ 1,054.22       $ 11.87         2.30

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.58       $ 11.63         2.30

Administrator Class

           

Actual

   $ 1,000.00       $ 1,059.09       $ 7.25         1.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.10       $ 7.10         1.40

Institutional Class

           

Actual

   $ 1,000.00       $ 1,060.33       $ 5.96         1.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.36       $ 5.84         1.15

 

 

 

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—October 31, 2016   Wells Fargo Global Opportunities Fund     9   

    

 

 

Security name                 Shares      Value  

Common Stocks: 92.55%

          
Australia: 0.63%           

Ansell Limited (Health Care, Health Care Equipment & Supplies)

          68,572       $ 1,131,409   

Spotless Group Holdings Limited (Industrials, Commercial Services & Supplies)

          310,180         235,954   
             1,367,363   
          

 

 

 
Austria: 0.44%           

UNIQA Insurance Group AG (Financials, Insurance)

          38,383         247,416   

Zumtobel Group AG (Industrials, Electrical Equipment)

          39,794         698,724   
             946,140   
          

 

 

 
Canada: 7.35%           

Colliers International Group (Real Estate, Real Estate Management & Development)

          28,424         989,637   

Cott Corporation (Consumer Staples, Beverages)

          91,640         1,201,780   

Finning International Incorporated (Industrials, Trading Companies & Distributors)

          44,630         830,511   

Maple Leaf Foods Incorporated (Consumer Staples, Food Products)

          77,542         1,766,128   

MBAC Fertilizer Corporation - Legend Shares (Materials, Chemicals) (a)(i)

          84,000         1,879   

MTY Food Group Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure)

          44,394         1,601,931   

Mullen Group Limited (Energy, Energy Equipment & Services) «

          87,091         1,207,054   

Novanta Incorporated (Information Technology, Electronic Equipment, Instruments & Components) †

          272,071         4,747,639   

Parex Resources Incorporated (Energy, Oil, Gas & Consumable Fuels) †

          108,900         1,252,760   

Tesco Corporation (Energy, Energy Equipment & Services)

          165,400         1,132,990   

Western Forest Products Incorporated (Materials, Paper & Forest Products)

          751,499         1,142,964   
             15,875,273   
          

 

 

 
China: 0.21%           

Plastec Technologies Limited (Materials, Chemicals) (a)

          150,788         452,364   
          

 

 

 
Finland: 0.61%           

Metsa Board OYJ (Materials, Paper & Forest Products) «

          229,674         1,319,873   
          

 

 

 
France: 2.93%           

ALTEN SA (Information Technology, IT Services)

          34,425         2,460,510   

Europcar Groupe SA (Consumer Discretionary, Road & Rail) †

          40,073         372,421   

Eutelsat Communications SA (Consumer Discretionary, Media)

          37,285         781,756   

M6 Metropole Television SA (Consumer Discretionary, Media)

          85,741         1,494,190   

Teleperformance SE (Industrials, Professional Services)

          11,540         1,219,552   
             6,328,429   
          

 

 

 
Germany: 4.24%           

Cancom SE (Information Technology, IT Services)

          38,389         1,742,974   

Gerresheimer AG (Health Care, Life Sciences Tools & Services)

          35,741         2,695,816   

SMA Solar Technology AG (Information Technology, Semiconductors & Semiconductor Equipment) «

          49,736         1,275,948   

TAG Immobilien AG (Real Estate, Real Estate Management & Development) «

          137,371         1,833,716   

TLG Immobilien AG (Real Estate, Real Estate Management & Development)

          76,836         1,609,336   
             9,157,790   
          

 

 

 
Hong Kong: 0.83%           

Sunlight REIT (Real Estate, Equity REITs)

          2,880,000         1,782,465   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo Global Opportunities Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                 Shares      Value  
Ireland: 0.31%           

Horizon Pharma plc (Health Care, Pharmaceuticals) †

          40,200       $ 672,144   
          

 

 

 
Israel: 0.79%           

Orbotech Limited (Information Technology, Electronic Equipment, Instruments & Components) †

          61,927         1,696,800   
          

 

 

 
Italy: 2.28%           

Autogrill SpA (Consumer Discretionary, Hotels, Restaurants & Leisure)

          89,619         747,191   

Azimut Holding SpA (Financials, Capital Markets)

          133,643         2,144,851   

Davide Campari-Milano SpA (Consumer Staples, Beverages)

          200,999         2,024,433   
             4,916,475   
          

 

 

 
Japan: 9.74%           

Aeon Delight Company Limited (Industrials, Commercial Services & Supplies)

          101,400         3,002,260   

DTS Corporation (Information Technology, IT Services)

          83,200         1,846,950   

Ezaki Glico Company Limited (Consumer Staples, Food Products)

          10,000         569,276   

FamilyMart Company Limited (Consumer Staples, Food & Staples Retailing)

          18,400         1,154,496   

Fuji Seal International Incorporated (Materials, Containers & Packaging)

          33,500         1,384,786   

Hitachi Chemical Company Limited (Materials, Chemicals)

          35,000         821,017   

Horiba Limited (Information Technology, Electronic Equipment, Instruments & Components)

          20,600         986,097   

Meitec Corporation (Industrials, Professional Services)

          45,100         1,539,601   

Musashi Seimitsu Industry Company Limited (Consumer Discretionary, Auto Components)

          69,800         1,707,894   

Nihon Parkerizing Company Limited (Materials, Chemicals)

          138,700         1,917,755   

ORIX JREIT Incorporated (Real Estate, Equity REITs)

          775         1,328,001   

OSG Corporation (Industrials, Machinery) «

          41,600         888,170   

Ship Healthcare Holdings Incorporated (Health Care, Health Care Providers & Services)

          43,469         1,274,599   

Sumitomo Warehouse Company Limited (Industrials, Transportation Infrastructure)

          223,000         1,195,061   

Taikisha Limited (Industrials, Construction & Engineering)

          56,100         1,420,287   
             21,036,250   
          

 

 

 
Netherlands: 0.36%           

TKH Group NV (Industrials, Electrical Equipment)

          19,992         769,873   
          

 

 

 
Norway: 0.23%           

SpareBank 1 SR Bank ASA (Financials, Banks)

          82,503         492,281   
          

 

 

 
Spain: 2.50%           

Almirall SA (Health Care, Pharmaceuticals)

          126,398         1,819,058   

Merlin Properties Socimi SA (Real Estate, Equity REITs)

          160,285         1,801,758   

Viscofan SA (Consumer Staples, Food Products)

          37,829         1,782,953   
             5,403,769   
          

 

 

 
Sweden: 0.42%           

Rezidor Hotel Group AB (Consumer Discretionary, Hotels, Restaurants & Leisure)

          223,954         914,943   
          

 

 

 
Switzerland: 1.44%           

Aryzta AG (Consumer Staples, Food Products)

          24,498         1,076,422   

OC Oerlikon Corporation AG (Information Technology, Electronic Equipment, Instruments & Components) †

          215,291         2,025,526   
             3,101,948   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Global Opportunities Fund     11   

    

 

 

Security name                 Shares      Value  
United Kingdom: 9.51%           

Bovis Homes Group plc (Consumer Discretionary, Household Durables)

          98,218       $ 910,658   

Britvic plc (Consumer Staples, Beverages)

          186,430         1,266,457   

Cambian Group plc (Health Care, Health Care Providers & Services)

          279,967         418,926   

Consort Medical plc (Health Care, Health Care Equipment & Supplies)

          40,761         570,260   

Devro plc (Consumer Staples, Food Products)

          65,230         181,240   

Elementis plc (Materials, Chemicals)

          419,202         1,222,213   

Hunting plc (Energy, Energy Equipment & Services)

          113,250         697,942   

IMI plc (Industrials, Machinery)

          53,267         648,077   

Jupiter Fund Management plc (Financials, Capital Markets)

          249,895         1,320,448   

Keller Group plc (Industrials, Construction & Engineering)

          91,556         762,600   

Lancashire Holdings Limited (Financials, Insurance)

          136,689         1,166,133   

Mears Group plc (Industrials, Commercial Services & Supplies)

          218,957         1,206,686   

Micro Focus International plc (Information Technology, Software)

          78,528         2,057,893   

Morgan Advanced Materials plc (Industrials, Machinery)

          155,854         519,836   

NCC Group plc (Information Technology, IT Services)

          299,144         693,859   

Nomad Foods Limited (Consumer Staples, Food Products) †

          191,000         2,347,390   

Savills plc (Real Estate, Real Estate Management & Development)

          177,381         1,506,774   

Shawbrook Group plc (Financials, Banks) 144A†

          148,006         407,246   

Spectris plc (Information Technology, Electronic Equipment, Instruments & Components)

          26,561         666,144   

Steris Corporation (Health Care, Health Care Equipment & Supplies)

          21,709         1,450,595   

Stock Spirits Group plc (Consumer Staples, Beverages)

          266,475         516,157   
             20,537,534   
          

 

 

 
United States: 47.73%           

ACI Worldwide Incorporated (Information Technology, Software) †

          122,800         2,225,136   

ALLETE Incorporated (Utilities, Electric Utilities)

          49,100         3,009,339   

Analogic Corporation (Health Care, Health Care Equipment & Supplies)

          48,024         3,930,764   

Aspen Insurance Holdings Limited (Financials, Insurance)

          48,700         2,349,775   

Belden Incorporated (Information Technology, Electronic Equipment, Instruments & Components)

          17,600         1,140,656   

Boston Beer Company Incorporated (Consumer Staples, Beverages) †«

          10,200         1,583,550   

Compass Minerals International Incorporated (Materials, Metals & Mining) «

          35,600         2,557,860   

Denny’s Corporation (Consumer Discretionary, Hotels, Restaurants & Leisure) †

          356,699         3,698,969   

Douglas Dynamics Incorporated (Industrials, Machinery)

          120,802         3,877,744   

Eagle Materials Incorporated (Materials, Construction Materials)

          22,000         1,781,340   

Fitbit Incorporated Class A (Information Technology, Electronic Equipment, Instruments & Components) †«

          74,900         993,174   

Forward Air Corporation (Industrials, Air Freight & Logistics)

          71,700         2,962,644   

Franklin Electric Company Incorporated (Industrials, Machinery)

          76,862         2,801,620   

Gulfport Energy Corporation (Energy, Oil, Gas & Consumable Fuels) †

          52,600         1,268,186   

Haemonetics Corporation (Health Care, Health Care Equipment & Supplies) †

          63,376         2,117,392   

HB Fuller Company (Materials, Chemicals)

          23,900         1,005,473   

Helen of Troy Limited (Consumer Discretionary, Household Durables) †

          40,500         3,300,750   

ICU Medical Incorporated (Health Care, Health Care Equipment & Supplies) †

          28,500         3,970,050   

Impax Laboratories Incorporated (Health Care, Pharmaceuticals) †

          30,800         619,080   

Innospec Incorporated (Materials, Chemicals)

          29,478         1,776,049   

Innoviva Incorporated (Health Care, Pharmaceuticals) †«

          294,708         3,035,492   

Korn/Ferry International (Industrials, Professional Services)

          147,900         3,015,681   

Lannett Company Incorporated (Health Care, Pharmaceuticals) †«

          34,500         755,550   

Molina Healthcare Incorporated (Health Care, Health Care Providers & Services) †

          25,900         1,409,219   

Mueller Industries Incorporated (Industrials, Machinery)

          131,500         3,983,135   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Global Opportunities Fund   Portfolio of investments—October 31, 2016

    

 

 

Security name                Shares      Value  
United States (continued)          

Multi Packaging Solutions International Limited (Materials, Containers & Packaging) †

         150,300       $ 2,030,553   

Myriad Genetics Incorporated (Health Care, Biotechnology) †

         43,600         859,356   

NetScout Systems Incorporated (Information Technology, Communications Equipment) †

         85,900         2,357,955   

PAREXEL International Corporation (Health Care, Life Sciences Tools & Services) †

         32,800         1,910,928   

PharMerica Corporation (Health Care, Health Care Providers & Services) †

         31,400         747,320   

Popeyes Louisiana Kitchen Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure) †

         89,675         4,786,852   

Progress Software Corporation (Information Technology, Software) †

         116,100         3,124,251   

Quaker Chemical Corporation (Materials, Chemicals)

         27,615         2,968,613   

Quanex Building Products Corporation (Industrials, Building Products)

         105,800         1,724,540   

Rogers Corporation (Information Technology, Electronic Equipment, Instruments & Components) †

         16,900         919,867   

Ryder System Incorporated (Industrials, Road & Rail)

         29,500         2,047,005   

Schweitzer-Mauduit International Incorporated (Materials, Paper & Forest Products)

         80,927         2,987,016   

Simpson Manufacturing Company Incorporated (Industrials, Building Products)

         40,570         1,736,396   

South Jersey Industries Incorporated (Utilities, Gas Utilities)

         53,100         1,574,415   

Synergy Resources Corporation (Energy, Oil, Gas & Consumable Fuels) †«

         58,600         400,824   

Thermon Group Holdings Incorporated (Industrials, Electrical Equipment) †

         97,300         1,783,509   

TreeHouse Foods Incorporated (Consumer Staples, Food Products) †

         45,900         4,015,332   

USG Corporation (Industrials, Building Products) †

         70,200         1,767,636   

Vishay Intertechnology Incorporated (Information Technology, Electronic Equipment, Instruments & Components)

         238,190         3,358,479   

Westwood Holdings Group Incorporated (Financials, Capital Markets)

         53,950         2,781,122   
            103,050,597   
         

 

 

 

Total Common Stocks (Cost $178,449,089)

            199,822,311   
         

 

 

 
    Dividend yield                      

Preferred Stocks: 0.64%

         
Germany: 0.64%          

Draegerwerk AG & Company KGAA (Health Care, Health Care Equipment & Supplies) ±

    0.30        19,462         1,388,260   
         

 

 

 

Total Preferred Stocks (Cost $1,703,050)

            1,388,260   
         

 

 

 
    Yield                      
Short-Term Investments: 9.90%          
Investment Companies: 9.90%          

Securities Lending Cash Investment LLC (l)(r)(u)

    0.69           10,081,201         10,082,209   

Wells Fargo Government Money Market Fund Select Class (l)(u)

    0.32           11,290,784         11,290,784   

Total Short-Term Investments (Cost $21,372,203)

            21,372,993        
         

 

 

 

 

Total investments in securities (Cost $201,524,342) *     103.09        222,583,564   

Other assets and liabilities, net

    (3.09        (6,663,750
 

 

 

      

 

 

 
Total net assets     100.00      $ 215,919,814   
 

 

 

      

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Global Opportunities Fund     13   

    

 

 

 

 

 

 

 

 

 

Non-income-earning security

 

« All or a portion of this security is on loan.

 

(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.

 

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.

 

± Variable rate investment. The rate shown is the rate in effect at period end.

 

(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 $203,419,323 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 31,206,351   

Gross unrealized losses

     (12,042,110
  

 

 

 

Net unrealized gains

   $ 19,164,241   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Global Opportunities Fund   Statement of assets and liabilities—October 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $9,743,811 of securities loaned), at value (cost $180,152,139)

  $ 201,210,571   

In affiliated securities, at value (cost $21,372,203)

    21,372,993   
 

 

 

 

Total investments, at value (cost $201,524,342)

    222,583,564   

Cash

    10,373   

Foreign currency, at value (cost $2,996,040)

    2,949,096   

Receivable for investments sold

    2,625,517   

Receivable for Fund shares sold

    291,259   

Receivable for dividends

    1,438,528   

Receivable for securities lending income

    19,645   

Prepaid expenses and other assets

    40,002   
 

 

 

 

Total assets

    229,957,984   
 

 

 

 

Liabilities

 

Payable for investments purchased

    3,075,273   

Payable for Fund shares redeemed

    500,163   

Payable upon receipt of securities loaned

    10,081,131   

Management fee payable

    175,032   

Distribution fees payable

    22,036   

Administration fees payable

    36,296   

Accrued expenses and other liabilities

    148,239   
 

 

 

 

Total liabilities

    14,038,170   
 

 

 

 

Total net assets

  $ 215,919,814   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 181,378,262   

Undistributed net investment income

    1,823,994   

Accumulated net realized gains on investments

    11,711,386   

Net unrealized gains on investments

    21,006,172   
 

 

 

 

Total net assets

  $ 215,919,814   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 138,804,883   

Shares outstanding – Class A1

    3,595,393   

Net asset value per share – Class A

    $38.61   

Maximum offering price per share – Class A2

    $40.97   

Net assets – Class B

  $ 888,332   

Shares outstanding – Class B1

    30,860   

Net asset value per share – Class B

    $28.79   

Net assets – Class C

  $ 32,863,460   

Shares outstanding – Class C1

    1,134,155   

Net asset value per share – Class C

    $28.98   

Net assets – Administrator Class

  $ 30,831,911   

Shares outstanding – Administrator Class1

    767,945   

Net asset value per share – Administrator Class

    $40.15   

Net assets – Institutional Class

  $ 12,531,228   

Shares outstanding – Institutional Class1

    312,692   

Net asset value per share – Institutional Class

    $40.08   

 

 

 

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 October 31, 2016   Wells Fargo Global Opportunities Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $169,887)

  $ 4,786,371   

Securities lending income, net

    158,334   

Income from affiliated securities

    33,040   
 

 

 

 

Total investment income

    4,977,745   
 

 

 

 

Expenses

 

Management fee

    2,073,309   

Administration fees

 

Class A

    296,744   

Class B

    3,444   

Class C

    70,390   

Administrator Class

    39,634   

Institutional Class

    14,677   

Shareholder servicing fees

 

Class A

    353,267   

Class B

    4,100   

Class C

    83,798   

Administrator Class

    75,726   

Distribution fees

 

Class B

    12,300   

Class C

    251,393   

Custody and accounting fees

    96,568   

Professional fees

    65,813   

Registration fees

    68,676   

Shareholder report expenses

    46,898   

Trustees’ fees and expenses

    19,250   

Other fees and expenses

    16,811   
 

 

 

 

Total expenses

    3,592,798   

Less: Fee waivers and/or expense reimbursements

    (39,180
 

 

 

 

Net expenses

    3,553,618   
 

 

 

 

Net investment income

    1,424,127   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    14,082,086   

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    2,224,835   

Affiiliated securities

    790   
 

 

 

 

Net change in unrealized gains (losses) on investments

    2,225,625   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    16,307,711   
 

 

 

 

Net increase in net assets resulting from operations

  $ 17,731,838   
 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Global Opportunities Fund   Statement of changes in net assets
     Year ended
October 31, 2016
    Year ended
October 31, 2015
 

Operations

       

Net investment income

    $ 1,424,127        $ 419,069   

Net realized gains on investments

      14,082,086          10,609,101   

Net change in unrealized gains (losses) on investments

      2,225,625          (5,394,548
 

 

 

 

Net increase in net assets resulting from operations

      17,731,838          5,633,622   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (886,928       (112,091

Administrator Class

      (231,280       (31,925

Institutional Class

      (115,938       (45,625

Net realized gains

       

Class A

      (6,414,005       (25,688,232

Class B

      (179,734       (2,100,714

Class C

      (1,977,317       (7,981,435

Administrator Class

      (1,289,238       (5,573,313

Institutional Class

      (426,341       (1,170,657
 

 

 

 

Total distributions to shareholders

      (11,520,781       (42,703,992
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    287,344        10,463,647        385,971        14,800,661   

Class B

    67        1,865        2,614        75,178   

Class C

    44,683        1,201,168        83,130        2,405,203   

Administrator Class

    164,556        6,297,087        192,685        7,651,580   

Institutional Class

    146,823        5,639,061        207,276        8,364,650   
 

 

 

 
      23,602,828          33,297,272   
 

 

 

 

Reinvestment of distributions

       

Class A

    196,310        6,790,837        656,362        23,808,617   

Class B

    6,892        177,539        73,234        2,024,915   

Class C

    63,376        1,643,340        236,312        6,574,187   

Administrator Class

    41,455        1,492,072        146,011        5,492,203   

Institutional Class

    11,643        418,957        21,540        812,381   
 

 

 

 
      10,522,745          38,712,303   
 

 

 

 

Payment for shares redeemed

       

Class A

    (963,819     (34,320,655     (830,863     (31,796,199

Class B

    (125,178     (3,309,009     (267,575     (7,895,832

Class C

    (249,405     (6,823,638     (244,958     (7,212,225

Administrator Class

    (259,890     (9,801,894     (726,799     (30,614,585

Institutional Class

    (114,180     (4,457,864     (78,685     (3,130,872
 

 

 

 
      (58,713,060       (80,649,713
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (24,587,487       (8,640,138
 

 

 

 

Total decrease in net assets

      (18,376,430       (45,710,508
 

 

 

 

Net assets

       

Beginning of period

      234,296,244          280,006,752   
 

 

 

 

End of period

    $ 215,919,814        $ 234,296,244   
 

 

 

 

Undistributed net investment income

    $ 1,823,994        $ 1,188,486   
 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo Global Opportunities Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $37.23        $43.26        $42.68        $33.17        $30.14   

Net investment income

    0.26 1      0.10 1      0.03 1      0.16 1      0.20 1 

Net realized and unrealized gains (losses) on investments

    2.92        0.64        0.86        9.58        2.87   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.18        0.74        0.89        9.74        3.07   

Distributions to shareholders from

         

Net investment income

    (0.21     (0.03     (0.31     (0.23     (0.04

Net realized gains

    (1.59     (6.74     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (1.80     (6.77     (0.31     (0.23     (0.04

Net asset value, end of period

    $38.61        $37.23        $43.26        $42.68        $33.17   

Total return2

    9.12     2.12     2.07     29.50     10.24

Ratios to average net assets (annualized)

         

Gross expenses

    1.55     1.57     1.57     1.59     1.55

Net expenses

    1.55     1.55     1.55     1.55     1.54

Net investment income

    0.73     0.27     0.06     0.43     0.65

Supplemental data

         

Portfolio turnover rate

    70     42     66     59     85

Net assets, end of period (000s omitted)

    $138,805        $151,740        $167,166        $181,764        $156,433   

 

 

 

 

 

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.


Table of Contents

 

18   Wells Fargo Global Opportunities Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $28.21        $34.62        $34.18        $26.58        $24.30   

Net investment loss

    (0.09 )1      (0.14 )1      (0.25 )1      (0.09 )1      (0.03 )1 

Net realized and unrealized gains (losses) on investments

    2.26        0.47        0.69        7.69        2.31   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.17        0.33        0.44        7.60        2.28   

Distributions to shareholders from

         

Net realized gains

    (1.59     (6.74     0.00        0.00        0.00   

Net asset value, end of period

    $28.79        $28.21        $34.62        $34.18        $26.58   

Total return2

    8.32     1.34     1.29     28.54     9.42

Ratios to average net assets (annualized)

         

Gross expenses

    2.31     2.32     2.32     2.34     2.30

Net expenses

    2.30     2.30     2.30     2.30     2.29

Net investment loss

    (0.32 )%      (0.49 )%      (0.71 )%      (0.32 )%      (0.10 )% 

Supplemental data

         

Portfolio turnover rate

    70     42     66     59     85

Net assets, end of period (000s omitted)

    $888        $4,206        $11,799        $19,446        $21,181   

 

 

 

 

 

 

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.


Table of Contents

 

Financial highlights   Wells Fargo Global Opportunities Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $28.39        $34.80        $34.36        $26.73        $24.43   

Net investment loss

    (0.01 )1      (0.14 )1      (0.24 )1      (0.09 )1      (0.03 )1 

Net realized and unrealized gains (losses) on investments

    2.19        0.47        0.69        7.72        2.33   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    2.18        0.33        0.45        7.63        2.30   

Distributions to shareholders from

         

Net investment income

    0.00        0.00        (0.01     0.00        0.00   

Net realized gains

    (1.59     (6.74     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (1.59     (6.74     (0.01     0.00        0.00   

Net asset value, end of period

    $28.98        $28.39        $34.80        $34.36        $26.73   

Total return2

    8.31     1.34     1.32     28.54     9.41

Ratios to average net assets (annualized)

         

Gross expenses

    2.30     2.32     2.32     2.34     2.30

Net expenses

    2.30     2.30     2.30     2.30     2.29

Net investment loss

    (0.02 )%      (0.48 )%      (0.69 )%      (0.31 )%      (0.11 )% 

Supplemental data

         

Portfolio turnover rate

    70     42     66     59     85

Net assets, end of period (000s omitted)

    $32,863        $36,215        $41,792        $44,618        $37,753   

 

 

 

 

 

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.


Table of Contents

 

20   Wells Fargo Global Opportunities Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $38.65        $44.60        $44.00        $34.21        $31.10   

Net investment income

    0.41        0.16 1      0.09        0.22 1      0.26 1 

Net realized and unrealized gains (losses) on investments

    2.95        0.66        0.90        9.86        2.96   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.36        0.82        0.99        10.08        3.22   

Distributions to shareholders from

         

Net investment income

    (0.27     (0.03     (0.39     (0.29     (0.11

Net realized gains

    (1.59     (6.74     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (1.86     (6.77     (0.39     (0.29     (0.11

Net asset value, end of period

    $40.15        $38.65        $44.60        $44.00        $34.21   

Total return

    9.30     2.27     2.22     29.73     10.44

Ratios to average net assets (annualized)

         

Gross expenses

    1.47     1.43     1.41     1.42     1.38

Net expenses

    1.40     1.40     1.40     1.40     1.38

Net investment income

    0.90     0.41     0.22     0.58     0.81

Supplemental data

         

Portfolio turnover rate

    70     42     66     59     85

Net assets, end of period (000s omitted)

    $30,832        $31,765        $53,966        $52,461        $44,360   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo Global Opportunities Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $38.63        $44.67        $44.05        $34.25        $31.18   

Net investment income

    0.45        0.20        0.15        0.32 1      0.36 1 

Net realized and unrealized gains (losses) on investments

    3.00        0.72        0.96        9.86        2.93   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.45        0.92        1.11        10.18        3.29   

Distributions to shareholders from

         

Net investment income

    (0.41     (0.22     (0.49     (0.38     (0.22

Net realized gains

    (1.59     (6.74     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (2.00     (6.96     (0.49     (0.38     (0.22

Net asset value, end of period

    $40.08        $38.63        $44.67        $44.05        $34.25   

Total return

    9.56     2.53     2.48     30.06     10.70

Ratios to average net assets (annualized)

         

Gross expenses

    1.22     1.18     1.14     1.16     1.12

Net expenses

    1.15     1.15     1.14     1.15     1.12

Net investment income

    1.20     0.66     0.47     0.83     1.13

Supplemental data

         

Portfolio turnover rate

    70     42     66     59     85

Net assets, end of period (000s omitted)

    $12,531        $10,369        $5,284        $2,151        $1,263   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

22   Wells Fargo Global Opportunities 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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Global 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 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 October 31, 2016, 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 vehicles 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 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.


Table of Contents

 

Notes to financial statements   Wells Fargo Global Opportunities Fund     23   

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 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.

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.


Table of Contents

 

24   Wells Fargo Global Opportunities 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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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 foreign currency transactions and passive foreign investment companies. At October 31, 2016, 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
$445,527    $(445,527)

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 significant 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, use of amortized cost, 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.


Table of Contents

 

Notes to financial statements   Wells Fargo Global Opportunities Fund     25   

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Australia

   $ 1,367,363       $ 0       $ 0       $ 1,367,363   

Austria

     946,140         0         0         946,140   

Canada

     15,873,394         0         1,879         15,875,273   

China

     0         0         452,364         452,364   

Finland

     1,319,873         0         0         1,319,873   

France

     6,328,429         0         0         6,328,429   

Germany

     9,157,790         0         0         9,157,790   

Hong Kong

     1,782,465         0         0         1,782,465   

Ireland

     672,144         0         0         672,144   

Israel

     1,696,800         0         0         1,696,800   

Italy

     4,916,475         0         0         4,916,475   

Japan

     21,036,250         0         0         21,036,250   

Netherlands

     769,873         0         0         769,873   

Norway

     492,281         0         0         492,281   

Spain

     5,403,769         0         0         5,403,769   

Sweden

     914,943         0         0         914,943   

Switzerland

     3,101,948         0         0         3,101,948   

United Kingdom

     20,537,534         0         0         20,537,534   

United States

     103,050,597         0         0         103,050,597   

Preferred stocks

           

Germany

     1,388,260         0         0         1,388,260   

Short-term investments

           

Investment companies

     11,290,784         0         0         11,290,784   

Investments measured at net asset value*

                                10,082,209   

Total assets

   $ 212,047,112       $ 0       $ 454,243       $ 222,583,564   

 

* 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 $10,082,209 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. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $51,457,013 and preferred stocks valued at $1,388,260 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund had no material transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES

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 0.95% and declining to 0.83% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, the management fee was equivalent to an annual rate of 0.95% of the Fund’s average daily net assets.


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26   Wells Fargo Global Opportunities 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

     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 February 28, 2017 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.55% for Class A shares, 2.30% for Class B shares, 2.30% for Class C shares, 1.40% for Administrator Class shares, and 1.15% 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 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 October 31, 2016, Funds Distributor received $4,525 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 October 31, 2016 were $146,423,567 and $174,518,793, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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.


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Notes to financial statements   Wells Fargo Global Opportunities Fund     27   

For the year ended October 31, 2016, there were no borrowings by the Fund under the agreement.

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2016 and October 31, 2015 were as follows:

 

     Year ended October 31  
     2016      2015  

Ordinary income

   $ 1,234,146       $ 9,467,443   

Long-term capital gain

     10,286,635         33,236,549   

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income
   Undistributed
long-term
gain
   Unrealized
gains
$4,472,360    $10,965,608    $19,111,007

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. 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.

10. SUBSEQUENT DISTRIBUTIONS

On December 9, 2016, the Fund declared distributions from short-term capital gains and long-term capital gains to shareholders of record on December 8, 2016. The per share amounts payable on December 12, 2016 were as follows:

 

    

Short-term

capital

gains

    

Long-term

capital

gains

 

Class A

     $0.45599         $1.89348   

Class B

     0.45599         1.89348   

Class C

     0.45599         1.89348   

Administrator Class

     0.45599         1.89348   

Institutional Class

     0.45599         1.89348   

These distributions are not reflected in the accompanying financial statements. The final determination of the source of all distributions is subject to change and made after the Fund’s tax year-end.


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28   Wells Fargo Global 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 Global Opportunities Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 Global Opportunities Fund as of October 31, 2016 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

December 22, 2016


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Other information (unaudited)   Wells Fargo Global Opportunities Fund     29   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 97.88% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended October 31, 2016.

Pursuant to Section 852 of the Internal Revenue Code, $10,286,635 was designated as a 20% rate gain distribution for the fiscal year ended October 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $1,231,168 of income dividends paid during the fiscal year ended October 31, 2016 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 Global 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 139 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. 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 Chair of Taproot Foundation (non-profit organization), 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 Global 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    

Karla M. Rabusch

(Born 1959)

  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    

Jeremy DePalma1

(Born 1974)

  Treasurer, since 2012   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.    

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 Whitaker3

(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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32   Wells Fargo Global Opportunities Fund   Other information (unaudited)

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo Global Opportunities Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); and (ii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Wells Capital Management Incorporated (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Adviser and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Adviser were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Adviser about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Adviser under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Adviser to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Adviser. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe.


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Other information (unaudited)   Wells Fargo Global Opportunities Fund     33   

The Board noted that the performance of the Fund (Administrator Class A) was higher than or in range of the average performance of the Universe for all periods under review except the five-year period. The Board also noted that the performance of the Fund lower than its benchmark, the S&P Developed SmallCap Index, for all periods under review except the ten-year period.

The Board received information concerning, and discussed factors contributing to, the underperformance of the Fund relative to the Universe and benchmark for the periods noted above. The Board took note of the explanations for the relative underperformance in these periods, including with respect to market factors and investment decisions that affected the Fund’s performance.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were lower than or in range of the median net operating expense ratios of the expense Groups.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Adviser for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were lower than or in the range of the sum of these average rates for the Fund’s expense Groups for all share classes.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Adviser for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Adviser, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Adviser, the Board ascribed limited relevance to the allocation of fees between them.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Adviser to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Adviser under the Sub-Advisory Agreement was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also received and considered information concerning the profitability of the Sub-Adviser from providing services to the fund family as a whole, noting that the Sub-Adviser’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis.


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34   Wells Fargo Global Opportunities Fund   Other information (unaudited)

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Adviser

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Adviser’s business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Adviser, fees earned by Funds Management and the Sub-Adviser from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


Table of Contents

 

List of abbreviations   Wells Fargo Global Opportunities 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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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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

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247343 12-16

A239/AR239 10-16

 


Table of Contents

Annual Report

October 31, 2016

 

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Wells Fargo International Equity 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

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    12   

Statement of operations

    13   

Statement of changes in net assets

    14   

Financial highlights

    15   

Notes to financial statements

    22   

Report of independent registered public accounting firm

    29   

Other information

    30   

List of abbreviations

    36   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 International Equity Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo International Equity Fund for the 12-month period that ended October 31, 2016. Significant volatility in international equity markets during the final months of 2015 and early 2016 subsided during the last half of the period. The performance contrast in each half of the reporting period as measured by key benchmark indexes shows the improving investment environment during the previous 12 months.

 

    November 1, 2015 through
April 30, 2016 (%)
    May 1, 2016 through
October 31, 2016 (%)
 

Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net)1

    (3.07     (0.16

MSCI World Index (Net)2

    (1.05     2.25   

MSCI All Country World Index (ACWI) ex USA Index (Net)3

    (1.75     2.01   

S&P Developed SmallCap Index4

    1.05        2.36   

Past performance is no guarantee of future results.

Central bank policies demonstrated resolve to reignite global economic growth.

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China. They also were uncertain if governments and their central banks could successfully address concerns about recessionary pressures and global business activity through monetary and economic policy. The December 2015 decision of the U.S. Federal Reserve (Fed) to increase its key interest rate caused elevated levels of volatility in global equity markets and sometimes drove significant fluctuations in the relative values of currencies around the world. The U.S. dollar tended to gain strength, which helped exporters in other countries but pressured importers who paid higher prices for goods and services.

The European Central Bank (ECB) pushed the interest rate it pays on deposits further into negative territory in late 2015. In January 2016, the Bank of Japan followed the ECB’s lead by setting a negative deposit rate. During the period, the People’s Bank of China guided its currency’s value lower relative to a basket of foreign currencies to enhance exports. Investors viewed the actions of major central banks as consistent with efforts to spark business activity. Observing the actions of central banks overseas to implement policies that would accommodate

 

 

 

1  The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) 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. The MSCI EAFE Index (Net) consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 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.

 

2  The MSCI World Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (Net) consists of the following 23 developed markets country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. You cannot invest directly in an index.

 

3  The 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. You cannot invest directly in an index.

 

4  The S&P Developed SmallCap Index is a free-float-adjusted market-capitalization-weighted index designed to measure the equity market performance of small-capitalization companies located in developed markets. The index is composed of companies within the bottom 15% of the cumulative market capitalization in developed markets. The index covers all publicly listed equities with float-adjusted market values of U.S. $100 million or more and annual dollar value traded of at least U.S. $50 million in all included countries. You cannot invest directly in an index.


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Letter to shareholders (unaudited)   Wells Fargo International Equity Fund     3   

higher levels of business activity, the Fed acknowledged that risks to global growth existed and indicated it would base further rate increases on data that indicated successful management of the risks.

Investors closely watched changing sentiment in global markets during the period.

In the second quarter of 2016, equity market volatility levels declined and remained relatively low until the end of June, when voters in the United Kingdom surprised market participants and approved the Brexit referendum to leave the European Union. Investors reacted to the news negatively and fled to assets such as precious metals and U.S. Treasury bonds. As a result, interest rates fell sharply, and equity markets declined across the globe. In the weeks to follow, signs of resilience in major markets worldwide offset concerns stemming from the Brexit referendum.

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets. The third-quarter saw a rotation that favored company fundamentals over macroeconomic fears, creating a more favorable market dynamic for active managers. Dispersion of returns from both the sector and country perspective tended to confirm the changing views of the markets among investors. On an improved perception of business health, economically sensitive sectors such as consumer discretionary, materials, financials, and industrials gained while traditionally defensive sectors (utilities, telecommunication services, health care, and consumer staples) benefited less during the market rally.

Don’t let short-term uncertainty derail long-term investment goals.

Periods of investment 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

 

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets.

 

 

 

 

 

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

 

4   Wells Fargo International Equity 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

Dale A. Winner, CFA®

Average annual total returns (%) as of October 31, 20161

 

        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 (WFEAX)   1-20-1998     (8.33     3.87        0.35        (2.76     5.11        0.94        1.51        1.15   
Class B (WFEBX)*   9-6-1979     (8.28     3.96        0.41        (3.46     4.30        0.41        2.26        1.90   
Class C (WFEFX)   3-6-1998     (4.43     4.33        0.19        (3.43     4.33        0.19        2.26        1.90   
Class R (WFERX)   10-10-2003                          (2.94     4.85        0.69        1.76        1.40   
Class R6 (WFEHX)   9-30-2015                          (2.46     5.33        1.11        1.08        0.85   
Administrator Class (WFEDX)   7-16-2010                          (2.71     5.13        1.05        1.43        1.15   
Institutional Class (WFENX)   3-9-1998                          (2.48     5.36        1.20        1.18        0.90   
MSCI ACWI ex USA Index (Net)4                            0.22        3.64        1.61                 
*   Class B shares are closed to investment, except in connection with the reinvestment of any distributions and permitted exchanges.

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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. 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 smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo International Equity Fund     5   
Growth of $10,000 investment as of October 31, 20165
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 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 all classes of the Fund prior to July 12, 2010, is based on the performance of the Fund’s predecessor, Evergreen International Equity 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 February 28, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver at 1.14% for Cass A, 1.89% for Class B, 1.89% for Class C, 1.39% for Class R, 0.84% for Class R6, 1.14% for Administrator Class, and 0.89% 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.

 

4  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 U.S. 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.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI ACWI ex USA Index (Net). 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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6   Wells Fargo International Equity Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

  The Fund underperformed the MSCI ACWI ex USA Index (Net) for the 12-month period that ended October 31, 2016.

 

  Financials, consumer discretionary, and real estate equities detracted from performance. Industrials conglomerates and consumer staple stocks contributed to performance.

 

  The Fund remained overweight to stocks in Germany, the U.S., the Netherlands, Hong Kong (China), and South Korea and increased its positions in select undervalued European stocks.

Global capital markets experienced bouts of volatility.

Over the course of the last year, global capital markets experienced bouts of volatility, especially during the early part of 2016’s first quarter and the latter part of the second quarter. Concerns over China’s credit risks, European banking liquidity concerns, and Japanese investment challenges in an environment of negative interest rates added to first quarter turbulence. During the second quarter, fears around the unexpected referendum for the U.K. to leave the European Union (Brexit) weighed on equity market sentiment. Since then, momentum trading across equity markets was less evident than the return to fundamental investment appetite across global equities. During the period, we continued to find underresearched and undervalued stocks that we believed were poised to capitalize on advantages stemming from self-help restructuring and targeted national structural reforms. These influences drove total return in many of our stock picks across Europe, Asia, and the Americas. We are steadily witnessing a transition in public policy support for international economic recovery from reliance on monetary policy easing to an increased role of fiscal stimulus and pro-growth structural reforms in Asia (especially Japan and China) and in Europe.

Negative performance effects came from stocks such as ANIMA Holding S.p.A., HUGO BOSS AG, Mitsubishi UFJ Financial Group, Incorporated, Cameco Corporation, Dongfeng Motor Group Company, Limited, Nomura Holdings Holdings, Incorporated, and Hitachi, Limited. Some of the best stock performances came from Coca-Cola East Japan Company Limited, Xinyi Glass Holdings Limited, and Hana Financial Group Incorporated in Asia; Prysmian S.p.A., Smiths Group plc, Siemens AG, and Royal Philips N.V. in Europe; and in the Americas, Lundin Mining Corporation. We have gradually increased our emerging markets equity exposure, notably in Korea and Brazil. Outside these countries and China and Hong Kong, we are evaluating a number of opportunities amid increasing emerging markets company, country, and currency risk and opportunity divergences.

Regionally, divergent and compelling investment opportunities continue to emerge.

In Europe, opportunities arose amid signs of a cyclical economic recovery in the context of an alert European Central Bank (ECB) that is focused on managing systematic risks in banking and financial markets. The ECB’s actions continue to help address challenges facing the European Union member states as they seek further political cooperation to secure their currency union. Companies engaged in self-help restructuring through operational efficiencies such as careful investment of corporate resources, cost-cutting, and portfolio reshaping bolstered their profitability and benefited from the additional impetus of structural reforms and economic recovery. Key core investment holdings include Munich Reinsurance Company, METRO AG, Eni S.p.A., Smiths Group, and Compagnie de Saint-Gobain S.A.

In Asia, our base-case assessment suggests that while the policy challenges in China of transitioning from an exclusively state-controlled to more market-driven economy are not without difficulty, government officials have several policy levers at their disposal to accomplish an orderly and flexible liberalization, especially ahead of next year’s National People’s Congress milestone. We believe policy easing remains incremental, leaving room for further growth-enhancement measures. In Hong Kong, we continued to build positions in undervalued and restructuring state-owned enterprises such as China Mobile Limited. In South Korea, positions including Hana Financial and SK Telecom Company Limited provide long-term attractive total return upside based on micro restructuring benefits. And in Japan—where we are now underweight as of the beginning of this year, compared to having been an overweight in the portfolio years ago—we continue to find bifurcation between the new and old corporate regimes. We have watched core holdings increase their operating margins through more company-specific actions, as opposed to the currency depreciation benefiting exporters or reflationary policies benefiting levered financials years ago, exemplified by Coca-Cola East Japan, Hitachi and Nomura Holdings.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo International Equity Fund     7   
Ten largest holdings (%) as of October 31, 20166  

Muenchener Rueckversicherungs Gesellschaft AG

     3.58   

Eni SpA

     3.23   

Compagnie de Saint-Gobain SA

     3.10   

Metro AG

     3.08   

Hana Financial Group Incorporated

     3.08   

Vodafone Group plc

     3.04   

Smiths Group plc

     2.95   

Coca-Cola East Japan Company Limited

     2.88   

Koninklijke Philips NV

     2.80   

Wolseley plc

     2.72   

We continue to adhere to our investment process.

We are identifying opportunities in select equities across developed and emerging markets. Many of the companies we are monitoring currently trade in domestic markets that are approximately half the book-to-value market multiple of U.S. equities, with substantial potential for profitability enhancement as they normalize earnings power and monetize benefits from the collapse of commodity prices, lower credit costs, and currency rates that can prove advantageous, particularly to exporters. Our bottom-up stock-selection process continues to steer our portfolio to what we deem to be more nonconsensus, underearning, and undervalued equities, particularly in Europe, Hong Kong and, selectively, in other emerging markets—companies benefiting from a confluence of restructuring, reflation, and/or reform tailwinds.

 

 

Sector distribution as of October 31, 20167
LOGO
Country allocation as of October 31, 20167
LOGO
 

 

 

Please see footnotes on page 5.


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8   Wells Fargo International Equity 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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period¹
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,027.86       $ 5.81         1.14

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.41       $ 5.79         1.14

Class B

           

Actual

   $ 1,000.00       $ 1,023.70       $ 9.61         1.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.63       $ 9.58         1.89

Class C

           

Actual

   $ 1,000.00       $ 1,023.65       $ 9.61         1.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.63       $ 9.58         1.89

Class R

           

Actual

   $ 1,000.00       $ 1,026.58       $ 7.08         1.39

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.15       $ 7.05         1.39

Class R6

           

Actual

   $ 1,000.00       $ 1,028.84       $ 4.28         0.84

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.91       $ 4.27         0.84

Administrator Class

           

Actual

   $ 1,000.00       $ 1,028.36       $ 5.81         1.14

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.41       $ 5.79         1.14

Institutional Class

           

Actual

   $ 1,000.00       $ 1,028.86       $ 4.54         0.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.66       $ 4.52         0.89

 

 

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—October 31, 2016   Wells Fargo International Equity Fund     9   

      

 

 

Security name                 Shares      Value  

Common Stocks: 85.24%

          
Brazil: 0.24%           

Cosan Limited Class A (Energy, Oil, Gas & Consumable Fuels)

          99,329       $ 884,028   
          

 

 

 
Canada: 2.34%           

Lundin Mining Corporation (Materials, Metals & Mining) †

          2,217,053         8,677,796   
          

 

 

 
China: 7.77%           

China Everbright Limited (Financials, Capital Markets)

          3,586,000         7,028,154   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          658,000         7,538,253   

Industrial & Commercial Bank of China Limited H Shares (Financials, Banks)

          7,435,000         4,476,981   

Shanghai Pharmaceuticals Holding Company Limited H Shares (Health Care, Health Care Providers & Services)

          1,861,900         4,801,465   

Xinyi Solar Holdings Limited (Information Technology, Semiconductors & Semiconductor Equipment) «

          6,964,000         2,586,060   

Xtep International Holdings Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          5,524,180         2,436,023   
             28,866,936   
          

 

 

 
Denmark: 0.88%           

Novo Nordisk AS Class B (Health Care, Pharmaceuticals)

          91,547         3,275,037   
          

 

 

 
France: 3.10%           

Compagnie de Saint-Gobain SA (Industrials, Building Products)

          259,129         11,504,941   
          

 

 

 
Germany: 14.66%           

Bayer AG (Health Care, Pharmaceuticals)

          89,712         8,891,883   

Metro AG (Consumer Staples, Food & Staples Retailing)

          382,458         11,457,526   

Muenchener Rueckversicherungs Gesellschaft AG (Financials, Insurance)

          68,576         13,294,328   

Rheinmetall AG (Industrials, Industrial Conglomerates)

          81,057         5,615,549   

SAP SE (Information Technology, Software)

          88,683         7,811,507   

Siemens AG (Industrials, Industrial Conglomerates)

          65,189         7,403,011   
             54,473,804   
          

 

 

 
Hong Kong: 2.45%           

Value Partners Group Limited (Financials, Capital Markets)

          3,605,000         3,449,027   

Xinyi Automobile Glass Hong Kong Enterprises Limited (Consumer Discretionary, Auto Components) †

          958,500         186,619   

Xinyi Glass Holdings Limited (Consumer Discretionary, Auto Components)

          6,368,000         5,476,666   
             9,112,312   
          

 

 

 
Italy: 4.63%           

Eni SpA (Energy, Oil, Gas & Consumable Fuels)

          826,504         11,985,367   

Prysmian SpA (Industrials, Electrical Equipment)

          209,064         5,202,766   
             17,188,133   
          

 

 

 
Japan: 13.53%           

Coca-Cola East Japan Company Limited (Consumer Staples, Beverages)

          484,600         10,702,142   

Daiwa Securities Group Incorporated (Financials, Capital Markets)

          1,367,000         8,182,187   

Hitachi Limited (Information Technology, Electronic Equipment, Instruments & Components)

          1,829,000         9,752,806   

Mitsubishi UFJ Financial Group Incorporated (Financials, Banks)

          1,507,000         7,825,996   

Mitsui Fudosan Company Limited (Real Estate, Real Estate Management & Development)

          184,000         4,194,260   

Nomura Holdings Incorporated (Financials, Capital Markets)

          1,913,700         9,607,734   
             50,265,125   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo International Equity Fund   Portfolio of investments—October 31, 2016

      

 

 

Security name                Shares      Value  
Netherlands: 5.45%          

Koninklijke Philips NV (Industrials, Industrial Conglomerates) «

         344,438       $ 10,382,816   

NN Group NV (Financials, Insurance)

         327,527         9,869,451   
            20,252,267   
         

 

 

 
Norway: 1.27%          

Frontline Limited (Energy, Oil, Gas & Consumable Fuels) «

         187,330         1,373,967   

Marine Harvest ASA (Consumer Staples, Food Products)

         183,880         3,336,050   
            4,710,017   
         

 

 

 
South Korea: 6.80%          

Hana Financial Group Incorporated (Financials, Banks)

         398,559         11,424,719   

Samsung Electronics Company Limited GDR (Information Technology, Technology Hardware, Storage & Peripherals) 144A

         5,945         4,194,198   

SK Telecom Company Limited (Telecommunication Services, Wireless Telecommunication Services)

         49,340         9,637,308   
            25,256,225   
         

 

 

 
Switzerland: 4.95%          

Novartis AG (Health Care, Pharmaceuticals)

         134,176         9,545,743   

Zurich Insurance Group AG (Financials, Insurance)

         33,797         8,842,447   
            18,388,190   
         

 

 

 
United Kingdom: 11.37%          

Reckitt Benckiser Group plc (Consumer Staples, Household Products)

         42,387         3,794,110   

Smiths Group plc (Industrials, Industrial Conglomerates)

         632,005         10,969,287   

United Business Media plc (Consumer Discretionary, Media)

         692,118         6,086,794   

Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services)

         4,099,644         11,280,390   

Wolseley plc (Industrials, Trading Companies & Distributors)

         193,849         10,086,405   
            42,216,986   
         

 

 

 
United States: 5.80%          

Apple Incorporated (Information Technology, Technology Hardware, Storage & Peripherals)

         51,588         5,857,302   

Coach Incorporated (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

         208,070         7,467,632   

Pfizer Incorporated (Health Care, Pharmaceuticals)

         259,195         8,219,073   
            21,544,007   
         

 

 

 

Total Common Stocks (Cost $296,855,318)

            316,615,804   
         

 

 

 

Exchange-Traded Funds: 1.50%

         
United States: 1.50%          

iShares MSCI ACWI ex US ETF

         136,900         5,578,675   
         

 

 

 

Total Exchange-Traded Funds (Cost $5,581,837)

            5,578,675   
         

 

 

 
          Expiration date                
Participation Notes: 1.83%          
China: 1.83%          

HSBC Bank plc (Kweichow Moutai Company Limited Class A) (Consumer Staples, Beverages) †

      2-19-2019         101,006         4,746,576   

HSBC Bank plc (Kweichow Moutai Company Limited Class A) (Consumer Staples, Beverages) †

      12-4-2024         43,031         2,022,156   

Total Participation Notes (Cost $4,522,600)

            6,768,732   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo International Equity Fund     11   

      

 

 

Security name   Yield            Shares      Value  

Short-Term Investments: 11.31%

         
Investment Companies: 11.31%          

Securities Lending Cash Investment LLC (l)(r)(u)

    0.69        3,155,666       $ 3,155,981   

Wells Fargo Government Money Market Fund Select Class (l)(u)

    0.32           38,856,450         38,856,450   

Total Short-Term Investments (Cost $42,012,124)

            42,012,431        
         

 

 

 

 

Total investments in securities (Cost $348,971,879) *     99.88        370,975,642   

Other assets and liabilities, net

    0.12           457,188   
 

 

 

      

 

 

 
Total net assets     100.00      $ 371,432,830   
 

 

 

      

 

 

 

 

 

 

Non-income-earning security

 

« All or a portion of this security is on loan.

 

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.
(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 $350,861,419 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 31,916,657   

Gross unrealized losses

     (11,802,434
  

 

 

 

Net unrealized gains

   $ 20,114,223   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo International Equity Fund   Statement of assets and liabilities—October 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $2,985,651 of securities loaned), at value (cost $306,959,755)

  $ 328,963,211   

In affiliated securities, at value (cost $42,012,124)

    42,012,431   
 

 

 

 

Total investments, at value (cost $348,971,879)

    370,975,642   

Foreign currency, at value (cost $64,510)

    62,482   

Receivable for investments sold

    10,487,336   

Receivable for Fund shares sold

    358,931   

Receivable for dividends

    1,280,475   

Receivable for securities lending income

    19,844   

Unrealized gains on forward foreign currency contracts

    1,221,034   

Prepaid expenses and other assets

    72,485   
 

 

 

 

Total assets

    384,478,229   
 

 

 

 

Liabilities

 

Payable for investments purchased

    7,076,043   

Payable for Fund shares redeemed

    914,791   

Payable upon receipt of securities loaned

    3,155,674   

Management fee payable

    182,754   

Distribution fees payable

    19,100   

Cash collateral due to broker

    1,505,000   

Administration fees payable

    52,176   

Accrued expenses and other liabilities

    139,861   
 

 

 

 

Total liabilities

    13,045,399   
 

 

 

 

Total net assets

  $ 371,432,830   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 367,641,931   

Undistributed net investment income

    10,190,249   

Accumulated net realized losses on investments

    (29,598,200

Net unrealized gains on investments

    23,198,850   
 

 

 

 

Total net assets

  $ 371,432,830   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 122,248,466   

Shares outstanding – Class A1

    11,039,106   

Net asset value per share – Class A

    $11.07   

Maximum offering price per share – Class A2

    $11.75   

Net assets – Class B

  $ 950,254   

Shares outstanding – Class B1

    87,941   

Net asset value per share – Class B

    $10.81   

Net assets – Class C

  $ 27,508,301   

Shares outstanding – Class C1

    2,542,515   

Net asset value per share – Class C

    $10.82   

Net assets – Class R

  $ 2,028,995   

Shares outstanding – Class R1

    181,204   

Net asset value per share – Class R

    $11.20   

Net assets – Class R6

  $ 26,294   

Shares outstanding – Class R61

    2,377   

Net asset value per share – Class R6

    $11.06   

Net assets – Administrator Class

  $ 36,031,541   

Shares outstanding – Administrator Class1

    3,312,084   

Net asset value per share – Administrator Class

    $10.88   

Net assets – Institutional Class

  $ 182,638,979   

Shares outstanding – Institutional Class1

    16,521,897   

Net asset value per share – Institutional Class

    $11.05   

 

 

 

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 October 31, 2016   Wells Fargo International Equity Fund     13   
         

Investment income

 

Dividends (net of foreign withholding taxes of $957,380)

  $ 12,685,650   

Securities lending income, net

    150,945   

Income from affiliated securities

    78,989   
 

 

 

 

Total investment income

    12,915,584   
 

 

 

 

Expenses

 

Management fee

    3,699,876   

Administration fees

 

Class A

    289,346   

Class B

    3,583   

Class C

    65,144   

Class R

    4,332   

Class R6

    7   

Administrator Class

    57,114   

Institutional Class

    252,935   

Shareholder servicing fees

 

Class A

    344,459   

Class B

    4,265   

Class C

    77,553   

Class R

    5,157   

Administrator Class

    107,933   

Distribution fees

 

Class B

    12,795   

Class C

    232,658   

Class R

    5,157   

Custody and accounting fees

    127,408   

Professional fees

    64,807   

Registration fees

    138,950   

Shareholder report expenses

    71,436   

Trustees’ fees and expenses

    21,195   

Other fees and expenses

    10,728   
 

 

 

 

Total expenses

    5,596,838   

Less: Fee waivers and/or expense reimbursements

    (1,218,122
 

 

 

 

Net expenses

    4,378,716   
 

 

 

 

Net investment income

    8,536,868   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (27,262,853

Forward foreign currency contract transactions

    2,906,581   
 

 

 

 

Net realized losses on investments

    (24,356,272
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (1,627,156

Affiliated securities

    307   

Forward foreign currency contract transactions

    (14,350
 

 

 

 

Net change in unrealized gains (losses) on investments

    (1,641,199
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (25,997,471
 

 

 

 

Net decrease in net assets resulting from operations

  $ (17,460,603
 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo International Equity Fund   Statement of changes in net assets
     Year ended
October 31, 2016
    Year ended
October 31, 2015
 

Operations

       

Net investment income

    $ 8,536,868        $ 3,816,017   

Net realized gains (losses) on investments

      (24,356,272       6,811,584   

Net change in unrealized gains (losses) on investments

      (1,641,199       (5,436,792
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (17,460,603       5,190,809   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (1,980,548       (4,144,449

Class B

      (4,737       (133,491

Class C

      (292,082       (589,249

Class R

      (24,021       (58,692

Class R6

      (338       0 1 

Administrator Class

      (731,926       (444,265

Institutional Class

      (3,153,699       (3,012,972
 

 

 

 

Total distributions to shareholders

      (6,187,351       (8,383,118
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    3,672,410        40,169,639        5,686,291        68,771,982   

Class B

    815        8,671        4,367        52,179   

Class C

    998,881        10,835,255        1,364,465        16,286,613   

Class R

    72,262        801,881        127,293        1,581,522   

Class R6

    51        541        2,296 1      25,000 1 

Administrator Class

    2,805,944        30,263,453        5,575,269        66,219,302   

Institutional Class

    9,957,611        108,139,415        14,609,456        168,904,517   
 

 

 

 
      190,218,855          321,841,115   
 

 

 

 

Reinvestment of distributions

       

Class A

    167,795        1,860,967        350,957        3,835,959   

Class B

    431        4,689        12,086        129,201   

Class C

    23,355        254,804        47,129        508,047   

Class R

    822        9,244        2,725        30,167   

Class R6

    30        338        0 1      0 1 

Administrator Class

    67,082        731,191        41,287        443,423   

Institutional Class

    230,119        2,542,811        220,501        2,396,847   
 

 

 

 
      5,404,044          7,343,644   
 

 

 

 

Payment for shares redeemed

       

Class A

    (5,436,299     (57,973,044     (2,058,420     (23,991,275

Class B

    (148,673     (1,557,542     (158,096     (1,803,160

Class C

    (1,053,145     (11,165,445     (316,369     (3,631,747

Class R

    (76,036     (818,347     (84,187     (995,805

Administrator Class

    (4,192,576     (44,163,215     (2,153,660     (24,140,441

Institutional Class

    (10,441,636     (109,679,342     (3,722,844     (43,032,964
 

 

 

 
      (225,356,935       (97,595,392
 

 

 

 

Net increase (decrease) in net assets resulting from capital share transactions

      (29,734,036       231,589,367   
 

 

 

 

Total increase (decrease) in net assets

      (53,381,990       228,397,058   
 

 

 

 

Net assets

       

Beginning of period

      424,814,820          196,417,762   
 

 

 

 

End of period

    $ 371,432,830        $ 424,814,820   
 

 

 

 

Undistributed net investment income

    $ 10,190,249        $ 4,903,871   
 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo International Equity Fund     15   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.53        $11.28        $11.98        $9.77        $9.82   

Net investment income

    0.22        0.18 1      0.37 1      0.21        0.25   

Net realized and unrealized gains (losses) on investments

    (0.54     0.57        (0.81     2.27        (0.09
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.32     0.75        (0.44     2.48        0.16   

Distributions to shareholders from

         

Net investment income

    (0.14     (0.50     (0.26     (0.27     (0.21

Net asset value, end of period

    $11.07        $11.53        $11.28        $11.98        $9.77   

Total return2

    (2.76 )%      6.85     (3.77 )%      25.99     1.83

Ratios to average net assets (annualized)

         

Gross expenses

    1.47     1.53     1.53     1.56     1.53

Net expenses

    1.12     1.09     1.09     1.09     1.09

Net investment income

    2.04     1.50     3.14     2.03     2.49

Supplemental data

         

Portfolio turnover rate

    65     27     32     38     115

Net assets, end of period (000s omitted)

    $122,248        $145,654        $97,640        $115,821        $114,219   

 

 

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.


Table of Contents

 

16   Wells Fargo International Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.21        $10.95        $11.62        $9.47        $9.48   

Net investment income

    0.12 1      0.08 1      0.28 1      0.13 1      0.16 1 

Net realized and unrealized gains (losses) on investments

    (0.50     0.56        (0.79     2.21        (0.07
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.38     0.64        (0.51     2.34        0.09   

Distributions to shareholders from

         

Net investment income

    (0.02     (0.38     (0.16     (0.19     (0.10

Net asset value, end of period

    $10.81        $11.21        $10.95        $11.62        $9.47   

Total return2

    (3.46 )%      6.00     (4.48 )%      25.07     0.99

Ratios to average net assets (annualized)

         

Gross expenses

    2.21     2.29     2.28     2.31     2.28

Net expenses

    1.87     1.84     1.84     1.84     1.84

Net investment income

    1.17     0.68     2.40     1.27     1.67

Supplemental data

         

Portfolio turnover rate

    65     27     32     38     115

Net assets, end of period (000s omitted)

    $950        $2,639        $4,127        $6,810        $8,303   

 

 

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 International Equity Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.30        $11.06        $11.75        $9.58        $9.59   

Net investment income

    0.14        0.08 1      0.27 1      0.14 1      0.16 1 

Net realized and unrealized gains (losses) on investments

    (0.53     0.57        (0.79     2.22        (0.07
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.39     0.65        (0.52     2.36        0.09   

Distributions to shareholders from

         

Net investment income

    (0.09     (0.41     (0.17     (0.19     (0.10

Net asset value, end of period

    $10.82        $11.30        $11.06        $11.75        $9.58   

Total return2

    (3.43 )%      6.03     (4.49 )%      25.05     1.08

Ratios to average net assets (annualized)

         

Gross expenses

    2.22     2.28     2.28     2.31     2.28

Net expenses

    1.87     1.84     1.84     1.84     1.84

Net investment income

    1.33     0.72     2.37     1.30     1.72

Supplemental data

         

Portfolio turnover rate

    65     27     32     38     115

Net assets, end of period (000s omitted)

    $27,508        $29,080        $16,346        $16,997        $16,760   

 

 

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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18   Wells Fargo International Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS R   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.66        $11.40        $11.96        $9.75        $9.79   

Net investment income

    0.19 1      0.15 1      0.32 1      0.18 1      0.20 1 

Net realized and unrealized gains (losses) on investments

    (0.53     0.57        (0.79     2.27        (0.06
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.34     0.72        (0.47     2.45        0.14   

Distributions to shareholders from

         

Net investment income

    (0.12     (0.46     (0.09     (0.24     (0.18

Net asset value, end of period

    $11.20        $11.66        $11.40        $11.96        $9.75   

Total return

    (2.94 )%      6.53     (4.00 )%      25.68     1.58

Ratios to average net assets (annualized)

         

Gross expenses

    1.72     1.78     1.78     1.81     1.78

Net expenses

    1.37     1.34     1.34     1.34     1.34

Net investment income

    1.77     1.23     2.71     1.72     2.11

Supplemental data

         

Portfolio turnover rate

    65     27     32     38     115

Net assets, end of period (000s omitted)

    $2,029        $2,147        $1,576        $2,234        $2,196   

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


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Financial highlights   Wells Fargo International Equity Fund     19   

(For a share outstanding throughout each period)

 

    

  Year ended October 31  

 
CLASS R6    2016     20151  

Net asset value, beginning of period

     $11.49        $10.89   

Net investment income

     0.24        0.00 2 

Net realized and unrealized gains (losses) on investments

     (0.52     0.60   
  

 

 

   

 

 

 

Total from investment operations

     (0.28     0.60   

Distributions to shareholders from

    

Net investment income

     (0.15     0.00   

Net asset value, end of period

     $11.06        $11.49   

Total return3

     (2.46 )%      5.51

Ratios to average net assets (annualized)

    

Gross expenses

     1.04     1.05

Net expenses

     0.85     0.88

Net investment income

     2.31     0.23

Supplemental data

    

Portfolio turnover rate

     65     27

Net assets, end of period (000s omitted)

     $26        $26   

 

 

1  For the period from September 30, 2015 (commencement of class operations) to October 31, 2015

 

2  Amount is less than $0.005 per share.

 

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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20   Wells Fargo International Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.33        $11.09        $11.79        $9.62        $9.67   

Net investment income

    0.22        0.17 1      0.37 1      0.22        0.25   

Net realized and unrealized gains (losses) on investments

    (0.53     0.57        (0.80     2.22        (0.09
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.31     0.74        (0.43     2.44        0.16   

Distributions to shareholders from

         

Net investment income

    (0.14     (0.50     (0.27     (0.27     (0.21

Net asset value, end of period

    $10.88        $11.33        $11.09        $11.79        $9.62   

Total return

    (2.71 )%      6.89     (3.82 )%      26.00     1.88

Ratios to average net assets (annualized)

         

Gross expenses

    1.38     1.40     1.37     1.37     1.36

Net expenses

    1.12     1.09     1.09     1.09     1.09

Net investment income

    1.93     1.44     3.21     2.08     2.52

Supplemental data

         

Portfolio turnover rate

    65     27     32     38     115

Net assets, end of period (000s omitted)

    $36,032        $52,469        $12,962        $3,955        $3,505   

 

 

1  Calculated based upon average shares outstanding

 

The accompanying notes are an integral part of these financial statements.


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Financial highlights   Wells Fargo International Equity Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $11.49        $11.25        $11.96        $9.76        $9.83   

Net investment income

    0.23        0.19 1      0.37 1      0.24 1      0.37   

Net realized and unrealized gains (losses) on investments

    (0.52     0.58        (0.77     2.26        (0.19
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.29     0.77        (0.40     2.50        0.18   

Distributions to shareholders from

         

Net investment income

    (0.15     (0.53     (0.31     (0.30     (0.25

Net asset value, end of period

    $11.05        $11.49        $11.25        $11.96        $9.76   

Total return

    (2.48 )%      7.07     (3.53 )%      26.31     2.05

Ratios to average net assets (annualized)

         

Gross expenses

    1.14     1.15     1.10     1.13     1.10

Net expenses

    0.87     0.84     0.84     0.84     0.84

Net investment income

    2.27     1.67     3.18     2.29     2.67

Supplemental data

         

Portfolio turnover rate

    65     27     32     38     115

Net assets, end of period (000s omitted)

    $182,639        $192,799        $63,766        $82,982        $138,245   

 

 

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 International Equity 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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo International Equity 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.

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 October 31, 2016, 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 vehicles 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 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.


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Notes to financial statements   Wells Fargo International Equity Fund     23   

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 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.

Participation notes

The Fund may invest in participation notes to gain exposure to securities in certain foreign markets. Participation notes are issued by banks or broker-dealers and are designed to offer a return linked to a particular underlying foreign security. Participation notes involve transaction costs, which may be higher than those applicable to the underlying foreign security. The holder of the participation note is entitled to receive from the bank or broker-dealer, an amount equal to the dividend paid by the issuer of the underlying foreign security; however, the holder is not entitled to the same rights (i.e. dividends, voting rights) as an owner of the underlying foreign security. Investments in participation notes involve risks beyond those normally associated with a direct investment in an underlying security. The Fund has no rights against the issuer of the underlying foreign security and participation notes expose the Fund to counterparty risk in the event the counterparty does not perform. There is also no assurance there will be a secondary trading market for the participation note or that the trading price of the participation note will equal the underlying value of the foreign security that it seeks to replicate.

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


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24   Wells Fargo International Equity Fund   Notes to financial statements

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, 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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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 and foreign currency transactions. At October 31, 2016, 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
$(43,946,020)    $2,936,861    $41,009,159

As of October 31, 2016, the Fund had capital loss carryforwards which consist of $22,277,977 in short-term capital losses and $5,430,684 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.

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


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Notes to financial statements   Wells Fargo International Equity Fund     25   

lowest priority to significant 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, use of amortized cost, 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 October 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

Brazil

   $ 884,028       $ 0       $ 0       $ 884,028   

Canada

     8,677,796         0         0         8,677,796   

China

     28,866,936         0         0         28,866,936   

Denmark

     3,275,037         0         0         3,275,037   

France

     11,504,941         0         0         11,504,941   

Germany

     54,473,804         0         0         54,473,804   

Hong Kong

     9,112,312         0         0         9,112,312   

Italy

     17,188,133         0         0         17,188,133   

Japan

     50,265,125         0         0         50,265,125   

Netherlands

     20,252,267         0         0         20,252,267   

Norway

     4,710,017         0         0         4,710,017   

South Korea

     25,256,225         0         0         25,256,225   

Switzerland

     18,388,190         0         0         18,388,190   

United Kingdom

     42,216,986         0         0         42,216,986   

United States

     21,544,007         0         0         21,544,007   

Exchange-traded funds

           

United States

     5,578,675         0         0         5,578,675   

Participation notes

           

China

     0         6,768,732         0         6,768,732   

Short-term investments

           

Investment companies

     38,856,450         0         0         38,856,450   

Investments measured at net asset value*

                                3,155,981   
     361,050,929         6,768,732         0         370,975,642   

Forward foreign currency contracts

     0         1,221,034         0         1,221,034   

Total assets

   $ 361,050,929       $ 7,989,766       $ 0       $ 372,196,676   

 

* 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 $3,155,981 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

Forward foreign currency contracts are reported at their unrealized gains (losses) at measurement date, which represents the change in the contract’s value from trade date. All other assets and liabilities are reported at their market value at measurement date.


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26   Wells Fargo International Equity Fund   Notes to financial statements

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $238,604,936 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES

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 0.73% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, 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. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% 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 February 28, 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, 1.39% for Class R shares, 0.84% for Class R6 shares, 1.14% for Administrator Class shares, and 0.89% 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. Prior to March 1, 2016, the Fund’s expense were capped at 1.09% for Class A shares, 1.84% for Class B shares, 1.84% for Class C shares, 1.34% for Class R shares, 0.88% for Class R6 shares, 1.09% for Administrator Class shares, and 0.84% for Institutional Class shares.

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 October 31, 2016, Funds Distributor received $24,173 from the sale of Class A shares and $578 in contingent deferred sales charges from redemptions of Class C shares.


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Notes to financial statements   Wells Fargo International Equity Fund     27   

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 October 31, 2016 were $251,521,312 and $275,293,106, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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 October 31, 2016, the Fund entered into forward foreign currency contracts for economic hedging purposes.

At October 31, 2016, the Fund had forward foreign currency contracts outstanding as follows:

Forward foreign currency contracts to sell:

 

Exchange date   Counterparty   Contracts to
deliver
    U.S. value at
October 31, 2016
    In exchange
for U.S. $
    Unrealized
gains
 
11-30-2016   Barclays     2,743,800   EUR    $ 3,015,385      $ 3,082,439      $ 67,054   
12-15-2016   Barclays     25,020,000   EUR      27,518,132        28,219,307        701,175   
12-22-2016   Morgan Stanley     5,716,000   GBP      7,004,839        7,420,443        415,604   
1-13-2017   Credit Suisse     3,100,000   EUR      3,414,587        3,451,788        37,201   

The Fund had average contract amounts of $8,364,657 and $55,001,524 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2016. As of October 31, 2016, the Fund had received $1,505,000 as cash collateral for open forward foreign currency contracts.

The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate financial statements.

For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, are reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, are noted in the Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:

 

Derivative type      Counterparty    Gross amounts
of assets in the
Statement of
Assets and
Liabilities
     Amounts
subject to
netting
agreements
       Collateral
received
       Net amount
of assets
 

Forward foreign currency contracts

     Barclays    $ 768,229    $ 0         $ (768,229      $ 0   
     Credit Suisse      37,201      0           0           37,201   
     Morgan Stanley      415,604      0           (415,604        0   
  * Amount represents net unrealized gains.  


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28   Wells Fargo International Equity Fund   Notes to financial statements

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 October 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $6,187,351 and $8,383,118 of ordinary income for the years ended October 31, 2016 and October 31, 2015, respectively.

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

  

Unrealized

gains

  

Capital loss

carryforward

$11,461,569    $20,078,071    $(27,708,661)

9. 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.

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. 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 International Equity 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 International Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 International Equity Fund as of October 31, 2016 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

December 22, 2016


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30   Wells Fargo International Equity Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $4,377,666 of income dividends paid during the fiscal year ended October 31, 2016 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 October 31, 2016. 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 International Equity 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 139 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 investment 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. 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 Chair of Taproot Foundation (non-profit organization), 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 International Equity 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    
Karla M. Rabusch
(Born 1959)
  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Jeremy DePalma1
(Born 1974)
  Treasurer, since 2012   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.    
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 Whitaker3
(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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Other information (unaudited)   Wells Fargo International Equity Fund     33   

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo International Equity Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); and (ii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Wells Capital Management Incorporated (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Adviser and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Adviser were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Adviser about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Adviser under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Adviser to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Adviser. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe.


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34   Wells Fargo International Equity Fund   Other information (unaudited)

The Board noted that the performance of the Fund (Class A) was higher than or in range of the average performance of the Universe for all periods under review except the one-year period under review. The Board also noted that the performance of the Fund was higher than its benchmark, the MSCI ACWI ex USA Index (Net), for all periods under review except the ten-year period.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were lower than the median net operating expense ratios of the expense Groups.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Adviser for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were equal to or in range of the sum of these average rates for the Fund’s expense Groups for all share classes except Class R and Administrator Class. The Board noted that the net operating expense ratios of the Fund were lower than the median net operating expense ratios of the expense Groups for all share classes, including Class R and Administrator Class. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Adviser for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Adviser, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Adviser, the Board ascribed limited relevance to the allocation of fees between them.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Adviser to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Adviser under the Sub-Advisory Agreement was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also received and considered information concerning the profitability of the Sub-Adviser from providing services to the fund family as a whole, noting that the Sub-Adviser’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis.

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such


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Other information (unaudited)   Wells Fargo International Equity Fund     35   

as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board also discussed and accepted Funds Management’s proposal to revise the Management Agreement to reduce fees at all asset levels for the Fund. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Adviser

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Adviser’s business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Adviser, fees earned by Funds Management and the Sub-Adviser from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


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36   Wells Fargo International Equity 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

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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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

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247344 12-16

A240/AR240 10-16

 


Table of Contents

Annual Report

October 31, 2016

 

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Wells Fargo Intrinsic World Equity Fund

 

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Table of Contents

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    12   

Statement of operations

    13   

Statement of changes in net assets

    14   

Financial highlights

    15   

Notes to financial statements

    19   

Report of independent registered public accounting firm

    25   

Other information

    26   

List of abbreviations

    32   

 

The views expressed and any forward-looking statements are as of October 31, 2016, 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 World Equity Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Intrinsic World Equity Fund for the 12-month period that ended October 31, 2016. Significant volatility in international equity markets during the final months of 2015 and early 2016 subsided during the last half of the period. The performance contrast in each half of the reporting period as measured by key benchmark indexes shows the improving investment environment during the previous 12 months.

 

    November 1, 2015 through
April 30, 2016 (%)
    May 1, 2016 through
October 31, 2016 (%)
 

Morgan Stanley Capital International (MSCI)
Europe, Australasia, Far East (EAFE) Index (Net)1

    (3.07     (0.16

MSCI World Index (Net)2

    (1.05     2.25   

MSCI All Country World Index (ACWI) ex USA Index (Net)3

    (1.75     2.01   

S&P Developed SmallCap Index4

    1.05        2.36   

Past performance is no guarantee of future results.

Central bank policies demonstrated resolve to reignite global economic growth.

International equity investors entered the period confronting concerns about slowing economic growth, particularly in China. They also were uncertain if governments and their central banks could successfully address concerns about recessionary pressures and global business activity through monetary and economic policy. The December 2015 decision of the U.S. Federal Reserve (Fed) to increase its key interest rate caused elevated levels of volatility in global equity markets and sometimes drove significant fluctuations in the relative values of currencies around the world. The U.S. dollar tended to gain strength, which helped exporters in other countries but pressured importers who paid higher prices for goods and services.

The European Central Bank (ECB) pushed the interest rate it pays on deposits further into negative territory in late 2015. In January 2016, the Bank of Japan followed the ECB’s lead by setting a negative deposit rate. During the period, the People’s Bank of China guided its currency’s value lower relative to a basket of foreign currencies to enhance exports. Investors viewed the actions of major central banks as consistent with efforts to spark business activity. Observing the actions of central banks overseas to implement policies that would accommodate

 

 

 

1  The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) 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. The MSCI EAFE Index (Net) consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. 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.

 

2  The MSCI World Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (Net) consists of the following 23 developed markets country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. You cannot invest directly in an index.

 

3  The 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. You cannot invest directly in an index.

 

4  The S&P Developed SmallCap Index is a free-float-adjusted market-capitalization-weighted index designed to measure the equity market performance of small-capitalization companies located in developed markets. The index is composed of companies within the bottom 15% of the cumulative market capitalization in developed markets. The index covers all publicly listed equities with float-adjusted market values of U.S. $100 million or more and annual dollar value traded of at least U.S. $50 million in all included countries. You cannot invest directly in an index.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Intrinsic World Equity Fund     3   

higher levels of business activity, the Fed acknowledged that risks to global growth existed and indicated it would base further rate increases on data that indicated successful management of the risks.

Investors closely watched changing sentiment in global markets during the period.

In the second quarter of 2016, equity market volatility levels declined and remained relatively low until the end of June, when voters in the United Kingdom surprised market participants and approved the Brexit referendum to leave the European Union. Investors reacted to the news negatively and fled to assets such as precious metals and U.S. Treasury bonds. As a result, interest rates fell sharply, and equity markets declined across the globe. In the weeks to follow, signs of resilience in major markets worldwide offset concerns stemming from the Brexit referendum.

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets. The third-quarter saw a rotation that favored company fundamentals over macroeconomic fears, creating a more favorable market dynamic for active managers. Dispersion of returns from both the sector and country perspective tended to confirm the changing views of the markets among investors. On an improved perception of business health, economically sensitive sectors such as consumer discretionary, materials, financials, and industrials gained while traditionally defensive sectors (utilities, telecommunication services, health care, and consumer staples) benefited less during the market rally.

Don’t let short-term uncertainty derail long-term investment goals.

Periods of investment 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 with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

 

Investors’ sentiments improved during the third quarter of 2016, which led to more favorable returns across global equity markets.

 

 

 

 

 

 

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

 

4   Wells Fargo Intrinsic World Equity 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

Jean-Baptiste Nadal, CFA®

Jeffrey Peck

Average annual total returns (%) as of October 31, 20161

 

        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 (EWEAX)   4-30-1996     (8.13     7.33        3.55        (2.54     8.61        4.17        1.45        1.35   
Class C (EWECX)   5-18-2007     (4.26     7.79        3.39        (3.26     7.79        3.39        2.20        2.10   
Administrator Class (EWEIX)   5-18-2007                          (2.43     8.85        4.39        1.37        1.25   
Institutional Class (EWENX)   7-30-2010                          (2.13     9.09        4.53        1.12        0.95   
MSCI World Index (Net)4                            1.18        9.03        3.89                 

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. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. 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 focused portfolio risk, geographic risk, and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Intrinsic World Equity Fund     5   
Growth of $10,000 investment as of October 31, 20165
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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 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 would be higher. 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 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 Intrinsic World Equity 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 February 28, 2017, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver 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.

 

4  The Morgan Stanley Capital International (MSCI) World Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index (Net) consists of the following 23 developed markets country indexes: Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, the United Kingdom, and the United States. 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.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI World Index (Net). 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

 

6   Wells Fargo Intrinsic World Equity Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

  The Fund underperformed its benchmark, the MSCI World Index (Net), for the 12-month period that ended October 31, 2016.

 

  Stock selection drove the Fund’s underperformance. Relative sector weightings, which are a by-product of our bottom-up security-selection process, also had a net negative effect.

 

  Security selection in the energy and information technology (IT) sectors contributed to performance relative to the index. Stock selection in the financials, health care, and materials sectors detracted from relative return. In addition, an overweight to the second-worst performing financials sector, and an underweight to the best-performing materials sector subtracted value.

The Fund underperformed in a global stock market dominated by investor demand for yield in equity markets.

We adhered to the same intrinsic value investment philosophy and process and consistently applied it to investment selection for the Fund. Our fundamental analysis involves identifying the stocks that we believe are high-quality, value-creating businesses selling at a discount to our estimate of intrinsic or true value and that possess what we believe are identifiable catalysts that could close the valuation gap over our investment time horizon.

Stock selection in the energy and IT sectors contributed to relative performance. In energy, integrated oil and gas producer Chevron Corporation and exploration and production company EOG Resources, Incorporated were the principal contributors. In IT, contributors were Korean conglomerate Samsung Electronics Company, Limited and global electronics company Texas Instruments Incorporated.

By contrast, security selection in the financials, health care, and materials sectors detracted from performance relative to the benchmark. In financials, U.K.-based Barclays PLC* was the main detractor. Other detractors included Spanish regional bank CaixaBank, S.A. and Swiss wealth and investment bank UBS AG. In health care, Gilead Sciences, Incorporated was the worst performer. Within materials, industrial gas supplier Air Liquide S.A., a recent purchase, was the worst performer.

By country, stock selection in Japan contributed on a relative basis for the period, while stock selection in the U.S. and Switzerland detracted. Over the long term, we seek to add value primarily through stock selection due to our research intensive, bottom-up investment process.

 

Ten largest holdings (%) as of October 31, 20166  

Microsoft Corporation

     2.68   

AIA Group Limited

     2.59   

EOG Resources Incorporated

     2.33   

AerCap Holdings NV

     2.31   

Merck & Company Incorporated

     2.24   

Sony Corporation

     2.23   

Cigna Corporation

     2.23   

Nidec Corporation

     2.22   

Motorola Solutions Incorporated

     2.20   

Visa Incorporated Class A

     2.13   

Our long-term investment process has typically resulted in low portfolio turnover as the team seeks to invest in businesses over a three- to five-year investment horizon. During the fiscal year, we sold six companies in three different sectors and invested in eight new companies across six sectors. The new additions to the Fund were: 1. Nestlé S.A. in consumer staples; 2. Bayer AG and CIGNA Corporation in health care; 3. General Dynamics Corporation in industrials; 4. Alphabet Incorporated in IT; 5. Air Liquide S.A. in materials; and 6. Deutsche Telekom AG and Vodafone Group Plc in telecommunication services. All of these trades were driven by company-specific, fundamental analysis rather than top-down sector allocation decisions.

 

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Intrinsic World Equity Fund     7   
Sector distribution as of October 31, 20167
LOGO

 

Country allocation as of October 31, 20167
LOGO

We remain confident that our investment process should create shareholder value over time.

During the first half of 2016 and despite very little evidence, investors believed that the global economy was slowing, that deflation was imminent, and central banks would extend dovish policies. These fears were compounded after the Brexit referendum in which the U.K. voted to leave the European Union, yet reversed rather quickly. While equity returns were positive, broadly these events lead investors to seek out those sectors, industries, and companies offering higher yield.

As the third quarter unfolded, other gauges of developed economies—especially the U.S.—were indicating greater strength. Additionally, while earnings growth slowed during the last four consecutive quarters, it is expected that weaker year-over-year comparisons will contribute to accelerated earnings growth in the coming quarters.

Outside of the U.S., the eurozone has proven fairly resilient after the initial Brexit vote shock. Despite some modest signs of weakness, investors remained reasonably optimistic about economic growth. However, growth in Japan stalled and depended on government stimulus, as corporate and consumer spending remains weak and the strong yen is discouraging exports.

The portfolio management team’s philosophy and process relies on the idea of buying a high-quality company’s intrinsic value at a price that the team believes represents a substantive discount, and where the

 

investment team feels it can identify catalysts that will close this value gap over a three- to five-year time horizon. High-quality companies typically perform better in a rising interest-rate environment as they are better able to finance shareholder-friendly actions.

While corporate earnings growth continues to slow, we believe the high-quality companies identified by the team have more flexibility and numerous tools to navigate this environment. With modest growth, growing inflation, and increasing wages in the U.S., rising interest rates are a more likely outcome and investor expectations lean in this direction. Therefore, the team contends that the developing environment is favorable to its approach.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Intrinsic World Equity 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 May 1, 2016 to October 31, 2016.

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
5-1-2016
     Ending
account value
10-31-2016
     Expenses
paid during
the period¹
     Annualized net
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,016.66       $ 6.84         1.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.35       $ 6.85         1.35

Class C

           

Actual

   $ 1,000.00       $ 1,012.40       $ 10.62         2.10

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.58       $ 10.63         2.10

Administrator Class

           

Actual

   $ 1,000.00       $ 1,016.74       $ 6.34         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.85       $ 6.34         1.25

Institutional Class

           

Actual

   $ 1,000.00       $ 1,018.80       $ 4.82         0.95

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.36       $ 4.82         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—October 31, 2016   Wells Fargo Intrinsic World Equity Fund     9   

      

 

 

Security name                 Shares      Value  

Common Stocks: 99.40%

          
France: 3.77%           

Air Liquide SA (Materials, Chemicals)

          27,220       $ 2,769,349   

Societe Generale SA (Financials, Banks)

          68,000         2,654,448   
             5,423,797   
          

 

 

 
Germany: 4.67%           

Bayer AG (Health Care, Pharmaceuticals)

          26,140         2,590,889   

Deutsche Telekom AG (Telecommunication Services, Diversified Telecommunication Services)

          166,120         2,707,109   

Siemens AG (Industrials, Industrial Conglomerates)

          12,420         1,410,443   
             6,708,441   
          

 

 

 
Hong Kong: 2.59%           

AIA Group Limited (Financials, Insurance)

          590,800         3,728,899   
          

 

 

 
Japan: 10.30%           

Honda Motor Company Limited (Consumer Discretionary, Automobiles)

          94,600         2,836,106   

Kao Corporation (Consumer Staples, Personal Products)

          50,600         2,607,924   

Nidec Corporation (Industrials, Electrical Equipment)

          32,900         3,190,550   

ORIX Corporation (Financials, Diversified Financial Services)

          186,650         2,964,295   

Sony Corporation (Consumer Discretionary, Household Durables)

          100,040         3,206,202   
             14,805,077   
          

 

 

 
Luxembourg: 1.09%           

Millicom International Cellular SA (Telecommunication Services, Wireless Telecommunication Services)

          35,750         1,571,753   
          

 

 

 
Netherlands: 9.40%           

AerCap Holdings NV (Industrials, Trading Companies & Distributors) †

          80,900         3,325,799   

Airbus Group NV (Industrials, Aerospace & Defense)

          36,400         2,163,732   

Heineken NV (Consumer Staples, Beverages)

          33,470         2,757,465   

Sensata Technologies Holding NV (Industrials, Electrical Equipment) †

          74,880         2,675,462   

Unilever NV (Consumer Staples, Personal Products)

          62,100         2,597,022   
             13,519,480   
          

 

 

 
South Korea: 1.01%           

Samsung Electronics Company Limited (Information Technology, Technology Hardware, Storage & Peripherals)

          1,010         1,446,703   
          

 

 

 
Spain: 1.58%           

CaixaBank SA (Financials, Banks)

          748,700         2,265,939   
          

 

 

 
Sweden: 0.62%           

Autoliv Incorporated SDR (Consumer Discretionary, Auto Components)

          9,200         886,677   
          

 

 

 
Switzerland: 7.45%           

Nestle SA (Consumer Staples, Food Products)

          39,370         2,854,628   

Novartis AG ADR (Health Care, Pharmaceuticals)

          42,940         3,049,599   

Roche Holding AG (Health Care, Pharmaceuticals)

          11,450         2,632,383   

UBS Group AG (Financials, Capital Markets)

          154,200         2,181,598   
             10,718,208   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo Intrinsic World Equity Fund   Portfolio of investments—October 31, 2016

      

 

 

Security name                Shares      Value  
United Kingdom: 5.27%          

Diageo plc (Consumer Staples, Beverages)

         85,860       $ 2,290,495   

Royal Dutch Shell plc Class A (Energy, Oil, Gas & Consumable Fuels)

         112,801         2,812,119   

Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services)

         899,176         2,474,131   
            7,576,745   
         

 

 

 
United States: 51.65%          

Abbott Laboratories (Health Care, Health Care Equipment & Supplies)

         63,900         2,507,444   

Alphabet Incorporated Class C (Information Technology, Internet Software & Services) †

         3,320         2,604,673   

Apple Incorporated (Information Technology, Technology Hardware, Storage & Peripherals)

         24,800         2,815,792   

BB&T Corporation (Financials, Banks)

         74,900         2,936,080   

Charles Schwab Corporation (Financials, Capital Markets)

         74,700         2,367,990   

Chevron Corporation (Energy, Oil, Gas & Consumable Fuels)

         28,540         2,989,565   

Cigna Corporation (Health Care, Health Care Providers & Services)

         26,950         3,202,469   

CIT Group Incorporated (Financials, Banks)

         80,200         2,913,666   

EOG Resources Incorporated (Energy, Oil, Gas & Consumable Fuels)

         37,060         3,350,965   

Express Scripts Holding Company (Health Care, Health Care Providers & Services)†

         19,890         1,340,586   

General Dynamics Corporation (Industrials, Aerospace & Defense)

         19,300         2,909,282   

Gilead Sciences Incorporated (Health Care, Biotechnology)

         33,670         2,479,122   

Honeywell International Incorporated (Industrials, Industrial Conglomerates)

         22,600         2,478,768   

Lockheed Martin Corporation (Industrials, Aerospace & Defense)

         8,550         2,106,549   

Merck & Company Incorporated (Health Care, Pharmaceuticals)

         54,930         3,225,490   

Microsoft Corporation (Information Technology, Software)

         64,240         3,849,261   

Motorola Solutions Incorporated (Information Technology, Communications Equipment)

         43,580         3,163,036   

Oracle Corporation (Information Technology, Software)

         68,000         2,612,560   

PepsiCo Incorporated (Consumer Staples, Beverages)

         26,400         2,830,080   

Samsonite International SA (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

         957,590         3,012,707   

Schlumberger Limited (Energy, Energy Equipment & Services)

         36,640         2,866,347   

The Goldman Sachs Group Incorporated (Financials, Capital Markets)

         17,000         3,030,080   

The Procter & Gamble Company (Consumer Staples, Household Products)

         24,900         2,161,320   

The Walt Disney Company (Consumer Discretionary, Media)

         26,980         2,500,776   

United Parcel Service Incorporated Class B (Industrials, Air Freight & Logistics)

         26,100         2,812,536   

Verizon Communications Incorporated (Telecommunication Services, Diversified Telecommunication Services)

         44,450         2,138,045   

Visa Incorporated Class A (Information Technology, IT Services)

         37,090         3,060,296   
            74,265,485   
         

 

 

 

Total Common Stocks (Cost $126,565,604)

            142,917,204   
         

 

 

 
    Yield                      
Short-Term Investments: 0.24%          
Investment Companies: 0.24%          

Wells Fargo Government Money Market Fund Select Class (l)(u)

    0.32        343,055         343,055   
         

 

 

 

Total Short-Term Investments (Cost $343,055)

            343,055        
         

 

 

 

 

Total investments in securities (Cost $126,908,659) *     99.64        143,260,259   

Other assets and liabilities, net

    0.36           512,527   
 

 

 

      

 

 

 
Total net assets     100.00      $ 143,772,786   
 

 

 

      

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of investments—October 31, 2016   Wells Fargo Intrinsic World Equity Fund     11   

      

 

 

 

 

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 $127,593,341 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 25,690,663   

Gross unrealized losses

     (10,023,745
  

 

 

 

Net unrealized gains

   $ 15,666,918   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Intrinsic World Equity Fund   Statement of assets and liabilities—October 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $126,565,604)

  $ 142,917,204   

In affiliated securities, at value (cost $343,055)

    343,055   
 

 

 

 

Total investments, at value (cost $126,908,659)

    143,260,259   

Cash

    368   

Foreign currency, at value (cost $6,249)

    6,129   

Receivable for investments sold

    598,119   

Receivable for Fund shares sold

    14,427   

Receivable for dividends

    299,639   

Receivable for securities lending income

    179   

Prepaid expenses and other assets

    30,214   
 

 

 

 

Total assets

    144,209,334   
 

 

 

 

Liabilities

 

Payable for investments purchased

    152,639   

Payable for Fund shares redeemed

    79,643   

Management fee payable

    89,404   

Distribution fee payable

    4,681   

Administration fees payable

    25,367   

Custodian and accounting fees payable

    27,902   

Shareholder servicing fees payable

    29,984   

Accrued expenses and other liabilities

    26,928   
 

 

 

 

Total liabilities

    436,548   
 

 

 

 

Total net assets

  $ 143,772,786   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 119,503,277   

Undistributed net investment income

    1,144,741   

Accumulated net realized gains on investments

    6,778,799   

Net unrealized gains on investments

    16,345,969   
 

 

 

 

Total net assets

  $ 143,772,786   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 127,427,972   

Shares outstanding – Class A1

    6,526,117   

Net asset value per share – Class A

    $19.53   

Maximum offering price per share – Class A2

    $20.72   

Net assets – Class C

  $ 7,252,457   

Shares outstanding – Class C1

    386,353   

Net asset value per share – Class C

    $18.77   

Net assets – Administrator Class

  $ 4,735,271   

Shares outstanding – Administrator Class1

    243,669   

Net asset value per share – Administrator Class

    $19.43   

Net assets – Institutional Class

  $ 4,357,086   

Shares outstanding – Institutional Class1

    223,363   

Net asset value per share – Institutional Class

    $19.51   

 

 

 

 

 

 

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 October 31, 2016   Wells Fargo Intrinsic World Equity Fund     13   
         

Investment income

 

Dividends (net of foreign withholding taxes of $210,933)

  $ 3,673,050   

Securities lending income, net

    31,633   

Income from affiliated securities

    2,385   
 

 

 

 

Total investment income

    3,707,068   
 

 

 

 

Expenses

 

Management fee

    1,283,490   

Administration fees

 

Class A

    279,939   

Class C

    16,135   

Administrator Class

    7,283   

Institutional Class

    5,732   

Shareholder servicing fees

 

Class A

    333,260   

Class C

    19,209   

Administrator Class

    13,543   

Distribution fee

 

Class C

    57,626   

Custody and accounting fees

    35,638   

Professional fees

    55,461   

Registration fees

    63,577   

Shareholder report expenses

    48,363   

Trustees’ fees and expenses

    18,026   

Other fees and expenses

    9,512   
 

 

 

 

Total expenses

    2,246,794   

Less: Fee waivers and/or expense reimbursements

    (151,908
 

 

 

 

Net expenses

    2,094,886   
 

 

 

 

Net investment income

    1,612,182   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    7,022,443   

Net change in unrealized gains (losses) on investments

    (13,434,282
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (6,411,839
 

 

 

 

Net decrease in net assets resulting from operations

  $ (4,799,657
 

 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Intrinsic World Equity Fund   Statement of changes in net assets
    

Year ended

October 31, 2016

   

Year ended

October 31, 2015

 

Operations

       

Net investment income

    $ 1,612,182        $ 1,348,061   

Net realized gains on investments

      7,022,443          18,667,164   

Net change in unrealized gains (losses) on investments

      (13,434,282       (12,629,315
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (4,799,657       7,385,910   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (1,480,000       (856,992

Class C

      (5,766       0   

Administrator Class

      (77,002       (51,944

Institutional Class

      (77,098       (48,847

Net realized gains

       

Class A

      (15,944,560       (2,600,451

Class C

      (992,532       (169,828

Administrator Class

      (637,316       (108,609

Institutional Class

      (554,534       (77,473
 

 

 

 

Total distributions to shareholders

      (19,768,808       (3,914,144
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    77,894        1,519,486        179,787        4,097,757   

Class C

    48,859        912,817        35,552        773,618   

Administrator Class

    99,764        1,871,151        93,043        2,104,873   

Institutional Class

    87,333        1,706,229        161,738        3,667,260   
 

 

 

 
      6,009,683          10,643,508   
 

 

 

 

Reinvestment of distributions

       

Class A

    871,879        16,927,692        152,110        3,351,854   

Class C

    51,392        955,480        7,388        156,548   

Administrator Class

    36,033        697,376        7,067        155,486   

Institutional Class

    24,158        469,358        3,982        87,906   
 

 

 

 
      19,049,906          3,751,794   
 

 

 

 

Payment for shares redeemed

       

Class A

    (975,567     (18,924,820     (795,378     (18,121,192

Class C

    (121,189     (2,191,011     (88,016     (1,946,944

Administrator Class

    (166,281     (3,242,731     (154,125     (3,437,971

Institutional Class

    (109,687     (2,106,188     (86,058     (1,969,384
 

 

 

 
      (26,464,750       (25,475,491
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (1,405,161       (11,080,189
 

 

 

 

Total decrease in net assets

      (25,973,626       (7,608,423
 

 

 

 

Net assets

       

Beginning of period

      169,746,412          177,354,835   
 

 

 

 

End of period

    $ 143,772,786        $ 169,746,412   
 

 

 

 

Undistributed net investment income

    $ 1,144,741        $ 1,000,309   
 

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo Intrinsic World Equity Fund     15   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $22.82        $22.39        $21.88        $17.94        $15.55   

Net investment income

    0.20        0.19        0.17        0.20        0.16   

Net realized and unrealized gains (losses) on investments

    (0.83     0.73        0.59        4.00        1.87   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.63     0.92        0.76        4.20        2.03   

Distributions to shareholders from

         

Net investment income

    (0.20     (0.12     (0.25     (0.26     (0.11

Net realized gains

    (2.46     (0.37     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (2.66     (0.49     (0.25     (0.26     (0.11

Regulatory settlement proceeds

    0.00        0.00        0.00        0.00        0.47   

Net asset value, end of period

    $19.53        $22.82        $22.39        $21.88        $17.94   

Total return1

    (2.54 )%      4.23     3.45     23.74     16.25 %2 

Ratios to average net assets (annualized)

         

Gross expenses

    1.46     1.48     1.47     1.49     1.51

Net expenses

    1.37     1.40     1.40     1.40     1.40

Net investment income

    1.09     0.79     0.70     0.95     0.91

Supplemental data

         

Portfolio turnover rate

    23     32     23     22     27

Net assets, end of period (000s omitted)

    $127,428        $149,492        $157,061        $168,621        $146,930   

 

 

1  Total return calculations do not include any sales charges.

 

2  During the year ended October 31, 2012, the Fund received a regulatory settlement from an unaffiliated third party which had an impact of 2.92% on the total return.

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Intrinsic World Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $21.99        $21.64        $21.19        $17.37        $15.15   

Net investment income (loss)

    0.05        0.01 1      (0.02     0.05        0.02   

Net realized and unrealized gains (losses) on investments

    (0.80     0.71        0.58        3.89        1.82   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.75     0.72        0.56        3.94        1.84   

Distributions to shareholders from

         

Net investment income

    (0.01     0.00        (0.11     (0.12     (0.09

Net realized gains

    (2.46     (0.37     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (2.47     (0.37     (0.11     (0.12     (0.09

Regulatory settlement proceeds

    0.00        0.00        0.00        0.00        0.47   

Net asset value, end of period

    $18.77        $21.99        $21.64        $21.19        $17.37   

Total return2

    (3.26 )%      3.41     2.65     22.82     15.39 %3 

Ratios to average net assets (annualized)

         

Gross expenses

    2.21     2.23     2.22     2.24     2.26

Net expenses

    2.12     2.15     2.15     2.15     2.15

Net investment income (loss)

    0.32     0.05     (0.06 )%      0.20     0.16

Supplemental data

         

Portfolio turnover rate

    23     32     23     22     27

Net assets, end of period (000s omitted)

    $7,252        $8,958        $9,788        $9,949        $7,341   

 

 

1 Calculated based upon average shares outstanding

 

2  Total return calculations do not include any sales charges.

 

3  During the year ended October 31, 2012, the Fund received a regulatory settlement from an unaffiliated third party which had an impact of 2.92% on the total return.

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial highlights   Wells Fargo Intrinsic World Equity Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $22.76        $22.33        $21.81        $17.89        $15.52   

Net investment income

    0.24 1      0.23 1      0.22 1      0.24 1      0.19 1 

Net realized and unrealized gains (losses) on investments

    (0.84     0.75        0.59        3.99        1.87   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.60     0.98        0.81        4.23        2.06   

Distributions to shareholders from

         

Net investment income

    (0.27     (0.18     (0.29     (0.31     (0.16

Net realized gains

    (2.46     (0.37     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (2.73     (0.55     (0.29     (0.31     (0.16

Regulatory settlement proceeds

    0.00        0.00        0.00        0.00        0.47   

Net asset value, end of period

    $19.43        $22.76        $22.33        $21.81        $17.89   

Total return

    (2.43 )%      4.51     3.70     24.03     16.52 %2 

Ratios to average net assets (annualized)

         

Gross expenses

    1.37     1.34     1.29     1.31     1.34

Net expenses

    1.22     1.15     1.15     1.15     1.15

Net investment income

    1.27     1.01     0.96     1.18     1.14

Supplemental data

         

Portfolio turnover rate

    23     32     23     22     27

Net assets, end of period (000s omitted)

    $4,735        $6,239        $7,327        $5,306        $2,001   

 

 

1 Calculated based upon average shares outstanding

 

2  During the year ended October 31, 2012, the Fund received a regulatory settlement from an unaffiliated third party which had an impact of 2.93% on the total return

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

18   Wells Fargo Intrinsic World Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $22.83        $22.40        $21.87        $17.93        $15.54   

Net investment income

    0.26        0.28        0.25 1      0.26 1      0.17 1 

Net realized and unrealized gains (losses) on investments

    (0.80     0.75        0.60        4.02        1.92   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.54     1.03        0.85        4.28        2.09   

Distributions to shareholders from

         

Net investment income

    (0.32     (0.23     (0.32     (0.34     (0.17

Net realized gains

    (2.46     (0.37     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (2.78     (0.60     (0.32     (0.34     (0.17

Regulatory settlement proceeds

    0.00        0.00        0.00        0.00        0.47   

Net asset value, end of period

    $19.51        $22.83        $22.40        $21.87        $17.93   

Total return

    (2.13 )%      4.72     3.90     24.28     16.74 %2 

Ratios to average net assets (annualized)

         

Gross expenses

    1.13     1.09     1.04     1.06     1.10

Net expenses

    0.95     0.95     0.95     0.95     0.95

Net investment income

    1.47     1.23     1.11     1.32     1.03

Supplemental data

         

Portfolio turnover rate

    23     32     23     22     27

Net assets, end of period (000s omitted)

    $4,357        $5,058        $3,179        $2,352        $561   

 

 

1  Calculated based upon average shares outstanding

 

2  During the year ended October 31, 2012, the Fund received a regulatory settlement from an unaffiliated third party which had an impact of 2.93% on the total return.

 

The accompanying notes are an integral part of these financial statements.


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Notes to financial statements   Wells Fargo Intrinsic World Equity Fund     19   

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 Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Intrinsic World Equity 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.

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 October 31, 2016, 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 vehicles 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 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.


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20   Wells Fargo Intrinsic World Equity Fund   Notes to financial statements

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 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.

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 conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

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.


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Notes to financial statements   Wells Fargo Intrinsic World Equity Fund     21   

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 foreign currency transactions and passive foreign investment companies. At October 31, 2016, 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

$172,116    $(172,116)

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 significant 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, use of amortized cost, 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.


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22   Wells Fargo Intrinsic World Equity Fund   Notes to financial statements

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

France

   $ 5,423,797       $ 0       $ 0       $ 5,423,797   

Germany

     6,708,441         0         0         6,708,441   

Hong Kong

     3,728,899         0         0         3,728,899   

Japan

     14,805,077         0         0         14,805,077   

Luxembourg

     1,571,753         0         0         1,571,753   

Netherlands

     13,519,480         0         0         13,519,480   

South Korea

     1,446,703         0         0         1,446,703   

Spain

     2,265,939         0         0         2,265,939   

Sweden

     886,677         0         0         886,677   

Switzerland

     10,718,208         0         0         10,718,208   

United Kingdom

     7,576,745         0         0         7,576,745   

United States

     74,265,485         0         0         74,265,485   

Short-term investments

           

Investment companies

     343,055         0         0         343,055   

Total assets

   $ 143,260,259       $ 0       $ 0       $ 143,260,259   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. Fair value pricing that was used in pricing certain foreign securities at the previous period end was not used at October 31, 2016. As a result, common stocks valued at $43,607,733 were transferred from Level 2 to Level 1 within the fair value hierarchy. The Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES

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 0.68% as the average daily net assets of the Fund increase. For the year ended October 31, 2016, 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 0.35% and declining to 0.20% 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


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Notes to financial statements   Wells Fargo Intrinsic World Equity Fund     23   

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 February 28, 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, 1.25% for Administrator Class shares, and 0.95% 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. Prior to March 1, 2016, the Fund’s expenses were capped at 1.40% for Class A shares, 2.15% for Class C shares, and 1.15% for Administrator Class shares.

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 October 31, 2016, Funds Distributor received $1,733 from the sale of Class A shares and $10 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 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 October 31, 2016 were $34,921,340 and $52,197,036, respectively.

The Fund may purchase or sell investment securities to other Wells Fargo funds 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 October 31, 2016, there were no borrowings by the Fund under the agreement.


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24   Wells Fargo Intrinsic World Equity Fund   Notes to financial statements

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2016 and October 31, 2015 were as follows:

 

     Year ended October 31  
     2016      2015  

Ordinary income

   $ 2,314,580       $ 957,783   

Long-term capital gain

     17,454,228         2,956,361   

As of October 31, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

  

Undistributed

long-term

gain

  

Unrealized

gains

$1,716,337    $6,900,161    $15,662,073

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. 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.

10. SUBSEQUENT DISTRIBUTIONS

On December 9, 2016, the Fund declared distributions from long-term capital gains to shareholders of record on December 8, 2016. The per share amounts payable on December 12, 2016 were as follows:

 

      

Long-term

capital

gains

 

Class A

       $0.95091   

Class C

       0.95091   

Administrator Class

       0.95091   

Institutional Class

       0.95091   

These distributions are not reflected in the accompanying financial statements. The final determination of the source of all distributions is subject to change and made after the Fund’s tax year-end.


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Report of independent registered public accounting firm   Wells Fargo Intrinsic World Equity Fund     25   

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 World Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2016, 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 October 31, 2016, 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 World Equity Fund as of October 31, 2016 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

December 22, 2016


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26   Wells Fargo Intrinsic World Equity Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 81.59% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended October 31, 2016.

Pursuant to Section 852 of the Internal Revenue Code, $17,454,228 was designated as a 20% rate gain distribution for the fiscal year ended October 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $2,314,580 of income dividends paid during the fiscal year ended October 31, 2016 has been designated as qualified dividend income (QDI).

For the fiscal year ended October 31, 2016, $674,673 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

Pursuant to Section 853 of the Internal Revenue Code, the Fund expects to designate amounts as foreign taxes paid for the fiscal year ended October 31, 2016. 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 Intrinsic World Equity Fund     27   

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 139 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 investment 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. 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 Chair of Taproot Foundation (non-profit organization), 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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28   Wells Fargo Intrinsic World Equity 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  
Karla M. Rabusch
(Born 1959)
  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Jeremy DePalma1
(Born 1974)
  Treasurer, since 2012   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.    
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 Whitaker3

(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.    

 

 

1 Jeremy DePalma acts as Treasurer of 69 funds and Assistant Treasurer of 70 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.

 

3  Michael Whitaker became Chief Compliance Officer effective May 16, 2016.


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Other information (unaudited)   Wells Fargo Intrinsic World Equity Fund     29   

BOARD CONSIDERATION OF INVESTMENT MANAGEMENT AND SUB-ADVISORY AGREEMENTS:

Under the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Funds Trust (the “Trust”) must determine annually whether to approve the continuation of the Trust’s investment management and sub-advisory agreements. In this regard, at an in-person meeting held on May 24-25, 2016 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment management and sub-advisory agreements and are not “interested persons” of the Trust, as defined in the 1940 Act (the “Independent Trustees”), reviewed and approved for Wells Fargo Intrinsic World Equity Fund (the “Fund”): (i) an investment management agreement (the “Management Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); and (ii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with Metropolitan West Capital Management, LLC (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement and the Sub-Advisory Agreement are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Adviser and the approval of the Advisory Agreements. Prior to the Meeting, including at an in-person meeting in April 2016, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately.

In providing information to the Board, Funds Management and the Sub-Adviser were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2016. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Adviser about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable. The Board considered the approval of the Advisory Agreements for the Fund as part of its consideration of agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Adviser under the Advisory Agreements. This information included a description of the investment advisory services and Fund-level administrative services covered by the Management Agreement, as well as, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Adviser to attract and retain qualified investment professionals, including research, advisory and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Adviser. In addition, the Board took into account the full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Broadridge Inc. (“Broadridge”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Broadridge is an independent provider of investment company data. The Board received a description of the methodology used by Broadridge to select the mutual funds in the performance Universe.


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30   Wells Fargo Intrinsic World Equity Fund   Other information (unaudited)

The Board noted that the performance of the Fund (Administrator Class) was higher than or in range of the average performance of the Universe for all periods under review except the three-year period under review. The Board also noted that the performance of the Fund was higher than its benchmark, the MSCI World Index (Net), for all periods under review except the three-year period.

The Board received information concerning, and discussed factors contributing to, the underperformance of the Fund relative to the Universe and benchmark for the periods noted above. The Board took note of the explanations for the relative underperformance in these periods, including with respect to market factors and investment decisions that affected the Fund’s performance.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees, custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 shareholder service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Broadridge to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Broadridge to select the mutual funds in the expense Groups and an explanation of how funds comprising expense groups and their expense ratios may vary from year-to-year. Based on the Broadridge reports, the Board noted that the net operating expense ratios of the Fund were lower than or in range of the median net operating expense ratios of the expense Groups.

The Board took into account the Fund performance and expense information provided to it among the factors considered in deciding to re-approve the Advisory Agreements.

Investment management and sub-advisory fee rates

The Board reviewed and considered the contractual fee rates payable by the Fund to Funds Management under the Management Agreement, as well as the contractual fee rates payable by the Fund to Funds Management for class-level administrative services under a Class-Level Administration Agreement, which include class-level transfer agency and sub-transfer agency costs (collectively, the “Management Rates”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Adviser for investment sub-advisory services.

Among other information reviewed by the Board was a comparison of the Fund’s Management Rates with the average contractual investment management fee rates of funds in the expense Groups at a common asset level as well as transfer agency costs of the funds in the expense Groups. The Board noted that the Management Rates of the Fund were in range of the sum of these average rates for the Fund’s expense Groups for all share classes.

The Board also received and considered information about the portion of the total management fee that was retained by Funds Management after payment of the fee to the Sub-Adviser for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Adviser, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Adviser, the Board ascribed limited relevance to the allocation of fees between them.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Adviser to other types of clients with investment strategies similar to those of the Fund. In this regard, the Board received information about the significantly greater scope of services, and compliance, reporting and other legal burdens and risks of managing mutual funds compared with those associated with managing assets of non-mutual fund clients such as collective funds or institutional separate accounts.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the compensation payable to Funds Management under the Management Agreement and to the Sub-Adviser under the Sub-Advisory Agreement was reasonable, in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board also received and considered information concerning the profitability of the Sub-Adviser from providing services to the fund family as a whole, noting that the Sub-Adviser’s profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo and Funds Management profitability analysis.


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Other information (unaudited)   Wells Fargo Intrinsic World Equity Fund     31   

Funds Management reported on the methodologies and estimates used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management or Wells Fargo from its services to the Fund to be at a level that would prevent it from approving the continuation of the Advisory Agreements.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s management fee structure, which operate generally to reduce the Fund’s expense ratios as the Fund grows in size. It considered that, for a small fund or a fund that shrinks in size, breakpoints conversely can result in higher fee levels. The Board also considered that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board considered Funds Management’s view that any analyses of potential economies of scale in managing a particular fund are inherently limited in light of the joint and common costs and investments that Funds Management incurs across the fund family as a whole.

The Board concluded that the Fund’s fee and expense arrangements, including contractual breakpoints, constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders.

Other benefits to Funds Management and the Sub-Adviser

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, as a result of their relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Adviser’s business as a result of their relationships with the Fund. The Board noted that various affiliates of Funds Management may receive distribution-related fees, shareholder servicing payments and sub-transfer agency fees in respect of shares sold or held through them and services provided.

The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Adviser, fees earned by Funds Management from managing a private investment vehicle for the fund family’s securities lending collateral and commissions earned by an affiliated broker from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Adviser, were unreasonable.

Conclusion

At the Meeting, after considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for a one-year term and determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


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32   Wells Fargo Intrinsic World Equity 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

 

 

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

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

247345 12-16

A241/AR241 10-16

 


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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
October 31, 2016
     Fiscal
year ended
October 31, 2015
 

Audit fees

   $ 244,446       $ 237,690   

Audit-related fees

     —           —     

Tax fees (1)

     34,610         32,210   

All other fees

     —           —     
  

 

 

    

 

 

 
   $ 279,056       $ 269,900   
  

 

 

    

 

 

 

 

(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


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sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.

(f) Not applicable

(g) Not applicable

(h) Not applicable

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS

Not applicable.

ITEM 6. INVESTMENTS

A Portfolio of Investments for each series of Wells Fargo Funds Trust is included as part of the report to shareholders filed under Item 1 of this Form.


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ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees that have been implemented since the registrant’s last provided disclosure in response to the requirements of this Item.

ITEM 11. CONTROLS AND PROCEDURES

(a) The President and Treasurer have concluded that the Wells Fargo Funds Trust (the “Trust”) disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) provide reasonable assurances that material information relating to the Trust is made known to them by the appropriate persons based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.

(b) There were no significant changes in the Trust’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

ITEM 12. EXHIBITS

(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as Exhibit COE.

(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.

(a)(3) Not applicable.

(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.


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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/ Karla M. Rabusch
  Karla M. Rabusch
  President
Date:   December 22, 2016

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/ Karla M. Rabusch
  Karla M. Rabusch
  President
Date:   December 22, 2016
By:  
  /s/ Jeremy DePalma
  Jeremy DePalma
  Treasurer
Date:   December 22, 2016

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
12/1/18
6/1/18
12/31/17
8/1/17
2/28/17
Filed on / Effective on:1/3/17
12/22/16485BPOS,  497
12/12/16
12/9/16
12/8/16
12/6/16
12/5/16497K
11/25/16
11/23/16485BPOS
11/22/16
For Period End:10/31/16497K,  N-MFP2,  N-MFP2/A,  N-Q,  NSAR-A,  NSAR-B
8/30/16
7/1/16
5/16/16497
5/1/16485BPOS
4/30/1624F-2NT,  N-CSR,  N-CSRS,  N-MFP1,  N-MFP1/A,  N-Q,  NSAR-A,  NSAR-B
3/1/16485BPOS,  497J,  N-CSR,  N-CSRS
1/21/16
12/31/1524F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
11/1/15485BPOS
10/31/1524F-2NT,  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
11/1/14485BPOS
10/31/13N-CSR,  N-MFP,  N-MFP/A,  N-Q,  NSAR-B
6/28/13497,  NSAR-A
10/31/1224F-2NT,  N-CSR,  N-MFP,  N-Q,  NSAR-B
5/31/1224F-2NT,  485BPOS,  N-CSR,  N-MFP,  N-Q,  NSAR-B
7/19/10485BPOS,  497,  497K
7/12/10485BPOS,  497K
3/10/99
 List all Filings 
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