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Wells Fargo Funds Trust – ‘N-CSR’ for 4/30/16

On:  Tuesday, 7/5/16, at 1:42pm ET   ·   Effective:  7/5/16   ·   For:  4/30/16   ·   Accession #:  1193125-16-641378   ·   File #:  811-09253

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

 7/05/16  Wells Fargo Funds Trust           N-CSR       4/30/16    4:2.4M                                   RR Donnelley/FAAllspring Absolute Return Fund Administrator Class (WARDX) — Class A (WARAX) — Class C (WARCX) — Class R (WARHX) — Class R6 (WARRX) — Institutional Class (WABIX)Allspring Asset Allocation Fund Administrator Class (EAIFX) — Class A (EAAFX) — Class B (EABFX) — Class C (EACFX) — Class R (EAXFX) — Institutional Class (EAAIX)

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    913K 
                          Management Investment Company                          
 2: EX-99.(A)(1)  Code of Ethics                                    HTML    166K 
 4: EX-99.906CERT  Section 906 Certifications                       HTML      8K 
 3: EX-99.CERT  Section 302 Certifications                          HTML     12K 


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

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  Form N-CSR  
Table of Contents

LOGO

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-09253

 

 

Wells Fargo Funds Trust

(Exact name of registrant as specified in charter)

 

 

525 Market St., San Francisco, CA 94105

(Address of principal executive offices) (Zip code)

 

 

C. David Messman

Wells Fargo Funds Management, LLC

525 Market St., San Francisco, CA 94105

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 800-222-8222

Date of fiscal year end: April 30

Registrant is making a filing for 2 of its series:

Wells Fargo Absolute Return Fund

Wells Fargo Asset Allocation Fund.

Date of reporting period: April 30, 2016

 

 

 


Table of Contents
ITEM 1. REPORT TO STOCKHOLDERS


Table of Contents

Annual Report

April 30, 2016

 

LOGO

 

Wells Fargo Absolute Return 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

    9   

Portfolio of investments

    11   
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

    21   

Report of independent registered public accounting firm

    25   

Other information

    26   

List of abbreviations

    29   

Appendix

    A-1   

 

The views expressed and any forward-looking statements are as of April 30, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

2   Wells Fargo Absolute Return Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

All three equity market indexes reversed course in mid-February 2016 as global investors regained a measure of confidence, business data improved, and central bankers reasserted their commitment to initiatives that are intended to spark economic growth.

 

 

 

 

Bond markets were volatile as well.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Absolute Return Fund for the 12-month period that ended April 30, 2016. During the period, investors, concerned about economic growth, tended to focus on the ability of central bank policymakers globally to spur business activity. Investor sentiment shifted with the potential of each new economic data point to influence policymakers, which drove volatility in equity, interest-rate, and currency markets.

Economic conditions and central bank policies influenced equity and fixed-income markets.

In the U.S., the experience of the S&P 500 Index,1 a common measure of stock performance, illustrates shifts in investor sentiment during the period. Beginning in May 2015 through mid-August, the S&P 500 Index traded in a narrow range as investors sorted through conflicting economic and business data. In August, the Index fell into correction territory—defined as a loss of 10% or more—then recovered a portion of those losses and traded in a narrow range at its lower level for another month. At the end of September, the Index retested August lows then regained most of its year-to-date losses from October through December, once again dipping into correction territory in February 2016. During the first six weeks of 2016, the Index suffered the worst loss to open a year on record. Overseas, the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index2 and the MSCI Emerging Markets (EM) Index3 traced more persistently negative return patterns before bottoming early in 2016.

All three equity market indexes reversed course in mid-February 2016 as global investors regained a measure of confidence, business data improved, and central bankers reasserted their commitment to initiatives that are intended to spark economic growth. By the end of the period, the S&P 500 Index recorded a 1.7% gain and the MSCI ACWI ex USA Index and MSCI EM Index reduced their losses.

Bond markets were volatile as well. The U.S. Federal Reserve (Fed), which consistently signaled its desire to raise the federal funds rate, did so in December 2015, the first such increase since 2006. The Fed’s monetary policy tightening contrasted with actions by the European Central Bank (ECB), the People’s Bank of China (PBOC), and the Bank of Japan (BOJ), which each implemented currency and interest-rate policies that were more accommodative of business activity. The ECB and BOJ conducted bond purchasing programs similar to the Fed’s quantitative easing programs. Overseas, bond markets benefited during the period, with the Barclays Global Aggregate ex U.S. Dollar Bond Index4 gaining 6.7%. In the U.S., interest-rate increases that many investors anticipated after the Fed raised the federal funds rate were slow to occur, limiting investor interest in U.S. bonds. The Barclays U.S. Aggregate Bond Index5 and the Barclays U.S. Treasury Index6 gained 2.7% and 2.8%, respectively, during the period.

 

 

 

1  The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

 

2  The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index.

 

3  The MSCI Emerging Markets (EM) Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI EM Index 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.

 

4  The Barclays Global Aggregate ex U.S. Dollar Bond Index tracks an international basket of government, corporate, agency, and mortgage-related bonds. You cannot invest directly in an index.

 

5  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.

 

6  The Barclays U.S. Treasury Index is an unmanaged index of prices of U.S. Treasury bonds with maturities of 1 to 30 years. You cannot invest directly in an index.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Absolute Return Fund     3   

Shifting investor sentiment reflected changing economic and business data.

Throughout the period, changing economic and business data drove stock and bond market volatility. As the period opened, the U.S. equity bull market entered its eighth year, making it the second longest bull market of the past 50 years. U.S. unemployment data improved. Major European economies reported second-quarter gross domestic product growth.

As the summer months arrived, however, counterbalancing influences raised investor concerns. Oil prices declined once again after a spring rally. Concerns arose about Greece’s ability to repay its sovereign debt, and the U.S. dollar strengthened in anticipation of a federal funds interest-rate increase. By July 2015, equity markets were declining, led by stocks in China, which endured the largest one-day loss since 2007 on July 27, 2015.

In August 2015, China allowed its currency’s value to decline in an attempt to bolster exports and the PBOC lowered interest rates to encourage lending. In September, the Fed reported “modest to moderate growth” across sectors and regions in the U.S. In contrast, Japan’s economy contracted in the fourth quarter, China’s manufacturing sector continued to retrench, and growth appeared to slow in Europe.

As global growth concerns restrained enthusiasm, investors appeared to react to each new data point as indication that central bankers might pursue policies to accommodate economic growth. In January 2016, amid falling stock markets and oil prices globally, U.S. Treasury values fell and U.S. corporate profits declined for the second consecutive quarter. The Fed expressed hesitancy about additional monetary tightening through interest-rate increases in the near term. The BOJ implemented a negative interest-rate policy that was similar to the policy enacted by the ECB in 2014. Negative interest rates are intended to encourage banks to lend money rather than keep it on deposit. In March 2016, the ECB pushed its interest rates deeper into negative territory and expanded its bond purchases. Overall, these policy actions and intermittently positive economic data heartened investors as the period drew to a close.

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

Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.

Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.


Table of Contents

 

4   Wells Fargo Absolute Return Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks a positive total return.

Manager

Wells Fargo Funds Management, LLC

Portfolio managers

Ben Inker, CFA®1

Sam Wilderman, CFA®1,2

Average annual total returns (%) as of April 30, 20163

 

        Including sales charge     Excluding sales charge     Expense ratios4 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net5  
Class A (WARAX)   3-1-2012     (12.18     1.32        3.40        (6.82     2.53        4.02        1.51        1.51   
Class C (WARCX)   3-1-2012     (8.59     1.74        3.23        (7.59     1.74        3.23        2.26        2.26   
Class R (WARHX)   9-30-2015                          (7.10     2.44        4.33        1.76        1.76   
Class R6 (WARRX)   10-31-2014                          (6.42     2.89        4.28        1.08        1.08   
Administrator Class (WARDX)   3-1-2012                          (6.85     2.67        4.17        1.43        1.42   
Institutional Class (WABIX)   11-30-2012                          (6.51     2.88        4.27        1.18        1.17   
MSCI ACWI Index (Net)6                            (5.66     4.69        3.89                 
Barclays U.S. TIPS 1-10 Year Index7                            1.23        1.51        3.98                 
Consumer Price Index8                            1.13        1.25        1.73                 
MSCI World Index (Net)9                            (4.17     5.96        4.13                 

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.

Absolute return funds are not intended to outperform stocks and bonds in strong markets, and there is no guarantee of positive returns or that the Fund’s objectives will be achieved. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. Borrowing money to purchase securities or to cover short positions magnifies losses and incurs expenses. Short selling is generally considered speculative, has the potential for unlimited loss, and may involve leverage. Alternative investments, such as commodities and merger arbitrage strategies, are speculative and entail a high degree of risk. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. The Fund will indirectly be exposed to all of the risks of an investment in the underlying funds and will indirectly bear expenses of the underlying funds. 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 asset-backed securities risk, nondiversification 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 pages 5-6.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Absolute Return Fund     5   
Growth of $10,000 investment as of April 30, 201610
LOGO

 

 

1  The Fund invests substantially all of its investable assets directly in GMO Benchmark-Free Allocation Fund, an investment company advised by Grantham, Mayo, Van Otterloo & Co. LLC (GMO). Mr. Inker and Mr. Wilderman, co-heads and senior members of GMO’s Asset Allocation Team, have been primarily responsible for coordinating the portfolio management of GMO Benchmark-Free Allocation Fund since 2003 and 2012, respectively.

 

2 Effective December 31, 2016, Sam Wilderman will leave GMO. Effective January 1, 2017, Ben Inker will be the sole portfolio manager on the Fund.

 

3  Historical performance shown for Class A, Class C, and Administrator Class prior to their inception is based on the performance of Class III shares of GMO Benchmark-Free Allocation Fund (GBMFX), in which the Fund invests all of its investable assets. The inception date of GMO Benchmark-Free Allocation Fund Class III shares is July 23, 2003. Returns for the Class III shares do not reflect GMO Benchmark-Free Allocation Fund’s current fee arrangement and have been adjusted downward to reflect the higher expense ratios applicable to Class A, Class C, and Administrator Class at their inception. These ratios were 1.66% for Class A, 2.41% for Class C, and 1.50% for Administrator Class. Historical performance shown for the Class R shares prior to their inception reflects the performance of the Administrator Class shares, and is not adjusted to reflect Class R expenses. If these expenses had been included, returns for Class R would be lower. Historical performance shown for Class R6 shares prior to their inception reflects the performance of the Institutional Class shares, and includes the higher expenses applicable to the Institutional Class shares. If these expenses had not been included, returns would be higher. Historical performance shown for Institutional Class prior to its inception reflects the performance of the Administrator Class, and is not adjusted to reflect Institutional Class expenses. If these expenses had been included, returns for Institutional Class would be higher.

 

4  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.78% 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.

 

5  The manager has contractually committed through August 31, 2016 (August 31, 2017 for Class R), to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Operating Expenses After Fee Waiver at 0.71% for Class A, 1.46% for Class C, 0.96% for Class R, 0.28% for Class R6, 0.57% for Administrator Class, and 0.33% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (including the expenses of GMO Benchmark-Free Allocation Fund), and extraordinary expenses are excluded from the cap. Without these caps, the Fund’s returns would have been lower.

 

6  In light of the Fund’s investment strategy, the Fund’s benchmark was changed from the Morgan Stanley Capital Index (MSCI) World Index (Net) to MSCI ACWI Index (Net) in order to more completely compare the Fund’s equity holdings to an index representing a broader array of countries. The MSCI World Index (Net) includes developed-markets equity securities only, while the MSCI ACWI Index (Net) includes equity securities from both developed and emerging markets. The MSCI ACWI Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index.

 

7  The Barclays U.S. TIPS 1-10 Year Index is an independently maintained and widely published index comprised of inflation-protected securities issued by the U.S. Treasury having a maturity of 1-10 years. You cannot invest directly in an index.

 

8  The Consumer Price Index for All Urban Consumers in U.S. All Items (Consumer Price Index) is published monthly by the U.S. government as an indicator of changes in price levels (or inflation) paid by urban consumers for a representative basket of goods and services. You cannot invest directly in an index.

 

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

 

10  The chart compares the performance of Class A shares for the most recent ten years with the performance of the MSCI ACWI Index (Net), Barclays U.S. TIPS 1-10 Year Index, Consumer Price Index, and 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%.

 

11 The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

 

12  The MSCI World ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of world markets excluding the U.S. and Canada. You cannot invest directly in an index.


Table of Contents

 

6   Wells Fargo Absolute Return Fund   Performance highlights (unaudited)

 

 

 

 

 

13  The MSCI Emerging Markets Index 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 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.

 

14  The MSCI Europe Value Index captures large- and mid-cap securities exhibiting overall value style characteristics across the 15 developed markets countries in Europe. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price, and dividend yield. With 220 constituents, the index targets 50% coverage of the free-float-adjusted market capitalization of the MSCI Europe Index. You cannot invest directly in an index.

 

15  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.

 

16  The holdings, excluding cash and cash equivalents, are calculated based on the value of the investments of GMO Benchmark-Free Allocation Fund divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

17  Portfolio allocation represents the portfolio allocation of the GMO Benchmark-Free Allocation Fund, which is calculated based on the investment exposures of the underlying GMO funds. Portfolio allocation is subject to change and may have changed since the date specified.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Absolute Return Fund     7   

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its benchmarks and the Consumer Price Index for the 12-month period that ended April 30, 2016.

 

n   The Fund’s allocations to emerging markets stocks; European value stocks; other international opportunistic value stocks; relative-value interest rates and currency positions; and cash/cash-plus positions detracted from performance.

 

n   Contributing to performance were the Fund’s allocations to U.S. high-quality stocks; U.S. opportunistic value stocks; U.S. Treasury Inflation-Protected Securities (TIPS); asset-backed securities; emerging country debt, which is composed of fundamentally researched opportunities across geographies and capital structures.

Equity, alternative strategy, and cash/cash-plus exposures all detracted from returns in the 12-month period that ended April 30, 2016, while fixed income contributed.

Global equities, represented by the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) Index (Net), declined 5.7% during the 12-month period that ended April 30, 2016. During the period, U.S. stocks recorded muted returns of 1.2% as measured by the S&P 500 Index11 in U.S. dollar terms, which outpaced non-U.S. markets. The MSCI World ex USA Index (Net)12 declined 9.4%, while emerging markets as measured by the MSCI Emerging Markets Index13 and European value equities as measured by the MSCI Europe Value Index14 did significantly worse, chalking up returns of -17.9% and -14.4%, respectively. Equities fell on a variety of concerns, ranging from China-related issues, including falling equity markets, slowing growth, currency devaluation, and perceived haphazard policymaker response; to falling global commodity prices; to worries about overall weak global growth. A more risk-averse investment environment benefited fixed-income markets, leading the Barclays U.S. Aggregate Bond Index15 to return 2.7% for the period.

 

Holdings (%) as of April 30, 201616  

GMO Implementation Fund

     80.93   

GMO Special Opportunities Fund Class VI

     5.01   

GMO SGM Major Markets Fund Class VI

     4.96   

GMO Debt Opportunities Fund Class VI

     4.88   

GMO Emerging Country Debt Fund Class IV

     4.54   

We made a number of strategic changes during the period in response to changes in valuations and evolution in our portfolio management process.

Our equity allocation remained largely constant during the 12 months that ended April 30, 2016, ending at approximately 40% of the portfolio. During the year, we decreased our exposure to U.S. quality positions and emerging markets while increasing our exposure to a

 

broader set of U.S. value stocks (including some opportunistic value positions) and international developed equities. Our alternatives allocation increased during the period. In addition, we modestly increased the weight in the GMO Special Opportunities Strategy. The overall exposure to our fixed-income allocation decreased 10% to approximately 20%. We added to U.S. TIPS and high yield and modestly to asset-backed securities during the period. The portfolio’s cash/cash-plus position increased nearly 5%. We added to the Fund’s liquidity by increasing our cash allocation.

Going forward, we see value in international stocks (both developed ex-U.S. and emerging markets value) and select alternative strategies.

 

Portfolio allocation as of April 30, 201617
LOGO

We believe that equity markets are priced to deliver below-average returns, even negative in certain cases. Within equity markets, we have a strong preference for international equities over U.S. equities and for the emerging markets, in particular. Within international stocks, we believe value stocks are priced to potentially deliver a higher return than growth stocks, and emerging markets value stocks remain our favored equity asset class. We still have a preference for higher-quality stocks within the U.S. given their marginally higher expected returns and relative defensive characteristics in both recessions and market declines.

 

 

 

 

Please see footnotes on pages 5-6.


Table of Contents

 

8   Wells Fargo Absolute Return Fund   Performance highlights (unaudited)

Fixed-income interest-rate spread widening, increased volatility, and more dispersion have created opportunities for risk assets beyond equities. Over the past few quarters, expected returns for U.S. corporate credit have increased, especially high yield. We added modestly to our exposure but spread tightening more recently limits our enthusiasm. As volatility and dispersion increased late in the period, the GMO Special Opportunities Strategy team began to see more compelling investment opportunities. Merger arbitrage continues to look like an attractive diversifying source of returns, but the tightening of deal spreads has somewhat tempered our expectations for the strategy. We continued to hold significant positions in what we perceived to be safer assets like U.S. cash and U.S. TIPS but reduced our position in TIPS as prices rose late in the period. We hope to have the opportunity soon to rotate some of this capital into risk assets at more attractive valuations.

 

 

Please see footnotes on pages 5-6.


Table of Contents

 

Fund expenses (unaudited)   Wells Fargo Absolute Return 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 November 1, 2015 to April 30, 2016.

Actual expenses

The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes

The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

Wells Fargo Absolute Return Fund (excluding GMO Benchmark-
Free Allocation Fund and underlying fund expenses)
   Beginning
account value
11-1-2015
     Ending
account value
4-30-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 991.37       $ 3.35         0.68

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.50       $ 3.40         0.68

Class C

           

Actual

   $ 1,000.00       $ 987.82       $ 7.05         1.43

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.77       $ 7.16         1.43

Class R

           

Actual

   $ 1,000.00       $ 990.85       $ 4.58         0.93

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.26       $ 4.65         0.93

Class R6

           

Actual

   $ 1,000.00       $ 993.53       $ 1.23         0.25

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,023.63       $ 1.24         0.25

Administrator Class

           

Actual

   $ 1,000.00       $ 991.84       $ 2.82         0.57

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,022.03       $ 2.87         0.57

Institutional Class

           

Actual

   $ 1,000.00       $ 993.51       $ 1.64         0.33

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,023.22       $ 1.66         0.33

 

 

Please see footnote on page 10.


Table of Contents

 

10   Wells Fargo Absolute Return Fund   Fund expenses (unaudited)
Wells Fargo Absolute Return Fund (including GMO Benchmark-
Free Allocation Fund and underlying fund expenses)
   Beginning
account value
11-1-2015
     Ending
account value
4-30-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 991.37       $ 7.26         1.47

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.57       $ 7.35         1.47

Class C

           

Actual

   $ 1,000.00       $ 987.82       $ 10.95         2.22

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,013.84       $ 11.10         2.22

Class R

           

Actual

   $ 1,000.00       $ 990.85       $ 8.49         1.72

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,016.33       $ 8.60         1.72

Class R6

           

Actual

   $ 1,000.00       $ 993.53       $ 5.14         1.04

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.70       $ 5.21         1.04

Administrator Class

           

Actual

   $ 1,000.00       $ 991.84       $ 6.74         1.36

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.10       $ 6.83         1.36

Institutional Class

           

Actual

   $ 1,000.00       $ 993.51       $ 5.55         1.12

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.29       $ 5.62         1.12

 

 

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—April 30, 2016   Wells Fargo Absolute Return Fund     11   

    

 

 

Security name             Shares      Value  

Investment Companies: 99.91%

          

GMO Benchmark-Free Allocation Fund Class MF (l)

          329,716,891       $ 8,150,601,541   
          

 

 

 

Total Investment Companies (Cost $8,442,990,093)

             8,150,601,541        
          

 

 

 

 

Total investments (Cost $8,442,990,093) *     99.91        8,150,601,541   

Other assets and liabilities, net

    0.09           7,202,927   
 

 

 

      

 

 

 
Total net assets     100.00      $ 8,157,804,468   
 

 

 

      

 

 

 

 

 

 

 

 

(l) The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940.

 

* Cost for federal income tax purposes is $8,559,431,133 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 0   

Gross unrealized losses

     (408,829,592
  

 

 

 

Net unrealized losses

   $ (408,829,592

 

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


Table of Contents

 

12   Wells Fargo Absolute Return Fund   Statement of assets and liabilities—April 30, 2016
         

Assets

 

Investment in affiliated investment companies, at value (cost $8,442,990,093)

  $ 8,150,601,541   

Cash

    69,761,527   

Receivable for investments sold

    10,238,473   

Receivable for Fund shares sold

    8,001,014   

Prepaid expenses and other assets

    56,123   
 

 

 

 

Total assets

    8,238,658,678   
 

 

 

 

Liabilities

 

Payable for Fund shares redeemed

    76,730,117   

Management fee payable

    1,251,507   

Distribution fees payable

    779,471   

Administration fees payable

    1,077,776   

Accrued expenses and other liabilities

    1,015,339   
 

 

 

 

Total liabilities

    80,854,210   
 

 

 

 

Total net assets

  $ 8,157,804,468   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 8,829,749,163   

Undistributed net investment income

    49,999,369   

Accumulated net realized losses on investments

    (429,555,512

Net unrealized losses on investments

    (292,388,552
 

 

 

 

Total net assets

  $ 8,157,804,468   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 1,185,630,696   

Shares outstanding – Class A1

    115,725,834   

Net asset value per share – Class A

    $10.25   

Maximum offering price per share – Class A2

    $10.88   

Net assets – Class C

  $ 1,207,966,935   

Shares outstanding – Class C1

    120,180,404   

Net asset value per share – Class C

    $10.05   

Net assets – Class R

  $ 56,279   

Shares outstanding – Class R1

    5,508   

Net asset value per share – Class R

    $10.22   

Net assets – Class R6

  $ 8,274,483   

Shares outstanding – Class R61

    806,488   

Net asset value per share – Class R6

    $10.26   

Net assets – Administrator Class

  $ 1,409,515,652   

Shares outstanding – Administrator Class1

    137,180,762   

Net asset value per share – Administrator Class

    $10.27   

Net assets – Institutional Class

  $ 4,346,360,423   

Shares outstanding – Institutional Class1

    423,392,231   

Net asset value per share – Institutional Class

    $10.27   

 

 

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 April 30, 2016   Wells Fargo Absolute Return Fund     13   
         

Investment income

 

Dividends from affiliated investment companies

  $ 157,879,410   
 

 

 

 

Expenses

 

Management fee

    19,284,393   

Administration fees

 

Class A

    3,501,551   

Class C

    3,337,193   

Class R

    32 1 

Class R6

    2,066   

Administrator Class

    3,089,782   

Institutional Class

    5,539,671   

Shareholder servicing fees

 

Class A

    3,976,087   

Class C

    3,793,911   

Class R

    38 1 

Administrator Class

    6,270,651   

Distribution fees

 

Class C

    11,381,733   

Class R

    38 1 

Custody and accounting fees

    23,506   

Professional fees

    37,401   

Registration fees

    1,132,081   

Shareholder report expenses

    682,539   

Trustees’ fees and expenses

    13,109   

Interest expense

    27,001   

Other fees and expenses

    221,475   
 

 

 

 

Total expenses

    62,314,258   

Less: Fee waivers and/or expense reimbursements

    (810,239
 

 

 

 

Net expenses

    61,504,019   
 

 

 

 

Net investment income

    96,375,391   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Sale of affiliated investment companies

    (457,941,394

Capital gain distributions from affiliated investment companies

    79,692,381   
 

 

 

 

Net realized losses on investments

    (378,249,013
 

 

 

 

Net change in unrealized gains (losses) on investments

    (575,093,705
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (953,342,718
 

 

 

 

Net decrease in net assets resulting from operations

  $ (856,967,327
 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to April 30, 2016

 

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


Table of Contents

 

14   Wells Fargo Absolute Return Fund   Statement of changes in net assets
    

Year ended

April 30, 2016

   

Year ended

April 30, 2015

 

Operations

       

Net investment income

    $ 96,375,391        $ 161,360,592   

Net realized gains (losses) on investments

      (378,249,013       282,382,617   

Net change in unrealized gains (losses) on investments

      (575,093,705       (306,084,237
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (856,967,327       137,658,972   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (2,018,950       (46,771,237

Class C

      0          (32,930,720

Class R

      (146 )1        N/A   

Class R6

      (58,776       (722 )2 

Administrator Class

      (3,770,480       (96,932,949

Institutional Class

      (26,670,082       (127,892,812

Net realized gains

       

Class A

      (17,724,798       (19,085,961

Class C

      (17,245,982       (17,608,903

Class R

      (301 )1        N/A   

Class R6

      (86,330       (235 )2 

Administrator Class

      (24,788,212       (36,474,143

Institutional Class

      (50,775,694       (42,411,716
 

 

 

 

Total distributions to shareholders

      (143,139,751       (420,109,398
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    25,253,503        265,906,642        70,082,675        793,603,767   

Class C

    14,188,599        147,204,154        48,665,679        545,035,379   

Class R

    5,464 1      55,695 1      N/A        N/A   

Class R6

    809,160        8,887,149        7,388 2      82,908 2 

Administrator Class

    47,517,188        505,709,473        168,608,782        1,915,693,998   

Institutional Class

    271,417,954        2,789,272,415        338,198,480        3,832,004,737   
 

 

 

 
      3,717,035,528          7,086,420,789   
 

 

 

 

Reinvestment of distributions

       

Class A

    1,789,350        18,022,752        5,507,060        60,098,192   

Class C

    1,440,101        14,242,598        3,813,839        41,146,022   

Class R

    44 1      447 1      N/A        N/A   

Class R6

    13,857        140,549        88 2      957 2 

Administrator Class

    2,803,172        28,327,921        12,017,771        131,321,751   

Institutional Class

    6,001,051        60,876,054        10,381,003        113,553,390   
 

 

 

 
      121,610,321          346,120,312   
 

 

 

 

Payment for shares redeemed

       

Class A

    (86,614,528     (893,970,500     (100,178,392     (1,136,238,269

Class C

    (60,792,347     (617,070,041     (29,135,027     (321,826,353

Class R6

    (24,004     (245,100     (1 )2      (12 )2 

Administrator Class

    (249,895,879     (2,587,358,806     (213,759,666     (2,402,284,698

Institutional Class

    (285,196,205     (2,945,458,316     (108,063,864     (1,208,607,788
 

 

 

 
      (7,044,102,763       (5,068,957,120
 

 

 

 

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

      (3,205,456,914       2,363,583,981   
 

 

 

 

Total increase (decrease) in net assets

      (4,205,563,992       2,081,133,555   
 

 

 

 

Net assets

       

Beginning of period

      12,363,368,460          10,282,234,905   
 

 

 

 

End of period

    $ 8,157,804,468        $ 12,363,368,460   
 

 

 

 

Undistributed (overdistributed) net investment income

    $ 49,999,369        $ (22,935,312
 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to April 30, 2016

 

2  For the period from October 31, 2014 (commencement of class operations) to April 30, 2015

 

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


Table of Contents

 

Financial highlights   Wells Fargo Absolute Return Fund     15   

(For a share outstanding throughout each period)

 

    Year ended April 30     

Year ended September 30

 
CLASS A   2016     2015     20141      2013      20122  

Net asset value, beginning of period

    $11.15        $11.39        $10.94         $10.16         $10.00   

Net investment income (loss)

    0.11        0.14 3      0.10         0.08         (0.02 )3 

Net realized and unrealized gains (losses) on investments

    (0.88     (0.01     0.51         0.73         0.18   
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total from investment operations

    (0.77     0.13        0.61         0.81         0.16   

Distributions to shareholders from

           

Net investment income

    (0.01     (0.26     (0.16      (0.03      0.00   

Net realized gains

    (0.12     (0.11     (0.00 )4       0.00         0.00   
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total distributions to shareholders

    (0.13     (0.37     (0.16      (0.03      0.00   

Net asset value, end of period

    $10.25        $11.15        $11.39         $10.94         $10.16   

Total return5

    (6.82 )%      1.23     5.66      8.02      1.60

Ratios to average net assets (annualized)

           

Gross expenses6

    0.68     0.71     0.72      0.73      0.79

Net expenses6

    0.68     0.71     0.72      0.73      0.78

Net investment income (loss)6

    0.87     1.21     1.55      0.92      (0.36 )% 

Supplemental data

           

Portfolio turnover rate

    8     6     0      0      0

Net assets, end of period (000s omitted)

    $1,185,631        $1,954,792        $2,277,448         $1,512,891         $398,557   

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  For the period from March 1, 2012 (commencement of class operations) to September 30, 2012

 

3  Calculated based upon average shares outstanding

 

4  Amount is less than $0.005.

 

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

 

6  Ratios do not include the expenses of GMO Benchmark-Free Allocation Fund, Class MF which were as follows:

 

Year ended April 30, 2016

    0.59

Year ended April 30, 2015

    0.55

Year ended April 30, 20141

    0.54

Year ended September 30, 2013

    0.50

Year ended September 30, 20122

    0.49

 

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


Table of Contents

 

16   Wells Fargo Absolute Return Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended April 30     

Year ended September 30

 
CLASS C   2016     2015     20141      2013      20122  

Net asset value, beginning of period

    $11.01        $11.27        $10.82         $10.11         $10.00   

Net investment income (loss)

    0.01 3      0.06 3      0.06         0.03         (0.06 )3 

Net realized and unrealized gains (losses) on investments

    (0.85     (0.01     0.50         0.70         0.17   
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total from investment operations

    (0.84     0.05        0.56         0.73         0.11   

Distributions to shareholders from

           

Net investment income

    0.00        (0.20     (0.11      (0.02      0.00   

Net realized gains

    (0.12     (0.11     (0.00 )4       0.00         0.00   
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total distributions to shareholders

    (0.12     (0.31     (0.11      (0.02      0.00   

Net asset value, end of period

    $10.05        $11.01        $11.27         $10.82         $10.11   

Total return5

    (7.59 )%      0.47     5.23      7.20      1.10

Ratios to average net assets (annualized)

           

Gross expenses6

    1.43     1.47     1.47      1.48      1.54

Net expenses6

    1.43     1.47     1.47      1.48      1.53

Net investment income (loss)6

    0.08     0.53     0.78      0.14      (1.11 )% 

Supplemental data

           

Portfolio turnover rate

    8     6     0      0      0

Net assets, end of period (000s omitted)

    $1,207,967        $1,820,384        $1,600,482         $1,042,487         $268,171   

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  For the period from March 1, 2012 (commencement of class operations) to September 30, 2012

 

3  Calculated based upon average shares outstanding

 

4  Amount is less than $0.005.

 

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

 

6  Ratios do not include the expenses of GMO Benchmark-Free Allocation Fund, Class MF which were as follows:

 

Year ended April 30, 2016

    0.59

Year ended April 30, 2015

    0.55

Year ended April 30, 20141

    0.54

Year ended September 30, 2013

    0.50

Year ended September 30, 20122

    0.49

 

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


Table of Contents

 

Financial highlights   Wells Fargo Absolute Return Fund     17   

(For a share outstanding throughout the period)

 

CLASS R   Year ended
April 30, 20161
 

Net asset value, beginning of period

    $10.19   

Net investment loss

    (0.05 )2 

Net realized and unrealized gains (losses) on investments

    0.26   
 

 

 

 

Total from investment operations

    0.21   

Distributions to shareholders from

 

Net investment income

    (0.06

Net realized gains

    (0.12
 

 

 

 

Total distributions to shareholders

    (0.18

Net asset value, end of period

    $10.22   

Total return3

    2.10

Ratios to average net assets (annualized)

 

Gross expenses4

    0.93

Net expenses4

    0.93

Net investment loss4

    (0.92 )% 

Supplemental data

 

Portfolio turnover rate

    8

Net assets, end of period (000s omitted)

    $56   

 

 

1  For the period from September 30, 2015 (commencement of class operations) to April 30, 2016

 

2  Calculated based upon average shares outstanding

 

3  Returns for periods of less than one year are not annualized.

 

4  Ratios do not include the expenses of GMO Benchmark-Free Allocation Fund, Class MF which were 0.59%.

 

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


Table of Contents

 

18   Wells Fargo Absolute Return Fund   Financial highlights

(For a share outstanding throughout each period)

 

     Year ended April 30  
CLASS R6    2016     20151  

Net asset value, beginning of period

     $11.18        $11.32   

Net investment income

     0.10 2      0.09 2 

Net realized and unrealized gains (losses) on investments

     (0.82     0.20   
  

 

 

   

 

 

 

Total from investment operations

     (0.72     0.29   

Distributions to shareholders from

    

Net investment income

     (0.08     (0.32

Net realized gains

     (0.12     (0.11
  

 

 

   

 

 

 

Total distributions to shareholders

     (0.20     (0.43

Net asset value, end of period

     $10.26        $11.18   

Total return3

     (6.42 )%      2.68

Ratios to average net assets (annualized)

    

Gross expenses4

     0.24     0.24

Net expenses4

     0.24     0.24

Net investment income4

     0.99     1.67

Supplemental data

    

Portfolio turnover rate

     8     6

Net assets, end of period (000s omitted)

     $8,274        $84   

 

 

1  For the period from October 31, 2014 (commencement of class operations) to April 30, 2015

 

2  Calculated based upon average shares outstanding

 

3  Returns for periods of less than one year are not annualized.

 

4  Ratios do not include the expenses of GMO Benchmark-Free Allocation Fund, Class MF which were as follows:

 

Year ended April 30, 2016

    0.59

Year ended April 30, 20151

    0.55

 

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


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Financial highlights   Wells Fargo Absolute Return Fund     19   

(For a share outstanding throughout each period)

 

    Year ended April 30      Year ended September 30  
ADMINISTRATOR CLASS   2016     2015     20141      2013      20122  

Net asset value, beginning of period

    $11.18        $11.42        $10.97         $10.17         $10.00   

Net investment income (loss)

    0.14 3      0.14 3      0.11         0.09         (0.01 )3 

Net realized and unrealized gains (losses) on investments

    (0.91     0.01        0.51         0.75         0.18   
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total from investment operations

    (0.77     0.15        0.62         0.84         0.17   

Distributions to shareholders from

           

Net investment income

    (0.02     (0.28     (0.17      (0.04      0.00   

Net realized gains

    (0.12     (0.11     (0.00 )4       0.00         0.00   
 

 

 

   

 

 

   

 

 

    

 

 

    

 

 

 

Total distributions to shareholders

    (0.14     (0.39     (0.17      (0.04      0.00   

Net asset value, end of period

    $10.27        $11.18        $11.42         $10.97         $10.17   

Total return5

    (6.85 )%      1.40     5.74      8.25      1.70

Ratios to average net assets (annualized)

           

Gross expenses6

    0.58     0.55     0.55      0.55      0.62

Net expenses6

    0.57     0.55     0.55      0.55      0.59

Net investment income (loss)6

    1.31     1.26     1.69      1.03      (0.16 )% 

Supplemental data

           

Portfolio turnover rate

    8     6     0      0      0

Net assets, end of period (000s omitted)

    $1,409,516        $3,763,871        $4,223,678         $2,763,630         $914,872   

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  For the period from March 1, 2012 (commencement of class operations) to September 30, 2012

 

3  Calculated based upon average shares outstanding

 

4  Amount is less than $0.005.

 

5  Returns for periods of less than one year are not annualized.

 

6  Ratios do not include the expenses of GMO Benchmark-Free Allocation Fund, Class MF which were as follows:

 

Year ended April 30, 2016

    0.59

Year ended April 30, 2015

    0.55

Year ended April 30, 20141

    0.54

Year ended September 30, 2013

    0.50

Year ended September 30, 20122

    0.49

 

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


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20   Wells Fargo Absolute Return Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended
September 30 20132
 
INSTITUTIONAL CLASS   2016     2015     20141    

Net asset value, beginning of period

    $11.19        $11.44        $10.99        $10.18   

Net investment income

    0.11 3      0.23 3      0.12        0.14 3 

Net realized and unrealized gains (losses) on investments

    (0.84     (0.05     0.52        0.71   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.73     0.18        0.64        0.85   

Distributions to shareholders from

       

Net investment income

    (0.07     (0.32     (0.19     (0.04

Net realized gains

    (0.12     (0.11     (0.00 )4      0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.19     (0.43     (0.19     (0.04

Net asset value, end of period

    $10.27        $11.19        $11.44        $10.99   

Total return5

    (6.51 )%      1.65     5.93     8.41

Ratios to average net assets (annualized)

       

Gross expenses6

    0.33     0.29     0.29     0.30

Net expenses6

    0.32     0.29     0.29     0.30

Net investment income6

    1.05     2.00     1.84     1.56

Supplemental data

       

Portfolio turnover rate

    8     6     0     0

Net assets, end of period (000s omitted)

    $4,346,360        $4,824,238        $2,180,627        $982,490   

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  For the period from November 30, 2012 (commencement of class operations) to September 30, 2013

 

3  Calculated based upon average shares outstanding

 

4  Amount is less than $0.005.

 

5  Returns for periods of less than one year are not annualized.

 

6  Ratios do not include the expenses of GMO Benchmark-Free Allocation Fund, Class MF which were as follows:

 

Year ended April 30, 2016

    0.59

Year ended April 30, 2015

    0.55

Year ended April 30, 20141

    0.54

Year ended September 30, 20132

    0.50

 

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


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Notes to financial statements   Wells Fargo Absolute Return 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 Absolute Return Fund (the “Fund”) which is a diversified series of the Trust.

The Fund invests all of its investable assets in the GMO Benchmark-Free Allocation Fund (the “Benchmark-Free Allocation Fund”), an investment company managed by Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”). Benchmark-Free Allocation Fund is a fund-of-funds that gains its investment exposures primarily by investing in GMO Implementation Fund. In addition, Benchmark-Free Allocation Fund may invest in other GMO Funds (together with GMO Implementation Fund, the “underlying funds”), whether currently existing or created in the future. These additional underlying Funds may include, among others, GMO Alpha Only Fund, GMO Debt Opportunities Fund, GMO Emerging Country Debt Fund, GMO Special Opportunities Fund, and GMO Systematic Global Macro Opportunity Fund. GMO Implementation Fund is permitted to invest in any asset class. Benchmark-Free Allocation Fund also may invest in securities or derivatives directly. As of April 30, 2016, the Fund owned 49% of Benchmark-Free Allocation Fund. Because the Fund invests all of its assets in Benchmark-Free Allocation Fund, the shareholders of the Fund bear the fees and expense of Benchmark-Free Allocation Fund which are not included in the Statement of Operations but are incurred indirectly because they are considered in the calculation of the net asset value of Benchmark-Free Allocation Fund. As a result, the Fund’s actual expenses may be higher than those of other mutual funds that invest directly in securities.

2. SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Securities valuation

All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.

The Fund values its investment in Benchmark-Free Allocation Fund at net asset value. The valuation of investments in securities and the underlying funds held by Benchmark-Free Allocation Fund is discussed in the annual report of Benchmark-Free Allocation Fund which is included in the mailing of this shareholder report. An unaudited Statement of Assets and Liabilities and an unaudited Schedule of Investments for Benchmark-Free Allocation Fund as of April 30, 2016 have also been included as an Appendix in this report for your reference.

Investment transactions and income recognition

Investment transactions are recorded on a trade date basis. Realized gains and losses resulting from investment transactions are determined on the identified cost basis.

Income dividends and capital gain distributions from Benchmark-Free Allocation Fund are recorded on the ex-dividend date. Capital gain distributions from Benchmark-Free Allocation Fund are treated as realized gains.

Distributions to shareholders

Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

Federal and other taxes

The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.


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22   Wells Fargo Absolute Return 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 dividends from certain securities. At April 30, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital   

Undistributed net

investment income

  

Accumulated net

realized losses

on investments

$(5,508)    $9,077,724    $(9,072,216)

As of April 30, 2016, the Fund had capital loss carryforwards which consist of $5,919,794 in short-term capital losses and $307,194,678 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

As of April 30, 2016, the Fund’s investment in Benchmark-Free Allocation Fund was measured at fair value using the net asset value per share as a practical expedient. Benchmark-Free Allocation Fund seeks positive total return, not “relative” return, by investing in asset classes GMO believes offer the most attractive return and risk opportunities. The Fund’s investment in Benchmark-Free Allocation Fund valued at $8,150,601,541 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Wells Fargo Funds Management, LLC (“Funds Management”), an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment policies and guidelines of the Fund and for the day-to-day portfolio management of the Fund along with, 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 0.225% and declining to 0.16% as the average daily net assets of the Fund increase. Prior to September 1, 2015, Funds Management was entitled to receive an annual advisory and fund level administration fee which started at 0.225% and declined to 0.165% as the average daily net assets of the Fund increased. For the year ended April 30, 2016, the management fee was equivalent to an annual rate of 0.19% of the Fund’s average daily net assets.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus


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Notes to financial statements   Wells Fargo Absolute Return Fund     23   

account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     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         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 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses (excluding expenses of Benchmark-Free Allocation Fund and acquired fund fees and expenses) as follows:

 

     Expense
ratio cap
     Expiration date

Class A

     0.71    August 31, 2016

Class C

     1.46       August 31, 2016

Class R

     0.96       August 31, 2017

Class R6

     0.28       August 31, 2016

Administrator Class

     0.57       August 31, 2016

Institutional Class

     0.33       August 31, 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 April 30, 2016, Funds Distributor received $227,865 from the sale of Class A shares and $6,354 and $21,764 in contingent deferred sales charges from redemptions of Class A 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 C, Class R, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.

5. INVESTMENT TRANSACTIONS

For the year ended April 30, 2016, the Fund made aggregate purchases and sales of $792,427,811 and $3,943,216,392, respectively, in its investment in Benchmark-Free Allocation Fund.

As a result of its investment in Benchmark-Free Allocation Fund, the Fund incurs purchase premium and redemption fees. These purchase premium and redemption fees are paid by the Fund to Benchmark-Free Allocation Fund to help offset estimated portfolio transaction and related costs incurred as a result of a purchase or redemption order by allocating estimated transaction costs to the purchasing or redeeming shareholder. The Fund is currently charged 0.18% for purchases and redemptions which are reflected in paid in capital. Prior to June 30, 2015, the Fund was charged 0.13% for purchases and redemptions. GMO reassesses these fees annually.


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24   Wells Fargo Absolute Return Fund   Notes to financial statements

6. BANK BORROWINGS

The Trust (excluding the money market funds and certain other 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.

During the year ended April 30, 2016, the Fund had average borrowings outstanding of $1,901,479 at an average rate of 1.42% and paid interest in the amount of $27,001.

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended April 30, 2016 and April 30, 2015 were as follows:

 

     Year ended April 30  
     2016      2015  

Ordinary income

   $ 32,518,434       $ 304,528,440   

Long-term capital gain

     110,621,317         115,580,958   

As of April 30, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary income

  

Unrealized

losses

  

Capital loss

carryforward

$49,999,369    $(408,829,592)    $(313,114,472)

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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Report of independent registered public accounting firm   Wells Fargo Absolute Return Fund     25   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statements of assets and liabilities, including the portfolio of investments, of the Wells Fargo Absolute Return Fund (formerly known as Wells Fargo Advantage Absolute Return Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of April 30, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the two-year period then ended, the period from October 1, 2013 to April 30, 2014, the year or period ended September 30, 2013 and the period from March 1, 2012 to September 30, 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 investments owned as of April 30, 2016, by correspondence with the transfer agent. 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 Absolute Return Fund as of April 30, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally acceptable accounting principles.

 

LOGO

Boston, Massachusetts

June 27, 2016


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26   Wells Fargo Absolute Return Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 5.12% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended April 30, 2016.

Pursuant to Section 852 of the Internal Revenue Code, $110,621,317 was designated as long-term capital gain distributions for the fiscal year ended April 30, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $4,512,110 of income dividends paid during the fiscal year ended April 30, 2016 has been designated as qualified dividend income (QDI).

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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Other information (unaudited)   Wells Fargo Absolute Return Fund     27   

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 141 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships
William R. Ebsworth (Born 1957)   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA ® charterholder and an Adjunct Lecturer, Finance, at Babson College.   Asset Allocation Trust
Jane A. Freeman (Born 1953)   Trustee, since 2015   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is Chair of Taproot Foundation (non-profit organization), a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst.   Asset Allocation Trust

Peter G. Gordon

(Born 1942)

  Trustee, since 1998; Chairman, since 2005   Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College.   Asset Allocation Trust

Isaiah Harris, Jr.

(Born 1952)

  Trustee, since 2009   Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation; Asset Allocation Trust
Judith M. Johnson (Born 1949)   Trustee, since 2008; Audit Committee Chairman, since 2008   Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant.   Asset Allocation Trust

David F. Larcker

(Born 1950)

  Trustee, since 2009   James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust


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28   Wells Fargo Absolute Return Fund   Other information (unaudited)

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships
Olivia S. Mitchell (Born 1953)   Trustee, since 2006   International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993.   Asset Allocation Trust
Timothy J. Penny (Born 1951)   Trustee, since 1996   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   Asset Allocation Trust
Michael S. Scofield (Born 1943)   Trustee, since 2010   Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield.   Asset Allocation Trust

 

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

Officers

 

Name and

year of birth

 

Position held and

length of service

  Principal occupations during past five years or longer    
Karla M. Rabusch (Born 1959)   President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Jeremy DePalma1 (Born 1974)   Treasurer, since 2012   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    
C. David Messman (Born 1960)   Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    
Michael Whitaker (Born 1967)   Chief Compliance Officer, since 2016*   Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016.    
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 69 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.

 

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

 

** Debra Ann Early was the Chief Compliance Officer until May 15, 2016.


Table of Contents

 

List of abbreviations   Wells Fargo Absolute Return Fund     29   

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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APPENDIX

GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Schedule of Investments

(showing percentage of total net assets)

April 30, 2016 (Unaudited)

 

Shares/

Par Value ($)

    Description   Value ($)  
    MUTUAL FUNDS — 99.9%   
    Affiliated Issuers — 99.9%   
    32,665,576      GMO Debt Opportunities Fund,
Cass VI
    812,392,876   
    81,019,700      GMO Emerging Country Debt Fund,
Class IV
    755,913,800   
    1,080,539,637      GMO Implementation Fund     13,474,329,272   
    24,720,181      GMO SGM Major Markets Fund,
Class VI
    825,159,639   
    41,480,384      GMO Special Opportunities Fund,
Class VI
    833,340,914   
     

 

 

 
    TOTAL MUTUAL FUNDS
(COST $17,047,867,105)
    16,701,136,501   
     

 

 

 
    SHORT-TERM INVESTMENTS — 0.1%   
    Money Market Funds — 0.1%   
    9,098,327      State Street Institutional Treasury Money Market Fund-Premier Class, 0.16%(a)     9,098,327   
     

 

 

 
    TOTAL SHORT-TERM INVESTMENTS
(COST $9,098,327)
    9,098,327   
     

 

 

 
   

TOTAL INVESTMENTS — 100.0%

(Cost $17,056,965,432)

    16,710,234,828   
    Other Assets and Liabilities
(net) — (0.0%)
    (8,197,422
     

 

 

 
    TOTAL NET ASSETS — 100.0%     $16,702,037,406   
     

 

 

 

Notes to Schedule of Investments:

 

(a) The rate disclosed is the 7 day net yield as of April 30, 2016.

    

 

 

A-1


Table of Contents

APPENDIX

GMO Benchmark-Free Allocation Fund

(A Series of GMO Trust)

Statement of Assets and Liabilities — April 30, 2016 (Unaudited)

 

 

Assets:

  

Investments in affiliated issuers, at value(a)

   $ 16,701,136,501   

Investments in unaffiliated issuers, at value(b)

     9,098,327   

Receivable for investments sold

     44,828,300   

Receivable for Fund shares sold

     5,630,007   

Dividends and interest receivable

     1,119   

Receivable for expenses reimbursed and/or waived by GMO

     2,074,284   

Miscellaneous receivable

     79,602   
  

 

 

 

Total assets

     16,762,848,140   
  

 

 

 

Liabilities:

  

Payable for Fund shares repurchased

     49,870,091   

Payable to affiliate for:

  

Management fee

     8,982,926   

Supplemental support fee – Class MF

     675,618   

Shareholder service fee

     952,465   

Payable to agents unaffiliated with GMO

     2,220   

Payable to Trustees and related expenses

     29,392   

Accrued expenses

     298,022   
  

 

 

 

Total liabilities

     60,810,734   
  

 

 

 

Net assets

   $ 16,702,037,406   
  

 

 

 

(a) Cost of investments – affiliated issuers:

   $ 17,047,867,105   

(b) Cost of investments – unaffiliated issuers:

   $ 9,098,327   

Net assets consist of:

  

Paid-in capital

   $ 18,554,976,469   

Distributions in excess of net investment income

     (616,489,862

Accumulated net realized loss

     (889,718,597

Net unrealized depreciation

     (346,730,604
  

 

 

 
   $ 16,702,037,406   
  

 

 

 

Net assets attributable to:

  

Class III shares

   $ 5,830,892,877   
  

 

 

 

Class IV shares

   $ 2,721,995,990   
  

 

 

 

Class MF shares

   $ 8,149,148,539   
  

 

 

 

Shares outstanding:

  

Class III

     236,098,166   
  

 

 

 

Class IV

     110,209,129   
  

 

 

 

Class MF

     329,716,891   
  

 

 

 

Net asset value per share:

  

Class III

   $ 24.70   
  

 

 

 

Class IV

   $ 24.70   
  

 

 

 

Class MF

   $ 24.72   
  

 

 

 

 

A-2


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LOGO

 

LOGO

For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

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242220 06-16

A260/AR260 04-16


Table of Contents

Annual Report

April 30, 2016

 

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Wells Fargo Asset Allocation 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   

Wells Fargo Asset Allocation Fund

 

Portfolio of investments

    10   
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

    20   

Report of independent registered public accounting firm

    24   

Other information

    25   
 
 

Asset Allocation Trust

 

Portfolio of investments

    28   
Financial statements  

Statement of assets and liabilities

    29   

Statement of operations

    30   

Statement of changes in net assets

    31   

Financial highlights

    32   

Notes to financial statements

    33   

Report of independent registered public accounting firm

    37   

Other information

    38   

List of abbreviations

    41   

 

The views expressed and any forward-looking statements are as of April 30, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

2   Wells Fargo Asset Allocation Fund   Letter to shareholders (unaudited)

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

All three equity market indexes reversed course in mid-February 2016 as global investors regained a measure of confidence, business data improved, and central bankers reasserted their commitment to initiatives that are intended to spark economic growth.

 

 

 

 

Bond markets were volatile as well.

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Asset Allocation Fund for the 12-month period that ended April 30, 2016. During the period, investors, concerned about economic growth, tended to focus on the ability of central bank policymakers globally to spur business activity. Investor sentiment shifted with the potential of each new economic data point to influence policymakers, which drove volatility in equity, interest-rate, and currency markets.

Economic conditions and central bank policies influenced equity and fixed-income markets.

In the U.S., the experience of the S&P 500 Index (the Index),1 a common measure of stock performance, illustrates shifts in investor sentiment during the period. Beginning in May 2015 through mid-August, the Index traded in a narrow range as investors sorted through conflicting economic and business data. In August, the Index fell into correction territory—defined as a loss of 10% or more—then recovered a portion of those losses and traded in a narrow range at its lower level for another month. At the end of September, the Index retested August lows then regained most of its year-to-date losses from October through December, once again dipping into correction territory in February 2016. During the first six weeks of 2016, the Index suffered the worst loss to open a year on record. Overseas, the Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index2 and the MSCI Emerging Markets (EM) Index3 traced more persistently negative return patterns before bottoming early in 2016.

All three equity market indexes reversed course in mid-February 2016 as global investors regained a measure of confidence, business data improved, and central bankers reasserted their commitment to initiatives that are intended to spark economic growth. By the end of the period, the S&P 500 Index recorded a 1.7% gain and the MSCI ACWI ex USA Index and MSCI EM Index reduced their losses.

Bond markets were volatile as well. The U.S. Federal Reserve (Fed), which consistently signaled its desire to raise the federal funds rate, did so in December 2015, the first such increase since 2006. The Fed’s monetary policy tightening contrasted with actions by the European Central Bank (ECB), the People’s Bank of China (PBOC), and the Bank of Japan (BOJ), which each implemented currency and interest-rate policies that were more accommodative of business activity. The ECB and BOJ conducted bond purchasing programs similar to the Fed’s quantitative easing programs. Overseas, bond markets benefited during the period, with the Barclays Global Aggregate ex U.S. Dollar Bond Index4 gaining 6.7%. In the U.S., interest-rate increases that many investors anticipated after the Fed raised the federal funds rate were slow to occur, limiting investor interest in U.S. bonds. The Barclays U.S. Aggregate Bond Index5 and the Barclays U.S. Treasury Index6 gained 2.7% and 2.8%, respectively, during the period.

 

 

 

1  The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

 

2  The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index.

 

3  The MSCI Emerging Markets (EM) Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI EM Index 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.

 

4  The Barclays Global Aggregate ex U.S. Dollar Bond Index tracks an international basket of government, corporate, agency, and mortgage-related bonds. You cannot invest directly in an index.

 

5  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.

 

6  The Barclays U.S. Treasury Index is an unmanaged index of prices of U.S. Treasury bonds with maturities of 1 to 30 years. You cannot invest directly in an index.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Asset Allocation Fund     3   

Shifting investor sentiment reflected changing economic and business data.

Throughout the period, changing economic and business data drove stock and bond market volatility. As the period opened, the U.S. equity bull market entered its eighth year, making it the second longest bull market of the past 50 years. U.S. unemployment data improved. Major European economies reported second-quarter gross domestic product growth.

As the summer months arrived, however, counterbalancing influences raised investor concerns. Oil prices declined once again after a spring rally. Concerns arose about Greece’s ability to repay its sovereign debt, and the U.S. dollar strengthened in anticipation of a federal funds interest-rate increase. By July 2015, equity markets were declining, led by stocks in China, which endured the largest one-day loss since 2007 on July 27, 2015.

In August 2015, China allowed its currency’s value to decline in an attempt to bolster exports and the PBOC lowered interest rates to encourage lending. In September, the Fed reported “modest to moderate growth” across sectors and regions in the U.S. In contrast, Japan’s economy contracted in the fourth quarter, China’s manufacturing sector continued to retrench, and growth appeared to slow in Europe.

As global growth concerns restrained enthusiasm, investors appeared to react to each new data point as indication that central bankers might pursue policies to accommodate economic growth. In January 2016, amid falling stock markets and oil prices globally, U.S. Treasury values fell and U.S. corporate profits declined for the second consecutive quarter. The Fed expressed hesitancy about additional monetary tightening through interest-rate increases in the near term. The BOJ implemented a negative interest-rate policy that was similar to the policy enacted by the ECB in 2014. Negative interest rates are intended to encourage banks to lend money rather than keep it on deposit. In March 2016, the ECB pushed its interest rates deeper into negative territory and expanded its bond purchases. Overall, these policy actions and intermittently positive economic data heartened investors as the period drew to a close.

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

Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.

Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.


Table of Contents

 

4   Wells Fargo Asset Allocation Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term total return, consisting of capital appreciation and current income.

Manager

Wells Fargo Funds Management, LLC

Portfolio managers

Ben Inker, CFA®1

Sam Wilderman, CFA®1,2

Average annual total returns (%) as of April 30, 20163

 

        Including sales charge     Excluding sales charge     Expense ratios4 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net5  
Class A (EAAFX)   7-29-1996     (11.20     1.46        2.96        (5.78     2.67        3.57        1.34        1.34   
Class B (EABFX)*   10-3-2002     (11.08     1.53        3.03        (6.55     1.90        3.03        2.09        2.09   
Class C (EACFX)   10-3-2002     (7.48     1.90        2.80        (6.48     1.90        2.80        2.09        2.09   
Class R (EAXFX)   10-10-2003                          (6.02     2.41        3.31        1.59        1.59   
Administrator Class (EAIFX)   10-3-2002                          (5.69     2.88        3.80        1.26        1.19   
Institutional Class (EAAIX)   11-30-2012                          (5.44     3.04        3.88        1.01        0.99   
GMO Global Asset Allocation Index6                            (2.56     4.54        4.56                 
Barclays U.S. Aggregate Bond Index7                            2.72        3.60        4.95                 
MSCI ACWI Index (Net)8                            (5.66     4.69        3.89                 
*   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, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Balanced funds may invest in stocks and bonds. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. Alternative investments, such as short sales, are speculative and entail a high degree of risk. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. The Fund will indirectly be exposed to all of the risks of an investment in the underlying funds and will indirectly bear expenses of the underlying funds. 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 high-yield securities risk, mortgage- and asset-backed securities risk, geographic risk, and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks. The Fund invests substantially all of its assets in Asset Allocation Trust, an open-end management investment company having the same investment objective and strategy as the Fund. Any portfolio data shown for the Fund represents that of the Asset Allocation Trust.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Asset Allocation Fund     5   
Growth of $10,000 investment as of April 30, 20169

LOGO

 

 

1  The Fund invests all of its investable assets directly in Asset Allocation Trust, an investment company advised by Grantham, Mayo, Van Otterloo & Co. LLC (GMO). Mr. Inker and Mr. Wilderman, the co-heads and senior members of GMO’s Asset Allocation Team, are primarily responsible for coordinating the portfolio management of Asset Allocation Trust.

 

2  Effective December 31, 2016, Sam Wilderman will leave GMO. Effective January 1, 2017, Ben Inker will be the sole portfolio manager on the Fund.

 

3  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. If these expenses had been included, returns for Institutional Class 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 Asset Allocation Fund.

 

4  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.55% 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 the expenses of Asset Allocation Trust and other acquired fund fees and expenses.

 

5  The manager has contractually committed through August 31, 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 0.87% for Class A, 1.62% for Class B, 1.62% for Class C, 1.12% for Class R, 0.64% for Administrator Class, and 0.44% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (including the expenses of Asset Allocation Trust), and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

6  The GMO Global Asset Allocation Index is a composite benchmark computed by GMO. Since May 1, 2007, the GMO Global Asset Allocation Index has been comprised of 65% Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) Index (Net) and 35% Barclays U.S. Aggregate Bond Index. Prior to May 1, 2007, it was composed of 48.75% S&P 500 Index, 16.25% MSCI ACWI Index (Net), and 35% Barclays U.S. Aggregate Bond Index. You cannot invest directly in an index.

 

7  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.

 

8  The MSCI ACWI Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index.

 

9  The chart compares the performance of Class A shares for the most recent ten years with the GMO Global Asset Allocation Index, Barclays U.S. Aggregate Bond Index, and MSCI ACWI 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%.

 

10  The MSCI World Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. The MSCI World Index 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.

 

11  The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

 

12  The MSCI World ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of world markets excluding the U.S. You cannot invest directly in an index.

 

13  The MSCI Emerging Markets Index 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 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.

 

14  The MSCI Europe Value Index captures large- and mid-cap securities exhibiting overall value style characteristics across the 15 developed markets countries in Europe. The value investment style characteristics for index construction are defined using three variables: book value to price, 12-month forward earnings to price, and dividend yield. With 220 constituents, the index targets 50% coverage of the free-float-adjusted market capitalization of the MSCI Europe Index. You cannot invest directly in an index.

 

15  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.

 

16  Portfolio allocation is based on the investment exposures of the underlying GMO funds. Holdings are subject to change and may have changed since the date specified.


Table of Contents

 

6   Wells Fargo Asset Allocation Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed its GMO Global Asset Allocation Index and the Morgan Stanley Capital International (MSCI) All Country World (ACWI) Index (Net) benchmarks, while selected share classes outperformed the Barclays U.S. Aggregate Bond Index before sales charges, for the 12-month period that ended April 30, 2016.

 

n   Asset allocation decisions detracted from relative results due largely to our equity exposures. Our underweight to equities during a falling market was additive, but allocation decisions within equities detracted.

 

n   Both our allocation to and security selection within alternatives detracted due primarily to weakness in relative value interest rates and currency positions, which was partially offset by strength in selling put options, which oblige the seller to buy a stock at a predetermined price if the buyer of the put option wishes to sell the stock.

 

n   Our fixed-income allocation was additive, as strong selection offset the negative contribution from our underweight to the asset class as it outperformed the benchmark.

 

n   Cash/cash-plus was additive relative to the benchmark but detracted on an absolute basis due to a modest decline in the GMO Alpha Only Fund.

Equity and alternative strategy exposures detracted from both absolute and relative returns. Fixed-income positions contributed to both absolute and relative returns. Cash/cash-plus exposures contributed on a relative basis but detracted modestly from absolute returns.

Global equities, represented by the MSCI World Index (Net),10 declined 5.7% during the 12-month period. During the period, U.S. stocks recorded muted returns of 1.2%, as measured by the S&P 500 Index11 in U.S. dollar terms, which outpaced non-U.S. markets. The MSCI World ex USA Index (Net)12 declined 9.4%, while emerging markets, as measured by the MSCI Emerging Markets Index,13 and European value equities, as measured by the MSCI Europe Value Index,14 did significantly worse, chalking up negative returns of 17.9% and 14.4%, respectively. Equities fell on a variety of concerns ranging from China-related issues including falling equity markets, slowing growth, currency devaluation, and perceived haphazard policymaker response, to falling global commodity prices, to worries about overall weak global growth. A more risk-averse investment environment benefited fixed-income markets, leading the Barclays U.S. Aggregate Bond Index to return 2.7% for the period.

 

Ten largest holdings (%) as of April 30, 201615  

GMO International Equity Fund Class IV

     23.12   

GMO Asset Allocation Bond Fund Class VI

     20.17   

GMO U.S. Equity Allocation Fund Class VI

     16.47   

GMO Emerging Markets Fund Fund VI

     13.16   

GMO U.S. Treasury Fund Class IV

     8.98   

GMO Debt Opportunities Fund Class VI

     4.77   

GMO Emerging Country Debt Fund Class IV

     4.67   

GMO Alpha Only Fund Class IV

     3.00   

GMO SGM Major Markets Fund Class IV

     2.98   

GMO Risk Premium Fund Class VI

     2.62   

Equity, alternative, and cash/cash-plus strategies each detracted from absolute and relative portfolio returns. Holdings of emerging markets, European, and other international opportunistic value stocks detracted from relative returns, as those geographies experienced negative returns in U.S. dollar terms. The strengthening of the U.S. dollar negatively affected non-U.S. equity positions. Quality U.S. equity positions contributed to performance (both in absolute and relative terms), as the U.S. market outperformed. Japan holdings detracted modestly from absolute returns but were additive relative to the benchmark. Alternative strategies detracted due primarily to weakness in our relative value interest rates and currency strategy, which fell as our views about the eventual rise in long-term euro and U.K. rates and short-term weakness in

 

the euro moved against us. Holding cash, though down modestly in absolute terms, was beneficial, as the allocation outperformed the benchmark. The Fund’s fixed-income allocation was additive in both absolute and relative terms due largely to strength in our U.S. Treasury Inflation-Protected Securities (TIPS) position, which rallied as rates fell. Both emerging country debt and asset-backed securities contributed as well.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Asset Allocation Fund     7   
Portfolio allocation as of April 30, 201616
LOGO

We made a number of strategic changes during the period in response to changes in valuations and evolution in our portfolio management process.

Our equity allocation remained essentially unchanged during the period, though we did decrease our exposure to U.S. quality stocks while increasing our exposure to a broader set of U.S. value stocks, including some opportunistic value positions. We also lowered the Fund’s European value stock weight in favor of other international developed markets exposures. Late in the year, we rotated a modest amount of equity weight from international developed markets to U.S. holdings in

 

recognition that the spread between our U.S. and non-U.S. equity forecasts is not extreme enough to warrant a maximum underweight to U.S. equities. Our alternatives allocation increased during the period. In addition, we built a position in our systematic global macro strategy within alternatives. The overall exposure to our fixed-income allocation decreased and our U.S. TIPS position increased. Our fixed-income allocation remains underweight the benchmark. The portfolio’s cash/cash-plus position increased. We added to the Fund’s liquidity by increasing our cash allocation.

Going forward, we see value in international stocks (both developed ex-U.S. and emerging markets value) and select alternative strategies.

We believe that equity markets are priced to deliver below-average returns, even negative in certain cases. Within equity markets, we have a strong preference for international equities over U.S. equities and for the emerging markets in particular. Within international stocks, we believe that value stocks are priced to potentially deliver a higher return than growth stocks, and emerging markets value stocks remain our favored equity asset class. We still have a preference for higher-quality stocks within the U.S. given their marginally higher expected returns and relative defensive characteristics in both recessions and market declines.

Fixed-income interest-rate spread widening, increased volatility, and more dispersion have created opportunities for risk assets beyond equities. Over the past few quarters, expected returns for U.S. corporate credit increased, especially high yield, but then fell with spread tightening at the end of the period. Credit, though, remains an opportunity we are watching closely. We continue to hold significant positions in what we perceive to be safer assets, like U.S. cash and U.S. TIPS, but did reduce our position in TIPS as prices rose late in the period. We hope to have the opportunity soon to rotate some of this capital into risk assets at more attractive valuations.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Asset Allocation 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 November 1, 2015 to April 30, 2016.

Actual expenses

The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable class of shares to estimate the expenses you paid on your account during this period.

Hypothetical example for comparison purposes

The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.

Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any transactional costs, such as sales charges (loads) and contingent deferred sales charges. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds. In addition, if these transactional costs were included, your costs would have been higher.

 

Wells Fargo Asset Allocation Fund    Beginning
account value
11-1-2015
     Ending
account value
4-30-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 995.86       $ 4.03         0.81

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.82       $ 4.08         0.81

Class B

           

Actual

   $ 1,000.00       $ 991.84       $ 7.73         1.56

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.10       $ 7.83         1.56

Class C

           

Actual

   $ 1,000.00       $ 992.81       $ 7.74         1.56

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.09       $ 7.84         1.56

Class R

           

Actual

   $ 1,000.00       $ 994.73       $ 5.25         1.06

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.60       $ 5.32         1.06

Administrator Class

           

Actual

   $ 1,000.00       $ 996.31       $ 3.18         0.64

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.68       $ 3.22         0.64

Institutional Class

           

Actual

   $ 1,000.00       $ 997.79       $ 2.19         0.44

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,022.68       $ 2.21         0.44

 

 

Please see footnote on page 9.


Table of Contents

 

Fund expenses (unaudited)   Wells Fargo Asset Allocation Fund     9   
Wells Fargo Asset Allocation Fund including underlying fund expenses   Beginning
account value
11-1-2015
    Ending
account value
4-30-2016
    Expenses
paid during
the period¹
    Net annualized
expense ratio
 

Class A

       

Actual

  $ 1,000.00      $ 995.86      $ 6.96        1.40

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,017.89      $ 7.04        1.40

Class B

       

Actual

  $ 1,000.00      $ 991.84      $ 10.65        2.15

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,014.17      $ 10.77        2.15

Class C

       

Actual

  $ 1,000.00      $ 992.81      $ 10.67        2.15

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,014.16      $ 10.78        2.15

Class R

       

Actual

  $ 1,000.00      $ 994.73      $ 8.18        1.65

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,016.66      $ 8.27        1.65

Administrator Class

       

Actual

  $ 1,000.00      $ 996.31      $ 6.11        1.23

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,018.75      $ 6.17        1.23

Institutional Class

       

Actual

  $ 1,000.00      $ 997.79      $ 5.12        1.03

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,019.74      $ 5.17        1.03
Asset Allocation Trust                        

Actual

  $ 1,000.00      $ 1,000.00      $ 0.00        0.00

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,024.86      $ 0.00        0.00
Asset Allocation Trust including underlying fund expenses                        

Actual

  $ 1,000.00      $ 1,000.00      $ 2.93        0.59

Hypothetical (5% return before expenses)

  $ 1,000.00      $ 1,021.93      $ 2.97        0.59

 

 

 

1 Expenses paid is equal to the annualized expense ratio 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 Asset Allocation Fund   Portfolio of investments—April 30, 2016

    

 

 

Security name             Shares      Value  

Investment Companies: 100.19%

          

Asset Allocation Trust (l)

          277,827,687       $ 4,173,594,007   
          

 

 

 

Total Investment Companies (Cost $3,019,529,780)

             4,173,594,007       
          

 

 

 

 

Total investments (Cost $3,019,529,780) *     100.19        4,173,594,007   

Other assets and liabilities, net

    (0.19        (7,955,632
 

 

 

      

 

 

 
Total net assets     100.00      $ 4,165,638,375   
 

 

 

      

 

 

 

 

 

 

 

(l) The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940.

 

* Cost for federal income tax purposes is $3,019,705,373 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 1,154,064,227   

Gross unrealized losses

     (175,593
  

 

 

 

Net unrealized gains

   $ 1,153,888,634   

 

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


Table of Contents

 

Statement of assets and liabilities—April 30, 2016   Wells Fargo Asset Allocation Fund     11   
         

Assets

 

Investment in affiliated investment companies, at value (cost $3,019,529,780)

  $ 4,173,594,007   

Receivable for investments sold

    3,156,289   

Receivable for Fund shares sold

    1,810,011   

Prepaid expenses and other assets

    68,198   
 

 

 

 

Total assets

    4,178,628,505   
 

 

 

 

Liabilities

 

Payable for Fund shares redeemed

    8,757,498   

Management fee payable

    1,135,970   

Distribution fees payable

    1,041,881   

Administration fees payable

    682,752   

Shareholder servicing fees payable

    720,646   

Accrued expenses and other liabilities

    651,383   
 

 

 

 

Total liabilities

    12,990,130   
 

 

 

 

Total net assets

  $ 4,165,638,375   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 3,025,503,407   

Accumulated net investment loss

    (13,753,666

Accumulated net realized losses on investments

    (175,593

Net unrealized gains on investments

    1,154,064,227   
 

 

 

 

Total net assets

  $ 4,165,638,375   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 1,578,516,637   

Shares outstanding – Class A1

    124,224,073   

Net asset value per share – Class A

    $12.71   

Maximum offering price per share – Class A2

    $13.49   

Net assets – Class B

  $ 56,517,482   

Shares outstanding – Class B1

    4,442,056   

Net asset value per share – Class B

    $12.72   

Net assets – Class C

  $ 1,561,695,433   

Shares outstanding – Class C1

    127,203,301   

Net asset value per share – Class C

    $12.28   

Net assets – Class R

  $ 24,121,826   

Shares outstanding – Class R1

    1,917,433   

Net asset value per share – Class R

    $12.58   

Net assets – Administrator Class

  $ 157,303,270   

Shares outstanding – Administrator Class1

    12,248,809   

Net asset value per share – Administrator Class

    $12.84   

Net assets – Institutional Class

  $ 787,483,727   

Shares outstanding – Institutional Class1

    61,809,438   

Net asset value per share – Institutional Class

    $12.74   

 

 

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 Asset Allocation Fund   Statement of operations—year ended April 30, 2016
         

Investment income

  $ 0   
 

 

 

 

Expenses

 

Management fee

    16,148,098   

Administration fees

 

Class A

    3,881,311   

Class B

    232,576   

Class C

    3,882,572   

Class R

    56,687   

Administrator Class

    315,970   

Institutional Class

    1,201,971   

Shareholder servicing fees

 

Class A

    4,418,345   

Class B

    261,162   

Class C

    4,421,035   

Class R

    63,541   

Administrator Class

    625,520   

Distribution fees

 

Class B

    785,054   

Class C

    13,263,104   

Class R

    64,531   

Custody and accounting fees

    254,825   

Professional fees

    45,831   

Registration fees

    96,961   

Shareholder report expenses

    508,548   

Trustees’ fees and expenses

    8,551   

Interest expense

    1,246   

Other fees and expenses

    79,709   
 

 

 

 

Total expenses

    50,617,148   

Less: Fee waivers and/or expense reimbursements

    (515,886
 

 

 

 

Net expenses

    50,101,262   
 

 

 

 

Net investment loss

    (50,101,262
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    297,669,779   

Net change in unrealized gains (losses) on investments

    (607,442,399
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (309,772,620
 

 

 

 

Net decrease in net assets resulting from operations

  $ (359,873,882
 

 

 

 

 

 

 

 

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


Table of Contents

 

Statement of changes in net assets   Wells Fargo Asset Allocation Fund     13   
    

Year ended

April 30, 2016

   

Year ended

April 30, 2015

 

Operations

       

Net investment loss

    $ (50,101,262     $ (65,915,395

Net realized gains on investments

      297,669,779          236,404,225   

Net change in unrealized gains (losses) on investments

      (607,442,399       (155,453,240
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (359,873,882       15,035,590   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (48,884,641       (58,339,512

Class B

      (1,297,333       (3,407,333

Class C

      (33,934,246       (42,752,244

Class R

      (622,915       (828,305

Administrator Class

      (5,543,203       (12,960,484

Institutional Class

      (35,533,060       (35,139,920

Net realized gains

       

Class A

      (24,077,605       0   

Class B

      (1,304,394       0   

Class C

      (25,337,242       0   

Class R

      (347,361       0   

Administrator Class

      (2,702,848       0   

Institutional Class

      (15,178,439       0   
 

 

 

 

Total distributions to shareholders

      (194,763,287       (153,427,798
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    13,642,865        177,803,512        14,558,333        207,382,838   

Class B

    7,547        96,571        16,592        231,147   

Class C

    5,976,483        74,484,577        6,380,900        87,573,015   

Class R

    332,718        4,221,435        354,082        5,018,959   

Administrator Class

    2,333,815        31,186,099        6,705,890        97,155,441   

Institutional Class

    30,788,248        400,666,868        38,132,298        549,346,712   
 

 

 

 
      688,459,062          946,708,112   
 

 

 

 

Reinvestment of distributions

       

Class A

    5,356,273        67,305,001        3,936,497        54,008,739   

Class B

    200,776        2,521,756        240,292        3,284,796   

Class C

    3,812,732        46,318,357        2,507,562        33,300,418   

Class R

    67,769        843,009        52,325        710,571   

Administrator Class

    624,765        7,927,041        914,386        12,645,966   

Institutional Class

    3,387,203        42,643,960        2,050,122        28,189,169   
 

 

 

 
      167,559,124          132,139,659   
 

 

 

 

Payment for shares redeemed

       

Class A

    (40,732,235     (528,037,694     (38,741,813     (555,287,126

Class B

    (7,535,877     (98,253,607     (10,839,517     (153,255,686

Class C

    (33,952,388     (425,743,262     (28,354,018     (388,473,530

Class R

    (658,843     (8,629,956     (611,086     (8,589,786

Administrator Class

    (20,783,627     (271,625,805     (30,910,234     (445,537,068

Institutional Class

    (45,306,726     (578,188,246     (16,696,806     (237,109,775
 

 

 

 
      (1,910,478,570       (1,788,252,971
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (1,054,460,384       (709,405,200
 

 

 

 

Total decrease in net assets

      (1,609,097,553       (847,797,408
 

 

 

 

Net assets

       

Beginning of period

      5,774,735,928          6,622,533,336   
 

 

 

 

End of period

    $ 4,165,638,375        $ 5,774,735,928   
 

 

 

 

Accumulated net investment loss

    $ (13,753,666     $ (20,178,304
 

 

 

 

 

 

 

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


Table of Contents

 

14   Wells Fargo Asset Allocation Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended September 30  
CLASS A   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $14.10        $14.43        $13.73        $12.91        $11.70        $11.76   

Net investment loss

    (0.11     (0.11     (0.07     (0.11     (0.12     (0.09

Net realized and unrealized gains (losses) on investments

    (0.72     0.18        1.01        1.26        1.56        0.20   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.83     0.07        0.94        1.15        1.44        0.11   

Distributions to shareholders from

           

Net investment income

    (0.37     (0.40     (0.24     (0.33     (0.23     (0.14

Net realized gains

    (0.19     0.00        0.00        0.00        0.00        0.00   

Tax basis return of capital

    0.00        0.00        0.00        0.00        0.00        (0.03
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.56     (0.40     (0.24     (0.33     (0.23     (0.17

Net asset value, end of period

    $12.71        $14.10        $14.43        $13.73        $12.91        $11.70   

Total return2

    (5.78 )%      0.53     6.92     9.12     12.48     0.94

Ratios to average net assets (annualized)

       

Gross expenses3

    0.82     0.85     0.85     0.84     0.84     0.85

Net expenses3

    0.82     0.85     0.85     0.84     0.84     0.84

Net investment loss3

    (0.82 )%      (0.85 )%      (0.85 )%      (0.84 )%      (0.84 )%      (0.84 )% 

Supplemental data

       

Portfolio turnover rate4

    1     0     1     0     1     1

Net assets, end of period (000s omitted)

    $1,578,517        $2,058,444        $2,398,503        $2,332,077        $2,307,609        $2,336,095   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

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

 

3  Ratios do not include any expenses from Asset Allocation Trust. Asset Allocation Trust does not have any net expenses.

 

4  Portfolio turnover rate represents the purchase and sales of the Fund’s investment in Asset Allocation Trust and not the underlying investment transactions of Asset Allocation Trust.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Asset Allocation Fund     15   

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended September 30  
CLASS B   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $14.02        $14.28        $13.51        $12.66        $11.54        $11.60   

Net investment loss

    (0.21 )2      (0.23 )2      (0.13 )2      (0.21 )2      (0.19 )2      (0.19 )2 

Net realized and unrealized gains (losses) on investments

    (0.71     0.20        0.99        1.26        1.51        0.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.92     (0.03     0.86        1.05        1.32        0.02   

Distributions to shareholders from

           

Net investment income

    (0.19     (0.23     (0.09     (0.20     (0.20     (0.07

Net realized gains

    (0.19     0.00        0.00        0.00        0.00        0.00   

Tax basis return of capital

    0.00        0.00        0.00        0.00        0.00        (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.38     (0.23     (0.09     (0.20     (0.20     (0.08

Net asset value, end of period

    $12.72        $14.02        $14.28        $13.51        $12.66        $11.54   

Total return3

    (6.55 )%      (0.20 )%      6.40     8.40     11.61     0.17

Ratios to average net assets (annualized)

       

Gross expenses4

    1.57     1.59     1.60     1.59     1.59     1.60

Net expenses4

    1.57     1.59     1.60     1.59     1.59     1.59

Net investment loss4

    (1.57 )%      (1.59 )%      (1.60 )%      (1.59 )%      (1.59 )%      (1.59 )% 

Supplemental data

       

Portfolio turnover rate5

    1     0     1     0     1     1

Net assets, end of period (000s omitted)

    $56,517        $165,031        $319,225        $430,116        $659,186        $917,860   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

4  Ratios do not include any expenses from Asset Allocation Trust. Asset Allocation Trust does not have any net expenses.

 

5  Portfolio turnover rate represents the purchase and sales of the Fund’s investment in Asset Allocation Trust and not the underlying investment transactions of Asset Allocation Trust.

 

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


Table of Contents

 

16   Wells Fargo Asset Allocation Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended September 30  
CLASS C   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $13.61        $13.92        $13.20        $12.40        $11.30        $11.36   

Net investment loss

    (0.20 )2      (0.22 )2      (0.14     (0.20 )2      (0.19 )2      (0.19 )2 

Net realized and unrealized gains (losses) on investments

    (0.69     0.18        0.99        1.22        1.49        0.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.89     (0.04     0.85        1.02        1.30        0.02   

Distributions to shareholders from

           

Net investment income

    (0.25     (0.27     (0.13     (0.22     (0.20     (0.07

Net realized gains

    (0.19     0.00        0.00        0.00        0.00        0.00   

Tax basis return of capital

    0.00        0.00        0.00        0.00        0.00        (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.44     (0.27     (0.13     (0.22     (0.20     (0.08

Net asset value, end of period

    $12.28        $13.61        $13.92        $13.20        $12.40        $11.30   

Total return3

    (6.48 )%      (0.23 )%      6.44     8.32     11.64     0.18

Ratios to average net assets (annualized)

       

Gross expenses4

    1.57     1.60     1.60     1.59     1.59     1.60

Net expenses4

    1.57     1.60     1.60     1.59     1.59     1.59

Net investment loss4

    (1.57 )%      (1.60 )%      (1.60 )%      (1.59 )%      (1.59 )%      (1.59 )% 

Supplemental data

       

Portfolio turnover rate5

    1     0     1     0     1     1

Net assets, end of period (000s omitted)

    $1,561,695        $2,060,672        $2,377,997        $2,399,839        $2,604,438        $2,736,064   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

4  Ratios do not include any expenses from Asset Allocation Trust. Asset Allocation Trust does not have any net expenses.

 

5  Portfolio turnover rate represents the purchase and sales of the Fund’s investment in Asset Allocation Trust and not the underlying investment transactions of Asset Allocation Trust.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Asset Allocation Fund     17   

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended September 30  
CLASS R   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $13.95        $14.28        $13.58        $12.76        $11.59        $11.66   

Net investment loss

    (0.14 )2      (0.15 )2      (0.10     (0.14 )2      (0.13 )2      (0.10

Net realized and unrealized gains (losses) on investments

    (0.71     0.18        1.01        1.26        1.52        0.19   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.85     0.03        0.91        1.12        1.39        0.09   

Distributions to shareholders from

           

Net investment income

    (0.33     (0.36     (0.21     (0.30     (0.22     (0.13

Net realized gains

    (0.19     0.00        0.00        0.00        0.00        0.00   

Tax basis return of capital

    0.00        0.00        0.00        0.00        0.00        (0.03
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.52     (0.36     (0.21     (0.30     (0.22     (0.16

Net asset value, end of period

    $12.58        $13.95        $14.28        $13.58        $12.76        $11.59   

Total return3

    (6.02 )%      0.27     6.74     8.92     12.16     0.71

Ratios to average net assets (annualized)

       

Gross expenses4

    1.06     1.09     1.10     1.09     1.09     1.09

Net expenses4

    1.06     1.09     1.10     1.09     1.09     1.09

Net investment loss4

    (1.06 )%      (1.09 )%      (1.10 )%      (1.09 )%      (1.09 )%      (1.09 )% 

Supplemental data

       

Portfolio turnover rate5

    1     0     1     0     1     1

Net assets, end of period (000s omitted)

    $24,122        $30,355        $33,984        $33,934        $29,899        $23,580   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Returns for periods of less than one year are not annualized.

 

4  Ratios do not include any expenses from Asset Allocation Trust. Asset Allocation Trust does not have any net expenses.

 

5  Portfolio turnover rate represents the purchase and sales of the Fund’s investment in Asset Allocation Trust and not the underlying investment transactions of Asset Allocation Trust.

 

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


Table of Contents

 

18   Wells Fargo Asset Allocation Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended September 30  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $14.23        $14.54        $13.84        $13.01        $11.77        $11.84   

Net investment loss

    (0.09 )2      (0.09 )2      (0.05 )2      (0.08 )2      (0.09     (0.08 )2 

Net realized and unrealized gains (losses) on investments

    (0.73     0.19        1.01        1.27        1.57        0.22   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.82     0.10        0.96        1.19        1.48        0.14   

Distributions to shareholders from

           

Net investment income

    (0.38     (0.41     (0.26     (0.36     (0.24     (0.17

Net realized gains

    (0.19     0.00        0.00        0.00        0.00        0.00   

Tax basis return of capital

    0.00        0.00        0.00        0.00        0.00        (0.04
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.57     (0.41     (0.26     (0.36     (0.24     (0.21

Net asset value, end of period

    $12.84        $14.23        $14.54        $13.84        $13.01        $11.77   

Total return3

    (5.69 )%      0.77     7.01     9.39     12.74     1.12

Ratios to average net assets (annualized)

       

Gross expenses4

    0.71     0.68     0.69     0.67     0.64     0.65

Net expenses4

    0.64     0.64     0.64     0.64     0.62     0.63

Net investment loss4

    (0.64 )%      (0.64 )%      (0.64 )%      (0.64 )%      (0.62 )%      (0.63 )% 

Supplemental data

       

Portfolio turnover rate5

    1     0     1     0     1     1

Net assets, end of period (000s omitted)

    $157,303        $427,916        $776,035        $809,554        $1,562,582        $1,423,427   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Returns for periods of less than one year are not annualized.

 

4  Ratios do not include any expenses from Asset Allocation Trust. Asset Allocation Trust does not have any net expenses.

 

5  Portfolio turnover rate represents the purchase and sales of the Fund’s investment in Asset Allocation Trust and not the underlying investment transactions of Asset Allocation Trust.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Asset Allocation Fund     19   

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended
September 30, 20132
 
INSTITUTIONAL CLASS   2016     2015     20141    

Net asset value, beginning of period

    $14.15        $14.49        $13.82        $13.01   

Net investment loss

    (0.06 )3      (0.06 )3      (0.03     (0.05 )3 

Net realized and unrealized gains (losses) on investments

    (0.72     0.19        1.01        1.26   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.78     0.13        0.98        1.21   

Distributions to shareholders from

       

Net investment income

    (0.44     (0.47     (0.31     (0.40

Net realized gains

    (0.19     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.63     (0.47     (0.31     (0.40

Net asset value, end of period

    $12.74        $14.15        $14.49        $13.82   

Total return4

    (5.44 )%      0.99     7.15     9.58

Ratios to average net assets (annualized)

       

Gross expenses5

    0.47     0.42     0.42     0.42

Net expenses5

    0.44     0.42     0.42     0.42

Net investment loss5

    (0.44 )%      (0.42 )%      (0.42 )%      (0.42 )% 

Supplemental data

       

Portfolio turnover rate6

    1     0     1     0

Net assets, end of period (000s omitted)

    $787,484        $1,032,319        $716,789        $679,254   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  For the period from November 30, 2012 (commencement of class operations) to September 30, 2013

 

3  Calculated based upon average shares outstanding

 

4  Returns for periods of less than one year are not annualized.

 

5  Ratios do not include any expenses from Asset Allocation Trust. Asset Allocation Trust does not have any net expenses.

 

6  Portfolio turnover rate represents the purchase and sales of the Fund’s investment in Asset Allocation Trust and not the underlying investment transactions of Asset Allocation Trust.

 

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


Table of Contents

 

20   Wells Fargo Asset Allocation 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 Asset Allocation Fund (the “Fund”) which is a diversified series of the Trust.

The Fund invests all of its investable assets in Asset Allocation Trust, an investment company managed by Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”). Asset Allocation Trust in turn invests its assets in GMO-managed mutual funds (“underlying funds”) and may be exposed to any asset class, including U.S. and foreign equities (including emerging country equities), U.S. and foreign fixed income securities (including emerging country debt securities), and, from time to time, other alternative asset classes. At April 30, 2016, the Fund owned 100% of Asset Allocation Trust. Because the Fund invests all of its assets in Asset Allocation Trust, the shareholders of the Fund bear the fees and expenses of Asset Allocation Trust which are not included in the Statement of Operations but are incurred indirectly because they are considered in the calculation of the net asset value of Asset Allocation Trust. As a result, the Fund’s actual expenses may be higher than those of other mutual funds that invest directly in securities. The financial statements of Asset Allocation Trust, including the Portfolio of Investments, are included elsewhere in this report and should be read in conjunction with the Fund’s financial statements.

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.

Valuation

Investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.

The Fund values its investment in Asset Allocation Trust at net asset value. The valuation of investments in securities and the underlying funds held by Asset Allocation Trust is discussed in its Notes to Financial Statements, which is included elsewhere in this report.

Investment transactions and income recognition

Investment transactions in Asset Allocation Trust are recorded on a trade date basis. Realized gains or losses resulting from investment transactions in Asset Allocation Trust are determined on the identified cost basis. Income dividends and capital gain distributions from Asset Allocation Trust are recorded on the ex-dividend date. Capital gain distributions from Asset Allocation Trust are treated as realized gains.

Distributions to shareholders

Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Net investment income is primarily derived from redemptions in Asset Allocation Trust which are deemed dividends to the Fund. 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


Table of Contents

 

Notes to financial statements   Wells Fargo Asset Allocation Fund     21   

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 reversal of net realized gains from investments and deemed dividends received from Asset Allocation Trust. At April 30, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital   

Accumulated net

investment loss

  

Accumulated net

realized losses

on investments

$115,325,645    $182,341,298    $(297,666,943)

As of April 30, 2016, the Fund had a qualified late-year ordinary loss of $13,716,317 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

As of April 30, 2016, the Fund’s investment in Asset Allocation Trust was measured at fair value using the net asset value per share as a practical expedient. Asset Allocation Trust seeks to provide total return by investing in GMO managed mutual funds and may be exposed to any asset class. GMO intends to expose the assets of Asset Allocation Trust to at least 15% in fixed income investments and at least 25% in equity investments. The Fund’s investment in Asset Allocation Trust valued at $4,173,594,007 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

4. TRANSACTIONS WITH AFFILIATES

Management fee

The Trust has entered into an investment management agreement with Wells Fargo Funds Management, LLC (“Funds Management”), an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The manager is responsible for implementing investment policies and guidelines 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 0.35% and declining to 0.235% 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 0.25% and declined to 0.175% 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 0.10% and declined to 0.06% 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 April 30, 2016 have been included in management fee on the Statement of Operations.

For the year ended April 30, 2016, the management fee was equivalent to an annual rate of 0.33% of the Fund’s average daily net assets.


Table of Contents

 

22   Wells Fargo Asset Allocation 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 B, Class C, Class R

     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 August 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses (excluding acquired fund fees and expenses and the expenses of Asset Allocation Trust) at 0.87% for Class A shares, 1.62% for Class B shares, 1.62% for Class C shares, 1.12% for Class R shares, 0.64% for Administrator Class shares, and 0.44% 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, 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 April 30, 2016, Funds Distributor received $132,132 from the sale of Class A shares and $2,171 and $5,840 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, Class R, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.

5. INVESTMENT PORTFOLIO TRANSACTIONS

For the year ended April 30, 2016, the Fund made aggregate purchases and sales of $24,923,813 and $1,322,303,325, respectively, in its investment into Asset Allocation Trust.

6. BANK BORROWINGS

The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $200,000,000 revolving credit agreement whereby each 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 each 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 is allocated to each participating fund.

During the year ended April 30, 2016, the Fund had average borrowings outstanding of $88,369 at an average rate of 1.41% and paid interest in the amount of $1,246.


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Notes to financial statements   Wells Fargo Asset Allocation Fund     23   

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended April 30, 2016 and April 30, 2015 were as follows:

 

     Year ended April 30  
     2016      2015  

Ordinary income

   $ 125,818,234       $ 153,427,798   

Long-term capital gain

     68,945,053         0   

As of April 30, 2016, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

  

Unrealized

gains

  

Late-year

ordinary

losses

deferred

$64,143    $1,153,888,634    $(13,716,317)

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 Asset Allocation 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 Asset Allocation Fund (formerly known as the Wells Fargo Advantage Asset Allocation Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of April 30, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the two-year period then ended, the period from October 1, 2013 to April 30, 2014, and each of the years or periods in the three-year period ended September 30, 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 investments owned as of April 30, 2016, by correspondence with the transfer agent. 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 Asset Allocation Fund as of April 30, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally acceptable accounting principles.

 

LOGO

Boston, Massachusetts

June 27, 2016


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Other information (unaudited)   Wells Fargo Asset Allocation Fund     25   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 13.88% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended April 30, 2016.

Pursuant to Section 852 of the Internal Revenue Code, $68,945,053 was designated as long-term capital gain distributions for the fiscal year ended April 30, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $73,124,948 of income dividends paid during the fiscal year ended April 30, 2016 has been designated as qualified dividend income (QDI).

Pursuant to Section 853 of the Internal Revenue Code, the following amounts were designated as foreign taxes paid for the fiscal year ended April 30, 2016. These amounts may be less than the actual foreign taxes paid for financial statement purposes. Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments. None of the income was derived from ineligible foreign sources as defined under Section 901(j) of the Internal Revenue Code.

 

Creditable
foreign taxes
paid
   Per share
amount
   Foreign
income as % of
ordinary income
distributions
$7,583,457    $0.0229    31.25%

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 Asset Allocation 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 141 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships
William R. Ebsworth (Born 1957)   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College.   Asset Allocation Trust
Jane A. Freeman (Born 1953)   Trustee, since 2015   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is Chair of Taproot Foundation (non-profit organization) (non-profit organization), a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst.   Asset Allocation Trust
Peter G. Gordon (Born 1942)   Trustee, since 1998; Chairman, since 2005   Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College.   Asset Allocation Trust

Isaiah Harris, Jr.

(Born 1952)

  Trustee, since 2009   Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation; Asset Allocation Trust
Judith M. Johnson (Born 1949)   Trustee, since 2008; Audit Committee Chairman, since 2008   Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant.   Asset Allocation Trust
David F. Larcker (Born 1950)   Trustee, since 2009   James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust


Table of Contents

 

Other information (unaudited)   Wells Fargo Asset Allocation Fund     27   

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships
Olivia S. Mitchell (Born 1953)   Trustee, since 2006   International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993.   Asset Allocation Trust
Timothy J. Penny (Born 1951)   Trustee, since 1996   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   Asset Allocation Trust

Michael S. Scofield

(Born 1943)

  Trustee, since 2010   Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield.   Asset Allocation Trust

 

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

Officers

 

Name and

year of birth

  Position held and
length of service
  Principal occupations during past five years or longer    

Karla M. Rabusch

(Born 1959)

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

Jeremy DePalma1

(Born 1974)

  Treasurer, since 2012   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

C. David Messman

(Born 1960)

  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    

Michael Whitaker

(Born 1967)

  Chief Compliance Officer, since 2016*   Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016.    

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 69 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.

 

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

 

** Debra Ann Early was the Chief Compliance Officer until May 15, 2016.


Table of Contents

 

28   Asset Allocation Trust   Portfolio of investments—April 30, 2016

    

 

 

Security name                 Shares      Value  

Investment Companies: 99.75%

          

GMO Alpha Only Fund Class IV (l)

          5,670,608       $ 125,093,604   

GMO Asset Allocation Bond Fund Class VI (l)

          37,674,764         840,147,231   

GMO Debt Opportunities Fund Class VI (l)

          7,986,950         198,635,441   

GMO Emerging Country Debt Fund Class IV (l)

          20,853,185         194,560,218   

GMO Emerging Markets Fund Class VI (l)

          63,069,368         548,072,810   

GMO International Equity Fund Class IV (l)

          48,044,225         963,286,721   

GMO Risk Premium Fund Class VI (l)

          11,697,575         109,255,353   

GMO SGM Major Markets Fund Class IV (l)†

          3,720,323         124,221,589   

GMO U.S. Equity Allocation Fund Class VI (l)

          47,013,971         685,933,831   

GMO U.S. Treasury Fund Class IV (l)

          14,953,574         373,988,876   

Total Investment Companies (Cost $4,247,421,828)

             4,163,195,674   
          

 

 

 
     Interest rate     Maturity date      Principal         
Short-Term Investments: 0.33%           
Time Deposit: 0.33%           

State Street Bank Euro Dollar

     0.01     5-2-2016       $ 13,556,501         13,556,501   
          

 

 

 

Total Short-Term Investments (Cost $13,556,501)

             13,556,501       
          

 

 

 

 

Total investments in securities (Cost $4,260,978,329) *     100.08        4,176,752,175   

Other assets and liabilities, net

    (0.08        (3,158,168
 

 

 

      

 

 

 
Total net assets     100.00      $ 4,173,594,007   
 

 

 

      

 

 

 

 

 

 

(l) The issuer of the security is an affiliated person of the Trust as defined in the Investment Company Act of 1940.

 

Non-income-earning security

 

* Cost for federal income tax purposes is $4,307,806,551 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 72,675,384   

Gross unrealized losses

     (203,729,760
  

 

 

 

Net unrealized losses

   $ (131,054,376

 

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


Table of Contents

 

Statement of assets and liabilities—April 30, 2016   Asset Allocation Trust     29   
         

Assets

 

Investments

 

In affiliated investment companies, at value (cost $4,247,421,828)

  $ 4,163,195,674   

In unaffiliated securities, at value (cost $13,556,501)

    13,556,501   
 

 

 

 

Total investments, at value (cost $4,260,978,329)

    4,176,752,175   

Receivable for dividends

    134,903   

Receivable from administrator

    4,218   

Prepaid expenses and other assets

    10   
 

 

 

 

Total assets

    4,176,891,306   
 

 

 

 

Liabilities

 

Payable for investments purchased

    134,891   

Payable for Fund shares redeemed

    3,156,289   

Accrued expenses and other liabilities

    6,119   
 

 

 

 

Total liabilities

    3,297,299   
 

 

 

 

Total net assets

  $ 4,173,594,007   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 4,378,141,378   

Accumulated net realized losses on investment

    (120,321,217

Net unrealized losses on investments

    (84,226,154
 

 

 

 

Total net assets

  $ 4,173,594,007   
 

 

 

 

COMPUTATION OF NET ASSET VALUE

 

Net assets

  $ 4,173,594,007   

Shares outstanding1

    277,827,687   

Net asset value per share

    $15.02   

 

 

 

1  The Fund has an unlimited number of authorized shares.

 

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


Table of Contents

 

30   Asset Allocation Trust   Statement of operations—year ended April 30, 2016
         

Investment income

 

Dividends from affiliated investment companies

  $ 177,178,632   

Interest

    1,178   
 

 

 

 

Total investment income

    177,179,810   
 

 

 

 

Expenses

 

Custody and accounting fees

    13,003   

Professional fees

    43,078   

Shareholder report expenses

    3,354   

Other fees and expenses

    9,766   
 

 

 

 

Total expenses

    69,201   

Less: Fee waivers and/or expense reimbursements

    (69,201
 

 

 

 

Net expenses

    0   
 

 

 

 

Net investment income

    177,179,810   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Sale of affiliated investment companies

    (126,378,285

Capital gain distributions from affiliated investment companies

    90,949,765   
 

 

 

 

Net realized losses on investments

    (35,428,520

Net change in unrealized gains (losses) on investments

    (451,524,050
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (486,952,570
 

 

 

 

Net decrease in net assets resulting from operations

  $ (309,772,760
 

 

 

 

 

 

 

 

 

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


Table of Contents

 

Statement of changes in net assets   Asset Allocation Trust     31   
    

Year ended

April 30, 2016

   

Year ended

April 30, 2015

 

Operations

       

Net investment income

    $ 177,179,810        $ 180,682,539   

Net realized gains (losses) on investments

      (35,428,520       268,798,562   

Net change in unrealized gains (losses) on investments

      (451,524,050       (368,526,446
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (309,772,760       80,954,655   
 

 

 

 

Capital share transactions

    Shares          Shares     

Contributions

    1,681,911        24,923,813        1,138,693        17,801,755   

Withdrawals

    (89,492,154     (1,325,036,804     (60,631,016     (947,107,473
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (1,300,112,991       (929,305,718
 

 

 

 

Total decrease in net assets

      (1,609,885,751       (848,351,063
 

 

 

 

Net assets

       

Beginning of period

      5,783,479,758          6,631,830,821   
 

 

 

 

End of period

    $ 4,173,594,007        $ 5,783,479,758   
 

 

 

 

Undistributed net investment income

    $ 0        $ 0   
 

 

 

 

 

 

 

 

 

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


Table of Contents

 

32   Asset Allocation Trust   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended April 30     Year ended September 30  
     2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $15.82        $15.60        $14.52        $13.19        $11.64        $11.43   

Net investment income

    0.64        0.49        0.19        0.49        0.42        0.21   

Net realized and unrealized gains (losses) on investments

    (1.44     (0.27     0.89        0.84        1.13        0.00 2 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.80     0.22        1.08        1.33        1.55        0.21   

Net asset value, end of period

    $15.02        $15.82        $15.60        $14.52        $13.19        $11.64   

Total return3

    (5.06 )%      1.41     7.44     10.08     13.32     1.84

Ratios to average net assets (annualized)

       

Gross expenses4

    0.00     0.00     0.00     0.00     0.00     0.00

Net expenses4

    0.00     0.00     0.00     0.00     0.00     0.00

Net investment income4

    3.60     2.90     2.12     3.23     3.10     1.64

Supplemental data

       

Portfolio turnover rate

    24     42     40     36     31     22

Net assets, end of period (000s omitted)

    $4,173,594        $5,783,480        $6,631,831        $6,694,019        $7,174,474        $7,447,698   

 

 

 

1  For the seven months ended April 30, 2014. The Fund changed its fiscal year end from September 30 to April 30, effective April 30, 2014.

 

2  Amount is less than $0.005.

 

3  Returns for periods of less than one year are not annualized.

 

4  Excludes expenses incurred indirectly through investment in underlying funds.

 

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


Table of Contents

 

Notes to financial statements   Asset Allocation Trust     33   

1. ORGANIZATION

Asset Allocation Trust (the “Trust”) was organized as a statutory trust under the laws of the state of Delaware on June 14, 2005 and is registered under the Investment Company Act of 1940, as amended, as a no-load, open-end management investment company. 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. The Trust issues its shares of beneficial interest solely in private placement transactions that do not involve any “public offering” within the meaning of Section 4(2) of the Securities Act of 1933, as amended. The Trust is only offered to the Wells Fargo Asset Allocation Fund, a diversified series of Wells Fargo Funds Trust, an open-end management investment company, which was organized as a Delaware statutory trust on March 10, 1999.

The Trust operates as a “fund-of-funds” which primarily invests in shares of open-end mutual funds (“underlying funds”) managed by Grantham, Mayo, Van Otterloo & Co. LLC (“GMO”). Each underlying fund’s accounting policies are outlined in the underlying fund’s financial statements, which are available upon request.

2. SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Trust, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Securities valuation

All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time), although the Trust may deviate from this calculation time under unusual or unexpected circumstances.

Investments in each class of the underlying funds are valued at the net asset value per share as reported by the underlying funds. Some of the classes of the underlying funds are not publicly available.

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 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 Trust. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser. 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.

Investment transactions and income recognition

Investment transactions are recorded on trade date. Income dividends and capital gain distributions from underlying funds are recorded on the ex-dividend date. Capital gain distributions from the underlying funds are treated as realized gains.

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


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34   Asset Allocation Trust   Notes to financial statements

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.

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 Trust 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 Trust’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 Trust’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 Trust’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends deemed paid and dividends from certain securities. At April 30, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital   

Undistributed net

investment income

  

Accumulated net

realized losses

on investments

$182,344,134    $(177,179,810)    $(5,164,324)

As of April 30, 2016, the Trust had capital loss carryforwards which consist of $19,808,349 in short-term capital losses and $22,475,214 in long-term capital losses.

As of April 30, 2016, the Trust had current year deferred post-October capital losses consisting of $23,780,111 in short-term losses and $7,429,321 in long-term losses which will be recognized on the first day of the following fiscal year.

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 Trust’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 Trust’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 Trust’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   Asset Allocation Trust     35   

The following is a summary of the inputs used in valuing the Trust’s assets and liabilities as of April 30, 2016:

 

Investments in securities   

Quoted prices

(Level 1)

    

Other significant
observable inputs

(Level 2)

    

Significant

unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Investment companies

   $ 4,163,195,674       $ 0       $ 0       $ 4,163,195,674   

Short-term investments

           

Time deposit

     0         13,556,501         0         13,556,501   

Total assets

   $ 4,163,195,674       $ 13,556,501       $ 0       $ 4,176,752,175   

The Trust recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At April 30, 2016, the Trust did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES

GMO, a private company founded in 1977, is the adviser to the Trust. GMO also serves as adviser to each of the underlying funds. GMO does not receive a fee from the Trust for its advisory services. However, the Trust incurs fees and expenses indirectly as a shareholder of the underlying GMO-managed funds, including its indirect share of management or other fees paid to GMO.

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company, serves as the administrator to the Trust. As administrator, Funds Management provides the Trust with facilities, equipment, and personnel. Funds Management receives no compensation from the Trust for its services. During the year ended April 30, 2016, Funds Management voluntarily reimbursed the Trust for expenses in the amount of $69,201.

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended April 30, 2016 were $1,200,985,667 and $2,226,304,946, respectively.

6. INVESTMENTS IN AFFILIATES

An affiliated investment is a company which is under common ownership or control of the Trust or which the Trust has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions in issuers that were either affiliates of the Trust 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
    Dividends from
affiliates
    Capital gain
distributions
from affiliates
 

GMO Alpha Only Fund Class IV

    25,484,559        440,889        20,254,840        5,670,608      $ 125,093,604      $ 9,677,707      $ 0   

GMO Asset Allocation Bond Fund Class VI

    48,938,992        4,207,361        15,471,589        37,674,764        840,147,231        76,161,407        0   

GMO Debt Opportunities Fund Class VI

    10,506,240        1,281,308        3,800,598        7,986,950        198,635,441        3,695,649        0   

GMO Emerging Country Debt Fund Class IV

    27,064,938        1,807,066        8,018,819        20,853,185        194,560,218        15,922,495        0   

GMO Emerging Markets Fund Class VI

    69,669,088        14,468,362        21,068,082        63,069,368        548,072,810        20,958,181        0   

GMO International Equity Fund Class IV

    60,484,346        3,112,805        15,552,926        48,044,225        963,286,721        36,015,836        0   

GMO Risk Premium Fund Class VI

    14,909,939        6,291,822        9,504,186        11,697,575        109,255,353        0        10,904,738   

GMO SGM Major Markets Fund Class IV

    0        4,252,734        532,411        3,720,323        124,221,589        0        0   

GMO U.S. Equity Allocation Fund Class VI

    52,865,604        9,350,285        15,201,918        47,013,971        685,933,831        13,785,444        79,801,938   

GMO U.S. Treasury Fund Class IV

    10,738,276        20,882,402        16,667,104        14,953,574        373,988,876        961,913        243,089   
                                            $ 177,178,632      $ 90,949,765   


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36   Asset Allocation Trust   Notes to financial statements

7. DISTRIBUTIONS TO SHAREHOLDERS

For the year ended April 30, 2016 and the year ended April 30, 2015, the Trust paid $182,344,134 and $276,634,884, respectively, of deemed dividends to Wells Fargo Asset Allocation Fund through redemptions of shares.

As of April 30, 2016, the components of distributable earnings on a tax basis were as follows:

 

Unrealized

losses

  

Post-October

capital losses

deferred

  

Capital loss

carryforward

$(131,054,376)    $(31,209,432)    $(42,283,563)

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 Trust and, therefore, cannot be estimated.


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Report of independent registered public accounting firm   Asset Allocation Trust     37   

BOARD OF TRUSTEES AND SHAREHOLDERS OF ASSET ALLOCATION TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Asset Allocation Trust (the “Trust”) as of April 30, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the two-year period then ended, the period from October 1, 2013 to April 30, 2014, and each of the years in the three-year period ended September 30, 2013. These financial statements and financial highlights are the responsibility of the Trust’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 April 30, 2016, by correspondence with the custodian and transfer agent. 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 Asset Allocation Trust as of April 30, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally acceptable accounting principles.

 

LOGO

Boston, Massachusetts

June 27, 2016


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38   Asset Allocation Trust   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 9.76% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended April 30, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $73,159,792 of income dividends paid during the fiscal year ended April 30, 2016 has been designated as qualified dividend income (QDI).

Pursuant to Section 853 of the Internal Revenue Code, the following amounts were designated as foreign taxes paid for the fiscal year ended April 30, 2016. These amounts may be less than the actual foreign taxes paid for financial statement purposes. Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments. None of the income was derived from ineligible foreign sources as defined under Section 901(j) of the Internal Revenue Code.

 

Creditable
foreign taxes

paid

   Per share
amount
  

Foreign

income as % of
ordinary income
distributions

$7,583,457    $0.0273    32.24%

PROXY VOTING INFORMATION

A description of the policies and procedures that the Trust 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 Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Trust’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Trust are publicly available monthly on the Trust’s website (wellsfargofunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Trust is publicly available on the Trust’s website on a monthly, seven-day or more delayed basis. The Trust 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 Trust’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)   Asset Allocation Trust     39   

BOARD OF TRUSTEES AND OFFICERS

The following table provides basic information about the Board of Trustees (the “Trustees”) and Officers of Asset Allocation Trust. 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 and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College.   Wells Fargo family of funds consisting of 141 funds.

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.   Wells Fargo family of funds consisting of 141 funds.

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.   Wells Fargo family of funds consisting of 141 funds.

Isaiah Harris, Jr.

(Born 1952)

  Trustee, since 2009   Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation; Wells Fargo family of funds consisting of 141 funds.

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. managerial accountant.   Wells Fargo family of funds consisting of 141 funds.

David F. Larcker

(Born 1950)

  Trustee, since 2009   James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto,
Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.
  Wells Fargo family of funds consisting of 141 funds.


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40   Asset Allocation Trust   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.   Wells Fargo family of funds consisting of 141 funds.

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.   Wells Fargo family of funds consisting of 141 funds.

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.   Wells Fargo family of funds consisting of 141 funds.

 

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

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 DePalma

(Born 1974)

  Treasurer, since 2012   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

C. David Messman

(Born 1960)

  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    

Michael Whitaker

(Born 1967)

  Chief Compliance Officer, since 2016*   Executive Vice President of Wells Fargo Funds Management, LLC since 2016. Chief Compliance Officer of Fidelity’s Fixed Income Funds and Asset Allocation Funds from 2008 to 2016, Compliance Officer of FMR Co., Inc. from 2014 to 2016, Fidelity Investments Money Management, Inc. from 2014 to 2016, Fidelity Investments from 2007 to 2016.    

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.    

 

 

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

 

** Debra Ann Early was the Chief Compliance Officer until May 15, 2016.


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List of abbreviations   Asset Allocation Trust     41   

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

 

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


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LOGO

 

LOGO

For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

LOGO     

242221 06-16

A224/AR224 04-16


Table of Contents
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

April 30, 2016
     Fiscal
year ended

April 30, 2016
 

Audit fees

   $ 60,239       $ 51,820   

Audit-related fees

     —           —     

Tax fees (1)

     7,445         7,810   

All other fees

     —           —     
  

 

 

    

 

 

 
   $ 67,684       $ 59,630   
  

 

 

    

 

 

 

 

(1)  Tax fees consist of fees for tax compliance, tax advice, tax planning and excise tax.

(e) The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services for the mutual funds of Wells Fargo Funds Trust; (2) non-audit tax or compliance consulting or training services provided to the Funds by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.

(f) Not applicable

(g) Not applicable

(h) Not applicable


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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: June 27, 2016

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

Wells Fargo Funds Trust
By:  
  /s/ Karla M. Rabusch
  Karla M. Rabusch
  President
Date: June 27, 2016

 

By:  
  /s/ Jeremy DePalma
  Jeremy DePalma
  Treasurer
Date: June 27, 2016

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
8/31/17
1/1/17
12/31/16
8/31/16
Filed on / Effective on:7/5/16497J
6/27/16497K,  N-Q
5/16/16497
5/15/16
For Period End:4/30/16N-MFP1,  N-MFP1/A,  N-Q,  NSAR-A,  NSAR-B
11/1/15485BPOS
9/30/1524F-2NT,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B
9/1/15485BPOS
7/27/15485BPOS,  497,  497K
7/1/15485BPOS,  497,  497K
6/30/1524F-2NT,  485BPOS,  497,  DEFA14A,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-PX,  N-Q,  NSAR-A,  NSAR-B
4/30/1524F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B
10/31/1424F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B,  NSAR-B/A
4/30/1424F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-BT
10/1/1340-17G,  485BPOS
9/30/1324F-2NT,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B,  NSAR-B/A
11/30/12497,  497K,  N-MFP,  N-Q,  NSAR-A
9/30/1224F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
3/1/12485BPOS,  497K
7/19/10485BPOS,  497,  497K
5/1/07497
6/14/05
7/23/0340-17F2
3/10/99
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