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Wells Fargo Funds Trust – ‘N-CSR’ for 10/31/15

On:  Tuesday, 12/29/15, at 3:49pm ET   ·   Effective:  12/29/15   ·   For:  10/31/15   ·   Accession #:  1193125-15-416004   ·   File #:  811-09253

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

12/29/15  Wells Fargo Funds Trust           N-CSR      10/31/15    4:10M                                    RR Donnelley/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 Income Plus Fund Administrator Class (WSIDX) — Class A (WSIAX) — Class C (WSICX) — Institutional Class (WSINX)Allspring International Bond Fund Administrator Class (ESIDX) — Class A (ESIYX) — Class B (ESIUX) — Class C (ESIVX) — Class R6 (ESIRX) — Institutional Class (ESICX)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) — Investor Class (SASPX)Wells Fargo Diversified International Fund 8 Classes/ContractsWells 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   4.30M 
                          Management Investment Company                          
 2: EX-99.(A)(1)  Code of Ethics                                    HTML    166K 
 4: EX-99.906CERT  Section 906 Certifications                       HTML     10K 
 3: EX-99.CERT  Section 302 Certifications                          HTML     17K 


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 9 of its series:

Wells Fargo International Bond Fund, Wells Fargo Strategic Income Fund, 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, 2015

 

 

 


Table of Contents

ITEM 1.  REPORT TO STOCKHOLDERS


Table of Contents

Annual Report

October 31, 2015

 

LOGO

 

Wells Fargo International Bond Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    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

    31   

Other information

    32   

List of abbreviations

    38   

 

The views expressed and any forward-looking statements are as of October 31, 2015, 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 Bond Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery.

 

 

 

 

The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo International Bond Fund for the 12-month period that ended October 31, 2015. The period was marked by continued low global interest rates and sluggish economic recovery in developed markets. However, the expectation that the U.S. Federal Reserve (Fed) would soon raise its key interest rate, combined with signs of further quantitative easing from other central banks, depressed the prices of international assets for U.S. dollar-based investors.

The Fed showed signs of raising its key rate, but other central banks continued to ease.

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery. For example, the U.S. unemployment rate eased from 5.8% at the beginning of the reporting period (November 2014) to 5.0% at the end (October 2015). Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero.

As the period progressed, various comments by Fed Chair Janet Yellen led investors to believe that the FOMC would soon raise its key federal funds rate. The FOMC remained on hold at its September 2015 meeting, however, citing concerns about a weaker global economy and subdued U.S. inflation. The FOMC’s decision caused some uncertainty, but by the end of the period, most investors expected a modest Fed rate hike in late 2015 or early 2016.

In contrast, the European Central Bank (ECB) showed no signs of raising rates in the near future, as the eurozone continued to grapple with sluggish growth. The eurozone reported annualized gross domestic product growth of 1.6% in the second quarter of 2015, which was the highest annualized growth for the past eight quarters. Yet while the unemployment rate improved, it remained stubbornly above 10%. The ECB thus maintained a variety of measures aimed at encouraging lending, including making funds available to banks at low interest rates and imposing a negative interest rate on bank deposits held at the central bank.

Other major central banks, such as the People’s Bank of China and the Bank of Japan, also remained in easing mode in response to sluggish growth in their respective economies. The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies.

Slow but persistent international growth supported risk-based assets, but the stronger dollar depressed the returns of international investments.

In developed markets, the persistent modest-growth, low-inflation environment provided a favorable backdrop for sovereign bonds, investment-grade corporate bonds, and high-yield debt. The main sour note was struck in energy- and commodity-related subsectors of the high-yield bond universe. Persistent low prices for oil, natural gas, and industrial metals such as copper put pressure on highly leveraged energy and metals and mining companies and led to increasing defaults in commodity-related sectors. The Barclays U.S. Aggregate Bond Index,1 which comprises investment-grade debt, ended the period with a 1.96% gain. By

 

 

 

1  The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS. You cannot invest directly in an index.


Table of Contents

 

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

contrast, the Barclays U.S. Corporate High Yield Bond Index,2 a proxy for the high-yield bond market, lost 1.94% over the 12-month period.

The continued strength of the U.S. dollar versus other currencies provided a potent headwind to international bonds for U.S. dollar-based investors. Partly as a result, the BofA Merrill Lynch Global Broad Market ex U.S. Index3 lost 6.68% during the reporting period.

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

 

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

2  The Barclays U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar-denominated, nonconvertible, non-investment-grade debt index. The index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million. You cannot invest directly in an index.

 

3  The BofA Merrill Lynch Global Broad Market ex U.S. Index tracks the performance of investment-grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi-government, corporate, securitized, and collateralized securities, and excludes all securities denominated in U.S. dollars. You cannot invest directly in an index.


Table of Contents

 

4   Wells Fargo International Bond Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks total return, consisting of income and capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

First International Advisors, LLC

Portfolio managers

Michael Lee

Tony Norris

Alex Perrin

Christopher Wightman

Peter Wilson

Average annual total returns (%) as of October 31, 20151

 

        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 (ESIYX)   9-30-2003     (13.57     (2.39     2.89        (9.50     (1.48     3.37        1.05        1.03   
Class B (ESIUX)*   9-30-2003     (14.76     (2.58     2.84        (10.29     (2.23     2.84        1.80        1.78   
Class C (ESIVX)   9-30-2003     (11.21     (2.23     2.60        (10.21     (2.23     2.60        1.80        1.78   
Class R6 (ESIRX)   11-30-2012                          (9.18     (1.13     3.70        0.67        0.65   
Administrator Class (ESIDX)   7-30-2010                          (9.36     (1.31     3.54        0.99        0.85   
Institutional Class (ESICX)   12-15-1993                          (9.20     (1.16     3.68        0.72        0.70   
BofA Merrill Lynch Global Broad Market ex U.S. Index4                            (6.68     (1.16     3.26                 
*   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 4.50%. 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.

Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. 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. Securities issued by U.S. government agencies or government-sponsored entities may not be guaranteed by the U.S. Treasury. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to high-yield securities risk and geographic 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 International Bond Fund     5   
Growth of $10,000 investment as of October 31, 20155
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 Bond 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 29, 2016, 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 fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The BofA Merrill Lynch Global Broad Market ex U.S. Index tracks the performance of investment-grade debt publicly issued in the major domestic and euro bond markets, including sovereign, quasi-government, corporate, securitized, and collateralized securities, and excludes all securities denominated in U.S. dollars. 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 BofA Merrill Lynch Global Broad Market ex U.S. 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 4.50%.

 

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 International Bond Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its benchmark, the BofA Merrill Lynch Global Broad Market ex U.S. Index, for the 12-month period that ended October 31, 2015.

 

n   Currency and sector effects detracted. With a continued strong U.S. dollar, allocations to many of the smaller currencies detracted from value.

 

n   Country allocations and duration positioning were the largest contributors to relative performance. We continued to keep the Fund’s duration shorter than that of the benchmark.

Country allocations and duration positioning were the largest contributors to relative performance.

Outside of the major developed markets, both nominal and real yields continued to offer better relative value, and we maintained the Fund’s long-term underweight to the bond markets of Japan and the core European Union (such as Germany, France, and the Netherlands).

During the reporting period, we came to believe that the U.S. offered better relative value and thus increased the Fund’s U.S. exposure. We began to increase U.S. exposure in early 2015 in expectation that U.S. growth levels—and thus yields—would converge with other regions, particularly Europe. Growth levels have indeed converged, but we believe that the convergence of interest rates has likely only started. During the reporting period, an underweight to Japan and overweights to Australia, New Zealand, Spain, South Korea, South Africa, and Mexico all added relative value. Detractors to performance came from overweights to Italy, Brazil, Poland, Norway, Canada, and Malaysia. On the whole, country allocations aided relative performance.

 

Ten largest holdings as of October 31, 20156  

New Zealand, 4.50%, 4-15-2027

    4.87   

Mexico, 4.75%, 6-14-2018

    4.48   

U.S. Treasury Note, 2.00%, 8-15-2025

    4.45   

Poland, 4.00%, 10-25-2023

    4.22   

United Kingdom Gilt, 2.75%, 9-7-2024

    4.01   

Singapore, 3.00%, 9-1-2024

    3.65   

Bonos y Obligaciones del Estado, 1.40%, 1-31-2020

    2.89   

United Kingdom Gilt, 2.00%, 9-7-2025

    2.78   

Australian Government Bond Series 138, 3.25%,
4-21-2029

    2.59   

Korea, 3.00%, 9-10-2024

    2.55   

 

Portfolio allocation as of October 31, 20157
LOGO

As of the end of the reporting period, the Fund’s positioning in local bond markets was as follows: underweight the bond markets of Japan, Germany, France, Canada, Italy, and Belgium and overweight the U.S., Australia, New Zealand, Brazil, Spain, South Korea, Mexico, Poland, Romania, Singapore, and South Africa.

The Fund’s overall duration remained shorter than that of the benchmark, which added relative value over the reporting period. We did prefer longer-duration bonds in Australia, South Korea, New Zealand, Poland, and Singapore, where inflation is subdued and central banks have room to ease as economies enter a cyclical slowdown.

Currency and sector allocation detracted from overall performance.

Overall, currency allocations detracted from relative performance. Continued weakness in emerging markets against a backdrop of rising risk aversion in global markets led to some extreme volatility in currencies. The major currencies of the U.S. dollar, the euro, the Japanese yen, and the British pound spent much of 2015 trading in sideways ranges while we awaited clues as to the next major move.

With a continued strong U.S. dollar, allocations to many of the smaller currencies detracted from value. Positions in the Malaysian ringgit, Mexican peso, Norwegian krone, South Korean won, South African rand, Polish zloty, and

Brazilian real were the main detractors. An underweight to the British pound also detracted. Currency hedging costs were significant throughout the period.

 

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo International Bond Fund     7   

On the positive side, allocations to the Australian dollar, Canadian dollar, Swedish krona, Thai baht, and U.S. dollar added value, as did an underweight to the euro.

Among bond market sectors, the relative yields for high-yield bonds (relative to sovereign bonds) edged higher during the reporting period and ended the period at near-term highs. We maintained a bias toward quality in the Fund’s credit exposure and an underweight to cyclical issuers. At the end of the reporting period, the Fund had an underweight to mortgage-backed securities in favor of sovereign bonds in smaller markets. Although an overweight to high-yield bonds and an underweight to mortgage-backed securities contributed, those effects were more than offset by the negative effects of overweights to emerging markets debt, quasi-sovereign bonds, and investment-grade corporates.

We remain cautiously optimistic on the markets

On the whole, global growth remains modest and continues to move slightly lower. Inflation has remained weak, with some parts of the world close to deflation. Against that backdrop, the past year was marked by continued accommodative central bank monetary policy, with lower interest rates and more quantitative easing. Statements by central bankers suggest that an easy monetary policy is likely to continue in the near future. In our view, accommodative central banks, low growth, and low inflation provided a positive environment for international fixed-income investing.

We continue to favor the smaller economies where growth continues to slow and central banks have room to ease monetary policy further. In developed markets, the current low-growth and low-inflationary environment, together with the likelihood that central bank rates will stay firmly anchored close to zero, means that the low level of yields will likely persist over the long term, with longer-dated yields trading within a range. We continue to keep a duration profile that is between 85% and 90% of the benchmark. As of the end of the reporting period, yields were in the middle of a range that we expect them to trade in over the next few years. We await an opportunity to increase duration back to neutral and eventually longer than that of the benchmark.

The only smaller currency exposure we had as of the end of the reporting period was to the Polish zloty. All other emerging currencies were hedged back to the base currency, the U.S. dollar. At some point, possibly when pessimism toward emerging markets reaches an extreme, we will have the opportunity to add selective exposure to smaller currencies. We kept an underweight to commodity-linked currencies, such as the Australian and Canadian dollars, as commodity prices remained low.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo International Bond 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, 2015 to October 31, 2015.

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
5-1-2015
     Ending
account value
10-31-2015
     Expenses
paid during
the period1
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 945.63       $ 5.05         1.03

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.01       $ 5.24         1.03

Class B

           

Actual

   $ 1,000.00       $ 941.58       $ 8.71         1.78

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,016.23       $ 9.05         1.78

Class C

           

Actual

   $ 1,000.00       $ 941.06       $ 8.71         1.78

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,016.23       $ 9.05         1.78

Class R6

           

Actual

   $ 1,000.00       $ 946.86       $ 3.19         0.65

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.93       $ 3.31         0.65

Administrator Class

           

Actual

   $ 1,000.00       $ 946.60       $ 4.17         0.85

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.92       $ 4.33         0.85

Institutional Class

           

Actual

   $ 1,000.00       $ 946.81       $ 3.43         0.70

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.68       $ 3.57         0.70

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo International Bond Fund     9   

      

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Corporate Bonds and Notes: 3.03%

         
United States: 3.03%          

Amazon.com Incorporated (Consumer Discretionary, Internet & Catalog Retail)

    3.80     12-5-2024       $ 5,800,000       $ 6,054,719   

Arrow Electronics Incorporated (Information Technology, Electronic Equipment, Instruments & Components)

    3.50        4-1-2022         5,775,000         5,619,537   

AT&T Incorporated (Telecommunication Services, Diversified Telecommunication Services)

    3.00        6-30-2022         5,950,000         5,837,640   

Ford Motor Credit Company LLC (Consumer Discretionary, Automobiles)

    2.46        3-27-2020         2,600,000         2,546,016   

Goldman Sachs Group Incorporated (Financials, Capital Markets)

    2.75        9-15-2020         5,000,000         5,027,535   

Lam Research Corporation (Information Technology, Semiconductors & Semiconductor Equipment)

    3.80        3-15-2025         6,000,000         5,627,190   

NBCUniversal Media LLC (Consumer Discretionary, Media)

    2.88        1-15-2023         1,265,000         1,269,264   

Total Corporate Bonds and Notes (Cost $32,715,351)

            31,981,901   
         

 

 

 

Foreign Corporate Bonds and Notes @: 18.77%

         
Australia: 0.52%          

General Electric Capital Corporation (Financials, Diversified Financial Services, AUD)

    6.00        3-15-2019         1,367,000         1,070,810   

Transurban Finance Company Limited (Financials, Diversified Financial Services, EUR)

    1.88        9-16-2024         4,090,000         4,431,033   
            5,501,843   
         

 

 

 
Bermuda: 0.58%          

Bacardi Limited (Consumer Staples, Beverages, EUR)

    2.75        7-3-2023         5,204,000         6,117,106   
         

 

 

 
Brazil: 0.27%          

BRF SA (Consumer Staples, Food Products, BRL) 144A

    7.75        5-22-2018             13,137,000         2,827,322   
         

 

 

 
Czech Republic: 0.84%          

EP Energy LLC (Energy, Oil, Gas & Consumable Fuels, EUR)

    5.88        11-1-2019         7,295,000         8,947,682   
         

 

 

 
France: 0.57%          

Autoroutes Du Sud de la France (Industrials, Transportation Infrastructure, EUR)

    2.95        1-17-2024         5,000,000         6,083,639   
         

 

 

 
Germany: 2.32%          

HP Pelzer Holding GmbH (Consumer Discretionary, Auto Components, EUR)

    7.50        7-15-2021         875,000         1,009,823   

KfW (Financials, Banks, TRY)

    5.00        1-16-2017         3,745,000         1,203,820   

KfW (Financials, Banks, AUD)

    5.00        3-19-2024         16,755,000         13,601,926   

KfW (Financials, Banks, AUD)

    5.50        2-9-2022         4,000,000         3,276,523   

Landwirtschaftliche Rentenbank (Financials, Banks, ZAR)

    8.25        5-23-2022         5,400,000         384,973   

Rapid Holding GmbH (Energy, Energy Equipment & Services, EUR) 144A

    6.63        11-15-2020         2,100,000         2,343,443   

Volkswagen Leasing GmbH Company (Financials, Consumer Finance, EUR)

    2.63        1-15-2024         2,426,000         2,716,214   
            24,536,722   
         

 

 

 
Ireland: 1.18%          

GE Capital UK Funding Company (Financials, Capital Markets, GBP)

    4.13        9-13-2023         4,700,000         7,851,032   

GE Capital UK Funding Company (Financials, Capital Markets, GBP)

    5.13        5-24-2023         1,000,000         1,769,332   

Ryanair Limited (Industrials, Airlines, EUR)

    1.13        3-10-2023         2,680,000         2,831,261   
            12,451,625   
         

 

 

 
Luxembourg: 0.35%          

Befesa Zinc Aser SA (Utilities, Water Utilities, EUR)

    8.88        5-15-2018         2,925,000         3,256,683   

 

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


Table of Contents

 

10   Wells Fargo International Bond Fund   Portfolio of investments—October 31, 2015

      

 

 

Security name   Interest rate     Maturity date      Principal      Value  
Luxembourg (continued)          

European Investment Bank (Financials, Banks, ZAR)

    9.00     3-31-2021         5,790,000       $ 431,081   
            3,687,764   
         

 

 

 
Mexico: 0.09%          

America Movil SAB de CV (Telecommunication Services, Wireless Telecommunication Services, MXN)

    7.13        12-9-2024         7,250,000         432,512   

Petroleos Mexicanos (Energy, Oil, Gas & Consumable Fuels, MXN) 144A

    7.19        9-12-2024         9,532,000         541,559   
            974,071   
         

 

 

 
Netherlands: 0.34%          

Schaeffler Finance BV (Financials, Diversified Financial Services, EUR)

    3.50        5-15-2022         3,200,000         3,584,860   
         

 

 

 
Norway: 1.05%          

Kommunalbanken AS (Financials, Banks, AUD)

    5.25        7-15-2024             12,650,000         10,391,836   

Lock AS (Financials, Diversified Financial Services, EUR) 144A

    7.00        8-15-2021         600,000         689,811   
            11,081,647   
         

 

 

 
Philippines: 0.69%          

Asian Development Bank (Financials, Banks, AUD)

    3.75        3-12-2025         9,731,000         7,282,942   
         

 

 

 
Spain: 1.73%          

Ence Energia Y Celulosa (Materials, Paper & Forest Products, EUR) 144A

    5.38        11-1-2022         875,000         988,597   

Ephios Bondco plc (Health Care, Health Care Providers & Services, EUR) 144A

    6.25        7-1-2022         1,200,000         1,378,961   

Gas Natural Fenosa (Energy, Oil, Gas & Consumable Fuels, EUR)

    2.88        3-11-2024         1,000,000         1,197,708   

Gas Natural Fenosa (Energy, Oil, Gas & Consumable Fuels, EUR)

    3.88        4-11-2022         2,200,000         2,785,311   

Grupo Antolin Irausa SA (Consumer Discretionary, Auto Components, EUR) 144A

    5.13        6-30-2022         1,000,000         1,124,436   

PortAventura Entertainment Barcelona BV (Consumer Discretionary, Hotels, Restaurants & Leisure, EUR) 144A

    7.25        12-1-2020         750,000         853,227   

PortAventura Entertainment Barcelona BV (Consumer Discretionary, Hotels, Restaurants & Leisure, EUR)

    7.25        12-1-2020         1,150,000         1,308,282   

Telefonica Emisiones S.A.U. (Telecommunication Services, Diversified Telecommunication Services, GBP)

    5.29        12-9-2022         5,100,000         8,650,416   
            18,286,938   
         

 

 

 
United Kingdom: 4.51%          

AA Bond Company Limited (Financials, Diversified Financial Services, GBP)

    4.25        7-31-2043         3,495,000         5,567,574   

Delphi Automotive plc (Consumer Discretionary, Auto Components, EUR)

    1.50        3-10-2025         3,100,000         3,184,759   

FirstGroup plc (Industrials, Road & Rail, GBP)

    5.25        11-29-2022         3,020,000         5,028,369   

GHD Bondco plc (Consumer Discretionary, Distributors, GBP)

    7.00        4-15-2020         1,475,000         1,943,194   

GKN plc (Consumer Discretionary, Auto Components, GBP)

    5.38        9-19-2022         2,000,000         3,335,380   

Heathrow Funding Limited (Industrials, Transportation Infrastructure, EUR)

    1.88        5-23-2024         561,000         644,230   

Heathrow Funding Limited (Industrials, Transportation Infrastructure, GBP)

    5.23        2-15-2023         1,250,000         2,186,046   

Heathrow Funding Limited (Industrials, Transportation Infrastructure, GBP)

    7.13        2-14-2024         1,900,000         3,598,933   

Ineos Finance plc (Financials, Diversified Financial Services, EUR) 144A

    4.00        5-1-2023         3,150,000         3,325,343   

Jaguar Land Rover plc (Consumer Discretionary, Automobiles, GBP) 144A

    3.88        3-1-2023         400,000         581,183   

Jaguar Land Rover plc (Consumer Discretionary, Automobiles, GBP)

    5.00        2-15-2022         1,000,000         1,588,433   

New Look Secured Issuer plc (Consumer Discretionary, Textiles, Apparel & Luxury Goods, GBP) 144A

    6.50        7-1-2022         2,600,000         4,012,407   

TES Finance plc (Financials, Diversified Financial Services, GBP)

    6.75        7-15-2020         1,750,000         2,549,420   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo International Bond Fund     11   

      

 

 

Security name   Interest rate     Maturity date      Principal      Value  
United Kingdom (continued)           

Tesco plc (Consumer Staples, Food & Staples Retailing, GBP)

    6.13     2-24-2022         2,400,000       $ 3,909,756   

Twinkle Pizza plc (Consumer Discretionary, Hotels, Restaurants & Leisure, GBP)

    6.63        8-1-2021         1,450,000         2,324,358   

United Utilities Water plc (Utilities, Water Utilities, GBP)

    5.75        3-25-2022         1,200,000         2,171,328   

Wagamama Finance plc (Financials, Diversified Financial Services, GBP) 144A

    7.88        2-1-2020         450,000         730,487   

Wagamama Finance plc (Financials, Diversified Financial Services, GBP)

    7.88        2-1-2020         620,000         1,006,449   
            47,687,649   
         

 

 

 
United States: 3.73%          

Albemarle Corporation (Materials, Chemicals, EUR)

    1.88        12-8-2021         3,910,000         4,145,921   

Amgen Incorporated (Health Care, Biotechnology, EUR)

    4.00        9-13-2029         3,500,000         5,508,312   

Discovery Communications Company (Consumer Discretionary, Media, EUR)

    1.90        3-19-2027         4,800,000         4,649,673   

Morgan Stanley (Financials, Capital Markets, EUR)

    1.75        1-30-2025         5,750,000         6,252,109   

Priceline Group Incorporated (Consumer Discretionary, Internet & Catalog Retail, EUR)

    1.80        3-3-2027         1,970,000         1,959,190   

Priceline Group Incorporated (Consumer Discretionary, Internet & Catalog Retail, EUR)

    2.38        9-23-2024         5,659,000         6,276,003   

Verizon Communications Incorporated (Telecommunication Services, Diversified Telecommunication Services, EUR)

    3.25        2-17-2026         5,864,000         7,228,419   

Walgreens Boots Alliance Incorporated (Consumer Staples, Food & Staples Retailing, EUR)

    3.60        11-20-2025         2,250,000         3,380,087   
            39,399,714   
         

 

 

 

Total Foreign Corporate Bonds and Notes
(Cost $222,341,526)

            198,451,524   
         

 

 

 

Foreign Government Bonds @: 62.02%

         

Australian Government Bond Series 138 (AUD)

    3.25        4-21-2029         37,125,000         27,418,952   

Australian Government Bond Series 146 (AUD)

    1.75        11-21-2020         23,050,000         16,181,359   

Bonos y Obligaciones del Estado (EUR)

    1.40        1-31-2020         26,795,000         30,549,093   

Bonos y Obligaciones del Estado 144A (EUR)

    2.15        10-31-2025         22,465,000         25,755,674   

Brazil (BRL)

    10.00        1-1-2017         32,620,000         7,995,830   

Brazil (BRL)

    10.00        1-1-2019         116,150,000         26,035,676   

Brazil (BRL)

    10.00        1-1-2025         83,740,000         15,889,503   

Canada 144A (CAD)

    2.90        6-15-2024         20,900,000         17,177,767   

Colombia (COP)

    7.00        5-4-2022         8,100,000,000         2,733,972   

Colombia (COP)

    7.75        4-14-2021         1,630,000,000         572,526   

France (EUR)

    1.00        11-25-2025         3,745,000         4,164,256   

Hungary (HUF)

    6.75        11-24-2017         462,450,000         1,821,170   

Indonesia (IDR)

    7.88        4-15-2019             48,400,000,000         3,437,629   

Indonesia (IDR)

    10.00        7-15-2017         17,700,000,000         1,322,492   

Italy Buoni Poliennali del Tesoro (EUR)

    2.50        12-1-2024         5,400,000         6,461,853   

Korea (KRW)

    3.00        9-10-2024         28,650,000,000         26,969,877   

Korea (KRW)

    3.13        3-10-2019         25,530,000,000         23,425,233   

Malaysia (MYR)

    3.66        10-15-2020         7,650,000         1,775,438   

Malaysia (MYR)

    3.96        9-15-2025         46,700,000         10,708,606   

Malaysia (MYR)

    4.18        7-15-2024         6,400,000         1,491,212   

Malaysia (MYR)

    4.50        4-15-2030         17,950,000         4,228,362   

Mexico (MXN)

    4.75        6-14-2018         775,400,000         47,306,779   

Mexico (MXN)

    10.00        12-5-2024         47,450,000         3,677,049   

 

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


Table of Contents

 

12   Wells Fargo International Bond Fund   Portfolio of investments—October 31, 2015

      

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Foreign Government Bonds @ (continued)

         

New Zealand (NZD)

    4.50     4-15-2027         68,330,000       $ 51,432,509   

Poland (PLN)

    1.50        4-25-2020         10,800,000         2,732,030   

Poland (PLN)

    3.25        7-25-2025         10,625,000         2,887,706   

Poland (PLN)

    4.00        10-25-2023         156,200,000         44,604,319   

Province of British Columbia (AUD)

    4.25        11-27-2024         14,090,000         10,733,868   

Province of Ontario (AUD)

    6.25        9-29-2020         13,230,000         10,829,317   

Queensland Treasury (AUD)

    5.75        7-22-2024         26,855,000         23,067,837   

Republic of South Africa (ZAR)

    7.75        2-28-2023             275,781,000         19,569,112   

Republic of South Africa (ZAR)

    8.00        12-21-2018         160,925,000         11,818,493   

Romania (RON)

    5.75        4-29-2020         34,700,000         9,845,690   

Romania (RON)

    5.85        4-26-2023         7,810,000         2,280,579   

Singapore (SGD)

    2.88        9-1-2030         11,600,000         8,425,795   

Singapore (SGD)

    3.00        9-1-2024         51,555,000         38,586,207   

State of New South Wales Australia (AUD)

    5.00        8-20-2024         31,136,000         25,929,689   

Thailand (THB)

    3.25        6-16-2017         40,507,000         1,170,377   

Thailand (THB)

    3.85        12-12-2025         40,000,000         1,242,952   

Turkey (TRY)

    9.00        3-8-2017         5,019,000         1,699,168   

United Kingdom Gilt (GBP)

    2.00        9-7-2025         18,900,000         29,353,874   

United Kingdom Gilt (GBP)

    2.75        9-7-2024         25,525,000         42,334,479   

United Kingdom Gilt (GBP)

    4.75        12-7-2030         4,850,000         9,874,156   

Total Foreign Government Bonds (Cost $725,921,627)

            655,518,465   
         

 

 

 

U.S. Treasury Securities: 7.99%

         

U.S. Treasury Note

    2.00        8-15-2025       $ 47,650,000         47,038,555   

U.S. Treasury Note

    1.50        1-31-2022         25,300,000         24,833,519   

U.S. Treasury Note

    1.38        2-28-2019         12,525,000         12,610,621   

Total U.S. Treasury Securities (Cost $84,624,308)

            84,482,695   
         

 

 

 

Yankee Corporate Bonds and Notes: 4.93%

         
Bermuda: 0.27%          

Qtel International Finance Limited (Telecommunication Services, Diversified Telecommunication Services)

    4.75        2-16-2021         525,000         581,952   

Qtel International Finance Limited (Telecommunication Services, Diversified Telecommunication Services)

    5.00        10-19-2025         2,050,000         2,246,587   
            2,828,539   
         

 

 

 
Cayman Islands: 0.58%          

HPHT Finance Limited (Financials, Diversified Financial Services) 144A

    2.88        3-17-2020         1,650,000         1,650,391   

International Petroleum Investment Company Limited (Energy, Oil, Gas & Consumable Fuels)

    5.00        11-15-2020         2,950,000         3,296,625   

UPCB Finance IV Limited (Financials, Diversified Financial Services) 144A

    5.38        1-15-2025         1,200,000         1,201,500   
            6,148,516   
         

 

 

 
Israel: 0.32%          

B Communications Limited (Telecommunication Services, Diversified Telecommunication Services) 144A

    7.38        2-15-2021         3,162,000         3,430,770   
         

 

 

 
Luxembourg: 0.47%          

Actavis Funding SCS (Health Care, Pharmaceuticals)

    3.45        3-15-2022         5,000,000         4,968,870   
         

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo International Bond Fund     13   

      

 

 

Security name   Interest rate     Maturity date      Principal      Value  
Netherlands: 1.88%          

ABN AMRO Bank NV (Financials, Banks) 144A

    2.45     6-4-2020       $ 5,275,000       $ 5,278,814   

Fiat Chrysler Automobiles (Consumer Discretionary, Automobiles)

    5.25        4-15-2023         2,150,000         2,150,000   

Mubadala Development Company (Energy, Oil, Gas & Consumable Fuels)

    5.50        4-20-2021         3,200,000         3,646,176   

Myriad International Holdings BV (Consumer Discretionary, Media)

    6.00        7-18-2020         2,950,000         3,142,222   

Siemens Financieringsmaatschappij NV (Industrials, Electrical Equipment) 144A

    2.90        5-27-2022         5,600,000         5,661,051   
            19,878,263   
         

 

 

 
Switzerland: 0.23%          

Credit Suisse Group Funding Limited (Financials, Diversified Financial Services) 144A

    3.80        9-15-2022             2,400,000         2,422,486   
         

 

 

 
Turkey: 0.04%          

Anadolu Efes (Consumer Staples, Beverages)

    3.38        11-1-2022         425,000         371,165   
         

 

 

 
United Kingdom: 1.14%          

British Sky Broadcasting Group plc (Consumer Discretionary, Media) 144A

    3.13        11-26-2022         1,362,000         1,332,520   

British Sky Broadcasting Group plc (Consumer Discretionary, Media) 144A

    3.75        9-16-2024         4,100,000         4,087,809   

Imperial Tobacco Finance Company plc (Consumer Staples, Tobacco) 144A

    3.75        7-21-2022         5,350,000         5,416,966   

Jaguar Land Rover Automobiles plc (Consumer Discretionary, Automobiles) 144A

    3.50        3-15-2020         1,200,000         1,186,500   
            12,023,795   
         

 

 

 

Total Yankee Corporate Bonds and Notes (Cost $50,915,693)

            52,072,404   
         

 

 

 
    Yield            Shares         
Short-Term Investments: 1.28%          
Investment Companies: 1.28%          

Wells Fargo Cash Investment Money Market Fund, Select
Class (l)(u)

    0.16           13,510,109         13,510,109   
         

 

 

 

Total Short-Term Investments (Cost $13,510,109)

            13,510,109   
         

 

 

 

 

Total investments in securities (Cost $1,130,028,614) *     98.02        1,036,017,098   

Other assets and liabilities, net

    1.98           20,972,937   
 

 

 

      

 

 

 
Total net assets     100.00      $ 1,056,990,035   
 

 

 

      

 

 

 

 

 

 

@ Foreign bond principal is denominated in the local currency of the issuer.

 

(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.

 

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.

 

* Cost for federal income tax purposes is $1,131,288,985 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 4,855,776   

Gross unrealized losses

     (100,127,663
  

 

 

 

Net unrealized losses

   $ (95,271,887

 

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


Table of Contents

 

14   Wells Fargo International Bond Fund   Statement of assets and liabilities—October 31, 2015
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $1,116,518,505)

  $ 1,022,506,989   

In affiliated securities, at value (cost $13,510,109)

    13,510,109   
 

 

 

 

Total investments, at value (cost $1,130,028,614)

    1,036,017,098   

Foreign currency, at value (cost $14,351,047)

    14,314,085   

Receivable for investments sold

    2,360,582   

Receivable for Fund shares sold

    3,264,879   

Receivable for interest

    11,735,017   

Unrealized gains on forward foreign currency contracts

    11,600,520   

Prepaid expenses and other assets

    56,409   
 

 

 

 

Total assets

    1,079,348,590   
 

 

 

 

Liabilities

 

Payable for investments purchased

    1,640,259   

Payable for Fund shares redeemed

    1,182,983   

Unrealized losses on forward foreign currency contracts

    18,700,982   

Management fee payable

    493,198   

Distribution fees payable

    5,007   

Administration fees payable

    85,869   

Accrued expenses and other liabilities

    250,257   
 

 

 

 

Total liabilities

    22,358,555   
 

 

 

 

Total net assets

  $ 1,056,990,035   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 1,194,821,755   

Overdistributed net investment income

    (48,221,909

Accumulated net realized gains on investments

    11,765,435   

Net unrealized losses on investments

    (101,375,246
 

 

 

 

Total net assets

  $ 1,056,990,035   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 79,727,346   

Shares outstanding – Class A1

    8,187,027   

Net asset value per share – Class A

    $9.74   

Maximum offering price per share – Class A2

    $10.20   

Net assets – Class B

  $ 402,849   

Shares outstanding – Class B1

    41,644   

Net asset value per share – Class B

    $9.67   

Net assets – Class C

  $ 6,894,668   

Shares outstanding – Class C1

    719,615   

Net asset value per share – Class C

    $9.58   

Net assets – Class R6

  $ 13,152,036   

Shares outstanding – Class R61

    1,341,995   

Net asset value per share – Class R6

    $9.80   

Net assets – Administrator Class

  $ 266,849,183   

Shares outstanding – Administrator Class1

    27,376,146   

Net asset value per share – Administrator Class

    $9.75   

Net assets – Institutional Class

  $ 689,963,953   

Shares outstanding – Institutional Class1

    70,506,481   

Net asset value per share – Institutional Class

    $9.79   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/95.50 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, 2015   Wells Fargo International Bond Fund     15   
         

Investment income

 

Interest (net of foreign interest withholding taxes of $289,910)

  $ 49,115,686   

Securities lending income, net

    65,132   

Income from affiliated securities

    19,471   
 

 

 

 

Total investment income

    49,200,289   
 

 

 

 

Expenses

 

Management fee

    6,962,399   

Administration fees

 

Class A

    154,374   

Class B

    936   

Class C

    14,271   

Class R6

    3,030   

Administrator Class

    307,448   

Institutional Class

    619,487   

Shareholder servicing fees

 

Class A

    241,210   

Class B

    1,407   

Class C

    22,298   

Administrator Class

    765,262   

Distribution fees

 

Class B

    4,388   

Class C

    66,894   

Custody and accounting fees

    441,778   

Professional fees

    55,312   

Registration fees

    89,654   

Shareholder report expenses

    144,643   

Trustees’ fees and expenses

    12,770   

Other fees and expenses

    30,395   
 

 

 

 

Total expenses

    9,937,956   

Less: Fee waivers and/or expense reimbursements

    (675,670
 

 

 

 

Net expenses

    9,262,286   
 

 

 

 

Net investment income

    39,938,003   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (119,914,620

Forward foreign currency contract transactions

    16,037,918   
 

 

 

 

Net realized losses on investments

    (103,876,702
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (58,530,596

Forward foreign currency contract transactions

    1,726,564   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (56,804,032
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (160,680,734
 

 

 

 

Net decrease in net assets resulting from operations

  $ (120,742,731
 

 

 

 

 

 

 

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


Table of Contents

 

16   Wells Fargo International Bond Fund   Statement of changes in net assets
     Year ended
October 31, 2015
    Year ended
October 31, 2014
 

Operations

       

Net investment income

    $ 39,938,003        $ 51,017,278   

Net realized losses on investments

      (103,876,702       (19,851,675

Net change in unrealized gains (losses) on investments

      (56,804,032       (23,841,553
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (120,742,731       7,324,050   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (423,572       (1,131,543

Class B

      0          (3,281

Class C

      0          (58,435

Class R6

      (48,140       (51,175

Administrator Class

      (1,661,619       (4,290,193

Institutional Class

      (4,268,266       (13,007,391

Net realized gains

       

Class A

      (287,937       (3,719,413

Class B

      (2,272       (57,769

Class C

      (31,156       (526,829

Class R6

      (18,411       (83,684

Administrator Class

      (1,004,296       (11,543,115

Institutional Class

      (2,298,056       (36,033,594
 

 

 

 

Total distributions to shareholders

      (10,043,725       (70,506,422
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    4,376,785        44,490,295        2,749,646        30,368,557   

Class B

    2        19        891        9,492   

Class C

    29,172        297,439        72,519        795,278   

Class R6

    1,089,162        11,067,245        408,110        4,564,894   

Administrator Class

    7,459,622        76,084,803        10,060,042        111,082,502   

Institutional Class

    21,605,888        222,681,252        17,799,377        196,135,780   
 

 

 

 
      354,621,053          342,956,503   
 

 

 

 

Reinvestment of distributions

       

Class A

    66,631        705,372        437,747        4,731,956   

Class B

    185        1,968        5,011        53,798   

Class C

    2,403        25,233        43,996        468,648   

Class R6

    6,273        66,551        12,385        134,859   

Administrator Class

    250,106        2,645,484        1,432,764        15,504,058   

Institutional Class

    440,841        4,675,573        3,278,437        35,575,623   
 

 

 

 
      8,120,181          56,468,942   
 

 

 

 

Payment for shares redeemed

       

Class A

    (5,719,183     (57,542,516     (3,778,957     (41,860,001

Class B

    (41,312     (422,819     (100,427     (1,099,942

Class C

    (395,376     (3,980,181     (471,593     (5,113,839

Class R6

    (279,791     (2,789,621     (108,372     (1,209,097

Administrator Class

    (13,481,584     (136,684,425     (7,924,711     (87,207,416

Institutional Class

    (28,068,413     (285,845,548     (42,834,796     (471,768,358
 

 

 

 
      (487,265,110       (608,258,653
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (124,523,876       (208,833,208
 

 

 

 

Total decrease in net assets

      (255,310,332       (272,015,580
 

 

 

 

Net assets

       

Beginning of period

      1,312,300,367          1,584,315,947   
 

 

 

 

End of period

    $ 1,056,990,035        $ 1,312,300,367   
 

 

 

 

Undistributed (overdistributed) net investment income

    $ (48,221,909     $ 2,633,136   
 

 

 

 

 

 

 

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


Table of Contents

 

Financial highlights   Wells Fargo International Bond Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $10.84        $11.32        $11.83        $11.85        $12.23   

Net investment income

    0.31 1      0.37 1      0.36 1      0.33 1      0.39 1 

Net realized and unrealized gains (losses) on investments

    (1.33     (0.34     (0.73     0.08        (0.18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.02     0.03        (0.37     0.41        0.21   

Distributions to shareholders from

         

Net investment income

    (0.05     (0.12     (0.02     (0.29     (0.51

Net realized gains

    (0.03     (0.39     (0.12     (0.14     (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.08     (0.51     (0.14     (0.43     (0.59

Net asset value, end of period

    $9.74        $10.84        $11.32        $11.83        $11.85   

Total return2

    (9.50 )%      0.26     (3.18 )%      3.66     1.93

Ratios to average net assets (annualized)

         

Gross expenses

    1.06     1.05     1.05     1.04     1.02

Net expenses

    1.03     1.03     1.03     1.03     1.02

Net investment income

    3.07     3.29     2.93     2.88     3.26

Supplemental data

         

Portfolio turnover rate

    136     103     129     79     88

Net assets, end of period (000s omitted)

    $79,727        $102,624        $113,846        $139,600        $286,577   

 

 

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 International Bond Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $10.81        $11.27        $11.85        $11.88        $12.25   

Net investment income

    0.24 1      0.29 1      0.27 1      0.24 1      0.31 1 

Net realized and unrealized gains (losses) on investments

    (1.35     (0.34     (0.73     0.09        (0.19
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.11     (0.05     (0.46     0.33        0.12   

Distributions to shareholders from

         

Net investment income

    0.00        (0.02     0.00        (0.22     (0.41

Net realized gains

    (0.03     (0.39     (0.12     (0.14     (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.03     (0.41     (0.12     (0.36     (0.49

Net asset value, end of period

    $9.67        $10.81        $11.27        $11.85        $11.88   

Total return2

    (10.29 )%      (0.44 )%      (3.90 )%      2.90     1.15

Ratios to average net assets (annualized)

         

Gross expenses

    1.80     1.78     1.80     1.79     1.77

Net expenses

    1.77     1.77     1.78     1.78     1.77

Net investment income

    2.33     2.57     2.13     2.12     2.53

Supplemental data

         

Portfolio turnover rate

    136     103     129     79     88

Net assets, end of period (000s omitted)

    $403        $895        $1,998        $4,008        $6,925   

 

 

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 International Bond Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $10.70        $11.19        $11.76        $11.81        $12.20   

Net investment income

    0.23 1      0.28 1      0.26 1      0.24 1      0.31 1 

Net realized and unrealized gains (losses) on investments

    (1.32     (0.34     (0.71     0.08        (0.19
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.09     (0.06     (0.45     0.32        0.12   

Distributions to shareholders from

         

Net investment income

    0.00        (0.04     (0.00 )2      (0.23     (0.43

Net realized gains

    (0.03     (0.39     (0.12     (0.14     (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.03     (0.43     (0.12     (0.37     (0.51

Net asset value, end of period

    $9.58        $10.70        $11.19        $11.76        $11.81   

Total return3

    (10.21 )%      (0.52 )%      (3.84 )%      2.86     1.11

Ratios to average net assets (annualized)

         

Gross expenses

    1.81     1.80     1.80     1.79     1.77

Net expenses

    1.78     1.78     1.78     1.78     1.77

Net investment income

    2.33     2.54     2.15     2.12     2.50

Supplemental data

         

Portfolio turnover rate

    136     103     129     79     88

Net assets, end of period (000s omitted)

    $6,895        $11,597        $16,097        $23,448        $27,861   

 

 

1  Calculated based upon average shares outstanding

 

2  Amount is less than $0.005 per share.

 

3  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 International Bond Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS R6   2015     2014     20131  

Net asset value, beginning of period

    $10.88        $11.36        $11.80   

Net investment income

    0.35 2      0.42 2      0.39 2 

Net realized and unrealized gains (losses) on investments

    (1.34     (0.35     (0.69
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.99     0.07        (0.30

Distributions to shareholders from

     

Net investment income

    (0.06     (0.16     (0.02

Net realized gains

    (0.03     (0.39     (0.12
 

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.09     (0.55     (0.14

Net asset value, end of period

    $9.80        $10.88        $11.36   

Total return3

    (9.18 )%      0.60     (2.52 )% 

Ratios to average net assets (annualized)

     

Gross expenses

    0.68     0.67     0.68

Net expenses

    0.65     0.65     0.65

Net investment income

    3.46     3.64     3.70

Supplemental data

     

Portfolio turnover rate

    136     103     129

Net assets, end of period (000s omitted)

    $13,152        $5,729        $2,433   

 

 

1  For the period from November 30, 2012 (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 International Bond Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $10.84        $11.32        $11.81        $11.83        $12.23   

Net investment income

    0.33 1      0.39 1      0.36 1      0.35 1      0.38 1 

Net realized and unrealized gains (losses) on investments

    (1.34     (0.34     (0.71     0.08        (0.16
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.01     0.05        (0.35     0.43        0.22   

Distributions to shareholders from

         

Net investment income

    (0.05     (0.14     (0.02     (0.31     (0.54

Net realized gains

    (0.03     (0.39     (0.12     (0.14     (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.08     (0.53     (0.14     (0.45     (0.62

Net asset value, end of period

    $9.75        $10.84        $11.32        $11.81        $11.83   

Total return

    (9.36 )%      0.43     (2.98 )%      3.89     2.03

Ratios to average net assets (annualized)

         

Gross expenses

    0.99     0.99     0.99     0.97     0.95

Net expenses

    0.85     0.85     0.85     0.85     0.85

Net investment income

    3.26     3.47     3.15     3.04     3.21

Supplemental data

         

Portfolio turnover rate

    136     103     129     79     88

Net assets, end of period (000s omitted)

    $266,849        $359,383        $334,778        $294,330        $170,836   

 

 

1  Calculated based upon average shares outstanding

 

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


Table of Contents

 

22   Wells Fargo International Bond Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $10.87        $11.35        $11.82        $11.84        $12.23   

Net investment income

    0.35 1      0.41 1      0.37        0.36        0.44   

Net realized and unrealized gains (losses) on investments

    (1.34     (0.35     (0.70     0.09        (0.20
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.99     0.06        (0.33     0.45        0.24   

Distributions to shareholders from

         

Net investment income

    (0.06     (0.15     (0.02     (0.33     (0.55

Net realized gains

    (0.03     (0.39     (0.12     (0.14     (0.08
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.09     (0.54     (0.14     (0.47     (0.63

Net asset value, end of period

    $9.79        $10.87        $11.35        $11.82        $11.84   

Total return

    (9.20 )%      0.55     (2.78 )%      3.99     2.19

Ratios to average net assets (annualized)

         

Gross expenses

    0.73     0.72     0.72     0.71     0.69

Net expenses

    0.70     0.70     0.70     0.71     0.69

Net investment income

    3.41     3.62     3.26     3.19     3.60

Supplemental data

         

Portfolio turnover rate

    136     103     129     79     88

Net assets, end of period (000s omitted)

    $689,964        $832,072        $1,115,163        $1,270,164        $1,228,793   

 

 

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 International Bond 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 International Bond 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).

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.

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”).

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 at net asset value when available.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. 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.

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.


Table of Contents

 

24   Wells Fargo International Bond Fund   Notes to financial statements

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”). 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 fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

When-issued transactions

The Fund may purchase securities on a forward commitment or when-issued basis. The Fund records a when-issued transaction on the trade date and will segregate assets in an amount at least equal in value to the Fund’s commitment to purchase when-issued securities. Securities purchased on a when-issued basis are marked-to-market daily and the Fund begins earning interest on the settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

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.

Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.

Income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.


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Notes to financial statements   Wells Fargo International Bond Fund     25   

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 net operating losses. At October 31, 2015, 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   

Overdistributed

net investment

income

   Accumulated net
realized gains
on investments
$(23,589,277)    $(84,391,451)    $107,980,728

As of October 31, 2015, the Fund had a qualified late-year ordinary loss of $47,186,120 which will be recognized on the first day of the following fiscal year.

Class allocations

The separate classes of shares offered by the Fund differ principally in applicable sales charges, distribution, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.

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.


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26   Wells Fargo International Bond 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, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Corporate bonds and notes

   $ 0       $ 31,981,901       $ 0       $ 31,981,901   

Foreign corporate bonds and notes

     0         198,451,524         0         198,451,524   

Foreign government bonds

     0         655,518,465         0         655,518,465   

U.S. Treasury securities

     84,482,695         0         0         84,482,695   

Yankee corporate bonds and notes

     0         52,072,404         0         52,072,404   

Short-term investments

           

Investment companies

     13,510,109         0         0         13,510,109   
       97,992,804         938,024,294         0         1,036,017,098   

Forward foreign currency contracts

     0         11,600,520         0         11,600,520   

Total assets

   $ 97,992,804       $ 949,624,814       $ 0       $ 1,047,617,618   

Liabilities

           

Forward foreign currency contracts

   $ 0       $ 18,700,982       $ 0       $ 18,700,982   

Total liabilities

   $ 0       $ 18,700,982       $ 0       $ 18,700,982   

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. At October 31, 2015, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable 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 0.60% and declining to 0.48% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.55% and declined to 0.45% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, the management fee was equivalent to an annual rate of 0.58% 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. First International Advisors, LLC, an affiliate of Funds Management and an indirect, wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.35% and declining to 0.20% as the average daily net assets of the Fund increase.


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Notes to financial statements   Wells Fargo International Bond Fund     27   

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

     0.16

Class R6

     0.03   

Administrator Class

     0.10   

Institutional Class

     0.08   

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 29, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.03% for Class A shares, 1.78% for Class B shares, 1.78% for Class C shares, 0.65% for Class R6 shares, 0.85% for Administrator Class shares, and 0.70% 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, 2015, Funds Distributor received $1,948 from the sale of Class A shares and $11 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 is 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 short-term securities, for the year ended October 31, 2015 were as follows:

 

Purchases at cost

     Sales proceeds
U.S.
government
     Non-U.S.
government
     U.S.
government
     Non-U.S.
government

$187,277,756

     $1,401,900,814      $102,829,321      $1,568,037,531

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.


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28   Wells Fargo International Bond Fund   Notes to financial statements

At October 31, 2015, the Fund had forward foreign currency contracts outstanding as follows:

Forward foreign currency contracts to buy:

 

Exchange date   Counterparty   Contracts to
receive
    U.S. value at
October 31, 2015
    In exchange
for U.S. $
    Unrealized
gains
(losses)
 
11-12-2015   State Street Bank     4,113,150,000   JPY    $ 34,087,957      $ 34,423,669      $ (335,712
11-12-2015   State Street Bank     19,670,000,000   JPY      163,016,206        157,905,722        5,110,484   
11-12-2015   State Street Bank     1,860,000,000   JPY      15,414,852        15,539,120        (124,268
11-12-2015   State Street Bank     8,150,000,000   JPY      67,543,573        67,827,925        (284,352
11-12-2015   State Street Bank     1,055,000,000   JPY      8,743,370        8,863,111        (119,741
11-12-2015   State Street Bank     12,250,000   MYR      2,848,941        3,143,040        (294,099
11-24-2015   State Street Bank     10,740,000   BRL      2,766,262        2,737,910        28,352   
11-24-2015   State Street Bank     49,125,000   THB      1,380,104        1,360,426        19,678   
11-30-2015   State Street Bank     138,135,000   ZAR      9,935,247        10,234,944        (299,697
11-30-2015   State Street Bank     231,565,000   ZAR      16,655,124        17,506,525        (851,401
12-7-2015   State Street Bank     13,540,000   CAD      10,352,641        10,490,895        (138,254
12-11-2015   State Street Bank     2,505,000   TRY      849,504        812,271        37,233   
12-16-2015   State Street Bank     20,650,000   EUR      22,723,289        23,150,509        (427,220
12-16-2015   State Street Bank     9,300,000   EUR      10,233,733        10,393,141        (159,408
12-16-2015   State Street Bank     14,400,000   EUR      15,845,780        16,366,594        (520,814
12-16-2015   State Street Bank     288,300,000   EUR      317,245,726        326,767,581        (9,521,855
12-17-2015   State Street Bank     10,250,000   AUD      7,293,005        7,345,991        (52,986
1-22-2016   State Street Bank     4,800,000,000   KRW      4,199,549        4,229,448        (29,899

 

Exchange date   Counterparty   Contracts to
receive
     U.S. value at
October 31, 2015
    In exchange
for
    U.S. value at
October 31, 2015
    Unrealized
gains
 
1-22-2016   State Street Bank     9,280,000,000   JPY     $ 77,024,371        68,352,599   EUR    $ 75,278,508      $ 1,745,863   

Forward foreign currency contracts to sell:

 

Exchange date   Counterparty   Contracts to
deliver
    U.S. value at
October 31, 2015
    In exchange
for U.S. $
    Unrealized
gains
(losses)
 
11-10-2015   State Street Bank     1,295,000,000   COP    $ 446,685      $ 441,377      $ (5,308
11-12-2015   State Street Bank     1,450,000,000   JPY      12,016,955        12,014,889        (2,066
11-12-2015   State Street Bank     6,000,000   MYR      1,395,400        1,440,576        45,176   
11-23-2015   State Street Bank     68,200,000   BRL      17,572,451        19,078,524        1,506,073   
11-23-2015   State Street Bank     93,000,000   BRL      23,962,433        25,567,010        1,604,577   
11-24-2015   State Street Bank     5,600,000   BRL      1,442,371        1,363,526        (78,845
11-24-2015   State Street Bank     6,750,000,000   IDR      490,226        466,966        (23,260
11-24-2015   State Street Bank     5,140,000   BRL      1,323,891        1,250,152        (73,739
11-30-2015   State Street Bank     204,700,000   ZAR      14,722,881        14,805,727        82,846   
11-30-2015   State Street Bank     165,000,000   ZAR      11,867,491        12,459,601        592,110   
12-7-2015   State Street Bank     36,000,000   CAD      27,525,487        27,169,299        (356,188
12-9-2015   State Street Bank     538,500,000   HUF      1,904,406        1,911,957        7,551   
12-11-2015   State Street Bank     1,220,000   TRY      413,731        394,360        (19,371
12-11-2015   State Street Bank     22,000,000   GBP      33,908,694        33,826,342        (82,352
12-11-2015   State Street Bank     20,225,000   GBP      31,172,879        30,967,044        (205,835
12-14-2015   State Street Bank     77,000,000   NZD      51,983,139        48,118,840        (3,864,299
12-17-2015   State Street Bank     221,300,000   AUD      157,457,748        156,871,050        (586,698


Table of Contents

 

Notes to financial statements   Wells Fargo International Bond Fund     29   
Exchange date   Counterparty   Contracts to
deliver
    U.S. value at
October 31, 2015
    In exchange
for U.S. $
    Unrealized
gains
(losses)
 
1-15-2016   State Street Bank     51,300,000   SGD    $ 36,531,089      $ 36,546,921      $ 15,832   
1-15-2016   State Street Bank     14,525,000   SGD      10,343,354        10,486,539        143,185   
1-22-2016   State Street Bank     62,400,000,000   KRW      54,594,131        55,198,769        604,638   
1-22-2016   State Street Bank     40,535,000   MYR      9,387,144        9,416,671        29,527   
1-22-2016   State Street Bank     22,645,000   MYR      5,244,156        5,271,551        27,395   
1-28-2016   State Street Bank     177,200,000   PLN      45,750,402        45,592,619        (157,783
1-29-2016   State Street Bank     598,875,000   MXN      36,035,097        35,949,565        (85,532

The Fund had average contract amounts of $721,056,475 and $586,207,170 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

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

     State Street Bank      $11,600,520*      $ (11,600,520      $ 0         $ 0   

 

*   Amount represents net unrealized gains.

 

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

Forward foreign currency contracts

     State Street Bank      $18,700,982**      $ (11,600,520      $ 0         $ 7,100,462   

 

**   Amount represents net unrealized losses.

7. BANK BORROWINGS

The Trust (excluding the money market funds) and Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $2,568 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.


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30   Wells Fargo International Bond Fund   Notes to financial statements

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2014 and 2015 were as follows:

 

     Year ended October 31,  
     2015      2014  

Ordinary income

   $ 10,043,689       $ 21,238,755   

Long-term capital gain

     36          49,267,667   

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
long-term
gain
   Unrealized
losses
   Late-year
ordinary losses
deferred

$5,967,222

   $(96,598,262)    $(47,186,120)

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. SUBSEQUENT DISTRIBUTIONS

On December 11, 2015, the Fund declared distributions from long-term capital gains to shareholders of record on December 10, 2015. The per share amounts payable on December 14, 2015 were as follows:

 

      

Long-term

capital

gains

 

Class A

     $ 0.05733   

Class B

       0.05733   

Class C

       0.05733   

Class R6

       0.05733   

Administrator Class

       0.05733   

Institutional Class

       0.05733   

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 International Bond Fund     31   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo International Bond Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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, 2015, 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 Bond Fund as of October 31, 2015, 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, 2015


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32   Wells Fargo International Bond Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 852 of the Internal Revenue Code, $36 was designated as long-term capital gain distributions for the fiscal year ended October 31, 2015.

For the fiscal year ended October 31, 2015, $2,655,660 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

For the fiscal year ended October 31, 2015, $3,642,092 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.


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Other information (unaudited)   Wells Fargo International Bond Fund     33   

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 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   Other
public company or
investment company
directorships during
past 5 years
William R. Ebsworth
(Born 1957)
  Trustee, since 2015**  

Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust


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34   Wells Fargo International Bond Fund   Other information (unaudited)
Name and
year of birth
 

Position held and

length of service*

  Principal occupations during past five years or longer  

Other
public company or
investment company
directorships during

past 5 years

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
Donald C. Willeke (Born 1940)   Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    
Nancy Wiser1
(Born 1967)
  Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    

C. David Messman

(Born 1960)

  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
David Berardi
(Born 1975)
  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    

Jeremy DePalma1

(Born 1974)

  Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

1 Nancy Wiser acts as Treasurer of 72 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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Other information (unaudited)   Wells Fargo International Bond Fund     35   

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage International Bond Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) an investment sub-advisory agreement (the “Sub-Advisory Agreement”) with First International Advisors, LLC (the “Sub-Adviser”), an affiliate of Funds Management. The Management Agreement combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to 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


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36   Wells Fargo International Bond Fund   Other information (unaudited)

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper to select the mutual funds in the performance Universe. The Board noted that the performance of the Fund (Class A) was lower 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 BofA Merrill Lynch Global Broad Market ex US Index, 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 all periods. The Board took note of the explanations for the relative underperformance, including an explanation of currency exposure and other detractors from Fund performance, and of outperformance relative to the benchmark 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 (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were lower than the 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 advisory 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 the advisory fee 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.


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Other information (unaudited)   Wells Fargo International Bond Fund     37   

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also determined that the compensation payable to Funds Management and the Sub-Adviser under each of the Advisory Agreements was reasonable.


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38   Wells Fargo International Bond 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: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238501 12-15

A235/AR235 10-15


Table of Contents

Annual Report

October 31, 2015

 

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Wells Fargo Strategic Income Fund

 

LOGO

 

 

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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

    16   

Statement of operations

    17   

Statement of changes in net assets

    18   

Financial highlights

    19   

Notes to financial statements

    23   

Report of independent registered public accounting firm

    33   

Other information

    34   

List of abbreviations

    40   

 

The views expressed and any forward-looking statements are as of October 31, 2015, 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 Strategic Income Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery.

 

 

 

 

The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Strategic Income Fund for the 12-month period that ended October 31, 2015. The period was marked by continued low global interest rates and sluggish economic recovery in developed markets. However, the expectation that the U.S. Federal Reserve (Fed) would soon raise its key interest rate, combined with signs of further quantitative easing from other central banks, depressed the prices of international assets for U.S. dollar–based investors.

The Fed showed signs of raising its key rate, but other central banks continued to ease.

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery. For example, the U.S. unemployment rate eased from 5.8% at the beginning of the reporting period (November 2014) to 5.0% at the end (October 2015). Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero.

As the period progressed, various comments by Fed Chair Janet Yellen led investors to believe that the FOMC would soon raise its key federal funds rate. The FOMC remained on hold at its September 2015 meeting, however, citing concerns about a weaker global economy and subdued U.S. inflation. The FOMC’s decision caused some uncertainty, but by the end of the period, most investors expected a modest Fed rate hike in late 2015 or early 2016.

In contrast, the European Central Bank (ECB) showed no signs of raising rates in the near future, as the eurozone continued to grapple with sluggish growth. The eurozone reported annualized gross domestic product growth of 1.6% in the second quarter of 2015, which was the highest annualized growth for the past eight quarters. Yet while the unemployment rate improved, it remained stubbornly above 10%. The ECB thus maintained a variety of measures aimed at encouraging lending, including making funds available to banks at low interest rates and imposing a negative interest rate on bank deposits held at the central bank.

Other major central banks, such as the People’s Bank of China and the Bank of Japan, also remained in easing mode in response to sluggish growth in their respective economies. The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies.

Slow but persistent international growth supported risk-based assets, but the stronger dollar depressed the returns of international investments.

In developed markets, the persistent modest-growth, low-inflation environment provided a favorable backdrop for sovereign bonds, investment-grade corporate bonds, and high-yield debt. The main sour note was struck in energy- and commodity-related subsectors of the high-yield bond universe. Persistent low prices for oil, natural gas, and industrial metals such as copper put pressure on highly leveraged energy and metals and mining companies and led to increasing defaults in commodity-related sectors. The Barclays U.S. Aggregate Bond Index,1 which

 

 

 

1  The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar–denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass-throughs), ABS, and CMBS. You cannot invest directly in an index.


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Letter to shareholders (unaudited)   Wells Fargo Strategic Income Fund     3   

comprises investment-grade debt, ended the period with a 1.96% gain. By contrast, the Barclays U.S. Corporate High Yield Bond Index,2 a proxy for the high-yield bond market, lost 1.94% over the 12-month period.

The continued strength of the U.S. dollar versus other currencies provided a potent headwind to international bonds for U.S. dollar–based investors. Partly as a result, the BofA Merrill Lynch Global Broad Market ex U.S. Index3 lost 6.68% during the reporting period.

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

 

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

Notice to shareholders

Effective December 15, 2015, changes in pricing for the Wells Fargo Strategic Income Fund lowered the sales charges for some investors in Class A shares of the Fund and reduced the maximum purchase amount for Class C shares of the Fund. Please see the Fund’s current prospectus for additional details.

 

For current information about your fund investments, 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.

 

 

2  The Barclays U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar–denominated, nonconvertible, non-investment-grade debt index. The index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million. You cannot invest directly in an index.

 

3  The BofA Merrill Lynch Global Broad Market ex U.S. Index tracks the performance of investment-grade debt publicly issued in the major domestic and eurobond markets, including sovereign, quasi-government, corporate, securitized, and collateralized securities, and excludes all securities denominated in U.S. dollars. You cannot invest directly in an index.


Table of Contents

 

4   Wells Fargo Strategic Income Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks total return, consisting of a high level of current income and capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadvisers

First International Advisers, LLC

Wells Capital Management Incorporated

Portfolio managers

Ashok Bhatia, CFA

David Germany, Ph.D

Niklas Nordenfelt, CFA

Tony Norris

Margaret D. Patel

Alex Perrin

Thomas M. Price, CFA

Scott M. Smith, CFA

Noah Wise, CFA

Average annual total returns (%) as of October 31, 2015

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     Since inception     1 year     Since inception     Gross     Net2  
Class A (WSIAX)   1-31-2013     (7.99     (2.12     (3.64     (0.47     1.49        0.91   
Class C (WSICX )   1-31-2013     (5.28     (1.23     (4.35     (1.23     2.24        1.66   
Administrator Class (WSIDX)   1-31-2013                   (3.51     (0.31     1.43        0.76   
Institutional Class (WSINX)   1-31-2013                   (3.28     (0.17     1.16        0.61   
Barclays U.S. Universal Bond Index3                     1.67        2.16                 
BofA Merrill Lynch 3 Month U.S. Dollar LIBOR Constant Maturity Index4                     0.26        0.26                 

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 4.50%. 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.

Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest rate changes and their impact on the Fund and its share price can be sudden and unpredictable. High-yield securities have a greater risk of default and tend to be more volatile than higher-rated debt securities. Loans are subject to risks similar to those associated with other below-investment-grade bond investments, such as credit risk (for example, risk of issuer default), below-investment-grade bond risk (for example, risk of greater volatility in value), and risk that the loan may become illiquid or difficult to price. 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 mortgage- and asset-backed securities risk and regional 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 Strategic Income Fund     5   
Growth of $10,000 investment as of October 31, 20155
LOGO

 

 

1  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.

 

2  The manager has contractually committed through Feburary 29, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver at 0.90% for Class A, 1.65% for Class C, 0.75% for Administrator Class, and 0.60% 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.

 

3  The Barclays U.S. Universal Bond Index is an unmanaged market-value-weighted performance benchmark for the U.S. dollar–denominated bond market, which includes investment-grade, high-yield, and emerging markets debt securities with maturities of one year or more. You cannot invest directly in an index.

 

4  The BofA Merrill Lynch 3 Month U.S. Dollar LIBOR Constant Maturity Index is based on the assumed purchase of a synthetic instrument having 3 months to maturity and with a coupon equal to the closing quote for 3-Month LIBOR. That issue is sold the following day (priced at a yield equal to the current day closing 3-Month LIBOR rate) and is rolled into a new 3-Month instrument. The index, therefore, will always have a constant maturity equal to exactly 3 months. You cannot invest directly in an index.

 

5  The chart compares the performance of Class A shares since inception with the Barclays U.S. Universal Bond 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 4.50%.

 

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 Strategic Income Fund   Performance highlights (unaudited)

MANAGERS’ DISCUSSION

Fund highlights

n   The Fund (Class A, excluding sales charges) returned -3.64% during the 12-month period that ended October 31, 2015. The Fund has a flexible fixed-income strategy that seeks to invest in the best relative-value opportunities. However, it underperformed short-term investments, which benefited from strong demand for highly liquid assets, and also underperformed the Barclays U.S. Universal Bond Index.

 

n   An allocation to local-currency emerging sovereign debt was a significant detractor. Allocations to several emerging markets currencies detracted as well, although it helped results that this exposure was reduced during the 12-month period.

 

n   Our decision to reduce the Fund’s duration limited its interest-rate exposure, but precluded the Fund from benefiting from a decline in U.S. interest rates.

 

Ten largest holdings (%) as of October 31, 20156  

Poland, 4.00%, 10-25-2023

     2.54   

Mexico, 4.75%, 6-14-2018

     2.51   

Indonesia, 7.88%, 4-15-2019

     2.49   

ACAS CLO Limited Trust Series 2015-1A Class B, 2.42%, 4-18-2027

     2.46   

JPMBB Commercial Mortgage Securities Trust Series 2014-C19 Class D, 4.68%, 4-15-2047

     2.18   

First Data Corporation, 3.70%, 9-24-2018

     1.76   

Spin Holdco Incorporated, 4.25%, 11-14-2019

     1.56   

Dell Equipment Finance Trust Series 2014-1 Class D, 2.68%, 6-22-2020

     1.53   

Brazil, 10.00%, 1-1-2019

     1.48   

Level 3 Financing Incorporated, 4.00%,
8-1-2019

     1.47   

The U.S. economy grew while emerging markets countries struggled.

The economic environment was characterized by continued although unspectacular U.S. growth and European growth stabilizing. Emerging markets, however, continued to struggle in the face of low commodity prices and a slowdown in China. Indeed, a sharp rise in fears associated with rising debt in some emerging countries and a possible bursting of a debt-fueled bubble in China caused markets to price in an increased risk of a global recession in the third quarter, with sharp falls in global equity markets, rising volatility, and a jump in credit spreads. Returns on local-currency emerging markets debt were especially weak, reflecting the sharp decline in many of those currencies versus the U.S. dollar.

 

Taken together, these stresses were the largest detractors from performance. For much of the reporting period, the Fund benefited from our decision to underweight exposure to emerging markets currencies either by hedging some or all currency exposures or by reducing the allocation to emerging markets bonds below levels we typically would hold. Even so, the Fund remained exposed to some degree to the drop in emerging markets currencies. Meanwhile, the credit-oriented part of the Fund experienced losses when credit spreads widened in the third quarter. Finally, the decision to hedge most U.S. interest-rate exposure meant that the portfolio did not benefit from the decline in U.S. rates when other markets came under pressure.

 

Portfolio allocation as of October 31, 20157
LOGO

The Fund’s strategy focused on protecting against interest-rate risk, finding credit opportunities that represented relative value, and benefiting from a stronger dollar.

To protect against rising interest rates, the Fund’s duration was 0.9 years at the end of the reporting period. The Fund’s largest sector allocations were to corporate credit (both investment-grade and high yield), bank loans, and local currency emerging markets bonds. About one-half of the emerging markets currency exposure was hedged back into U.S. dollars and about 40% of the high-yield bonds were in short-term securities. Emerging markets bond exposure was reduced several times during the period as we increased the Fund’s allocation to U.S. credit. While we originally focused

 

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Strategic Income Fund     7   

on adding high-yield bonds, we shifted to adding higher-credit quality in recent months. Indeed, given the rally in high yield this October, we have been shifting exposure toward the investment-grade area, in both corporate credit and commercial mortgage-backed securities.

We see value in credit and will wait for longer-run emerging markets opportunities.

Going forward, we expect the U.S. economy to continue to grow at a modest pace, which we believe will be supportive of credit at current spreads. To be sure, China has slowed, but this slowdown occurred at the beginning of 2015 and recent data suggests that the economy has stabilized. Similarly, while we are mindful of the high level of debt in the Chinese private sector and with local governments, the central government’s balance sheet is still in good shape, enabling it to finance expansionary policy, if desired, and to alleviate debt pressures elsewhere in the economy. For this reason, we felt strongly that the sell-off in the third quarter was excessive, as indicated by the recovery in both high yield and emerging markets debt in October. Similarly, the combination of high interest rates and low currency values in many emerging markets currencies indicates longer-run opportunities in that area. However, we plan to wait until there is further evidence of these markets stabilizing before lifting any more currency hedges.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Strategic 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, 2015 to October 31, 2015.

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

5-1-2015

    

Ending

account value

10-31-2015

    

Expenses

paid during

the period¹

    

Net annualized

expense ratio

 

Class A

           

Actual

   $ 1,000.00       $ 964.10       $ 4.46         0.90

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.67       $ 4.58         0.90

Class C

           

Actual

   $ 1,000.00       $ 959.87       $ 8.15         1.65

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,016.89       $ 8.39         1.65

Administrator Class

           

Actual

   $ 1,000.00       $ 964.21       $ 3.71         0.75

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.42       $ 3.82         0.75

Institutional Class

           

Actual

   $ 1,000.00       $ 965.15       $ 2.97         0.60

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,022.18       $ 3.06         0.60

 

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo Strategic Income Fund     9   

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Asset-Backed Securities: 1.53%

         

Dell Equipment Finance Trust Series 2014-1 Class D 144A

    2.68     6-22-2020       $ 300,000       $ 300,684   
         

 

 

 

Total Asset-Backed Securities (Cost $299,953)

            300,684   
         

 

 

 

Corporate Bonds and Notes: 37.31%

         

Consumer Discretionary: 6.37%

         
Automobiles: 1.30%          

Ford Motor Company

    7.45        7-16-2031         200,000         256,906   
         

 

 

 
Hotels, Restaurants & Leisure: 1.41%          

CCM Merger Incorporated 144A

    9.13        5-1-2019         70,000         74,200   

Greektown Holdings LLC 144A

    8.88        3-15-2019         200,000         203,000   
            277,200   
         

 

 

 
Household Durables: 1.78%          

DR Horton Incorporated

    4.75        5-15-2017         175,000         181,125   

Pulte Group Incorporated

    7.63        10-15-2017         155,000         168,950   
            350,075   
         

 

 

 
Media: 0.57%          

CCO Holdings LLC

    5.13        2-15-2023         15,000         15,038   

CCO Holdings LLC 144A

    5.13        5-1-2023         5,000         5,025   

CCO Holdings LLC 144A

    5.38        5-1-2025         5,000         4,950   

CCO Holdings LLC 144A

    5.88        5-1-2027         5,000         5,000   

Cequel Communications Holdings I LLC 144A

    5.13        12-15-2021         5,000         4,800   

Gray Television Incorporated

    7.50        10-1-2020         75,000         78,278   
            113,091   
         

 

 

 
Specialty Retail: 1.31%          

Century Intermediate Holding Company (PIK at 10.50%) ¥(i)144A

    9.75        2-15-2019         5,000         5,169   

Penske Auto Group Incorporated

    5.75        10-1-2022         50,000         51,625   

Sally Holdings Incorporated

    6.88        11-15-2019         180,000         186,300   

Sonic Automotive Incorporated

    5.00        5-15-2023         15,000         14,588   
            257,682   
         

 

 

 

Consumer Staples: 0.82%

         
Beverages: 0.82%          

Constellation Brands Incorporated

    7.25        9-1-2016         155,000         161,781   
         

 

 

 

Energy: 7.46%

         
Energy Equipment & Services: 2.92%          

Bristow Group Incorporated

    6.25        10-15-2022         150,000         130,494   

Era Group Incorporated

    7.75        12-15-2022         130,000         120,250   

Forum Energy Technologies Incorporated

    6.25        10-1-2021         5,000         4,188   

NGPL PipeCo LLC 144A

    7.12        12-15-2017         75,000         69,375   

NGPL PipeCo LLC 144A

    7.77        12-15-2037         95,000         77,900   

PHI Incorporated

    5.25        3-15-2019         85,000         75,225   

Targa Resources Partners 144A

    5.00        1-15-2018         100,000         98,500   
            575,932   
         

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Strategic Income Fund   Portfolio of investments—October 31, 2015

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  
Oil, Gas & Consumable Fuels: 4.54%          

Buckeye Partners LP

    4.35     10-15-2024       $ 100,000       $ 91,707   

CSI Compressco LP

    7.25        8-15-2022         30,000         24,900   

Energy Transfer Partners LP

    4.05        3-15-2025         200,000         176,050   

Exterran Partners LP

    6.00        4-1-2021         50,000         43,250   

Northern Tier Energy LLC

    7.13        11-15-2020         25,000         25,438   

Rockies Express Pipeline LLC 144A

    5.63        4-15-2020         50,000         50,563   

Sabine Pass LNG LP

    6.50        11-1-2020         100,000         100,750   

Sabine Pass LNG LP

    7.50        11-30-2016         150,000         154,781   

Suburban Propane Partners LP

    5.50        6-1-2024         15,000         14,550   

TC Pipelines LP

    4.38        3-13-2025         100,000         94,183   

Ultra Petroleum Corporation 144A

    6.13        10-1-2024         30,000         16,800   

WPX Energy Incorporated

    5.25        1-15-2017         100,000         101,000   
            893,972   
         

 

 

 

Financials: 11.11%

         
Banks: 1.55%          

CIT Group Incorporated

    4.25        8-15-2017         165,000         168,713   

JPMorgan Chase & Company ±

    6.00        12-31-2049         135,000         136,958   
            305,671   
         

 

 

 
Capital Markets: 2.49%          

Goldman Sachs Group Incorporated

    4.25        10-21-2025         200,000         200,928   

Jefferies Finance LLC 144A

    6.88        4-15-2022         55,000         51,700   

Jefferies Finance LLC 144A

    7.38        4-1-2020         25,000         24,500   

Morgan Stanley

    4.10        5-22-2023         210,000         213,457   
            490,585   
         

 

 

 
Consumer Finance: 2.31%          

Navient Corporation

    6.00        1-25-2017         150,000         153,930   

Navient Corporation

    8.00        3-25-2020         30,000         31,800   

SLM Corporation

    6.13        3-25-2024         30,000         27,075   

Springleaf Finance Corporation

    5.25        12-15-2019         200,000         199,000   

Springleaf Finance Corporation

    8.25        10-1-2023         40,000         43,900   
            455,705   
         

 

 

 
Insurance: 1.18%          

Fairfax US Incorporated 144A

    4.88        8-13-2024         200,000         197,585   

Hub Holdings LLC (PIK at 8.88%) ¥144A

    8.13        7-15-2019         35,000         34,038   
            231,623   
         

 

 

 
REITs: 3.58%          

American Tower Corporation

    3.50        1-31-2023         200,000         193,845   

Digital Delta Holdings LLC 144A

    4.75        10-1-2025         170,000         172,432   

DuPont Fabros Technology Incorporated LP

    5.88        9-15-2021         85,000         89,250   

Iron Mountain Incorporated

    6.00        8-15-2023         75,000         78,656   

Omega Healthcare Investors Incorporated

    4.50        1-15-2025         175,000         171,298   
            705,481   
         

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Strategic Income Fund     11   

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Health Care: 1.06%

         
Health Care Providers & Services: 1.06%          

MPH Acquisition Holdings LLC 144A

    6.63     4-1-2022       $ 100,000       $ 102,000   

Tenet Healthcare Corporation

    6.25        11-1-2018         100,000         106,500   
            208,500   
         

 

 

 

Industrials: 3.49%

         
Air Freight & Logistics: 1.00%          

FedEx Corporation

    4.75        11-15-2045         200,000         196,445   
         

 

 

 
Airlines: 0.58%          

American Airlines Incorporated

    4.38        4-1-2024         113,595         114,163   
         

 

 

 
Commercial Services & Supplies: 0.23%          

Covanta Holding Corporation

    5.88        3-1-2024         45,000         44,663   
         

 

 

 
Machinery: 0.82%          

Case New Holland Industrial Incorporated

    7.88        12-1-2017         150,000         161,625   
         

 

 

 
Trading Companies & Distributors: 0.86%          

United Rentals North America Incorporated

    7.38        5-15-2020         160,000         169,800   
         

 

 

 

Information Technology: 3.66%

         
Electronic Equipment, Instruments & Components: 0.25%          

Zebra Technologies Corporation

    7.25        10-15-2022         45,000         48,994   
         

 

 

 
IT Services: 1.16%          

Audatex North America Incorporated 144A

    6.13        11-1-2023         10,000         10,063   

Fidelity National Information Services Incorporated

    4.50        10-15-2022         200,000         204,225   

First Data Corporation

    11.75        8-15-2021         3,000         3,420   

SunGard Data Systems Incorporated

    6.63        11-1-2019         10,000         10,350   
            228,058   
         

 

 

 
Semiconductors & Semiconductor Equipment: 1.02%          

KLA-Tencor Corporation

    4.13        11-1-2021         200,000         200,897   
         

 

 

 
Software: 0.26%          

Activision Blizzard Incorporated 144A

    5.63        9-15-2021         15,000         15,866   

Boxer Parent Company Incorporated (PIK at 9.75%) ¥144A

    9.00        10-15-2019         50,000         35,750   
            51,616   
         

 

 

 
Technology Hardware, Storage & Peripherals: 0.97%          

NCR Corporation

    5.00        7-15-2022         175,000         171,938   

NCR Corporation

    5.88        12-15-2021         10,000         10,100   

NCR Corporation

    6.38        12-15-2023         10,000         10,288   
            192,326   
         

 

 

 

Telecommunication Services: 2.76%

         
Diversified Telecommunication Services: 1.52%          

GCI Incorporated

    6.75        6-1-2021         115,000         119,025   

Verizon Communications Incorporated

    6.55        9-15-2043         150,000         179,972   
            298,997   
         

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Strategic Income Fund   Portfolio of investments—October 31, 2015

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  
Wireless Telecommunication Services: 1.24%          

CC Holdings GS V LLC

    3.85     4-15-2023       $ 200,000       $ 197,859   

T-Mobile USA Incorporated

    6.38        3-1-2025         20,000         20,050   

T-Mobile USA Incorporated

    6.84        4-28-2023         25,000         25,813   
            243,722   
         

 

 

 

Utilities: 0.58%

         
Independent Power & Renewable Electricity Producers: 0.58%          

NSG Holdings LLC 144A

    7.75        12-15-2025         103,101         113,926   
         

 

 

 

Total Corporate Bonds and Notes (Cost $7,522,332)

            7,349,436   
         

 

 

 

Foreign Government Bonds @: 14.50%

         

Brazil (BRL)

    10.00        1-1-2017         430,000         105,451   

Brazil (BRL)

    10.00        1-1-2019         1,300,000         291,168   

Indonesia (IDR)

    7.88        4-15-2019         6,900,000,000         490,075   

Mexico (MXN)

    4.75        6-14-2018         8,100,000         494,177   

Poland (PLN)

    4.00        10-25-2023         1,750,000         499,728   

Republic of South Africa (ZAR)

    7.75        2-28-2023         3,675,000         260,774   

Republic of South Africa (ZAR)

    8.00        12-21-2018         2,700,000         198,291   

Romania (RON)

    4.75        6-24-2019         1,000,000         271,198   

Romania (RON)

    6.00        4-30-2016         970,000         246,542   

Total Foreign Government Bonds (Cost $3,433,430)

            2,857,404   
         

 

 

 

Loans: 19.99%

         

Consumer Discretionary: 5.88%

         
Auto Components: 0.76%          

Allison Transmission Incorporated ±

    3.50        8-23-2019         150,708         150,754   
         

 

 

 
Distributors: 1.56%          

Spin Holdco Incorporated ±

    4.25        11-14-2019         311,066         307,047   
         

 

 

 
Hotels, Restaurants & Leisure: 0.52%          

Belmond Interfin Limited ±

    4.00        3-21-2021         103,425         102,218   
         

 

 

 
Media: 1.05%          

Learfield Communications Incorporated ±

    4.50        10-9-2020         152,745         152,363   

Salem Communications Corporation ±

    4.50        3-16-2020         27,400         26,989   

TWCC Holdings Corporation ±

    5.75        2-11-2020         27,283         27,286   
            206,638   
         

 

 

 
Multiline Retail: 0.20%          

New Albertson’s Incorporated ±

    4.75        6-27-2021         39,600         39,328   
         

 

 

 
Specialty Retail: 1.79%          

Focus Brands Incorporated ±

    4.25        2-21-2018         158,220         157,824   

Pep Boys-Manny, Moe & Jack ±

    4.25        10-11-2018         194,500         194,136   
            351,960   
         

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Strategic Income Fund     13   

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Energy: 0.09%

         
Energy Equipment & Services: 0.09%          

ExGen Renewables I LLC ±

    5.25     2-14-2021       $ 17,203       $ 17,246   
         

 

 

 

Financials: 0.88%

         
Diversified Financial Services: 0.25%          

TMFS Holdings LLC ±

    5.50        7-30-2021         49,500         49,129   
         

 

 

 
Real Estate Management & Development: 0.63%          

Capital Automotive LP ±

    4.00        4-10-2019         124,916         125,041   
         

 

 

 

Health Care: 1.41%

         
Health Care Providers & Services: 0.60%          

Community Health Systems Incorporated ±

    4.00        1-27-2021         69,611         69,379   

Surgery Center Holdings Incorporated ±

    5.25        11-3-2020         49,625         49,336   
            118,715   
         

 

 

 
Pharmaceuticals: 0.81%          

Valeant Pharmaceuticals International Incorporated ±

    3.75        12-11-2019         170,559         159,073   
         

 

 

 

Industrials: 2.99%

         
Commercial Services & Supplies: 1.44%          

Interactive Data Corporation ±

    4.75        5-2-2021         148,125         148,063   

KAR Auction Services Incorporated ±

    3.50        3-11-2021         135,629         135,629   
            283,692   
         

 

 

 
Construction & Engineering: 0.17%          

USIC Holdings Incorporated ±

    4.00        7-10-2020         34,447         33,873   
         

 

 

 
Transportation Infrastructure: 1.38%          

HGIM Corporation ±

    5.50        6-18-2020         216,166         140,238   

OSG Bulk Ships Incorporated ±

    5.25        8-5-2019         14,813         14,637   

OSG International Incorporated ±

    5.75        8-5-2019         118,500         117,611   
            272,486   
         

 

 

 

Information Technology: 4.11%

         
Internet Software & Services: 0.87%          

Applied Systems Incorporated ±

    4.25        1-25-2021         98,513         97,682   

Vertafore Incorporated ±

    4.25        10-3-2019         73,340         73,248   
            170,930   
         

 

 

 
IT Services: 1.76%          

First Data Corporation ±

    3.70        9-24-2018         350,000         347,375   
         

 

 

 
Semiconductors & Semiconductor Equipment: 0.13%          

Freescale Semiconductor Incorporated ±

    4.25        3-1-2020         24,811         24,782   
         

 

 

 
Technology Hardware, Storage & Peripherals: 1.35%          

Dell Incorporated ±

    4.00        4-29-2020         265,908         265,759   
         

 

 

 

 

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


Table of Contents

 

14   Wells Fargo Strategic Income Fund   Portfolio of investments—October 31, 2015

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Telecommunication Services: 3.76%

         
Diversified Telecommunication Services: 2.65%          

Intelsat Jackson Holdings SA ±

    3.75     6-30-2019       $ 240,332       $ 232,608   

Level 3 Financing Incorporated ±

    4.00        8-1-2019         288,205         288,865   
            521,473   
         

 

 

 
Wireless Telecommunication Services: 1.11%          

Syniverse Holdings Incorporated ±

    4.00        4-23-2019         242,380         219,051   
         

 

 

 

Utilities : 0.87%

         
Electric Utilities: 0.87%          

Green Energy Partners ±

    6.50        11-13-2021         45,000         43,425   

Texas Competitive Electric Holdings Company LLC ±(s)

    4.66        10-10-2016         400,000         127,832   
            171,257   
         

 

 

 

Total Loans (Cost $4,343,077)

            3,937,827   
         

 

 

 

Municipal Obligations: 2.70%

         
Idaho: 0.46%          

Idaho Housing & Finance Association Legacy Public Charter School (Education Revenue)

    7.00        5-1-2017         90,000         89,924   
         

 

 

 
Illinois: 0.98%          

Chicago IL Refunding Taxable Project Series E (GO Revenue)

    6.05        1-1-2029         200,000         192,664   
         

 

 

 
Texas: 1.26%          

North Texas Tollway Authority Build America Bonds Sub Lien Series B-2 (Transportation Revenue)

    8.91        2-1-2030         210,000         249,335   
         

 

 

 

Total Municipal Obligations (Cost $546,927)

            531,923   
         

 

 

 

Non-Agency Mortgage-Backed Securities: 6.88%

         

ACAS CLO Limited Trust Series 2015-1A Class B ±144A

    2.42        4-18-2027         500,000         485,387   

BB-UBS Trust Series 2012-TFT Class C ±144A

    3.47        6-5-2030         150,000         144,213   

GS Mortgage Securities Trust Series 2014-GC24 Class D ±144A

    4.53        9-10-2047         325,000         269,826   

JPMBB Commercial Mortgage Securities Trust Series 2014-C19 Class D ±144A

    4.68        4-15-2047         493,000         429,495   

Morgan Stanley Capital I Trust Series 2007-HQ11 Class AM ±

    5.48        2-12-2044         25,000         25,994   

Total Non-Agency Mortgage-Backed Securities (Cost $1,422,894)

            1,354,915   
         

 

 

 

Yankee Corporate Bonds and Notes: 4.98%

         

Consumer Discretionary: 0.26%

         
Automobiles: 0.26%          

Jaguar Land Rover Automotive plc 144A

    4.13        12-15-2018         50,000         51,250   
         

 

 

 

Energy: 0.42%

         
Energy Equipment & Services: 0.42%          

Ensco plc

    5.20        3-15-2025         100,000         83,549   
         

 

 

 

Financials: 1.21%

         
Banks: 1.21%          

BPCE SA 144A

    5.15        7-21-2024         230,000         237,446   
         

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Strategic Income Fund     15   

  

 

 

Security name   Interest rate     Maturity date      Principal      Value  

Health Care: 1.59%

         
Pharmaceuticals: 1.59%          

Actavis Funding SCS

    3.80     3-15-2025       $ 150,000       $ 148,703   

Mallinckrodt International Finance SA

    3.50        4-15-2018         170,000         164,688   
            313,391   
         

 

 

 

Information Technology: 0.80%

         
Technology Hardware, Storage & Peripherals: 0.80%          

Seagate Technology HDD Holdings

    4.75        1-1-2025             175,000         157,234   
         

 

 

 

Telecommunication Services: 0.70%

         
Diversified Telecommunication Services: 0.70%          

Intelsat Jackson Holdings SA

    5.50        8-1-2023         100,000         83,000   

Intelsat Luxembourg SA

    8.13        6-1-2023         85,000         50,363   

Virgin Media Finance plc 144A

    5.38        4-15-2021         4,500         4,725   
            138,088   
         

 

 

 

Total Yankee Corporate Bonds and Notes (Cost $1,070,429)

            980,958   
         

 

 

 
    Yield            Shares         

Short-Term Investments: 10.46%

         
Investment Companies: 9.39%          

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16               1,849,610         1,849,610   
         

 

 

 
                 Principal         
U.S. Treasury Securities: 1.07%          

U.S. Treasury Bill #(z)

    0.05        12-17-2015       $ 210,000         209,993   
         

 

 

 

Total Short-Term Investments (Cost $2,059,595)

            2,059,603        
         

 

 

 

 

Total investments in securities (Cost $20,698,637) *     98.35        19,372,750   

Other assets and liabilities, net

    1.65           325,831   
 

 

 

      

 

 

 
Total net assets     100.00      $ 19,698,581   
 

 

 

      

 

 

 

 

 

 

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 payment-in-kind (PIK) security is a security in which the issuer may make interest or dividend payments in cash or additional securities. These additional securities generally have the same terms as the original holdings.

 

(i) Illiquid security for which the designation as illiquid is unaudited.

 

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

 

@ Foreign bond principal is denominated in the local currency of the issuer.

 

(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.

 

(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.

 

# All or a portion of this security is segregated as collateral for investments in derivative instruments.

 

(z) Zero coupon security. The rate represents the current yield to maturity.

 

* Cost for federal income tax purposes is $20,717,781 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 68,607   

Gross unrealized losses

     (1,413,638
  

 

 

 

Net unrealized losses

   $ (1,345,031

 

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


Table of Contents

 

16   Wells Fargo Strategic Income Fund   Statement of assets and liabilities—October 31, 2015
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $18,849,027)

  $ 17,523,140   

In affiliated securities, at value (cost $1,849,610)

    1,849,610   
 

 

 

 

Total investments, at value (cost $20,698,637)

    19,372,750   

Cash

    64,205   

Segregated cash

    60,937   

Foreign currency, at value (cost $18,141)

    18,114   

Receivable for investments sold

    668   

Receivable for interest

    205,907   

Receivable for daily variation margin on open futures contracts

    8,477   

Unrealized gains on credit default swap transactions

    1,436   

Premiums paid on credit default swap transactions

    29,950   

Receivable from manager

    15,292   

Prepaid expenses and other assets

    19,249   
 

 

 

 

Total assets

    19,796,985   
 

 

 

 

Liabilities

 

Unrealized losses on forward foreign currency contracts

    44,898   

Payable for daily variation margin on open futures contracts

    6,084   

Distribution fee payable

    461   

Administration fees payable

    1,465   

Trustees’ fees and expenses payable

    4,844   

Professional fees payable

    40,652   
 

 

 

 

Total liabilities

    98,404   
 

 

 

 

Total net assets

  $ 19,698,581   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 22,200,172   

Undistributed net investment income

    44,882   

Accumulated net realized losses on investments

    (1,234,417

Net unrealized losses on investments

    (1,312,056
 

 

 

 

Total net assets

  $ 19,698,581   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 927,510   

Shares outstanding – Class A1

    101,564   

Net asset value per share – Class A

    $9.13   

Maximum offering price per share – Class A2

    $9.56   

Net assets – Class C

  $ 710,899   

Shares outstanding – Class C1

    78,158   

Net asset value per share – Class C

    $9.10   

Net assets – Administrator Class

  $ 495,956   

Shares outstanding – Administrator Class1

    54,116   

Net asset value per share – Administrator Class

    $9.16   

Net assets – Institutional Class

  $ 17,564,216   

Shares outstanding – Institutional Class1

    1,920,921   

Net asset value per share – Institutional Class

    $9.14   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/95.50 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, 2015   Wells Fargo Strategic Income Fund     17   
         

Investment income

 

Interest (net of foreign withholding taxes of $2,760)

  $ 1,523,963   

Income from affiliated securities

    2,341   

Securities lending income, net

    352   
 

 

 

 

Total investment income

    1,526,656   
 

 

 

 

Expenses

 

Management fee

    172,383   

Administration fees

 

Class A

    1,481   

Class C

    1,184   

Administrator Class

    522   

Institutional Class

    24,518   

Shareholder servicing fees

 

Class A

    2,314   

Class C

    1,850   

Administrator Class

    1,305   

Distribution fee

 

Class C

    5,549   

Custody and accounting fees

    33,480   

Professional fees

    51,018   

Registration fees

    60,961   

Shareholder report expenses

    15,165   

Trustees’ fees and expenses

    24,839   

Other fees and expenses

    9,087   
 

 

 

 

Total expenses

    405,656   

Less: Fee waivers and/or expense reimbursements

    (196,175
 

 

 

 

Net expenses

    209,481   
 

 

 

 

Net investment income

    1,317,175   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (1,424,645

Futures transactions

    (614,950

Forward foreign currency contract transactions

    740,294   

Credit default swap transactions

    2,320   
 

 

 

 

Net realized losses on investments

    (1,296,981
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (606,214

Futures transactions

    169,920   

Forward foreign currency contract transactions

    (231,831

Credit default swap transactions

    1,436   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (666,689
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (1,963,670
 

 

 

 

Net decrease in net assets resulting from operations

  $ (646,495
 

 

 

 

 

 

 

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


Table of Contents

 

18   Wells Fargo Strategic Income Fund   Statement of changes in net assets
     Year ended
October 31, 2015
       Year ended
October 31, 2014
 

Operations

            

Net investment income

     $ 1,317,175            $ 1,331,266   

Net realized losses on investments

       (1,296,981           (982,908

Net change in unrealized gains (losses) on investments

       (666,689           537,097   
 

 

 

 

Net increase (decrease) in net assets resulting from operations

       (646,495           885,455   
 

 

 

 

Distributions to shareholders from

            

Net investment income

            

Class A

       (21,334           (15,762

Class C

       (14,917           (13,400

Administrator Class

       (12,399           (13,793

Institutional Class

       (935,496           (852,736

Tax basis return of capital

            

Class A

       (2,416           0   

Class C

       (1,689           0   

Administrator Class

       (1,404           0   

Institutional Class

       (105,941           0   
 

 

 

 

Total distributions to shareholders

       (1,095,596           (895,691
 

 

 

 

Capital share transactions

    Shares              Shares      

Proceeds from shares sold

            

Class A

    44,768         426,513           22,517         217,023   

Class C

    5,907         55,667           46,130         444,536   

Administrator Class

    0         0           4,115         40,000   

Institutional Class

    190,379         1,736,500           1,475,076         14,500,000   
 

 

 

 
       2,218,680              15,201,559   
 

 

 

 

Reinvestment of distributions

            

Class A

    2,260         21,553           1,619         15,592   

Class C

    1,740         16,606           1,394         13,400   

Administrator Class

    1,443         13,803           1,431         13,793   

Institutional Class

    109,213         1,041,437           88,370         852,736   
 

 

 

 
       1,093,399              895,521   
 

 

 

 

Payment for shares redeemed

            

Class A

    (18,900      (178,898        (4,382      (42,882

Class C

    (15,520      (148,738        (15,103      (147,854

Administrator Class

    (4,192      (39,990        0         0   

Institutional Class

    (2,358,709      (22,270,242        0         0   
 

 

 

 
       (22,637,868           (190,736
 

 

 

 

Net increase (decrease) in net assets resulting from capital share transactions

       (19,325,789           15,906,344   
 

 

 

 

Total increase (decrease) in net assets

       (21,067,880           15,896,108   
 

 

 

 

Net assets

            

Beginning of period

       40,766,461              24,870,353   
 

 

 

 

End of period

     $ 19,698,581            $ 40,766,461   
 

 

 

 

Undistributed net investment income

     $ 44,882            $ 164,697   
 

 

 

 

 

 

 

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


Table of Contents

 

Financial highlights   Wells Fargo Strategic Income Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     20131  

Net asset value, beginning of period

    $9.72        $9.66        $10.00   

Net investment income

    0.34        0.37        0.27   

Net realized and unrealized gains (losses) on investments

    (0.69     (0.05     (0.36
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.35     0.32        (0.09

Distributions to shareholders from

     

Net investment income

    (0.22     (0.26     (0.25

Tax basis return of capital

    (0.02     0.00        0.00   
 

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.24     (0.26     (0.25

Net asset value, end of period

    $9.13        $9.72        $9.66   

Total return2

    (3.64 )%      3.36     (0.89 )% 

Ratios to average net assets (annualized)

     

Gross expenses

    1.63     1.51     1.85

Net expenses

    0.90     0.90     0.90

Net investment income

    3.77     4.02     3.76

Supplemental data

     

Portfolio turnover rate

    53     51     39

Net assets, end of period (000s omitted)

    $928        $714        $518   

 

 

 

 

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

 

2  Total return calculations do not include any sales charges. Returns for periods of less than one year are not annualized.

 

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


Table of Contents

 

20   Wells Fargo Strategic Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     20131  

Net asset value, beginning of period

    $9.71        $9.65        $10.00   

Net investment income

    0.28        0.31        0.21   

Net realized and unrealized gains (losses) on investments

    (0.68     (0.06     (0.37
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.40     0.25        (0.16

Distributions to shareholders from

     

Net investment income

    (0.19     (0.19     (0.19

Tax basis return of capital

    (0.02     0.00        0.00   
 

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.21     (0.19     (0.19

Net asset value, end of period

    $9.10        $9.71        $9.65   

Total return2

    (4.35 )%      2.61     (1.51 )% 

Ratios to average net assets (annualized)

     

Gross expenses

    2.37     2.25     2.60

Net expenses

    1.65     1.65     1.65

Net investment income

    3.02     3.25     3.01

Supplemental data

     

Portfolio turnover rate

    53     51     39

Net assets, end of period (000s omitted)

    $711        $835        $518   

 

 

 

 

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

 

2  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 Strategic Income Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     20131  

Net asset value, beginning of period

    $9.74        $9.66        $10.00   

Net investment income

    0.37        0.39        0.28   

Net realized and unrealized gains (losses) on investments

    (0.70     (0.05     (0.37
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.33     0.34        (0.09

Distributions to shareholders from

     

Net investment income

    (0.22     (0.26     (0.25

Tax basis return of capital

    (0.03     0.00        0.00   
 

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.25     (0.26     (0.25

Net asset value, end of period

    $9.16        $9.74        $9.66   

Total return2

    (3.51 )%      3.63     (0.85 )% 

Ratios to average net assets (annualized)

     

Gross expenses

    1.56     1.46     1.79

Net expenses

    0.75     0.75     0.75

Net investment income

    3.92     4.18     3.90

Supplemental data

     

Portfolio turnover rate

    53     51     39

Net assets, end of period (000s omitted)

    $496        $554        $496   

 

 

 

 

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

 

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

 

22   Wells Fargo Strategic Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2015     2014     20131  

Net asset value, beginning of period

    $9.71        $9.66        $10.00   

Net investment income

    0.40        0.41 2      0.29   

Net realized and unrealized gains (losses) on investments

    (0.71     (0.07     (0.36
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.31     0.34        (0.07

Distributions to shareholders from

     

Net investment income

    (0.23     (0.29     (0.27

Tax basis return of capital

    (0.03     0.00        0.00   
 

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.26     (0.29     (0.27

Net asset value, end of period

    $9.14        $9.71        $9.66   

Total return3

    (3.28 )%      3.60     (0.66 )% 

Ratios to average net assets (annualized)

     

Gross expenses

    1.19     1.14     1.52

Net expenses

    0.60     0.60     0.60

Net investment income

    4.04     4.25     4.05

Supplemental data

     

Portfolio turnover rate

    53     51     39

Net assets, end of period (000s omitted)

    $17,564        $38,664        $23,338   

 

 

 

 

1  For the period from January 31, 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

 

Notes to financial statements   Wells Fargo Strategic 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 Strategic 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).

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.

Futures that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price.

Non-listed swaps are valued at the evaluated price provided by an independent pricing service or, if a reliable price is not available, the quoted bid price from an independent broker-dealer.

The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).

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 at net asset value when available.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. 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.

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


Table of Contents

 

24   Wells Fargo Strategic Income Fund   Notes to financial statements

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”). 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 fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

When-issued transactions

The Fund may purchase securities on a forward commitment or when-issued basis. The Fund records a when-issued transaction on the trade date and will segregate assets in an amount at least equal in value to the Fund’s commitment to purchase when-issued securities. Securities purchased on a when-issued basis are marked-to-market daily and the Fund begins earning interest on the settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

Loans

The Fund may invest in direct debt instruments which are interests in amounts owed to lenders by corporate or other borrowers. The loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. Investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When the Fund purchases participations, it generally has no rights to enforce compliance with terms of the loan agreement with the borrower. As a result, the Fund assumes the credit risk of both the borrower and the lender that is selling the participation. When the Fund purchases assignments from lenders, it acquires direct rights against the borrower on the loan and may enforce compliance by the borrower with the terms of the loan agreement. Loans may include fully funded term loans or unfunded loan commitments, which are contractual obligations for future funding.


Table of Contents

 

Notes to financial statements   Wells Fargo Strategic Income Fund     25   

Futures contracts

The Fund is subject to interest rate risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in security values and interest rates. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market.

The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.

Credit default swaps

The Fund is subject to credit risk in the normal course of pursuing its investment objectives. The Fund may enter into credit default swap contracts for hedging or speculative purposes to provide or receive a measure of protection against default on a referenced entity, obligation or index or for investment gains. Credit default swaps involve an exchange of a stream of payments for protection against the loss in value of an underlying security or index. Under the terms of the swap, one party acts as a guarantor (referred to as the seller of protection) and receives a periodic stream of payments, provided that there is no credit event, from another party (referred to as the buyer of protection) that is a fixed percentage applied to a notional principal amount over the term of the swap. An index credit default swap references all the names in the index, and if a credit event is triggered, the credit event is settled based on that name’s weight in the index. A credit event includes bankruptcy, failure to pay, obligation default, obligation acceleration, repudiation/moratorium, and restructuring. The Fund may enter into credit default swaps as either the seller of protection or the buyer of protection. As the seller of protection, the Fund is subject to investment exposure on the notional amount of the swap and has assumed the risk of default of the underlying security or index. As the buyer of protection, the Fund could be exposed to risks if the seller of the protection defaults on its obligation to perform, or if there are unfavorable changes in the fluctuation of interest rates. The maximum potential amount of future payments (undiscounted) that the Fund as the seller of protection could be required to make under the credit default swap contract would be an amount equal to the notional amount of the swap contract. The Fund’s maximum risk of loss from counterparty risk, either as the protection seller or as the protection buyer, is the fair value of the contract. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.

If the Fund is the seller of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will pay to the buyer of protection the notional amount of the swap and take delivery of the referenced obligation or underlying securities comprising the referenced index. If the Fund is the buyer of protection and a credit event occurs, as defined under the terms of that particular swap agreement, the Fund will receive from the seller of protection the notional amount of the swap and deliver the referenced obligation or underlying securities comprising the referenced index.

Any premiums paid or received on the transactions are recorded as an asset or liability on the Statement of Assets and Liabilities and amortized. The value of the swap contract is marked-to-market daily based on quotations from an independent pricing service or an independent broker-dealer and any change in value is recorded as an unrealized gain or loss. Periodic payments made or received are recorded as realized gains or losses. In addition, payments received or made as a result of a credit event or termination of the contract are recognized as realized gains or losses.

Certain credit default swap contracts entered into by the Fund provide for conditions that result in events of default or termination that enable the counterparty to the agreement to cause an early termination of the transactions under those agreements. Any election by the counterparty to terminate early may impact the amounts reported on the financial statements.

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.

Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful


Table of Contents

 

26   Wells Fargo Strategic Income Fund   Notes to financial statements

based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.

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 foreign currency transactions and swaps. At October 31, 2015, 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

$(452,844)    $452,844

As of October 31, 2015, the Fund had capital loss carryforwards which consist of $497,909 in short-term capital losses and $656,818 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:

 

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)


Table of Contents

 

Notes to financial statements   Wells Fargo Strategic Income Fund     27   

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, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Asset-backed securities

   $ 0       $ 300,684       $ 0       $ 300,684   

Corporate bonds and notes

     0         7,349,436         0         7,349,436   

Foreign government bonds

     0         2,857,404         0         2,857,404   

Loans

     0         3,695,779         242,048         3,937,827   

Municipal obligations

     0         531,923         0         531,923   

Non-agency mortgage-backed securities

     0         1,354,915         0         1,354,915   

Yankee corporate bonds and notes

     0         980,958         0         980,958   

Short-term investments

           

Investment companies

     1,849,610         0         0         1,849,610   

U.S. Treasury securities

     209,993         0         0         209,993   
     2,059,603         17,071,099         242,048         19,372,750   

Credit default swap contracts

     0         31,386         0         31,386   

Futures contracts

     8,477         0         0         8,477   

Total assets

   $ 2,068,080       $ 17,102,485       $ 242,048       $ 19,412,613   

Liabilities

           

Forward foreign currency contracts

   $ 0       $ 44,898       $ 0       $ 44,898   

Futures contracts

     6,084         0         0         6,084   

Total liabilities

   $ 6,084       $ 44,898       $ 0       $ 50,982   

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. Futures contracts are reported at their variation margin at measurement date, which represents the amount due from the Fund at that date. Swap contracts consists of unrealized gains and premiums paid on swap contracts, 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. At October 31, 2015, the Fund did not have any transfers into/out of Level 1 or Level 2.

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

     Loans  

Balance as of October 31, 2014

   $ 1,127,246   

Accrued discounts (premiums)

     (328

Realized gains (losses)

     658   

Change in unrealized gains (losses)

     6,588   

Purchases

     60,175   

Sales

     (519,737

Transfers into Level 3

     63,765   

Transfers out of Level 3

     (496,319

Balance as of October 31, 2015

   $ 242,048   

Change in unrealized gains (losses) relating to securities still held at October 31, 2015

   $ (1,864


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28   Wells Fargo Strategic Income Fund   Notes to financial statements

The investment type categorized above was valued using indicative broker quotes. These indicative broker quotes are considered Level 3 inputs. Quantitative unobservable inputs used by the brokers are often proprietary and not provided to the Fund and therefore the disclosure that would address these inputs is not included above.

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 applicable 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 0.525% and declining to 0.405% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.475% and declined to 0.375% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, the management fee was equivalent to an annual rate of 0.525% 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. WellsCap, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is a subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.30% and declining to 0.15% as the average daily net assets of the Fund increase. First International Advisors, LLC, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is also a 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.

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

     0.16

Administrator Class

     0.10   

Institutional Class

     0.08   

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 29, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.90% for Class A shares, 1.65% for Class C shares, 0.75% for Administrator Class shares, and 0.60% 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.


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Notes to financial statements   Wells Fargo Strategic Income Fund     29   

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, 2015, Funds Distributor received $29 from the sale of Class A shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund is 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 short-term securities, for the year ended October 31, 2015 were as follows:

 

Purchases at cost

     Sales proceeds
U.S.
government
     Non-U.S.
government
     U.S.
government
     Non-U.S.
government
$228,167      $15,748,263      $227,134      $33,719,095

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into futures contracts to manage duration exposure.

At October 31, 2015, the Fund had long and short futures contracts outstanding as follows:

 

Expiration date   Counterparty   Contracts   Type  

Contract

value at

October 31, 2015

    Unrealized
gains (losses)
 
12-21-2015   JPMorgan   65 Short   10-Year U.S. Treasury Notes   $ 8,299,688      $ 63,752   
12-21-2015   JPMorgan   1 Short   U.S. Treasury Bonds     156,438        (2,064
12-31-2015   JPMorgan   14 Long   5-Year U.S. Treasury Notes     1,676,828        (4,027

The Fund had an average notional amount of $1,410,978 in long futures contracts and $15,066,258 in short futures contracts during the year ended October 31, 2015.

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.

At October 31, 2015, the Fund had forward foreign currency contracts outstanding as follows:

Forward foreign currency contracts to buy:

 

Exchange date   Counterparty   Contracts to
receive
    

U.S. value at

October 31, 2015

   

In exchange

for U.S. $

    Unrealized
losses
 
11-5-2015   State Street Bank     2,000,000  MXN       $ 121,073      $ 121,419      $ (346
11-5-2015   State Street Bank     6,375,000  ZAR         460,499        470,708        (10,209


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30   Wells Fargo Strategic Income Fund   Notes to financial statements

Forward foreign currency contracts to sell:

 

Exchange date   Counterparty   Contracts to
deliver
    U.S. value at
October 31, 2015
    In exchange
for U.S. $
    Unrealized
losses
 
11-5-2015   State Street Bank     2,000,000   PLN    $ 517,518      $ 516,328      $ (1,190
11-5-2015   State Street Bank     1,570,000   BRL      406,982        388,325        (18,657
11-5-2015   State Street Bank     6,375,000   ZAR      460,499        458,468        (2,031
11-5-2015   State Street Bank     8,240,000   MXN      498,820        487,646        (11,174
11-23-2015   State Street Bank     1,650,000   BRL      425,140        423,849        (1,291

The Fund had average contract amounts of $1,063,731 and $6,412,336 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

The Fund enters into credit default swap contracts as a substitute for taking a position in the underlying security or basket of securities or to potentially enhance the Fund’s total return. At October 31, 2015, the Fund had the following credit default swap contracts outstanding:

Credit default swaps on an index – Buy protection

 

Expiration   Counterparty   Reference index  

Notional

amount

    Fixed
payments
made
    Value     Premiums
paid
   

Unrealized

gains

 
6-6-2020   JPMorgan   Markit CDX North America
High Yield Index
  $ 495,000        5.00   $ 31,386      $ 29,950      $ 1,436   

The Fund had an average notional balance on credit default swaps of $138,329 during the year ended October 31, 2015.

The Fund’s credit default swap transactions may contain provisions for early termination in the event the net assets of the Fund declines below specific levels identified by the counterparty. If these levels are triggered, the counterparty may terminate the transaction and seek payment or request full collateralization of the derivative transactions in net liability positions. As of October 31, 2015, the Fund had segregated $60,937 as cash collateral for outstanding credit default swap transactions.

A summary of derivative instruments by primary risk exposure is outlined in the following tables.

The fair value of derivative instruments as of October 31, 2015 was as follows for the Fund:

 

    

Asset derivatives

    

Liability derivatives

 
     Statement of Assets and
Liabilities location
   Fair value      Statement of Assets and
Liabilities location
   Fair value  

Interest rate contracts

   Receivable for daily variation margin on open futures contracts    $ 8,477   

Payable for daily variation

margin on open futures

contracts

   $ 6,084

Forward foreign currency contracts

   Unrealized gains on forward foreign currency contracts      0       Unrealized losses on forward foreign currency contracts      44,898   

Credit contracts

   Unrealized gains and premiums paid on credit default swap transactions      31,386       Unrealized losses and premiums received on credit default swap transactions      0   
          $ 39,863            $ 50,982   

 

* Only the current day’s variation margin as of October 31, 2015 is reported separately on the Statement of Assets and Liabilities.


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Notes to financial statements   Wells Fargo Strategic Income Fund     31   

The effect of derivative instruments on the Statement of Operations for the year ended October 31, 2015 was as follows for the Fund:

 

       Amount of realized gains (losses) on derivatives  
       Futures
contracts
      

Forward

currency
contracts

       Credit
default
swaps
 

Interest rate contracts

     $ (614,950      $ 0         $ 0   

Forward foreign currency contracts

       0           740,294           0   

Credit contracts

       0           0           2,320   
       $ (614,950      $ 740,294         $ 2,320   
       Change in unrealized gains (losses) on derivatives  
      

Futures

contracts

      

Forward

currency

contracts

      

Credit

default

swaps

 

Interest rate contracts

     $ 169,920         $ 0         $ 0   

Forward foreign currency contracts

       0           (231,831        0   

Credit contracts

       0           0           1,436   
       $ 169,920         $ (231,831      $ 1,436   

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

 

Credit default swaps

     JPMorgan      $31,386*      $ 0         $ 0         $ 31,386   

Futures - variation margin

     JPMorgan      8,477        (6,084        0           2,393   
* The value of swap contracts consists of unrealized gains and premiums paid on swap contracts as reflected on the Statement of Assets and Liabilities.

 

Derivative type      Counterparty     

Gross amounts

of liabilities in the

Statement of

Assets and

Liabilities

    

Amounts

subject to

netting

agreements

      

Collateral

pledged

      

Net amount

of liabilities

 

Futures – variation margin

     JPMorgan      $6,084      $ (6,084      $ 0         $ 0   

Forward foreign currency contracts

     State Street Bank      44,898**        0           0           44,898   
** Amount represents net unrealized losses.


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32   Wells Fargo Strategic Income Fund   Notes to financial statements

7. BANK BORROWINGS

The Trust (excluding the money market funds) and Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $71 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:

 

     Year ended October 31,  
     2015      2014  

Ordinary income

   $ 984,146       $ 893,748   

Long-term capital gain

     0         1,943   

Tax basis return of capital

     111,450         0   

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Unrealized

losses

  

Capital loss

carryforward

$(1,346,864)    $(1,154,727)

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.


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Report of independent registered public accounting firm   Wells Fargo Strategic Income Fund     33   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Strategic Income Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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 two-year period then ended and the period from January 31, 2013 (commencement of operations) to October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2015, 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 Strategic Income Fund as of October 31, 2015, 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 two-year period then ended and the period from January 31, 2013 (commencement of operations) to October 31, 2013, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

December 22, 2015


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34   Wells Fargo Strategic Income Fund   Other information (unaudited)

TAX INFORMATION

For the fiscal year ended October 31, 2015, $805,681 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.


Table of Contents

 

Other information (unaudited)   Wells Fargo Strategic Income Fund     35   

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 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   Other public company
or investment company
directorships during
past 5 years
William R. Ebsworth
(Born 1957)
  Trustee, since 2015**   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director at Fidelity Management and Research Company and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. in Boston, Tokyo, and Hong Kong where he led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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


Table of Contents

 

36   Wells Fargo Strategic Income Fund   Other information (unaudited)

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Other public company
or investment company
directorships during
past 5 years
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
Donald C. Willeke
(Born 1940)
  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    
Nancy Wiser1
(Born 1967)
  Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
C. David Messman
(Born 1960)
  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013.    
Debra Ann Early
(Born 1964)
 

Chief Compliance

Officer, since 2007

  Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
David Berardi
(Born 1975)
  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)
  Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Fund Administration from 2005 to 2010.    

 

 

1 Nancy Wiser acts as Treasurer of 72 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com.


Table of Contents

 

Other information (unaudited)   Wells Fargo Strategic Income Fund     37   

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Strategic Income Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; (iii) an investment sub-advisory agreement with Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management; and (iv) an investment sub-advisory agreement with First International Advisors, LLC (“FIA”), an affiliate of Funds Management. The Management Agreement combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The sub-advisory agreements with WellsCap and FIA (the “Sub-Advisers” are collectively referred to as the Sub-Advisory Agreements, and the Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of each of the Sub-Advisory Agreements for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to the Fund.


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38   Wells Fargo Strategic Income Fund   Other information (unaudited)

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 through the period ended March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper to select the mutual funds in the performance Universe. The Board noted the limited operating history of the Fund, which commenced operations in 2013. The Board noted that the performance of the Fund (Administrator Class) was lower than the average performance of the Universe for the one-year period under review and for the first quarter 2015. The Board also noted that the performance of the Fund was lower than its benchmark, the Barclays U.S. Universal Bond Index, for the one-year period under review and for the first quarter 2015. The Board also noted that the Fund experienced a portfolio manager change in 2015.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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 Agreement and Sub-Advisory Agreements and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to the Sub-Advisers for investment sub-advisory services (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were lower than the 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 advisory fee that was retained by Funds Management after payment of the fee to the Sub-Advisers 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-Advisers, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Advisers, the Board ascribed limited relevance to the allocation of the advisory fee 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-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.


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Other information (unaudited)   Wells Fargo Strategic Income Fund     39   

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 Advisory 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 received and considered information concerning the profitability of the Sub-Advisers from providing services to the fund family as a whole, noting that the Sub-Advisers’ profitability information with respect to providing services to the Fund was subsumed in the Wells Fargo 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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-Advisers

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Advisers, 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 the WellsCap, 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 the Sub-Advisers, 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of each of the Sub-Advisory Agreements for a one-year term through May 31, 2016. The Board also determined that the compensation payable to Funds Management and the Sub-Advisers under each of the Advisory Agreements was reasonable.


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40   Wells Fargo Strategic Income Fund   List of abbreviations

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

ACA —  ACA Financial Guaranty Corporation
ADR —  American depositary receipt
ADS —  American depositary shares
AGC —  Assured Guaranty Corporation
AGM —  Assured Guaranty Municipal
Ambac —  Ambac Financial Group Incorporated
AMT —  Alternative minimum tax
AUD —  Australian dollar
BAN —  Bond anticipation notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazilian real
CAB —  Capital appreciation bond
CAD —  Canadian dollar
CCAB —  Convertible capital appreciation bond
CDA —  Community Development Authority
CDO —  Collateralized debt obligation
CHF —  Swiss franc
COP —  Colombian peso
CLP —  Chilean peso
DKK —  Danish krone
DRIVER —  Derivative inverse tax-exempt receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-traded fund
EUR —  Euro
FDIC —  Federal Deposit Insurance Corporation
FFCB —  Federal Farm Credit Banks
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Administration
FHLB —  Federal Home Loan Bank
FHLMC —  Federal Home Loan Mortgage Corporation
FICO —  The Financing Corporation
FNMA —  Federal National Mortgage Association
FSA —  Farm Service Agency
GBP —  Great British pound
GDR —  Global depositary receipt
GNMA —  Government National Mortgage Association
GO —  General obligation
HCFR —  Healthcare facilities revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher education facilities authority revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong dollar
HUD —  Department of Housing and Urban Development
HUF —  Hungarian forint
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Indonesian rupiah
IEP —  Irish pound
JPY —  Japanese yen
KRW —  Republic of Korea won
LIBOR —  London Interbank Offered Rate
LIFER —  Long Inverse Floating Exempt Receipts
LIQ —  Liquidity agreement
LLC —  Limited liability company
LLLP —  Limited liability limited partnership
LLP —  Limited liability partnership
LOC —  Letter of credit
LP —  Limited partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multifamily housing revenue
MSTR —  Municipal securities trust receipts
MTN —  Medium-term note
MUD —  Municipal Utility District
MXN —  Mexican peso
MYR —  Malaysian ringgit
National —  National Public Finance Guarantee Corporation
NGN —  Nigerian naira
NOK —  Norwegian krone
NZD —  New Zealand dollar
PCFA —  Pollution Control Financing Authority
PCL —  Public Company Limited
PCR —  Pollution control revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable floating option tax-exempt receipts
plc —  Public limited company
PLN —  Polish zloty
PUTTER —  Puttable tax-exempt receipts
R&D —  Research & development
Radian —  Radian Asset Assurance
RAN —  Revenue anticipation notes
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real estate investment trust
ROC —  Reset option certificates
RON —  Romanian lei
RUB —  Russian ruble
SAVRS —  Select auction variable rate securities
SBA —  Small Business Authority
SDR —  Swedish depositary receipt
SEK —  Swedish krona
SFHR —  Single-family housing revenue
SFMR —  Single-family mortgage revenue
SGD —  Singapore dollar
SPA —  Standby purchase agreement
SPDR —  Standard & Poor’s Depositary Receipts
SPEAR —   Short Puttable Exempt Adjustable Receipts
STRIPS —  Separate trading of registered interest and
           principal securities
TAN —  Tax anticipation notes
TBA —  To be announced
THB —  Thai baht
TIPS —  Treasury inflation-protected securities
TRAN —  Tax revenue anticipation notes
TRY —  Turkish lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
ZAR —  South African rand
 


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For more information

More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238504 12-15

A263/AR263 10-15


Table of Contents

Annual Report

October 31, 2015

 

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Wells Fargo Asia Pacific 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

    13   

Statement of operations

    14   

Statement of changes in net assets

    15   

Financial highlights

    16   

Notes to financial statements

    20   

Report of independent registered public accounting firm

    26   

Other information

    27   

List of abbreviations

    33   

 

The views expressed and any forward-looking statements are as of October 31, 2015, 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 Asia Pacific Fund   Letter to shareholders (unaudited)

 

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Karla M. Rabusch

President

Wells Fargo Funds

 

 

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery.

 

 

 

 

Other major central banks, including the European Central Bank and the Bank of Japan, also maintained easy monetary policy in order to support their respective economies.

 

 

Dear Valued 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, 2015. The period was marked by continued low global interest rates and sluggish economic recoveries in developed markets. However, the expectation that the U.S. Federal Reserve (Fed) would soon raise its key interest rate, combined with signs of further quantitative easing from other central banks, depressed the prices of international assets for U.S. dollar-based investors.

The Fed showed signs of raising its key rate, but other central banks continued to maintain an easy monetary policy.

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery. For example, the U.S. unemployment rate eased from 5.8% at the beginning of the reporting period (November 2014) to 5.0% at the end (October 2015). Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero.

As the period progressed, various comments by Fed Chair Janet Yellen led investors to believe that the FOMC would soon raise its key federal funds rate. The FOMC remained on hold at its September 2015 meeting, however, citing concerns about a weaker global economy and subdued U.S. inflation. The FOMC’s decision caused some uncertainty, but by the end of the period, most investors expected a modest Fed rate hike in late 2015 or early 2016.

In contrast, the People’s Bank of China (PBOC) continued to take several steps to support the slowing Chinese economy. In October 2015, the PBOC cut its benchmark one-year lending and deposit rates for the sixth time since November 2014 and trimmed the percentage of deposits that large banks need to hold as reserves for the fourth time. The moves were aimed at supporting the economy by encouraging lending. The PBOC’s actions tended to put pressure on the yuan versus foreign currencies, pressure that was only reinforced when the PBOC officially devalued the currency in August.

Other major central banks, including the European Central Bank and the Bank of Japan, also maintained easy monetary policy in order to support their respective economies. The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies, including most emerging markets currencies.

The year was a difficult one for emerging markets investing, marked by slower growth in China and a stronger dollar that depressed the returns of international assets.

Emerging markets faced a number of internal and external headwinds during the past 12 months. Internal factors included not only an economic slowdown in China—with the country’s annual growth rate dipping below 7% for the first time since 2009—but also persistent low prices for oil, natural gas, and industrial metals such as copper. Low oil and commodity prices weakened the economies of commodity producers, including Brazil, which also grappled with a political scandal involving corruption at its state-owned oil firm. Among external factors, global investors continued to worry about the timing of the first rate hike in the U.S. since 2006. The prospect for a U.S. rate hike led to a stronger U.S. dollar; given that many emerging markets have issued U.S. dollar-denominated debt, dollar strength could make it more difficult for emerging countries to repay their creditors.

 


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

As measured in local currency, the Morgan Stanley Capital International (MSCI) Emerging Markets Index (Net)1 lost 3.47% for the 12-month period, reflecting the headwinds in emerging markets. However, in U.S. dollar terms—the relevant return for U.S. dollar-based investors—the index declined 14.53% for the reporting period. This difference in returns highlights the dollar’s strength during the reporting period.

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

 

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

1  The Morgan Stanley Capital International (MSCI) Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index. 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.


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4   Wells Fargo Asia Pacific Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term total 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, 20151

 

        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     (6.62     3.65        5.20        (0.95     4.89        5.83        1.67        1.61   
Class C (WFCAX)   7-31-2007     (2.71     4.11        5.03        (1.71     4.11        5.03        2.42        2.36   
Administrator Class (WFADX)   7-30-2010                          (0.83     5.11        5.93        1.59        1.41   
Institutional Class (WFPIX)   7-30-2010                          (0.65     5.27        6.02        1.34        1.26   
MSCI AC Asia Pacific Index (Net)4                            (2.91     3.36        4.47                 

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. 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 Asia Pacific Fund     5   
Growth of $10,000 investment as of October 31, 20155
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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 29, 2016, 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, 1.40% 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. You cannot invest directly in an index. 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.

 

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.

 

* This security was not held in the Fund at the end of the reporting period.


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6   Wells Fargo Asia Pacific Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed its benchmark, the MSCI AC Asia Pacific Index (Net) , for the 12-month period that ended October 31, 2015.

 

n   Overall stock selection contributed to relative returns for the period, led by the industrials and financials sectors. Stock selection in consumer staples and telecommunication services detracted from relative returns.

 

n   Among countries, strong stock selection helped the Fund’s relative outperformance in China/Hong Kong, Taiwan, and the Philippines. Unfavorable stock selection in Japan, India, and Indonesia detracted from relative performance.

The Fund outperformed its benchmark during a volatile market.

During the 12-month period, returns in Asian markets fluctuated according to factors that included fears of slowing Chinese growth, the pace of reforms in India and Indonesia, and concerns about the effect of rising interest rates in the United States. From a sector perspective, holdings in the industrials and financials sectors contributed for the reporting period, but stock selection in the consumer staples and telecommunication services sectors detracted.

In the industrials sector, the Fund benefited from investments in airlines such as Japan Airlines Company, Limited, and Air New Zealand Limited and aerospace companies including AviChina Industry & Technology Company, Limited, and Korea Aerospace Industries, Limited. The banking industry was a key driver in the financials sector, with the Fund benefiting from investments in Bank of China Limited while avoiding Australian banks that underperformed. In the consumer staples sector, the Fund’s investments in the tobacco industry detracted, with notable weakness in Indonesia’s clove cigarette manufacturer PT Gudang Garam Tbk.* In telecommunication services, the Fund experienced declines in several wireless telecommunications holdings, including Japan’s SoftBank Group Corporation.

 

Ten largest holdings (%) as of October 31, 20156  

Resona Holdings Incorporated

     2.87   

Mitsui Fudosan Company Limited

     2.77   

Sumitomo Mitsui Trust Holdings Incorporated

     2.40   

Japan Airlines Company Limited

     2.18   

China Mobile Limited

     1.96   

ORIX Corporation

     1.91   

China Construction Bank H Shares

     1.89   

Mitsubishi UFJ Financial Group Incorporated

     1.83   

Industrial & Commercial Bank of China Limited H Shares

     1.65   

Alibaba Group Holding Limited ADR

     1.61   

Looking at individual countries, notable areas of success included China/Hong Kong, Australia, and Taiwan. In China/Hong Kong, stock selection in the consumer discretionary and materials sectors was quite strong on a relative basis. The Fund also benefited from an overweight to the country as a whole. In Australia, an average underweight of approximately 9% drove relative outperformance in the worst-performing developed market in the index. In Taiwan, the Fund benefited from positive contributions from holdings in the information technology (IT) and consumer staples sectors. An underweight to Japan coupled with weak stock selection led to relative underperformance in that market. Unfavorable stock selection and portfolio weights also led to relative underperformance in India and Indonesia.

 

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Asia Pacific Fund     7   
Sector distribution as of October 31, 20157
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Country allocation as of October 31, 20157

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Our investment outlook on the Asia Pacific region remains positive.

China has entered into an easing cycle, with further reduction in interest rates and reserve requirement ratios and more targeted quantitative measures most likely in store for the rest of the year. We have become more cautious on China following the government’s poor handling of stock market intervention and of the Tianjin explosions. As we do expect China’s stock market volatility to persist, we will exercise caution with regards to A-share and H-share exposure. (China’s A shares are traded on mainland exchanges, while the H shares are traded in Hong Kong.) The inclusion of China’s A shares in MSCI indexes may well be delayed following the controversial market intervention, but that will not deter us from looking for attractively valued, high-return opportunities in the domestic market. We continue to prefer secular growth sectors, companies that benefit from reform of state-owned enterprises, and companies delivering rising profitability on lower commodity and financing costs.

We are underweight South Korea and are monitoring the two main issues of its currency and the state of its IT sector. We will look for sustainable earnings stories in South Korea in order to selectively increase our exposure. The Indian market remained quite resilient despite a sell-off in the rest of emerging Asia. We see some positive signs in India, such as an easing of inflation and increasing tax receipts. The Indonesian market will likely move in line with government policy actions because government reform remains an important theme in the market. In both India and Indonesia, the sustained decline in the oil price is particularly helpful to government budgets as well as to consumption trends.

In Japan, the economic reforms initiated by Prime Minister Shinzō Abe remain a factor in supporting improving corporate attitudes toward reinvestment. Further catalysts in Japan include strong earnings momentum and corporate governance. In the current environment, we favor exposure to services and materials that boost efficiency as well as services that meet the needs of the aging population. We also like companies that stand to benefit from improved consumption, including tourism, and globally competitive companies that can benefit from a weaker yen. We are selective on stocks that provide value-added services with stable cash flow in New Zealand. In Australia, we are sticking with nonexport and noncommodity businesses. Overall, we expect pockets of strong performance led by north Asia, but selectivity in stocks and countries is crucial.

We maintain our view that while all countries face some sort of challenge, some seem to be fundamentally attractive but others seem to have more fundamentally attractive but others have more serious structural problems. We believe that market corrections allow the markets to clear and reset where necessary. This type of market requires close scrutiny of company fundamentals but also can lead to longer-term opportunities.

 

 

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, 2015 to October 31, 2015.

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
5-1-2015
     Ending
account value
10-31-2015
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 887.57       $ 7.61         1.60

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.14       $ 8.13         1.60

Class C

           

Actual

   $ 1,000.00       $ 884.10       $ 11.16         2.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.36       $ 11.93         2.35

Administrator Class

           

Actual

   $ 1,000.00       $ 887.88       $ 6.66         1.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.15       $ 7.12         1.40

Institutional Class

           

Actual

   $ 1,000.00       $ 888.64       $ 5.95         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.90       $ 6.36         1.25

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo Asia Pacific Fund     9   

    

 

 

Security name             Shares      Value  

Common Stocks: 95.59%

          
Australia: 3.49%           

AMP Limited (Financials, Insurance)

          348,157       $ 1,412,058   

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

          681,600         1,304,899   

Medibank Private Limited (Financials, Insurance)

          511,627         858,328   

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

          676,700         1,587,605   

Suncorp Group Limited (Financials, Insurance)

          69,300         643,766   
             5,806,656   
          

 

 

 
China: 19.15%           

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

          32,000         2,682,560   

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

          975,000         794,579   

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

          13,060         2,448,358   

Bank of China Limited H Shares (Financials, Banks)

          1,380,000         650,755   

Beijing Enterprises Water Group Limited (Utilities, Water Utilities)

          1,222,000         967,850   

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

          216,500         1,346,134   

China Construction Bank H Shares (Financials, Banks)

          4,335,000         3,141,817   

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

          228,000         822,187   

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

          1,470,000         1,343,941   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          271,500         3,255,254   

China Pacific Insurance H Shares (Financials, Insurance)

          204,400         814,206   

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

          1,624,000         1,170,651   

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

          666,000         1,010,588   

CRRC Corporation Limited H Shares (Industrials, Machinery) «

          937,000         1,191,130   

Dalian Wanda Commercial Properties Company Limited H Shares (Financials, Real Estate Management & Development) 144A

          137,000         914,361   

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

          4,424,000         1,373,884   

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

          4,315,000         2,737,026   

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

          1,454,000         1,138,342   

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

          281,000         1,577,323   

Zhuzhou CSR Times Electric Company Limited H Shares (Industrials, Electrical Equipment)

          132,500         857,731   

Zijin Mining Group Company Limited H Shares (Materials, Metals & Mining)

          2,778,000         743,176   

ZTE Corporation H Shares (Information Technology, Communications Equipment)

          345,000         830,792   
             31,812,645   
          

 

 

 
Hong Kong: 4.84%           

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

          579,000         932,405   

China Gas Holdings Limited (Utilities, Gas Utilities)

          844,000         1,343,240   

China Merchants Holdings International Company Limited (Industrials, Transportation Infrastructure)

          230,000         763,829   

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

          696,000         2,247,987   

China Overseas Property Holding Limited (Financials, Real Estate Management & Development) †

          232,000         39,811   

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

          1,238,000         777,998   

China Unicom Limited (Telecommunication Services, Diversified Telecommunication Services)

          530,000         645,904   

COSCO Pacific Limited (Industrials, Transportation Infrastructure) (a)

          992,241         1,283,668   
             8,034,842   
          

 

 

 
India: 7.23%           

Astra Microwave Products Limited (Information Technology, Communications Equipment)

          315,900         617,500   

Bharti Infratel Limited (Telecommunication Services, Wireless Telecommunication Services)

          136,500         811,254   

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

          333,500         1,628,865   

 

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, 2015

    

 

 

Security name             Shares      Value  
India (continued)           

HDFC Bank Limited (Financials, Banks)

          117,100       $ 1,962,091   

Hindalco Industries Limited (Materials, Metals & Mining)

          645,200         826,711   

Hindustan Zinc Limited (Materials, Metals & Mining)

          348,500         836,698   

Inox Wind Limited (Industrials, Electrical Equipment) †

          157,300         951,542   

Larsen & Toubro Limited (Industrials, Construction & Engineering)

          33,400         719,840   

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

          64,300         931,256   

Suzlon Energy Limited (Industrials, Electrical Equipment) †

          3,504,400         1,313,872   

Voltas Limited (Industrials, Construction & Engineering)

          326,400         1,409,502   
             12,009,131   
          

 

 

 
Indonesia: 4.18%           

PT Bank Rakyat Indonesia Tbk (Financials, Banks)

          1,330,400         1,018,229   

PT Blue Bird Tbk (Industrials, Road & Rail)

          2,499,700         1,053,538   

PT Hanjaya Mandala Sampoerna Tbk (Consumer Staples, Tobacco)

          253,500         1,701,869   

PT Indocement Tunggal Prakarsa Tbk (Materials, Construction Materials)

          582,800         762,256   

PT Siloam International Hospitals Tbk (Health Care, Health Care Providers & Services)

          926,300         736,260   

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

          8,509,800         1,669,517   
             6,941,669   
          

 

 

 
Japan: 34.86%           

ASICS Corporation (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          33,000         911,483   

Bridgestone Corporation (Consumer Discretionary, Auto Components)

          52,700         1,932,556   

FANUC Corporation (Industrials, Machinery)

          6,500         1,146,869   

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

          40,700         1,623,471   

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

          335,000         1,932,544   

Isuzu Motors Limited (Consumer Discretionary, Automobiles)

          135,700         1,584,911   

Japan Airlines Company Limited (Industrials, Airlines)

          96,100         3,620,388   

Japan Hotel REIT Investment Corporation (Financials, REITs)

          2,000         1,389,113   

Japan Post Holdings Company Limited (Financials, Insurance) (a)

          60,900         812,537   

Japan Rental Housing Investment Incorporated (Financials, REITs)

          2,400         1,605,520   

Kawasaki Heavy Industries Limited (Industrials, Machinery)

          406,000         1,629,598   

Kubota Corporation (Industrials, Machinery)

          129,000         1,999,687   

M3 Incorporated (Health Care, Health Care Technology)

          54,400         1,054,388   

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

          36,700         1,571,355   

Mitsubishi Electric Corporation (Industrials, Electrical Equipment)

          137,000         1,426,819   

Mitsubishi UFJ Financial Group Incorporated (Financials, Banks)

          469,400         3,035,859   

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

          169,000         4,599,106   

Nagoya Railroad Company Limited (Industrials, Road & Rail)

          504,000         2,082,929   

NTT DOCOMO Incorporated (Telecommunication Services, Wireless Telecommunication Services)

          55,100         1,073,099   

ORIX Corporation (Financials, Diversified Financial Services)

          216,800         3,166,097   

Otsuka Corporation (Information Technology, IT Services)

          23,200         1,121,483   

Panasonic Corporation (Consumer Discretionary, Household Durables)

          139,700         1,639,064   

Resona Holdings Incorporated (Financials, Banks)

          900,600         4,765,366   

Sekisui House Limited (Consumer Discretionary, Household Durables)

          141,700         2,358,797   

SoftBank Group Corporation (Telecommunication Services, Wireless Telecommunication Services)

          36,800         2,061,827   

Sumitomo Mitsui Trust Holdings Incorporated (Financials, Banks)

          1,038,000         3,984,412   

Toyota Motor Corporation (Consumer Discretionary, Automobiles)

          36,900         2,260,657   

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

          142,000         1,525,012   
             57,914,947   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Asia Pacific Fund     11   

    

 

 

Security name             Shares      Value  
Malaysia: 1.19%           

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

          1,282,600       $ 1,884,735   

Media Prima Berhad (Consumer Discretionary, Media)

          283,700         91,793   
             1,976,528   
          

 

 

 
New Zealand: 1.26%           

Air New Zealand Limited (Industrials, Airlines)

          491,200         966,211   

SKYCITY Entertainment Group Limited (Consumer Discretionary, Hotels, Restaurants & Leisure)

          415,800         1,127,944   
             2,094,155   
          

 

 

 
Philippines: 1.57%           

ABS-CBN Holdings Corporation (Consumer Discretionary, Media)

          656,550         945,461   

Metro Pacific Investments Corporation (Financials, Diversified Financial Services)

          15,024,600         1,669,922   
             2,615,383   
          

 

 

 
Singapore: 4.20%           

City Developments Limited (Financials, Real Estate Management & Development)

          131,000         741,370   

First Resources Limited (Consumer Staples, Food Products)

          649,000         869,379   

Mapletree Commercial Trust (Financials, REITs)

          1,311,600         1,281,544   

Singapore Post Limited (Industrials, Air Freight & Logistics)

          880,800         1,188,943   

Singapore Technologies Engineering Limited (Industrials, Aerospace & Defense)

          322,000         758,947   

Singapore Telecommunications Limited (Telecommunication Services, Diversified Telecommunication Services)

          752,800         2,138,895   
             6,979,078   
          

 

 

 
South Korea: 6.60%           

Hana Financial Group Incorporated (Financials, Banks)

          51,790         1,259,480   

KB Financial Group Incorporated (Financials, Banks)

          39,500         1,251,414   

Korea Electric Power Corporation (Utilities, Electric Utilities)

          35,190         1,584,414   

LG Chem Limited (Materials, Chemicals)

          8,900         2,365,986   

Macquarie Korea Infrastructure Fund (Financials, Capital Markets)

          138,700         973,291   

POSCO (Materials, Metals & Mining)

          8,200         1,318,649   

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

          663         795,219   

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

          6,700         1,418,807   
             10,967,260   
          

 

 

 
Taiwan: 6.59%           

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

          718,000         828,898   

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

          362,598         863,012   

CTBC Financial Holding Company Limited (Financials, Banks)

          1,430,163         783,524   

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

          679,350         1,805,752   

King Yuan Electronics Company Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          1,047,000         668,180   

Merida Industry Company Limited (Consumer Discretionary, Leisure Products)

          149,000         870,853   

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

          673,000         889,194   

St. Shine Optical Company Limited (Health Care, Health Care Equipment & Supplies)

          68,000         1,026,146   

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

          387,000         1,630,689   

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

          2,180,000         795,081   

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

          761,000         794,082   
             10,955,411   
          

 

 

 

 

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, 2015

      

 

 

Security name                Shares      Value  
Thailand: 0.43%          

Major Cineplex Group PCL (Consumer Discretionary, Media)

         823,600       $ 717,835   
         

 

 

 

Total Common Stocks (Cost $158,007,318)

            158,825,540   
         

 

 

 
          Expiration date                

Participation Notes: 1.29%

         
China: 1.29%          

UBS AG (China Vanke Company Limited Class A) (Financials, Real Estate Management & Development) †

      5-4-2018         580,000         1,253,435   

UBS AG (Shanghai International Air Company Limited Class A) (Industrials, Transportation Infrastructure) †

      8-29-2016         187,382         895,215   

Total Participation Notes (Cost $2,134,359)

            2,148,650   
         

 

 

 
    Dividend yield                      
Preferred Stocks: 1.32%          
South Korea: 1.32%          

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

    1.79        2,100         2,193,407   
         

 

 

 

Total Preferred Stocks (Cost $1,559,325)

            2,193,407   
         

 

 

 
    Yield                      

Short-Term Investments: 1.26%

         
Investment Companies: 1.26%          

Securities Lending Cash Investments, LLC (l)(r)(u)

    0.14           631,800         631,800   

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16           1,464,576         1,464,576   

Total Short-Term Investments (Cost $2,096,376)

            2,096,376        
         

 

 

 

 

Total investments in securities (Cost $163,797,378) *     99.46        165,263,973   

Other assets and liabilities, net

    0.54           890,019   
 

 

 

      

 

 

 
Total net assets     100.00      $ 166,153,992   
 

 

 

      

 

 

 

 

 

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.

 

± 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 $165,189,745 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 12,884,542   

Gross unrealized losses

     (12,810,314
  

 

 

 

Net unrealized gains

   $ 74,228   

 

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


Table of Contents

 

Statement of assets and liabilities—October 31, 2015   Wells Fargo Asia Pacific Fund     13   
         

Assets

 

Investments

 

In unaffiliated securities (including $599,632 of securities loaned), at value (cost $161,701,002)

  $ 163,167,597   

In affiliated securities, at value (cost $2,096,376)

    2,096,376   
 

 

 

 

Total investments, at value (cost $163,797,378)

    165,263,973   

Foreign currency, at value (cost $1,380,621)

    1,378,286   

Receivable for investments sold

    872,435   

Receivable for Fund shares sold

    121,412   

Receivable for dividends

    428,315   

Receivable for securities lending income

    272   

Prepaid expenses and other assets

    40,137   
 

 

 

 

Total assets

    168,104,830   
 

 

 

 

Liabilities

 

Payable for investments purchased

    833,977   

Payable for Fund shares redeemed

    229,535   

Payable upon receipt of securities loaned

    631,800   

Management fee payable

    119,414   

Distribution fee payable

    2,262   

Administration fees payable

    38,287   

Accrued expenses and other liabilities

    95,563   
 

 

 

 

Total liabilities

    1,950,838   
 

 

 

 

Total net assets

  $ 166,153,992   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 276,317,492   

Undistributed net investment income

    2,254,942   

Accumulated net realized losses on investments

    (113,880,721

Net unrealized gains on investments

    1,462,279   
 

 

 

 

Total net assets

  $ 166,153,992   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 137,577,599   

Shares outstanding – Class A1

    11,540,056   

Net asset value per share – Class A

    $11.92   

Maximum offering price per share – Class A2

    $12.65   

Net assets – Class C

  $ 3,494,625   

Shares outstanding – Class C1

    309,475   

Net asset value per share – Class C

    $11.29   

Net assets – Administrator Class

  $ 14,047,571   

Shares outstanding – Administrator Class1

    1,198,483   

Net asset value per share – Administrator Class

    $11.72   

Net assets – Institutional Class

  $ 11,034,197   

Shares outstanding – Institutional Class1

    940,677   

Net asset value per share – Institutional Class

    $11.73   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

14   Wells Fargo Asia Pacific Fund   Statement of operations—year ended October 31, 2015
         

Investment income

 

Dividends (net of foreign withholding taxes of $424,584)

  $ 3,973,540   

Securities lending income, net

    25,736   

Income from affiliated securities

    6,214   
 

 

 

 

Total investment income

    4,005,490   
 

 

 

 

Expenses

 

Management fee

    1,788,721   

Administration fees

 

Class A

    25,252   

Class C

    7,416   

Administrator Class

    16,677   

Institutional Class

    3,359   

Investor Class

    469,824 1 

Shareholder servicing fees

 

Class A

    27,107   

Class C

    7,691   

Administrator Class

    35,400   

Investor Class

    366,658 1 

Distribution fee

 

Class C

    23,072   

Custody and accounting fees

    154,193   

Professional fees

    67,618   

Registration fees

    66,125   

Shareholder report expenses

    49,685   

Trustees’ fees and expenses

    19,653   

Other fees and expenses

    26,417   
 

 

 

 

Total expenses

    3,154,868   

Less: Fee waivers and/or expense reimbursements

    (237,211
 

 

 

 

Net expenses

    2,917,657   
 

 

 

 

Net investment income

    1,087,833   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    5,728,892   

Forward foreign currency contract transactions

    79,885   
 

 

 

 

Net realized gains on investments

    5,808,777   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (10,236,642
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (4,427,865
 

 

 

 

Net decrease in net assets resulting from operations

  $ (3,340,032
 

 

 

 

 

 

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

 

Statement of changes in net assets   Wells Fargo Asia Pacific Fund     15   
     Year ended
October 31, 2015
    Year ended
October 31, 2014
 

Operations

       

Net investment income

    $ 1,087,833        $ 1,447,027   

Net realized gains on investments

      5,808,777          14,500,418   

Net change in unrealized losses on investments

      (10,236,642       (4,886,948
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (3,340,032       11,060,497   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (82,320       (174,427

Class C

      (18,378       (39,188

Administrator Class

      (197,300       (357,092

Institutional Class

      (18,960       (3,952

Investor Class

      (1,661,776 )1        (4,117,147
 

 

 

 

Total distributions to shareholders

      (1,978,734       (4,691,806
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    11,260,731        136,016,227        213,375        2,569,331   

Class C

    140,676        1,691,622        91,389        1,033,884   

Administrator Class

    1,087,437        13,023,913        515,591        6,073,555   

Institutional Class

    971,690        10,822,354        32,247        390,907   

Investor Class

    3,572,603 1      44,979,487 1      2,513,982        29,455,819   
 

 

 

 
      206,533,603          39,523,496   
 

 

 

 

Reinvestment of distributions

       

Class A

    6,243        74,538        14,068        162,768   

Class C

    1,201        13,666        2,369        26,174   

Administrator Class

    16,772        196,572        29,465        334,721   

Institutional Class

    687        8,043        348        3,952   

Investor Class

    138,610 1      1,630,058 1      353,802        4,029,801   
 

 

 

 
      1,922,877          4,557,416   
 

 

 

 

Payment for shares redeemed

       

Class A

    (281,262     (3,389,825     (417,097     (4,930,591

Class C

    (42,158     (493,632     (61,548     (667,173

Administrator Class

    (1,069,973     (12,472,235     (470,899     (5,405,459

Institutional Class

    (73,533     (850,292     (1,888     (22,609

Investor Class

    (16,272,754 )1      (194,126,550 )1      (4,536,103     (52,779,516
 

 

 

 
      (211,332,534       (63,805,348
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (2,876,054       (19,724,436
 

 

 

 

Total decrease in net assets

      (8,194,820       (13,355,745
 

 

 

 

Net assets

       

Beginning of period

      174,348,812          187,704,557   
 

 

 

 

End of period

    $ 166,153,992        $ 174,348,812   
 

 

 

 

Undistributed net investment income

    $ 2,254,942        $ 1,079,573   
 

 

 

 

 

 

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

 

16   Wells Fargo Asia Pacific Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $12.18        $11.72        $10.19        $9.30        $10.15   

Net investment income

    0.04 1      0.09 1      0.12 1      0.10 1      0.08 1 

Net realized and unrealized gains (losses) on investments

    (0.16     0.67        1.79        0.79        (0.89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.12     0.76        1.91        0.89        (0.81

Distributions to shareholders from

         

Net investment income

    (0.14     (0.30     (0.38     0.00        (0.04

Net asset value, end of period

    $11.92        $12.18        $11.72        $10.19        $9.30   

Total return2

    (0.95 )%      6.61     19.24     9.57     (7.97 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.72     1.71     1.79     1.86     1.73

Net expenses

    1.60     1.60     1.60     1.60     1.60

Net investment income

    0.34     0.80     1.08     1.04     0.83

Supplemental data

         

Portfolio turnover rate

    113     113     187     163     196

Net assets, end of period (000s omitted)

    $137,578        $6,755        $8,720        $5,699        $31,000   

 

 

 

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 Asia Pacific Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.57        $11.15        $9.73        $8.98        $9.96   

Net investment income (loss)

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

Net realized and unrealized gains (losses) on investments

    (0.20     0.63        1.69        0.69        (0.86
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.20     0.64        1.74        0.78        (0.85

Distributions to shareholders from

         

Net investment income

    (0.08     (0.22     (0.32     (0.03     (0.13

Net asset value, end of period

    $11.29        $11.57        $11.15        $9.73        $8.98   

Total return3

    (1.71 )%      5.76     18.44     8.78     (8.67 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.46     2.46     2.54     2.62     2.48

Net expenses

    2.35     2.35     2.35     2.35     2.35

Net investment income (loss)

    (0.01 )%      0.12     0.37     0.92     0.18

Supplemental data

         

Portfolio turnover rate

    113     113     187     163     196

Net assets, end of period (000s omitted)

    $3,495        $2,427        $1,980        $1,673        $1,274   

 

 

 

1  Calculated based upon average shares outstanding

 

2  Amount is less than $0.005.

 

3  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

18   Wells Fargo Asia Pacific Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.99        $11.54        $10.04        $9.29        $10.15   

Net investment income

    0.11 1      0.12 1      0.14 1      0.17        0.12 1 

Net realized and unrealized gains (losses) on investments

    (0.21     0.65        1.77        0.71        (0.89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.10     0.77        1.91        0.88        (0.77

Distributions to shareholders from

         

Net investment income

    (0.17     (0.32     (0.41     (0.13     (0.09

Net asset value, end of period

    $11.72        $11.99        $11.54        $10.04        $9.29   

Total return

    (0.83 )%      6.86     19.57     9.66     (7.68 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.56     1.52     1.61     1.67     1.52

Net expenses

    1.40     1.40     1.40     1.40     1.39

Net investment income

    0.87     1.04     1.26     1.74     1.14

Supplemental data

         

Portfolio turnover rate

    113     113     187     163     196

Net assets, end of period (000s omitted)

    $14,048        $13,956        $12,577        $12,860        $13,959   

 

 

 

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 Asia Pacific Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $12.00        $11.55        $10.05        $9.30        $10.15   

Net investment income

    0.15 1      0.14 1      0.18 1      0.18        0.13   

Net realized and unrealized gains (losses) on investments

    (0.23     0.65        1.74        0.71        (0.89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.08     0.79        1.92        0.89        (0.76

Distributions to shareholders from

         

Net investment income

    (0.19     (0.34     (0.42     (0.14     (0.09

Net asset value, end of period

    $11.73        $12.00        $11.55        $10.05        $9.30   

Total return

    (0.65 )%      6.99     19.70     9.90     (7.55 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.36     1.27     1.33     1.42     1.29

Net expenses

    1.25     1.25     1.25     1.25     1.24

Net investment income

    1.27     1.15     1.62     1.86     1.30

Supplemental data

         

Portfolio turnover rate

    113     113     187     163     196

Net assets, end of period (000s omitted)

    $11,034        $502        $129        $12        $11   

 

 

 

1 Calculated based upon average shares outstanding

 

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


Table of Contents

 

20   Wells Fargo Asia Pacific 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 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. Shareholder 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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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, 2015, such fair value pricing was 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 at net asset value when available.

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

 

Notes to financial statements   Wells Fargo Asia Pacific Fund     21   

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.

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”). 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 fair valued based upon the amortized cost valuation technique. 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

 

22   Wells Fargo Asia Pacific Fund   Notes to financial statements

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 foreign currency transactions, passive foreign investment companies. At October 31, 2015, 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

$2,066,270    $(2,066,270)

As of October 31, 2015, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $113,203,545 with $32,386,341 expiring in 2016; and $80,817,204 expiring in 2017.

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:

 

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.


Table of Contents

 

Notes to financial statements   Wells Fargo Asia Pacific Fund     23   

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2015:

 

    

Quoted prices

(Level 1)

    

Other significant

observable inputs

(Level 2)

    

Significant

unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in :

           

Common stocks

           

Australia

   $ 1,587,605       $ 4,219,051       $ 0       $ 5,806,656   

China

     5,130,918         26,681,727         0         31,812,645   

Hong Kong

     39,811         6,711,363         1,283,668         8,034,842   

India

     0         12,009,131         0         12,009,131   

Indonesia

     0         6,941,669         0         6,941,669   

Japan

     0         57,914,947         0         57,914,947   

Malaysia

     91,793         1,884,735         0         1,976,528   

New Zealand

     0         2,094,155         0         2,094,155   

Philippines

     0         2,615,383         0         2,615,383   

Singapore

     0         6,979,078         0         6,979,078   

South Korea

     973,291         9,993,969         0         10,967,260   

Taiwan

     0         10,955,411         0         10,955,411   

Thailand

     717,835         0         0         717,835   

Participation notes

           

China

     0         2,148,650         0         2,148,650   

Preferred stocks

           

South Korea

     0         2,193,407         0         2,193,407   

Short-term investments

           

Investment companies

     1,464,576         631,800         0         2,096,376   

Total assets

   $ 10,005,829       $ 153,974,476       $ 1,283,668       $ 165,263,973   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $86,649,783 were transferred from Level 1 to Level 2. 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 applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.95% and declined to 0.80% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, the management fee was equivalent to an annual rate of 1.00% of the Fund’s average daily net assets.


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24   Wells Fargo Asia Pacific 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, 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  
     Current rate        Rate prior to
July 1, 2015
 

Class A, Class C

     0.21        0.26

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   

Investor Class

     0.32           0.32   

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 29, 2016 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, 1.40% for Administrator Class shares, 1.25% for Institutional Class shares, and 1.65% for Investor Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fee

The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution 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, 2015, Funds Distributor received $16,861 from the sale of Class A shares and $38 in contingent deferred sales charges from redemptions of Class C shares, respectively.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, Administrator Class, and Investor Class of the Fund is 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, 2015 were $193,827,023 and $200,450,415, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.


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Notes to financial statements   Wells Fargo Asia Pacific Fund     25   

As of October 31, 2015, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $144,315 and $142,813 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

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 Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $377 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $1,978,734 and $4,691,806 of ordinary income for the years ended October 31, 2015 and October 31, 2014, respectively.

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary income
   Unrealized
gains
   Capital loss
carryforward
$2,972,272    $67,773    $(113,203,545)

9. 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.

10. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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26   Wells Fargo Asia Pacific 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 Asia Pacific Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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, 2015, 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, 2015, 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, 2015


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Other information (unaudited)   Wells Fargo Asia Pacific Fund     27   

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $1,978,734 of income dividends paid during the fiscal year ended October 31, 2015 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, 2015. 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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28   Wells Fargo Asia Pacific 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 144 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  

Other

public company or

investment company
directorships during
past 5 years

William R. Ebsworth

(Born 1957)

  Trustee, since 2015**  

Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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 Asia Pacific Fund     29   

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

Other

public company or

investment company
directorships during
past 5 years

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

Donald C. Willeke

(Born 1940)

  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on
June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).
  Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

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 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling
1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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30   Wells Fargo Asia Pacific Fund   Other information (unaudited)

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Asia Pacific Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) 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 combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to 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


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Other information (unaudited)   Wells Fargo Asia Pacific Fund     31   

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper to select the mutual funds in the performance Universe. 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 All Country Asia Pacific Index (Net), for all periods under review except the first quarter of 2015.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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 discussed and accepted Funds Management’s proposal to increase the net operating expense ratio cap for the Administrator Class. In accepting such proposed new net operating expense ratio cap, the Board noted that the Fund’s new net operating expense ratios would still be lower than the median net operating expense ratio of the expense Groups. The Board also discussed and accepted Funds Management’s proposal to convert the Investor Class shares into Class A shares.

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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were in range of the average rates for the Fund’s expense Groups for all share classes except the Investor Class. The Board discussed and accepted Funds Management’s proposal to convert the Investor Class shares into Class A shares.

The Board also received and considered information about the portion of the total advisory 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 the advisory fee 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.


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32   Wells Fargo Asia Pacific Fund   Other information (unaudited)

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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 Asia Pacific Fund     33   

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

ACA —  ACA Financial Guaranty Corporation
ADR —  American depositary receipt
ADS —  American depositary shares
AGC —  Assured Guaranty Corporation
AGM —  Assured Guaranty Municipal
Ambac —  Ambac Financial Group Incorporated
AMT —  Alternative minimum tax
AUD —  Australian dollar
BAN —  Bond anticipation notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazilian real
CAB —  Capital appreciation bond
CAD —  Canadian dollar
CCAB —  Convertible capital appreciation bond
CDA —  Community Development Authority
CDO —  Collateralized debt obligation
CHF —  Swiss franc
COP —  Colombian peso
CLP —  Chilean peso
DKK —  Danish krone
DRIVER —  Derivative inverse tax-exempt receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-traded fund
EUR —  Euro
FDIC —  Federal Deposit Insurance Corporation
FFCB —  Federal Farm Credit Banks
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Administration
FHLB —  Federal Home Loan Bank
FHLMC —  Federal Home Loan Mortgage Corporation
FICO —  The Financing Corporation
FNMA —  Federal National Mortgage Association
FSA —  Farm Service Agency
GBP —  Great British pound
GDR —  Global depositary receipt
GNMA —  Government National Mortgage Association
GO —  General obligation
HCFR —  Healthcare facilities revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher education facilities authority revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong dollar
HUD —  Department of Housing and Urban Development
HUF —  Hungarian forint
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Indonesian rupiah
IEP —  Irish pound
JPY —  Japanese yen
KRW —  Republic of Korea won
LIBOR —  London Interbank Offered Rate
LIFER —  Long Inverse Floating Exempt Receipts
LIQ —  Liquidity agreement
LLC —  Limited liability company
LLLP —  Limited liability limited partnership
LLP —  Limited liability partnership
LOC —  Letter of credit
LP —  Limited partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multifamily housing revenue
MSTR —  Municipal securities trust receipts
MTN —  Medium-term note
MUD —  Municipal Utility District
MXN —  Mexican peso
MYR —  Malaysian ringgit
National —  National Public Finance Guarantee Corporation
NGN —  Nigerian naira
NOK —  Norwegian krone
NZD —  New Zealand dollar
PCFA —  Pollution Control Financing Authority
PCL —  Public Company Limited
PCR —  Pollution control revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable floating option tax-exempt receipts
plc —  Public limited company
PLN —  Polish zloty
PUTTER —  Puttable tax-exempt receipts
R&D —  Research & development
Radian —  Radian Asset Assurance
RAN —  Revenue anticipation notes
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real estate investment trust
ROC —  Reset option certificates
RON —  Romanian lei
RUB —  Russian ruble
SAVRS —  Select auction variable rate securities
SBA —  Small Business Authority
SDR —  Swedish depositary receipt
SEK —  Swedish krona
SFHR —  Single-family housing revenue
SFMR —  Single-family mortgage revenue
SGD —  Singapore dollar
SPA —  Standby purchase agreement
SPDR —  Standard & Poor’s Depositary Receipts
SPEAR —   Short Puttable Exempt Adjustable Receipts
STRIPS —  Separate trading of registered interest and
           principal securities
TAN —  Tax anticipation notes
TBA —  To be announced
THB —  Thai baht
TIPS —  Treasury inflation-protected securities
TRAN —  Tax revenue anticipation notes
TRY —  Turkish lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
ZAR —  South African rand
 


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LOGO

 

 

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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: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238505 12-15

A236/AR236 10-15


Table of Contents

Annual Report

October 31, 2015

 

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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

    36   

Other information

    37   

List of abbreviations

    43   

 

The views expressed and any forward-looking statements are as of October 31, 2015, 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 Diversified International Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Signs of encouragement in the eurozone were more than offset by slowing economic growth in China.

 

 

 

 

The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015.

 

 

Dear Valued 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, 2015. During the period, investors confronted concerns about slowing economic growth in China and a dramatic rise and fall in the country’s equity markets, diverging central bank policies globally, contentious negotiations to refinance Greece’s sovereign debt, low commodity prices, and ongoing currency volatility. These disparate influences tended to obscure improving economic data in the U.S. and several developed European countries.

Low commodity prices and slower global growth overshadowed improved economic data.

In Europe, the eurozone’s largest economies—France, Germany, Italy, and Spain—reported gross domestic product (GDP) growth on an annualized basis for the second quarter of 2015, although results were uneven for smaller, developing economies in the region. While annualized GDP growth slowed in the third quarter in the eurozone overall, it remained positive. Signs of encouragement in the eurozone were more than offset by slowing economic growth in China. China posted third-quarter GDP growth of 6.9%. While that pace might be envied by other developed economies, it is below levels many investors have come to expect from China. Furthermore, the government indicated the full-year growth target of 7% may not be met.

Stocks generally moved higher in April and early May 2015 before events served to discourage equity investors as summer advanced. The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015. At the same time, the value of the U.S. dollar increased relative to other currencies, particularly those in emerging markets. Both conditions concerned investors. Sustained low oil, natural gas, and other commodity prices hampered economies in several emerging markets. Slowed commodity consumption among developed markets also suggested a deceleration of global growth.

Global central bank policies diverge.

After ending its quantitative easing-related bond-buying program toward the end of 2014, the U.S. Federal Reserve (Fed) signaled its intention to increase the federal funds rate. However, concerns about slowing growth, particularly in emerging markets, prompted the Fed to defer an interest-rate increase. Investors globally fell into a holding pattern at times as they tried to anticipate the Fed’s next move. Meanwhile, the Bank of Japan announced in October 2014 significant expansion of its economic stimulus programs to include additional injections of liquidity into the economy through bond purchases. In addition, the Government Pension Investment Fund announced plans to reduce government bond investments and direct those assets to investments in the Japanese stock market. The People’s Bank of China also took initiatives to spur economic growth by cutting interest rates for the sixth time in less than a year in October 2015; lowering bank reserve requirements to encourage lending; and allowing the renminbi to depreciate to support exports and to advance government efforts to transition to a more market-driven economy.

During the summer of 2015, the Hang Seng Index1 in Hong Kong experienced a dramatic decline after a similarly dramatic ascent during late 2014 and early 2015, falling to levels not seen since 2013. Contentious negotiations between Greece and its debtors to refinance the country’s sovereign debt also concerned investors during June 2015. After weeks of stalemated negotiations, the government accepted additional spending reductions in order to secure new loan agreements.

 

 

 

1  The Hang Seng Index is a free-float-adjusted market-capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. You cannot invest directly in an index.


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

Developed European and Asian equity markets, as measured by the Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net)2 returned -0.07% for the 12-month period that ended October 31, 2015.

The effect of slowing growth in China, a stronger U.S. dollar, and stubbornly low prices for oil, natural gas, and other commodities was particularly difficult for many emerging markets economies that rely on commodities as an economic engine. During the period, emerging markets stocks suffered more significantly than international developed markets, earning a return of -14.53%, as measured by the MSCI Emerging Markets Index (Net).3 U.S. investors in international equity markets also often saw the value of their overseas investments reduced upon translation to dollars.

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 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

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

2  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 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. You cannot invest directly in an index. 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.

 

3  MSCI Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index.


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4   Wells Fargo Diversified International Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term total capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadvisers

Artisan Partners Limited Partnership

LSV Asset Management

Wells Capital Management Incorporated

Portfolio managers

Jeffrey Everett, CFA

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, 20151

 

        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     (6.35     3.81        2.84        (0.66     5.06        3.46        1.71        1.41   
Class B (SILBX)*   9-24-1997     (6.39     3.92        2.92        (1.39     4.26        2.92        2.46        2.16   
Class C (WFECX)   4-1-1998     (2.44     4.25        2.70        (1.44     4.25        2.70        2.46        2.16   
Class R (WDIHX)   9-30-2015                          (0.86     4.85        3.29        1.96        1.60   
Class R6 (WDIRX)   9-30-2015                          (0.46     5.23        3.66        1.28        0.89   
Administrator Class (WFIEK)   11-8-1999                          (0.46     5.23        3.66        1.63        1.25   
Institutional Class (WFISX)   8-31-2006                          (0.23     5.41        3.84        1.38        0.99   
MSCI EAFE Index (Net)4                            (0.07     4.81        4.05                 
*   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 Diversified International Fund     5   

Growth of $10,000 investment as of October 31, 20155

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.

 

2  Reflects the expense ratios as stated in the most recent prospectus. 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 29, 2016 (February 28, 2017 for Class R and Class R6), 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 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) 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. You cannot invest directly in an index. 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.

 

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.


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6   Wells Fargo Diversified International Fund   Performance highlights (unaudited)

MANAGERS’ DISCUSSION

Fund highlights

n   The Fund underperformed its benchmark, the MSCI EAFE Index (Net), for the 12-month period that ended October 31, 2015.

 

n   Two of the three subadvisors—LSV Asset Management (LSV) and Artisan Partners Limited Partnership (Artisan Partners)—struggled for the reporting period. Value stocks significantly underperformed growth stocks, creating a more challenging investment climate for LSV. Artisan Partners’ investments in China accounted for the majority of its underperformance. Wells Capital Management Incorporated (WellsCap) posted strong relative results for the period.

 

n   All three teams continued to execute their disciplined investment approaches, and all continued to find what they believed were attractive investment candidates in the current market environment.

During the 12-month reporting period, the MSCI EAFE Index (Net) advanced 9.1% in local-currency terms. However, the effect of an appreciating dollar erased gains for U.S. dollar–based investors, and the index declined 0.07% in U.S. dollar terms.

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 investment team generated positive absolute and relative returns, identifying opportunities in Japan, developed Europe, and Hong Kong/China, with mixed findings across emerging markets.

Some of the best stock performances came from the financial services sector, with ANIMA Holding S.p.A. the top relative contributor. Other notable contributors included China Everbright Limited; Man Group plc; Daiwa House Industry Company, Limited; and Rheinmetall AG. Detractors included Hitachi, Limited; Hana Financial Group Incorporated; Coca-Cola East Japan Company, Limited; QUALCOMM Incorporated; and Eni S.p.A. We exited the Fund’s holding in scandal-ridden Volkswagen AG.

In Europe, opportunities arose based on microeconomic fundamentals and signs of a cyclical economic recovery. We favored companies that are engaged in self-help restructuring through the implementation of operational efficiencies such as careful investment, cost cutting, and portfolio reshaping. Such companies seem set to bolster their profitability and benefit from the additional impetus of structural reforms and continent-wide cyclical recovery. In Italy, targeted reforms, ranging from streamlining the country’s banking system and public bureaucracy to labor market and tax incentives, are further uplifting economic activity and benefiting holdings Prysmian S.p.A. and ANIMA Holding. In Germany, we added to positions in Rheinmetall and initiated holdings in SAP AG.

In Japan, the distinctions between corporate new Japan and old Japan continued to widen. We watched core holdings transform their operating margins from lows of close to 5% three years ago to well over double that magnitude in industry segments ranging from those with rising domestic reflation—such as Mitsubishi UFJ Financial Group, Incorporated, and Mitsui Fudosan Company, Limited—to areas marked by increased innovation, such as Yaskawa Electric Corporation. While the reform program initiated by Prime Minister Shinzō Abe—popularly known as Abenomics—has already demonstrated the force and flexibility of incipient monetary and fiscal accommodation, elements of the more difficult to achieve long-term structural and corporate governance reforms are just beginning to take shape.

This past year’s volatility in global capital markets was no more evident than in the swings in China’s A-share market, coincident with disruptions in energy and metals commodity markets. Our base-case assessment suggests that Chinese officials have several policy levers at their disposal to gradually assist with a more orderly and flexible adjustment. We continued to build positions in undervalued restructuring state-owned enterprises such as China Mobile Limited. We particularly favor the reforming financial services arena, represented by holding China Everbright Limited. We also liked several firms poised to benefit from the nation’s move away from industrial and commodity spending to consumer and discretionary spending, including Dongfeng Motor Group Company, Limited, and Kweichow Moutai Company, Limited.

We retained an underweight to emerging markets equities. Outside of China and South Korea, we find few opportunities in emerging markets and increasing company, country, and currency risks. An underweight to Brazil aided relative results given that market’s weak performance.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Diversified International Fund     7   
Ten largest holdings (%) as of October 31, 20156  

Bayer AG

     2.16   

Baidu Incorporated ADR

     1.62   

Toyota Motor Corporation

     1.60   

Mitsubishi UFJ Financial Group Incorporated

     1.46   

Medtronic plc

     1.45   

AIA Group Limited

     1.18   

Rheinmetall AG

     1.17   

BP plc

     1.06   

Hitachi Limited

     1.06   

Novartis AG

     1.05   

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 reporting period opened on a high note as investors cheered Europe’s new quantitative easing program, though markets continued to grapple with falling commodity prices and deflationary pressures. Later in the period, mounting fears over China’s slowing growth triggered global volatility. The reporting period ended on an optimistic note as investors took solace in accommodative central bank policy in Europe and China.

 

 

The Artisan Partners portion of the Fund trailed the MSCI EAFE Index (Net). Stock-specific factors were a main source of underperformance. Chinese internet company Baidu, Incorporated, and German automaker Porsche Automobil Holding SE were notable detractors. Baidu announced a major speculative investment in online-to-offline offerings, such as group buying and movie tickets, which is expected to weigh on margins in the near to medium term. Still, Baidu’s core search business remains strong. Porsche was initially pressured by slowing Chinese end-market demand. Later, shares fell sharply in response to an emissions-cheating scandal involving Volkswagen (of which Porsche is a major shareholder). We fully exited the position in October 2015.

Contributors included health care products company Covidien plc and Irish airline Ryanair Limited.* Covidien was acquired by Medtronic PLC (a current portfolio holding), unlocking substantial synergies. Ryanair’s differentiated growth strategy targeting high-frequency, short-haul routes across Europe proved successful, yielding steadily increasing monthly passenger growth and market-share gains.

As always, our portfolio positioning was the residual of our bottom-up investment process and a strategy that has remained consistent for the past 20 years. Looking forward, we would not be surprised to see heightened volatility as markets digest China’s new normal growth rate. Because China is a major commodity importer, the potential for further downward pressure on commodity-price-dependent countries and companies is likely, in our view. These are areas we’ve typically steered clear of, and now is no exception. Instead, we continue to do what we’ve always done: seek what we believe are high-quality companies with sustainable competitive advantages exposed to longer-term areas of secular growth.

 

Sector distribution as of October 31, 20157
LOGO

LSV

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

The LSV portion of the Fund underperformed the MSCI EAFE Index (Net) over the past 12 months, largely because of exposure to emerging markets and our deep- value bias.

Some of the best-performing sectors in the period included consumer staples and health care, as investors favored defensive stocks. We had difficulty finding cheap stocks in these sectors, and as a result, the portfolio was underweight relative to the benchmark. This positioning had a negative impact on performance, as did an overweight to energy stocks, particularly early in the period. Stock selection was mixed, with good selection in

 

the financials and industrials sectors. However, this was offset by poor selection in the utilities and consumer discretionary sectors. Notable contributors in the period included NTT DOCOMO, Incorporated, in the telecommunication services sector; GS Retail Company, Limited,* and Delhaize Group SA in the consumer staples sector; industrials holding

 

 

* This security was not held in the Fund at the end of the reporting period.

Please see footnotes on page 5.


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8   Wells Fargo Diversified International Fund   Performance highlights (unaudited)

Thales SA; and underweights to HSBC Holdings plc and BHP Billiton Limited. Detractors included Westjet Airlines Limited, Tata Motors Limited, Lend Lease Corporation Limited, Arrium Limited, and Banco do Brasil S.A.

The most significant changes in sector exposure over the past year were a decrease in the portfolio’s allocation to energy stocks and an increase in the exposure to consumer discretionary stocks. The LSV portion of the Fund is overweight financials and materials stocks and underweight consumer staples and health care. We believe that valuations in the LSV portion of the Fund remain attractive.

 

Country allocation as of October 31, 20157
LOGO
 

 

 

 

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, 2015 to October 31, 2015.

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
5-1-2015
     Ending
account value
10-31-2015
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 917.32       $ 6.77         1.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.15       $ 7.12         1.40

Class B

           

Actual

   $ 1,000.00       $ 913.78       $ 10.37         2.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.37       $ 10.92         2.15

Class C

           

Actual

   $ 1,000.00       $ 914.04       $ 10.37         2.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.37       $ 10.92         2.15

Class R

           

Actual

   $ 1,000.00       $ 915.88       $ 7.73         1.60

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.14       $ 8.13         1.60

Class R6

           

Actual

   $ 1,000.00       $ 918.02       $ 4.30         0.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.72       $ 4.53         0.89

Administrator Class

           

Actual

   $ 1,000.00       $ 918.02       $ 6.04         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.90       $ 6.36         1.25

Institutional Class

           

Actual

   $ 1,000.00       $ 919.14       $ 4.79         0.99

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.21       $ 5.04         0.99

 

 

1 Expenses paid is equal to the annualized 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, 2015

      

 

 

Security name             Shares      Value  

Common Stocks: 94.84%

          
Australia: 1.30%           

Arrium Limited (Materials, Metals & Mining) †

          397,400       $ 28,080   

Bendigo Bank Limited (Financials, Banks)

          26,100         197,999   

BHP Billiton Limited (Materials, Metals & Mining)

          6,127         100,487   

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

          36,300         211,674   

CSR Limited (Materials, Construction Materials)

          59,900         117,266   

Downer EDI Limited (Industrials, Commercial Services & Supplies)

          42,300         106,296   

Fortescue Metals Group Limited (Materials, Metals & Mining) «

          29,600         43,738   

Lend Lease Corporation Limited (Financials, Real Estate Management & Development)

          20,800         191,308   

Metcash Limited (Consumer Staples, Food & Staples Retailing)

          28,500         24,006   

Mineral Resources Limited (Materials, Metals & Mining)

          14,900         44,946   

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

          34,700         91,166   

Seven Network Limited (Industrials, Trading Companies & Distributors) «

          15,300         54,717   

United Construction Group Limited (Industrials, Construction & Engineering)

          14,100         22,714   
             1,234,397   
          

 

 

 
Austria: 0.31%           

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

          5,300         141,127   

Voestalpine AG (Materials, Metals & Mining)

          4,300         155,471   
             296,598   
          

 

 

 
Belgium: 1.51%           

Anheuser-Busch InBev NV (Consumer Staples, Beverages)

          4,596         548,416   

Delhaize Group SA (Consumer Staples, Food & Staples Retailing)

          3,600         334,040   

Telenet Group Holding NV (Consumer Discretionary, Media) †

          4,719         274,472   

UCB SA (Health Care, Pharmaceuticals)

          3,277         283,257   
             1,440,185   
          

 

 

 
Brazil: 0.32%           

Banco do Brasil SA (Financials, Banks)

          12,100         50,144   

Companhia de Saneamento Basico do Estado de Sao Paulo SA (Utilities, Water Utilities)

          17,700         76,804   

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

          5,300         17,860   

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

          6,395         22,383   

JBS SA (Consumer Staples, Food Products)

          37,400         138,070   
             305,261   
          

 

 

 
Canada: 1.64%           

Cameco Corporation (Energy, Oil, Gas & Consumable Fuels)

          23,154         328,092   

Lundin Mining Corporation (Materials, Metals & Mining) †

          79,672         268,701   

Magna International Incorporated Class A (Consumer Discretionary, Auto Components)

          8,000         421,903   

Metro Incorporated (Consumer Staples, Food & Staples Retailing)

          5,600         160,128   

Valeant Pharmaceuticals International Incorporated (Health Care, Pharmaceuticals) †

          2,294         215,108   

WestJet Airlines Limited (Industrials, Airlines)

          9,200         170,266   
             1,564,198   
          

 

 

 
China: 6.18%           

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

          8,237         1,544,190   

Beijing Enterprises Water Group Limited (Utilities, Water Utilities)

          76,000         60,194   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Diversified International Fund     11   

      

 

 

Security name             Shares      Value  
China (continued)           

Biostime International Holdings Limited (Consumer Staples, Food Products)

          82,000       $ 182,069   

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

          220,000         88,253   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          30,000         359,697   

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

          236,000         170,119   

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

          141,500         211,512   

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

          544,000         780,858   

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

          743,000         471,289   

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

          61,000         138,413   

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

          67,370         378,165   

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

          179,100         413,105   

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

          46,900         884,036   

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

          395,050         204,900   
             5,886,800   
          

 

 

 
Czech Republic: 0.10%           

CEZ AS (Utilities, Electric Utilities)

          4,900         97,905   
          

 

 

 
Denmark: 0.10%           

Sydbank AG (Financials, Banks)

          2,800         92,103   
          

 

 

 
Finland: 0.16%           

TietoEnator Oyj (Information Technology, IT Services)

          5,800         148,731   
          

 

 

 
France: 5.76%           

Alstom SA (Industrials, Machinery) †

          5,100         166,006   

Arkema SA (Materials, Chemicals)

          910         66,502   

AXA SA (Financials, Insurance)

          9,900         264,212   

BNP Paribas SA (Financials, Banks)

          3,600         218,150   

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

          20,175         844,547   

Compagnie Generale des Etablissements Michelin SCA Class B (Consumer Discretionary, Auto Components)

          1,400         139,266   

Credit Agricole SA (Financials, Banks)

          10,900         137,672   

Electricite de France SA (Utilities, Electric Utilities)

          9,500         176,581   

L’Oreal SA (Consumer Staples, Personal Products)

          1,414         257,779   

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

          1,636         304,573   

Orange SA (Telecommunication Services, Diversified Telecommunication Services)

          15,829         279,092   

Pernod-Ricard SA (Consumer Staples, Beverages)

          2,659         312,883   

Renault SA (Consumer Discretionary, Automobiles)

          2,500         235,560   

Sanofi-Aventis SA (Health Care, Pharmaceuticals)

          4,900         494,292   

SCOR SE (Financials, Insurance)

          7,700         286,306   

Societe Generale SA (Financials, Banks)

          3,700         171,840   

Thales SA (Industrials, Aerospace & Defense)

          2,600         187,957   

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

          6,000         290,153   

Zodiac Aerospace SA (Industrials, Aerospace & Defense)

          25,648         647,015   
             5,480,386   
          

 

 

 
Germany: 11.08%           

Allianz AG (Financials, Insurance)

          4,347         761,020   

BASF SE (Materials, Chemicals)

          3,500         286,733   

Bayer AG (Health Care, Pharmaceuticals)

          15,419         2,055,898   

 

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, 2015

      

 

 

Security name             Shares      Value  
Germany (continued)           

Bayerische Motoren Werke AG (Consumer Discretionary, Automobiles)

          2,200       $ 225,342   

Beiersdorf AG (Consumer Staples, Personal Products)

          5,174         491,405   

Daimler AG (Consumer Discretionary, Automobiles)

          4,800         416,226   

Deutsche Bank AG (Financials, Capital Markets)

          6,300         176,329   

E.ON SE (Utilities, Multi-Utilities)

          8,100         85,448   

Hannover Rueckversicherung AG (Financials, Insurance)

          2,200         254,342   

Hugo Boss AG (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          3,869         397,835   

Linde AG (Materials, Chemicals)

          5,332         924,864   

Metro AG (Consumer Staples, Food & Staples Retailing)

          19,911         612,576   

Muenchener Rueckversicherungs Gesellschaft AG (Financials, Insurance)

          1,400         279,152   

Norddeutsche Affinerie AG (Materials, Metals & Mining)

          2,300         153,640   

Rheinmetall AG (Industrials, Industrial Conglomerates)

          17,672         1,111,513   

Rhoen Klinikum AG (Health Care, Health Care Providers & Services)

          4,000         119,323   

SAP AG (Information Technology, Software)

          7,398         583,222   

Siemens AG (Industrials, Industrial Conglomerates)

          8,887         892,647   

Stada Arzneimittel AG (Health Care, Pharmaceuticals)

          2,900         110,323   

Volkswagen AG (Consumer Discretionary, Automobiles)

          1,600         221,554   

Vonovia SE (Financials, Real Estate Management & Development)

          7,544         251,471   

Wirecard AG (Information Technology, IT Services)

          2,664         137,607   
             10,548,470   
          

 

 

 
Hong Kong: 3.43%           

AIA Group Limited (Financials, Insurance)

          191,400         1,122,241   

China Everbright Limited (Financials, Capital Markets)

          298,000         701,356   

China Resources Cement Holdings Limited (Materials, Construction Materials)

          236,000         95,235   

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

          226,500         94,337   

Shenzhen International Holdings Limited (Industrials, Transportation Infrastructure)

          57,500         87,319   

TCL Communication Technology Holdings Limited (Information Technology, Technology Hardware, Storage & Peripherals)

          117,000         87,085   

Television Broadcasts Limited (Consumer Discretionary, Media)

          26,800         97,673   

Value Partners Group Limited (Financials, Capital Markets)

          275,000         291,202   

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

          22,000         102,544   

Xinyi Glass Holdings Limited (Consumer Discretionary, Auto Components)

          496,000         256,959   

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

          450,000         178,890   

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

          42,000         153,218   
             3,268,059   
          

 

 

 
Hungary: 0.03%           

Richter Gedeon (Health Care, Pharmaceuticals)

          1,700         28,358   
          

 

 

 
India: 1.09%           

Adani Ports & Special Economic Zone Limited (Industrials, Transportation Infrastructure)

          114         515   

Gail Limited (Utilities, Gas Utilities)

          1,800         52,020   

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

          23,065         442,105   

Infosys Limited ADR (Information Technology, IT Services) «

          15,368         279,083   

Tata Motors Limited ADR (Consumer Discretionary, Automobiles)

          6,600         195,162   

Tata Steel Limited GDR (Industrials, Machinery)

          17,100         64,619   
             1,033,504   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Diversified International Fund     13   

      

 

 

Security name             Shares      Value  
Ireland: 1.99%           

Allegion plc (Industrials, Building Products)

          1,026       $ 66,864   

Allergan plc (Health Care, Pharmaceuticals) †

          527         162,564   

C&C Group plc (Consumer Staples, Beverages)

          18,600         74,062   

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

          18,636         1,377,573   

Smurfit Kappa Group plc (Materials, Containers & Packaging)

          7,500         213,443   
             1,894,506   
          

 

 

 
Israel: 0.50%           

Bank Hapoalim Limited (Financials, Banks)

          38,000         197,804   

Teva Pharmaceutical Industries Limited (Health Care, Pharmaceuticals)

          4,600         273,116   
             470,920   
          

 

 

 
Italy: 3.45%           

Anima Holding SpA (Financials, Capital Markets)

          67,979         665,600   

Enel SpA (Utilities, Electric Utilities)

          48,100         221,805   

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

          50,250         820,595   

Intesa Sanpaolo SpA (Financials, Banks)

          96,207         334,709   

Mediaset SpA (Consumer Discretionary, Media)

          50,769         257,683   

Mediobanca SpA (Financials, Capital Markets)

          12,000         120,681   

Prysmian SpA (Industrials, Electrical Equipment)

          40,125         866,511   
             3,287,584   
          

 

 

 
Japan: 17.43%           

Adeka Corporation (Materials, Chemicals)

          8,800         129,323   

Aisin Seiki Company Limited (Consumer Discretionary, Auto Components)

          3,300         130,974   

Alpine Electronics Incorporated (Consumer Discretionary, Household Durables)

          11,600         152,315   

Aozora Bank Limited (Financials, Banks)

          41,000         149,857   

Calsonic Kansei Corporation (Consumer Discretionary, Auto Components)

          16,000         127,515   

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

          37,800         531,255   

Dainippon Ink & Chemicals Incorporated (Materials, Chemicals)

          53,000         143,464   

Daiwa House Industry Company Limited (Financials, Real Estate Management & Development)

          18,400         483,005   

Daiwa Securities Group Incorporated (Financials, Capital Markets)

          104,000         711,107   

DCM Japan Holdings Company Limited (Consumer Discretionary, Specialty Retail)

          14,100         93,407   

Denki Kagaku Kogyo Kabushiki Kaisha (Materials, Chemicals)

          41,000         190,261   

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

          7,300         170,906   

Fuji Oil Company Limited (Consumer Staples, Food Products)

          8,800         124,089   

Fujikura Limited (Industrials, Electrical Equipment)

          25,000         128,498   

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

          175,000         1,009,538   

Ishikawajima-Harima Heavy Industries Company Limited (Industrials, Machinery)

          89,000         251,106   

Isuzu Motors Limited (Consumer Discretionary, Automobiles)

          12,700         148,330   

Itochu Corporation (Industrials, Trading Companies & Distributors)

          14,600         182,689   

Japan Airlines Company Limited (Industrials, Airlines)

          6,300         237,341   

Japan Tobacco Incorporated (Consumer Staples, Tobacco)

          11,220         388,344   

JX Holdings Incorporated (Energy, Oil, Gas & Consumable Fuels)

          28,500         111,910   

KDDI Corporation (Telecommunication Services, Wireless Telecommunication Services)

          5,800         140,350   

Kyorin Company Limited (Health Care, Pharmaceuticals)

          7,900         132,806   

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

          11,000         199,952   

Marubeni Corporation (Industrials, Trading Companies & Distributors)

          30,000         173,341   

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

          1,800         80,109   

 

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, 2015

      

 

 

Security name             Shares      Value  
Japan (continued)           

Mitsubishi Corporation (Industrials, Trading Companies & Distributors)

          8,800       $ 159,989   

Mitsubishi Gas Chemical Company Incorporated (Materials, Chemicals)

          22,800         127,119   

Mitsubishi UFJ Financial Group Incorporated (Financials, Banks)

          215,500         1,393,753   

Mitsui & Company Limited (Industrials, Trading Companies & Distributors)

          14,400         182,634   

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

          22,000         598,700   

Mizuho Financial Group Incorporated (Financials, Banks)

          154,300         317,834   

NGK Insulators Limited (Industrials, Machinery)

          25,000         541,246   

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

          15,800         579,250   

Nissan Motor Company Limited (Consumer Discretionary, Automobiles)

          28,900         299,584   

Nitto Denko Corporation (Materials, Chemicals)

          7,200         461,696   

Nomura Holdings Incorporated (Financials, Capital Markets)

          139,100         874,987   

NTT DOCOMO Incorporated (Telecommunication Services, Wireless Telecommunication Services)

          11,700         227,863   

Olympus Corporation (Health Care, Health Care Equipment & Supplies)

          16,900         570,059   

Ono Pharmaceutical Company Limited (Health Care, Pharmaceuticals)

          900         123,295   

Resona Holdings Incorporated (Financials, Banks)

          54,000         285,731   

S Foods Incorporated (Consumer Staples, Food Products)

          7,500         130,370   

Sankyu Incorporated (Industrials, Road & Rail)

          28,000         157,731   

Seino Holdings Company Limited (Industrials, Road & Rail)

          3,000         35,605   

Sojitz Corporation (Industrials, Trading Companies & Distributors)

          77,400         170,241   

Sumitomo Corporation (Industrials, Trading Companies & Distributors)

          19,900         217,652   

Sumitomo Metal Mining Company Limited (Materials, Metals & Mining)

          11,000         136,470   

Sumitomo Mitsui Financial Group Incorporated (Financials, Banks)

          8,000         319,149   

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

          5,900         124,152   

Toyota Motor Corporation (Consumer Discretionary, Automobiles)

          24,800         1,519,356   

Tsumura & Company (Health Care, Pharmaceuticals)

          5,600         134,938   

West Holdings Corporation (Consumer Discretionary, Household Durables)

          32,600         191,229   

Yaskawa Electric Corporation (Information Technology, Electronic Equipment, Instruments & Components)

          16,500         195,721   

Yokohama Rubber Company Limited (Consumer Discretionary, Auto Components)

          10,500         201,848   
             16,599,994   
          

 

 

 
Liechtenstein: 0.10%           

Verwaltungs-und Privat-Bank AG (Financials, Capital Markets)

          1,177         94,665   
          

 

 

 
Mexico: 0.97%           

Genomma Lab Internacional SAB (Health Care, Pharmaceuticals) †

          69,400         50,923   

Grupo Televisa SAB ADR (Consumer Discretionary, Media)

          30,040         875,366   
             926,289   
          

 

 

 
Netherlands: 2.36%           

Aegon NV (Financials, Insurance)

          17,300         106,161   

Akzo Nobel NV (Materials, Chemicals) «

          11,418         807,599   

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

          8,657         803,034   

ING Groep NV (Financials, Banks)

          14,300         208,120   

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

          15,600         317,347   
             2,242,261   
          

 

 

 
Norway: 1.08%           

DnB Nor ASA (Financials, Banks)

          12,100         154,057   

Frontline 2012 Limited (Energy, Oil, Gas & Consumable Fuels) 144A

          27,611         194,976   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Diversified International Fund     15   

      

 

 

Security name             Shares      Value  
Norway (continued)           

Golden Ocean Group Limited (Industrials, Marine)

          8,495       $ 16,484   

Marine Harvest ASA (Consumer Staples, Food Products)

          33,675         451,984   

Yara International ASA (Materials, Chemicals)

          4,600         208,959   
             1,026,460   
          

 

 

 
Poland: 0.09%           

Asseco Poland SA (Information Technology, Software)

          5,900         87,088   
          

 

 

 
Russia: 0.29%           

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

          10,500         119,216   

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

          4,200         152,250   
             271,466   
          

 

 

 
Singapore: 0.22%           

DBS Group Holdings Limited (Financials, Banks)

          17,000         209,016   
          

 

 

 
South Africa: 0.29%           

Barclays Africa Group Limited (Financials, Banks)

          9,300         119,187   

Imperial Holdings Limited (Consumer Discretionary, Distributors)

          5,700         74,195   

Omnia Holdings Limited (Materials, Chemicals)

          7,600         84,298   
             277,680   
          

 

 

 
South Korea: 2.01%           

BS Financial Group Incorporated (Financials, Banks)

          1,018         12,464   

Hana Financial Group Incorporated (Financials, Banks)

          21,524         523,442   

Industrial Bank of Korea (Financials, Banks)

          13,500         165,251   

Kwangju Bank (Financials, Banks)†

          1,044         7,442   

LS Industrial Systems Company Limited (Industrials, Electrical Equipment)

          2,300         99,982   

Orion Corporation (Consumer Staples, Food Products)

          3         2,522   

Samsung Electronics Company Limited GDR (Information Technology, Semiconductors & Semiconductor Equipment)144A

          905         540,709   

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

          2,100         444,701   

Woori Bank (Financials, Banks)

          13,760         119,362   
             1,915,875   
          

 

 

 
Spain: 1.33%           

Banco Santander Central Hispano SA (Financials, Banks)

          22,800         127,365   

Gas Natural SDG SA (Utilities, Gas Utilities)

          6,000         129,791   

Grifols SA (Health Care, Biotechnology)

          4,471         207,074   

Grifols SA ADR (Health Care, Biotechnology)

          7,044         245,202   

International Consolidated Airlines Group SA (Industrials, Airlines) †

          62,429         559,509   
             1,268,941   
          

 

 

 
Sweden: 1.89%           

Autoliv Incorporated SDR (Consumer Discretionary, Auto Components)

          2,800         337,667   

Boliden AB (Materials, Metals & Mining)

          9,400         179,976   

Nordea Bank AB (Financials, Banks)

          15,000         165,505   

Saab AB Class B (Industrials, Aerospace & Defense)

          1,000         28,162   

Swedbank AB Class A (Financials, Banks)

          13,760         315,288   

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

          20,500         199,516   

TeliaSonera AB (Telecommunication Services, Diversified Telecommunication Services)

          40,300         205,914   

 

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, 2015

      

 

 

Security name             Shares      Value  
Sweden (continued)           

Volvo AB Class B (Industrials, Machinery)

          35,770       $ 369,974   
             1,802,002   
          

 

 

 
Switzerland: 8.25%           

ABB Limited (Industrials, Electrical Equipment)

          29,647         559,311   

Actelion Limited (Health Care, Biotechnology)

          3,544         491,957   

Adecco SA (Industrials, Professional Services)

          5,276         392,193   

Baloise Holding AG (Financials, Insurance)

          2,000         239,794   

Credit Suisse Group AG (Financials, Capital Markets)

          29,324         731,376   

Georg Fischer AG (Industrials, Machinery)

          300         184,321   

Nestle SA (Consumer Staples, Food Products)

          12,181         930,311   

Novartis AG (Health Care, Pharmaceuticals)

          11,022         998,468   

Roche Holding AG (Health Care, Pharmaceuticals)

          3,305         897,304   

Swiss Life Holding AG (Financials, Insurance)

          1,100         262,119   

Swiss Reinsurance AG (Financials, Insurance)

          3,900         362,040   

Syngenta AG (Materials, Chemicals)

          2,127         714,609   

TE Connectivity Limited (Information Technology, Electronic Equipment, Instruments & Components)

          3,125         201,375   

Zurich Insurance Group AG (Financials, Insurance)

          3,383         892,774   
             7,857,952   
          

 

 

 
Taiwan: 0.26%           

Innolux Display Corporation (Information Technology, Electronic Equipment, Instruments & Components)

          225,000         75,482   

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

          70,000         171,056   
             246,538   
          

 

 

 
Thailand: 0.14%           

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

          135,400         137,046   
          

 

 

 
United Kingdom: 17.45%           

3i Group plc (Financials, Capital Markets)

          22,400         172,549   

Amlin plc (Financials, Insurance)

          7,000         71,029   

Anglo American plc (Materials, Metals & Mining)

          9,600         80,541   

Aon plc (Financials, Insurance)

          1,734         161,800   

AstraZeneca plc (Health Care, Pharmaceuticals)

          2,700         172,078   

Aviva plc (Financials, Insurance)

          22,000         164,419   

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

          11,409         169,128   

BAE Systems plc (Industrials, Aerospace & Defense)

          58,900         398,428   

Barclays plc (Financials, Banks)

          114,371         407,479   

Barratt Developments plc (Consumer Discretionary, Household Durables)

          15,900         149,785   

Bellway plc (Consumer Discretionary, Household Durables)

          4,200         167,760   

Bovis Homes Group plc (Consumer Discretionary, Household Durables)

          8,600         135,652   

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

          170,476         1,013,136   

BT Group plc (Telecommunication Services, Diversified Telecommunication Services)

          75,944         542,355   

Capita plc (Industrials, Professional Services)

          17,028         334,019   

Carnival plc (Consumer Discretionary, Hotels, Restaurants & Leisure)

          8,288         461,274   

Centrica plc (Utilities, Multi-Utilities)

          41,800         145,446   

Crest Nicholson Holdings plc (Consumer Discretionary, Household Durables)

          20,500         171,473   

Croda International plc (Materials, Chemicals)

          7,889         351,905   

Delphi Automotive plc (Consumer Discretionary, Auto Components)

          8,565         712,522   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Diversified International Fund     17   

      

 

 

Security name               Shares      Value  
United Kingdom (continued)           

Diageo plc (Consumer Staples, Beverages)

          322       $ 9,283   

easyJet plc (Industrials, Airlines)

          6,900         185,873   

Firstgroup plc (Industrials, Road & Rail) †

          32,500         48,373   

GlaxoSmithKline plc (Health Care, Pharmaceuticals)

          8,800         189,778   

HSBC Bank plc

          23,887         354,588   

Imperial Tobacco Group plc (Consumer Staples, Tobacco)

          5,981         322,065   

Intercontinental Hotels Group plc (Consumer Discretionary, Hotels, Restaurants & Leisure)

          7,861         314,121   

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

          90,900         372,457   

Johnson Matthey plc (Materials, Chemicals)

          17,455         694,258   

Liberty Global plc Class A (Consumer Discretionary, Media)

          11,793         525,024   

Liberty Global plc Class C (Consumer Discretionary, Media)

          18,971         808,923   

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

          38         1,469   

Lloyds Banking Group plc (Financials, Banks)

          483,107         548,331   

Man Group plc (Financials, Capital Markets)

          363,950         934,140   

Mitie Group plc (Industrials, Commercial Services & Supplies)

          31,900         157,849   

Mondi plc (Materials, Paper & Forest Products)

          5,200         120,246   

Old Mutual plc (Financials, Insurance)

          59,600         194,797   

Pace plc (Consumer Discretionary, Household Durables)

          19,300         110,859   

Petrofac Limited (Energy, Energy Equipment & Services)

          12,200         158,298   

Qinetiq Group plc (Industrials, Aerospace & Defense)

          47,700         164,340   

Reckitt Benckiser Group plc (Consumer Staples, Household Products)

          6,372         621,846   

Redrow plc (Consumer Discretionary, Household Durables)

          24,200         172,712   

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

          19,000         497,513   

Smiths Group plc (Industrials, Industrial Conglomerates)

          28,525         421,998   

Standard Chartered plc (Financials, Banks)

          13,300         147,638   

Tullett Prebon plc (Financials, Capital Markets)

          20,600         111,409   

Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services)

          233,216         767,498   

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

          66,200         171,656   

Wolseley plc (Industrials, Trading Companies & Distributors)

          13,347         783,619   

Worldpay Group plc (Information Technology, IT Services) †144A

          34,903         150,120   

WPP plc (Consumer Discretionary, Media)

          25,356         568,401   
             16,612,260   
          

 

 

 
United States: 1.73%           

Cognizant Technology Solutions Corporation Class A (Information Technology, IT Services) †

          9,063         617,281   

QUALCOMM Incorporated (Information Technology, Communications Equipment)

          8,524         506,496   

Royal Caribbean Cruises Limited (Consumer Discretionary, Hotels, Restaurants & Leisure)

          3,070         301,935   

WABCO Holdings Incorporated (Industrials, Machinery) †

          1,928         216,379   
             1,642,091   
          

 

 

 

Total Common Stocks (Cost $84,627,100)

             90,295,589   
          

 

 

 
         Expiration date                
Participation Notes: 0.34%           
China: 0.34%           

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

       2-19-2019         3,410         115,289   

Standard Chartered Bank (Kweichow Moutai Company Limited Class A) (Consumer Staples, Beverages) †

       4-18-2016         6,231         210,665   

Total Participation Notes (Cost $289,566)

             325,954   
          

 

 

 

 

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, 2015

      

 

 

Security name   Dividend yield          Shares      Value  

Preferred Stocks: 0.32%

         
Brazil: 0.03%          

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

    26.39        13,600       $ 25,240   
         

 

 

 
Germany: 0.29%          

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

    1.29           2,573         279,051   
         

 

 

 

Total Preferred Stocks (Cost $287,206)

            304,291   
         

 

 

 
    Expiration date                    
Rights: 0.00%          
Spain: 0.00%          

Banco Santander SA (Financials, Banks) †

    11-9-2015           22,800         1,254   
         

 

 

 

Total Rights (Cost $1,291)

            1,254   
         

 

 

 
    Yield                    
Short-Term Investments: 3.60%          
Investment Companies: 3.60%          

Securities Lending Cash Investments, LLC (l)(r)(u)

    0.14           353,678         353,678   

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16           3,073,631         3,073,631   

Total Short-Term Investments (Cost $3,427,309)

            3,427,309   
         

 

 

 

 

Total investments in securities (Cost $88,632,472) *     99.10        94,354,397   

Other assets and liabilities, net

    0.90           859,637   
 

 

 

      

 

 

 
Total net assets     100.00      $ 95,214,034   
 

 

 

      

 

 

 

 

 

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.

 

± 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 $90,386,520 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 13,378,123   

Gross unrealized losses

     (9,410,246
  

 

 

 

Net unrealized gains

   $ 3,967,877   

 

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


Table of Contents

 

Statement of assets and liabilities—October 31, 2015   Wells Fargo Diversified International Fund     19   
         

Assets

 

Investments

 

In unaffiliated securities (including $339,267 of securities loaned), at value (cost $85,205,163)

  $ 90,927,088   

In affiliated securities, at value (cost $3,427,309)

    3,427,309   
 

 

 

 

Total investments, at value (cost $88,632,472)

    94,354,397   

Foreign currency, at value (cost $972,930)

    921,220   

Receivable for investments sold

    237,641   

Receivable for Fund shares sold

    122,694   

Receivable for dividends

    262,030   

Receivable for securities lending income

    827   

Unrealized gains on forward foreign currency contracts

    123,291   

Prepaid expenses and other assets

    69,640   
 

 

 

 

Total assets

    96,091,740   
 

 

 

 

Liabilities

 

Payable for investments purchased

    362,734   

Payable for Fund shares redeemed

    57,267   

Payable upon receipt of securities loaned

    353,678   

Management fee payable

    28,246   

Distribution fees payable

    2,239   

Administration fees payable

    19,547   

Accrued expenses and other liabilities

    53,995   
 

 

 

 

Total liabilities

    877,706   
 

 

 

 

Total net assets

  $ 95,214,034   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 190,663,832   

Undistributed net investment income

    1,033,199   

Accumulated net realized losses on investments

    (102,271,938

Net unrealized gains on investments

    5,788,941   
 

 

 

 

Total net assets

  $ 95,214,034   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 73,891,439   

Shares outstanding – Class A1

    6,344,710   

Net asset value per share – Class A

    $11.65   

Maximum offering price per share – Class A2

    $12.36   

Net assets – Class B

  $ 50,138   

Shares outstanding – Class B1

    4,423   

Net asset value per share – Class B

    $11.34   

Net assets – Class C

  $ 3,573,109   

Shares outstanding – Class C1

    332,699   

Net asset value per share – Class C

    $10.74   

Net assets – Class R

  $ 26,641   

Shares outstanding – Class R1

    2,246   

Net asset value per share – Class R

    $11.86   

Net assets – Class R6

  $ 26,657   

Shares outstanding – Class R61

    2,246   

Net asset value per share – Class R6

    $11.87   

Net assets – Administrator Class

  $ 10,540,224   

Shares outstanding – Administrator Class1

    888,223   

Net asset value per share – Administrator Class

    $11.87   

Net assets – Institutional Class

  $ 7,105,826   

Shares outstanding – Institutional Class1

    637,842   

Net asset value per share – Institutional Class

    $11.14   

 

 

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, 2015
         

Investment income

 

Dividends (net of foreign withholding taxes of $194,876)

  $ 2,224,992   

Securities lending income, net

    39,461   

Income from affiliated securities

    4,003   
 

 

 

 

Total investment income

    2,268,456   
 

 

 

 

Expenses

 

Management fee

    807,916   

Administration fees

 

Class A

    63,751   

Class B

    93   

Class C

    5,507   

Class R

    5 1 

Class R6

    1 1 

Administrator Class

    9,896   

Institutional Class

    3,749   

Investor Class

    155,379 2 

Shareholder servicing fees

 

Class A

    65,966   

Class B

    99   

Class C

    5,809   

Class R

    6 1 

Administrator Class

    22,124   

Investor Class

    120,494 2 

Distribution fees

 

Class B

    296   

Class C

    17,427   

Class R

    6 1 

Custody and accounting fees

    166,463   

Professional fees

    60,418   

Registration fees

    69,463   

Shareholder report expenses

    39,019   

Trustees’ fees and expenses

    22,322   

Other fees and expenses

    54,155   
 

 

 

 

Total expenses

    1,690,364   

Less: Fee waivers and/or expense reimbursements

    (414,051
 

 

 

 

Net expenses

    1,276,313   
 

 

 

 

Net investment income

    992,143   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    2,420,442   

Forward foreign currency contract transactions

    225,501   
 

 

 

 

Net realized gains on investments

    2,645,943   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (4,830,303

Forward foreign currency contract transactions

    61,388   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (4,768,915
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (2,122,972
 

 

 

 

Net decrease in net assets resulting from operations

  $ (1,130,829
 

 

 

 

 

 

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

 

Statement of changes in net assets   Wells Fargo Diversified International Fund     21   
     Year ended
October 31, 2015
    Year ended
October 31, 2014
 

Operations

       

Net investment income

    $ 992,143        $ 1,716,255   

Net realized gains on investments

      2,645,943          1,412,567   

Net change in unrealized gains (losses) on investments

      (4,768,915       (3,468,155
 

 

 

 

Net decrease in net assets resulting from operations

      (1,130,829       (339,333
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (567,395       (435,361

Class B

      0          (908

Class C

      (25,962       (22,476

Administrator Class

      (172,327       (131,295

Institutional Class

      (79,049       (53,962

Investor Class

      (1,116,769 )1        (713,363
 

 

 

 

Total distributions to shareholders

      (1,961,502       (1,357,365
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    4,606,846        54,061,650        219,116        2,676,314   

Class B

    4,423        54,704        825        9,731   

Class C

    226,478        2,559,311        58,503        663,191   

Class R

    2,246 2      25,000 2      N/A        N/A   

Class R6

    2,246 2      25,000 2      N/A        N/A   

Administrator Class

    459,323        5,711,707        394,241        4,991,123   

Institutional Class

    523,640        5,896,811        220,008        2,622,722   

Investor Class

    772,749 1      9,262,576 1      651,354        7,987,677   
 

 

 

 
      77,596,759          18,950,758   
 

 

 

 

Reinvestment of distributions

       

Class A

    45,755        531,212        32,439        401,923   

Class B

    0        0        76        908   

Class C

    2,080        22,425        1,848        21,270   

Administrator Class

    14,509        171,495        10,249        129,239   

Institutional Class

    5,648        62,524        3,024        35,774   

Investor Class

    94,956 1      1,098,641 1      56,897        702,683   
 

 

 

 
      1,886,297          1,291,797   
 

 

 

 

Payment for shares redeemed

       

Class A

    (383,282     (4,674,632     (536,727     (6,662,045

Class B

    (3,247     (36,560     (12,466     (146,566

Class C

    (41,808     (464,550     (68,203     (768,688

Administrator Class

    (180,963     (2,216,207     (466,124     (5,945,695

Institutional Class

    (124,691     (1,439,122     (193,900     (2,280,030

Investor Class

    (4,980,967 )1      (58,064,112 )1      (562,951     (6,893,625
 

 

 

 
      (66,895,183       (22,696,649
 

 

 

 

Net increase (decrease) in net assets resulting from capital share transactions

      12,587,873          (2,454,094
 

 

 

 

Total increase (decrease) in net assets

      9,495,542          (4,150,792
 

 

 

 

Net assets

       

Beginning of period

      85,718,492          89,869,284   
 

 

 

 

End of period

    $ 95,214,034        $ 85,718,492   
 

 

 

 

Undistributed net investment income

    $ 1,033,199        $ 1,883,816   
 

 

 

 

 

 

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.

 

2  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

 

22   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $12.01        $12.25        $10.25        $9.69        $10.29   

Net investment income

    0.13 1      0.24 1      0.19 1      0.19 1      0.16   

Net realized and unrealized gains (losses) on investments

    (0.21     (0.29     2.41        0.51        (0.65
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.08     (0.05     2.60        0.70        (0.49

Distributions to shareholders from

         

Net investment income

    (0.28     (0.19     (0.60     (0.14     (0.11

Net asset value, end of period

    $11.65        $12.01        $12.25        $10.25        $9.69   

Total return2

    (0.66 )%      (0.49 )%      26.59     7.45     (4.83 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.85     1.76     1.92     1.68     1.47

Net expenses

    1.40     1.41     1.41     1.41     1.41

Net investment income

    1.07     1.93     1.75     1.96     1.47

Supplemental data

         

Portfolio turnover rate

    31     33     40     57     53

Net assets, end of period (000s omitted)

    $73,891        $24,921        $28,928        $22,434        $23,862   

 

 

1 Calculated based upon average shares outstanding

 

2 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 Diversified International Fund     23   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.50        $11.71        $9.80        $9.19        $9.74   

Net investment income (loss)

    0.03 1      0.13 1      0.09 1      0.10 1      0.06 1 

Net realized and unrealized gains (losses) on investments

    (0.19     (0.27     2.32        0.51        (0.61
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.16     (0.14     2.41        0.61        (0.55

Distributions to shareholders from

         

Net investment income

    0.00        (0.07     (0.50     (0.00 )3      0.00   

Net asset value, end of period

    $11.34        $11.50        $11.71        $9.80        $9.19   

Total return2

    (1.39 )%      (1.25 )%      25.70     6.69     (5.65 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.59     2.52     2.68     2.35     2.23

Net expenses

    2.15     2.16     2.16     2.12     2.16

Net investment income (loss)

    0.29     1.10     0.88     1.11     0.64

Supplemental data

         

Portfolio turnover rate

    31     33     40     57     53

Net assets, end of period (000s omitted)

    $50        $37        $174        $299        $482   

 

 

1 Calculated based upon average shares outstanding

 

2 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

 

24   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.08        $11.35        $9.54        $9.01        $9.59   

Net investment income (loss)

    0.04 1      0.13 1      0.09 1      0.11 1      0.07 1 

Net realized and unrealized gains (losses) on investments

    (0.20     (0.27     2.25        0.48        (0.61
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.16     (0.14     2.34        0.59        (0.54

Distributions to shareholders from

         

Net investment income

    (0.18     (0.13     (0.53     (0.06     (0.04

Net asset value, end of period

    $10.74        $11.08        $11.35        $9.54        $9.01   

Total return2

    (1.44 )%      (1.24 )%      25.67     6.67     (5.65 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.60     2.51     2.66     2.43     2.22

Net expenses

    2.15     2.16     2.16     2.16     2.16

Net investment income (loss)

    0.33     1.15     0.84     1.21     0.72

Supplemental data

         

Portfolio turnover rate

    31     33     40     57     53

Net assets, end of period (000s omitted)

    $3,573        $1,616        $1,746        $628        $625   

 

 

1 Calculated based upon average shares outstanding

 

2 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 Diversified International Fund     25   

(For a share outstanding throughout the period)

 

CLASS R   Year ended
October 31, 20151
 

Net asset value, beginning of period

    $11.13   

Net investment loss

    (0.01

Net realized and unrealized gains (losses) on investments

    0.74   
 

 

 

 

Total from investment operations

    0.73   

Net asset value, end of period

    $11.86   

Total return2

    6.56

Ratios to average net assets (annualized)

 

Gross expenses

    2.15

Net expenses

    1.60

Net investment loss

    (0.65 )% 

Supplemental data

 

Portfolio turnover rate

    31

Net assets, end of period (000s omitted)

    $27   

 

 

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

 

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

 

26   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout the period)

 

CLASS R6   Year ended
October 31, 20151
 

Net asset value, beginning of period

    $11.13   

Net investment income

    0.00 2 

Net realized and unrealized gains (losses) on investments

    0.74   
 

 

 

 

Total from investment operations

    0.74   

Net asset value, end of period

    $11.87   

Total return3

    6.65

Ratios to average net assets (annualized)

 

Gross expenses

    1.46

Net expenses

    0.89

Net investment income

    0.05

Supplemental data

 

Portfolio turnover rate

    31

Net assets, end of period (000s omitted)

    $27   

 

 

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.


Table of Contents

 

Financial highlights   Wells Fargo Diversified International Fund     27   

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $12.23        $12.47        $10.42        $9.68        $10.28   

Net investment income

    0.16 1      0.26 1      0.19 1      0.21 1      0.05 1 

Net realized and unrealized gains (losses) on investments

    (0.22     (0.30     2.47        0.53        (0.52
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.06     (0.04     2.66        0.74        (0.47

Distributions to shareholders from

         

Net investment income

    (0.30     (0.20     (0.61     0.00        (0.13

Net asset value, end of period

    $11.87        $12.23        $12.47        $10.42        $9.68   

Total return2

    (0.46 )%      (0.39 )%      26.85     7.64     (4.69 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.72     1.60     1.74     1.52     1.35

Net expenses

    1.25     1.25     1.25     1.25     1.24

Net investment income

    1.31     2.10     1.72     2.11     0.44

Supplemental data

         

Portfolio turnover rate

    31     33     40     57     53

Net assets, end of period (000s omitted)

    $10,540        $7,283        $8,195        $3,504        $3,421   

 

 

1 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

 

28   Wells Fargo Diversified International Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.50        $11.79        $10.20        $9.69        $10.29   

Net investment income

    0.17 1      0.26 1      0.20 1      0.19 1      0.23   

Net realized and unrealized gains (losses) on investments

    (0.20     (0.27     2.37        0.51        (0.68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.03     (0.01     2.57        0.70        (0.45

Distributions to shareholders from

         

Net investment income

    (0.33     (0.28     (0.98     (0.19     (0.15

Net asset value, end of period

    $11.14        $11.50        $11.79        $10.20        $9.69   

Total return2

    (0.23 )%      (0.18 )%      27.28     7.51     (4.48 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.47     1.33     1.50     1.20     1.03

Net expenses

    0.99     0.99     0.99     0.99     0.99

Net investment income

    1.45     2.23     1.94     1.96     2.17

Supplemental data

         

Portfolio turnover rate

    31     33     40     57     53

Net assets, end of period (000s omitted)

    $7,106        $2,683        $2,406        $7,367        $419,925   

 

 

1 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 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. Shareholder 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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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 2015, such fair value pricing was 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 at net asset value when available.

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.

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”). 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 fair valued based upon the amortized cost valuation technique. 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 Diversified International Fund     31   

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, 2015, 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
$13    $118,742    $(118,755)

Capital loss carryforwards that do not expire are required to be utilized prior to capital loss carryforwards that expire. As of October 31, 2015, 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

   $9,194,452    $2,025,419

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:

 

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)


Table of Contents

 

32   Wells Fargo Diversified International Fund   Notes to financial statements

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

Australia

   $ 0       $ 1,234,397       $ 0       $ 1,234,397   

Austria

     0         296,598         0         296,598   

Belgium

     0         1,440,185         0         1,440,185   

Brazil

     22,383         282,878         0         305,261   

Canada

     1,564,198         0         0         1,564,198   

China

     1,749,090         4,137,710         0         5,886,800   

Czech Republic

     0         97,905         0         97,905   

Denmark

     0         92,103         0         92,103   

Finland

     0         148,731         0         148,731   

France

     0         5,480,386         0         5,480,386   

Germany

     0         10,548,470         0         10,548,470   

Hong Kong

     0         3,268,059         0         3,268,059   

Hungary

     0         28,358         0         28,358   

India

     526,265         507,239         0         1,033,504   

Ireland

     1,607,001         287,505         0         1,894,506   

Israel

     0         470,920         0         470,920   

Italy

     0         3,287,584         0         3,287,584   

Japan

     0         16,599,994         0         16,599,994   

Liechtenstein

     94,665         0         0         94,665   

Mexico

     926,289         0         0         926,289   

Netherlands

     208,120         2,034,141         0         2,242,261   

Norway

     194,976         831,484         0         1,026,460   

Poland

     0         87,088         0         87,088   

Russia

     152,250         119,216         0         271,466   

Singapore

     0         209,016         0         209,016   

South Africa

     84,298         193,382         0         277,680   

South Korea

     0         1,915,875         0         1,915,875   

Spain

     245,202         1,023,739         0         1,268,941   

Sweden

     0         1,802,002         0         1,802,002   

Switzerland

     201,375         7,656,577         0         7,857,952   

Taiwan

     0         246,538         0         246,538   

Thailand

     137,046         0         0         137,046   

United Kingdom

     2,470,717         14,141,543         0         16,612,260   

United States

     1,642,091         0         0         1,642,091   

Participation notes

           

China

    
0
  
     325,954         0         325,954   

Preferred stocks

           

Brazil

     0         25,240         0         25,240   

Germany

     0         279,051         0         279,051   

Rights

           

Spain

     0         1,254         0         1,254   

Short-term investments

           

Investment companies

     3,073,631         353,678         0         3,427,309   
     14,899,597         79,454,800         0         94,354,397   

Forward foreign currency contracts

     0         123,291         0         123,291   

Total assets

   $ 14,899,597       $ 79,578,091       $ 0       $ 94,477,688   


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Notes to financial statements   Wells Fargo Diversified International Fund     33   

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. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $64,278,514 were transferred from Level 1 to Level 2. The Fund did not have any 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 applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.85% and declined to 0.70% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31 2015, 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 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 Management, and Wells Cap (an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo) are the subadvisers to the Fund and are 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  
     Current rate        Rate prior to
July 1, 2015
 

Class A, Class B, Class C

     0.21        0.26

Class R

     0.21           N/A   

Class R6

     0.03           N/A   

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   

Investor Class

     0.32           0.32   


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34   Wells Fargo Diversified International Fund   Notes to financial statements

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed to waive fees and/or reimburse expenses to the extent necessary to cap expenses as follows:

 

       Expense
ratio cap
       Expiration date  

Class A

       1.41%           February 29, 2016   

Class B

       2.16%           February 29, 2016   

Class C

       2.16%           February 29, 2016   

Class R

       1.60%           February 28, 2017   

Class R6

       0.89%           February 28, 2017   

Administrator Class

       1.25%           February 29, 2016   

Institutional Class

       0.99%           February 29, 2016   

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, 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, 2015, Funds Distributor received $2,855 from the sale of Class A shares and $131 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, Class R, Administrator Class, and Investor Class of the Fund is 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, 2015 were $37,005,546 and $26,147,064, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.

At October 31, 2015, 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, 2015

      

In exchange

for U.S. $

       Unrealized
gains
 

11-27-2015

     Credit Suisse        88,500 EUR       $ 97,348         $ 99,450         $ 2,102   

11-27-2015

     Credit Suisse        1,354,300  EUR         1,489,699           1,559,598           69,899   

12-28-2015

     Morgan Stanley        397,700  EUR         437,755           447,234           9,479   

1-13-2016

     Citibank        134,796,000  JPY         1,118,652           1,126,624           7,972   

1-13-2016

     Credit Suisse        1,116,551  EUR         1,229,449           1,263,288           33,839   


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Notes to financial statements   Wells Fargo Diversified International Fund     35   

The Fund had average contract amounts of $289,251 and $4,000,660 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

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

   Credit Suisse      $ 105,840    $ 0         $ 0         $ 105,840   
   Citibank        7,972      0           0           7,972   
   Morgan Stanley        9,479      0           0           9,479   
  * Amount represents net unrealized gains.  

7. BANK BORROWINGS

The Trust (excluding the money market funds) and Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $188 commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $1,961,502 and $1,357,365 of ordinary income for the years ended October 31, 2015 and October 31, 2014, respectively.

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary income
   Unrealized
gains
   Capital loss
carryforward
$1,164,812    $3,911,736    $(100,526,346)

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.


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36   Wells Fargo Diversified International 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 Diversified International Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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, 2015, 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, 2015, 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, 2015


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Other information (unaudited)   Wells Fargo Diversified International Fund     37   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 4.17% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended October 31, 2015.

Pursuant to Section 854 of the Internal Revenue Code, $1,961,502 of income dividends paid during the fiscal year ended October 31, 2015 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 2015. 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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38   Wells Fargo Diversified International 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 144 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   Other
public company or
investment company
directorships during
past 5 years
William R. Ebsworth
(Born 1957)
  Trustee, since 2015**  

Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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 Diversified International Fund     39   
Name and
year of birth
  Position held and
length of service*
  Principal occupations during past five years or longer   Other
public company or
investment company
directorships during
past 5 years
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
Donald C. Willeke
(Born 1940)
  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
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 72 funds and Assistant Treasurer of 72 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 wellsfargoadvantagefunds.com.


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40   Wells Fargo Diversified International Fund   Other information (unaudited)

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Diversified International Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; (iii) an investment sub-advisory agreement with Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management; (iv) an investment sub-advisory agreement with Artisan Partners, LP ( “Artisan”); and (v) an investment sub-advisory agreement with LSV Asset Management (“LSV”). The Management Agreement combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The sub-advisory agreements with WellsCap, Artisan and LSV (the “Sub-Advisers”) are collectively referred to as the “Sub-Advisory Agreements,” and the Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of each Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to the Fund.


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Other information (unaudited)   Wells Fargo Diversified International Fund     41   

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper 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 or in range of its benchmark, the MSCI EAFE 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 (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper reports, the Board noted that the net operating expense ratios of the Fund were equal to or lower than the median net operating expense ratios of the expense Groups for all share classes except the Investor Class. The Board discussed and accepted Funds Management’s proposal to reduce the net operating expense ratio caps for the Class A, Class B and Class C, and to convert the Investor Class shares into Class A shares.

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 Agreement and the Sub-Advisory Agreements and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were in range of the average rates for the Fund’s expense Groups for all share classes except the Investor Class. The Board discussed and accepted Funds Management’s proposal to convert the Investor Class shares into Class A shares.

The Board also received and considered information about the portion of the total advisory fee that was retained by Funds Management after payment of the fee to the Sub-Advisers 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-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 the advisory fee 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


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42   Wells Fargo Diversified International Fund   Other information (unaudited)

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 Advisory 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 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 profitability analysis. The Board did not consider profitability with respect to Artisan or LSV, as the sub-advisory fees paid to 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 advisory and management fee structures, and the Fund’s administration 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-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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of each Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also determined that the compensation payable to Funds Management and the Sub-Advisers under each of the Advisory Agreements was reasonable.


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List of abbreviations   Wells Fargo Diversified International Fund     43   

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

ACA —  ACA Financial Guaranty Corporation
ADR —  American depositary receipt
ADS —  American depositary shares
AGC —  Assured Guaranty Corporation
AGM —  Assured Guaranty Municipal
Ambac —  Ambac Financial Group Incorporated
AMT —  Alternative minimum tax
AUD —  Australian dollar
BAN —  Bond anticipation notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazilian real
CAB —  Capital appreciation bond
CAD —  Canadian dollar
CCAB —  Convertible capital appreciation bond
CDA —  Community Development Authority
CDO —  Collateralized debt obligation
CHF —  Swiss franc
COP —  Colombian peso
CLP —  Chilean peso
DKK —  Danish krone
DRIVER —  Derivative inverse tax-exempt receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-traded fund
EUR —  Euro
FDIC —  Federal Deposit Insurance Corporation
FFCB —  Federal Farm Credit Banks
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Administration
FHLB —  Federal Home Loan Bank
FHLMC —  Federal Home Loan Mortgage Corporation
FICO —  The Financing Corporation
FNMA —  Federal National Mortgage Association
FSA —  Farm Service Agency
GBP —  Great British pound
GDR —  Global depositary receipt
GNMA —  Government National Mortgage Association
GO —  General obligation
HCFR —  Healthcare facilities revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher education facilities authority revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong dollar
HUD —  Department of Housing and Urban Development
HUF —  Hungarian forint
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Indonesian rupiah
IEP —  Irish pound
JPY —  Japanese yen
KRW —  Republic of Korea won
LIBOR —  London Interbank Offered Rate
LIFER —  Long Inverse Floating Exempt Receipts
LIQ —  Liquidity agreement
LLC —  Limited liability company
LLLP —  Limited liability limited partnership
LLP —  Limited liability partnership
LOC —  Letter of credit
LP —  Limited partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multifamily housing revenue
MSTR —  Municipal securities trust receipts
MTN —  Medium-term note
MUD —  Municipal Utility District
MXN —  Mexican peso
MYR —  Malaysian ringgit
National —  National Public Finance Guarantee Corporation
NGN —  Nigerian naira
NOK —  Norwegian krone
NZD —  New Zealand dollar
PCFA —  Pollution Control Financing Authority
PCL —  Public Company Limited
PCR —  Pollution control revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable floating option tax-exempt receipts
plc —  Public limited company
PLN —  Polish zloty
PUTTER —  Puttable tax-exempt receipts
R&D —  Research & development
Radian —  Radian Asset Assurance
RAN —  Revenue anticipation notes
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real estate investment trust
ROC —  Reset option certificates
RON —  Romanian lei
RUB —  Russian ruble
SAVRS —  Select auction variable rate securities
SBA —  Small Business Authority
SDR —  Swedish depositary receipt
SEK —  Swedish krona
SFHR —  Single-family housing revenue
SFMR —  Single-family mortgage revenue
SGD —  Singapore dollar
SPA —  Standby purchase agreement
SPDR —  Standard & Poor’s Depositary Receipts
SPEAR —   Short Puttable Exempt Adjustable Receipts
STRIPS —  Separate trading of registered interest and
           principal securities
TAN —  Tax anticipation notes
TBA —  To be announced
THB —  Thai baht
TIPS —  Treasury inflation-protected securities
TRAN —  Tax revenue anticipation notes
TRY —  Turkish lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
ZAR —  South African rand
 


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For more information

More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238506 12-15

A237/AR237 10-15


Table of Contents

Annual Report

October 31, 2015

 

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Wells Fargo Emerging Markets 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

    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

    29   

Other information

    30   

List of abbreviations

    36   

 

The views expressed and any forward-looking statements are as of October 31, 2015, 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 Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery.

 

 

 

 

Other major central banks, including the European Central Bank and the Bank of Japan, also continued to ease in order to support their respective economies.

 

 

Dear Valued 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, 2015. The period was marked by continued low global interest rates and sluggish economic recovery in developed markets. However, the expectation that the U.S. Federal Reserve (Fed) would soon raise its key interest rate, combined with signs of further quantitative easing from other central banks, depressed the prices of international assets for U.S. dollar-based investors.

The Fed showed signs of raising its key rate, but other central banks continued to ease.

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery. For example, the U.S. unemployment rate eased from 5.8% at the beginning of the reporting period (November 2014) to 5.0% at the end (October 2015). Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero.

As the period progressed, various comments by Fed Chair Janet Yellen led investors to believe that the FOMC would soon raise its key federal funds rate. The FOMC remained on hold at its September 2015 meeting, however, citing concerns about a weaker global economy and subdued U.S. inflation. The FOMC’s decision caused some uncertainty, but by the end of the period, most investors expected a modest Fed rate hike in late 2015 or early 2016.

In contrast, the People’s Bank of China (PBOC) continued to take several steps to support the slowing Chinese economy. In October 2015, the PBOC cut its benchmark one-year lending and deposit rates for the sixth time since November 2014 and trimmed the percentage of deposits that large banks need to hold as reserves for the fourth time. The moves were aimed at supporting the economy by encouraging lending. The PBOC’s actions tended to put pressure on the yuan versus foreign currencies, pressure that was only reinforced when the PBOC officially devalued the currency in August.

Other major central banks, including the European Central Bank and the Bank of Japan, also continued to ease in order to support their respective economies. The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies, including most emerging markets currencies.

The year was a difficult one for emerging markets investing, marked by slower growth in China and a stronger dollar that depressed the returns of international assets.

Emerging markets faced a number of internal and external headwinds during the past 12 months. Internal factors included not only an economic slowdown in China—with the country’s annual growth rate dipping below 7% for the first time since 2009—but also persistent low prices for oil, natural gas, and industrial metals such as copper. Low oil and commodity prices weakened the economies of commodity producers, including Brazil, which also grappled with a political scandal involving corruption at its state-owned oil firm. Among external factors, global investors continued to worry about the timing of the first rate hike in the U.S. since 2006. The prospect for a U.S. rate hike led to a stronger U.S. dollar; given that many emerging markets have issued U.S. dollar-denominated debt, dollar strength could make it more difficult for emerging countries to repay their creditors.

 


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

As measured in local currency, the Morgan Stanley Capital International (MSCI) Emerging Markets Index (Net)1 lost 3.47% for the 12-month period, reflecting the headwinds in emerging markets. However, in U.S. dollar terms—the relevant return for U.S. dollar-based investors—the index declined 14.53% for the reporting period. This difference in returns highlights the dollar’s strength during the reporting period.

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

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

1  The Morgan Stanley Capital International (MSCI) Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index. 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.


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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, 20151

 

        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     (19.91     (4.11     6.66        (15.02     (2.97     7.29        1.60        1.60   
Class B (EMGBX)*   9-6-1994     (19.84     (4.07     6.74        (15.62     (3.68     6.74        2.35        2.35   
Class C (EMGCX)   9-6-1994     (16.63     (3.69     6.50        (15.63     (3.69     6.50        2.35        2.35   
Class R6 (EMGDX)   6-28-2013                          (14.61     (2.52     7.69        1.17        1.17   
Administrator Class (EMGYX)   9-6-1994                          (14.91     (2.81     7.52        1.52        1.50   
Institutional Class (EMGNX)   7-30-2010                          (14.66     (2.55     7.68        1.27        1.23   
MSCI Emerging Markets Index (Net)4                            (14.53     (2.80     5.70                 
*   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 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, 20155
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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, 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 1.61% for Class A, 2.36% for Class B, 2.36% for Class C, 1.18% for Class R6, 1.49% for Administrator Class, and 1.22% 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) Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index. 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.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI Emerging Markets 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.


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

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its benchmark, the MSCI Emerging Markets Index (Net) for the 12-month period that ended October 31, 2015.

 

n   The largest relative detractors among sectors included financials, health care, and energy. South Africa and Russia were among the most notable detractors on a country basis.

 

n   Top contributing sectors included consumer staples and information technology (IT). Among countries, contributors included China/Hong Kong, India, and Malaysia.

For most of the year, global macroeconomic factors rather than company fundamentals were the primary drivers of emerging markets.

Emerging markets fell sharply in December 2014 as the decline in crude oil prices, a strengthening U.S. dollar, and weak economic data in other developed economies weighed on sentiment. Russian equities fell more than 20% in U.S. dollar terms as the ruble experienced a crisis that required aggressive central bank action and political intervention to stabilize. Other oil-dependent economies also struggled, and aggressive currency moves made for a challenging investment environment. China was the exception, as financial stocks rallied sharply due to stimulus measures from the Chinese government. The rocky end to 2014 underscored investor nervousness following several years of slowing economic growth and emerging markets equity underperformance.

Going into 2015, currency swings dominated the emerging markets landscape, and the Russian ruble and the Indian rupee rallied sharply while other currencies remained under pressure. Chinese equities performed strongly as the government continued its supportive economic policies but simultaneously stoked equity market speculation. The U.S. Federal Reserve looked more likely to delay hiking interest rates, and this boosted markets, particularly in quantitative-easing-dependent countries like Brazil and Russia. China’s Hong Kong-listed shares rose on a surge of capital from mainland China combined with a surprise cut in the requirement reserve ratio for Chinese banks. By late April, emerging markets equities were approaching the top of the trading range in which they had been stuck for the past several years.

As if on cue, markets reversed course from late April through the end of August as the rampaging mainland Chinese equity market sharply reversed, undermining virtually the entire emerging markets universe. Over the four-month period starting in late April, the MSCI Emerging Markets Index (Net) suffered a 26.7% decline, the second-largest drawdown since the global financial crisis. Signs of stability emerged by October, and bargain-seeking investors reemerged, driving a large, if potentially unstable, rally.

We made modest changes to the portfolio during the reporting period. We trimmed positions such as Taiwan Semiconductor Manufacturing Company, Limited, and South Korea’s AmorePacific Corporation on profit-taking and Brazil’s Petroleo Brasileiro S.A. and Russia’s Sberbank Russia OJSC* because of deterioration in their fundamentals. We also eliminated some small positions that had been previously traded down. One of the notable additions was China’s Tencent Holdings Limited, taking advantage of a fallback in price.

 

Ten largest holdings (%) as of October 31, 20156  

Samsung Electronics Company Limited

    5.27   

Taiwan Semiconductor Manufacturing Company Limited ADR

    3.58   

China Mobile Limited

    3.09   

China Life Insurance Company Limited H Shares

    2.90   

Fomento Economico Mexicano SAB de CV ADR

    2.87   

AIA Group Limited

    2.02   

Uni-President Enterprises Corporation

    1.95   

Ctrip.com International Limited ADR

    1.91   

ITC Limited

    1.71   

America Movil SAB de CV ADR

    1.70   

Strong stock performance in China/Hong Kong, India, and Malaysia was offset by weak returns in South Africa and Russia. In China/Hong Kong, the Fund benefited from an overweight to the markets and from strong absolute performances from such names as Ctrip.com International, Limited; China Life Insurance Company Limited; and SINA Corporation. Our biggest challenges were related to the Fund’s underweight position in Tencent (China) and its significant shareholder Naspers Limited (South Africa) because Tencent appreciated sharply early in the period. Additionally, slow growth in South Africa and trouble in Nigeria weighed on Shoprite Holdings Limited, a South African grocer with operations in both countries.

 

 

 

Please see footnotes on page 5.


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

Sectorally, consumer staples leaders were well diversified and included Mexican bottler and retailer Fomento Economico Mexicano, S.A.B de C.V.; Taiwanese consumer food and beverage company Uni-President Enterprises Corporation; and KT&G Corporation, the Korean tobacco and ginseng market leader. Certain Chinese internet companies, along with an overweight to Taiwanese semiconductor giant Taiwan Semiconductor Manufacturing Company, Limited, helped drive performance in IT. The Fund lagged in the financials sector, as Chinese banks, to which it has no exposure, performed well early in the year. An underweight to the health care sector, which held up better than the benchmark, along with unfavorable stock selection in that sector, detracted from relative results.

 

Sector distribution as of October 31, 20157
LOGO
Country allocation as October 31, 20157
LOGO
 

 

We remain cautiously optimistic about the opportunities in emerging markets.

Growth in emerging markets will likely be subdued in the near term. Many of the global macroeconomic trends currently in place may continue to be the main market drivers through the remainder of 2015, although we would hope to a lesser degree. Slowing growth in China and sustainably lower commodity prices will act as headwinds to global growth and may tip individual companies and even certain economies into crisis. So far, adjustment mechanisms such as flexible exchange rates and high levels of foreign exchange reserves have worked well. However, if the current trend of declining foreign exchange reserves (in China and elsewhere) continues, it will undoubtedly have a tightening effect on monetary conditions in emerging markets.

We believe that even in a slower-growth environment, emerging markets will continue to be an important component of the global economy, offering many excellent companies with strong long-term growth prospects. Often, times of stress provide the opportunity to buy such assets at compelling valuations. Further, just as we need to be vigilant of markets coming undone quickly, we must remember that economies can adjust more quickly than expected. For instance, there are already signs of adjustment occurring in countries with large current account surpluses, such as Brazil and South Africa. Aggressive currency declines have begun to alter the terms of trade, which in turn may be closing trade gaps in both countries. Sentiment is extremely negative in emerging markets, and often that is the point where conditions begin to improve. Finally, in our view emerging markets equity valuations are not stretched, particularly when compared with their developed markets counterparts.

 

 

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, 2015 to October 31, 2015.

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

5-1-2015

    

Ending

account value

10-31-2015

    

Expenses

paid during

the period1

    

Net annualized

expense ratio

 

Class A

           

Actual

   $ 1,000.00       $ 862.25       $ 7.60         1.62

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.04       $ 8.24         1.62

Class B

           

Actual

   $ 1,000.00       $ 859.38       $ 11.01         2.37

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.36       $ 11.93         2.37

Class C

           

Actual

   $ 1,000.00       $ 859.39       $ 11.11         2.37

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.26       $ 12.03         2.37

Class R6

           

Actual

   $ 1,000.00       $ 864.42       $ 5.55         1.18

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.26       $ 6.01         1.18

Administrator Class

           

Actual

   $ 1,000.00       $ 862.79       $ 6.95         1.48

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.74       $ 7.53         1.48

Institutional Class

           

Actual

   $ 1,000.00       $ 863.97       $ 5.73         1.22

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.06       $ 6.21         1.22

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo Emerging Markets Equity Fund     9   

    

 

 

Security name             Shares      Value  

Common Stocks: 96.38%

          
Argentina: 0.51%           

MercadoLibre Incorporated (Information Technology, Internet Software & Services) «

          175,300       $ 17,244,261   
          

 

 

 
Brazil: 6.03%           

Ambev SA ADR (Consumer Staples, Beverages)

          8,022,000         39,067,140   

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

          2,951,424         11,147,386   

Banco Bradesco SA ADR (Financials, Banks)

          4,735,249         25,759,755   

BM&F Bovespa SA (Financials, Diversified Financial Services)

          8,659,000         25,602,821   

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

          976,078         14,963,276   

CETIP SA (Financials, Capital Markets)

          3,081,437         27,258,007   

Lojas Renner SA (Consumer Discretionary, Multiline Retail)

          3,833,000         18,388,850   

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

          1,126,200         12,279,005   

Petroleo Brasileiro SA ADR Class A (Energy, Oil, Gas & Consumable Fuels) †

          1,482,953         5,916,982   

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

          1,522,600         15,783,763   

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

          3,095,351         5,890,301   

Vale SA ADR (Materials, Metals & Mining) «

          421,636         1,838,333   
             203,895,619   
          

 

 

 
Chile: 1.94%           

Banco Santander Chile SA ADR (Financials, Banks)

          1,669,200         31,698,108   

SACI Falabella (Consumer Discretionary, Multiline Retail)

          5,042,942         33,908,872   
             65,606,980   
          

 

 

 
China: 22.90%           

51Job Incorporated ADR (Industrials, Professional Services) Ǡ

          1,123,941         38,000,445   

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

          308,037         25,822,742   

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

          176,540         33,095,954   

China Auto Rental Incorporated (Consumer Discretionary, Automobiles) †«

          1,256,469         2,197,016   

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

          27,168,290         97,971,085   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          8,720,165         104,553,779   

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

          33,674,000         38,035,171   

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

          693,816         64,504,074   

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

          5,077,000         54,823,614   

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

          908,901         3,513,064   

Mindray Medical International Limited ADR (Health Care, Health Care Equipment & Supplies)

          644,148         15,446,669   

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

          1,761,182         48,450,117   

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

          21,266,000         16,649,232   

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

          18,024,000         12,444,927   

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

          1,165,907         55,543,809   

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

          1,678,800         31,644,324   

Tingyi Holding Corporation (Consumer Staples, Food Products)

          22,498,000         38,517,455   

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

          8,310,000         39,667,715   

Vipshop Holdings Limited ADR (Consumer Discretionary, Internet & Catalog Retail) «†

          1,634,738         33,544,824   

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

          1,243,046         20,037,902   
             774,463,918   
          

 

 

 

 

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, 2015

    

 

 

Security name             Shares      Value  
Colombia: 0.55%           

Bancolombia SA ADR (Financials, Banks) «

          542,400       $ 18,777,888   
          

 

 

 
Hong Kong: 6.51%           

AIA Group Limited (Financials, Insurance)

          11,651,400         68,315,996   

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

          54,659,000         53,053,997   

Johnson Electric Holdings Limited (Industrials, Electrical Equipment)

          4,214,250         15,424,132   

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

          25,884,207         13,486,528   

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

          30,190,500         24,677,397   

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

          81,905,500         45,166,678   
             220,124,728   
          

 

 

 
India: 10.12%           

Bharti Airtel Limited (Telecommunication Services, Wireless Telecommunication Services)

          4,038,728         21,527,901   

Bharti Infratel Limited (Telecommunication Services, Wireless Telecommunication Services)

          3,378,464         20,079,068   

HDFC Bank Limited ADR (Financials, Banks)

          123,826         7,570,722   

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

          2,230,700         42,757,535   

ICICI Bank Limited ADR (Financials, Banks)

          5,911,775         50,959,501   

Indusind Bank Limited (Financials, Banks)

          817,217         11,377,959   

Infosys Limited ADR (Information Technology, IT Services) «

          3,052,460         55,432,674   

ITC Limited (Consumer Staples, Tobacco)

          11,312,640         57,811,208   

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

          1,834,200         26,564,681   

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

          1,246,587         35,777,047   

Ultra Tech Cement Limited (Materials, Construction Materials)

          286,000         12,628,662   
             342,486,958   
          

 

 

 
Indonesia: 2.19%           

PT Astra International Tbk (Consumer Discretionary, Automobiles)

          14,651,000         6,298,152   

PT Bank Central Asia Tbk (Financials, Banks)

          9,549,500         8,971,060   

PT Blue Bird Tbk (Industrials, Road & Rail)

          13,605,309         5,734,174   

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

          44,178,161         13,843,730   

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

          10,474,600         12,611,287   

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

          666,877         26,515,030   
             73,973,433   
          

 

 

 
Malaysia: 1.12%           

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

          8,480,900         14,619,192   

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

          17,996,300         17,996,949   

Sime Darby Bhd (Industrials, Industrial Conglomerates)

          2,665,937         5,177,211   
             37,793,352   
          

 

 

 
Mexico: 10.99%           

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

          3,232,320         57,567,619   

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

          3,089,994         19,497,862   

Fibra Uno Administracion SAB de CV (Financials, REITs)

          25,836,922         56,654,840   

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

          979,100         97,019,019   

Grupo Financiero Banorte SAB de CV (Financials, Banks)

          9,798,611         52,458,025   

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

          2,508,441         22,952,235   

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

          1,714,153         3,009,507   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Emerging Markets Equity Fund     11   

    

 

 

Security name             Shares      Value  
Mexico (continued)           

Grupo Televisa SAB ADR (Consumer Discretionary, Media)

          1,017,000       $ 29,635,380   

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

          12,477,100         33,047,568   
             371,842,055   
          

 

 

 
Peru: 0.29%           

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

          1,523,600         9,766,276   
          

 

 

 
Philippines: 0.82%           

Ayala Corporation (Financials, Diversified Financial Services)

          647,624         10,774,665   

Metropolitan Bank & Trust Company (Financials, Banks)

          4,287,486         7,777,270   

SM Investments Corporation (Industrials, Industrial Conglomerates)

          488,582         9,112,238   
             27,664,173   
          

 

 

 
Russia: 2.63%           

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

          636,249         23,112,144   

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

          95,300         16,550,389   

Mobile Telesystems ADR (Telecommunication Services, Wireless Telecommunication Services)

          1,417,800         9,967,134   

Sberbank of Russia (Financials, Banks) (a)

          2,417,377         3,412,896   

Sberbank of Russia ADR (Financials, Banks)

          2,181,195         13,320,333   

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

          1,395,106         22,461,207   
             88,824,103   
          

 

 

 
South Africa: 4.46%           

Anglo American Platinum Limited (Materials, Metals & Mining)

          106,832         1,868,562   

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

          1,077,592         9,094,876   

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

          860,000         6,272,721   

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

          1,290,758         3,520,109   

MTN Group Limited (Telecommunication Services, Wireless Telecommunication Services)

          2,142,643         24,393,156   

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

          130,000         4,165,417   

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

          3,738,100         38,845,032   

Standard Bank Group Limited (Financials, Banks)

          2,245,190         23,327,806   

Tiger Brands Limited (Consumer Staples, Food Products)

          1,725,333         39,447,773   
             150,935,452   
          

 

 

 
South Korea: 11.49%           

Amorepacific Corporation (Consumer Staples, Personal Products)

          42,200         13,929,982   

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

          4,024,813         52,805,547   

KT&G Corporation (Consumer Staples, Tobacco)

          327,091         32,707,665   

Naver Corporation (Information Technology, Internet Software & Services)

          60,200         31,609,507   

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

          148,536         178,157,883   

Samsung Life Insurance Company Limited (Financials, Insurance)

          561,337         53,595,439   

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

          963,000         25,772,022   
             388,578,045   
          

 

 

 
Taiwan: 8.68%           

104 Corporation (Industrials, Commercial Services & Supplies) (l)

          1,655,000         7,546,611   

Far Eastern New Century Corporation (Industrials, Industrial Conglomerates)

          12,066,448         10,966,888   

Media Tek Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

          2,959,881         23,082,174   

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

          4,365,000         28,977,761   

 

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, 2015

    

 

 

Security name                Shares      Value  
Taiwan (continued)          

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

         8,585,224       $ 36,175,264   

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

         5,507,852         120,952,430   

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

         39,062,368         66,045,063   
            293,746,191   
         

 

 

 
Thailand: 3.44%          

Bangkok Bank PCL (Financials, Banks)

         2,869,800         13,472,877   

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

         5,978,139         12,269,745   

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

         2,945,900         22,777,044   

Siam Commercial Bank PCL (Financials, Banks)

         8,355,100         31,360,254   

Thai Beverage PCL (Consumer Staples, Beverages)

         76,027,000         36,558,952   
            116,438,872   
         

 

 

 
Turkey: 0.83%          

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

         2,720,453         21,442,999   

Avivasa Emeklilik Ve Hayat AS (Financials, Insurance) «

         1,246,853         6,778,699   
            28,221,698   
         

 

 

 
United Arab Emirates: 0.10%          

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

         3,773,147         3,219,466   
         

 

 

 
United Kingdom: 0.78%          

Standard Chartered plc (Financials, Banks)

         2,376,301         26,378,448   
         

 

 

 

Total Common Stocks (Cost $3,364,572,848)

            3,259,981,916   
         

 

 

 
    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         1,260   
         

 

 

 

Total Convertible Debentures (Cost $160,691)

            1,260   
         

 

 

 
    Dividend yield            Shares         
Preferred Stocks: 1.61%          
Brazil: 1.61%          

Lojas Americanas SA (Consumer Discretionary, Multiline Retail) ±

    0.20           11,539,628         50,019,116   

Vale SA ADR (Materials, Metals & Mining) «±

    8.23           1,203,500         4,332,600   

Total Preferred Stocks (Cost $79,837,677)

            54,351,716   
         

 

 

 
          Expiration date                
Warrants: 0.00%          
Malaysia: 0.00%          

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

      12-18-2018         620,325         127,790   
         

 

 

 

Total Warrants (Cost $292,284)

            127,790   
         

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Emerging Markets Equity Fund     13   

    

 

 

Security name   Yield          Shares      Value  

Short-Term Investments: 5.24%

         
Investment Companies: 5.24%          

Securities Lending Cash Investments, LLC (l)(r)(u)

    0.14        114,754,652       $ 114,754,652   

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16           62,554,744         62,554,744   

Total Short-Term Investments (Cost $177,309,396)

            177,309,396      
         

 

 

 

 

Total investments in securities (Cost $3,622,172,896) *     103.23        3,491,772,078   

Other assets and liabilities, net

    (3.23        (109,233,813
 

 

 

      

 

 

 
Total net assets     100.00      $ 3,382,538,265   
 

 

 

      

 

 

 

 

 

 

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

 

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.

 

(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.

 

(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 $3,643,152,230 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 540,331,611   

Gross unrealized losses

     (691,711,763
  

 

 

 

Net unrealized losses

   $ (151,380,152

 

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, 2015
         

Assets

 

Investments

 

In unaffiliated securities (including $112,719,923 of securities loaned), at value (cost $3,439,187,564)

  $ 3,306,916,071   

In affiliated securities, at value (cost $182,985,332)

    184,856,007   
 

 

 

 

Total investments, at value (cost $3,622,172,896)

    3,491,772,078   

Foreign currency, at value (cost $3,940,424)

    3,209,435   

Receivable for investments sold

    6,284,046   

Receivable for Fund shares sold

    7,663,113   

Receivable for dividends

    1,169,110   

Receivable for securities lending income

    54,705   

Prepaid expenses and other assets

    95,757   
 

 

 

 

Total assets

    3,510,248,244   
 

 

 

 

Liabilities

 

Payable for Fund shares redeemed

    8,277,376   

Payable upon receipt of securities loaned

    114,754,652   

Due to custodian bank

    424,152   

Management fee payable

    3,063,171   

Distribution fees payable

    56,897   

Administration fees payable

    471,629   

Accrued expenses and other liabilities

    662,102   
 

 

 

 

Total liabilities

    127,709,979   
 

 

 

 

Total net assets

  $ 3,382,538,265   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 3,772,275,882   

Undistributed net investment income

    6,664,024   

Accumulated net realized losses on investments

    (265,197,893

Net unrealized losses on investments

    (131,203,748
 

 

 

 

Total net assets

  $ 3,382,538,265   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 873,992,390   

Shares outstanding – Class A1

    48,308,262   

Net asset value per share – Class A

    $18.09   

Maximum offering price per share – Class A2

    $19.19   

Net assets – Class B

  $ 1,453,466   

Shares outstanding – Class B1

    94,406   

Net asset value per share – Class B

    $15.40   

Net assets – Class C

  $ 84,004,101   

Shares outstanding – Class C1

    5,497,799   

Net asset value per share – Class C

    $15.28   

Net assets – Class R6

  $ 95,190,117   

Shares outstanding – Class R61

    5,009,640   

Net asset value per share – Class R6

    $19.00   

Net assets – Administrator Class

  $ 181,223,578   

Shares outstanding – Administrator Class1

    9,540,833   

Net asset value per share – Administrator Class

    $18.99   

Net assets – Institutional Class

  $ 2,146,674,613   

Shares outstanding – Institutional Class1

    113,013,502   

Net asset value per share – Institutional Class

    $18.99   

 

 

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, 2015   Wells Fargo Emerging Markets Equity Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $9,945,878)

  $ 88,546,726   

Securities lending income, net

    1,353,581   

Income from affiliated securities

    145,195   
 

 

 

 

Total investment income

    90,045,502   
 

 

 

 

Expenses

 

Management fee

    46,621,047   

Administration fees

 

Class A

    3,254,189   

Class B

    7,132   

Class C

    267,646   

Class R6

    16,555   

Administrator Class

    384,730   

Institutional Class

    2,453,156   

Shareholder servicing fees

 

Class A

    3,315,273   

Class B

    6,935   

Class C

    272,151   

Administrator Class

    831,033   

Distribution fees

 

Class B

    21,409   

Class C

    816,453   

Custody and accounting fees

    3,145,741   

Professional fees

    65,269   

Registration fees

    296,628   

Shareholder report expenses

    687,174   

Trustees’ fees and expenses

    11,513   

Other fees and expenses

    158,386   
 

 

 

 

Total expenses

    62,632,420   

Less: Fee waivers and/or expense reimbursements

    (716,732
 

 

 

 

Net expenses

    61,915,688   
 

 

 

 

Net investment income

    28,129,814   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (251,806,008

Forward foreign currency contract transactions

    104,391   
 

 

 

 

Net realized losses on investments

    (251,701,617
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (489,847,966

Affiliated securities

    908,438   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (488,939,528
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (740,641,145
 

 

 

 

Net decrease in net assets resulting from operations

  $ (712,511,331
 

 

 

 

 

 

 

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, 2015
    Year ended
October 31, 2014
 

Operations

       

Net investment income

    $ 28,129,814        $ 29,047,921   

Net realized gains (losses) on investments

      (251,701,617       21,339,971   

Net change in unrealized gains (losses) on investments

      (488,939,528       (75,469,857
 

 

 

 

Net decrease in net assets resulting from operations

      (712,511,331       (25,081,965
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (9,924,128       0   

Class R6

      (428,978       (45,340

Administrator Class

      (2,112,578       (1,783,180

Institutional Class

      (32,080,756       (8,965,400
 

 

 

 

Total distributions to shareholders

      (44,546,440       (10,793,920
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    18,081,212        353,509,537        32,727,297        667,582,307   

Class B

    251        4,375        783        13,808   

Class C

    176,868        2,961,953        586,118        10,456,764   

Class R6

    3,603,754        73,604,149        1,873,283        41,555,780   

Administrator Class

    4,842,916        101,861,997        13,152,480        287,170,895   

Institutional Class

    43,932,979        875,566,645        62,516,706        1,409,003,391   
 

 

 

 
      1,407,508,656          2,415,782,945   
 

 

 

 

Reinvestment of distributions

       

Class A

    489,710        9,691,371        0        0   

Class R6

    20,724        428,978        2,064        45,340   

Administrator Class

    97,246        2,017,592        75,992        1,668,033   

Institutional Class

    1,420,577        29,405,954        367,774        8,083,670   
 

 

 

 
      41,543,895          9,797,043   
 

 

 

 

Payment for shares redeemed

       

Class A

    (40,351,435     (778,700,113     (22,649,849     (476,947,718

Class B

    (200,667     (3,410,499     (298,920     (5,386,850

Class C

    (2,307,745     (38,097,771     (2,319,143     (41,212,489

Class R6

    (211,230     (4,141,231     (489,299     (10,990,607

Administrator Class

    (16,085,608     (308,944,371     (38,648,549     (875,255,756

Institutional Class

    (61,121,682     (1,222,764,057     (29,608,625     (662,852,447
 

 

 

 
      (2,356,058,042       (2,072,645,867
 

 

 

 

Net increase (decrease) in net assets resulting from capital share transactions

      (907,005,491       352,934,121   
 

 

 

 

Total increase (decrease) in net assets

      (1,664,063,262       317,058,236   
 

 

 

 

Net assets

       

Beginning of period

      5,046,601,527          4,729,543,291   
 

 

 

 

End of period

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

 

 

 

Undistributed net investment income

    $ 6,664,024        $ 23,514,409   
 

 

 

 

 

 

 

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   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $21.44        $21.77        $20.48        $20.93        $21.65   

Net investment income

    0.08        0.07        0.02        0.10        0.08   

Net realized and unrealized gains (losses) on investments

    (3.29     (0.40     1.33        (0.19     (0.80
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (3.21     (0.33     1.35        (0.09     (0.72

Distributions to shareholders from

         

Net investment income

    (0.14     0.00        (0.06     (0.14     (0.00 )1 

Net realized gains

    0.00        0.00        0.00        (0.22     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.14     0.00        (0.06     (0.36     (0.00 )1 

Net asset value, end of period

    $18.09        $21.44        $21.77        $20.48        $20.93   

Total return2

    (15.02 )%      (1.52 )%      6.62     (0.31 )%      (3.32 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.64     1.64     1.65     1.67     1.68

Net expenses

    1.64     1.64     1.65     1.67     1.68

Net investment income

    0.37     0.36     0.15     0.51     0.44

Supplemental data

         

Portfolio turnover rate

    8     7     13     7     5

Net assets, end of period (000s omitted)

    $873,992        $1,502,597        $1,306,269        $920,709        $917,633   

 

 

 

 

 

1  Amount is less than $0.005.

 

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 Emerging Markets Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $18.25        $18.67        $17.64        $18.06        $18.82   

Net investment loss

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

Net realized and unrealized gains (losses) on investments

    (2.77     (0.34     1.15        (0.15     (0.68
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (2.85     (0.42     1.03        (0.20     (0.76

Distributions to shareholders from

         

Net realized gains

    0.00        0.00        0.00        (0.22     0.00   

Net asset value, end of period

    $15.40        $18.25        $18.67        $17.64        $18.06   

Total return2

    (15.62 )%      (2.25 )%      5.84     (1.06 )%      (4.04 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.38     2.39     2.39     2.41     2.43

Net expenses

    2.38     2.39     2.39     2.41     2.43

Net investment loss

    (0.46 )%      (0.46 )%      (0.64 )%      (0.28 )%      (0.39 )% 

Supplemental data

         

Portfolio turnover rate

    8     7     13     7     5

Net assets, end of period (000s omitted)

    $1,453        $5,380        $11,071        $15,408        $21,652   

 

 

 

 

 

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 Emerging Markets Equity Fund     19   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $18.11        $18.53        $17.51        $17.92        $18.68   

Net investment loss

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

Net realized and unrealized gains (losses) on investments

    (2.77     (0.34     1.13        (0.13     (0.70
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (2.83     (0.42     1.02        (0.19     (0.76

Distributions to shareholders from

         

Net realized gains

    0.00        0.00        0.00        (0.22     0.00   

Net asset value, end of period

    $15.28        $18.11        $18.53        $17.51        $17.92   

Total return2

    (15.63 )%      (2.27 )%      5.83     (1.01 )%      (4.07 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.39     2.39     2.39     2.42     2.43

Net expenses

    2.39     2.39     2.39     2.42     2.43

Net investment loss

    (0.39 )%      (0.42 )%      (0.62 )%      (0.24 )%      (0.32 )% 

Supplemental data

         

Portfolio turnover rate

    8     7     13     7     5

Net assets, end of period (000s omitted)

    $84,004        $138,169        $173,454        $183,471        $200,796   

 

 

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 Emerging Markets Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS R6   2015     2014     20131  

Net asset value, beginning of period

    $22.53        $22.86        $20.89   

Net investment income

    0.19        0.21        0.01 2 

Net realized and unrealized gains (losses) on investments

    (3.46     (0.44     1.96   
 

 

 

   

 

 

   

 

 

 

Total from investment operations

    (3.27     (0.23     1.97   

Distributions to shareholders from

     

Net investment income

    (0.26     (0.10     0.00   

Net asset value, end of period

    $19.00        $22.53        $22.86   

Total return3

    (14.61 )%      (1.01 )%      9.43

Ratios to average net assets (annualized)

     

Gross expenses

    1.19     1.17     1.17

Net expenses

    1.18     1.17     1.17

Net investment income

    0.84     0.88     0.15

Supplemental data

     

Portfolio turnover rate

    8     7     13

Net assets, end of period (000s omitted)

    $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   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $22.44        $22.79        $21.44        $21.90        $22.63   

Net investment income

    0.12 1      0.13 1      0.05        0.14        0.02   

Net realized and unrealized gains (losses) on investments

    (3.46     (0.44     1.40        (0.18     (0.73
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (3.34     (0.31     1.45        (0.04     (0.71

Distributions to shareholders from

         

Net investment income

    (0.11     (0.04     (0.10     (0.20     (0.02

Net realized gains

    0.00        0.00        0.00        (0.22     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.11     (0.04     (0.10     (0.42     (0.02

Net asset value, end of period

    $18.99        $22.44        $22.79        $21.44        $21.90   

Total return

    (14.91 )%      (1.36 )%      6.83     (0.13 )%      (3.14 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.49     1.48     1.48     1.47     1.47

Net expenses

    1.48     1.48     1.48     1.47     1.47

Net investment income

    0.58     0.57     0.35     0.72     0.70

Supplemental data

         

Portfolio turnover rate

    8     7     13     7     5

Net assets, end of period (000s omitted)

    $181,224        $464,135        $1,050,660        $634,428        $529,083   

 

 

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   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $22.52        $22.86        $21.50        $21.96        $22.66   

Net investment income

    0.17        0.15        0.11        0.22        0.16   

Net realized and unrealized gains (losses) on investments

    (3.45     (0.40     1.40        (0.22     (0.81
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (3.28     (0.25     1.51        0.00        (0.65

Distributions to shareholders from

         

Net investment income

    (0.25     (0.09     (0.15     (0.24     (0.05

Net realized gains

    0.00        0.00        0.00        (0.22     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.25     (0.09     (0.15     (0.46     (0.05

Net asset value, end of period

    $18.99        $22.52        $22.86        $21.50        $21.96   

Total return

    (14.66 )%      (1.09 )%      7.07     0.13     (2.89 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.24     1.21     1.22     1.24     1.24

Net expenses

    1.22     1.21     1.22     1.24     1.23

Net investment income

    0.82     0.77     0.57     1.04     0.93

Supplemental data

         

Portfolio turnover rate

    8     7     13     7     5

Net assets, end of period (000s omitted)

    $2,146,675        $2,900,353        $2,183,281        $1,176,567        $541,644   

 

 

 

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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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, 2015, such fair value pricing was 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 at net asset value when available.

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


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24   Wells Fargo Emerging Markets Equity Fund   Notes to financial statements

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.

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”). 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 fair valued based upon the amortized cost valuation technique. 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.


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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 differences causing such reclassifications are due to foreign currency transactions and passive foreign investment companies. At October 31, 2015, 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
$(433,759)    $433,759

Capital loss carryforwards that do not expire are required to be utilized prior to capital loss carryforwards that expire. As of October 31, 2015, 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    $27,469,490    $223,167,755

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, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

Argentina

   $ 17,244,261       $ 0       $ 0       $ 17,244,261   

Brazil

     87,545,486         116,350,133         0         203,895,619   

Chile

     65,606,980         0         0         65,606,980   

China

     334,446,536         440,017,382         0         774,463,918   

Colombia

     18,777,888         0         0         18,777,888   

Hong Kong

     0         220,124,728         0         220,124,728   

India

     149,739,944         192,747,014         0         342,486,958   

Indonesia

     26,515,030         47,458,403         0         73,973,433   

Malaysia

     0         37,793,352         0         37,793,352   

Mexico

     371,842,055         0         0         371,842,055   

Peru

     9,766,276         0         0         9,766,276   

Philippines

     0         27,664,173         0         27,664,173   

Russia

     32,428,341         56,395,762         0         88,824,103   

South Africa

     9,094,876         141,840,576         0         150,935,452   

South Korea

     85,513,212         303,064,833         0         388,578,045   

Taiwan

     120,952,430         172,793,761         0         293,746,191   

Thailand

     66,407,043         50,031,829         0         116,438,872   

Turkey

     6,778,699         21,442,999         0         28,221,698   

United Arab Emirates

     0         3,219,466         0         3,219,466   

United Kingdom

     0         26,378,448         0         26,378,448   

Convertible debentures

     0         0         1,260         1,260   

Preferred stocks

           

Brazil

     4,332,600         50,019,116         0         54,351,716   

Warrants

           

Malaysia

     0         127,790         0         127,790   

Short-term investments

           

Investment companies

     62,554,744         114,754,652         0         177,309,396   

Total assets

   $ 1,469,546,401       $ 2,022,224,417       $ 1,260       $ 3,491,772,078   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $1,748,725,195 were transferred from Level 1 to Level 2. 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,


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Notes to financial statements   Wells Fargo Emerging Markets Equity Fund     27   

implementing the investment objectives and strategies of the Fund, supervising the applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 1.10% and declined to 0.925% as the average daily net assets of the Fund increased. From November 1, 2014 through February 28, 2015, Funds Management received an annual advisory fee which started at 1.10% and declined to 0.95% as the average daily net assets of the Fund increased. In addition prior to July 1, 2015, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31 2015, the management fee was equivalent to an annual rate of 1.05% 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, 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  
     Current rate       

Rate prior to

July 1, 2015

 

Class A, Class B, Class C

     0.21        0.26

Class R6

     0.03           0.03   

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   

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. Prior to July 1, 2015, the Fund’s expenses were capped at 1.67% for Class A shares, 2.42% for Class B shares, 2.42% for Class C shares, 1.50% for Administrator Class shares and 1.23% for Institutional Class shares.

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, 2015, Funds Distributor received $6,041 from the sale of Class A shares and $178 in contingent deferred sales charges from redemptions of Class C shares.


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28   Wells Fargo Emerging Markets Equity Fund   Notes to financial statements

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 is 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, 2015 were $344,475,898 and $1,143,249,546, respectively.

6. INVESTMENTS IN AFFILIATES

An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.

 

     Shares,
beginning
of period
     Shares
purchased
     Shares
sold
    

Shares, end

of period

    

Value, end

of period

    

Income

from
affiliated

securities

    

Realized

gains (losses)

 

104 Corporation

     1,655,000         0         0         1,655,000       $ 7,546,611       $ 0       $ 0   

7. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.

As of October 31, 2015, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $111,529 and $406,742 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

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 Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $9,513 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.

9. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $44,546,440 and $10,793,920 of ordinary income for the years ended October 31, 2015 and October 31, 2014, respectively.

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary income

  

Unrealized

losses

  

Capital loss

carryforward

$23,967,259    $(152,168,360)    $(261,526,735)

10. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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Report of independent registered public accounting firm   Wells Fargo Emerging Markets 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 Emerging Markets Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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, 2015, 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, 2015, 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, 2015


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

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $44,546,440 of income dividends paid during the fiscal year ended October 31, 2015 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 2015. 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 Emerging Markets 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 144 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   Other
public company or
investment company
directorships during
past 5 years
William R. Ebsworth
(Born 1957)
  Trustee, since 2015**   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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 Emerging Markets Equity Fund   Other information (unaudited)
Name and
year of birth
  Position held and
length of service*
  Principal occupations during past five years or longer   Other
public company or
investment company
directorships during
past 5 years
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
Donald C. Willeke
(Born 1940)
  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
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 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2  The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling
1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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Other information (unaudited)   Wells Fargo Emerging Markets Equity Fund     33   

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Emerging Markets Equity Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) 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 combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to the Fund.


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

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper to select the mutual funds in the performance Universe. The Board noted that the performance of the Fund (Administrator Class) was lower than the average performance of the Universe for all periods under review except the five- and ten-year periods. The Board also noted that the performance of the Fund was lower than its benchmark, the MSCI Emerging Markets Index (Net), for all periods under review except the five- and ten-year periods.

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 investment decisions and sector allocations that affected the Fund’s performance and of longer term outperformance.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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. The Board discussed and accepted Funds Management’s proposal to decrease net operating expense ratio caps for the Administrator Class, Institutional Class, Class A, Class B and Class C.

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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were lower than or in range of the average rates of the Fund’s expense Groups for all share classes.

The Board also received and considered information about the portion of the total advisory 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 the advisory fee between them.


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

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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 Emerging Markets 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
 


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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: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238507 12-15

A238/AR238 10-15


Table of Contents

Annual Report

October 31, 2015

 

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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

    13   

Statement of operations

    14   

Statement of changes in net assets

    15   

Financial highlights

    16   

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, 2015, 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

 

 

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery.

 

 

 

 

Other major central banks, including the European Central Bank and the Bank of Japan, also continued to ease in order to support their respective economies.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Emerging Markets Fund Equity Income for the 12-month period that ended October 31, 2015. The period was marked by continued low global interest rates and sluggish economic recovery in developed markets. However, the expectation that the U.S. Federal Reserve (Fed) would soon raise its key interest rate, combined with signs of further quantitative easing from other central banks, depressed the prices of international assets for U.S. dollar–based investors.

The Fed showed signs of raising its key rate, but other central banks continued to ease.

Economic data continued to indicate that the U.S. economy was in a sluggish but consistent recovery. For example, the U.S. unemployment rate eased from 5.8% at the beginning of the reporting period (November 2014) to 5.0% at the end (October 2015). Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero.

As the period progressed, various comments by Fed Chair Janet Yellen led investors to believe that the FOMC would soon raise its key federal funds rate. The FOMC remained on hold at its September 2015 meeting, however, citing concerns about a weaker global economy and subdued U.S. inflation. The FOMC’s decision caused some uncertainty, but by the end of the period, most investors expected a modest Fed rate hike in late 2015 or early 2016.

In contrast, the People’s Bank of China (PBOC) continued to take several steps to support the slowing Chinese economy. In October 2015, the PBOC cut its benchmark one-year lending and deposit rates for the sixth time since November 2014 and trimmed the percentage of deposits that large banks need to hold as reserves for the fourth time. The moves were aimed at supporting the economy by encouraging lending. The PBOC’s actions tended to put pressure on the yuan versus foreign currencies, pressure that was only reinforced when the PBOC officially devalued the currency in August.

Other major central banks, including the European Central Bank and the Bank of Japan, also continued to ease in order to support their respective economies. The difference in policy between the Fed and other central banks led the U.S. dollar to appreciate against most major currencies, including most emerging markets currencies.

The year was a difficult one for emerging markets investing, marked by slower growth in China and a stronger dollar that depressed the returns of international assets.

Emerging markets faced a number of internal and external headwinds during the past 12 months. Internal factors included not only an economic slowdown in China—with the country’s annual growth rate dipping below 7% for the first time since 2009—but also persistent low prices for oil, natural gas, and industrial metals such as copper. Low oil and commodity prices weakened the economies of commodity producers, including Brazil, which also grappled with a political scandal involving corruption at its state-owned oil firm. Among external factors, global investors continued to worry about the timing of the first rate hike in the U.S. since 2006. The prospect for a U.S. rate hike led to a stronger U.S. dollar; given that many emerging markets have issued U.S. dollar–denominated debt, dollar strength could make it more difficult for emerging countries to repay their creditors.

 


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

As measured in local currency, the Morgan Stanley Capital International (MSCI) Emerging Markets Index (Net)1 lost 3.47% for the 12-month period, reflecting the headwinds in emerging markets. However, in U.S. dollar terms—the relevant return for U.S. dollar–based investors—the index declined 14.53% for the reporting period. This difference in returns highlights the dollar’s strength during the reporting period.

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

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

1  The Morgan Stanley Capital International (MSCI) Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index. 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.


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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, 20151

 

        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     (15.48     2.26        (10.34     4.04        2.03        1.66   
Class C (EQICX)   5-31-2012     (11.83     3.29        (10.95     3.29        2.78        2.41   
Class R (EQIHX)   9-30-2015                   (10.58     3.78        2.28        1.91   
Class R6 (EQIRX)   9-30-2015                   (10.04     4.44        1.60        1.21   
Administrator Class (EQIDX)   5-31-2012                   (10.12     4.27        1.95        1.46   
Institutional Class (EQIIX)   5-31-2012                   (9.95     4.47        1.70        1.26   
MSCI Emerging Markets Index (Net)4                     (14.53     0.56                 

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 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 Emerging Markets Equity Income Fund     5   
Growth of $10,000 investment as of October 31, 20155
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 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 0.01% 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 29, 2016 (February 28, 2017 for Class R and Class R6), 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 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) Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index. 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.

 

5  The chart compares the performance of Class A shares since inception with the MSCI Emerging Markets 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 Emerging Markets Equity Income Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed its benchmark, the MSCI Emerging Markets Index (Net), for the 12-month period that ended October 31, 2015.

 

n   Overall stock selection contributed to relative returns for the period. However, an underweight to the information technology (IT) and health care sectors detracted from relative returns.

 

n   Among countries, strong stock selection helped the Fund’s relative outperformance in China/Hong Kong, Mexico, and Brazil. Unfavorable stock selection in South Africa and the Philippines detracted from relative performance, as did underweight positions to India and South Korea.

The Fund outperformed its benchmark during a volatile market.

During the 12-month period, returns in emerging markets fluctuated as a result of factors that included fears of slowing Chinese growth, the pace of reforms in India and Indonesia, the ongoing Russia/Ukraine crisis, political concerns in Brazil, and the probable effect of rising interest rates in the United States. Against that backdrop, stock selection in industrials, consumer discretionary, and telecommunication services aided relative results. On the opposite side of the spectrum, an underweight to IT and unfavorable stock selection in that sector detracted from relative results. An underweight to health care also detracted because the sector significantly outperformed for the reporting period.

Outperformance in the industrials sector primarily was driven by the Fund’s exposure to transportation infrastructure stocks such as Mexico’s Grupo Aeroportuario del Pacifico, S.A.B. de C.V., and Grupo Aeroportuario del Centro Norte, S.A.B. de C.V., as well as Malaysia’s Westports Holdings Bhd.* and Hong Kong–headquartered COSCO Pacific Limited. The textiles apparel and luxury goods industry was a key driver in the consumer discretionary sector, with the Fund benefiting from investments in ANTA Sports Products Limited,* Texwinca Holdings Limited, and Yue Yuen Industrial (Holdings) Limited.*

 

Ten largest holdings (%) as of October 31, 20156  

China Mobile Limited

    3.07   

Industrial & Commercial Bank of China Limited H Shares

    2.18   

China Construction Bank H Shares

    2.15   

PT Telekomunikasi Indonesia Persero Tbk

    1.96   

Grupo Aeroportuario del Centro Norte SAB de CV

    1.87   

Grupo Aeroportuario del Pacifico SAB de CV

    1.86   

Grupo Financiero Santander SAB de CV Class B

    1.79   

SK Telecom Company Limited ADR

    1.75   

HSBC Bank plc (Coal India Limited)

    1.68   

COSCO Pacific Limited

    1.67   
Sector distribution as of October 31, 20157
LOGO
 

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     7   
Country allocation as of October 31, 20157
LOGO

On a country basis, notable areas of success included China/Hong Kong, Mexico, and Brazil. In China/Hong Kong, the Fund benefited from holdings in the industrials and materials sectors. In Mexico, the Fund also benefited from holdings in the industrials sector, principally two airport companies. In Brazil, the avoidance of the energy sector was a primary contributor to returns, as was the general underweight to the country leading up to Standard & Poor’s downgrade of the country’s sovereign credit rating to junk status.

Our investment outlook on the emerging markets region remains positive.

China has entered into an easing cycle, with further reduction in interest rates and reserve requirement ratios

 

and more targeted quantitative measures most likely in store for the rest of the year. We have become more cautious on China on the back of the government’s poor handling of stock market intervention and of the Tianjin explosions. We continue to prefer secular growth sectors, companies that benefit from reform of state-owned enterprises, and companies delivering rising profitability on lower commodity and financing costs.

We are underweight South Korea and are monitoring the two main issues of its currency and the state of its IT sector. We will look for sustainable earnings stories in South Korea in order to selectively increase our exposure. The Indian market remained quite resilient despite a sell-off in the rest of emerging Asia. We see some positive signs in India, such as an easing of inflation and increasing tax receipts. The Indonesian market will likely move in line with government policy actions because government reform remains an important theme in the market. In both India and Indonesia, the sustained decline in the oil price is particularly helpful to government budgets as well as to consumption trends.

Latin America is facing another year of decelerating economic growth. We perceive the limits for faster growth to be cyclical in Mexico, Peru, and Colombia. Conversely, we believe the growth gap in Brazil and Chile to be structural. We have negatively changed our stance on Brazil to reflect our belief that risks in that market now outweigh the rewards due to a longer-than-expected timeline for its macroeconomic recovery. Despite the depressed price of crude oil, Mexico’s economic outlook stands out because of its diversification and the visibility of its economic policies.

In the Europe, Middle East, and Africa (EMEA) region, investors assume that Western sanctions against Russia will remain for the foreseeable future. However, Russia’s active military involvement in the Middle East had the potential to change the geopolitical picture in the region and the relationship with the West. In Poland, we expect an introduction of sectoral taxes and additional spending following the completion of parliamentary elections. By contrast, we had a higher level of uncertainty about Turkey as the country headed into yet another round of parliamentary elections in early November. Given many EMEA markets’ recent corrections and further currency adjustments, we will be looking for select opportunities in the region, driven by company-specific stories.

We maintain our view that while all countries face some sort of challenge, some appear to be fundamentally attractive but others seem to have more serious structural problems. We believe that market corrections allow the markets to clear and reset where necessary, and the dividend yields on the Fund’s holdings should help dampen volatility. This type of market requires close scrutiny of company fundamentals but also can lead to longer-term opportunities.

 

 

 

Please see footnotes on page 5.


Table of Contents

 

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, 2015 to October 31, 2015.

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
5-1-2015
     Ending
account value
10-31-2015
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 864.02       $ 7.75         1.65

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,016.89       $ 8.39         1.65

Class C

           

Actual

   $ 1,000.00       $ 860.70       $ 11.26         2.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.11       $ 12.18         2.40

Class R

           

Actual

   $ 1,000.00       $ 862.25       $ 8.92         1.90

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.63       $ 9.65         1.90

Class R6

           

Actual

   $ 1,000.00       $ 864.97       $ 5.64         1.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.16       $ 6.11         1.20

Administrator Class

           

Actual

   $ 1,000.00       $ 864.80       $ 6.82         1.45

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.90       $ 7.38         1.45

Institutional Class

           

Actual

   $ 1,000.00       $ 865.76       $ 5.88         1.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.90       $ 6.36         1.25

 

 

1  Expenses paid is equal to the annualized 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, 2015   Wells Fargo Emerging Markets Equity Income Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 83.53%

          
Brazil: 3.03%           

Ambev SA (Consumer Staples, Beverages)

          431,100       $ 2,133,162   

Cielo SA (Information Technology, IT Services)

          125,200         1,188,480   

Fpc Par Corretora de Seguros SA (Financials, Insurance)

          135,543         379,319   

Valid Solucoes SA (Industrials, Commercial Services & Supplies)

          234,068         2,657,237   
             6,358,198   
          

 

 

 
Cayman Islands: 0.99%           

KWG Property Holding Limited (Financials, Real Estate Management & Development)

          2,897,500         2,089,306   
          

 

 

 
Chile: 1.06%           

Aguas Andinas SA Class A (Utilities, Water Utilities)

          4,259,473         2,228,193   
          

 

 

 
China: 14.02%           

Agricultural Bank of China Limited H Shares (Financials, Banks)

          2,021,000         826,408   

Bank of China Limited H Shares (Financials, Banks)

          3,416,000         1,610,853   

Beijing Capital International Airport Company Limited H Shares (Industrials, Transportation Infrastructure)

          1,382,000         1,479,222   

China BlueChemical Limited H Shares (Materials, Chemicals)

          2,748,000         819,578   

China Construction Bank H Shares (Financials, Banks)

          6,218,000         4,506,532   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          538,000         6,450,558   

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

          4,455,600         3,211,793   

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

          710,000         1,077,353   

Huaneng Power International Incorporated H Shares (Utilities, Independent Power & Renewable Electricity Producers)

          1,256,000         1,359,796   

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

          7,232,000         4,587,294   

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

          3,426,000         2,682,228   

Qinhuangdao Port Company H Shares Limited (Industrials, Transportation Infrastructure)

          1,720,500         825,917   
             29,437,532   
          

 

 

 
Czech Republic: 1.50%           

Komercni Banka AS (Financials, Banks)

          15,217         3,153,535   
          

 

 

 
Hong Kong: 6.54%           

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

          4,978,000         3,128,333   

COSCO Pacific Limited (Industrials, Transportation Infrastructure) (a)

          2,715,517         3,513,081   

Far East Horizon Limited (Financials, Diversified Financial Services)

          1,132,000         941,569   

Franshion Properties China Limited (Financials, Real Estate Management & Development)

          5,368,000         1,478,483   

Nagacorp Limited (Consumer Discretionary, Hotels, Restaurants & Leisure)

          2,910,000         2,057,952   

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

          2,690,000         2,617,857   
             13,737,275   
          

 

 

 
Indonesia: 4.51%           

PT Bank Rakyat Indonesia Tbk (Financials, Banks)

          1,570,900         1,202,297   

PT Hanjaya Mandala Sampoerna Tbk (Consumer Staples, Tobacco)

          296,000         1,987,192   

PT Indo Tambangraya Megah Tbk (Energy, Oil, Gas & Consumable Fuels)

          876,200         540,145   

PT Indocement Tunggal Prakarsa Tbk (Materials, Construction Materials)

          491,100         642,319   

PT Perusahaan Gas Negara Persero Tbk (Utilities, Gas Utilities)

          4,506,100         984,218   

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

          21,021,000         4,124,059   
             9,480,230   
          

 

 

 

 

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, 2015

      

 

 

Security name             Shares      Value  
Malaysia: 2.03%           

Malakoff Corporation Bhd (Utilities, Independent Power & Renewable Electricity Producers)

          3,678,275       $ 1,461,694   

Telecom Malaysia Bhd (Telecommunication Services, Diversified Telecommunication Services)

          1,179,681         1,829,971   

Tenaga Nasional Bhd (Utilities, Electric Utilities)

          329,800         969,375   
             4,261,040   
          

 

 

 
Mexico: 8.69%           

Bolsa Mexicana de Valores SAB de CV (Financials, Diversified Financial Services)

          816,862         1,364,915   

Grupo Aeroportuario del Centro Norte SAB de CV (Industrials, Transportation Infrastructure)

          765,484         3,931,738   

Grupo Aeroportuario del Pacifico SAB de CV (Industrials, Transportation Infrastructure)

          432,425         3,900,197   

Grupo Financiero Santander SAB de CV Class B (Financials, Banks)

          2,041,879         3,751,772   

Macquarie Mexico Real Estate Management SA de CV (Financials, REITs) 144A

          1,980,542         2,740,994   

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

          966,394         2,559,647   
             18,249,263   
          

 

 

 
Panama: 1.95%           

Banco Latinoamericano de Comercio Exterior SA (Financials, Banks)

          72,575         1,961,702   

Copa Holdings SA Class A (Industrials, Airlines)

          42,021         2,122,901   
             4,084,603   
          

 

 

 
Philippines: 1.33%           

Premium Leisure Corporation (Financials, Diversified Financial Services)

          52,610,000         1,276,611   

Semirara Mining and Power Corporation (Energy, Oil, Gas & Consumable Fuels)

          526,920         1,506,288   
             2,782,899   
          

 

 

 
Poland: 1.13%           

Asseco Poland SA (Information Technology, Software)

          160,653         2,371,349   
          

 

 

 
Qatar: 0.84%           

Industries Qatar (Industrials, Industrial Conglomerates)

          52,127         1,760,607   
          

 

 

 
Russia: 1.60%           

MegaFon OAO (Telecommunication Services, Wireless Telecommunication Services)

          145,107         1,868,945   

Tatneft ADR (Energy, Oil, Gas & Consumable Fuels)

          48,537         1,496,809   
             3,365,754   
          

 

 

 
Singapore: 5.16%           

Asian Pay Television Trust (Consumer Discretionary, Media)

          3,986,100         2,244,855   

CapitaRetail China Trust (Financials, REITs)

          949,200         1,027,619   

Hutchison Port Holdings Trust (Industrials, Transportation Infrastructure)

          3,242,200         1,795,712   

Jardine Cycle & Carriage Limited (Consumer Discretionary, Distributors)

          86,800         2,009,663   

Lippo Malls Indonesia Retail Trust (Financials, REITs)

          1,180,000         269,541   

Singapore Telecommunications Limited (Telecommunication Services, Diversified Telecommunication Services)

          1,224,800         3,479,966   
             10,827,356   
          

 

 

 
South Africa: 5.26%           

Barclays Africa Group Limited (Financials, Banks)

          186,011         2,383,888   

FirstRand Limited (Financials, Diversified Financial Services)

          283,973         1,040,573   

MMI Holdings Limited (Financials, Insurance)

          668,384         1,212,880   

Reunert Limited (Industrials, Industrial Conglomerates)

          442,599         2,158,146   

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

          26,984         864,612   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Emerging Markets Equity Income Fund     11   

      

 

 

Security name             Shares      Value  
South Africa (continued)           

Truworths International Limited (Consumer Discretionary, Specialty Retail)

          212,298       $ 1,436,371   

Vodacom Group Proprietary Limited (Consumer Discretionary, Media)

          180,373         1,948,232   
             11,044,702   
          

 

 

 
South Korea: 8.80%           

Grand Korea Leisure Company Limited (Consumer Discretionary, Hotels, Restaurants & Leisure)

          23,069         641,286   

Hite Jinro Company Limited (Consumer Staples, Beverages)

          46,013         922,670   

Kangwon Land Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure)

          54,373         2,017,436   

Korea Electric Power Corporation (Utilities, Electric Utilities)

          69,850         3,144,966   

Korea Reinsurance Company (Financials, Insurance)

          131,615         1,569,133   

KT&G Corporation (Consumer Staples, Tobacco)

          9,599         959,858   

Macquarie Korea Infrastructure Fund (Financials, Capital Markets)

          346,433         2,431,002   

POSCO (Materials, Metals & Mining)

          19,360         3,113,298   

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

          156,301         3,682,452   
             18,482,101   
          

 

 

 
Taiwan: 12.55%           

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

          1,707,000         1,970,654   

Cathay Financial Holding Company Limited (Financials, Insurance)

          731,000         1,041,233   

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

          1,138,972         2,710,843   

Chunghwa Telecom Company Limited (Telecommunication Services, Diversified Telecommunication Services)

          405,000         1,240,863   

Cleanaway Company Limited (Industrials, Commercial Services & Supplies)

          139,000         682,890   

CTBC Financial Holding Company Limited (Financials, Banks)

          1,772,380         971,009   

CTCI Corporation (Industrials, Construction & Engineering)

          822,000         1,070,110   

Delta Electronics Incorporated (Information Technology, Electronic Equipment, Instruments & Components)

          272,000         1,383,007   

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

          1,098,300         2,919,346   

King Yuan Electronics Company Limited (Information Technology, Semiconductors & Semiconductor Equipment)

          1,408,000         898,564   

Merida Industry Company Limited (Consumer Discretionary, Leisure Products)

          166,000         970,212   

Namchow Chemical Industrial Company Limited (Consumer Staples, Food Products)

          399,000         864,943   

Nan Ya Plastics Corporation (Materials, Chemicals)

          535,000         1,061,619   

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

          2,140,000         2,827,452   

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

          490,000         2,064,696   

Teco Electric & Machinery Company Limited (Industrials, Electrical Equipment)

          1,197,000         1,043,271   

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

          839,536         1,553,142   

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

          1,022,000         1,066,428   
             26,340,282   
          

 

 

 
Thailand: 1.07%           

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

          4,213,100         1,011,265   

Major Cineplex Group PCL (Consumer Discretionary, Media)

          1,407,500         1,226,752   
             2,238,017   
          

 

 

 
Turkey: 1.47%           

Emlak Konut Gayrimenkul Yati (Financials, REITs)

          1,094,692         1,060,457   

Tupras Turkiye Petrol Rafinerileri AS (Energy, Oil, Gas & Consumable Fuels) †

          76,683         2,023,506   
             3,083,963   
          

 

 

 

Total Common Stocks (Cost $184,074,204)

             175,376,205   
          

 

 

 

 

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, 2015

      

 

 

Security name         Expiration date      Shares      Value  

Participation Notes: 8.87%

         
China: 1.96%          

HSBC Bank plc (China Vanke Company Limited Class A) (Financials, Real Estate Management & Development) †

      2-11-2019         1,333,000       $ 2,880,738   

HSBC Bank plc (Daqin Railway Company Limited Class A) (Industrials, Road & Rail) †

      10-28-2020         262,622         379,059   

Standard Chartered Bank (Daqin Railway Company Limited Class A) (Industrials, Road & Rail) †

      3-30-2016         584,000         842,925   
            4,102,722   
         

 

 

 
India: 6.91%          

HSBC Bank plc (Bharti Infratel Limited) (Telecommunication Services, Wireless Telecommunication Services) †

      11-22-2023         325,133         1,934,948   

HSBC Bank plc (Bharti Infratel Limited) (Telecommunication Services, Wireless Telecommunication Services) †

      10-1-2018         73,027         434,602   

HSBC Bank plc (Coal India Limited) (Materials, Metals & Mining) †

      11-2-2020         720,606         3,527,172   

HSBC Bank plc (Credit Analysis & Research) (Financials, Diversified Financial Services) †

      5-2-2024         94,568         1,880,624   

HSBC Bank plc (Gujarat Pipavav Limited) (Industrials, Marine) †

      3-3-2025         354,537         875,276   

HSBC Bank plc (Hero Motorcorp) (Industrials, Automobiles) †

      7-29-2019         34,530         1,363,849   

HSBC Bank plc (Hexaware Technologies Limited) (Financials, Diversified Financial Services) †

      5-12-2016         515,674         1,893,261   

HSBC Bank plc (NTPC Limited) (Utilities, Electric Utilities) †

      5-6-2024         268,653         545,889   

HSBC Bank plc (Oil & Natural Gas Corporation Limited) (Energy, Oil, Gas & Consumable Fuels) †

      1-10-2024         294,051         1,111,082   

HSBC Bank plc (Power Finance Corporation) (Financials, Diversified Financial Services) †

      10-28-2020         258,077         946,919   
            14,513,622   
         

 

 

 

Total Participation Notes (Cost $20,243,710)

            18,616,344   
         

 

 

 

Exchange-Traded Funds: 1.53%

         
United States: 1.53%          

Market Vectors Russia ETF

         191,794         3,204,878   
         

 

 

 

Total Exchange-Traded Funds (Cost $3,371,317)

            3,204,878   
         

 

 

 
    Yield                      
Short-Term Investments: 5.19%          
Investment Companies: 5.19%          

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16        10,906,978         10,906,979   
         

 

 

 

Total Short-Term Investments (Cost $10,906,979)

            10,906,979   
         

 

 

 

 

Total investments in securities (Cost $218,596,210) *     97.59        208,104,406   

Other assets and liabilities, net

    2.41           1,850,279   
 

 

 

      

 

 

 
Total net assets     100.00      $ 209,954,685   
 

 

 

      

 

 

 

 

 

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.

 

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.

 

* Cost for federal income tax purposes is $219,248,480 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 5,406,863   

Gross unrealized losses

     (16,550,937
  

 

 

 

Net unrealized losses

   $ (11,144,074

 

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


Table of Contents

 

Statement of assets and liabilities—October 31, 2015   Wells Fargo Emerging Markets Equity Income Fund     13   
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $207,689,231)

  $ 197,197,427   

In affiliated securities, at value (cost $10,906,979)

    10,906,979   
 

 

 

 

Total investments, at value (cost $218,596,210)

    208,104,406   

Cash

    8,555   

Foreign currency, at value (cost $293,252)

    292,241   

Receivable for investments sold

    1,893,321   

Receivable for Fund shares sold

    2,935,626   

Receivable for dividends

    78,029   

Prepaid expenses and other assets

    75,982   
 

 

 

 

Total assets

    213,388,160   
 

 

 

 

Liabilities

 

Payable for investments purchased

    2,892,152   

Payable for Fund shares redeemed

    308,375   

Management fee payable

    157,642   

Distribution fees payable

    6,832   

Administration fees payable

    25,533   

Accrued expenses and other liabilities

    42,941   
 

 

 

 

Total liabilities

    3,433,475   
 

 

 

 

Total net assets

  $ 209,954,685   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 227,992,639   

Undistributed net investment income

    85,687   

Accumulated net realized losses on investments

    (7,633,349

Net unrealized losses on investments

    (10,490,292
 

 

 

 

Total net assets

  $ 209,954,685   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 22,865,641   

Shares outstanding – Class A1

    2,293,445   

Net asset value per share – Class A

    $9.97   

Maximum offering price per share – Class A2

    $10.58   

Net assets – Class C

  $ 10,189,659   

Shares outstanding – Class C1

    1,025,233   

Net asset value per share – Class C

    $9.94   

Net assets – Class R

  $ 26,476   

Shares outstanding – Class R1

    2,649   

Net asset value per share – Class R

    $9.99   

Net assets – Class R6

  $ 26,493   

Shares outstanding – Class R61

    2,656   

Net asset value per share – Class R6

    $9.97   

Net assets – Administrator Class

  $ 43,928,116   

Shares outstanding – Administrator Class1

    4,393,839   

Net asset value per share – Administrator Class

    $10.00   

Net assets – Institutional Class

  $ 132,918,300   

Shares outstanding – Institutional Class1

    13,317,405   

Net asset value per share – Institutional Class

    $9.98   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

14   Wells Fargo Emerging Markets Equity Income Fund   Statement of operations—year ended October 31, 2015
         

Investment income

 

Dividends (net of foreign withholding taxes of $521,968)

  $ 5,061,534   

Income from affiliated securities

    4,560   
 

 

 

 

Total investment income

    5,066,094   
 

 

 

 

Expenses

 

Management fee

    1,513,861   

Administration fees

 

Fund level

    36,155   

Class A

    45,149   

Class C

    20,632   

Class R

    5 1 

Class R6

    1 1 

Administrator Class

    50,404   

Institutional Class

    66,845   

Shareholder servicing fees

 

Class A

    46,988   

Class C

    21,511   

Class R

    6 1 

Administrator Class

    112,772   

Distribution fees

 

Class C

    64,534   

Class R

    6 1 

Custody and accounting fees

    150,808   

Professional fees

    49,014   

Registration fees

    74,536   

Shareholder report expenses

    18,324   

Trustees’ fees and expenses

    21,433   

Interest expense

    1,472   

Other fees and expenses

    21,558   
 

 

 

 

Total expenses

    2,316,014   

Less: Fee waivers and/or expense reimbursements

    (365,325
 

 

 

 

Net expenses

    1,950,689   
 

 

 

 

Net investment income

    3,115,405   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (5,869,275

Forward foreign currency contract transactions

    16,010   
 

 

 

 

Net realized losses on investments

    (5,853,265
 

 

 

 

Net change in unrealized gains (losses) on investments

    (14,976,313
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (20,829,578
 

 

 

 

Net decrease in net assets resulting from operations

  $ (17,714,173
 

 

 

 

 

 

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

 

Statement of changes in net assets   Wells Fargo Emerging Markets Equity Income Fund     15   
     Year ended
October 31, 2015
    Year ended
October 31, 2014
 

Operations

       

Net investment income

    $ 3,115,405        $ 2,263,545   

Net realized losses on investments

      (5,853,265       (1,885,047

Net change in unrealized gains (losses) on investments

      (14,976,313       3,323,488   
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (17,714,173       3,701,986   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (384,317       (365,935

Class C

      (127,515       (99,761

Class R

      (10 )1        N/A   

Class R6

      (19 )1        N/A   

Administrator Class

      (1,016,111       (734,156

Institutional Class

      (1,553,325       (960,146

Net realized gains

       

Class A

      0          (297,936

Class C

      0          (99,039

Administrator Class

      0          (465,603

Institutional Class

      0          (190,076
 

 

 

 

Total distributions to shareholders

      (3,081,297       (3,212,652
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    1,696,774        18,394,271        1,137,117        12,671,376   

Class C

    795,767        8,556,504        413,136        4,655,213   

Class R

    2,648 1      25,000 1      N/A        N/A   

Class R6

    2,654 1      25,000 1      N/A        N/A   

Administrator Class

    5,721,244        61,488,744        4,410,592        50,555,968   

Institutional Class

    12,481,918        130,171,618        5,192,856        56,567,470   
 

 

 

 
      218,661,137          124,450,027   
 

 

 

 

Reinvestment of distributions

       

Class A

    36,083        380,492        58,552        659,941   

Class C

    11,577        122,069        17,625        198,800   

Class R

    1 1      10 1      N/A        N/A   

Class R6

    2 1      19 1      N/A        N/A   

Administrator Class

    94,283        997,261        102,116        1,157,719   

Institutional Class

    77,609        795,126        76,117        868,402   
 

 

 

 
      2,294,977          2,884,862   
 

 

 

 

Payment for shares redeemed

       

Class A

    (675,914     (7,063,488     (693,777     (8,135,229

Class C

    (346,771     (3,609,550     (38,131     (422,208

Administrator Class

    (6,081,753     (63,197,111     (999,004     (11,045,099

Institutional Class

    (2,337,484     (24,746,171     (2,688,911     (30,101,322
 

 

 

 
      (98,616,320       (49,703,858
 

 

 

 

Net increase in net assets resulting from capital share transactions

      122,339,794          77,631,031   
 

 

 

 

Total increase in net assets

      101,544,324          78,120,365   
 

 

 

 

Net assets

       

Beginning of period

      108,410,361          30,289,996   
 

 

 

 

End of period

    $ 209,954,685        $ 108,410,361   
 

 

 

 

Undistributed net investment income

    $ 85,687        $ 233,041   
 

 

 

 

 

 

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

 

16   Wells Fargo Emerging Markets Equity Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     2013     20121  

Net asset value, beginning of period

    $11.33        $11.79        $11.17        $10.00   

Net investment income

    0.20        0.33        0.31        0.13   

Net realized and unrealized gains (losses) on investments

    (1.36     (0.11     0.88        1.15   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.16     0.22        1.19        1.28   

Distributions to shareholders from

       

Net investment income

    (0.20     (0.31     (0.34     (0.11

Net realized gains

    0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.20     (0.68     (0.57     (0.11

Net asset value, end of period

    $9.97        $11.33        $11.79        $11.17   

Total return2

    (10.34 )%      2.05     10.94     12.80

Ratios to average net assets (annualized)

       

Gross expenses

    1.89     2.09     2.88     4.29

Net expenses

    1.65     1.65     1.65     1.65

Net investment income

    2.22     3.12     2.64     2.94

Supplemental data

       

Portfolio turnover rate

    84     91     85     39

Net assets, end of period (000s omitted)

    $22,866        $14,010        $8,658        $628   

 

 

1  For the period from May 31, 2012 (commencement of class operations) to October 31, 2012

 

2  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     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     20121  

Net asset value, beginning of period

    $11.32        $11.79        $11.16        $10.00   

Net investment income

    0.14        0.23        0.22        0.10   

Net realized and unrealized gains (losses) on investments

    (1.38     (0.08     0.89        1.13   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.24     0.15        1.11        1.23   

Distributions to shareholders from

       

Net investment income

    (0.14     (0.25     (0.25     (0.07

Net realized gains

    0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.14     (0.62     (0.48     (0.07

Net asset value, end of period

    $9.94        $11.32        $11.79        $11.16   

Total return2

    (10.95 )%      1.27     10.11     12.49

Ratios to average net assets (annualized)

       

Gross expenses

    2.64     2.83     3.81     5.03

Net expenses

    2.40     2.40     2.40     2.41

Net investment income

    1.45     2.17     1.80     2.24

Supplemental data

       

Portfolio turnover rate

    84     91     85     39

Net assets, end of period (000s omitted)

    $10,190        $6,390        $2,028        $562   

 

 

1  For the period from May 31, 2012 (commencement of class operations) to October 31, 2012

 

2  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 the period)

 

CLASS R   Year ended
October 31, 20151
 

Net asset value, beginning of period

    $9.44   

Net investment loss

    (0.01 )2 

Net realized and unrealized gains (losses) on investments

    0.56   
 

 

 

 

Total from investment operations

    0.55   

Distributions to shareholders from

 

Net investment income

    (0.00 )3 

Net asset value, end of period

    $9.99   

Total return4

    5.87

Ratios to average net assets (annualized)

 

Gross expenses

    2.10

Net expenses

    1.90

Net investment loss

    (0.90 )% 

Supplemental data

 

Portfolio turnover rate

    84

Net assets, end of period (000s omitted)

    $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

 

Financial highlights   Wells Fargo Emerging Markets Equity Income Fund     19   

(For a share outstanding throughout the period)

 

CLASS R6   Year ended
October 31, 20151
 

Net asset value, beginning of period

    $9.42   

Net investment loss

    (0.00 )2,3 

Net realized and unrealized gains (losses) on Investments

    0.56   
 

 

 

 

Total from investment operations

    0.56   

Distributions to shareholders from

 

Net investment income

    (0.01

Net asset value, end of period

    $9.97   

Total return4

    5.91

Ratios to average net assets (annualized)

 

Gross expenses

    1.40

Net expenses

    1.20

Net investment loss

    (0.19 )% 

Supplemental data

 

Portfolio turnover rate

    84

Net assets, end of period (000s omitted)

    $26   

 

 

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

 

2  Amount is less than $0.005.

 

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

 

20   Wells Fargo Emerging Markets Equity Income Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     2013     20121  

Net asset value, beginning of period

    $11.35        $11.80        $11.17        $10.00   

Net investment income

    0.23        0.33 2      0.32        0.14   

Net realized and unrealized gains (losses) on investments

    (1.37     (0.08     0.89        1.14   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.14     0.25        1.21        1.28   

Distributions to shareholders from

       

Net investment income

    (0.21     (0.33     (0.35     (0.11

Net realized gains

    0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.21     (0.70     (0.58     (0.11

Net asset value, end of period

    $10.00        $11.35        $11.80        $11.17   

Total return2

    (10.12 )%      2.30     11.13     12.89

Ratios to average net assets (annualized)

       

Gross expenses

    1.76     1.91     2.94     4.14

Net expenses

    1.45     1.45     1.45     1.45

Net investment income

    2.38     2.89     2.70     3.17

Supplemental data

       

Portfolio turnover rate

    84     91     85     39

Net assets, end of period (000s omitted)

    $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  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  
INSTITUTIONAL CLASS   2015     2014     2013     20121  

Net asset value, beginning of period

    $11.34        $11.79        $11.17        $10.00   

Net investment income

    0.25 2      0.35        0.34        0.15   

Net realized and unrealized gains (losses) on investments

    (1.36     (0.07     0.89        1.14   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.11     0.28        1.23        1.29   

Distributions to shareholders from

       

Net investment income

    (0.25     (0.36     (0.38     (0.12

Net realized gains

    0.00        (0.37     (0.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.25     (0.73     (0.61     (0.12

Net asset value, end of period

    $9.98        $11.34        $11.79        $11.17   

Total return3

    (9.95 )%      2.52     11.32     12.98

Ratios to average net assets (annualized)

       

Gross expenses

    1.51     1.62     2.74     3.92

Net expenses

    1.25     1.25     1.25     1.25

Net investment income

    2.41     3.69     2.88     3.39

Supplemental data

       

Portfolio turnover rate

    84     91     85     39

Net assets, end of period (000s omitted)

    $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.

 

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   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 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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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, 2015, such fair value pricing was 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


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Notes to financial statements   Wells Fargo Emerging Markets Equity Income Fund     23   

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 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


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24   Wells Fargo Emerging Markets Equity Income Fund   Notes to financial statements

per share. The primary permanent difference causing such reclassifications is due to foreign currency transactions. At October 31, 2015, 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
$(181,462)    $181,462

As of October 31, 2015, the Fund had capital loss carryforwards which consist of $5,052,990, in short-term capital losses and $1,973,419 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:

 

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.


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Notes to financial statements   Wells Fargo Emerging Markets Equity Income Fund     25   

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

Brazil

   $ 0       $ 6,358,198       $ 0       $ 6,358,198   

Cayman Islands

     0         2,089,306         0         2,089,306   

Chile

     2,228,193         0         0         2,228,193   

China

     0         29,437,532         0         29,437,532   

Czech Republic

     0         3,153,535         0         3,153,535   

Hong Kong

     0         10,224,194         3,513,081         13,737,275   

Indonesia

     0         9,480,230         0         9,480,230   

Malaysia

     0         4,261,040         0         4,261,040   

Mexico

     18,249,263         0         0         18,249,263   

Panama

     4,084,603         0         0         4,084,603   

Philippines

     0         2,782,899         0         2,782,899   

Poland

     0         2,371,349         0         2,371,349   

Qatar

     0         1,760,607         0         1,760,607   

Russia

     0         3,365,754         0         3,365,754   

Singapore

     269,541         10,557,815         0         10,827,356   

South Africa

     2,158,146         8,886,556         0         11,044,702   

South Korea

     9,090,748         9,391,353         0         18,482,101   

Taiwan

     1,553,142         24,787,140         0         26,340,282   

Thailand

     1,226,752         1,011,265         0         2,238,017   

Turkey

     0         3,083,963         0         3,083,963   

Participation notes

           

China

     0         4,102,722         0         4,102,722   

India

     0         14,513,622         0         14,513,622   

Exchange-traded funds

           

United States

     3,204,878         0         0         3,204,878   

Short-term investments

           

Investment companies

     10,906,979         0         0         10,906,979   

Total assets

   $ 52,972,245       $ 151,619,080       $ 3,513,081       $ 208,104,406   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $62,239,267 were transferred from Level 1 to Level 2.

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

     Common stocks  

Balance as of October 31, 2014

   $ 0   

Accrued discounts (premiums)

     0   

Realized gains (losses)

     0   

Change in unrealized gains (losses)

     0   

Purchases

     0   

Sales

     0   

Transfers into Level 3

     3,513,081   

Transfers out of Level 3

     0   

Balance as of October 31, 2015

   $ 3,513,081   

Change in unrealized gains (losses) relating to securities still held at October 31, 2015

   $ 0   

Due to lack of market activity, the investment type categorized above was valued using the last observed traded price.


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26   Wells Fargo Emerging Markets Equity Income Fund   Notes to financial statements

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 applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 1.10% and declined to 0.925% as the average daily net assets of the Fund increased. From November 1, 2014 through February 28, 2015, Funds Management received an annual advisory fee which started at 1.10% and declined to 0.95% as the average daily net assets of the Fund increased. In addition, prior to July 1, 2015, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, 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. WellsCap, 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  
     Current rate        Rate prior to
July 1, 2015
 

Class A, Class C

     0.21        0.26

Class R

     0.21           N/A   

Class R6

     0.03           N/A   

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   


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Notes to financial statements   Wells Fargo Emerging Markets Equity Income Fund     27   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed to waive fees and/or reimburse expenses to the extent necessary to cap expenses as follows:

 

       Expense
ratio cap
       Expiration date  

Class A

       1.65%           February 29, 2016   

Class C

       2.40%           February 29, 2016   

Class R

       1.90%           February 28, 2017   

Class R6

       1.20%           February 28, 2017   

Administrator Class

       1.45%           February 29, 2016   

Institutional Class

       1.25%           February 29, 2016   

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, 2015, Funds Distributor received $21,718 from the sale of Class A shares and $40 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, Class R, and Administrator Class of the Fund is 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, 2015 were $223,072,064 and $106,288,124, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes. As of October 31, 2015, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $159,270 and $90,940 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

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 Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $276 in commitment fees.

During the year ended October 31, 2015, the Fund had average borrowings outstanding of $107,445 (on an annualized basis) at an average rate of 1.37% and paid interest in the amount of $1,472.


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28   Wells Fargo Emerging Markets Equity Income Fund   Notes to financial statements

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:

 

     Year ended October 31  
     2015      2014  

Ordinary income

   $ 3,081,297       $ 2,947,712   

Long-term capital gain

     0         264,940   

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary income
  

Unrealized

losses

   Capital loss
carryforward
$129,503    $(11,141,048)    $(7,026,409)

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. SUBSEQUENT DISTRIBUTIONS

On November 23, 2015, the Fund declared distributions from net investment income to shareholders of record on November 20, 2015. The per share amounts payable on November 24, 2015 were as follows:

 

Class A

   $ 0.00512   

Class C

     0.00269   

Class R

     0.00273   

Class R6

     0.00666   

Administrator Class

     0.00535   

Institutional Class

     0.00630   

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 Emerging Markets Equity Income 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 Emerging Markets Equity Income Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the three-year period then ended and the period from May 31, 2012 (commencement of operations) to October 31, 2012. 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, 2015, 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, 2015, 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 three-year period then ended and the period from May 31, 2012 (commencement of operations) to October 31, 2012, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

December 22, 2015


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30   Wells Fargo Emerging Markets Equity Income Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $2,975,778 of income dividends paid during the fiscal year ended October 31, 2015 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, 2015. 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 Emerging Markets Equity Income 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 144 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   Other
public company or
investment company
directorships during
past 5 years
William R. Ebsworth
(Born 1957)
  Trustee, since 2015**   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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 Emerging Markets Equity Income Fund   Other information (unaudited)
Name and
year of birth
  Position held and
length of service*
  Principal occupations during past five years or longer   Other
public company or
investment company
directorships during
past 5 years
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
Donald C. Willeke
(Born 1940)
  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.
** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.
*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
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 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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Other information (unaudited)   Wells Fargo Emerging Markets Equity Income Fund     33   

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Emerging Markets Equity Income Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) 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 combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to 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


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

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper 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 Universe for all periods under review except the first quarter of 2015. 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 except the first quarter of 2015.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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 for all share classes.

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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were higher than the average rates for the Fund’s expense Groups for all share classes. However, the Board also 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 for all share classes.

The Board also received and considered information about the portion of the total advisory 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 the advisory fee 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.


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

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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 Emerging Markets Equity Income Fund   List of abbreviations

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

ACA —  ACA Financial Guaranty Corporation
ADR —  American depositary receipt
ADS —  American depositary shares
AGC —  Assured Guaranty Corporation
AGM —  Assured Guaranty Municipal
Ambac —  Ambac Financial Group Incorporated
AMT —  Alternative minimum tax
AUD —  Australian dollar
BAN —  Bond anticipation notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazilian real
CAB —  Capital appreciation bond
CAD —  Canadian dollar
CCAB —  Convertible capital appreciation bond
CDA —  Community Development Authority
CDO —  Collateralized debt obligation
CHF —  Swiss franc
COP —  Colombian peso
CLP —  Chilean peso
DKK —  Danish krone
DRIVER —  Derivative inverse tax-exempt receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-traded fund
EUR —  Euro
FDIC —  Federal Deposit Insurance Corporation
FFCB —  Federal Farm Credit Banks
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Administration
FHLB —  Federal Home Loan Bank
FHLMC —  Federal Home Loan Mortgage Corporation
FICO —  The Financing Corporation
FNMA —  Federal National Mortgage Association
FSA —  Farm Service Agency
GBP —  Great British pound
GDR —  Global depositary receipt
GNMA —  Government National Mortgage Association
GO —  General obligation
HCFR —  Healthcare facilities revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher education facilities authority revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong dollar
HUD —  Department of Housing and Urban Development
HUF —  Hungarian forint
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Indonesian rupiah
IEP —  Irish pound
JPY —  Japanese yen
KRW —  Republic of Korea won
LIBOR —  London Interbank Offered Rate
LIFER —  Long Inverse Floating Exempt Receipts
LIQ —  Liquidity agreement
LLC —  Limited liability company
LLLP —  Limited liability limited partnership
LLP —  Limited liability partnership
LOC —  Letter of credit
LP —  Limited partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multifamily housing revenue
MSTR —  Municipal securities trust receipts
MTN —  Medium-term note
MUD —  Municipal Utility District
MXN —  Mexican peso
MYR —  Malaysian ringgit
National —  National Public Finance Guarantee Corporation
NGN —  Nigerian naira
NOK —  Norwegian krone
NZD —  New Zealand dollar
PCFA —  Pollution Control Financing Authority
PCL —  Public Company Limited
PCR —  Pollution control revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable floating option tax-exempt receipts
plc —  Public limited company
PLN —  Polish zloty
PUTTER —  Puttable tax-exempt receipts
R&D —  Research & development
Radian —  Radian Asset Assurance
RAN —  Revenue anticipation notes
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real estate investment trust
ROC —  Reset option certificates
RON —  Romanian lei
RUB —  Russian ruble
SAVRS —  Select auction variable rate securities
SBA —  Small Business Authority
SDR —  Swedish depositary receipt
SEK —  Swedish krona
SFHR —  Single-family housing revenue
SFMR —  Single-family mortgage revenue
SGD —  Singapore dollar
SPA —  Standby purchase agreement
SPDR —  Standard & Poor’s Depositary Receipts
SPEAR —   Short Puttable Exempt Adjustable Receipts
STRIPS —  Separate trading of registered interest and
           principal securities
TAN —  Tax anticipation notes
TBA —  To be announced
THB —  Thai baht
TIPS —  Treasury inflation-protected securities
TRAN —  Tax revenue anticipation notes
TRY —  Turkish lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
ZAR —  South African rand
 


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For more information

More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238508 12-15

A262/AR262 10-15


Table of Contents

Annual Report

October 31, 2015

 

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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

    13   

Statement of operations

    14   

Statement of changes in net assets

    15   

Financial highlights

    16   

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, 2015, 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

 

 

Signs of encouragement in the eurozone were more than offset by slowing economic growth in China.

 

 

 

 

The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015.

 

 

Dear Valued 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, 2015. During the period, investors confronted concerns about slowing economic growth in China and a dramatic rise and fall in the country’s equity markets, diverging central bank policies globally, contentious negotiations to refinance Greece’s sovereign debt, low commodity prices, and ongoing currency volatility. These disparate influences tended to obscure improving economic data in the U.S. and several developed European countries.

Low commodity prices and slower global growth overshadowed improved economic data.

In Europe, the eurozone’s largest economies—France, Germany, Italy, and Spain—reported gross domestic product (GDP) growth on an annualized basis for the second quarter of 2015, although results were uneven for smaller, developing economies in the region. While annualized GDP growth slowed in the third quarter in the eurozone overall, it remained positive. Signs of encouragement in the eurozone were more than offset by slowing economic growth in China. China posted third-quarter GDP growth of 6.9%. While that pace might be envied by other developed economies, it is below levels many investors have come to expect from China. Furthermore, the government indicated the full-year growth target of 7% may not be met.

Stocks generally moved higher in April and early May 2015 before events served to discourage equity investors as summer advanced. The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015. At the same time, the value of the U.S. dollar increased relative to other currencies, particularly those in emerging markets. Both conditions concerned investors. Sustained low oil, natural gas, and other commodity prices hampered economies in several emerging markets. Slowed commodity consumption among developed markets also suggested a deceleration of global growth.

Global central bank policies diverge.

After ending its quantitative easing-related bond-buying program toward the end of 2014, the U.S. Federal Reserve (Fed) signaled its intention to increase the federal funds rate. However, concerns about slowing growth, particularly in emerging markets, prompted the Fed to defer an interest-rate increase. Investors globally fell into a holding pattern at times as they tried to anticipate the Fed’s next move. Meanwhile, the Bank of Japan announced in October 2014 significant expansion of its economic stimulus programs to include additional injections of liquidity into the economy through bond purchases. In addition, the Government Pension Investment Fund announced plans to reduce government bond investments and direct those assets to investments in the Japanese stock market. The People’s Bank of China also took initiatives to spur economic growth by cutting interest rates for the sixth time in less than a year in October 2015; lowering bank reserve requirements to encourage lending; and allowing the renminbi to depreciate to support exports and to advance government efforts to transition to a more market-driven economy.

During the summer of 2015, the Hang Seng Index1 in Hong Kong experienced a dramatic decline after a similarly dramatic ascent during late 2014 and early 2015, falling to levels not seen since 2013. Contentious negotiations between Greece and its debtors to refinance the country’s sovereign debt also concerned investors during June 2015. After weeks of stalemated negotiations, the government

 

 

 

1  The Hang Seng Index is a free-float-adjusted market-capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. You cannot invest directly in an index.


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Letter to shareholders (unaudited)   Wells Fargo Global Opportunities Fund     3   

accepted additional spending reductions in order to secure new loan agreements. Developed European and Asian equity markets, as measured by Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net),2 returned -0.07% for the 12-month period that ended October 31, 2015.

The effect of slowing growth in China, a stronger U.S. dollar, and stubbornly low prices for oil, natural gas, and other commodities was particularly difficult for many emerging markets economies that rely on commodities as an economic engine. During the period, emerging markets stocks suffered more significantly than international developed markets, earning a return of -14.53%, as measured by the MSCI Emerging Markets Index (Net).3 U.S. investors in international equity markets also often saw the value of their overseas investments reduced upon translation to dollars.

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 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

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

2  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 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. You cannot invest directly in an index. 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.

 

3  The MSCI Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index.


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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, 20151

 

        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     (3.75     5.79        6.61        2.12        7.05        7.25        1.53        1.53   
Class B (EKGBX)*   2-1-1993     (2.73     5.93        6.70        1.34        6.24        6.70        2.28        2.28   
Class C (EKGCX)   2-1-1993     0.34        6.24        6.45        1.34        6.24        6.45        2.28        2.28   
Administrator Class (EKGYX)   1-13-1997                          2.27        7.22        7.48        1.45        1.41   
Institutional Class (EKGIX)   7-30-2010                          2.53        7.49        7.62        1.20        1.16   
S&P Developed SmallCap Index4                            3.34        10.23        7.39                 
*   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.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Global Opportunities Fund     5   
Growth of $10,000 investment as of October 31, 20155
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 29, 2016, 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 fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The S&P Developed SmallCap Index is a 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.


Table of Contents

 

6   Wells Fargo Global Opportunities Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its benchmark, the S&P Developed SmallCap Index, for the 12-month period that ended October 31, 2015.

 

n   Stock selection in the consumer discretionary and information technology (IT) sectors detracted from relative performance. However, this was partly offset by strength in the industrials, materials, and health care sectors.

 

n   Geographically, stock selection was weakest in the U.K. and Switzerland but strongest in Canada and the U.S.

Headlines during the fiscal year were largely dominated by monetary policies across the globe.

Although the U.S. Federal Reserve (Fed) ended its bond-buying program, also known as quantitative easing, nearly one year ago, the Fed remained in the spotlight as investors anxiously awaited the first interest-rate hike in several years. In Europe, the European Central Bank (ECB) began its own version of quantitative easing, which helped weaken the euro, boost exports, and increase equity market returns. The Asia Pacific region also saw its fair share of currency-related headlines; China’s surprise currency devaluation triggered a global sell-off in risk assets during the month of August and further pressured stocks in commodity-sensitive countries such as Canada and Australia. In Japan, while the yen did not drastically weaken as it had in the prior two fiscal years, Japanese Prime Minister Shinzō Abe and the Bank of Japan are being measured against their earlier promises to deliver inflation.

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.

 

Ten largest holdings (%) as of October 31, 20156  

GSI Group Incorporated

     1.97   

Simpson Manufacturing Company Incorporated

     1.79   

Eagle Materials Incorporated

     1.76   

Douglas Dynamics Incorporated

     1.74   

Brown & Brown Incorporated

     1.73   

Analogic Corporation

     1.69   

WD-40 Company

     1.68   

TreeHouse Foods Incorporated

     1.65   

Krispy Kreme Doughnuts Incorporated

     1.64   

Mueller Industries Incorporated

     1.61   

 

Stock selection in the consumer discretionary and IT sectors detracted from performance during the recent fiscal year. In the consumer discretionary sector, a notable detractor was Krispy Kreme Doughnuts, Incorporated, a U.S.-based retailer and wholesaler of doughnuts and other food and beverage products. While the company is reporting positive trends in its domestic retail stores and its international expansion is proceeding as expected, reduced orders from a large wholesale customer negatively affected margins. Management is working to better align costs with revenue and address recent challenges. We believe the long-term opportunities in the core business outweigh the near-term wholesale issues.

 

 

The IT sector was negatively affected by our exposure to Teradata Corporation, a provider of analytic data platforms, applications, and services. The company is navigating a difficult spending environment as clients evaluate newly emerging open-source solutions and divert larger portions of their IT budgets toward cyber-security projects. While we appreciate the fundamental challenges, we continue to find the reward-to-risk profile of the company attractive.

Stock selection in the industrials, materials, and health care sectors contributed to relative performance during the period. In the industrials sector, USG People N.V., a Dutch-based provider of employment services, and Teleperformance SE, a French-based call center outsourcer, were among our top international performers in the sector. Domestically, shares of Courier Corporation, one of America’s major book manufacturers, appreciated significantly following a buyout offer from R.R. Donnelley & Sons Company. In addition, Matthews International Corporation, a provider of memorialization products and caskets, outperformed the broader index as the company benefited from lower copper prices and management continued to effectively allocate capital by making earnings accretive acquisitions.

Outperformance in the materials sector was largely driven by exposure to Innospec Incorporated, a provider of specialty chemicals. In health care, German-based Gerresheimer AG, a manufacturer of specialty glass and plastic pharmaceutical products, announced the acquisition of Centor U.S. Holding Incorporated, a leading provider of prescription vials. The

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Global Opportunities Fund     7   

deal is highly accretive and is expected to support revenue growth in the years to come. In addition, U.S.-based health care equipment and services company STERIS Corporation announced the acquisition of U.K.-based Synergy Health plc at the start of the fiscal year. Following a prolonged antitrust review, shares of STERIS appreciated on the announcement that a federal judge rejected a request from the Federal Trade Commission to block the deal.

 

Sector distribution as of October 31, 20157
LOGO

Our investment philosophy focuses on company-specific factors rather than on headline-dominating macroeconomic events.

We believe that it would be imprudent to allocate investor capital based on speculation about global political outcomes or concerns over the debate on monetary policy. Instead, we analyze each potential investment on the merits of that company’s competitive advantages, the fundamentals of its business model, and our estimate of the underlying value of its business compared with its market value. We will continue to allow our well-defined, repeatable process to guide us through any volatility, with the expectation that it should result in above-average risk-adjusted returns compared with the benchmark over a full investment cycle.

 

 

Country allocation as of October 31, 20157
LOGO
 

 

 

Please see footnotes on page 5.


Table of Contents

 

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, 2015 to October 31, 2015.

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
5-1-2015
     Ending
account value
10-31-2015
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 957.07       $ 7.65         1.55

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.39       $ 7.88         1.55

Class B

           

Actual

   $ 1,000.00       $ 953.36       $ 11.32         2.30

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.61       $ 11.67         2.30

Class C

           

Actual

   $ 1,000.00       $ 953.32       $ 11.32         2.30

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.61       $ 11.67         2.30

Administrator Class

           

Actual

   $ 1,000.00       $ 957.63       $ 6.91         1.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.15       $ 7.12         1.40

Institutional Class

           

Actual

   $ 1,000.00       $ 958.80       $ 5.68         1.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.41       $ 5.85         1.15

 

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo Global Opportunities Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 96.48%

          
Austria: 0.67%           

UNIQA Insurance Group AG (Financials, Insurance)

          168,348       $ 1,563,334   
          

 

 

 
Canada: 6.30%           

Canadian Western Bank (Financials, Banks) «

          78,927         1,516,852   

Cott Corporation (Consumer Staples, Beverages)

          139,900         1,461,955   

Cott Corporation - Canadian Exchange (Consumer Staples, Beverages)

          135,434         1,413,792   

Finning International Incorporated (Industrials, Trading Companies & Distributors)

          47,385         757,377   

GSI Group Incorporated (Information Technology, Electronic Equipment, Instruments & Components) †

          341,271         4,610,571   

Maple Leaf Foods Incorporated (Consumer Staples, Food Products)

          137,511         2,186,337   

MBAC Fertilizer Corporation - Legend Shares (Materials, Chemicals) (i)

          84,000         2,248   

MTY Food Group Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure)

          52,418         1,215,443   

Parex Resources Incorporated (Energy, Oil, Gas & Consumable Fuels) †

          90,375         678,711   

Western Forest Products Incorporated (Materials, Paper & Forest Products) «

          625,617         923,402   
             14,766,688   
          

 

 

 
China: 0.52%           

Plastec Technologies Limited (Materials, Chemicals) (a)

          152,438         1,219,504   
          

 

 

 
Denmark: 0.59%           

Jyske Bank AS (Financials, Banks) †

          28,541         1,392,218   
          

 

 

 
France: 3.74%           

ALTEN SA (Information Technology, IT Services)

          43,182         2,238,470   

Eutelsat Communications SA (Consumer Discretionary, Media)

          50,532         1,665,510   

M6 Metropole Television SA (Consumer Discretionary, Media)

          82,186         1,580,911   

Mersen SA (Industrials, Electrical Equipment)

          52,310         982,488   

Teleperformance SE (Industrials, Professional Services)

          29,220         2,293,213   
             8,760,592   
          

 

 

 
Germany: 4.88%           

Cancom SE (Information Technology, IT Services)

          40,443         1,586,506   

Gerresheimer AG (Health Care, Life Sciences Tools & Services)

          34,961         2,726,078   

Hochtief AG (Industrials, Construction & Engineering)

          20,878         1,942,337   

Kion Group AG (Industrials, Machinery)

          34,775         1,567,027   

TAG Immobilien AG (Financials, Real Estate Management & Development) «

          124,214         1,607,819   

TLG Immobilien AG (Financials, REITs)

          105,917         1,992,370   
             11,422,137   
          

 

 

 
Hong Kong: 1.03%           

Sunlight REIT (Financials, REITs)

          4,783,000         2,419,969   
          

 

 

 
Israel: 0.61%           

Orbotech Limited (Information Technology, Electronic Equipment, Instruments & Components) †

          85,800         1,419,990   
          

 

 

 
Italy: 1.14%           

Azimut Holding SpA (Financials, Capital Markets)

          47,594         1,144,779   

Davide Campari-Milano SpA (Consumer Staples, Beverages)

          178,358         1,527,353   
             2,672,132   
          

 

 

 

 

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, 2015

      

 

 

Security name             Shares      Value  
Japan: 7.68%           

Aeon Delight Company Limited (Industrials, Commercial Services & Supplies)

          54,300       $ 1,564,288   

Chiba Bank Limited (Financials, Banks)

          124,000         904,584   

DTS Corporation (Information Technology, IT Services)

          70,900         1,675,940   

FamilyMart Company Limited (Consumer Staples, Food & Staples Retailing)

          43,800         1,790,402   

Hitachi Chemical Company Limited (Materials, Chemicals)

          74,600         1,179,246   

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

          34,400         1,353,588   

Musashi Seimitsu Industry Company Limited (Consumer Discretionary, Auto Components)

          67,100         1,361,945   

Nihon Parkerizing Company Limited (Materials, Chemicals)

          144,100         1,281,808   

ORIX JREIT Incorporated (Financials, REITs)

          1,439         1,937,139   

Ship Healthcare Holdings Incorporated (Health Care, Health Care Providers & Services)

          61,469         1,488,977   

Sumitomo Warehouse Company Limited (Industrials, Transportation Infrastructure)

          384,000         2,037,228   

Taikisha Limited (Industrials, Construction & Engineering)

          58,400         1,413,750   
             17,988,895   
          

 

 

 
Netherlands: 1.99%           

Arcadis NV (Industrials, Construction & Engineering)

          62,968         1,587,382   

BinckBank NV (Financials, Capital Markets)

          169,663         1,492,421   

USG People NV (Industrials, Professional Services)

          99,880         1,587,528   
             4,667,331   
          

 

 

 
Norway: 0.50%           

SpareBank 1 SR Bank ASA (Financials, Banks)

          245,115         1,170,876   
          

 

 

 
South Korea: 0.62%           

BS Financial Group Incorporated (Financials, Banks)

          118,392         1,449,568   
          

 

 

 
Spain: 1.69%           

Almirall SA (Health Care, Pharmaceuticals)

          57,447         1,105,758   

Merlin Properties Socimi SA (Financials, REITs)

          185,040         2,371,235   

Prosegur Compania de Seguridad SA (Industrials, Commercial Services & Supplies)

          106,830         475,326   
             3,952,319   
          

 

 

 
Sweden: 0.52%           

Rezidor Hotel Group AB (Consumer Discretionary, Hotels, Restaurants & Leisure)

          285,682         1,213,811   
          

 

 

 
Switzerland: 2.32%           

Aryzta AG (Consumer Staples, Food Products)

          35,978         1,620,090   

Dufry AG (Consumer Discretionary, Specialty Retail) †

          11,688         1,365,453   

Kuoni Reisen Holding AG (Consumer Discretionary, Hotels, Restaurants & Leisure) «

          7,131         1,476,486   

OC Oerlikon Corporation AG (Information Technology, Electronic Equipment, Instruments & Components)

          102,408         982,698   
             5,444,727   
          

 

 

 
United Kingdom: 8.22%           

Bovis Homes Group plc (Consumer Discretionary, Household Durables)

          100,262         1,581,478   

Cambian Group plc (Health Care, Health Care Providers & Services)

          452,173         1,129,253   

Consort Medical plc (Health Care, Health Care Equipment & Supplies)

          102,907         1,548,340   

Hunting plc (Energy, Energy Equipment & Services)

          112,008         620,849   

Jupiter Fund Management plc (Financials, Capital Markets)

          347,981         2,413,645   

Keller Group plc (Industrials, Construction & Engineering)

          78,869         988,402   

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo Global Opportunities Fund     11   

      

 

 

Security name             Shares      Value  
United Kingdom (continued)           

Lancashire Holdings Limited (Financials, Insurance)

          64,899       $ 710,948   

Mears Group plc (Industrials, Commercial Services & Supplies)

          242,559         1,548,065   

Morgan Advanced Materials plc (Industrials, Machinery)

          332,016         1,430,079   

Pace plc (Consumer Discretionary, Household Durables)

          294,826         1,693,480   

Savills plc (Financials, Real Estate Management & Development)

          136,652         1,928,680   

SIG plc (Industrials, Trading Companies & Distributors)

          642,542         1,319,029   

Spectris plc (Information Technology, Electronic Equipment, Instruments & Components)

          47,621         1,221,349   

Stock Spirits Group plc (Consumer Staples, Beverages)

          380,448         1,117,279   
             19,250,876   
          

 

 

 
United States: 53.46%           

A. Schulman Incorporated (Materials, Chemicals)

          58,011         2,082,015   

ACCO Brands Corporation (Industrials, Commercial Services & Supplies) †

          314,612         2,538,919   

ACI Worldwide Incorporated (Information Technology, Software) †

          107,800         2,581,810   

Analogic Corporation (Health Care, Health Care Equipment & Supplies)

          45,124         3,953,765   

ARRIS Group Incorporated (Information Technology, Communications Equipment) †

          47,300         1,336,698   

Atwood Oceanics Incorporated (Energy, Energy Equipment & Services) «

          38,100         630,555   

Brown & Brown Incorporated (Financials, Insurance)

          125,422         4,047,368   

Christopher & Banks Corporation (Consumer Discretionary, Specialty Retail) †

          172,028         251,161   

Coherent Incorporated (Information Technology, Electronic Equipment, Instruments & Components) †

          38,200         2,070,440   

Delta Apparel Incorporated (Consumer Discretionary, Textiles, Apparel & Luxury Goods) †

          51,757         850,368   

Denny’s Corporation (Consumer Discretionary, Hotels, Restaurants & Leisure) †

          146,099         1,601,245   

DineEquity Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure)

          30,100         2,511,845   

Dixie Group Incorporated (Consumer Discretionary, Household Durables) Ǡ

          178,671         1,173,868   

Douglas Dynamics Incorporated (Industrials, Machinery)

          186,302         4,087,466   

Eagle Materials Incorporated (Materials, Construction Materials)

          62,500         4,126,875   

ESCO Technologies Incorporated (Industrials, Machinery)

          30,600         1,134,954   

First Citizens BancShares Corporation Class A (Financials, Banks)

          14,096         3,610,549   

Franklin Electric Company Incorporated (Industrials, Electrical Equipment)

          111,762         3,683,676   

Gramercy Property Trust Incorporated (Financials, REITs)

          61,800         1,401,624   

Guess? Incorporated (Consumer Discretionary, Specialty Retail)

          76,400         1,608,220   

Gulfport Energy Corporation (Energy, Oil, Gas & Consumable Fuels) †

          39,600         1,206,612   

Haemonetics Corporation (Health Care, Health Care Equipment & Supplies) †

          63,376         2,140,841   

Hatteras Financial Corporation (Financials, REITs)

          144,300         2,064,933   

Helen of Troy Limited (Consumer Discretionary, Household Durables) †

          27,500         2,728,275   

Imation Corporation (Information Technology, Technology Hardware, Storage & Peripherals) †

          494,388         998,664   

Innospec Incorporated (Materials, Chemicals)

          49,305         2,723,608   

Kadant Incorporated (Industrials, Machinery)

          73,976         3,041,893   

Krispy Kreme Doughnuts Incorporated (Consumer Discretionary, Hotels, Restaurants & Leisure) †

          280,300         3,837,307   

Liberty Tax Incorporated (Consumer Discretionary, Diversified Consumer Services) «

          110,220         2,544,980   

Matthews International Corporation Class A (Industrials, Commercial Services & Supplies)

          46,685         2,695,125   

Mueller Industries Incorporated (Industrials, Machinery)

          120,000         3,782,400   

Neenah Paper Incorporated (Materials, Paper & Forest Products)

          49,350         3,326,683   

NETGEAR Incorporated (Information Technology, Communications Equipment) †

          59,293         2,454,730   

Patterson-UTI Energy Incorporated (Energy, Energy Equipment & Services)

          89,400         1,331,166   

ProAssurance Corporation (Financials, Insurance)

          45,500         2,409,680   

Progress Software Corporation (Information Technology, Software) †

          95,500         2,318,740   

Schweitzer-Mauduit International Incorporated (Materials, Paper & Forest Products)

          87,200         3,385,104   

Simpson Manufacturing Company Incorporated (Industrials, Building Products)

          110,170         4,184,257   

Spectrum Brands Holdings Incorporated (Consumer Staples, Household Products)

          33,300         3,191,805   

 

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, 2015

      

 

 

Security name              Shares      Value  
United States (continued)          

Steel Excel Incorporated (Energy, Energy Equipment & Services) †

         109,434       $ 1,843,963   

Steris Corporation (Health Care, Health Care Equipment & Supplies) «

         36,200         2,713,190   

Teradata Corporation (Information Technology, IT Services) †

         97,600         2,743,536   

Theravance Incorporated (Health Care, Pharmaceuticals) «

         144,008         1,264,390   

TreeHouse Foods Incorporated (Consumer Staples, Food Products) †

         45,200         3,870,928   

UMB Financial Corporation (Financials, Banks)

         75,500         3,705,540   

Vishay Intertechnology Incorporated (Information Technology, Electronic Equipment, Instruments & Components)

         344,690         3,653,714   

WD-40 Company (Consumer Staples, Household Products)

         41,228         3,940,572   

WellCare Health Plans Incorporated (Health Care, Health Care Providers & Services) †

         31,700         2,808,620   

Westwood Holdings Group Incorporated (Financials, Capital Markets)

         52,850         3,070,585   
            125,265,262   
         

 

 

 

Total Common Stocks (Cost $206,905,996)

            226,040,229   
         

 

 

 
    Dividend yield                    
Preferred Stocks: 0.40%          
Germany: 0.40%          

Draegerwerk AG & Company KGAA (Health Care, Health Care Equipment & Supplies)

    2.15        13,051         939,838   
         

 

 

 

Total Preferred Stocks (Cost $1,294,513)

            939,838   
         

 

 

 
    Yield                    
Short-Term Investments: 7.45%          
Investment Companies: 7.45%          

Securities Lending Cash Investments, LLC (l)(r)(u)

    0.14           8,920,925         8,920,925   

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16           8,536,183         8,536,183   

Total Short-Term Investments (Cost $17,457,108)

            17,457,108   
         

 

 

 

 

Total investments in securities (Cost $225,657,617) *     104.33        244,437,175   

Other assets and liabilities, net

    (4.33        (10,140,931
 

 

 

      

 

 

 
Total net assets     100.00      $ 234,296,244   
 

 

 

      

 

 

 

 

 

 

 

 

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.

 

(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 $227,582,779 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 37,335,605   

Gross unrealized losses

     (20,481,209
  

 

 

 

Net unrealized gains

   $ 16,854,396   

 

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


Table of Contents

 

Statement of assets and liabilities—October 31, 2015   Wells Fargo Global Opportunities Fund     13   
         

Assets

 

Investments

 

In unaffiliated securities (including $8,804,543 of securities loaned), at value (cost $208,200,509)

  $ 226,980,067   

In affiliated securities, at value (cost $17,457,108)

    17,457,108   
 

 

 

 

Total investments, at value (cost $225,657,617)

    244,437,175   

Foreign currency, at value (cost $130,437)

    130,732   

Receivable for investments sold

    2,492,717   

Receivable for Fund shares sold

    201,199   

Receivable for dividends

    258,577   

Receivable for securities lending income

    7,760   

Prepaid expenses and other assets

    30,622   
 

 

 

 

Total assets

    247,558,782   
 

 

 

 

Liabilities

 

Payable for investments purchased

    3,748,926   

Payable for Fund shares redeemed

    204,413   

Payable upon receipt of securities loaned

    8,920,925   

Management fee payable

    191,162   

Distribution fees payable

    26,585   

Administration fees payable

    39,978   

Accrued expenses and other liabilities

    130,549   
 

 

 

 

Total liabilities

    13,262,538   
 

 

 

 

Total net assets

  $ 234,296,244   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 205,965,749   

Undistributed net investment income

    1,188,486   

Accumulated net realized gains on investments

    8,361,462   

Net unrealized gains on investments

    18,780,547   
 

 

 

 

Total net assets

  $ 234,296,244   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 151,740,347   

Shares outstanding – Class A1

    4,075,558   

Net asset value per share – Class A

    $37.23   

Maximum offering price per share – Class A2

    $39.50   

Net assets – Class B

  $ 4,206,172   

Shares outstanding – Class B1

    149,079   

Net asset value per share – Class B

    $28.21   

Net assets – Class C

  $ 36,215,368   

Shares outstanding – Class C1

    1,275,501   

Net asset value per share – Class C

    $28.39   

Net assets – Administrator Class

  $ 31,765,101   

Shares outstanding – Administrator Class1

    821,824   

Net asset value per share – Administrator Class

    $38.65   

Net assets – Institutional Class

  $ 10,369,256   

Shares outstanding – Institutional Class1

    268,406   

Net asset value per share – Institutional Class

    $38.63   

 

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

14   Wells Fargo Global Opportunities Fund   Statement of operations—year ended October 31, 2015
         

Investment income

 

Dividends (net of foreign withholding taxes of $209,819)

  $ 4,362,932   

Securities lending income, net

    234,341   

Income from affiliated securities

    10,694   
 

 

 

 

Total investment income

    4,607,967   
 

 

 

 

Expenses

 

Management fee

    2,406,116   

Administration fees

 

Class A

    391,259   

Class B

    19,653   

Class C

    95,986   

Administrator Class

    40,716   

Institutional Class

    8,069   

Shareholder servicing fees

 

Class A

    401,455   

Class B

    19,750   

Class C

    98,378   

Administrator Class

    92,624   

Distribution fees

 

Class B

    59,249   

Class C

    295,134   

Custody and accounting fees

    103,035   

Professional fees

    68,021   

Registration fees

    56,239   

Shareholder report expenses

    50,158   

Trustees’ fees and expenses

    17,456   

Other fees and expenses

    25,417   
 

 

 

 

Total expenses

    4,248,715   

Less: Fee waivers and/or expense reimbursements

    (59,817
 

 

 

 

Net expenses

    4,188,898   
 

 

 

 

Net investment income

    419,069   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    10,394,755   

Forward foreign currency contract transactions

    214,346   
 

 

 

 

Net realized gains on investments

    10,609,101   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (5,169,652

Forward foreign currency contract transactions

    (224,896
 

 

 

 

Net change in unrealized gains (losses) on investments

    (5,394,548
 

 

 

 

Net realized and unrealized gains (losses) on investments

    5,214,553   
 

 

 

 

Net increase in net assets resulting from operations

  $ 5,633,622   
 

 

 

 

 

 

 

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


Table of Contents

 

Statement of changes in net assets   Wells Fargo Global Opportunities Fund     15   
            Year ended
October 31, 2015
           Year ended
October 31, 2014
 

Operations

       

Net investment income (loss)

    $ 419,069        $ (166,255

Net realized gains on investments

      10,609,101          43,058,242   

Net change in unrealized gains (losses) on investments

      (5,394,548       (36,690,231
 

 

 

 

Net increase in net assets resulting from operations

      5,633,622          6,201,756   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (112,091       (1,289,731

Class C

      0          (17,006

Administrator Class

      (31,925       (475,665

Institutional Class

      (45,625       (23,151

Net realized gains

       

Class A

      (25,688,232       0   

Class B

      (2,100,714       0   

Class C

      (7,981,435       0   

Administrator Class

      (5,573,313       0   

Institutional Class

      (1,170,657       0   
 

 

 

 

Total distributions to shareholders

      (42,703,992       (1,805,553
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    385,971        14,800,661        339,559        14,931,283   

Class B

    2,614        75,178        4,025        140,530   

Class C

    83,130        2,405,203        55,031        1,941,771   

Administrator Class

    192,685        7,651,580        300,922        13,658,466   

Institutional Class

    207,276        8,364,650        87,544        4,024,855   
 

 

 

 
      33,297,272          34,696,905   
 

 

 

 

Reinvestment of distributions

       

Class A

    656,362        23,808,617        27,164        1,188,435   

Class B

    73,234        2,024,915        0        0   

Class C

    236,312        6,574,187        392        13,875   

Administrator Class

    146,011        5,492,203        9,728        438,256   

Institutional Class

    21,540        812,381        514        23,151   
 

 

 

 
      38,712,303          1,663,717   
 

 

 

 

Payment for shares redeemed

       

Class A

    (830,863     (31,796,199     (761,396     (33,410,938

Class B

    (267,575     (7,895,832     (232,231     (8,230,660

Class C

    (244,958     (7,212,225     (152,969     (5,417,774

Administrator Class

    (726,799     (30,614,585     (292,897     (13,293,051

Institutional Class

    (78,685     (3,130,872     (18,605     (837,713
 

 

 

 
      (80,649,713       (61,190,136
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (8,640,138       (24,829,514
 

 

 

 

Total decrease in net assets

      (45,710,508       (20,433,311
 

 

 

 

Net assets

       

Beginning of period

      280,006,752          300,440,063   
 

 

 

 

End of period

    $ 234,296,244        $ 280,006,752   
 

 

 

 

Undistributed (accumulated) net investment income (loss)

    $ 1,188,486        $ (57,884
 

 

 

 

 

 

 

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


Table of Contents

 

16   Wells Fargo Global Opportunities Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $43.26        $42.68        $33.17        $30.14        $31.91   

Net investment income

    0.10 1      0.03 1      0.16 1      0.20 1      0.12 1 

Net realized and unrealized gains (losses) on investments

    0.64        0.86        9.58        2.87        (1.89
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.74        0.89        9.74        3.07        (1.77

Distributions to shareholders from

         

Net investment income

    (0.03     (0.31     (0.23     (0.04     0.00   

Net realized gains

    (6.74     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (6.77     (0.31     (0.23     (0.04     0.00   

Net asset value, end of period

    $37.23        $43.26        $42.68        $33.17        $30.14   

Total return2

    2.12     2.07     29.50     10.24     (5.55 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.57     1.57     1.59     1.55     1.55

Net expenses

    1.55     1.55     1.55     1.54     1.53

Net investment income

    0.27     0.06     0.43     0.65     0.34

Supplemental data

         

Portfolio turnover rate

    42     66     59     85     76

Net assets, end of period (000s omitted)

    $151,740        $167,166        $181,764        $156,433        $174,937   

 

 

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     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS B   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $34.62        $34.18        $26.58        $24.30        $25.92   

Net investment loss

    (0.14 )1      (0.25 )1      (0.09 )1      (0.03 )1      (0.12 )1 

Net realized and unrealized gains (losses) on investments

    0.47        0.69        7.69        2.31        (1.50
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.33        0.44        7.60        2.28        (1.62

Distributions to shareholders from

         

Net realized gains

    (6.74     0.00        0.00        0.00        0.00   

Net asset value, end of period

    $28.21        $34.62        $34.18        $26.58        $24.30   

Total return2

    1.34     1.29     28.54     9.42     (6.25 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.32     2.32     2.34     2.30     2.30

Net expenses

    2.30     2.30     2.30     2.29     2.28

Net investment loss

    (0.49 )%      (0.71 )%      (0.32 )%      (0.10 )%      (0.43 )% 

Supplemental data

         

Portfolio turnover rate

    42     66     59     85     76

Net assets, end of period (000s omitted)

    $4,206        $11,799        $19,446        $21,181        $26,598   

 

 

 

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 C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $34.80        $34.36        $26.73        $24.43        $26.05   

Net investment loss

    (0.14 )1      (0.24 )1      (0.09 )1      (0.03 )1      (0.11 )1 

Net realized and unrealized gains (losses) on investments

    0.47        0.69        7.72        2.33        (1.51
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.33        0.45        7.63        2.30        (1.62

Distributions to shareholders from

         

Net investment income

    0.00        (0.01     0.00        0.00        0.00   

Net realized gains

    (6.74     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (6.74     (0.01     0.00        0.00        0.00   

Net asset value, end of period

    $28.39        $34.80        $34.36        $26.73        $24.43   

Total return2

    1.34     1.32     28.54     9.41     (6.25 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.32     2.32     2.34     2.30     2.30

Net expenses

    2.30     2.30     2.30     2.29     2.28

Net investment loss

    (0.48 )%      (0.69 )%      (0.31 )%      (0.11 )%      (0.41 )% 

Supplemental data

         

Portfolio turnover rate

    42     66     59     85     76

Net assets, end of period (000s omitted)

    $36,215        $41,792        $44,618        $37,753        $45,135   

 

 

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  
ADMINISTRATOR CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $44.60        $44.00        $34.21        $31.10        $32.92   

Net investment income

    0.16 1      0.09        0.22 1      0.26 1      0.15   

Net realized and unrealized gains (losses) on investments

    0.66        0.90        9.86        2.96        (1.93
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.82        0.99        10.08        3.22        (1.78

Distributions to shareholders from

         

Net investment income

    (0.03     (0.39     (0.29     (0.11     (0.04

Net realized gains

    (6.74     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (6.77     (0.39     (0.29     (0.11     (0.04

Net asset value, end of period

    $38.65        $44.60        $44.00        $34.21        $31.10   

Total return

    2.27     2.22     29.73     10.44     (5.39 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.43     1.41     1.42     1.38     1.37

Net expenses

    1.40     1.40     1.40     1.38     1.36

Net investment income

    0.41     0.22     0.58     0.81     0.53

Supplemental data

         

Portfolio turnover rate

    42     66     59     85     76

Net assets, end of period (000s omitted)

    $31,765        $53,966        $52,461        $44,360        $49,860   

 

 

 

1  Calculated based upon average shares outstanding

 

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  
INSTITUTIONAL CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $44.67        $44.05        $34.25        $31.18        $32.94   

Net investment income

    0.20        0.15        0.32 1      0.36 1      0.25   

Net realized and unrealized gains (losses) on investments

    0.72        0.96        9.86        2.93        (1.94
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.92        1.11        10.18        3.29        (1.69

Distributions to shareholders from

         

Net investment income

    (0.22     (0.49     (0.38     (0.22     (0.07

Net realized gains

    (6.74     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (6.96     (0.49     (0.38     (0.22     (0.07

Net asset value, end of period

    $38.63        $44.67        $44.05        $34.25        $31.18   

Total return

    2.53     2.48     30.06     10.70     (5.15 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.18     1.14     1.16     1.12     1.08

Net expenses

    1.15     1.14     1.15     1.12     1.08

Net investment income

    0.66     0.47     0.83     1.13     1.18

Supplemental data

         

Portfolio turnover rate

    42     66     59     85     76

Net assets, end of period (000s omitted)

    $10,369        $5,284        $2,151        $1,263        $1,486   

 

 

 

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 Global Opportunities 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 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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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, 2015, such fair value pricing was 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 at net asset value when available

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


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22   Wells Fargo Global Opportunities Fund   Notes to financial statements

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”). 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 fair valued based upon the amortized cost valuation technique. 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.


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Notes to financial statements   Wells Fargo Global Opportunities Fund     23   

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, 2015, 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

$1,016,942    $(1,016,942)

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:

 

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.


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24   Wells Fargo Global Opportunities 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, 2015:

 

    

Quoted prices

(Level 1)

     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

Austria

   $ 0      $ 1,563,334       $ 0       $ 1,563,334   

Canada

     14,764,440         2,248         0         14,766,688   

China

     0         0         1,219,504         1,219,504   

Denmark

     0        1,392,218         0         1,392,218   

France

     982,488         7,778,104         0         8,760,592   

Germany

     0        11,422,137         0         11,422,137   

Hong Kong

     0        2,419,969         0         2,419,969   

Israel

     1,419,990         0         0         1,419,990   

Italy

     0        2,672,132         0         2,672,132   

Japan

     0        17,988,895         0         17,988,895   

Netherlands

     0        4,667,331         0         4,667,331   

Norway

     0        1,170,876         0         1,170,876   

South Korea

     0        1,449,568         0         1,449,568   

Spain

     0         3,952,319         0         3,952,319   

Sweden

     1,213,811         0         0         1,213,811   

Switzerland

     0        5,444,727         0         5,444,727   

United Kingdom

     7,036,417         12,214,459         0         19,250,876   

United States

     123,421,299         1,843,963         0         125,265,262   

Preferred stocks

           

Germany

     0         939,838         0         939,838   

Short-term investments

           

Investment companies

     8,536,183         8,920,925         0         17,457,108   

Total assets

   $ 157,374,628       $ 85,843,043       $ 1,219,504       $ 244,437,175   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $57,844,944 were transferred from Level 1 to Level 2. 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 applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.90% and declined to 0.80% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, the management fee was equivalent to an annual rate of 0.95% of the Fund’s average daily net assets.


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Notes to financial statements   Wells Fargo Global Opportunities Fund     25   

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate        Rate prior to
July 1, 2015
 

Class A, Class B, Class C

     0.21        0.26

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   

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 29, 2016 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, 2015, Funds Distributor received $ 3,833 from the sale of Class A shares and $320 and $152 in contingent deferred sales charges from redemptions of Class B and Class C shares, respectively.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, and Administrator Class of the Fund is 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, 2015 were $100,635,136 and $144,761,173, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.

As of October 31, 2015, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $443,410 and $484,485 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.


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26   Wells Fargo Global Opportunities Fund   Notes to financial statements

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 Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $543 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:

 

     Year ended October 31  
     2015      2014  

Ordinary income

   $ 9,467,443       $ 1,805,553   

Long-term capital gain

     33,236,549         0   

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

  

Undistributed

long-term

gain

  

Unrealized

gains

$1,198,043

   $10,286,625    $16,853,763

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. SUBSEQUENT DISTRIBUTIONS

On December 11, 2015, the Fund declared distributions from long-term capital gains to shareholders of record on December 10, 2015. The per share amounts payable on December 14, 2015 were as follows:

 

      

Long-term

capital

gains

 

Class A

       $1.59180   

Class B

       1.59180   

Class C

       1.59180   

Administrator Class

       1.59180   

Institutional Class

       1.59180   

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 Global Opportunities 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 Global Opportunities Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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, 2015, 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, 2015, 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, 2015


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28   Wells Fargo Global Opportunities Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 13.95% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended October 31, 2015.

Pursuant to Section 852 of the Internal Revenue Code, $33,236,549 was designated as long-term capital gain distributions for the fiscal year ended October 31, 2015.

Pursuant to Section 854 of the Internal Revenue Code, $3,275,787 of income dividends paid during the fiscal year ended October 31, 2015 has been designated as qualified dividend income (QDI).

PROXY VOTING INFORMATION

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.


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Other information (unaudited)   Wells Fargo Global Opportunities 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 144 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  

Other

public company or
investment company
directorships during
past 5 years

William R. Ebsworth
(Born 1957)
  Trustee, since 2015**  

Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding Loevner Funds; Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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 Global Opportunities Fund   Other information (unaudited)

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

Other

public company or
investment company
directorships during
past 5 years

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
Donald C. Willeke (Born 1940)   Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

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 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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Other information (unaudited)   Wells Fargo Global Opportunities Fund     31   

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Global Opportunities Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) 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 combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to 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


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32   Wells Fargo Global Opportunities Fund   Other information (unaudited)

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper 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 Universe for all periods under review. The Board also noted that the performance of the Fund was lower than its benchmark, the S&P Developed SmallCap Index, for all periods under review except the first quarter of 2015 and the ten-year period.

The Board received information concerning, and discussed factors contributing to, the underperformance of the Fund relative to the benchmark for the periods noted above. The Board took note of the explanations for the relative underperformance, including with respect to overall investment approach and investment decisions that affected the Fund’s performance, and noted the Fund’s outperformance relative to the Universe 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 (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper reports, the Board noted that the net operating expense ratios of the funder 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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were lower than or in range of the 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 advisory 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 the advisory fee 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.


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Other information (unaudited)   Wells Fargo Global Opportunities Fund     33   

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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 Global Opportunities Fund   List of abbreviations

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

ACA —  ACA Financial Guaranty Corporation
ADR —  American depositary receipt
ADS —  American depositary shares
AGC —  Assured Guaranty Corporation
AGM —  Assured Guaranty Municipal
Ambac —  Ambac Financial Group Incorporated
AMT —  Alternative minimum tax
AUD —  Australian dollar
BAN —  Bond anticipation notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazilian real
CAB —  Capital appreciation bond
CAD —  Canadian dollar
CCAB —  Convertible capital appreciation bond
CDA —  Community Development Authority
CDO —  Collateralized debt obligation
CHF —  Swiss franc
COP —  Colombian peso
CLP —  Chilean peso
DKK —  Danish krone
DRIVER —  Derivative inverse tax-exempt receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-traded fund
EUR —  Euro
FDIC —  Federal Deposit Insurance Corporation
FFCB —  Federal Farm Credit Banks
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Administration
FHLB —  Federal Home Loan Bank
FHLMC —  Federal Home Loan Mortgage Corporation
FICO —  The Financing Corporation
FNMA —  Federal National Mortgage Association
FSA —  Farm Service Agency
GBP —  Great British pound
GDR —  Global depositary receipt
GNMA —  Government National Mortgage Association
GO —  General obligation
HCFR —  Healthcare facilities revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher education facilities authority revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong dollar
HUD —  Department of Housing and Urban Development
HUF —  Hungarian forint
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Indonesian rupiah
IEP —  Irish pound
JPY —  Japanese yen
KRW —  Republic of Korea won
LIBOR —  London Interbank Offered Rate
LIFER —  Long Inverse Floating Exempt Receipts
LIQ —  Liquidity agreement
LLC —  Limited liability company
LLLP —  Limited liability limited partnership
LLP —  Limited liability partnership
LOC —  Letter of credit
LP —  Limited partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multifamily housing revenue
MSTR —  Municipal securities trust receipts
MTN —  Medium-term note
MUD —  Municipal Utility District
MXN —  Mexican peso
MYR —  Malaysian ringgit
National —  National Public Finance Guarantee Corporation
NGN —  Nigerian naira
NOK —  Norwegian krone
NZD —  New Zealand dollar
PCFA —  Pollution Control Financing Authority
PCL —  Public Company Limited
PCR —  Pollution control revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable floating option tax-exempt receipts
plc —  Public limited company
PLN —  Polish zloty
PUTTER —  Puttable tax-exempt receipts
R&D —  Research & development
Radian —  Radian Asset Assurance
RAN —  Revenue anticipation notes
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real estate investment trust
ROC —  Reset option certificates
RON —  Romanian lei
RUB —  Russian ruble
SAVRS —  Select auction variable rate securities
SBA —  Small Business Authority
SDR —  Swedish depositary receipt
SEK —  Swedish krona
SFHR —  Single-family housing revenue
SFMR —  Single-family mortgage revenue
SGD —  Singapore dollar
SPA —  Standby purchase agreement
SPDR —  Standard & Poor’s Depositary Receipts
SPEAR —   Short Puttable Exempt Adjustable Receipts
STRIPS —  Separate trading of registered interest and
           principal securities
TAN —  Tax anticipation notes
TBA —  To be announced
THB —  Thai baht
TIPS —  Treasury inflation-protected securities
TRAN —  Tax revenue anticipation notes
TRY —  Turkish lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
ZAR —  South African rand
 


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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: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238509 12-15

A239/AR239 10-15


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Annual Report

October 31, 2015

 

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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, 2015, 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 International Equity Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Signs of encouragement in the eurozone were more than offset by slowing economic growth in China.

 

 

 

 

The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015.

 

 

Dear Valued 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, 2015. During the period, investors confronted concerns about slowing economic growth in China and a dramatic rise and fall in the country’s equity markets, diverging central bank policies globally, contentious negotiations to refinance Greece’s sovereign debt, low commodity prices, and ongoing currency volatility. These disparate influences tended to obscure improving economic data in the U.S. and several developed European countries.

Low commodity prices and slower global growth overshadowed improved economic data.

In Europe, the eurozone’s largest economies—France, Germany, Italy, and Spain—reported gross domestic product (GDP) growth on an annualized basis for the second quarter of 2015, although results were uneven for smaller, developing economies in the region. While annualized GDP growth slowed in the third quarter in the eurozone overall, it remained positive. Signs of encouragement in the eurozone were more than offset by slowing economic growth in China. China posted third-quarter GDP growth of 6.9%. While that pace might be envied by other developed economies, it is below levels many investors have come to expect from China. Furthermore, the government indicated the full-year growth target of 7% may not be met.

Stocks generally moved higher in April and early May 2015 before events served to discourage equity investors as summer advanced. The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015. At the same time, the value of the U.S. dollar increased relative to other currencies, particularly those in emerging markets. Both conditions concerned investors. Sustained low oil, natural gas, and other commodity prices hampered economies in several emerging markets. Slowed commodity consumption among developed markets also suggested a deceleration of global growth.

Global central bank policies diverge.

After ending its quantitative easing-related bond-buying program toward the end of 2014, the U.S. Federal Reserve (Fed) signaled its intention to increase the federal funds rate. However, concerns about slowing growth, particularly in emerging markets, prompted the Fed to defer an interest-rate increase. Investors globally fell into a holding pattern at times as they tried to anticipate the Fed’s next move. Meanwhile, the Bank of Japan announced in October 2014 significant expansion of its economic stimulus programs to include additional injections of liquidity into the economy through bond purchases. In addition, the Government Pension Investment Fund announced plans to reduce government bond investments and direct those assets to investments in the Japanese stock market. The People’s Bank of China also took initiatives to spur economic growth by cutting interest rates for the sixth time in less than a year in October 2015; lowering bank reserve requirements to encourage lending; and allowing the renminbi to depreciate to support exports and to advance government efforts to transition to a more market-driven economy.

During the summer of 2015, the Hang Seng Index1 in Hong Kong experienced a dramatic decline after a similarly dramatic ascent during late 2014 and early 2015, falling to levels not seen since 2013. Contentious negotiations between Greece and its debtors to refinance the country’s sovereign debt also concerned investors

 

 

 

1  The Hang Seng Index is a free-float-adjusted market-capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. You cannot invest directly in an index.


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

during June 2015. After weeks of stalemated negotiations, the government accepted additional spending reductions in order to secure new loan agreements. Developed European and Asian equity markets, as measured by Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net),2 returned -0.07% for the 12-month period that ended October 31, 2015.

The effect of slowing growth in China, a stronger U.S. dollar, and stubbornly low prices for oil, natural gas, and other commodities was particularly difficult for many emerging markets economies that rely on commodities as an economic engine. During the period, emerging markets stocks suffered more significantly than international developed markets, earning a return of -14.53%, as measured by the MSCI Emerging Markets Index (Net).3 U.S. investors in international equity markets also often saw the value of their overseas investments reduced upon translation to dollars.

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 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

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

2  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 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. You cannot invest directly in an index. 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.

 

3  The MSCI Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index.


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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

Jeffrey Everett, CFA

Dale Winner, CFA

Average annual total returns (%) as of October 31, 20151

 

        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     0.70        3.24        2.77        6.85        4.48        3.38        1.48        1.09   
Class B (WFEBX)*   9-6-1979     1.00        3.33        2.84        6.00        3.68        2.84        2.23        1.84   
Class C (WFEFX)   3-6-1998     5.03        3.69        2.61        6.03        3.69        2.61        2.23        1.84   
Class R (WFERX)   10-10-2003                          6.53        4.21        3.12        1.73        1.34   
Class R6 (WFEHX)   9-30-2015                          7.07        4.73        3.64        1.05        0.88   
Administrator Class (WFEDX)   7-16-2010                          6.89        4.48        3.51        1.40        1.09   
Institutional Class (WFENX)   3-9-1998                          7.07        4.73        3.64        1.15        0.84   
MSCI ACWI ex USA (Net)4                            (4.68     2.60        4.16                 
*   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.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo International Equity Fund     5   
Growth of $10,000 investment as of October 31, 20155
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. 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 29, 2016 (February 28, 2017 for Class R6), to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee 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 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 (Net) is a free float-adjusted market-capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. You cannot invest directly in an index. 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.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the MSCI ACWI ex USA (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 International Equity Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed the MSCI ACWI ex USA (Net) for the 12-month period that ended October 31, 2015.

 

n   The Fund remained overweight in the stocks of a number of companies in Japan, Hong Kong, and China and increased its positions in select undervalued European company stocks. The Fund benefited from positive stock-specific and sector allocation attribution across Italy, the United Kingdom, Hong Kong, and Canada as well as partial hedges of euro and yen currency exposures.

 

n   Financials sector stocks, including asset managers, conglomerates, and regional banks, and industrials sector holdings contributed to performance. Consumer sector investments in the automobile, beverages, apparel industries, and information technology sector stocks of equipment manufacturers detracted from performance.

Stock selection drove fund performance amid volatility and diverging central bank policies.

This past year’s volatility in global capital markets was best evidenced by the swings in China’s A-share market, as a margin-financed stock-buying frenzy among retail investors metamorphosed into panic coincident with disruptions in energy and metals commodity markets. 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, Japan, Hong Kong, and China. The Bank of Japan (BoJ) and European Central Bank (ECB) remain at the early stages of monetary policy accommodation, in stark contrast to the U.S. Federal Reserve’s move away from quantitative easing. BoJ and ECB monetary policies exerted reflationary pressure on their countries’ economies and the U.S. dollar relative to home exchange rates, which influenced our stock-picking and portfolio management decisions.

Some of the best stock performances came from the financials sector, with ANIMA Holding S.p.A., an Italian asset manager, the top relative contributor. Other notable positive performers included China Everbright Limited, which benefited from capital market reforms in Hong Kong and Shanghai; asset manager Man Group plc; Daiwa House Industry Company, Limited, which benefited from reflation in Japan; and Rheinmetall AG, a German cyclical company that benefited from self-help restructuring. We retained an underweight to emerging markets equities, notably Brazil, with positive attribution results. Outside of China and South Korea, we found few opportunities amid increasing emerging markets company, country, and currency risks. We exited our holding in Volkswagen AG after a stop-loss reevaluation of the stock when emissions-testing concerns emerged. Negative performance effects came from electrical equipment manufacturer Hitachi, Limited; Hana Financial Group Incorporated, a South Korean diversified bank; Coca-Cola East Japan Company, Limited; telecommunications equipment manufacturer QUALCOMM Incorporated; and Eni S.p.A., an integrated energy company.

Regionally, divergent and compelling investment opportunities are emerging.

In Europe, opportunities arose amid signs of a cyclical economic recovery in the context of a watchful ECB that is focused on stemming systematic risks in banking and financial markets. The ECB’s actions helped address challenges facing the European Union member states as they seek 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. In Italy, targeted reforms ranging from streamlining the country’s banking system and public bureaucracy to labor market and tax incentives uplifted economic activity. Prysmian S.p.A., an undervalued Italian cable manufacturer, and ANIMA, which benefited from reflation and business reforms, remain core representative holdings. In Germany, we added to our position in Rheinmetall, which we believe remains undervalued even after benefiting from ongoing automobile and defense business self-help restructuring, and initiated a position in SAP SE, an undervalued application software franchise undergoing a business-model transformation.

In Japan, the distinctions between the new and old corporate regimes continue to widen. We have watched core holdings increase their operating margins. Corporate reforms under Prime Minister Shinzo Abe continued to benefit industry segments. For example, reflation helped the capital markets and real estate industries where portfolio investments include Mitsubishi UFJ Financial Group, Incorporated, and Mitsui Fudosan Company, Limited, respectively.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo International Equity Fund     7   

Yaskawa Electric Corporation, a robotics manufacturer, complemented its technological leadership with enhanced corporate governance standards by adopting Japan’s corporate stewardship code, which is intended to promote sustainable company growth through investment and dialogue. We note that while Abenomics, as the Prime Minister’s reform program has become known, has demonstrated the force and flexibility of monetary and fiscal accommodation, elements of the more-difficult-to-achieve long-term structural reforms under his leadership are beginning to take shape as, for example, he encourages reallocation of pension capital from government bonds to equities; pressures corporate tax rates toward levels under 30%; champions approval of the Trans-Pacific Partnership, representing 40% of world gross domestic product with the U.S./Japan nexus at its hub; and increases demands on the private sector to share responsibility for spurring a positive national wealth effect.

In China, our base-case assessment suggests that while the policy challenges of transitioning from an exclusively state-controlled to more market-driven economy are daunting—with inevitable growing pains—government officials have several policy levers at their disposal to accomplish an orderly and flexible liberalization. We believe recent policy easing remained incremental, leaving room for further growth enhancement measures. We continued to build positions in undervalued and restructuring state-owned enterprises such as China Mobile Limited, which is still 72% government-owned and has a 30% cash-to-market capitalization ratio. We also maintained investments in the reforming financial services arena, including China Everbright, which is an undercovered diversified financial services and asset management firm that is in the process of executing a corporate governance realignment. Several firms poised to benefit from the nation’s move away from industrial spending to consumer spending populate our portfolio, including automobile manufacturer Dongfeng Motor Group Company, Limited, and beverage and spirits company Kweichow Moutai Company, Limited.

 

We continue to adhere to our investment process.

We are identifying opportunities in select equities in Japan, developed European markets, Hong Kong, and China, with mixed findings across 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 Japan, Europe, and Hong Kong—companies benefiting from a confluence of restructuring, reflation, and/or reform tailwinds.

Ten largest holdings (%) as of October 31, 20156  

Mitsubishi UFJ Financial Group Incorporated

     3.46   

Rheinmetall AG

     3.26   

Hitachi Limited

     3.17   

Man Group plc

     2.84   

Siemens AG

     2.70   

Prysmian SpA

     2.64   

Nomura Holdings Incorporated

     2.57   

Akzo Nobel NV

     2.54   

Wolseley plc

     2.52   

Eni SpA

     2.51   
 

 

Sector distribution as of October 31, 20157
LOGO
Country allocation as of October 31, 20157
LOGO
 

 

 

Please see footnotes on page 5.


Table of Contents

 

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, 2015 to October 31, 2015.

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

5-1-2015

    

Ending

account value

10-31-2015

    

Expenses

paid during

the period¹

    

Net annualized

expense ratio

 

Class A

           

Actual

   $ 1,000.00       $ 917.26       $ 5.27         1.09

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.71       $ 5.55         1.09

Class B

           

Actual

   $ 1,000.00       $ 913.61       $ 8.87         1.84

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.93       $ 9.35         1.84

Class C

           

Actual

   $ 1,000.00       $ 913.50       $ 8.87         1.84

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.93       $ 9.35         1.84

Class R

           

Actual

   $ 1,000.00       $ 915.95       $ 6.47         1.34

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.45       $ 6.82         1.34

Class R6

           

Actual

   $ 1,000.00       $ 918.47       $ 4.26         0.88

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.77       $ 4.48         0.88

Administrator Class

           

Actual

   $ 1,000.00       $ 917.41       $ 5.27         1.09

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.71       $ 5.55         1.09

Institutional Class

           

Actual

   $ 1,000.00       $ 918.47       $ 4.06         0.84

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.97       $ 4.28         0.84

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo International Equity Fund     9   

    

 

 

Security name             Shares      Value  

Common Stocks: 89.03%

          
Australia: 0.31%           

BHP Billiton Limited (Materials, Metals & Mining)

          80,061       $ 1,313,059   
          

 

 

 
Brazil: 0.07%           

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

          85,591         299,569   
          

 

 

 
Canada: 2.45%           

Cameco Corporation (Energy, Oil, Gas & Consumable Fuels)

          305,986         4,335,822   

Lundin Mining Corporation (Materials, Metals & Mining) †

          1,045,224         3,525,113   

Valeant Pharmaceuticals International Incorporated (Health Care, Pharmaceuticals) †

          27,105         2,541,636   
             10,402,571   
          

 

 

 
China: 6.93%           

Biostime International Holdings Limited (Consumer Staples, Food Products)

          1,234,000         2,739,910   

China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services)

          382,500         4,586,131   

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

          6,952,000         9,978,906   

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

          9,490,000         6,019,555   

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

          1,582,500         3,650,127   

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

          4,763,180         2,470,516   
             29,445,145   
          

 

 

 
France: 2.50%           

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

          253,604         10,616,129   
          

 

 

 
Germany: 12.77%           

Bayer AG (Health Care, Pharmaceuticals)

          59,576         7,943,590   

Hugo Boss AG (Consumer Discretionary, Textiles, Apparel & Luxury Goods)

          49,477         5,087,533   

Metro AG (Consumer Staples, Food & Staples Retailing)

          257,877         7,933,762   

Rheinmetall AG (Industrials, Industrial Conglomerates)

          219,971         13,835,481   

SAP SE (Information Technology, Software)

          101,226         7,980,158   

Siemens AG (Industrials, Industrial Conglomerates)

          114,082         11,458,868   
             54,239,392   
          

 

 

 
Hong Kong: 4.40%           

China Everbright Limited (Financials, Capital Markets)

          3,888,000         9,150,583   

Value Partners Group Limited (Financials, Capital Markets)

          3,614,000         3,826,924   

Xinyi Glass Holdings Limited (Consumer Discretionary, Auto Components)

          6,516,000         3,375,701   

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

          5,918,000         2,352,608   
             18,705,816   
          

 

 

 
Italy: 8.26%           

ANIMA Holding SpA (Financials, Capital Markets)

          898,258         8,795,083   

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

          652,546         10,656,237   

Intesa Sanpaolo SpA (Financials, Banks)

          1,271,168         4,422,463   

Prysmian SpA (Industrials, Electrical Equipment)

          519,682         11,222,685   
             35,096,468   
          

 

 

 

 

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, 2015

    

 

 

Security name             Shares      Value  
Japan: 21.23%           

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

          491,900       $ 6,913,342   

Daiwa House Industry Company Limited (Financials, Real Estate Management & Development)

          251,500         6,601,948   

Daiwa Securities Group Incorporated (Financials, Capital Markets)

          1,444,000         9,873,451   

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

          2,336,000         13,475,892   

Mitsubishi UFJ Financial Group Incorporated (Financials, Banks)

          2,271,600         14,691,641   

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

          315,000         8,572,299   

Nitto Denko Corporation (Materials, Chemicals)

          78,588         5,039,407   

Nomura Holdings Incorporated (Financials, Capital Markets)

          1,738,000         10,932,616   

Toyota Motor Corporation (Consumer Discretionary, Automobiles)

          136,400         8,356,468   

West Holdings Corporation (Consumer Discretionary, Household Durables)

          430,600         2,525,869   

Yaskawa Electric Corporation (Information Technology, Electronic Equipment, Instruments & Components)

          271,600         3,221,692   
             90,204,625   
          

 

 

 
Netherlands: 2.54%           

Akzo Nobel NV (Materials, Chemicals) «

          152,465         10,783,905   
          

 

 

 
Norway: 1.54%           

Frontline 2012 Limited (Energy, Oil, Gas & Consumable Fuels) 144A

          321,643         2,271,290   

Golden Ocean Group Limited (Industrials, Marine) †«

          87,655         170,085   

Marine Harvest ASA (Consumer Staples, Food Products)

          304,424         4,085,959   
             6,527,334   
          

 

 

 
South Korea: 3.73%           

Hana Financial Group Incorporated (Financials, Banks)

          278,193         6,765,371   

Samsung Electronics Company Limited GDR (Information Technology, Semiconductors & Semiconductor Equipment) 144A

          13,879         8,292,269   

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

          3,806         805,967   
             15,863,607   
          

 

 

 
Sweden: 1.33%           

Volvo AB Class B (Industrials, Machinery)

          545,336         5,640,481   
          

 

 

 
Switzerland: 5.59%           

ABB Limited (Industrials, Electrical Equipment)

          404,960         7,639,852   

Novartis AG (Health Care, Pharmaceuticals)

          94,405         8,552,022   

Zurich Insurance Group AG (Financials, Insurance)

          28,681         7,568,913   
             23,760,787   
          

 

 

 
United Kingdom: 13.88%           

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

          1,552,079         9,223,983   

Capita plc (Industrials, Professional Services)

          224,364         4,401,098   

Man Group plc (Financials, Capital Markets)

          4,702,343         12,069,364   

Reckitt Benckiser Group plc (Consumer Staples, Household Products)

          83,045         8,104,399   

Smiths Group plc (Industrials, Industrial Conglomerates)

          297,702         4,404,199   

Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services)

          3,055,345         10,054,931   

Wolseley plc (Industrials, Trading Companies & Distributors)

          182,586         10,719,856   
             58,977,830   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—October 31, 2015   Wells Fargo International Equity Fund     11   

    

 

 

Security name                Shares      Value  
United States: 1.50%          

QUALCOMM Incorporated (Information Technology, Communications Equipment)

         106,929       $ 6,353,721   
         

 

 

 

Total Common Stocks (Cost $354,957,309)

            378,230,439   
         

 

 

 
          Expiration date                
Participation Notes: 0.98%          
China: 0.98%          

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

      2-19-2019         30,360         1,026,447   

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

      12-4-2024         34,600         1,169,798   

Standard Chartered Bank (Kweichow Moutai Company Limited Class A) (Consumer Staples, Beverages) †

      4-18-2016         57,471         1,943,048   

Total Participation Notes (Cost $3,795,249)

            4,139,293   
         

 

 

 
    Yield                      
Short-Term Investments: 10.48%          
Investment Companies: 10.48%          

Securities Lending Cash Investments, LLC (l)(r)(u)

    0.14        1,039,471         1,039,471   

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16           43,482,773         43,482,773   

Total Short-Term Investments (Cost $44,522,244)

            44,522,244       
         

 

 

 

 

Total investments in securities (Cost $403,274,802) *     100.49        426,891,976   

Other assets and liabilities, net

    (0.49        (2,077,156
 

 

 

      

 

 

 
Total net assets     100.00      $ 424,814,820   
 

 

 

      

 

 

 

 

 

 

 

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 $405,579,866 and unrealized gains (losses) consists of:

Gross unrealized gains

   $ 38,263,858   

Gross unrealized losses

     (16,951,748
  

 

 

 

Net unrealized gains

   $ 21,312,110   

 

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, 2015
         

Assets

 

Investments

 

In unaffiliated securities (including $930,331 of securities loaned), at value (cost $358,752,558)

  $ 382,369,732   

In affiliated securities, at value (cost $44,522,244)

    44,522,244   
 

 

 

 

Total investments, at value (cost $403,274,802)

    426,891,976   

Foreign currency, at value (cost $164,799)

    163,691   

Receivable for Fund shares sold

    4,594,084   

Receivable for dividends

    1,175,187   

Receivable for securities lending income

    1,098   

Unrealized gains on forward foreign currency contracts

    1,235,384   

Prepaid expenses and other assets

    60,785   
 

 

 

 

Total assets

    434,122,205   
 

 

 

 

Liabilities

 

Payable for investments purchased

    7,532,850   

Payable for Fund shares redeemed

    303,684   

Payable upon receipt of securities loaned

    1,039,471   

Management fee payable

    195,529   

Distribution fees payable

    20,433   

Administration fees payable

    58,519   

Accrued expenses and other liabilities

    156,899   
 

 

 

 

Total liabilities

    9,307,385   
 

 

 

 

Total net assets

  $ 424,814,820   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 441,321,987   

Undistributed net investment income

    4,903,871   

Accumulated net realized losses on investments

    (46,251,087

Net unrealized gains on investments

    24,840,049   
 

 

 

 

Total net assets

  $ 424,814,820   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 145,654,487   

Shares outstanding – Class A1

    12,635,200   

Net asset value per share – Class A

    $11.53   

Maximum offering price per share – Class A2

    $12.23   

Net assets – Class B

  $ 2,638,867   

Shares outstanding – Class B1

    235,368   

Net asset value per share – Class B

    $11.21   

Net assets – Class C

  $ 29,079,927   

Shares outstanding – Class C1

    2,573,424   

Net asset value per share – Class C

    $11.30   

Net assets – Class R

  $ 2,146,996   

Shares outstanding – Class R1

    184,156   

Net asset value per share – Class R

    $11.66   

Net assets – Class R6

  $ 26,385   

Shares outstanding – Class R61

    2,296   

Net asset value per share – Class R6

    $11.49   

Net assets – Administrator Class

  $ 52,469,493   

Shares outstanding – Administrator Class1

    4,631,634   

Net asset value per share – Administrator Class

    $11.33   

Net assets – Institutional Class

  $ 192,798,665   

Shares outstanding – Institutional Class1

    16,775,803   

Net asset value per share – Institutional Class

    $11.49   

 

 

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, 2015   Wells Fargo International Equity Fund     13   
         

Investment income

 

Dividends (net of foreign withholding taxes of $519,108)

  $ 6,452,276   

Securities lending income, net

    99,388   

Income from affiliated securities

    29,507   
 

 

 

 

Total investment income

    6,581,171   
 

 

 

 

Expenses

 

Management fee

    2,322,207   

Administration fees

 

Class A

    274,780   

Class B

    8,320   

Class C

    48,377   

Class R

    4,481   

Class R6

    1 1 

Administrator Class

    30,873   

Institutional Class

    96,295   

Shareholder servicing fees

 

Class A

    286,300   

Class B

    8,465   

Class C

    50,750   

Class R

    4,689   

Administrator Class

    65,226   

Distribution fees

 

Class B

    25,393   

Class C

    152,249   

Class R

    4,689   

Custody and accounting fees

    98,075   

Professional fees

    91,512   

Registration fees

    70,887   

Shareholder report expenses

    54,598   

Trustees’ fees and expenses

    21,998   

Other fees and expenses

    25,486   
 

 

 

 

Total expenses

    3,745,651   

Less: Fee waivers and/or expense reimbursements

    (980,497
 

 

 

 

Net expenses

    2,765,154   
 

 

 

 

Net investment income

    3,816,017   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    5,113,220   

Forward foreign currency contract transactions

    1,698,364   
 

 

 

 

Net realized gains on investments

    6,811,584   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (6,231,266

Forward foreign currency contract transactions

    794,474   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (5,436,792
 

 

 

 

Net realized and unrealized gains (losses) on investments

    1,374,792   
 

 

 

 

Net increase in net assets resulting from operations

  $ 5,190,809   
 

 

 

 

 

 

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

 

14   Wells Fargo International Equity Fund   Statement of changes in net assets
     Year ended
October 31, 2015
    Year ended
October 31, 2014
 

Operations

       

Net investment income

    $ 3,816,017        $ 6,499,158   

Net realized gains on investments

      6,811,584          2,939,425   

Net change in unrealized gains (losses) on investments

      (5,436,792       (17,267,991
 

 

 

   

 

 

   

 

 

   

 

 

 

Net increase (decrease) in net assets resulting from operations

      5,190,809          (7,829,408
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (4,144,449       (2,501,560

Class B

      (133,491       (86,510

Class C

      (589,249       (245,790

Class R

      (58,692       (13,985

Administrator Class

      (444,265       (102,289

Institutional Class

      (3,012,972       (1,898,103
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

      (8,383,118       (4,848,237
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    5,686,291        68,771,982        1,770,644        20,755,971   

Class B

    4,367        52,179        2,057        23,111   

Class C

    1,364,465        16,286,613        286,544        3,296,726   

Class R

    127,293        1,581,522        34,731        411,910   

Class R6

    2,296 1      25,000 1      N/A        N/A   

Administrator Class

    5,575,269        66,219,302        1,087,000        12,536,509   

Institutional Class

    14,609,456        168,904,517        1,478,849        17,423,599   
 

 

 

 
      321,841,115          54,447,826   
 

 

 

 

Reinvestment of distributions

       

Class A

    350,957        3,835,959        183,571        2,204,689   

Class B

    12,086        129,201        7,028        82,440   

Class C

    47,129        508,047        18,292        216,764   

Class R

    2,725        30,167        467        5,680   

Administrator Class

    41,287        443,423        6,202        73,240   

Institutional Class

    220,501        2,396,847        100,489        1,200,840   
 

 

 

 
      7,343,644          3,783,653   
 

 

 

 

Payment for shares redeemed

       

Class A

    (2,058,420     (23,991,275     (2,964,305     (34,898,761

Class B

    (158,096     (1,803,160     (218,071     (2,489,646

Class C

    (316,369     (3,631,747     (273,075     (3,147,560

Class R

    (84,187     (995,805     (83,667     (995,507

Administrator Class

    (2,153,660     (24,140,441     (259,973     (2,909,657

Institutional Class

    (3,722,844     (43,032,964     (2,848,720     (33,494,543
 

 

 

 
      (97,595,392       (77,935,674
 

 

 

 

Net increase (decrease) in net assets resulting from capital share transactions

      231,589,367          (19,704,195
 

 

 

 

Total increase (decrease) in net assets

      228,397,058          (32,381,840
 

 

 

 

Net assets

       

Beginning of period

      196,417,762          228,799,602   
 

 

 

 

End of period

    $ 424,814,820        $ 196,417,762   
 

 

 

 

Undistributed net investment income

    $ 4,903,871        $ 7,799,740   
 

 

 

 

 

 

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   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.28        $11.98        $9.77        $9.82        $10.41   

Net investment income

    0.18 1      0.37 1      0.21        0.25        0.17   

Net realized and unrealized gains (losses) on investments

    0.57        (0.81     2.27        (0.09     (0.75
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.75        (0.44     2.48        0.16        (0.58

Distributions to shareholders from

         

Net investment income

    (0.50     (0.26     (0.27     (0.21     (0.01

Net asset value, end of period

    $11.53        $11.28        $11.98        $9.77        $9.82   

Total return2

    6.85     (3.77 )%      25.99     1.83     (5.62 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.53     1.53     1.56     1.53     1.46

Net expenses

    1.09     1.09     1.09     1.09     1.09

Net investment income

    1.50     3.14     2.03     2.49     1.55

Supplemental data

         

Portfolio turnover rate

    27     32     38     115     44

Net assets, end of period (000s omitted)

    $145,654        $97,640        $115,821        $114,219        $162,954   

 

 

 

 

 

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   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $10.95        $11.62        $9.47        $9.48        $10.12   

Net investment income

    0.08 1      0.28 1      0.13 1      0.16 1      0.08 1 

Net realized and unrealized gains (losses) on investments

    0.56        (0.79     2.21        (0.07     (0.72
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.64        (0.51     2.34        0.09        (0.64

Distributions to shareholders from

         

Net investment income

    (0.38     (0.16     (0.19     (0.10     0.00   

Net asset value, end of period

    $11.21        $10.95        $11.62        $9.47        $9.48   

Total return2

    6.00     (4.48 )%      25.07     0.99     (6.32 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.29     2.28     2.31     2.28     2.21

Net expenses

    1.84     1.84     1.84     1.84     1.84

Net investment income

    0.68     2.40     1.27     1.67     0.77

Supplemental data

         

Portfolio turnover rate

    27     32     38     115     44

Net assets, end of period (000s omitted)

    $2,639        $4,127        $6,810        $8,303        $12,873   

 

 

 

 

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 International Equity Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.06        $11.75        $9.58        $9.59        $10.24   

Net investment income

    0.08 1      0.27 1      0.14 1      0.16 1      0.06   

Net realized and unrealized gains (losses) on investments

    0.57        (0.79     2.22        (0.07     (0.71
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.65        (0.52     2.36        0.09        (0.65

Distributions to shareholders from

         

Net investment income

    (0.41     (0.17     (0.19     (0.10     0.00   

Net asset value, end of period

    $11.30        $11.06        $11.75        $9.58        $9.59   

Total return2

    6.03     (4.49 )%      25.05     1.08     (6.35 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.28     2.28     2.31     2.28     2.21

Net expenses

    1.84     1.84     1.84     1.84     1.84

Net investment income

    0.72     2.37     1.30     1.72     0.79

Supplemental data

         

Portfolio turnover rate

    27     32     38     115     44

Net assets, end of period (000s omitted)

    $29,080        $16,346        $16,997        $16,760        $22,578   

 

 

 

 

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 International Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS R   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.40        $11.96        $9.75        $9.79        $10.40   

Net investment income

    0.15 1      0.32 1      0.18 1      0.20 1      0.14 1 

Net realized and unrealized gains (losses) on investments

    0.57        (0.79     2.27        (0.06     (0.75
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.72        (0.47     2.45        0.14        (0.61

Distributions to shareholders from

         

Net investment income

    (0.46     (0.09     (0.24     (0.18     0.00   

Net asset value, end of period

    $11.66        $11.40        $11.96        $9.75        $9.79   

Total return

    6.53     (4.00 )%      25.68     1.58     (5.87 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.78     1.78     1.81     1.78     1.71

Net expenses

    1.34     1.34     1.34     1.34     1.34

Net investment income

    1.23     2.71     1.72     2.11     1.31

Supplemental data

         

Portfolio turnover rate

    27     32     38     115     44

Net assets, end of period (000s omitted)

    $2,147        $1,576        $2,234        $2,196        $3,050   

 

 

 

 

 

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 International Equity Fund     19   

(For a share outstanding throughout the period)

 

CLASS R6   Year ended
October 31, 20151
 

Net asset value, beginning of period

    $10.89   

Net investment income

    0.00 2 

Net realized and unrealized gains (losses) on investments

    0.60   
 

 

 

 

Total from investment operations

    0.60   

Net asset value, end of period

    $11.49   

Total return3

    5.51

Ratios to average net assets (annualized)

 

Gross expenses

    1.05

Net expenses

    0.88

Net investment income

    0.23

Supplemental data

 

Portfolio turnover rate

    27

Net assets, end of period (000s omitted)

    $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.


Table of Contents

 

20   Wells Fargo International Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.09        $11.79        $9.62        $9.67        $10.28   

Net investment income

    0.17 1      0.37 1      0.22        0.25        0.16   

Net realized and unrealized gains (losses) on investments

    0.57        (0.80     2.22        (0.09     (0.74
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.74        (0.43     2.44        0.16        (0.58

Distributions to shareholders from

         

Net investment income

    (0.50     (0.27     (0.27     (0.21     (0.03

Net asset value, end of period

    $11.33        $11.09        $11.79        $9.62        $9.67   

Total return

    6.89     (3.82 )%      26.00     1.88     (5.68 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.40     1.37     1.37     1.36     1.25

Net expenses

    1.09     1.09     1.09     1.09     1.09

Net investment income

    1.44     3.21     2.08     2.52     1.58

Supplemental data

         

Portfolio turnover rate

    27     32     38     115     44

Net assets, end of period (000s omitted)

    $52,469        $12,962        $3,955        $3,505        $3,436   

 

 

 

 

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 International Equity Fund     21   

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $11.25        $11.96        $9.76        $9.83        $10.42   

Net investment income

    0.19 1      0.37 1      0.24 1      0.37        0.19 1 

Net realized and unrealized gains (losses) on investments

    0.58        (0.77     2.26        (0.19     (0.75
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.77        (0.40     2.50        0.18        (0.56

Distributions to shareholders from

         

Net investment income

    (0.53     (0.31     (0.30     (0.25     (0.03

Net asset value, end of period

    $11.49        $11.25        $11.96        $9.76        $9.83   

Total return

    7.07     (3.53 )%      26.31     2.05     (5.38 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.15     1.10     1.13     1.10     1.03

Net expenses

    0.84     0.84     0.84     0.84     0.84

Net investment income

    1.67     3.18     2.29     2.67     1.78

Supplemental data

         

Portfolio turnover rate

    27     32     38     115     44

Net assets, end of period (000s omitted)

    $192,799        $63,766        $82,982        $138,245        $227,158   

 

 

 

 

1  Calculated based upon average shares outstanding

 

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


Table of Contents

 

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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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, 2015, such fair value pricing was 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 at net asset value when available.

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


Table of Contents

 

Notes to financial statements   Wells Fargo International Equity Fund     23   

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”). 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 fair valued based upon the amortized cost valuation technique. 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.


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24   Wells Fargo International Equity 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 difference causing such reclassifications is due to foreign currency transactions. At October 31, 2015, 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
$1,671,232    $(1,671,232)

As of October 31, 2015, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $43,946,020 expiring in 2016.

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:

 

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.


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Notes to financial statements   Wells Fargo International Equity Fund     25   

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in:

           

Common stocks

           

Australia

   $ 0       $ 1,313,059       $ 0       $ 1,313,059   

Brazil

     299,569         0         0         299,569   

Canada

     10,402,571         0         0         10,402,571   

China

     2,470,516         26,974,629         0         29,445,145   

France

     0         10,616,129         0         10,616,129   

Germany

     0         54,239,392         0         54,239,392   

Hong Kong

     0         18,705,816         0         18,705,816   

Italy

     0         35,096,468         0         35,096,468   

Japan

     0         90,204,625         0         90,204,625   

Netherlands

     0         10,783,905         0         10,783,905   

Norway

     2,271,290         4,256,044         0         6,527,334   

South Korea

     0         15,863,607         0         15,863,607   

Sweden

     0         5,640,481         0         5,640,481   

Switzerland

     0         23,760,787         0         23,760,787   

United Kingdom

     0         58,977,830         0         58,977,830   

United States

     6,353,721         0         0         6,353,721   

Participation notes

           

China

     0         4,139,293         0         4,139,293   

Short-term investments

           

Investment companies

     43,482,773         1,039,471         0         44,522,244   
     65,280,440         361,611,536         0         426,891,976   

Forward foreign currency contracts

     0         1,235,384         0         1,235,384   

Total assets

   $ 65,280,440       $ 362,846,920       $ 0       $ 428,127,360   

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. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $296,023,566 were transferred from Level 1 to Level 2. 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 applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.85% and declined to 0.70% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate


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26   Wells Fargo International Equity Fund   Notes to financial statements

administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, 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, 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 0.45% 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  
     Current rate        Rate prior to
July 1, 2015
 

Class A, Class B, Class C, Class R

     0.21        0.26

Class R6

     0.03           N/A   

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed to waive fees and/or reimburse expenses to the extent necessary to cap expenses as follows:

 

       Expense
ratio cap
       Expiration date  

Class A

       1.09        February 29, 2016   

Class B

       1.84        February 29, 2016   

Class C

       1.84        February 29, 2016   

Class R

       1.34        February 29, 2016   

Class R6

       0.88        February 28, 2017   

Administrator Class

       1.09        February 29, 2016   

Institutional Class

       0.84        February 29, 2016   

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, 2015, Funds Distributor received $43,296 from the sale of Class A shares and $154 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 is 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, 2015 were $266,864,676 and $62,738,342, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2015, the Fund entered into forward foreign currency contracts for economic hedging purposes.

At October 31, 2015, 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, 2015
    In exchange
for U.S. $
    Unrealized
gains
 
11-27-2015   Credit Suisse     8,012,500   EUR    $ 8,813,564      $ 9,227,115      $ 413,551   
11-27-2015   Credit Suisse     12,110,000   EUR      13,320,719        13,608,370        287,651   
12-28-2015   Morgan Stanley     2,756,000   EUR      3,033,575        3,099,265        65,690   
1-13-2016   Citibank     1,834,443,000   JPY      15,223,777        15,332,255        108,478   
1-13-2016   Credit Suisse     11,879,000   EUR      13,080,124        13,440,138        360,014   

The Fund had average contract amounts of $1,871,963 and $32,153,715 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended October 31, 2015.

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
pledged
     Net amount
of assets
 

Forward foreign currency contracts

   Citibank    $108,478*    $ 0       $ 0       $ 108,478   
   Credit Suisse    1,061,216*      0         0         1,061,216   
   Morgan Stanley    65,690*      0         0         65,690   
  * 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 Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $520 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $8,383,118 and $4,848,237 of ordinary income for the years ended October 31, 2015 and October 31, 2014, respectively.

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary income
   Unrealized
gains
   Capital loss
carryforward
$6,186,872    $21,294,835    $(43,946,020)

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.


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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, 2015, 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, 2015, 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, 2015, 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, 2015


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30   Wells Fargo International Equity Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 854 of the Internal Revenue Code, $6,971,385 of income dividends paid during the fiscal year ended October 31, 2015 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 2015. 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 144 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   Other
public company or
investment company
directorships during
past 5 years
William R. Ebsworth
(Born 1957)
  Trustee, since 2015**   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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; Harding

Loevner Funds; Russell

Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research 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   Other
public company or
investment company
directorships during
past 5 years
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
Donald C. Willeke
(Born 1940)
  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
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 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.
2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling
1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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Other information (unaudited)   Wells Fargo International Equity Fund     33   

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage International Equity Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) 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 combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to 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.


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34   Wells Fargo International Equity Fund   Other information (unaudited)

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper to select the mutual funds in the performance Universe. 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. The Board also noted that the performance of the Fund was higher than its benchmark, the MSCI ACWI Index ex USA (Net), 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 benchmark for the period noted above. The Board took note of the explanations for the relative underperformance, including an explanation of the market environment that affected the Fund’s performance, and the performance of the Fund relative to the Universe.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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 discussed and accepted Funds Management’s proposal to increase net operating expense ratio caps for Class R, Class A, Class B, Class C, Administrator Class, and Institutional Class. In accepting such proposed new net operating expense ratio caps, the Board noted that the Fund’s new net operating expense ratios would still be 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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were in range of the 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 advisory 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 the advisory fee 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.


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Other information (unaudited)   Wells Fargo International Equity Fund     35   

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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
 


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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: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

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238510 12-15

A240/AR240 10-15


Table of Contents

Annual Report

October 31, 2015

 

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Wells Fargo Intrinsic World 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

    11   

Statement of operations

    12   

Statement of changes in net assets

    13   

Financial highlights

    14   

Notes to financial statements

    18   

Report of independent registered public accounting firm

    24   

Other information

    25   

List of abbreviations

    31   

 

The views expressed and any forward-looking statements are as of October 31, 2015, 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 Intrinsic World Equity Fund   Letter to shareholders (unaudited)

 

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Karla M. Rabusch

President

Wells Fargo Funds

 

 

Signs of encouragement in the eurozone were more than offset by slowing economic growth in China.

 

 

 

 

 

The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015.

 

 

Dear Valued 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, 2015. During the period, investors confronted concerns about slowing economic growth in China and a dramatic rise and fall in the country’s equity markets, diverging central bank policies globally, contentious negotiations to refinance Greece’s sovereign debt, low commodity prices, and ongoing currency volatility. These disparate influences tended to obscure improving economic data in the U.S. and several developed European countries.

Low commodity prices and slower global growth overshadowed improved economic data.

In Europe, the eurozone’s largest economies—France, Germany, Italy, and Spain—reported gross domestic product (GDP) growth on an annualized basis for the second quarter of 2015, although results were uneven for smaller, developing economies in the region. While annualized GDP growth slowed in the third quarter in the eurozone overall, it remained positive. Signs of encouragement in the eurozone were more than offset by slowing economic growth in China. China posted third-quarter GDP growth of 6.9%. While that pace might be envied by other developed economies, it is below levels many investors have come to expect from China. Furthermore, the government indicated the full-year growth target of 7% may not be met.

Stocks generally moved higher in April and early May 2015 before events served to discourage equity investors as summer advanced. The decline of oil and natural gas prices that began during the summer of 2014 continued into 2015. At the same time, the value of the U.S. dollar increased relative to other currencies, particularly those in emerging markets. Both conditions concerned investors. Sustained low oil, natural gas, and other commodity prices hampered economies in several emerging markets. Slowed commodity consumption among developed markets also suggested a deceleration of global growth.

Global central bank policies diverge.

After ending its quantitative easing-related bond-buying program toward the end of 2014, the U.S. Federal Reserve (Fed) signaled its intention to increase the federal funds rate. However, concerns about slowing growth, particularly in emerging markets, prompted the Fed to defer an interest-rate increase. Investors globally fell into a holding pattern at times as they tried to anticipate the Fed’s next move. Meanwhile, the Bank of Japan announced in October 2014 significant expansion of its economic stimulus programs to include additional injections of liquidity into the economy through bond purchases. In addition, the Government Pension Investment Fund announced plans to reduce government bond investments and direct those assets to investments in the Japanese stock market. The People’s Bank of China also took initiatives to spur economic growth by cutting interest rates for the sixth time in less than a year in October 2015; lowering bank reserve requirements to encourage lending; and allowing the renminbi to depreciate to support exports and to advance government efforts to transition to a more market-driven economy.

During the summer of 2015, the Hang Seng Index1 in Hong Kong experienced a dramatic decline after a similarly dramatic ascent during late 2014 and early 2015, falling to levels not seen since 2013. Contentious negotiations between Greece and its debtors to refinance the country’s sovereign debt also concerned investors during June 2015. After weeks of stalemated negotiations, the government accepted additional spending reductions in order to secure new loan agreements.

 

 

 

1  The Hang Seng Index is a free-float-adjusted market-capitalization-weighted stock market index in Hong Kong. It is used to record and monitor daily changes of the largest companies of the Hong Kong stock market and is the main indicator of the overall market performance in Hong Kong. You cannot invest directly in an index.


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Letter to shareholders (unaudited)   Wells Fargo Intrinsic World Equity Fund     3   

Developed European and Asian equity markets, as measured by the Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net),2 returned -0.07% for the 12-month period that ended October 31, 2015.

The effect of slowing growth in China, a stronger U.S. dollar, and stubbornly low prices for oil, natural gas, and other commodities was particularly difficult for many emerging markets economies that rely on commodities as an economic engine. During the period, emerging markets stocks suffered more significantly than international developed markets, earning a return of -14.53%, as measured by the MSCI Emerging Markets Index (Net).3 U.S. investors in international equity markets also often saw the value of their overseas investments reduced upon translation to dollars.

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 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

 

 

Notice to shareholders

At a meeting held August 11-12, 2015, the Board of Trustees of the Fund approved a change in the name of the Fund whereby the word “Advantage” was removed from its name, effective December 15, 2015.

 

For current information about your fund investments, 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.

 

 

2  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 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. You cannot invest directly in an index. 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.

 

3  The MSCI Emerging Markets 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 Emerging Markets 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. You cannot invest directly in an index.


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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

Metropolitan West Capital Management, LLC

Portfolio managers

Jean-Baptiste Nadal, CFA

Jeffrey Peck

Average annual total returns (%) as of October 31, 20151

 

        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     (1.78     8.74        5.57        4.23        10.03        6.19        1.42        1.40   
Class C (EWECX)   5-18-2007     2.41        9.21        5.40        3.41        9.21        5.40        2.17        2.15   
Administrator Class (EWEIX)   5-18-2007                          4.51        10.31        6.41        1.34        1.15   
Institutional Class (EWENX)   7-30-2010                          4.72        10.53        6.51        1.09        0.95   
MSCI World Index (Net)4                            1.77        9.15        5.79                 

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, 20155

LOGO

 

 

1  Historical performance shown for Class C shares prior to their inception reflects the performance of Class A shares, and has been adjusted to reflect the higher expenses applicable to Class C shares. Historical performance shown for 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 29, 2016, 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 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) 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. 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.

 

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

n   The Fund outperformed its benchmark, the MSCI World Index (Net), for the 12-month period that ended
October 31, 2015.

 

n   Stock selection drove the Fund’s outperformance. Relative sector weightings, which are a by-product of our bottom-up security-selection process, had a modest net positive effect.

 

n   Security selection in the financials, consumer staples, and industrials sectors contributed to performance relative to the index. Stock selection in the telecommunication services sector detracted from relative return.

The Fund outperformed in a global stock market environment filled with uncertainties.

We adhered to the same intrinsic value investment philosophy and process and consistently applied it to the Fund. Our fundamental analysis involves identifying the stocks of what we believe are high-quality, value-creating businesses that are 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 financials, consumer staples, and industrials sectors contributed to relative performance. In financials, wealth management provider UBS AG and financial services and leasing company ORIX Corporation were the principal contributors. In consumer staples and industrials, contributors were Japanese household and personal care company Kao Corporation and high-end plumbing products maker TOTO Limited,* respectively.

By contrast, security selection in the telecommunication services sector detracted from performance relative to the benchmark, with wireless services provider Millicom International Cellular S.A. the main detractor.

By country, stock selection in Japan and the Netherlands, as well as underweights to underperforming commodity-driven Canada and Australia, contributed to relative value for the period. Conversely, security selection in Sweden detracted from relative returns. 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, 20156  

Microsoft Corporation

     2.41   

Motorola Solutions Incorporated

     2.40   

Unilever NV

     2.37   

Oracle Corporation

     2.34   

AIA Group Limited

     2.30   

EOG Resources Incorporated

     2.26   

Gilead Sciences Incorporated

     2.24   

Samsonite International SA

     2.23   

Sensata Technologies Holding NV

     2.22   

ORIX Corporation

     2.22   

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. However, periods of increased market volatility and temporary market dislocations in the past often provided opportunities to upgrade the portfolio, which might result in slightly higher turnover. During the fiscal year, we sold 16 companies in 8 different sectors and also invested in 16 new companies across 8 sectors. There were a number of new additions to the Fund: 1. Sony Corporation in consumer discretionary; 2. The Procter & Gamble Company in consumer staples; 3. Chevron Corporation in energy; 4. BB&T Corporation; CaixaBank, S.A.; and CIT Group Incorporated in financials; 5. Gilead Sciences, Incorporated; Merck & Company, Incorporated;

 

and Roche Holding Limited AG in health care; 6. AerCap Holdings N.V.; Honeywell International Incorporated; Lockheed Martin Corporation; and Nidec Corporation in industrials; 7. Microsoft Corporation and Motorola Solutions, Incorporated, in information technology; and 8. Verizon Communications Incorporated 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, 20157
LOGO
Country allocation as of October 31, 20157
LOGO
 

We remain confident that our investment process should create shareholder value over time.

There was no shortage of macroeconomic events over the past 12 months. Much of the recent domestic market commentary focused on when the U.S. Federal Reserve (Fed) will begin to raise short-term interest rates. The Fed’s counterparts in China, Europe, and Japan kept their monetary spigots wide open. In China, investors focused on slowing economic growth. In the eurozone, the quantitative easing (QE) program helped keep economic growth stable, yet not spectacular. Japan continued to demonstrate its determination to pursue the country’s inflation targets as Prime Minister Shinzo Abe encouraged public pension funds to reduce their allocation to low-yielding government bonds in favor of an increased allocation to stocks. This helped drive Tokyo stocks to 15-year highs during the period.

Within the U.S., the performance shift away from low-quality companies outpacing their high-quality peers appears to be continuing. We believe the historic return and risk advantages of high-quality company stocks will revert to historical norms. Activist activity within this space continued, reflecting the value opportunity within high-quality companies. High-quality companies possess a greater arsenal to enhance shareholder value in a slower-growth global economy. The risks of rising interest rates, decelerating earnings growth, and increasing equity market volatility will continue. These factors historically benefited high-quality companies, as these companies with strong free cash flow, shareholder-receptive management, and sufficient margins of safety can better navigate riskier environments.

Within Europe, the European Central Bank’s QE policy should continue to boost equity markets, improve sales growth, and enhance earnings, especially for those companies with an export-based business. We anticipate this new trend to play out for the foreseeable future to the potential benefit of our investors.

Our investment team maintains a long-term focus on what we believe are strong company fundamentals, the determination to seek out disconnected stock prices in the marketplace, and an ability to identify catalysts to unlock valuation that we believe will continue to return value to our clients.

 

 

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, 2015 to October 31, 2015.

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
5-1-2015
     Ending
account value
10-31-2015
     Expenses
paid during
the period1
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 968.18       $ 6.95         1.40

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.15       $ 7.12         1.40

Class C

           

Actual

   $ 1,000.00       $ 964.05       $ 10.64         2.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.37       $ 10.92         2.15

Administrator Class

           

Actual

   $ 1,000.00       $ 969.33       $ 5.71         1.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.41       $ 5.85         1.15

Institutional Class

           

Actual

   $ 1,000.00       $ 970.25       $ 4.72         0.95

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.42       $ 4.84         0.95

 

 

1 Expenses paid is equal to the annualized 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, 2015   Wells Fargo Intrinsic World Equity Fund     9   

  

 

 

Security name             Shares      Value  

Common Stocks: 99.35%

          
France: 2.09%           

Societe Generale SA (Financials, Banks)

          76,332       $ 3,545,102   
          

 

 

 
Germany: 1.80%           

Siemens AG (Industrials, Industrial Conglomerates)

          30,444         3,057,921   
          

 

 

 
Hong Kong: 2.31%           

AIA Group Limited (Financials, Insurance)

          667,200         3,912,013   
          

 

 

 
Japan: 8.80%           

Honda Motor Company Limited (Consumer Discretionary, Automobiles)

          98,520         3,259,085   

Kao Corporation (Consumer Staples, Personal Products)

          68,600         3,521,877   

Nidec Corporation (Industrials, Electrical Equipment)

          26,010         1,960,011   

ORIX Corporation (Financials, Diversified Financial Services)

          257,500         3,760,470   

ORIX Corporation ADR (Financials, Diversified Financial Services)

          7,800         568,620   

Sony Corporation (Consumer Discretionary, Household Durables)

          65,700         1,867,549   
             14,937,612   
          

 

 

 
Luxembourg: 3.54%           

Millicom International Cellular SA (Telecommunication Services, Wireless Telecommunication Services)

          39,850         2,221,500   

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

          1,280,970         3,793,030   
             6,014,530   
          

 

 

 
Netherlands: 9.39%           

Aercap Holdings NV (Industrials, Trading Companies & Distributors) †

          64,420         2,673,430   

Airbus Group NV (Industrials, Aerospace & Defense)

          25,610         1,783,359   

Heineken NV (Consumer Staples, Beverages)

          40,532         3,691,770   

Sensata Technologies Holding NV (Industrials, Electrical Equipment) †

          78,282         3,764,581   

Unilever NV (Consumer Staples, Food Products) «

          89,461         4,023,956   
             15,937,096   
          

 

 

 
South Korea: 2.21%           

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

          3,133         3,757,800   
          

 

 

 
Spain: 1.66%           

CaixaBank SA (Financials, Banks)

          736,574         2,821,193   
          

 

 

 
Switzerland: 6.00%           

Novartis AG ADR (Health Care, Pharmaceuticals)

          39,211         3,545,851   

Roche Holding AG (Health Care, Pharmaceuticals)

          12,677         3,441,791   

UBS Group AG (Financials, Capital Markets)

          160,300         3,201,580   
             10,189,222   
          

 

 

 
United Kingdom: 6.36%           

Barclays plc (Financials, Banks)

          960,560         3,422,263   

BG Group plc (Energy, Oil, Gas & Consumable Fuels)

          165,246         2,610,642   

Diageo plc (Consumer Staples, Beverages)

          75,676         2,181,734   

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

          98,310         2,575,271   
             10,789,910   
          

 

 

 

 

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, 2015

  

 

 

Security name              Shares      Value  
United States: 55.19%          

Abbott Laboratories (Health Care, Health Care Equipment & Supplies)

         69,728       $ 3,123,814   

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

         28,514         3,407,423   

Autoliv Incorporated SDR (Consumer Discretionary, Auto Components)

         28,712         3,462,531   

BB&T Corporation (Financials, Banks)

         84,550         3,141,033   

Charles Schwab Corporation (Financials, Capital Markets)

         101,965         3,111,972   

Chevron Corporation (Energy, Oil, Gas & Consumable Fuels)

         32,611         2,963,688   

CIT Group Incorporated (Financials, Banks)

         75,929         3,264,947   

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

         142,747         3,742,826   

EOG Resources Incorporated (Energy, Oil, Gas & Consumable Fuels)

         44,599         3,828,824   

Express Scripts Holding Company (Health Care, Health Care Providers & Services) †

         38,866         3,357,245   

FMC Corporation (Materials, Chemicals)

         31,156         1,268,361   

Gilead Sciences Incorporated (Health Care, Biotechnology)

         35,091         3,794,390   

Goldman Sachs Group Incorporated (Financials, Capital Markets)

         19,559         3,667,313   

Honeywell International Incorporated (Industrials, Aerospace & Defense)

         20,867         2,155,144   

Lockheed Martin Corporation (Industrials, Aerospace & Defense)

         9,595         2,109,269   

Merck & Company Incorporated (Health Care, Pharmaceuticals)

         61,130         3,341,366   

Microsoft Corporation (Information Technology, Software)

         77,630         4,086,441   

Motorola Solutions Incorporated (Information Technology, Communications Equipment)

         58,180         4,070,855   

Oracle Corporation (Information Technology, Software)

         102,153         3,967,623   

PepsiCo Incorporated (Consumer Staples, Beverages)

         35,108         3,587,687   

QUALCOMM Incorporated (Information Technology, Communications Equipment)

         28,346         1,684,319   

Schlumberger Limited (Energy, Energy Equipment & Services)

         39,600         3,095,136   

SunTrust Banks Incorporated (Financials, Banks)

         83,114         3,450,893   

Texas Instruments Incorporated (Information Technology, Semiconductors & Semiconductor Equipment)

         65,713         3,727,241   

The Procter & Gamble Company (Consumer Staples, Household Products)

         31,075         2,373,509   

The Walt Disney Company (Consumer Discretionary, Media)

         29,956         3,407,195   

United Parcel Service Incorporated Class B (Industrials, Air Freight & Logistics)

         31,783         3,274,285   

Verizon Communications Incorporated (Telecommunication Services, Diversified Telecommunication Services)

         76,181         3,571,365   

Visa Incorporated Class A (Information Technology, IT Services)

         47,032         3,648,743   
            93,685,438   
         

 

 

 

Total Common Stocks (Cost $138,866,668)

            168,647,837   
         

 

 

 
    Yield                    

Short-Term Investments: 2.71%

         
Investment Companies: 2.71%          

Securities Lending Cash Investments, LLC (l)(r)(u)

    0.14        3,947,850         3,947,850   

Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)

    0.16           641,400         641,400   

Total Short-Term Investments (Cost $4,589,250)

            4,589,250        
         

 

 

 

 

Total investments in securities (Cost $143,455,918) *     102.06        173,237,087   

Other assets and liabilities, net

    (2.06        (3,490,675
 

 

 

      

 

 

 
Total net assets     100.00      $ 169,746,412   
 

 

 

      

 

 

 

 

 

Non-income-earning security

 

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

 

(l) The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940.

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $144,157,125 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 38,674,495   

Gross unrealized losses

     (9,594,533
  

 

 

 

Net unrealized gains

   $ 29,079,962   

 

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


Table of Contents

 

Statement of assets and liabilities—October 31, 2015   Wells Fargo Intrinsic World Equity Fund     11   
         

Assets

 

Investments

 

In unaffiliated securities (including $3,818,802 of securities loaned), at value (cost $138,866,668)

  $ 168,647,837   

In affiliated securities, at value (cost $4,589,250)

    4,589,250   
 

 

 

 

Total investments, at value (cost $143,455,918)

    173,237,087   

Foreign currency, at value (cost $739)

    718   

Receivable for investments sold

    452,853   

Receivable for Fund shares sold

    29,339   

Receivable for dividends

    272,750   

Receivable for securities lending income

    534   

Prepaid expenses and other assets

    30,192   
 

 

 

 

Total assets

    174,023,473   
 

 

 

 

Liabilities

 

Payable for Fund shares redeemed

    75,801   

Payable upon receipt of securities loaned

    3,947,850   

Management fee payable

    110,168   

Distribution fee payable

    5,779   

Administration fees payable

    29,851   

Accrued expenses and other liabilities

    107,612   
 

 

 

 

Total liabilities

    4,277,061   
 

 

 

 

Total net assets

  $ 169,746,412   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 120,908,438   

Undistributed net investment income

    1,000,309   

Accumulated net realized gains on investments

    18,057,414   

Net unrealized gains on investments

    29,780,251   
 

 

 

 

Total net assets

  $ 169,746,412   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 149,492,387   

Shares outstanding – Class A1

    6,551,911   

Net asset value per share – Class A

    $22.82   

Maximum offering price per share – Class A2

    $24.21   

Net assets – Class C

  $ 8,957,645   

Shares outstanding – Class C1

    407,291   

Net asset value per share – Class C

    $21.99   

Net assets – Administrator Class

  $ 6,238,642   

Shares outstanding – Administrator Class1

    274,153   

Net asset value per share – Administrator Class

    $22.76   

Net assets – Institutional Class

  $ 5,057,738   

Shares outstanding – Institutional Class1

    221,559   

Net asset value per share – Institutional Class

    $22.83   

 

 

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

 

12   Wells Fargo Intrinsic World Equity Fund   Statement of operations—year ended October 31, 2015
         

Investment income

 

Dividends (net of foreign withholding taxes of $201,562)

  $ 3,800,547   

Securities lending income, net

    36,923   

Income from affiliated securities

    1,435   
 

 

 

 

Total investment income

    3,838,905   
 

 

 

 

Expenses

 

Management fee

    1,490,431   

Administration fees

 

Class A

    377,595   

Class C

    23,528   

Administrator Class

    6,598   

Institutional Class

    4,620   

Shareholder servicing fees

 

Class A

    387,465   

Class C

    24,093   

Administrator Class

    14,151   

Distribution fee

 

Class C

    72,280   

Custody and accounting fees

    43,522   

Professional fees

    70,451   

Registration fees

    57,486   

Shareholder report expenses

    40,725   

Trustees’ fees and expenses

    20,638   

Other fees and expenses

    13,221   
 

 

 

 

Total expenses

    2,646,804   

Less: Fee waivers and/or expense reimbursements

    (155,960
 

 

 

 

Net expenses

    2,490,844   
 

 

 

 

Net investment income

    1,348,061   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    18,667,164   

Net change in unrealized gains (losses) on investments

    (12,629,315
 

 

 

 

Net realized and unrealized gains (losses) on investments

    6,037,849   
 

 

 

 

Net increase in net assets resulting from operations

  $ 7,385,910   
 

 

 

 

 

 

 

 

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


Table of Contents

 

Statement of changes in net assets   Wells Fargo Intrinsic World Equity Fund     13   
     Year ended
October 31, 2015
       Year ended
October 31, 2014
 

Operations

           

Net investment income

       $ 1,348,061              $ 1,272,982   

Net realized gains on investments

         18,667,164                14,277,155   

Net change in unrealized gains (losses) on investments

         (12,629,315             (9,175,909
 

 

 

 

Net increase in net assets resulting from operations

         7,385,910                6,374,228   
 

 

 

 

Distributions to shareholders from

                

Net investment income

                

Class A

         (856,992             (1,863,591

Class C

         0                (51,916

Administrator Class

         (51,944             (64,491

Institutional Class

         (48,847             (34,571

Net realized gains

                

Class A

         (2,600,451             0   

Class C

         (169,828             0   

Administrator Class

         (108,609             0   

Institutional Class

         (77,473             0   
 

 

 

 

Total distributions to shareholders

         (3,914,144             (2,014,569
 

 

 

 

Capital share transactions

    Shares                Shares        

Proceeds from shares sold

                

Class A

    179,787           4,097,757           233,908           5,271,086   

Class C

    35,552           773,618           50,986           1,125,201   

Administrator Class

    93,043           2,104,873           311,050           6,906,837   

Institutional Class

    161,738           3,667,260           77,064           1,740,401   
 

 

 

 
         10,643,508                15,043,525   
 

 

 

 

Reinvestment of distributions

                

Class A

    152,110           3,351,854           80,375           1,805,214   

Class C

    7,388           156,548           2,231           48,726   

Administrator Class

    7,067           155,486           2,592           57,936   

Institutional Class

    3,982           87,906           1,542           34,536   
 

 

 

 
         3,751,794                1,946,412   
 

 

 

 

Payment for shares redeemed

                

Class A

    (795,378        (18,121,192        (1,004,696        (22,616,282

Class C

    (88,016        (1,946,944        (70,464        (1,532,097

Administrator Class

    (154,125        (3,437,971        (228,770        (5,076,626

Institutional Class

    (86,058        (1,969,384        (44,254        (998,282
 

 

 

 
         (25,475,491             (30,223,287
 

 

 

 

Net decrease in net assets resulting from capital share transactions

         (11,080,189             (13,233,350
 

 

 

 

Total decrease in net assets

         (7,608,423             (8,873,691
 

 

 

 

Net assets

                

Beginning of period

         177,354,835                186,228,526   
 

 

 

 

End of period

       $ 169,746,412              $ 177,354,835   
 

 

 

 

Undistributed net investment income

       $ 1,000,309              $ 538,166   
 

 

 

 

 

 

 

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


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14   Wells Fargo Intrinsic World Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS A   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $22.39        $21.88        $17.94        $15.55        $15.06   

Net investment income

    0.19        0.17        0.20        0.16        0.12 1 

Net realized and unrealized gains (losses) on investments

    0.73        0.59        4.00        1.87        0.48   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.92        0.76        4.20        2.03        0.60   

Distributions to shareholders from

         

Net investment income

    (0.12     (0.25     (0.26     (0.11     (0.11

Net realized gains

    (0.37     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.49     (0.25     (0.26     (0.11     (0.11

Regulatory settlement proceeds

    0.00        0.00        0.00        0.47        0.00   

Net asset value, end of period

    $22.82        $22.39        $21.88        $17.94        $15.55   

Total return2

    4.23     3.45     23.74     16.25 %3      4.00

Ratios to average net assets (annualized)

         

Gross expenses

    1.48     1.47     1.49     1.51     1.50

Net expenses

    1.40     1.40     1.40     1.40     1.40

Net investment income

    0.79     0.70     0.95     0.91     0.79

Supplemental data

         

Portfolio turnover rate

    32     23     22     27     12

Net assets, end of period (000s omitted)

    $149,492        $157,061        $168,621        $146,930        $139,100   

 

 

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     15   

(For a share outstanding throughout each period)

 

    Year ended October 31  
CLASS C   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $21.64        $21.19        $17.37        $15.15        $14.68   

Net investment income (loss)

    0.01 1      (0.02     0.05        0.02        (0.01 )1 

Net realized and unrealized gains (losses) on investments

    0.71        0.58        3.89        1.82        0.49   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.72        0.56        3.94        1.84        0.48   

Distributions to shareholders from

         

Net investment income

    0.00        (0.11     (0.12     (0.09     (0.01

Net realized gains

    (0.37     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.37     (0.11     (0.12     (0.09     (0.01

Regulatory settlement proceeds

    0.00        0.00        0.00        0.47        0.00   

Net asset value, end of period

    $21.99        $21.64        $21.19        $17.37        $15.15   

Total return2

    3.41     2.65     22.82     15.39 %3      3.27

Ratios to average net assets (annualized)

         

Gross expenses

    2.23     2.22     2.24     2.26     2.20

Net expenses

    2.15     2.15     2.15     2.15     2.15

Net investment income (loss)

    0.05     (0.06 )%      0.20     0.16     (0.05 )% 

Supplemental data

         

Portfolio turnover rate

    32     23     22     27     12

Net assets, end of period (000s omitted)

    $8,958        $9,788        $9,949        $7,341        $6,817   

 

 

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

 

16   Wells Fargo Intrinsic World Equity Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended October 31  
ADMINISTRATOR CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $22.33        $21.81        $17.89        $15.52        $15.02   

Net investment income

    0.23 1      0.22 1      0.24 1      0.19 1      0.15 1 

Net realized and unrealized gains (losses) on investments

    0.75        0.59        3.99        1.87        0.49   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.98        0.81        4.23        2.06        0.64   

Distributions to shareholders from

       

Net investment income

    (0.18     (0.29     (0.31     (0.16     (0.14

Net realized gains

    (0.37     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.55     (0.29     (0.31     (0.16     (0.14

Regulatory settlement proceeds

    0.00        0.00        0.00        0.47        0.00   

Net asset value, end of period

    $22.76        $22.33        $21.81        $17.89        $15.52   

Total return

    4.51     3.70     24.03     16.52 %2      4.27

Ratios to average net assets (annualized)

       

Gross expenses

    1.34     1.29     1.31     1.34     1.30

Net expenses

    1.15     1.15     1.15     1.15     1.15

Net investment income

    1.01     0.96     1.18     1.14     0.99

Supplemental data

       

Portfolio turnover rate

    32     23     22     27     12

Net assets, end of period (000s omitted)

    $6,239        $7,327        $5,306        $2,001        $1,986   

 

 

 

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

 

Financial highlights   Wells Fargo Intrinsic World Equity Fund     17   

(For a share outstanding throughout each period)

 

    Year ended October 31  
INSTITUTIONAL CLASS   2015     2014     2013     2012     2011  

Net asset value, beginning of period

    $22.40        $21.87        $17.93        $15.54        $15.02   

Net investment income

    0.28        0.25 1      0.26 1      0.17 1      0.16   

Net realized and unrealized gains (losses) on investments

    0.75        0.60        4.02        1.92        0.51   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    1.03        0.85        4.28        2.09        0.67   

Distributions to shareholders from

         

Net investment income

    (0.23     (0.32     (0.34     (0.17     (0.15

Net realized gains

    (0.37     0.00        0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.60     (0.32     (0.34     (0.17     (0.15

Regulatory settlement proceeds

    0.00        0.00        0.00        0.47        0.00   

Net asset value, end of period

    $22.83        $22.40        $21.87        $17.93        $15.54   

Total return

    4.72     3.90     24.28     16.74 %3      4.50

Ratios to average net assets (annualized)

         

Gross expenses

    1.09     1.04     1.06     1.10     1.00

Net expenses

    0.95     0.95     0.95     0.95     0.95

Net investment income

    1.23     1.11     1.32     1.03     1.12

Supplemental data

         

Portfolio turnover rate

    32     23     22     27     12

Net assets, end of period (000s omitted)

    $5,058        $3,179        $2,352        $561        $573   

 

 

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   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 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).

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 primary 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.

Equity securities that are not listed on a foreign or domestic exchange or market, but have a public trading market, are valued at the quoted bid price from an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.

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.

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, 2015, such fair value pricing was 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 at net asset value when available.

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


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Notes to financial statements   Wells Fargo Intrinsic World Equity Fund     19   

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.

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”). 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 fair valued based upon the amortized cost valuation technique. 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.


Table of Contents

 

20   Wells Fargo Intrinsic World Equity Fund   Notes to financial statements

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, 2015, 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

$71,865    $(71,865)

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:

 

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.


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Notes to financial statements   Wells Fargo Intrinsic World Equity Fund     21   

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2015:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
     Significant
unobservable inputs
(Level 3)
     Total  

Assets

           

Investments in :

           

Common stocks

           

France

   $ 0       $ 3,545,102       $ 0       $ 3,545,102   

Germany

     0         3,057,921         0         3,057,921   

Hong Kong

     0         3,912,013         0         3,912,013   

Japan

     568,620         14,368,992         0         14,937,612   

Luxembourg

     3,793,030         2,221,500         0         6,014,530   

Netherlands

     10,461,967         5,475,129         0         15,937,096   

South Korea

     0         3,757,800         0         3,757,800   

Spain

     0         2,821,193         0         2,821,193   

Switzerland

     3,545,851         6,643,371         0         10,189,222   

United Kingdom

     0         10,789,910         0         10,789,910   

United States

     90,222,907         3,462,531         0         93,685,438   

Short-term investments

           

Investment companies

     641,400         3,947,850         0         4,589,250   

Total assets

   $ 109,233,775       $ 64,003,312       $ 0       $ 173,237,087   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At October 31, 2015, fair value pricing was used in pricing certain foreign securities and securities valued at $46,763,338 were transferred from Level 1 to Level 2. 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 applicable 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.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.80% and declined to 0.65% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended October 31, 2015 have been included in management fee on the Statement of Operations.

For the year ended October 31, 2015, 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. Metropolitan West Capital Management, LLC, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.35% and declining to 0.20% as the average daily net assets of the Fund increase.


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22   Wells Fargo Intrinsic World Equity Fund   Notes to financial statements

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate        Rate prior to
July 1, 2015
 

Class A, Class C

     0.21        0.26

Administrator Class

     0.13           0.10   

Institutional Class

     0.13           0.08   

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 29, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.40% for Class A shares, 2.15% for Class C shares, 1.15% 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.

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, 2015, Funds Distributor received $2,925 from the sale of Class A shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund is 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, 2015 were $55,391,404 and $67,376,661, respectively.

6. BANK BORROWINGS

The Trust (excluding the money market funds) and Wells Fargo Variable Trust are parties to a $200,000,000 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 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund. For the year ended October 31, 2015, the Fund paid $370 in commitment fees.

For the year ended October 31, 2015, there were no borrowings by the Fund under the agreement.


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Notes to financial statements   Wells Fargo Intrinsic World Equity Fund     23   

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2015 and October 31, 2014 were as follows:

 

     Year ended October 31  
     2015      2014  

Ordinary income

   $ 957,783       $ 2,014,569   

Long-term capital gain

     2,956,361         0   

As of October 31, 2015, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income
   Undistributed
long-term
gain
   Unrealized
gains
$2,314,430    $17,454,157    $29,079,043

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.


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24   Wells Fargo Intrinsic World 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 Intrinsic World Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of October 31, 2015, 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, 2015, 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, 2015, 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, 2015


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Other information (unaudited)   Wells Fargo Intrinsic World Equity Fund     25   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended October 31, 2015.

Pursuant to Section 852 of the Internal Revenue Code, $2,956,361 was designated as long-term capital gain distributions for the fiscal year ended October 31, 2015.

Pursuant to Section 854 of the Internal Revenue Code, $957,783 of income dividends paid during the fiscal year ended October 31, 2015 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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26   Wells Fargo Intrinsic World 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 144 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  

Other

public company or
investment company
directorships during
past 5 years

William R. Ebsworth

(Born 1957)

  Trustee, since 2015**   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director 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 led 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 Loevner Funds; Russell related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller Exchange Traded Funds Trust & 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, Harding Loevner Funds, Russell Exchange Traded Funds 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). Mr. Harris is a certified public accountant.   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, Morgan Stanley Director of the Center for Leadership Development and Research and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust


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Other information (unaudited)   Wells Fargo Intrinsic World Equity Fund     27   

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

Other

public company or
investment company
directorships during
past 5 years

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

Donald C. Willeke

(Born 1940)

  Trustee, since 1996***   Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director and Vice Chair of The Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

 

* Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable.

 

** William R. Ebsworth and Jane A. Freeman each became a Trustee effective January 1, 2015.

 

*** Donald Willeke will retire as a Trustee effective December 31, 2015.

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.    

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

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 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

 

2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargofunds.com.


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28   Wells Fargo Intrinsic World Equity Fund   Other information (unaudited)

BOARD CONSIDERATION OF INVESTMENT ADVISORY, 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 advisory and sub-advisory agreements. In this regard, at an in-person meeting held on May 19-20, 2015 (the “Meeting”), the Board, all the members of which have no direct or indirect interest in the investment advisory 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 Advantage Intrinsic World Equity Fund (the “Fund”): (i) an investment advisory agreement (the “Advisory Agreement”) with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment management agreement (the “Management Agreement”) with Funds Management; and (iii) 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 combines the terms of the Advisory Agreement with the terms of the Fund’s Amended and Restated Administration Agreement (the “Administration Agreement”) applicable to Fund-level administrative services. The Advisory Agreement, 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 March 2015, 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 2015. 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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, 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 noted that the services to be provided to the Fund pursuant to the Management Agreement combined the advisory services previously provided to the Fund pursuant to the Fund’s Advisory Agreement with the Fund-level administrative services previously provided to the Fund pursuant to the Fund’s Administration Agreement. The Board received a representation from Funds Management that combining these services would not result in any change to the nature or level of services provided by Funds Management to the Fund.


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Other information (unaudited)   Wells Fargo Intrinsic World Equity Fund     29   

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 March 31, 2015. The Board considered these results in comparison to the performance of funds in a universe that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund (the “Universe”), and in comparison to the Fund’s benchmark index and to other comparative data. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper 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 except the one-year period. 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 one- and three-year periods.

The Board received information concerning, and discussed factors contributing to, the underperformance of the Fund relative to the Universe and benchmark for the periods identified above. The Board took note of the explanations for the relative underperformance in these periods, including with respect to sector allocations that affected the Fund’s performance, and of longer term and recent outperformance.

The Board also received and considered information regarding the Fund’s net operating expense ratios and their various components, including actual management fees (which reflect fee waivers, if any, and include advisory, administration and transfer agent fees), custodian and other non-management fees, and Rule 12b-1 and non-Rule 12b-1 service fees. The Board considered these ratios in comparison to the median ratios of funds in class-specific expense groups that were determined by Lipper to be similar to the Fund (the “Groups”). The Board received a description of the methodology used by Lipper 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 Lipper 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. The Board accepted Funds Management’s proposal to increase the net operating expense ratio caps for the Administrator Class, and to decrease the caps for Class A and Class C. In accepting such proposed new net operating expense ratio caps, the Board noted that the Fund’s new net operating expense ratios would still be lower than or equal to 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 Agreement and Sub-Advisory Agreement and approve the Management Agreement.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rates that are payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rates”), both on a stand-alone basis and on a combined basis with the Fund’s fund-level and class-level contractual administration fee rates (the “Management Rates”). The Board noted that the Management Rates include transfer agency and sub-transfer agency costs. The Board also noted that the fee rate to be paid by the Fund under the Management Agreement will incorporate the advisory fee and Fund-level administration fee previously payable separately by the Fund under the Fund’s Advisory Agreement and Administration Agreement with Funds Management. 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 (the “Sub-Advisory Agreement Rates”).

Among other information reviewed by the Board was a comparison of the Management Rates of the Fund with those of other funds in the expense Groups at a common asset level. The Board noted that the Management Rates of the Fund were lower than or in range of the 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 advisory 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 the advisory fee between them.


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30   Wells Fargo Intrinsic World Equity Fund   Other information (unaudited)

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 Advisory 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 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.

Economies of scale

With respect to possible economies of scale, the Board noted the existence of breakpoints in the Fund’s advisory and management fee structures, and the Fund’s administration 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 Agreement for the period from June 1, 2015 through June 30, 2015, approved the Management Agreement for the period from July 1, 2015 through May 31, 2016, and approved the continuation of the Sub-Advisory Agreement for a one-year term through May 31, 2016. The Board also 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 Intrinsic World Equity Fund     31   

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

ACA —  ACA Financial Guaranty Corporation
ADR —  American depositary receipt
ADS —  American depositary shares
AGC —  Assured Guaranty Corporation
AGM —  Assured Guaranty Municipal
Ambac —  Ambac Financial Group Incorporated
AMT —  Alternative minimum tax
AUD —  Australian dollar
BAN —  Bond anticipation notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazilian real
CAB —  Capital appreciation bond
CAD —  Canadian dollar
CCAB —  Convertible capital appreciation bond
CDA —  Community Development Authority
CDO —  Collateralized debt obligation
CHF —  Swiss franc
COP —  Colombian peso
CLP —  Chilean peso
DKK —  Danish krone
DRIVER —  Derivative inverse tax-exempt receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-traded fund
EUR —  Euro
FDIC —  Federal Deposit Insurance Corporation
FFCB —  Federal Farm Credit Banks
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Administration
FHLB —  Federal Home Loan Bank
FHLMC —  Federal Home Loan Mortgage Corporation
FICO —  The Financing Corporation
FNMA —  Federal National Mortgage Association
FSA —  Farm Service Agency
GBP —  Great British pound
GDR —  Global depositary receipt
GNMA —  Government National Mortgage Association
GO —  General obligation
HCFR —  Healthcare facilities revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher education facilities authority revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong dollar
HUD —  Department of Housing and Urban Development
HUF —  Hungarian forint
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Indonesian rupiah
IEP —  Irish pound
JPY —  Japanese yen
KRW —  Republic of Korea won
LIBOR —  London Interbank Offered Rate
LIFER —  Long Inverse Floating Exempt Receipts
LIQ —  Liquidity agreement
LLC —  Limited liability company
LLLP —  Limited liability limited partnership
LLP —  Limited liability partnership
LOC —  Letter of credit
LP —  Limited partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multifamily housing revenue
MSTR —  Municipal securities trust receipts
MTN —  Medium-term note
MUD —  Municipal Utility District
MXN —  Mexican peso
MYR —  Malaysian ringgit
National —  National Public Finance Guarantee Corporation
NGN —  Nigerian naira
NOK —  Norwegian krone
NZD —  New Zealand dollar
PCFA —  Pollution Control Financing Authority
PCL —  Public Company Limited
PCR —  Pollution control revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable floating option tax-exempt receipts
plc —  Public limited company
PLN —  Polish zloty
PUTTER —  Puttable tax-exempt receipts
R&D —  Research & development
Radian —  Radian Asset Assurance
RAN —  Revenue anticipation notes
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real estate investment trust
ROC —  Reset option certificates
RON —  Romanian lei
RUB —  Russian ruble
SAVRS —  Select auction variable rate securities
SBA —  Small Business Authority
SDR —  Swedish depositary receipt
SEK —  Swedish krona
SFHR —  Single-family housing revenue
SFMR —  Single-family mortgage revenue
SGD —  Singapore dollar
SPA —  Standby purchase agreement
SPDR —  Standard & Poor’s Depositary Receipts
SPEAR —   Short Puttable Exempt Adjustable Receipts
STRIPS —  Separate trading of registered interest and
           principal securities
TAN —  Tax anticipation notes
TBA —  To be announced
THB —  Thai baht
TIPS —  Treasury inflation-protected securities
TRAN —  Tax revenue anticipation notes
TRY —  Turkish lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
ZAR —  South African rand
 


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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: wfaf@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 Wells Fargo Funds. 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 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.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2015 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

238511 12-15

A241/AR241 10-15


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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, 2015
     Fiscal
year ended
October 31, 2014
 

Audit fees

   $ 308,960       $ 308,960   

Audit-related fees

     —           —     

Tax fees (1)

     40,770         38,530   

All other fees

     —           —     
  

 

 

    

 

 

 
   $ 349,730       $ 347,490   
  

 

 

    

 

 

 

 

(1) Tax fees consist of fees for tax compliance, tax advice, tax planning and excise tax.

(e) The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services for the mutual funds of Wells Fargo Funds Trust; (2) non-audit tax or compliance consulting or training services provided to the Funds by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.

(f) Not applicable


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(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, 2015

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, 2015
By:  
  /s/ Nancy Wiser
  Nancy Wiser
  Treasurer
Date: December 22, 2015
By:  
  /s/ Jeremy DePalma
  Jeremy DePalma
  Treasurer
Date: December 22, 2015

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
2/28/17
5/31/16
2/29/16
12/31/15
Filed on / Effective on:12/29/15N-Q
12/22/15
12/15/15497K
12/14/15485APOS
12/11/15
12/10/15
11/24/15485BPOS,  497K
11/23/15
11/20/1540-17G/A
For Period End:10/31/15N-Q,  NSAR-A,  NSAR-B
10/23/15497
9/30/1524F-2NT,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
9/1/15485BPOS
7/1/15485BPOS,  497,  497K
6/30/1524F-2NT,  485BPOS,  497,  DEFA14A,  N-CSR,  N-CSRS,  N-MFP,  N-PX,  N-Q,  NSAR-A,  NSAR-B
6/1/15485BPOS
5/1/15485BPOS
3/31/1524F-2NT,  485APOS,  497,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
2/28/1524F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
1/1/15485BPOS
11/1/14485BPOS
10/31/1424F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B,  NSAR-B/A
10/31/13N-CSR,  N-MFP,  N-Q,  NSAR-B
6/28/13497,  NSAR-A
1/31/1324F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
11/30/12497,  497K,  N-MFP,  N-Q,  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
6/30/1024F-2NT,  497,  497K,  N-CSR,  N-CSRS,  N-Q,  NSAR-A,  NSAR-B
3/10/99
 List all Filings 
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