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Wells Fargo Funds Trust – ‘N-CSR’ for 3/31/16

On:  Tuesday, 5/31/16, at 3:52pm ET   ·   Effective:  5/31/16   ·   For:  3/31/16   ·   Accession #:  1193125-16-608260   ·   File #:  811-09253

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

 5/31/16  Wells Fargo Funds Trust           N-CSR       3/31/16    4:9.2M                                   RR Donnelley/FAAllspring Disciplined Small Cap Fund Administrator Class (NVSOX) — Institutional Class (WSCOX)Allspring Discovery Innovation Fund Administrator (WFTDX) — Class A (WFSTX) — Class B (WFTBX) — Class C (WFTCX) — Investor Class (WFTZX)Allspring Discovery Small Cap Growth Fund Administrator Class (EGWDX) — Class A (EGWAX) — Class C (EGWCX) — Institutional Class (EGRYX)Allspring Precious Metals Fund Administrator Class (EKWDX) — Class A (EKWAX) — Class B (EKWBX) — Class C (EKWCX) — Institutional Class (EKWYX)Allspring Small Cap Fund Administrator Class (WFSDX) — Class A (WFSMX) — Class C (WSCDX) — Institutional Class (WFSSX) — Investor Class (SCOVX)Allspring Special Small Cap Value Fund Administrator Class (ESPIX) — Class A (ESPAX) — Class B (ESPBX) — Class C (ESPCX) — Class R (ESPHX) — Class R6 (ESPRX) — Institutional Class (ESPNX)Allspring Utility & Telecommunications Fund Administrator Class (EVUDX) — Class A (EVUAX) — Class B (EVUBX) — Class C (EVUCX) — Institutional Class (EVUYX)Wells Fargo Small Cap Value Fund Administrator Class (SMVDX) — Class A (SMVAX) — Class B (SMVBX) — Class C (SMVCX) — Class R6 (SMVRX) — Institutional Class (WFSVX) — Investor Class (SSMVX)Wells Fargo Small/Mid Cap Value Fund Administrator Class (WWMDX) — Class A (WFVAX) — Class C (WFCVX) — Institutional Class (WWMSX) — Investor Class (SMMVX)

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

Document/Exhibit                   Description                      Pages   Size 

 1: N-CSR       Certified Annual Shareholder Report by a            HTML   3.58M 
                          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     13K 


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

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

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  Form N-CSR  
Table of Contents

LOGO

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-09253

 

 

Wells Fargo Funds Trust

(Exact name of registrant as specified in charter)

 

 

525 Market St., San Francisco, CA 94105

(Address of principal executive offices) (Zip code)

 

 

C. David Messman

Wells Fargo Funds Management, LLC

525 Market St., San Francisco, CA 94105

(Name and address of agent for service)

 

 

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

Date of fiscal year end: March 31

 

 

Registrant is making a filing for 9 of its series:

Wells Fargo Intrinsic Small Cap Value Fund, Wells Fargo Small Cap Opportunities Fund, Wells Fargo Small Cap Value Fund, Wells Fargo Small/Mid Cap Value Fund, Wells Fargo Special Small Cap Value Fund, Wells Fargo Traditional Small Cap Growth Fund, Wells Fargo Precious Metals Fund, Wells Fargo Specialized Technology Fund, and Wells Fargo Utility and Telecommunications Fund.

Date of reporting period: March 31, 2016

 

 

 


Table of Contents
ITEM 1. REPORT TO STOCKHOLDERS


Table of Contents

Annual Report

March 31, 2016

 

LOGO

 

Wells Fargo Intrinsic Small Cap Value Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    13   

Statement of operations

    14   

Statement of changes in net assets

    15   

Financial highlights

    16   

Notes to financial statements

    20   

Report of independent registered public accounting firm

    25   

Other information

    26   

List of abbreviations

    29   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Throughout the period, stock performance was highly volatile.

 

 

 

 

Stock values recovered during the second half of the first quarter of 2016.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Intrinsic Small Cap Value Fund for the 12-month period that ended March 31, 2016. Throughout the period, stock performance was highly volatile. Investors reacted to slowing economic growth, moderating corporate earnings, weakening commodity prices, increasing central-bank intervention, and shifts in currency values. During the last four weeks of the period, investor sentiment appeared to move beyond these concerns as economic data firmed and stocks gained across the capitalization spectrum.

As investors grew concerned about global issues, volatility increased.

A common measure of investors’ stock volatility expectations—the Chicago Board Options Exchange (CBOE) Volatility Index (VIX)1—illustrated the shifts in investor sentiment. The VIX spiked to readings above 40 in August 2015, indicating increased investor anxiety. During a comparatively calm autumn, VIX readings trended to the midteens and closer to their five-year average. Then stock markets grew volatile again as the winter months arrived. After the new year began, VIX readings spiked to the high 20s as U.S. equity markets posted their worst start to a calendar year on record. Stock values recovered during the second half of the first quarter of 2016. Investors appeared to be encouraged by improving economic data and the reassurances of central bankers that they remain committed to spurring growth through policy initiatives.

However, business, economic, and central-bank policy development had countervailing influences. For example, while a stronger dollar benefited consumer purchasing power, it tended to negatively affect corporate earnings and investment gains earned overseas when translated to U.S. dollars. Lower energy costs helped consumers’ budgets but hampered the profits and stock performance in the energy sector. While lower interest rates encouraged spending, the potential for interest-rate increases caused uncertainty.

Central bankers responded with policy initiatives in response to shifting economic conditions.

In December 2015, the U.S. Federal Reserve (Fed) increased the federal funds rate, the first interest-rate increase since 2006. The Fed also expressed its intention to increase the rate several times during 2016. After the new year began, as data weakened and volatility increased, the Fed retrenched, which injected additional uncertainty into the markets. In the eurozone, the European Central Bank continued to encourage lending and investing by making funds available to banks at low interest rates, imposing a negative interest rate on bank deposits, and purchasing bonds through its quantitative easing program. In Japan, the central bank also implemented a negative interest-rate policy intended to spur lending and investment. In China, the People’s Bank of China lowered interest rates and bank reserve requirements, in addition to devaluing the country’s currency to support exports.

 

 

 

1  The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market’s expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Intrinsic Small Cap Value Fund     3   

Volatility and recoveries highlighted the value of a long-term investment strategy.

The experience of the past 12 months demonstrated the value of maintaining a disciplined, long-term investment strategy despite short-term volatility. Broad U.S. equity indexes trimmed their worst losses measured to the midpoint of the period to recover all or a portion of their lost values by the end of the period. For example, the S&P 500 Index,2 a commonly referenced gauge of large-cap stock performance, gained 1.78% for the 12-month period that ended March 31, 2016, after recording a 6.18% loss for the six-month period that ended September 30, 2015. Some observers attributed the S&P 500 Index’s relative outperformance to investors who moved their equity allocations higher in the capitalization structure in pursuit of the perceived safety of large-cap stocks. The Russell Midcap® Index3 lost 4.04% for the 12-month period that ended March 31, 2016, regaining more than half of the 9.42% loss it had recorded for the six-month period that ended September 30, 2015. For the 12-month period that ended March 31, 2016, the Russell 2000® Index,4 a common small-cap stock index, lost 9.76%, an improvement from the 11.55% loss it had recorded during the six-month period that ended September 30, 2015.

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

 

Notice to shareholders

At a meeting held on February 17-18, 2016, the Board of Trustees approved a change to the subadviser for the Fund to Wells Capital Management Incorporated (“WellsCap”) in connection with the merger of Metropolitan West Capital Management, LLC (“MetWest”), the Fund’s current subadviser, into WellsCap (the “Merger”). The Merger is expected to take place on or about July 1, 2016. With the completion of the Merger, MetWest personnel will become exclusively personnel of WellsCap. The Merger will not result in any change to the services provided to the Fund or to the Fund’s strategies or fees and expenses.

 

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.

 

 

2  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.

 

3  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

4  The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.


Table of Contents

 

4   Wells Fargo Intrinsic Small Cap Value Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Metropolitan West Capital Management, LLC

Portfolio managers

Alex Alvarez, CFA®

Samir Sikka, CFA®

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (WFSMX)   3-31-2008     (12.70     6.26        3.43        (7.36     7.52        4.04        1.42        1.36   
Class C (WSCDX)   3-31-2008     (9.03     6.72        3.29        (8.03     6.72        3.29        2.17        2.11   
Administrator Class (WFSDX)   4-8-2005                          (7.17     7.75        4.31        1.34        1.21   
Institutional Class (WFSSX)   4-8-2005                          (7.02     7.98        4.52        1.09        1.01   
Russell 2000® Value Index4                            (7.72     6.67        4.42                 

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Intrinsic Small Cap Value Fund     5   
Growth of $10,000 investment as of March 31, 20165
LOGO

 

 

 

1  Historical performance shown for Class A, Administrator Class, and Institutional Class shares prior to their inception reflects the performance of the former Investor Class shares, and includes the higher expenses applicable to the former Investor Class shares. If these expenses had not been included, returns would be higher. Historical performance shown for Class C shares prior to their inception reflects the performance of the former Investor Class shares and has been adjusted to reflect the higher expenses applicable to Class C shares. Prior to June 1, 2010, the Fund was named Wells Fargo Advantage Small Cap Disciplined Fund. Metropolitan West Capital Management, LLC replaced Wells Capital Management as a subadviser for the Fund effective June 1, 2010. Accordingly, performance figures shown prior to June 1, 2010, do not reflect the principal investment strategies or performance of Metropolitan West Capital Management, LLC.

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.35% for Class A, 2.10% for Class C, 1.20% for Administrator Class, and 1.00% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

6  The Russell 1000® Index measures the performance of the 1,000 largest companies in the Russell 3000® Index, which represents approximately 92% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.

 

7  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

8  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.

 

9  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

 

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


Table of Contents

 

6   Wells Fargo Intrinsic Small Cap Value Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   Amidst a volatile period for the markets in which small-cap stocks were more negatively affected than their large- and mid-cap peers, the Fund (Class A, excluding sales charges) outperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2016.

 

n   Stock selection accounted for all of the Fund’s outperformance.

 

n   Relative sector weightings, which are a by-product of our bottom-up security selection process, had a minor negative impact during the period.

We remain focused on identifying companies with sustainable business models and attractive quality characteristics.

Looking at the broader market, large-cap stocks (as measured by the Russell 1000® Index)6 outperformed their mid-cap (as measured by the Russell Midcap® Index)7 and small-cap (as measured by the Russell 2000® Value Index) counterparts for the period. In a reversal from the prior 12-month period, value stocks outperformed growth stocks in the small-capitalization range. Consistent with our long-term investment perspective, we adhere to a fundamentally based investment process. We do not predict the direction of the market or the implications of macroeconomic events. As a result, we remain focused on identifying companies with sustainable business models that possess attractive quality characteristics, trade at discounts to our estimates of intrinsic value, and possess value drivers that we expect to cause stock price appreciation over the next two to four years.

 

Ten largest holdings (%) as of March 31, 20168  

KAR Auction Services Incorporated

     2.99   

WEX Incorporated

     2.39   

Ascena Retail Group Incorporated

     2.28   

Party City Holdco Incorporated

     2.20   

EVERTEC Incorporated

     2.14   

AMN Healthcare Services Incorporated

     2.14   

Zions Bancorporation

     2.11   

Armstrong World Industries Incorporated

     2.10   

Pier 1 Imports Incorporated

     2.07   

SeaWorld Entertainment Incorporated

     1.96   

Compared with the Russell 2000® Value Index, stock selection in the energy, health care, industrials, and consumer staples sectors were the largest contributors to relative performance. However, an overweight in the worst-performing energy sector partially offset the benefit of strong security selection in this sector. In these sectors, respectively, natural gas and oil producer Encana Corporation; health care staffing provider AMN Healthcare Services, Incorporated; building products company Armstrong World Industries, Incorporated; and wine company Treasury Wine Estates Limited* enhanced value relative to the index.

 

Conversely, weak relative stock selection in both the financials and information technology (IT) sector detracted the most value during the period. Ocwen Financial Corporation*, a mortgage loan originator and servicer, was the primary detractor in financials, while film and editing solutions provider Avid Technology, Incorporated, was the worst performer in the IT sector.

During the period, we made changes to the Fund’s portfolio based upon our fundamental research.

As a result of trades, stock price movements, and the annual reconstitution of the Russell indexes in June, the Fund’s positioning relative to the Russell 2000® Value Index shifted moderately during the period. The most notable change in sector allocation was the shift from an underweight to an overweight in the IT sector. During the period, we made four new investments and sold one position in the IT sector for the Fund. The consumer discretionary sector also shifted from an underweight to an overweight; however, this was primarily driven by the index’s reconstitution. The Fund remains overweight industrials, health care, energy, and consumer staples and underweight financials and utilities relative to the Russell 2000® Value Index. All sector weights are the result of individual stock selection rather than tactical allocation decisions.

Despite potentially distracting macroeconomic events, we remained focused on our investment strategy.

While we do not predict the direction of the market or the implications of macro events, we do believe volatility will persist for the foreseeable future. This volatility should, as it has done in previous quarters, generate dislocations that may create attractive investment opportunities. In addition, companies that previously sheltered investors with their perceived safety, whether derived from quality characteristics or momentum, may not continue to offer this security in the future. Stock selection coupled with valuation will be increasingly more important for investors to consider. Neither quality alone nor market-based investing will serve as a mechanism for protection or performance results.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Intrinsic Small Cap Value Fund     7   

As always, the adherence to our investment process remains paramount to our team. Through our bottom-up, fundamental, rigorous, company-focused research, we strive to add value for the Fund. We believe the consistent application of our disciplined investment approach should allow us to achieve this goal.

 

Sector distribution as of March 31, 20169

LOGO

    

 

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Intrinsic Small Cap Value Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,029.83       $ 6.85         1.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.25       $ 6.81         1.35

Class C

           

Actual

   $ 1,000.00       $ 1,026.46       $ 10.64         2.10

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.50       $ 10.58         2.10

Administrator Class

           

Actual

   $ 1,000.00       $ 1,030.73       $ 6.09         1.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.00       $ 6.06         1.20

Institutional Class

           

Actual

   $ 1,000.00       $ 1,031.69       $ 5.08         1.00

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.00       $ 5.05         1.00

 

 

 

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—March 31, 2016   Wells Fargo Intrinsic Small Cap Value Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 91.54%

          

Consumer Discretionary: 11.22%

          
Hotels, Restaurants & Leisure: 3.02%           

Interval Leisure Group Incorporated «

          92,944       $ 1,342,112   

SeaWorld Entertainment Incorporated «

          117,350         2,471,391   
             3,813,503   
          

 

 

 
Specialty Retail: 8.20%           

Ascena Retail Group Incorporated Ǡ

          260,160         2,877,370   

DSW Incorporated Class A

          75,000         2,073,000   

Party City Holdco Incorporated Ǡ

          184,500         2,774,880   

Pier 1 Imports Incorporated

          372,500         2,611,225   
               10,336,475   
          

 

 

 

Consumer Staples: 5.57%

          
Food Products: 5.57%           

J & J Snack Foods Corporation

          11,600         1,256,048   

Post Holdings Incorporated †

          15,950         1,096,882   

Snyders Lance Incorporated

          75,062         2,362,952   

TreeHouse Foods Incorporated †

          26,638         2,310,847   
             7,026,729   
          

 

 

 

Energy: 6.84%

          
Energy Equipment & Services: 1.30%           

Forum Energy Technologies Incorporated †

          124,030         1,637,196   
          

 

 

 
Oil, Gas & Consumable Fuels: 5.54%           

Diamondback Energy Incorporated †

          25,046         1,933,050   

Encana Corporation

          302,520         1,842,347   

Oasis Petroleum Incorporated Ǡ

          165,740         1,206,587   

RSP Permian Incorporated †

          69,005         2,003,905   
             6,985,889   
          

 

 

 

Financials: 24.24%

          
Banks: 7.88%           

Glacier Bancorp Incorporated

          50,400         1,281,168   

Hancock Holding Company

          73,000         1,676,080   

Sterling BanCorp

          126,500         2,015,145   

Webster Financial Corporation

          64,178         2,303,990   

Zions Bancorporation

          109,930         2,661,405   
             9,937,788   
          

 

 

 
Capital Markets: 2.45%           

Artisan Partners Asset Management Incorporated Class A

          47,000         1,449,480   

Stifel Financial Corporation †

          55,190         1,633,624   
             3,083,104   
          

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Intrinsic Small Cap Value Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  
Consumer Finance: 1.26%           

Encore Capital Group Incorporated Ǡ

          61,804       $ 1,590,835   
          

 

 

 
Insurance: 2.84%           

Endurance Specialty Holdings Limited

          33,700         2,201,958   

Selective Insurance Group Incorporated

          37,700         1,380,197   
             3,582,155   
          

 

 

 
REITs: 8.22%           

Equity Commonwealth †

          48,300         1,363,026   

Hudson Pacific Properties Incorporated

          65,345         1,889,777   

Ladder Capital Corporation

          81,306         1,012,260   

Mack-Cali Realty Corporation

          91,103         2,140,921   

Parkway Properties Incorporated

          152,800         2,392,848   

PennyMac Mortgage Investment Trust

          115,350         1,573,374   
               10,372,206   
          

 

 

 
Thrifts & Mortgage Finance: 1.59%           

Essent Group Limited †

          96,500         2,007,200   
          

 

 

 

Health Care: 9.27%

          
Health Care Equipment & Supplies: 3.56%           

Haemonetics Corporation †

          35,200         1,231,296   

Integra LifeSciences Holdings Corporation

          22,050         1,485,288   

Steris Corporation

          25,000         1,776,250   
             4,492,834   
          

 

 

 
Health Care Providers & Services: 4.81%           

AMN Healthcare Services Incorporated †

          80,300         2,698,883   

AmSurg Corporation †

          19,300         1,439,780   

HealthSouth Corporation

          51,296         1,930,268   
             6,068,931   
          

 

 

 
Life Sciences Tools & Services: 0.90%           

Bio-Rad Laboratories Incorporated Class A †

          8,250         1,127,940   
          

 

 

 

Industrials: 17.83%

          
Building Products: 2.10%           

Armstrong World Industries Incorporated †

          54,693         2,645,500   
          

 

 

 
Commercial Services & Supplies: 6.31%           

Essendant Incorporated

          72,350         2,310,136   

KAR Auction Services Incorporated

          98,950         3,773,953   

Tetra Tech Incorporated

          62,750         1,871,205   
             7,955,294   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Intrinsic Small Cap Value Fund     11   

      

 

 

Security name             Shares      Value  
Machinery: 2.55%           

Actuant Corporation Class A «

          56,361       $ 1,392,680   

IDEX Corporation

          22,100         1,831,648   
                 3,224,328   
          

 

 

 
Marine: 1.67%           

Kirby Corporation †

          34,953         2,107,316   
          

 

 

 
Professional Services: 2.79%           

Korn/Ferry International

          52,210         1,477,021   

Resources Connection Incorporated

          131,145         2,040,616   
             3,517,637   
          

 

 

 
Road & Rail: 1.54%           

Landstar System Incorporated

          30,030         1,940,238   
          

 

 

 
Trading Companies & Distributors: 0.87%           

Beacon Roofing Supply Incorporated †

          26,950         1,105,220   
          

 

 

 

Information Technology: 12.84%

          
Electronic Equipment, Instruments & Components: 2.76%           

Jabil Circuit Incorporated

          64,500         1,242,915   

Zebra Technologies Corporation Class A †

          32,491         2,241,879   
             3,484,794   
          

 

 

 
Internet Software & Services: 1.36%           

Endurance International Group Holdings Ǡ

          163,338         1,719,949   
          

 

 

 
IT Services: 6.08%           

CoreLogic Incorporated †

          56,281         1,952,951   

EVERTEC Incorporated

          193,100         2,699,538   

WEX Incorporated †

          36,200         3,017,632   
             7,670,121   
          

 

 

 
Technology Hardware, Storage & Peripherals: 2.64%           

Avid Technology Incorporated †

          179,000         1,210,040   

Wincor Nixdorf AG ADR †

          172,000         2,112,521   
             3,322,561   
          

 

 

 

Materials: 2.13%

          
Chemicals: 0.99%           

Huntsman Corporation

          94,060         1,250,998   
          

 

 

 
Containers & Packaging: 1.14%           

Silgan Holdings Incorporated

          27,100         1,440,907   
          

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Intrinsic Small Cap Value Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name              Shares      Value  

Utilities: 1.60%

         
Electric Utilities: 1.60%          

Westar Energy Incorporated

         40,725       $ 2,020,367   
         

 

 

 

Total Common Stocks (Cost $107,479,911)

            115,468,015   
         

 

 

 
    Yield                    
Short-Term Investments: 16.77%          
Investment Companies: 16.77%          

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

    0.43        10,432,100         10,432,100   

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

    0.44           10,727,108         10,727,108   

Total Short-Term Investments (Cost $21,159,208)

            21,159,208       
         

 

 

 

 

Total investments in securities (Cost $128,639,119) *     108.31        136,627,223   

Other assets and liabilities, net

    (8.31        (10,478,918
 

 

 

      

 

 

 
Total net assets     100.00      $ 126,148,305   
 

 

 

      

 

 

 

 

 

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

 

Non-income-earning security

 

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

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $129,175,074 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 19,311,066   

Gross unrealized losses

     (11,858,917
  

 

 

 

Net unrealized gains

   $ 7,452,149   

 

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


Table of Contents

 

Statement of assets and liabilities—March 31, 2016   Wells Fargo Intrinsic Small Cap Value Fund     13   
         

Assets

 

Investments

 

In unaffiliated securities (including $10,308,487 of securities loaned), at value (cost $107,479,911)

  $ 115,468,015   

In affiliated securities, at value (cost $21,159,208)

    21,159,208   
 

 

 

 

Total investments, at value (cost $128,639,119)

    136,627,223   

Receivable for Fund shares sold

    594   

Receivable for dividends

    136,364   

Receivable for securities lending income

    5,215   

Prepaid expenses and other assets

    30,439   
 

 

 

 

Total assets

    136,799,835   
 

 

 

 

Liabilities

 

Payable for Fund shares redeemed

    79,052   

Payable upon receipt of securities loaned

    10,432,100   

Management fee payable

    79,153   

Distribution fee payable

    174   

Administration fees payable

    16,715   

Accrued expenses and other liabilities

    44,336   
 

 

 

 

Total liabilities

    10,651,530   
 

 

 

 

Total net assets

  $ 126,148,305   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 172,340,693   

Undistributed net investment income

    84,714   

Accumulated net realized losses on investments

    (54,265,206

Net unrealized gains on investments

    7,988,104   
 

 

 

 

Total net assets

  $ 126,148,305   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 49,898,246   

Shares outstanding – Class A1

    2,124,220   

Net asset value per share – Class A

    $23.49   

Maximum offering price per share – Class A2

    $24.92   

Net assets – Class C

  $ 285,278   

Shares outstanding – Class C1

    12,905   

Net asset value per share – Class C

    $22.11   

Net assets – Administrator Class

  $ 4,892,653   

Shares outstanding – Administrator Class1

    204,800   

Net asset value per share – Administrator Class

    $23.89   

Net assets – Institutional Class

  $ 71,072,128   

Shares outstanding – Institutional Class1

    2,944,776   

Net asset value per share – Institutional Class

    $24.13   

 

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

14   Wells Fargo Intrinsic Small Cap Value Fund   Statement of operations—year ended March 31, 2016
         

Investment income

 

Dividends (net of foreign withholding taxes of $4,962)

  $ 2,668,663   

Securities lending income, net

    197,790   

Income from affiliated securities

    14,935   
 

 

 

 

Total investment income

    2,881,388   
 

 

 

 

Expenses

 

Management fee

    1,165,825   

Administration fees

 

Class A

    45,782   

Class C

    673   

Administrator Class

    6,108   

Institutional Class

    90,716   

Investor Class

    102,596 1 

Shareholder servicing fees

 

Class A

    54,377   

Class C

    754   

Administrator Class

    12,511   

Investor Class

    80,154 1 

Distribution fee

 

Class C

    2,262   

Custody and accounting fees

    18,493   

Professional fees

    42,493   

Registration fees

    84,444   

Shareholder report expenses

    36,107   

Trustees’ fees and expenses

    14,495   

Other fees and expenses

    11,342   
 

 

 

 

Total expenses

    1,769,132   

Less: Fee waivers and/or expense reimbursements

    (160,435
 

 

 

 

Net expenses

    1,608,697   
 

 

 

 

Net investment income

    1,272,691   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized losses on investments

    (1,665,408

Net change in unrealized gains (losses) on investments

    (10,385,846
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (12,051,254
 

 

 

 

Net decrease in net assets resulting from operations

  $ (10,778,563
 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

Statement of changes in net assets   Wells Fargo Intrinsic Small Cap Value Fund     15   
    

Year ended

March 31, 2016

   

Year ended

March 31, 2015

 

Operations

       

Net investment income

    $ 1,272,691        $ 537,231   

Net realized gains (losses) on investments

      (1,665,408       18,094,620   

Net change in unrealized gains (losses) on investments

      (10,385,846       (6,365,605
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (10,778,563       12,266,246   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      (294,808       0   

Administrator Class

      (41,643       0   

Institutional Class

      (746,490       (328,545
 

 

 

 

Total distributions to shareholders

      (1,082,941       (328,545
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    2,209,930        53,774,520        9,617        235,725   

Class C

    3,943        90,523        3,365        77,441   

Administrator Class

    49,058        1,237,272        25,631        625,437   

Institutional Class

    169,210        4,119,915        303,417        7,622,405   

Investor Class

    44,383 1      1,114,922 1      128,639        3,066,856   
 

 

 

 
      60,337,152          11,627,864   
 

 

 

 

Reinvestment of distributions

       

Class A

    12,141        286,176        0        0   

Administrator Class

    975        23,360        0        0   

Institutional Class

    25,479        616,346        10,900        263,886   
 

 

 

 
      925,882          263,886   
 

 

 

 

Payment for shares redeemed

       

Class A

    (129,895     (2,936,083     (16,182     (388,997

Class C

    (3,674     (79,514     (9,910     (221,282

Administrator Class

    (42,116     (1,034,521     (268,033     (6,673,609

Institutional Class

    (474,967     (11,461,359     (367,323     (9,277,448

Investor Class

    (2,369,816 )1      (57,215,074 )1      (486,009     (11,447,508
 

 

 

 
      (72,726,551       (28,008,844
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (11,463,517       (16,117,094
 

 

 

 

Total decrease in net assets

      (23,325,021       (4,179,393
 

 

 

 

Net assets

       

Beginning of period

      149,473,326          153,652,719   
 

 

 

 

End of period

    $ 126,148,305        $ 149,473,326   
 

 

 

 

Undistributed net investment income

    $ 84,714        $ 238,026   
 

 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

16   Wells Fargo Intrinsic Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS A   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $25.50        $23.53        $22.16        $15.96        $14.06        $13.81   

Net investment income (loss)

    0.22 2      0.04        0.02        0.03        (0.06 )2      (0.06 )2 

Net realized and unrealized gains (losses) on investments

    (2.09     1.93        1.35        6.17        1.96        0.31   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.87     1.97        1.37        6.20        1.90        0.25   

Distributions to shareholders from

           

Net investment income

    (0.14     0.00        0.00        0.00        0.00        0.00   

Net asset value, end of period

    $23.49        $25.50        $23.53        $22.16        $15.96        $14.06   

Total return3

    (7.36 )%      8.37     6.33     38.66     13.51     1.81

Ratios to average net assets (annualized)

           

Gross expenses

    1.47     1.46     1.57     1.56     1.48     1.44

Net expenses

    1.35     1.40     1.44     1.45     1.45     1.42

Net investment income (loss)

    0.95     0.15     0.19     0.11     (0.38 )%      (0.41 )% 

Supplemental data

           

Portfolio turnover rate

    66     60     22     75     33     54

Net assets, end of period (000s omitted)

    $49,898        $817        $908        $967        $357        $189   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Intrinsic Small Cap Value Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS C   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $24.04        $22.35        $21.12        $15.32        $13.60        $13.45   

Net investment loss

    (0.00 )2,3      (0.14 )2      (0.05     (0.13 )2      (0.16 )2      (0.17 )2 

Net realized and unrealized gains (losses) on investments

    (1.93     1.83        1.28        5.93        1.88        0.32   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.93     1.69        1.23        5.80        1.72        0.15   

Net asset value, end of period

    $22.11        $24.04        $22.35        $21.12        $15.32        $13.60   

Total return4

    (8.03 )%      7.56     6.02     37.60     12.65     1.12

Ratios to average net assets (annualized)

           

Gross expenses

    2.22     2.21     2.33     2.30     2.22     2.19

Net expenses

    2.12     2.15     2.19     2.20     2.20     2.17

Net investment loss

    (0.00 )%      (0.62 )%      (0.54 )%      (0.66 )%      (1.12 )%      (1.19 )% 

Supplemental data

           

Portfolio turnover rate

    66     60     22     75     33     54

Net assets, end of period (000s omitted)

    $285        $304        $429        $418        $89        $108   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


Table of Contents

 

18   Wells Fargo Intrinsic Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $25.95        $23.90        $22.49        $16.16        $14.20        $13.91   

Net investment income (loss)

    0.22 2      0.07 2      0.04 2      0.09        (0.02 )2      (0.05 )2 

Net realized and unrealized gains (losses) on investments

    (2.08     1.98        1.37        6.24        1.98        0.34   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.86     2.05        1.41        6.33        1.96        0.29   

Distributions to shareholders from

       

Net investment income

    (0.20     0.00        (0.00 )3      0.00        0.00        0.00   

Net asset value, end of period

    $23.89        $25.95        $23.90        $22.49        $16.16        $14.20   

Total return4

    (7.17 )%      8.58     6.43     38.99     13.80     2.08

Ratios to average net assets (annualized)

       

Gross expenses

    1.37     1.30     1.42     1.40     1.30     1.22

Net expenses

    1.20     1.20     1.20     1.20     1.20     1.19

Net investment income (loss)

    0.91     0.27     0.45     0.52     (0.12 )%      (0.30 )% 

Supplemental data

       

Portfolio turnover rate

    66     60     22     75     33     54

Net assets, end of period (000s omitted)

    $4,893        $5,110        $10,498        $11,182        $6,801        $9,722   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Intrinsic Small Cap Value Fund     19   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $26.22        $24.19        $22.78        $16.32        $14.32        $14.00   

Net investment income

    0.33        0.14 2      0.06 2      0.12 2      0.01 2      0.00 2,3 

Net realized and unrealized gains (losses) on investments

    (2.17     1.99        1.39        6.34        1.99        0.32   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.84     2.13        1.45        6.46        2.00        0.32   

Distributions to shareholders from

           

Net investment income

    (0.25     (0.10     (0.04     0.00        0.00        0.00   

Net asset value, end of period

    $24.13        $26.22        $24.19        $22.78        $16.32        $14.32   

Total return4

    (7.02 )%      8.83     6.50     39.40     13.97     2.29

Ratios to average net assets (annualized)

           

Gross expenses

    1.12     1.03     1.15     1.10     1.05     1.01

Net expenses

    1.00     1.00     1.00     1.00     1.00     0.98

Net investment income

    1.10     0.57     0.64     0.58     0.07     0.02

Supplemental data

           

Portfolio turnover rate

    66     60     22     75     33     54

Net assets, end of period (000s omitted)

    $71,072        $84,563        $79,312        $71,934        $40,073        $41,861   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


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20   Wells Fargo Intrinsic Small Cap Value Fund   Notes to financial statements

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Intrinsic Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.

Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment vehicles that are redeemable at net asset value are fair valued normally at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Security loans

The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or


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Notes to financial statements   Wells Fargo Intrinsic Small Cap Value Fund     21   

may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average. Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Distributions to shareholders

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

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to dividends from certain securities. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Undistributed net
investment income
   Accumulated net
realized losses
on investments
$(343,062)    $343,062

As of March 31, 2016, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $45,345,000 with $37,655,290 expiring in 2018 and $7,689,710 expiring in 2019.


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22   Wells Fargo Intrinsic Small Cap Value Fund   Notes to financial statements

As of March 31, 2016, the Fund had current year deferred post-October capital losses consisting of $5,946,083 in short-term losses and $2,438,168 in long-term losses which will be recognized on the first day of the following fiscal year.

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

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

Assets

           

Investments in:

           

Common stocks

           

Consumer discretionary

   $ 14,149,978       $ 0       $ 0       $ 14,149,978   

Consumer staples

     7,026,729         0         0         7,026,729   

Energy

     8,623,085         0         0         8,623,085   

Financials

     30,573,288         0         0         30,573,288   

Health care

     11,689,705         0         0         11,689,705   

Industrials

     22,495,533         0         0         22,495,533   

Information technology

     14,084,904         2,112,521         0         16,197,425   

Materials

     2,691,905         0         0         2,691,905   

Utilities

     2,020,367         0         0         2,020,367   

Short-term investments

           

Investment companies

     10,727,108         0         0         10,727,108   

Investments measured at net asset value*

                                10,432,100   

Total assets

   $ 124,082,602       $ 2,112,521       $ 0       $ 136,627,223   

 

* Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $10,432,100 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.


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Notes to financial statements   Wells Fargo Intrinsic Small Cap Value Fund     23   

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.80% and declined to 0.68% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Metropolitan West Capital Management, LLC, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class C

     0.21      0.26

Administrator Class

     0.13         0.10   

Institutional Class

     0.13         0.08   

Investor Class

     0.32         0.32   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.35% for Class A shares, 2.10% for Class C shares, 1.20% for Class Administrator shares, and 1.00% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fee

The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares.


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24   Wells Fargo Intrinsic Small Cap Value Fund   Notes to financial statements

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class C shares. For the year ended March 31, 2016, Funds Distributor received $462 from the sale of Class A shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, Administrator Class, and Investor Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $85,215,682 and $97,389,610, respectively.

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 is allocated to each participating fund. 

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

7. CONCENTRATION RISK

Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $1,082,941 and $328,545 of ordinary income for the years ended March 31, 2016 and March 31, 2015, respectively.

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

 

Undistributed

ordinary

income

  

Unrealized

gains

  

Post-October

capital losses

deferred

  

Capital loss

carryforward

$84,714    $7,452,149    $(8,384,251)    $(45,345,000)

9. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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Report of independent registered public accounting firm   Wells Fargo Intrinsic Small Cap Value Fund     25   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Intrinsic Small Cap Value Fund (formerly known as Wells Fargo Advantage Intrinsic Small Cap Value Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the two-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years in the three-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Intrinsic Small Cap Value Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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26   Wells Fargo Intrinsic Small Cap Value Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $1,082,941 of income dividends paid during the fiscal year ended March 31, 2016 has been designated as qualified dividend income (QDI).

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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Other information (unaudited)   Wells Fargo Intrinsic Small Cap Value 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 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   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 Intrinsic Small Cap Value Fund   Other information (unaudited)

Name and

year of birth

 

Position held and

length of service*

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

 

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

Officers

 

Name and

year of birth

 

Position held and

length of service

  Principal occupations during past five years or longer    

Karla M. Rabusch

(Born 1959)

  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Nancy Wiser1 (Born 1967)   Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    

C. David Messman

(Born 1960)

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

Jeremy DePalma1

(Born 1974)

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

 

 

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

 

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


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List of abbreviations   Wells Fargo Intrinsic Small Cap Value 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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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     

241815 05-16

A242/AR242 03-16


Table of Contents

Annual Report

March 31, 2016

 

LOGO

 

Wells Fargo Small Cap Opportunities Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    15   

Statement of operations

    16   

Statement of changes in net assets

    17   

Financial highlights

    18   

Notes to financial statements

    20   

Report of independent registered public accounting firm

    25   

Other information

    26   

List of abbreviations

    29   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Throughout the period, stock performance was highly volatile.

 

 

 

 

Stock values recovered during the second half of the first quarter of 2016.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Small Cap Opportunities Fund for the 12-month period that ended March 31, 2016. Throughout the period, stock performance was highly volatile. Investors reacted to slowing economic growth, moderating corporate earnings, weakening commodity prices, increasing central-bank intervention, and shifts in currency values. During the last four weeks of the period, investor sentiment appeared to move beyond these concerns as economic data firmed and stocks gained across the capitalization spectrum.

As investors grew concerned about global issues, volatility increased.

A common measure of investors’ stock volatility expectations—the Chicago Board Options Exchange (CBOE) Volatility Index (VIX)1—illustrated the shifts in investor sentiment. The VIX spiked to readings above 40 in August 2015, indicating increased investor anxiety. During a comparatively calm autumn, VIX readings trended to the midteens and closer to their five-year average. Then stock markets grew volatile again as the winter months arrived. After the new year began, VIX readings spiked to the high 20s as U.S. equity markets posted their worst start to a calendar year on record. Stock values recovered during the second half of the first quarter of 2016. Investors appeared to be encouraged by improving economic data and the reassurances of central bankers that they remain committed to spurring growth through policy initiatives.

However, business, economic, and central-bank policy development had countervailing influences. For example, while a stronger dollar benefited consumer purchasing power, it tended to negatively affect corporate earnings and investment gains earned overseas when translated to U.S. dollars. Lower energy costs helped consumers’ budgets but hampered the profits and stock performance in the energy sector. While lower interest rates encouraged spending, the potential for interest-rate increases caused uncertainty.

Central bankers responded with policy initiatives in response to shifting economic conditions.

In December 2015, the U.S. Federal Reserve (Fed) increased the federal funds rate, the first interest-rate increase since 2006. The Fed also expressed its intention to increase the rate several times during 2016. After the new year began, as data weakened and volatility increased, the Fed retrenched, which injected additional uncertainty into the markets. In the eurozone, the European Central Bank continued to encourage lending and investing by making funds available to banks at low interest rates, imposing a negative interest rate on bank deposits, and purchasing bonds through its quantitative easing program. In Japan, the central bank also implemented a negative interest-rate policy intended to spur lending and investment. In China, the People’s Bank of China lowered interest rates and bank reserve requirements, in addition to devaluing the country’s currency to support exports.

 

 

 

1  The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market’s expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006.


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Letter to shareholders (unaudited)   Wells Fargo Small Cap Opportunities Fund     3   

Volatility and recoveries highlighted the value of a long-term investment strategy.

The experience of the past 12 months demonstrated the value of maintaining a disciplined, long-term investment strategy despite short-term volatility. Broad U.S. equity indexes trimmed their worst losses measured to the midpoint of the period to recover all or a portion of their lost values by the end of the period. For example, the S&P 500 Index,2 a commonly referenced gauge of large-cap stock performance, gained 1.78% for the 12-month period that ended March 31, 2016, after recording a 6.18% loss for the six-month period that ended September 30, 2015. Some observers attributed the S&P 500 Index’s relative outperformance to investors who moved their equity allocations higher in the capitalization structure in pursuit of the perceived safety of large-cap stocks. The Russell Midcap® Index3 lost 4.04% for the 12-month period that ended March 31, 2016, regaining more than half of the 9.42% loss it had recorded for the six-month period that ended September 30, 2015. For the 12-month period that ended March 31, 2016, the Russell 2000® Index,4 a common small-cap stock index, lost 9.76%, an improvement from the 11.55% loss it had recorded during the six-month period that ended September 30, 2015.

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.

 

 

2  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.

 

3  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

4  The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.


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4   Wells Fargo Small Cap Opportunities Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Schroder Investment Management North America Inc.

Portfolio manager

Jenny B. Jones

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

 

              Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     Gross     Net3  
Administrator Class (NVSOX)   8-1-1993     (4.39     8.21        7.50        1.28        1.21   
Institutional Class (WSCOX)   10-31-2014     (4.12     8.29        7.54        1.03        0.96   
Russell 2000TM Index4       (9.76)        7.20        5.26                 

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. 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.

Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Opportunities Fund     5   
Growth of $1,000,000 investment as of March 31, 20165
LOGO

 

 

 

 

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

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.20% for Administrator Class and 0.95% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Russell 2000TM Index measures the performance of the 2,000 smallest companies in the Russell 3000TM Index, which represents approximately 8% of the total market capitalization of the Russell 3000TM Index. You cannot invest directly in an index

 

5  The chart compares the performance of Administrator Class shares for the most recent ten years with the Russell 2000TM Index. The chart assumes a hypothetical investment of $1,000,000 in Administrator Class shares and reflects all operating expenses.

 

6  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.

 

7  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

8  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

 

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


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6   Wells Fargo Small Cap Opportunities Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed its benchmark, the Russell 2000TM Index, for the 12-month period that ended March 31, 2016.

 

n   The Fund benefited from positive stock selection in 7 of the 10 sectors, led by holdings in the industrials and health care sectors. An underweight to and stock selection within the energy sector proved helpful as well.

 

n   Certain holdings in the information technology (IT) and financials sectors hindered performance.

In a year of uncertainty, strength in housing remained consistent.

A number of unforeseen developments occurred during the 12-month period that ended March 31, 2016. The price of oil fell by more than 20%; the U.S. Federal Reserve finally answered the question of when interest rates would increase by raising the federal funds rate 25 basis points (bps; 100 bps equals 1.00%) in December 2015; and the S&P 500 Index6 significantly outperformed the Russell 2000TM Index for the second calendar year in a row, leading large-cap stocks to outperform small-cap stocks on a cumulative basis for the 1-, 3-, 5-, and 10-year periods (as of December 31, 2015; S&P 500 Index versus Russell 2000TM Index). This last point reflects a stunning shift over a short time frame: At the end of 2013, small caps had beaten large caps in 7 of the 10 previous calendar years.

The U.S. housing recovery has remained a good story. One related theme that has proven to be especially fruitful for small-cap stocks is the acceleration in household formation—due partly to Millennials’ efforts to become established financially following the Great Recession—and its impact on the housing market. Housing has been in recovery mode since 2011, and new-home starts now have passed the 1 million mark. To us, the housing uptrend appears to be on a sustainable path, and importantly, it has not shown any of the frenetic, speculative characteristics of a bubble.

 

Ten largest holdings (%) as of March 31, 20167  

VWR Corporation

     1.80   

Steven Madden Limited

     1.49   

Kennedy Wilson Holdings Incorporated

     1.49   

Terreno Realty Corporation

     1.48   

Cadence Design Systems Incorporated

     1.46   

CoreLogic Incorporated

     1.44   

Fortinet Incorporated

     1.41   

Hexcel Corporation

     1.37   

Catalent Incorporated

     1.36   

iShares Russell 2000 Index ETF

     1.35   

Stock selection proved key to the Fund’s outperformance for the period.

Strong stock selection drove much of the Fund’s outperformance during the period; holdings within the industrials and health care sectors delivered the best relative results. Within industrials, scientific control and filter instruments manufacturer IDEX Corporation and pollution-control company Waste Connections, Incorporated, boosted results. In the health care sector, the Fund benefited from lack of exposure to many biotechnology stocks that plummeted over the period. A position in dental supplier Sirona Dental Systems, Incorporated,* also added significant value due to its well-received announcement during the period that it would be merging with DENTSPLY International Incorporated.

 

 

An underweight to and stock selection within the energy sector aided relative performance. We avoided exposure to a number of the weakest-performing oil exploration and production companies, which helped the Fund’s energy holdings outperform the index’s energy sector by roughly 15%.

Select IT and financials holdings detracted from the Fund’s overall results.

Within the Fund’s IT sector, holdings in the communications-equipment, software, and electronic-equipment industries hindered Fund performance the most. One key detractor, electronic-components company Belden Incorporated,* dropped more than 48% during the period. Fortunately, some of the sector’s losses were offset by top-performing optical-equipment manufacturer Fabrinet, which rose more than 70% for the period. Within the financials sector, securities-brokerage firm Stifel Financial Corporation caused a notable lag relative to the index. The company struggled due to weak commissions and a bleaker-than-expected management outlook.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Small Cap Opportunities Fund     7   
Sector distribution as of March 31, 20168
LOGO

 

Housing remains a key area of investment for us.

Because of the economic-multiplier effect, housing remains important. When a new home is purchased, a host of products and services need to be bought, ranging from building materials and heating/air conditioning systems to mortgage services, insurance products, and home furnishings. While we have been investing in housing for several years, we importantly have avoided investment in homebuilders; we feel the better business models are found in housing-related industries. Given the demographic trends and importance of the housing market within the U.S. economy, we continue to find it a good area for investment and one that disproportionately favors smaller-cap companies.

 

 

While the strength of the U.S. dollar has negatively affected many U.S. companies, we continue to invest in select firms that may have been challenged as a result of the dollar’s strength and their foreign exposure. We also look for new ideas within the consumer sectors because valuations of many of these companies appear reasonable to us; in our view, attractive businesses can be found that may have been pressured simply because consumer stocks as a whole were out of favor.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Small Cap Opportunities Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur ongoing costs 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.

This example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Administrator Class

           

Actual

   $ 1,000.00       $ 1,046.20       $ 6.14         1.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.00       $ 6.06         1.20

Institutional Class

           

Actual

   $ 1,000.00       $ 1,047.66       $ 4.86         0.95

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.25       $ 4.80         0.95

 

 

 

 

1 Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period).


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small Cap Opportunities Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 91.58%

          

Consumer Discretionary: 10.26%

          
Auto Components: 0.38%           

Standard Motor Products Incorporated

          29,192       $ 1,011,503   
          

 

 

 
Diversified Consumer Services: 1.01%           

Graham Holdings Company Class B

          5,600         2,688,000   
          

 

 

 
Hotels, Restaurants & Leisure: 3.21%           

Domino’s Pizza Incorporated

          5,900         777,974   

Homeinns Hotel Group ADR Ǡ

          37,700         1,344,005   

Interval Leisure Group Incorporated «

          146,300         2,112,572   

Jack in the Box Incorporated

          19,400         1,239,078   

The Cheesecake Factory Incorporated

          56,800         3,015,512   
             8,489,141   
          

 

 

 
Household Durables: 2.03%           

Cavco Industries Incorporated †

          22,510         2,103,785   

Helen of Troy Limited †

          31,600         3,276,602   
             5,380,387   
          

 

 

 
Leisure Products: 1.04%           

Brunswick Corporation

          57,200         2,744,456   
          

 

 

 
Media: 1.10%           

AMC Entertainment Holdings Class A

          44,150         1,235,759   

Hemisphere Media Group Incorporated Ǡ

          78,534         1,031,151   

John Wiley & Sons Incorporated Class A

          13,000         635,570   
             2,902,480   
          

 

 

 
Textiles, Apparel & Luxury Goods: 1.49%           

Steven Madden Limited †

          106,600         3,948,464   
          

 

 

 

Consumer Staples: 1.34%

          
Food Products: 1.34%           

Darling Ingredients Incorporated †

          146,557         1,930,156   

Dean Foods Company «

          93,250         1,615,090   
             3,545,246   
          

 

 

 

Energy: 2.56%

          
Energy Equipment & Services: 0.82%           

RPC Incorporated «

          152,000         2,155,360   
          

 

 

 
Oil, Gas & Consumable Fuels: 1.74%           

PDC Energy Incorporated †

          23,200         1,379,240   

Synergy Resources Corporation †

          416,700         3,237,759   
             4,616,999   
          

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Small Cap Opportunities Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  

Financials: 21.32%

          
Banks: 6.44%           

Chemical Financial Corporation

          62,330       $ 2,224,558   

First Citizens BancShares Corporation Class A

          10,791         2,709,296   

Heritage Financial Corporation

          82,697         1,452,986   

Lakeland Financial Corporation

          27,900         1,277,262   

PrivateBancorp Incorporated

          50,800         1,960,880   

Simmons First National Corporation Class A

          33,700         1,518,859   

Westamerica Bancorporation «

          44,900         2,187,079   

Western Alliance Bancorp †

          74,100         2,473,458   

Wintrust Financial Corporation

          28,157         1,248,481   
             17,052,859   
          

 

 

 
Capital Markets: 2.35%           

Golub Capital BDC Incorporated «

          178,295         3,086,286   

HFF Incorporated Class A

          60,000         1,651,800   

Stifel Financial Corporation †

          50,631         1,498,678   
             6,236,764   
          

 

 

 
Diversified Financial Services: 0.55%           

Compass Diversified Holdings

          93,900         1,469,535   
          

 

 

 
Insurance: 4.58%           

Amerisafe Incorporated

          53,500         2,810,890   

Brown & Brown Incorporated

          90,700         3,247,060   

ProAssurance Corporation

          61,329         3,103,247   

Reinsurance Group of America Incorporated

          30,700         2,954,875   
             12,116,072   
          

 

 

 
Real Estate Management & Development: 1.49%           

Kennedy Wilson Holdings Incorporated

          179,600         3,933,240   
          

 

 

 
REITs: 4.91%           

Douglas Emmett Incorporated

          94,400         2,842,384   

Equity Lifestyle Properties Incorporated

          43,332         3,151,536   

Gramercy Property Trust Incorporated

          133,300         1,126,385   

Mid-America Apartment Communities Incorporated

          19,403         1,983,181   

Terreno Realty Corporation

          166,875         3,913,219   
             13,016,705   
          

 

 

 
Thrifts & Mortgage Finance: 1.00%           

Kearny Financial Corporation

          137,900         1,703,065   

Radian Group Incorporated

          75,800         939,920   
             2,642,985   
          

 

 

 

Health Care: 15.65%

          
Biotechnology: 1.85%           

Cepheid Incorporated †

          67,500         2,251,800   

Flexion Therapeutics Incorporated †

          46,035         423,522   

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small Cap Opportunities Fund     11   

      

 

 

Security name             Shares      Value  
Biotechnology (continued)           

Otonomy Incorporated †

          49,500       $ 738,540   

Repligen Corporation †

          55,700         1,493,874   
             4,907,736   
          

 

 

 
Health Care Equipment & Supplies: 4.54%           

Dentsply Sirona Incorporated

          57,329         3,533,186   

K2M Group Holdings Incorporated †

          72,591         1,076,525   

Masimo Corporation †

          30,600         1,280,304   

The Cooper Companies Incorporated

          17,000         2,617,490   

Trinity Biotech plc ADR

          60,000         699,600   

West Pharmaceutical Services Incorporated

          40,500         2,807,460   
             12,014,565   
          

 

 

 
Health Care Providers & Services: 3.12%           

Centene Corporation †

          44,700         2,752,179   

HealthSouth Corporation

          32,382         1,218,535   

LifePoint Hospitals Incorporated †

          30,000         2,077,500   

Surgical Care Affiliates Incorporated †

          47,700         2,207,556   
             8,255,770   
          

 

 

 
Health Care Technology: 0.25%           

Inovalon Holdings Incorporated Class A Ǡ

          35,900         664,868   
          

 

 

 
Life Sciences Tools & Services: 3.73%           

INC Research Holdings Incorporated Class A †

          51,804         2,134,843   

PAREXEL International Corporation †

          47,500         2,979,675   

VWR Corporation †

          176,480         4,775,549   
             9,890,067   
          

 

 

 
Pharmaceuticals: 2.16%           

Akorn Incorporated †

          27,200         640,016   

Catalent Incorporated †

          134,690         3,592,182   

Intersect ENT Incorporated †

          42,400         805,600   

KemPharm Incorporated Ǡ

          47,600         690,200   
             5,727,998   
          

 

 

 

Industrials: 17.42%

          
Aerospace & Defense: 1.82%           

DigitalGlobe Incorporated †

          68,700         1,188,510   

Hexcel Corporation

          82,800         3,619,188   
             4,807,698   
          

 

 

 
Airlines: 1.04%           

Allegiant Travel Company

          15,492         2,758,506   
          

 

 

 
Building Products: 2.28%           

Fortune Brands Home & Security Incorporated

          52,800         2,958,912   

Simpson Manufacturing Company Incorporated

          80,703         3,080,434   
             6,039,346   
          

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Small Cap Opportunities Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  
Commercial Services & Supplies: 2.82%           

Herman Miller Incorporated

          3,383       $ 104,501   

Knoll Incorporated

          67,100         1,452,715   

Matthews International Corporation Class A

          46,700         2,403,649   

Waste Connections Incorporated

          54,490         3,519,509   
             7,480,374   
          

 

 

 
Construction & Engineering: 1.56%           

Dycom Industries Incorporated †

          23,800         1,539,146   

Valmont Industries Incorporated

          20,900         2,588,256   
             4,127,402   
          

 

 

 
Electrical Equipment: 1.03%           

Generac Holdings Incorporated Ǡ

          73,100         2,722,244   
          

 

 

 
Machinery: 3.76%           

CLARCOR Incorporated

          39,900         2,305,821   

ESCO Technologies Incorporated

          75,400         2,939,092   

IDEX Corporation

          34,373         2,848,834   

Kornit Digital Limited Ǡ

          126,289         1,256,576   

Proto Labs Incorporated Ǡ

          7,800         601,302   
             9,951,625   
          

 

 

 
Professional Services: 0.52%           

On Assignment Incorporated †

          37,600         1,388,192   
          

 

 

 
Road & Rail: 0.87%           

Ryder System Incorporated

          35,500         2,299,690   
          

 

 

 
Trading Companies & Distributors: 1.72%           

Beacon Roofing Supply Incorporated †

          44,200         1,812,642   

MSC Industrial Direct Company Class A

          35,900         2,739,529   
             4,552,171   
          

 

 

 

Information Technology: 14.91%

          
Communications Equipment: 1.19%           

Ciena Corporation †

          165,900         3,155,418   
          

 

 

 
Electronic Equipment, Instruments & Components: 2.62%           

Fabrinet †

          62,823         2,032,324   

FARO Technologies Incorporated †

          28,200         908,322   

MTS Systems Corporation

          30,500         1,855,925   

OSI Systems Incorporated †

          32,700         2,141,523   
             6,938,094   
          

 

 

 
Internet Software & Services: 0.85%           

Match Group Incorporated Ǡ

          132,962         1,470,560   

Shutterstock Incorporated Ǡ

          21,500         789,695   
             2,260,255   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small Cap Opportunities Fund     13   

      

 

 

Security name             Shares      Value  
IT Services: 2.66%           

CoreLogic Incorporated †

          109,537       $ 3,800,934   

EPAM Systems Incorporated †

          18,600         1,388,862   

Leidos Holdings Incorporated «

          36,900         1,856,808   
             7,046,604   
          

 

 

 
Semiconductors & Semiconductor Equipment: 3.52%           

Entegris Incorporated †

          239,200         3,257,904   

Integrated Device Technology Incorporated †

          83,100         1,698,564   

MA-COM Technology Solutions Holdings Incorporated Ǡ

          58,454         2,559,701   

ON Semiconductor Corporation †

          187,200         1,795,248   
             9,311,417   
          

 

 

 
Software: 4.07%           

Cadence Design Systems Incorporated †

          164,300         3,874,194   

Fortinet Incorporated †

          121,800         3,730,734   

PTC Incorporated †

          61,500         2,039,340   

Verint Systems Incorporated †

          33,866         1,130,447   
             10,774,715   
          

 

 

 

Materials: 5.35%

          
Chemicals: 1.15%           

Balchem Corporation

          28,500         1,767,570   

Minerals Technologies Incorporated

          22,600         1,284,810   
             3,052,380   
          

 

 

 
Containers & Packaging: 1.14%           

Packaging Corporation of America

          50,100         3,026,040   
          

 

 

 
Metals & Mining: 2.53%           

Compass Minerals International Incorporated

          49,500         3,507,570   

Pretium Resources Incorporated Ǡ

          123,600         661,260   

Steel Dynamics Incorporated

          112,700         2,536,877   
             6,705,707   
          

 

 

 
Paper & Forest Products: 0.53%           

Louisiana-Pacific Corporation †

          81,200         1,390,144   
          

 

 

 

Utilities: 2.77%

          
Electric Utilities: 1.56%           

IDACORP Incorporated

          39,600         2,953,764   

Portland General Electric Company

          29,400         1,161,006   
             4,114,770   
          

 

 

 
Multi-Utilities: 1.02%           

Northwestern Corporation

          3,997         246,815   

Vectren Corporation

          48,672         2,460,856   
             2,707,671   
          

 

 

 

 

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


Table of Contents

 

14   Wells Fargo Small Cap Opportunities Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name              Shares      Value  
Water Utilities: 0.19%          

SJW Corporation

         14,100       $ 512,535   
         

 

 

 

Total Common Stocks (Cost $204,190,182)

            242,534,198   
         

 

 

 

Exchange-Traded Funds: 1.35%

         

iShares Russell 2000 Index ETF «

         32,300         3,573,026   
         

 

 

 

Total Exchange-Traded Funds (Cost $3,481,793)

            3,573,026   
         

 

 

 
    Yield                    
Short-Term Investments: 16.45%          
Investment Companies: 16.45%          

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

    0.43        24,100,539         24,100,539   

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

    0.44           19,464,202         19,464,202   

Total Short-Term Investments (Cost $43,564,741)

            43,564,741      
         

 

 

 

 

Total investments in securities (Cost $251,236,716) *     109.38        289,671,965   

Other assets and liabilities, net

    (9.38        (24,848,548
 

 

 

      

 

 

 
Total net assets     100.00      $ 264,823,417   
 

 

 

      

 

 

 

 

 

 

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

 

Non-income-earning security

 

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

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $251,914,851 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 43,846,450   

Gross unrealized losses

     (6,089,336
  

 

 

 

Net unrealized gains

   $ 37,757,114   

 

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


Table of Contents

 

Statement of assets and liabilities—March 31, 2016   Wells Fargo Small Cap Opportunities Fund     15   
         

Assets

 

Investments

 

In unaffiliated securities (including $23,423,462 of securities loaned), at value (cost $207,671,975)

  $ 246,107,224   

In affiliated securities, at value (cost $43,564,741)

    43,564,741   
 

 

 

 

Total investments, at value (cost $251,236,716)

    289,671,965   

Receivable for investments sold

    1,939,762   

Receivable for Fund shares sold

    286,941   

Receivable for dividends

    252,065   

Receivable for securities lending income

    27,580   

Prepaid expenses and other assets

    12,053   
 

 

 

 

Total assets

    292,190,366   
 

 

 

 

Liabilities

 

Payable for investments purchased

    2,646,115   

Payable for Fund shares redeemed

    351,286   

Payable upon receipt of securities loaned

    24,100,539   

Management fee payable

    162,729   

Administration fees payable

    28,435   

Accrued expenses and other liabilities

    77,845   
 

 

 

 

Total liabilities

    27,366,949   
 

 

 

 

Total net assets

  $ 264,823,417   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 216,123,063   

Undistributed net investment income

    149,952   

Accumulated net realized gains on investments

    10,115,153   

Net unrealized gains on investments

    38,435,249   
 

 

 

 

Total net assets

  $ 264,823,417   
 

 

 

 

COMPUTATION OF NET ASSET VALUE

 

Net assets – Administrator Class

  $ 264,560,047   

Shares outstanding – Administrator Class1

    12,507,330   

Net asset value per share – Administrator Class

    $21.15   

Net assets – Institutional Class

  $ 263,370   

Shares outstanding – Institutional Class1

    12,435   

Net asset value per share – Institutional Class

    $21.18   

 

 

1  The Fund has an unlimited number of authorized shares.

 

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


Table of Contents

 

16   Wells Fargo Small Cap Opportunities Fund   Statement of operations—year ended March 31, 2016
         

Investment income

 

Dividends

  $ 3,752,778   

Securities lending income, net

    261,580   

Income from affiliated securities

    43,206   
 

 

 

 

Total investment income

    4,057,564   
 

 

 

 

Expenses

 

Management fee

    2,373,368   

Administration fees

 

Administrator Class

    340,067   

Institutional Class

    218   

Shareholder servicing fees

 

Administrator Class

    697,346   

Custody and accounting fees

    28,339   

Professional fees

    41,283   

Registration fees

    59,603   

Shareholder report expenses

    25,610   

Trustees’ fees and expenses

    17,212   

Other fees and expenses

    14,362   
 

 

 

 

Total expenses

    3,597,408   

Less: Fee waivers and/or expense reimbursements

    (247,194
 

 

 

 

Net expenses

    3,350,214   
 

 

 

 

Net investment income

    707,350   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    18,085,939   

Futures transactions

    (79,563
 

 

 

 

Net realized gains on investments

    18,006,376   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (32,282,192

Futures transactions

    326   
 

 

 

 

Net change in unrealized gains (losses) on investments

    (32,281,866
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (14,275,490
 

 

 

 

Net decrease in net assets resulting from operations

  $ (13,568,140
 

 

 

 

 

 

 

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


Table of Contents

 

Statement of changes in net assets   Wells Fargo Small Cap Opportunities Fund     17   
     Year ended
March 31, 2016
    Year ended
March 31, 2015
 

Operations

       

Net investment income

    $ 707,350        $ 202,195   

Net realized gains on investments

      18,006,376          74,856,998   

Net change in unrealized gains (losses) on investments

      (32,281,866       (39,409,715
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (13,568,140       35,649,478   
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Administrator Class

      (247,987       0   

Institutional Class

      (986       0 1 

Net realized gains

       

Administrator Class

      (32,197,145       (132,976,135

Institutional Class

      (29,514       (4,069 )1 
 

 

 

 

Total distributions to shareholders

      (32,475,632       (132,980,204
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Administrator Class

    1,434,836        32,820,441        2,307,138        64,652,442   

Institutional Class

    10,971        273,479        256 1      10,000 1 
 

 

 

 
      33,093,920          64,662,442   
 

 

 

 

Reinvestment of distributions

       

Administrator Class

    1,555,730        32,052,257        5,627,220        130,945,409   

Institutional Class

    1,474        30,500        175 1      4,069 1 
 

 

 

 
      32,082,757          130,949,478   
 

 

 

 

Payment for shares redeemed

       

Administrator Class

    (2,655,872     (60,937,965     (8,188,457     (262,972,511

Institutional Class

    (441     (10,552     0 1      0 1 
 

 

 

 
      (60,948,517       (262,972,511
 

 

 

 

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

      4,228,160          (67,360,591
 

 

 

 

Total decrease in net assets

      (41,815,612       (164,691,317
 

 

 

 

Net assets

       

Beginning of period

      306,639,029          471,330,346   
 

 

 

 

End of period

    $ 264,823,417        $ 306,639,029   
 

 

 

 

Undistributed net investment income

    $ 149,952        $ 0   
 

 

 

 

 

 

 

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

 

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


Table of Contents

 

18   Wells Fargo Small Cap Opportunities Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $25.19        $37.93        $42.43        $34.45        $32.50        $31.33   

Net investment income

    0.06        0.02        0.02        0.11        0.05        0.00 2 

Net realized and unrealized gains (losses) on investments

    (1.24     3.13        2.33        10.48        3.13        1.17   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.18     3.15        2.35        10.59        3.18        1.17   

Distributions to shareholders from

           

Net investment income

    (0.02     0.00        (0.02     (0.08     0.00        0.00   

Net realized gains

    (2.84     (15.89     (6.83     (2.53     (1.23     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (2.86     (15.89     (6.85     (2.61     (1.23     0.00   

Net asset value, end of period

    $21.15        $25.19        $37.93        $42.43        $34.45        $32.50   

Total return3

    (4.39 )%      11.75     6.26     33.19     10.12     3.73

Ratios to average net assets (annualized)

           

Gross expenses

    1.29     1.24     1.24     1.22     1.22     1.22

Net expenses

    1.20     1.20     1.20     1.20     1.20     1.20

Net investment income

    0.25     0.06     0.11     0.31     0.13     0.00

Supplemental data

           

Portfolio turnover rate

    59     60     26     76     78     100

Net assets, end of period (000s omitted)

    $264,560        $306,628        $471,330        $705,671        $624,844        $656,720   

 

 

 

 

1 For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2 Amount is less than $0.005.

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Small Cap Opportunities Fund     19   

(For a share outstanding throughout each period)

 

         Year ended March 31      
INSTITUTIONAL CLASS    2016     20151  

Net asset value, beginning of period

     $25.22        $39.04   

Net investment income

     0.16 2      0.06   

Net realized and unrealized gains (losses) on investments

     (1.28     2.01   
  

 

 

   

 

 

 

Total from investment operations

     (1.12     2.07   

Distributions to shareholders from

    

Net investment income

     (0.08     0.00   

Net realized gains

     (2.84     (15.89
  

 

 

   

 

 

 

Total distributions to shareholders

     (2.92     (15.89

Net asset value, end of period

     $21.18        $25.22   

Total return3

     (4.12 )%      8.68

Ratios to average net assets (annualized)

    

Gross expenses

     1.05     0.92

Net expenses

     0.95     0.92

Net investment income

     0.71     0.59

Supplemental data

    

Portfolio turnover rate

     59     60

Net assets, end of period (000s omitted)

     $263        $11   

 

 

 

 

 

 

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

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

20   Wells Fargo Small Cap Opportunities Fund   Notes to financial statements

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Small Cap Opportunities Fund (the “Fund”) which is a diversified series of the Trust.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities and futures that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment vehicles that are redeemable at net asset value are fair valued normally at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Security loans

The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.


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Notes to financial statements   Wells Fargo Small Cap Opportunities Fund     21   

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

Futures contracts

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

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

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date.

Distributions to shareholders

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

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends from certain securities and recognition of partnership income. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Undistributed net
investment income
   Accumulated net
realized gains
on investments
$(308,425)    $308,425


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22   Wells Fargo Small Cap Opportunities Fund   Notes to financial statements

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in :

           

Common stocks

           

Consumer discretionary

   $ 27,164,431       $ 0       $ 0       $ 27,164,431   

Consumer staples

     3,545,246         0         0         3,545,246   

Energy

     6,772,359         0         0         6,772,359   

Financials

     56,468,160         0         0         56,468,160   

Health care

     41,461,004         0         0         41,461,004   

Industrials

     46,127,248         0         0         46,127,248   

Information technology

     39,486,503         0         0         39,486,503   

Materials

     14,174,271         0         0         14,174,271   

Utilities

     7,334,976         0         0         7,334,976   

Exchange-traded funds

     3,573,026         0         0         3,573,026   

Short-term investments

           

Investment companies

     19,464,202         0         0         19,464,202   

Investments measured at net asset value*

                                24,100,539   

Total assets

   $ 265,571,426       $ 0       $ 0       $ 289,671,965   

 

* Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $24,100,539 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.


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Notes to financial statements   Wells Fargo Small Cap Opportunities Fund     23   

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.80% and declined to 0.68% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Schroder Investment Management North America Inc. is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.50% and declining to 0.45% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

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 July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.20 % for Administrator Class shares and 0.95 % for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Administrator Class of the Fund is charged a fee at an annual rate of 0.25% of its average daily net assets.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $154,015,727 and $186,823,555, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended March 31, 2016, the Fund entered into futures contracts for to gain market exposure.


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24   Wells Fargo Small Cap Opportunities Fund   Notes to financial statements

As of March 31, 2016, the Fund did not have any open futures contracts. The Fund had an average notional amount of $37,536 in futures contracts during the year ended March 31, 2016.

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

7. BANK BORROWINGS

The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $200,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2016 and March 31, 2015 were as follows:

 

     Year ended March 31  
     2016      2015  

Ordinary income

   $ 248,973       $ 11,962,811   

Long-term capital gain

     32,226,659         121,017,393   

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

 

Undistributed
ordinary
income
   Undistributed
long-term
gain
   Unrealized
gains
$149,952    $10,793,288    $37,757,114

9. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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Report of independent registered public accounting firm   Wells Fargo Small Cap Opportunities Fund     25   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Small Cap Opportunities Fund (formerly known as Wells Fargo Advantage Small Cap Opportunities Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended and the financial highlights for each of the years in the two-year period then ended, the period from November 1, 2013 to March 31, 2014 and each of the years in the three-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Small Cap Opportunities Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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26   Wells Fargo Small Cap Opportunities Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2016.

Pursuant to Section 852 of the Internal Revenue Code, $32,226,659 was designated as long-term capital gain distributions for the fiscal year ended March 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $248,973 of income dividends paid during the fiscal year ended March 31, 2016 has been designated as qualified dividend income (QDI).

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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Other information (unaudited)   Wells Fargo Small Cap Opportunities 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 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   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 Small Cap Opportunities 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.    

Nancy Wiser1

(Born 1967)

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

C. David Messman

(Born 1960)

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

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

David Berardi

(Born 1975)

  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    

Jeremy DePalma1

(Born 1974)

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

 

 

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

 

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


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List of abbreviations   Wells Fargo Small Cap Opportunities 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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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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241816 05-16

A243/AR243 03-16


Table of Contents

Annual Report

March 31, 2016

 

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Wells Fargo Small Cap Value Fund

 

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Table of Contents

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Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    14   

Statement of operations

    15   

Statement of changes in net assets

    16   

Financial highlights

    17   

Notes to financial statements

    23   

Report of independent registered public accounting firm

    29   

Other information

    30   

List of abbreviations

    33   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Throughout the period, stock performance was highly volatile.

 

 

 

 

Stock values recovered during the second half of the first quarter of 2016.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Small Cap Value Fund for the 12-month period that ended March 31, 2016. Throughout the period, stock performance was highly volatile. Investors reacted to slowing economic growth, moderating corporate earnings, weakening commodity prices, increasing central-bank intervention, and shifts in currency values. During the last four weeks of the period, investor sentiment appeared to move beyond these concerns as economic data firmed and stocks gained across the capitalization spectrum.

As investors grew concerned about global issues, volatility increased.

A common measure of investors’ stock volatility expectations—the Chicago Board Options Exchange (CBOE) Volatility Index (VIX)1—illustrated the shifts in investor sentiment. The VIX spiked to readings above 40 in August 2015, indicating increased investor anxiety. During a comparatively calm autumn, VIX readings trended to the midteens and closer to their five-year average. Then stock markets grew volatile again as the winter months arrived. After the new year began, VIX readings spiked to the high 20s as U.S. equity markets posted their worst start to a calendar year on record. Stock values recovered during the second half of the first quarter of 2016. Investors appeared to be encouraged by improving economic data and the reassurances of central bankers that they remain committed to spurring growth through policy initiatives.

However, business, economic, and central-bank policy development had countervailing influences. For example, while a stronger dollar benefited consumer purchasing power, it tended to negatively affect corporate earnings and investment gains earned overseas when translated to U.S. dollars. Lower energy costs helped consumers’ budgets but hampered the profits and stock performance in the energy sector. While lower interest rates encouraged spending, the potential for interest-rate increases caused uncertainty.

Central bankers responded with policy initiatives in response to shifting economic conditions.

In December 2015, the U.S. Federal Reserve (Fed) increased the federal funds rate, the first interest-rate increase since 2006. The Fed also expressed its intention to increase the rate several times during 2016. After the new year began, as data weakened and volatility increased, the Fed retrenched, which injected additional uncertainty into the markets. In the eurozone, the European Central Bank continued to encourage lending and investing by making funds available to banks at low interest rates, imposing a negative interest rate on bank deposits, and purchasing bonds through its quantitative easing program. In Japan, the central bank also implemented a negative interest-rate policy intended to spur lending and investment. In China, the People’s Bank of China lowered interest rates and bank reserve requirements, in addition to devaluing the country’s currency to support exports.

 

 

 

1  The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market’s expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Small Cap Value Fund     3   

Volatility and recoveries highlighted the value of a long-term investment strategy.

The experience of the past 12 months demonstrated the value of maintaining a disciplined, long-term investment strategy despite short-term volatility. Broad U.S. equity indexes trimmed their worst losses measured to the midpoint of the period to recover all or a portion of their lost values by the end of the period. For example, the S&P 500 Index,2 a commonly referenced gauge of large-cap stock performance, gained 1.78% for the 12-month period that ended March 31, 2016, after recording a 6.18% loss for the six-month period that ended September 30, 2015. Some observers attributed the S&P 500 Index’s relative outperformance to investors who moved their equity allocations higher in the capitalization structure in pursuit of the perceived safety of large-cap stocks. The Russell Midcap® Index3 lost 4.04% for the 12-month period that ended March 31, 2016, regaining more than half of the 9.42% loss it had recorded for the six-month period that ended September 30, 2015. For the 12-month period that ended March 31, 2016, the Russell 2000® Index,4 a common small-cap stock index, lost 9.76%, an improvement from the 11.55% loss it had recorded during the six-month period that ended September 30, 2015.

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.

 

 

2  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.

 

3  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

4  The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.


Table of Contents

 

4   Wells Fargo Small Cap Value Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Erik C. Astheimre

I. Charles Rinaldi

Michael Schneider, CFA®

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (SMVAX)   11-30-2000     (8.49     1.23        3.53        (2.90     2.43        4.14        1.32        1.30   
Class B (SMVBX)*   11-30-2000     (8.58     1.30        3.60        (3.58     1.68        3.60        2.07        2.05   
Class C (SMVCX)   11-30-2000     (4.58     1.67        3.37        (3.58     1.67        3.37        2.07        2.05   
Class R6 (SMVRX)   6-28-2013                          (2.43     2.88        4.56        0.89        0.85   
Administrator Class (SMVDX)   7-30-2010                          (2.70     2.63        4.35        1.24        1.10   
Institutional Class (WFSVX)   7-31-2007                          (2.46     2.85        4.55        0.99        0.90   
Russell 2000® Value Index4                            (7.72     6.67        4.42                 
*   Class B shares are closed to investment, except in connection with the reinvestment of any distributions.

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Class R6, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Value Fund     5   
Growth of $10,000 investment as of March 31, 20165

LOGO

 

 

 

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

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.02% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.28% for Class A, 2.03% for Class B, 2.03% for Class C, 0.83% for Class R6, 1.08% for Administrator Class and 0.88% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses.

 

6  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

7  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.


Table of Contents

 

6   Wells Fargo Small Cap Value Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2016.

 

n   The Fund benefited from an overweight to materials, particularly gold-mining companies.

 

n   Strong stock selection in the consumer discretionary, information technology (IT), and industrials sectors also drove the outperformance.

 

n   The Fund’s underweight to the financials sector and weakness in our energy holdings detracted from performance.

We believe positions in gold miners improve the Fund’s diversification due to lower correlation.

Equities declined during the 12-month period that ended March 31, 2016, as measured by the Russell 2000® Value Index. The disappointing economic recovery in the U.S., slowing growth in emerging markets, heightened geopolitical risks, and uncertainty regarding global central bank actions presented a difficult environment for equities. This backdrop was more positive for gold, which rose over 4% during this time. Most gold-related equities outperformed the gold price. Oil declined approximately 25% for the period given the oversupply environment, with most energy-related equities underperforming the commodity during that time.

 

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

InterOil Corporation

     6.70   

Cavco Industries Incorporated

     6.27   

Randgold Resources Limited ADR

     6.08   

Cray Incorporated

     5.06   

Coherent Incorporated

     3.30   

Argo Group International Holdings Limited

     2.87   

Delta Air Lines Incorporated

     2.73   

Cincinnati Bell Incorporated

     2.70   

OraSure Technologies Incorporated

     2.21   

OSI Systems Incorporated

     2.11   

An overweight to the materials sector, specifically gold-mining companies, contributed to relative performance. We hold positions in gold miners in part because we believe they improve the Fund’s diversification given their lower correlation to the broad market. This proved true during the period, as gold and the shares of most gold miners performed strongly in the face of a weak equity market. We expect global mine supply to decline, which, coupled with the uncertain macroeconomic backdrop, should bode well for the price of gold. Randgold Resources Limited, one of the Fund’s largest holdings, gained more than 30%. Randgold is profitable and has disciplined management, a strong balance sheet, and high-quality mining assets. It continues to be a core Fund holding.

 

 

Consumer discretionary and information technology stocks contributed to performance.

Strong stock selection in the consumer discretionary sector helped Fund performance. The Fund’s manufactured housing producers, Cavco Industries, Incorporated, and Skyline Corporation, returned more than 24% and 160%, respectively. The manufactured housing industry is slowly recovering after a major downturn. As industry volumes increase, Cavco and Skyline are generating improved results. We believe the industry is in the early stages of a recovery and the outlook for these companies is very positive.

Within IT, Cray Incorporated, and Coherent, Incorporated, had strong performances during the period. Cray, the leader in supercomputers, continues to grow at two times the market rate. Cray’s backlog remains at record levels, and we expect the company to continue to gain share and expand into new client markets. Coherent is a leading provider of laser-based tools and products to the commercial and scientific markets. The company is at the front end of the cycle for laser solutions for the flat panel display market, and we believe it will be able to expand margins over the next several years.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Value Fund     7   
Sector distribution as of March 31, 20167
LOGO

 

The Fund’s energy stocks detracted from performance during the period. Our largest energy holding, InterOil Corporation, declined 31%. Even though the company, a natural gas exploration concern, is not directly tied to oil, the weak sector sentiment negatively influenced the stock. InterOil’s transaction with Total S.A. regarding the Elk/Antelope natural gas resource remains on track and is expected to close in the third quarter. At certification of the transaction, InterOil will receive a large certification payment tied to the amount of gas present rather than based on commodity prices. The deal will further de-risk the company’s financial position and allow it to advance its drilling program on multiple fields.

 

 

The portfolio’s underweight to the financials sector detracted from the Fund’s relative performance. In terms of individual positions, Bancorp, Incorporated, was the largest performance detractor. The company continues to report disappointing financial results. We believe that results will improve in the year ahead and that the stock is undervalued. Our largest sector holding, Argo Group International Holdings, Limited, performed well, returning 16%. Argo Group has repurchased a significant amount of its stock over the past several years, and the company continues to report good earnings.

We remain focused on companies whose businesses are likely to benefit in the long-term.

We are cautious on the overall market. Corporate profit margins are high and valuation multiples are not cheap. It is possible that profit margins revert to more historical levels and the share-price multiples that investors put on those earnings also could move lower. The interaction of these two events could lead to lower stock prices. In addition, the hesitancy of the U.S. Federal Reserve to raise interest rates in the U.S. and the move by some central banks overseas to negative interest-rate regimes suggest that global economic growth is not yet robust. Given these factors, we believe it’s prudent to remain cautious. We continue to focus on company-specific fundamentals to guide our decisions. We believe our diversified approach, which includes exposure to gold miners, leaves the Fund well positioned to meet the various challenges that may lie ahead.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Small Cap Value Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,124.67       $ 6.80         1.28

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.60       $ 6.46         1.28

Class B

           

Actual

   $ 1,000.00       $ 1,121.26       $ 10.77         2.03

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.85       $ 10.23         2.03

Class C

           

Actual

   $ 1,000.00       $ 1,121.01       $ 10.76         2.03

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.85       $ 10.23         2.03

Class R6

           

Actual

   $ 1,000.00       $ 1,127.59       $ 4.41         0.83

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.85       $ 4.19         0.83

Administrator Class

           

Actual

   $ 1,000.00       $ 1,125.78       $ 5.74         1.08

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.60       $ 5.45         1.08

Institutional Class

           

Actual

   $ 1,000.00       $ 1,127.20       $ 4.68         0.88

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.60       $ 4.45         0.88

 

 

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—March 31, 2016   Wells Fargo Small Cap Value Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 96.44%

          

Consumer Discretionary: 18.38%

          
Auto Components: 1.65%           

Fox Factory Holding Corporation †

          514,200       $ 8,129,502   

Gentex Corporation

          407,000         6,385,830   
             14,515,332   
          

 

 

 
Hotels, Restaurants & Leisure: 6.06%           

Bloomin’ Brands Incorporated

          260,700         4,398,009   

Century Casinos Incorporated †(l)

          1,476,500         9,095,240   

Denny’s Corporation †

          1,448,000         15,001,280   

Peak Resorts Incorporated

          527,600         1,793,840   

Scientific Games Corporation Class A †

          903,500         8,520,005   

The Wendy’s Company

          1,313,000         14,298,570   
             53,106,944   
          

 

 

 
Household Durables: 9.65%           

Cavco Industries Incorporated †(l)

          587,800         54,935,788   

Harman International Industries Incorporated

          42,600         3,793,104   

KB Home Incorporated

          523,900         7,481,292   

Skyline Corporation †(l)

          626,200         5,804,874   

Taylor Morrison Home Corporation Class A †

          356,000         5,026,720   

The New Home Company Incorporated †

          618,400         7,581,584   
             84,623,362   
          

 

 

 
Media: 0.33%           

MSG Networks Incorporated Class A

          170,200         2,942,758   
          

 

 

 
Multiline Retail: 0.30%           

Fred’s Incorporated Class A

          174,300         2,598,813   
          

 

 

 
Specialty Retail: 0.39%           

Vitamin Shoppe Incorporated †

          109,900         3,402,504   
          

 

 

 

Energy: 8.90%

          
Energy Equipment & Services: 1.12%           

Newpark Resources Incorporated †

          981,700         4,240,944   

Parker Drilling Company †

          1,122,700         2,380,124   

PHI Incorporated (non-voting) †

          170,300         3,216,967   
             9,838,035   
          

 

 

 
Oil, Gas & Consumable Fuels: 7.78%           

InterOil Corporation †

          1,844,400         58,707,252   

Range Resources Corporation

          120,100         3,888,838   

Sanchez Energy Corporation †

          458,500         2,517,165   

Trilogy Energy Corporation †(a)

          1,127,500         3,104,006   
             68,217,261   
          

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Small Cap Value Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  

Financials: 20.43%

          
Banks: 9.94%           

Ameris Bancorp

          260,600       $ 7,708,548   

BBCN Bancorp Incorporated

          537,700         8,167,663   

CenterState Banks Incorporated

          765,400         11,396,806   

First Horizon National Corporation

          825,300         10,811,430   

Hanmi Financial Corporation

          119,100         2,622,582   

Hilltop Holdings Incorporated †

          390,400         7,370,752   

IBERIABANK Corporation

          239,200         12,263,784   

LegacyTexas Financial Group

          44,500         874,425   

Park Sterling Corporation

          820,100         5,470,067   

Sterling BanCorp

          200,900         3,200,337   

The Bancorp Incorporated †

          1,285,500         7,353,060   

Valley National Bancorp

          311,800         2,974,572   

Wilshire Bancorp Incorporated

          676,200         6,964,860   
             87,178,886   
          

 

 

 
Capital Markets: 0.43%           

Medley Management Incorporated Class A (l)

          689,100         3,790,050   
          

 

 

 
Consumer Finance: 0.30%           

Enova International Incorporated †

          416,100         2,625,591   
          

 

 

 
Insurance: 5.41%           

Argo Group International Holdings Limited

          438,400         25,159,776   

James River Group Holdings Limited

          119,200         3,845,392   

National General Holdings Corporation

          427,600         9,231,884   

OneBeacon Insurance Group Limited Class A

          724,515         9,223,076   
             47,460,128   
          

 

 

 
REITs: 3.52%           

Potlatch Corporation

          264,500         8,331,750   

Redwood Trust Incorporated

          1,133,100         14,820,948   

UMH Properties Incorporated

          775,600         7,693,952   
             30,846,650   
          

 

 

 
Thrifts & Mortgage Finance: 0.83%           

Essent Group Limited †

          47,600         990,080   

Northwest Bancshares Incorporated

          461,000         6,228,110   
             7,218,190   
          

 

 

 

Health Care: 7.37%

          
Health Care Equipment & Supplies: 3.33%           

Allied Healthcare Products Incorporated †(l)

          588,600         411,961   

Cerus Corporation †

          466,100         2,763,973   

Hologic Incorporated †

          193,900         6,689,550   

OraSure Technologies Incorporated †

          2,675,800         19,346,034   
             29,211,518   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small Cap Value Fund     11   

      

 

 

Security name             Shares      Value  
Health Care Providers & Services: 2.70%           

Air Methods Corporation †

          104,000       $ 3,766,880   

Cross Country Healthcare Incorporated †

          1,326,848         15,431,242   

Healthways Incorporated †

          444,400         4,483,996   
             23,682,118   
          

 

 

 
Health Care Technology: 0.73%           

Allscripts Healthcare Solutions Incorporated †

          482,800         6,377,788   
          

 

 

 
Life Sciences Tools & Services: 0.41%           

PAREXEL International Corporation †

          56,900         3,569,337   
          

 

 

 
Pharmaceuticals: 0.20%           

Prestige Brands Holdings Incorporated †

          32,800         1,751,192   
          

 

 

 

Industrials: 11.29%

          
Airlines: 5.81%           

American Airlines Group Incorporated

          182,400         7,480,224   

Delta Air Lines Incorporated

          491,400         23,921,352   

Latam Airlines Group SP ADR †

          630,100         4,410,700   

United Continental Holdings Incorporated †

          252,300         15,102,678   
             50,914,954   
          

 

 

 
Commercial Services & Supplies: 2.50%           

ABM Industries Incorporated

          2,700         87,237   

ACCO Brands Corporation †

          1,739,800         15,623,404   

Healthcare Services Group Incorporated

          169,400         6,235,614   
             21,946,255   
          

 

 

 
Construction & Engineering: 0.82%           

Tutor Perini Corporation †

          460,900         7,162,386   
          

 

 

 
Machinery: 0.65%           

Actuant Corporation Class A

          115,500         2,854,005   

Mueller Water Products Incorporated

          288,400         2,849,392   
             5,703,397   
          

 

 

 
Professional Services: 0.58%           

Hill International Incorporated †

          1,500,000         5,055,000   
          

 

 

 
Road & Rail: 0.23%           

Covenant Transport Incorporated Class A †

          83,300         2,015,027   
          

 

 

 
Trading Companies & Distributors: 0.70%           

Applied Industrial Technologies Incorporated

          142,700         6,193,180   
          

 

 

 

Information Technology: 15.00%

          
Communications Equipment: 0.93%           

Harmonic Incorporated †

          836,300         2,734,701   

Ruckus Wireless Incorporated †

          554,000         5,434,740   
             8,169,441   
          

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Small Cap Value Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  
Electronic Equipment, Instruments & Components: 7.21%           

Checkpoint Systems Incorporated

          758,500       $ 7,676,020   

Cognex Corporation

          206,800         8,054,860   

Coherent Incorporated †

          315,000         28,948,500   

OSI Systems Incorporated †

          282,800         18,520,572   
             63,199,952   
          

 

 

 
IT Services: 0.43%           

TeleTech Holdings Incorporated

          134,700         3,739,272   
          

 

 

 
Semiconductors & Semiconductor Equipment: 0.47%           

Kulicke & Soffa Industries Incorporated †

          365,600         4,138,592   
          

 

 

 
Software: 0.25%           

Synchronoss Technologies Incorporated †

          67,900         2,195,886   
          

 

 

 
Technology Hardware, Storage & Peripherals: 5.71%           

Cray Incorporated †

          1,057,700         44,328,207   

Diebold Incorporated

          117,420         3,394,612   

Quantum Corporation †

          3,865,000         2,357,650   
             50,080,469   
          

 

 

 

Materials: 12.37%

          
Chemicals: 0.17%           

Calgon Carbon Corporation

          109,000         1,528,180   
          

 

 

 
Containers & Packaging: 0.32%           

Intertape Polymer Group Incorporated

          195,500         2,789,785   
          

 

 

 
Metals & Mining: 11.40%           

Agnico-Eagle Mines Limited

          258,800         9,358,208   

Carpenter Technology Corporation

          65,400         2,238,642   

NovaGold Resources Incorporated †

          959,600         4,836,384   

Randgold Resources Limited ADR

          587,400         53,341,794   

Royal Gold Incorporated

          142,100         7,288,309   

Sandstorm Gold Limited †

          1,309,500         4,308,255   

Silver Standard Resources Incorporated †

          1,062,600         5,897,430   

Steel Dynamics Incorporated

          465,700         10,482,907   

Webco Industries Incorporated †(a)(i)(l)

          55,400         2,221,540   
             99,973,469   
          

 

 

 
Paper & Forest Products: 0.48%           

Deltic Timber Corporation

          69,400         4,174,410   
          

 

 

 

Telecommunication Services: 2.70%

          
Diversified Telecommunication Services: 2.70%           

Cincinnati Bell Incorporated †

          6,118,200         23,677,435   
          

 

 

 

Total Common Stocks (Cost $576,237,009)

             845,613,547   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small Cap Value Fund     13   

      

 

 

Security name              Shares      Value  

Exchange-Traded Funds: 1.70%

         

Market Vectors Gold Miners ETF

         386,020       $ 7,712,680   

Market Vectors Junior Gold Miners ETF

         110,206         3,069,237   

SPDR S&P Regional Banking ETF

         109,900         4,136,636   

Total Exchange-Traded Funds (Cost $17,729,602)

            14,918,553   
         

 

 

 
    Yield                    
Short-Term Investments: 1.64%          
Investment Companies: 1.64%          

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

    0.44        14,417,507         14,417,507   
         

 

 

 

Total Short-Term Investments (Cost $14,417,507)

            14,417,507      
         

 

 

 

 

Total investments in securities (Cost $608,384,118) *     99.78        874,949,607   

Other assets and liabilities, net

    0.22           1,918,193   
 

 

 

      

 

 

 
Total net assets     100.00      $ 876,867,800   
 

 

 

      

 

 

 

 

 

 

Non-income-earning security

 

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

 

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

 

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

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $621,118,816 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 343,744,411   

Gross unrealized losses

     (89,913,620
  

 

 

 

Net unrealized gains

   $ 253,830,791   

 

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


Table of Contents

 

14   Wells Fargo Small Cap Value Fund   Statement of assets and liabilities—March 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $542,423,331)

  $ 784,272,647   

In affiliated securities, at value (cost $65,960,787)

    90,676,960   
 

 

 

 

Total investments, at value (cost $608,384,118)

    874,949,607   

Foreign currency, at value (cost $44)

    40   

Receivable for investments sold

    4,824,470   

Receivable for Fund shares sold

    757,242   

Receivable for dividends

    761,917   

Prepaid expenses and other assets

    54,570   
 

 

 

 

Total assets

    881,347,846   
 

 

 

 

Liabilities

 

Payable for investments purchased

    1,560,269   

Payable for Fund shares redeemed

    1,697,901   

Management fee payable

    560,611   

Distribution fees payable

    21,007   

Administration fees payable

    118,392   

Shareholder report expenses payable

    367,531   

Accrued expenses and other liabilities

    154,335   
 

 

 

 

Total liabilities

    4,480,046   
 

 

 

 

Total net assets

  $ 876,867,800   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 545,383,427   

Accumulated net investment loss

    (2,315,780

Accumulated net realized gains on investments

    67,234,668   

Net unrealized gains on investments

    266,565,485   
 

 

 

 

Total net assets

  $ 876,867,800   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 441,678,759   

Shares outstanding – Class A1

    23,439,798   

Net asset value per share – Class A

    $18.84   

Maximum offering price per share – Class A2

    $19.99   

Net assets – Class B

  $ 4,313   

Shares outstanding – Class B1

    285   

Net asset value per share – Class B

    $15.13   

Net assets – Class C

  $ 33,600,999   

Shares outstanding – Class C1

    2,227,279   

Net asset value per share – Class C

    $15.09   

Net assets – Class R6

  $ 92,928,682   

Shares outstanding – Class R61

    4,713,135   

Net asset value per share – Class R6

    $19.72   

Net assets – Administrator Class

  $ 24,926,956   

Shares outstanding – Administrator Class1

    1,267,594   

Net asset value per share – Administrator Class

    $19.66   

Net assets – Institutional Class

  $ 283,728,091   

Shares outstanding – Institutional Class1

    14,396,481   

Net asset value per share – Institutional Class

    $19.71   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

Statement of operations—year ended March 31, 2016   Wells Fargo Small Cap Value Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $31,965)

  $ 9,553,727   

Income from affiliated securities

    677,446   
 

 

 

 

Total investment income

    10,231,173   
 

 

 

 

Expenses

 

Management fee

    9,695,926   

Administration fees

 

Class A

    749,729   

Class B

    192   

Class C

    121,514   

Class R6

    28,823   

Administrator Class

    52,007   

Institutional Class

    438,968   

Investor Class

    747,872 1 

Shareholder servicing fees

 

Class A

    849,582   

Class B

    209   

Class C

    133,042   

Administrator Class

    109,275   

Investor Class

    580,296 1 

Distribution fees

 

Class B

    627   

Class C

    399,125   

Custody and accounting fees

    104,927   

Professional fees

    52,782   

Registration fees

    93,766   

Shareholder report expenses

    324,813   

Trustees’ fees and expenses

    11,522   

Other fees and expenses

    25,715   
 

 

 

 

Total expenses

    14,520,712   

Less: Fee waivers and/or expense reimbursements

    (1,282,344
 

 

 

 

Net expenses

    13,238,368   
 

 

 

 

Net investment loss

    (3,007,195
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    151,432,974   

Affiliated securities

    25,261,687   
 

 

 

 

Net realized gains on investments

    176,694,661   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (168,374,425

Affiiliated securities

    (54,528,754
 

 

 

 

Net change in unrealized gains (losses) on investments

    (222,903,179
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (46,208,518
 

 

 

 

Net decrease in net assets resulting from operations

  $ (49,215,713
 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

16   Wells Fargo Small Cap Value Fund   Statement of changes in net assets
     Year ended
March 31, 2016
    Year ended
March 31, 2015
 

Operations

       

Net investment income (loss)

    $ (3,007,195     $ 4,712,137   

Net realized gains on investments

      176,694,661          297,123,395   

Net change in unrealized gains (losses) on investments

      (222,903,179       (486,933,435
 

 

 

 

Net decrease in net assets resulting from operations

      (49,215,713       (185,097,903
 

 

 

 

Distributions to shareholders from

       

Net investment income

       

Class A

      0          (1,523,233

Class C

      0          (221,004

Class R6

      0          (333,506

Institutional Class

      0          (8,076,528

Investor Class

      0 1        (2,166,037

Net realized gains

       

Class A

      (147,582,801       (55,676,351

Class B

      (11,299       (47,217

Class C

      (12,940,580       (16,838,250

Class R6

      (26,184,650       (7,568,540

Administrator Class

      (7,973,394       (15,392,983

Institutional Class

      (84,638,041       (192,333,937

Investor Class

      0 1        (90,968,444
 

 

 

 

Total distributions to shareholders

      (279,330,765       (391,146,030
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    14,405,645        371,383,963        1,004,915        32,650,378   

Class C

    213,694        3,522,236        208,610        5,701,764   

Class R6

    4,913,663        136,781,653        1,795,825        62,081,868   

Administrator Class

    246,541        5,884,855        2,670,173        93,659,025   

Institutional Class

    1,822,908        45,991,897        22,555,891        768,995,626   

Investor Class

    341,179 1      9,252,444 1      1,134,358        38,165,162   
 

 

 

 
      572,817,048          1,001,253,823   
 

 

 

 

Reinvestment of distributions

       

Class A

    8,140,152        144,569,098        1,960,105        54,762,197   

Class B

    791        11,299        1,945        47,030   

Class C

    767,463        10,936,351        619,555        14,985,444   

Class R6

    1,410,811        26,184,650        274,897        7,902,046   

Administrator Class

    392,943        7,277,303        510,536        14,611,549   

Institutional Class

    4,322,403        80,180,580        3,727,964        107,172,323   

Investor Class

    0 1      0 1      3,198,137        91,570,270   
 

 

 

 
      269,159,281          291,050,859   
 

 

 

 

Payment for shares redeemed

       

Class A

    (9,636,099     (207,634,531     (4,847,855     (156,671,667

Class B

    (7,052     (145,392     (12,058     (350,936

Class C

    (2,155,888     (45,177,913     (728,251     (20,122,577

Class R6

    (3,471,014     (92,765,963     (221,939     (7,157,233

Administrator Class

    (2,015,328     (51,849,956     (20,096,449     (705,338,775

Institutional Class

    (27,696,737     (767,867,077     (17,298,268     (567,191,934

Investor Class

    (17,354,006 )1      (466,375,638 )1      (8,864,914     (296,658,045
 

 

 

 
      (1,631,816,470       (1,753,491,167
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (789,840,141       (461,186,485
 

 

 

 

Total decrease in net assets

      (1,118,386,619       (1,037,430,418
 

 

 

 

Net assets

       

Beginning of period

      1,995,254,419          3,032,684,837   
 

 

 

 

End of period

    $ 876,867,800        $ 1,995,254,419   
 

 

 

 

Overdistributed/accumulated net investment income (loss)

    $ (2,315,780     $ (455,328
 

 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Small Cap Value Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS A   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $27.51        $35.74        $36.33        $32.87        $29.56        $29.71   

Net investment income (loss)

    (0.06 )2      0.01 2      0.18        0.23        0.19        0.16   

Net realized and unrealized gains (losses) on investments

    (1.19     (2.55     2.71        4.68        3.39        (0.11
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.25     (2.54     2.89        4.91        3.58        0.05   

Distributions to shareholders from

           

Net investment income

    0.00        (0.13     (0.11     (0.24     (0.12     (0.20

Net realized gains

    (7.42     (5.56     (3.37     (1.21     (0.15     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (7.42     (5.69     (3.48     (1.45     (0.27     (0.20

Net asset value, end of period

    $18.84        $27.51        $35.74        $36.33        $32.87        $29.56   

Total return3

    (2.90 )%      (7.29 )%      8.87     15.67     12.22     0.11

Ratios to average net assets (annualized)

           

Gross expenses

    1.36     1.35     1.33     1.33     1.34     1.32

Net expenses

    1.28     1.29     1.30     1.30     1.30     1.30

Net investment income (loss)

    (0.27 )%      0.02     1.26     0.72     0.61     0.50

Supplemental data

           

Portfolio turnover rate

    16     9     7     18     16     17

Net assets, end of period (000s omitted)

    $441,679        $289,669        $443,671        $482,677        $603,622        $596,741   

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

18   Wells Fargo Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS B   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $23.84        $31.87        $32.75        $29.74        $26.85        $27.02   

Net investment income (loss)

    (0.28 )2      (0.25 )2      0.06 2      0.01 2      (0.03 )2      (0.16 )2 

Net realized and unrealized gains (losses) on investments

    (1.01     (2.22     2.43        4.21        3.07        (0.01
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.29     (2.47     2.49        4.22        3.04        (0.17

Distributions to shareholders from

           

Net realized gains

    (7.42     (5.56     (3.37     (1.21     (0.15     0.00   

Net asset value, end of period

    $15.13        $23.84        $31.87        $32.75        $29.74        $26.85   

Total return3

    (3.58 )%      (8.01 )%      8.53     14.86     11.37     (0.63 )% 

Ratios to average net assets (annualized)

           

Gross expenses

    2.11     2.10     2.08     2.06     2.08     2.06

Net expenses

    2.03     2.04     2.05     2.03     2.05     2.04

Net investment income (loss)

    (1.26 )%      (0.83 )%      0.50     0.02     (0.12 )%      (0.57 )% 

Supplemental data

           

Portfolio turnover rate

    16     9     7     18     16     17

Net assets, end of period (000s omitted)

    $4        $156        $531        $647        $1,310        $3,928   

 

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Small Cap Value Fund     19   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS C   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $23.80        $31.89        $32.77        $29.82        $26.92        $27.11   

Net investment income (loss)

    (0.24 )2      (0.20 )2      0.07 2      (0.02 )2      (0.04 )2      (0.07 )2 

Net realized and unrealized gains (losses) on investments

    (1.05     (2.27     2.42        4.23        3.09        (0.10
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.29     (2.47     2.49        4.21        3.05        (0.17

Distributions to shareholders from

           

Net investment income

    0.00        (0.06     0.00        (0.05     0.00        (0.02

Net realized gains

    (7.42     (5.56     (3.37     (1.21     (0.15     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (7.42     (5.62     (3.37     (1.26     (0.15     (0.02

Net asset value, end of period

    $15.09        $23.80        $31.89        $32.77        $29.82        $26.92   

Total return3

    (3.58 )%      (8.00 )%      8.53     14.80     11.38     (0.62 )% 

Ratios to average net assets (annualized)

           

Gross expenses

    2.11     2.10     2.08     2.08     2.09     2.07

Net expenses

    2.03     2.04     2.05     2.05     2.05     2.05

Net investment income (loss)

    (1.18 )%      (0.70 )%      0.52     (0.06 )%      (0.14 )%      (0.24 )% 

Supplemental data

           

Portfolio turnover rate

    16     9     7     18     16     17

Net assets, end of period (000s omitted)

    $33,601        $80,969        $105,309        $105,491        $102,663        $100,032   

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

20   Wells Fargo Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31    

Year ended

October 31, 20132

 
CLASS R6   2016     2015     20141    

Net asset value, beginning of period

    $28.29        $36.52        $37.13        $33.69   

Net investment income

    0.03 3      0.23 3      0.35        0.07 3 

Net realized and unrealized gains (losses) on investments

    (1.18     (2.69     2.67        3.37   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.15     (2.46     3.02        3.44   

Distributions to shareholders from

       

Net investment income

    0.00        (0.21     (0.26     0.00   

Net realized gains

    (7.42     (5.56     (3.37     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (7.42     (5.77     (3.63     0.00   

Net asset value, end of period

    $19.72        $28.29        $36.52        $37.13   

Total return4

    (2.43 )%      (6.90 )%      9.07     10.21

Ratios to average net assets (annualized)

       

Gross expenses

    0.92     0.87     0.85     0.85

Net expenses

    0.83     0.83     0.85     0.85

Net investment income

    0.12     0.72     2.82     0.60

Supplemental data

       

Portfolio turnover rate

    16     9     7     18

Net assets, end of period (000s omitted)

    $92,929        $52,613        $398        $28   

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

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

 

3  Calculated based upon average shares outstanding

 

4  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Small Cap Value Fund     21   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $28.30        $36.40        $36.98        $33.45        $30.12        $30.32   

Net investment income (loss)

    (0.06 )2      0.01 2      0.21        0.31        0.25 2      0.29 2 

Net realized and unrealized gains (losses) on investments

    (1.16     (2.55     2.77        4.75        3.44        (0.17
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.22     (2.54     2.98        5.06        3.69        0.12   

Distributions to shareholders from

           

Net investment income

    0.00        0.00        (0.19     (0.32     (0.21     (0.32

Net realized gains

    (7.42     (5.56     (3.37     (1.21     (0.15     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (7.42     (5.56     (3.56     (1.53     (0.36     (0.32

Net asset value, end of period

    $19.66        $28.30        $36.40        $36.98        $33.45        $30.12   

Total return3

    (2.70 )%      (7.16 )%      8.97     15.92     12.42     0.32

Ratios to average net assets (annualized)

           

Gross expenses

    1.25     1.19     1.17     1.17     1.17     1.15

Net expenses

    1.08     1.09     1.10     1.10     1.10     1.10

Net investment income (loss)

    (0.24 )%      0.03     1.48     0.87     0.80     0.91

Supplemental data

           

Portfolio turnover rate

    16     9     7     18     16     17

Net assets, end of period (000s omitted)

    $24,927        $74,820        $711,869        $666,812        $543,683        $390,266   

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

22   Wells Fargo Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $28.29        $36.53        $37.12        $33.56        $30.21        $30.33   

Net investment income (loss)

    (0.01 )2      0.17 2      0.26        0.38 2      0.34        0.31   

Net realized and unrealized gains (losses) on investments

    (1.15     (2.65     2.76        4.76        3.42        (0.12
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.16     (2.48     3.02        5.14        3.76        0.19   

Distributions to shareholders from

           

Net investment income

    0.00        (0.20     (0.24     (0.37     (0.26     (0.31

Net realized gains

    (7.42     (5.56     (3.37     (1.21     (0.15     0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (7.42     (5.76     (3.61     (1.58     (0.41     (0.31

Net asset value, end of period

    $19.71        $28.29        $36.53        $37.12        $33.56        $30.21   

Total return3

    (2.46 )%      (6.95 )%      9.05     16.15     12.68     0.52

Ratios to average net assets (annualized)

           

Gross expenses

    0.99     0.92     0.90     0.90     0.91     0.89

Net expenses

    0.88     0.89     0.90     0.90     0.90     0.89

Net investment income (loss)

    (0.03 )%      0.52     1.66     1.08     1.01     0.97

Supplemental data

           

Portfolio turnover rate

    16     9     7     18     16     17

Net assets, end of period (000s omitted)

    $283,728        $1,017,115        $984,881        $1,081,869        $1,143,730        $1,073,943   

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

Notes to financial statements   Wells Fargo Small Cap Value Fund     23   

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.

Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities and options that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

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

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

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2016, such fair value pricing was not used in pricing foreign securities.

Investments in registered open-end investment companies are valued at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange


Table of Contents

 

24   Wells Fargo Small Cap Value Fund   Notes to financial statements

or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Options

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may write covered call options or secured put options on individual securities and/or indexes. When the Fund writes an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from written options that expire unexercised are recognized as realized gains on the expiration date. For exercised options, the difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in calculating the realized gain or loss on the sale. If a put option is exercised, the premium reduces the cost of the security purchased. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security and/or index underlying the written option.

The Fund may also purchase call or put options. The premium is included in the Statement of Assets and Liabilities as an investment, the value of which is subsequently adjusted based on the current market value of the option. Premiums paid for purchased options that expire are recognized as realized losses on the expiration date. Premiums paid for purchased options that are exercised or closed are added to the amount paid or offset against the proceeds received for the underlying security to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.

Options traded on an exchange are regulated and terms of the options are standardized. Purchased options traded over-the-counter expose the Fund to counterparty risk in the event the counterparty does not perform. This risk can be mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Distributions to shareholders

Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in 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.


Table of Contents

 

Notes to financial statements   Wells Fargo Small Cap Value Fund     25   

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends from certain securities, net operating losses, and passive foreign investment companies. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital    Accumulated net
investment loss
   Accumulated net
realized gains
on investments
$(1,477,934)    $1,146,743    $331,191

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.


Table of Contents

 

26   Wells Fargo Small Cap Value Fund   Notes to financial statements

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Consumer discretionary

   $ 161,189,713       $ 0       $ 0       $ 161,189,713   

Energy

     74,951,290         3,104,006         0         78,055,296   

Financials

     179,119,495         0         0         179,119,495   

Health care

     64,591,953         0         0         64,591,953   

Industrials

     98,990,199         0         0         98,990,199   

Information technology

     131,523,612         0         0         131,523,612   

Materials

     103,454,519         5,011,325         0         108,465,844   

Telecommunication services

     23,677,435         0         0         23,677,435   

Exchange-traded funds

     14,918,553         0         0         14,918,553   

Short-term investments

           

Investment companies

     14,417,507         0         0         14,417,507   

Total assets

   $ 866,834,276       $ 8,115,331       $ 0       $ 874,949,607   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.80% and declined to 0.68% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.83% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.

Administration fees

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


Table of Contents

 

Notes to financial statements   Wells Fargo Small Cap Value Fund     27   

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

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class B, Class C

     0.21      0.26

Class R6

     0.03         0.03   

Administrator Class

     0.13         0.10   

Institutional Class

     0.13         0.08   

Investor Class

     0.32         0.32   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.28% for Class A shares, 2.03% for Class B shares, 2.03% for Class C shares, 0.83% for Class R6 shares, 1.08% for Administrator Class shares, and 0.88% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fees

The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2016, Funds Distributor received $1,553 from the sale of Class A shares and $179 in contingent deferred sales charges from redemptions of Class C shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, Administrator Class, and Investor Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $179,654,228 and $832,867,516, respectively.


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28   Wells Fargo Small Cap Value Fund   Notes to financial statements

6. INVESTMENTS IN AFFILIATES

An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.

 

    Shares,
beginning
of period
    Shares
purchased
    Shares
sold
   

Shares, end

of period

   

Value, end

of period

   

Income

from
affiliated

securities

   

Realized

gains

(losses)

 

Allied Healthcare Products Incorporated

    780,500        26,000        217,900        588,600      $ 411,961      $ 0      $ (325,472

Cavco Industries Incorporated

    635,300        31,900        79,400        587,800        54,935,788        0        1,843,337   

Century Casinos Incorporated

    1,220,300        309,300        53,100        1,476,500        9,095,240        0        (23,411

Cross Country Healthcare Incorporated*

    1,640,500        129,949        443,601        1,326,848        15,431,242        0        (1,391,638

lnterOil Corporation*

    3,601,700        183,600        1,940,900        1,844,400        58,707,252        0        30,440,724   

Medley Management Incorporated Class A

    753,200        24,404        88,504        689,100        3,790,050        574,559        (621,385

OraSure Technologies Incorporated*

    4,218,600        0        1,542,800        2,675,800        19,346,034        0        (3,605,701

Skyline Corporation

    550,900        75,300        0        626,200        5,804,874        0        0   

Webco Industries Incorporated

    81,000        0        25,600        55,400        2,221,540        0        (1,054,767
                                            $ 574,559      $ 25,261,687   

 

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

7. BANK BORROWINGS

The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $200,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2016 and March 31, 2015 were as follows:

 

     Year ended March 31  
     2016      2015  

Ordinary income

   $ 0       $ 30,981,316   

Long-term capital gain

     279,330,765         360,164,714   

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

 

Undistributed

long-term

gain

  

Unrealized

gains 

$77,653,586    $253,830,787

9. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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Report of independent registered public accounting firm   Wells Fargo Small Cap Value Fund     29   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Small Cap Value Fund (formerly known as Wells Fargo Advantage Small Cap Value Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statements of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for the each of the years in the two-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years or periods in the three-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Small Cap Value Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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30   Wells Fargo Small Cap Value Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 852 of the Internal Revenue Code, $279,330,765 was designated as long-term capital gain distributions for the fiscal year ended March 31, 2016.

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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Other information (unaudited)   Wells Fargo Small Cap Value Fund     31   

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

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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32   Wells Fargo Small Cap Value Fund   Other information (unaudited)

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

Current other

public company or
investment company
directorships

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

 

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

Officers

 

Name and

year of birth

  Position held and
length of service
  Principal occupations during past five years or longer    
Karla M. Rabusch (Born 1959)   President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    

Nancy Wiser1

(Born 1967)

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

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

David Berardi

(Born 1975)

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

 

 

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

 

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


Table of Contents

 

List of abbreviations   Wells Fargo Small Cap Value Fund     33   

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

 

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


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LOGO

 

 

LOGO

For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

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

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

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

LOGO     

241817 05-16

A244/AR244 03-16


Table of Contents

Annual Report

March 31, 2016

 

LOGO

 

Wells Fargo Small/Mid Cap Value Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    13   

Statement of operations

    14   

Statement of changes in net assets

    15   

Financial highlights

    16   

Notes to financial statements

    20   

Report of independent registered public accounting firm

    25   

Other information

    26   

List of abbreviations

    29   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Throughout the period, stock performance was highly volatile.

 

 

 

 

Stock values recovered during the second half of the first quarter of 2016.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Small/Mid Cap Value Fund for the 12-month period that ended March 31, 2016. Throughout the period, stock performance was highly volatile. Investors reacted to slowing economic growth, moderating corporate earnings, weakening commodity prices, increasing central-bank intervention, and shifts in currency values. During the last four weeks of the period, investor sentiment appeared to move beyond these concerns as economic data firmed and stocks gained across the capitalization spectrum.

As investors grew concerned about global issues, volatility increased.

A common measure of investors’ stock volatility expectations—the Chicago Board Options Exchange (CBOE) Volatility Index (VIX)1—illustrated the shifts in investor sentiment. The VIX spiked to readings above 40 in August 2015, indicating increased investor anxiety. During a comparatively calm autumn, VIX readings trended to the midteens and closer to their five-year average. Then stock markets grew volatile again as the winter months arrived. After the new year began, VIX readings spiked to the high 20s as U.S. equity markets posted their worst start to a calendar year on record. Stock values recovered during the second half of the first quarter of 2016. Investors appeared to be encouraged by improving economic data and the reassurances of central bankers that they remain committed to spurring growth through policy initiatives.

However, business, economic, and central-bank policy development had countervailing influences. For example, while a stronger dollar benefited consumer purchasing power, it tended to negatively affect corporate earnings and investment gains earned overseas when translated to U.S. dollars. Lower energy costs helped consumers’ budgets but hampered the profits and stock performance in the energy sector. While lower interest rates encouraged spending, the potential for interest-rate increases caused uncertainty.

Central bankers responded with policy initiatives in response to shifting economic conditions.

In December 2015, the U.S. Federal Reserve (Fed) increased the federal funds rate, the first interest-rate increase since 2006. The Fed also expressed its intention to increase the rate several times during 2016. After the new year began, as data weakened and volatility increased, the Fed retrenched, which injected additional uncertainty into the markets. In the eurozone, the European Central Bank continued to encourage lending and investing by making funds available to banks at low interest rates, imposing a negative interest rate on bank deposits, and purchasing bonds through its quantitative easing program. In Japan, the central bank also implemented a negative interest-rate policy intended to spur lending and investment. In China, the People’s Bank of China lowered interest rates and bank reserve requirements, in addition to devaluing the country’s currency to support exports.

 

 

 

1  The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market’s expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006.


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Letter to shareholders (unaudited)   Wells Fargo Small/Mid Cap Value Fund     3   

Volatility and recoveries highlighted the value of a long-term investment strategy.

The experience of the past 12 months demonstrated the value of maintaining a disciplined, long-term investment strategy despite short-term volatility. Broad U.S. equity indexes trimmed their worst losses measured to the midpoint of the period to recover all or a portion of their lost values by the end of the period. For example, the S&P 500 Index,2 a commonly referenced gauge of large-cap stock performance, gained 1.78% for the 12-month period that ended March 31, 2016, after recording a 6.18% loss for the six-month period that ended September 30, 2015. Some observers attributed the S&P 500 Index’s relative outperformance to investors who moved their equity allocations higher in the capitalization structure in pursuit of the perceived safety of large-cap stocks. The Russell Midcap® Index3 lost 4.04% for the 12-month period that ended March 31, 2016, regaining more than half of the 9.42% loss it had recorded for the six-month period that ended September 30, 2015. For the 12-month period that ended March 31, 2016, the Russell 2000® Index,4 a common small-cap stock index, lost 9.76%, an improvement from the 11.55% loss it had recorded during the six-month period that ended September 30, 2015.

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.

 

 

2  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.

 

3  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

4  The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.


Table of Contents

 

4   Wells Fargo Small/Mid Cap Value Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Erik C. Astheimer

I. Charles Rinaldi

Michael Schneider, CFA®

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (WFVAX)   7-31-2007     (1.84     (0.09     1.28        4.13        1.10        1.89        1.43        1.36   
Class C (WFCVX)   7-31-2007     2.32        0.34        1.16        3.32        0.34        1.16        2.18        2.11   
Administrator Class (WWMDX)   4-8-2005                          4.35        1.34        2.15        1.35        1.16   
Institutional Class (WWMSX)   8-31-2006                          4.49        1.51        2.33        1.10        0.96   
Russell 2500TM Value Index4                            (5.20     8.33        5.80                 

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small/Mid Cap Value Fund     5   
Growth of $10,000 investment as of March 31, 20165
LOGO

 

 

 

 

 

 

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

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.35% for Class A, 2.10% for Class C, 1.15% Administrator Class and 0.95% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Russell 2500TM Value Index measures the performance of those Russell 2500TM companies with lower price-to-book ratios and lower forecasted growth values. You cannot invest directly in an index.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the Russell 2500TM Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

6  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

7  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.


Table of Contents

 

6   Wells Fargo Small/Mid Cap Value Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed its benchmark, the Russell 2500TM Value Index, for the 12-month period that ended March 31, 2016.

 

n   The Fund benefited from an overweight to materials, particularly gold-mining companies.

 

n   Strong stock selection in the consumer discretionary and industrials sectors also drove the outperformance.

 

n   The Fund’s underweight to the utilities sector and weakness within some of our health care holdings detracted from performance.

Equities declined during the 12-month period that ended March 31, 2016, as measured by the Russell 2500TM Value Index. The disappointing economic recovery in the U.S., slowing growth in emerging markets, heightened geopolitical risks, and uncertainty regarding global central bank actions presented a difficult environment for equities. This backdrop was more positive for gold, which rose over 4% during this time. Most gold-related equities outperformed the gold price. Despite the macro headwinds over the past 12 months, our Fund generated a positive absolute return versus the benchmark, which finished down for the period.

 

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

Randgold Resources Limited ADR

     6.03   

Cavco Industries Incorporated

     5.70   

UMH Properties Incorporated

     5.52   

Integrated Electrical Services Incorporated

     5.37   

InterOil Corporation

     5.31   

Skyline Corporation

     2.95   

Century Casinos Incorporated

     2.17   

Cray Incorporated

     1.94   

Sandvine Corporation

     1.68   

Sierra Bancorp

     1.62   

Gold and the shares of most gold miners performed strongly in a weak equity market.

An overweight to the materials sector, specifically gold-mining companies, contributed to relative performance. We hold positions in gold miners in part because we believe they improve the Fund’s diversification given their lower correlation to the broad market. This proved true during the period, as gold and the shares of most gold miners performed strongly in the face of a weak equity market. We expect global mine supply to decline, which, coupled with the uncertain macroeconomic backdrop, should bode well for the price of gold. Randgold Resources Limited, one of the Fund’s largest holdings, gained more than 30%. Randgold is profitable and has disciplined management, a strong

 

balance sheet, and high-quality mining assets. It continues to be a core Fund holding.

Strong stock selection in the consumer discretionary sector helped Fund performance. The Fund’s manufactured housing producers, Cavco Industries, Incorporated, and Skyline Corporation, returned more than 24% and 160%, respectively. The manufactured housing industry is slowly recovering after a major downturn. As industry volumes increase, Cavco and Skyline are generating improved results. We believe the industry is in the early stages of a recovery and the outlook for these companies is very positive. Century Casinos, Incorporated, another strong performer, benefited from a successful new property in Canada and improved margins at its operations in Poland.

Integrated Electrical Services, Incorporated, drove the strong performance in the industrials sector. This company primarily provides electrical construction and contracting services to the residential, communications, and commercial and industrial industries. Integrated Electrical Services reported strong earnings over the past year, driven by growth in the residential and communications divisions. Integrated Electrical Services has a strong balance sheet with a net cash position, and the outlook for the company’s end markets remains positive.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small/Mid Cap Value Fund     7   

 

Sector distribution as of March 31, 20167
LOGO

Despite weakness in oil, the Fund’s energy stocks contributed to relative performance.

Despite the weakness in oil, the Fund’s energy stocks were a modest contributor to relative performance. Our largest energy holding, InterOil Corporation, outperformed the energy sector within the benchmark despite the stock’s 31% loss during the period. Even though the company, a natural gas exploration concern, isn’t directly tied to oil, the weak sector sentiment negatively influenced the stock. InterOil’s transaction with Total S.A. regarding the Elk/Antelope natural gas resource remains on track and is expected to close in the third quarter. At certification of the transaction, InterOil will receive a large certification payment tied to the

 

amount of gas present rather than based on commodity prices. The deal will further de-risk the company’s financial position and allow it to advance its drilling programs on multiple fields.

Our underweight to the utilities sector, one of the best performers for the 12-month period, was a detractor. Weakness within our health care holdings negatively affected performance. While there was a positive influence due to the acquisition of Merge Healthcare Incorporated by IBM Corporation, it was not enough to offset the underperformance of EnteroMedics Incorporated. EnteroMedics is a medical device company that has developed a neuro-blocking technology to treat obesity that is less invasive than alternate procedures. Despite receiving the approval of the U.S. Food and Drug Administration, ramp-up of the device that was slower than anticipated and subsequent equity offerings negatively affected the price of the stock.

We remain focused on companies whose businesses are likely to benefit in the long-term.

We are cautious on the overall market. Corporate profit margins are high and valuation multiples are not cheap. It is possible that profit margins revert to more historical levels and the share-price multiple that investors put on those earnings also could move lower. The interaction of these two influences could lead to lower stock prices. In addition, the hesitancy of the U.S. Federal Reserve to raise interest rates in the U.S. and the move by some central banks overseas to negative interest-rate regimes suggest that global economic growth is not yet robust. Given these factors, we believe it’s prudent to remain cautious. We continue to focus on company-specific fundamentals to guide our decisions. We believe our diversified approach, which includes exposure to gold miners, leaves the Fund well positioned to meet the various challenges that may lie ahead.

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Small/Mid Cap Value Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,152.91       $ 7.27         1.35

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.25       $ 6.81         1.35

Class C

           

Actual

   $ 1,000.00       $ 1,148.14       $ 11.28         2.10

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.50       $ 10.58         2.10

Administrator Class

           

Actual

   $ 1,000.00       $ 1,153.96       $ 6.19         1.15

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.25       $ 5.81         1.15

Institutional Class

           

Actual

   $ 1,000.00       $ 1,154.54       $ 5.12         0.95

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.25       $ 4.80         0.95

 

 

1 Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half-year period).


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small/Mid Cap Value Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 93.49%

          

Consumer Discretionary: 21.66%

          
Auto Components: 1.24%           

Fox Factory Holding Corporation †

          38,570       $ 609,792   
          

 

 

 
Hotels, Restaurants & Leisure: 2.57%           

Century Casinos Incorporated †

              173,700         1,069,992   

Peak Resorts Incorporated

          57,600         195,840   
             1,265,832   
          

 

 

 
Household Durables: 14.22%           

Cavco Industries Incorporated †

          30,013         2,805,015   

D.R. Horton Incorporated

          24,500         740,635   

Nobility Homes Incorporated †(a)

          28,200         394,800   

Skyline Corporation †

          156,482         1,450,588   

Taylor Morrison Home Corporation Class A †

          40,009         564,927   

The New Home Company Incorporated †

          25,800         316,308   

WCI Communities Incorporated †

          39,202         728,373   
             7,000,646   
          

 

 

 
Media: 3.63%           

Cinemark Holdings Incorporated

          12,300         440,709   

Entravision Communications Corporation Class A

          95,975         714,054   

Interpublic Group of Companies Incorporated

          7,300         167,535   

News Corporation Class A

          36,321         463,819   
             1,786,117   
          

 

 

 

Energy: 7.22%

          
Oil, Gas & Consumable Fuels: 7.22%           

Canadian Natural Resources Limited

          7,267         196,209   

InterOil Corporation †

          82,189         2,616,076   

Raging River Exploration Incorporated †

          29,400         205,545   

Range Resources Corporation

          8,100         262,278   

Sanchez Energy Corporation †

          49,968         274,324   
             3,554,432   
          

 

 

 

Financials: 26.34%

          
Banks: 12.82%           

American River Bankshares †

          54,700         555,752   

Ameris Bancorp

          13,656         403,944   

BBCN Bancorp Incorporated

          45,006         683,641   

Hilltop Holdings Incorporated †

          29,844         563,455   

IBERIABANK Corporation

          12,985         665,741   

Midsouth Bancorp Incorporated

          41,574         317,210   

Pacific Premier Bancorp Incorporated †

          30,819         658,602   

Sierra Bancorp

          43,900         796,785   

The Bancorp Incorporated †

          87,345         499,613   

Valley National Bancorp

          48,165         459,494   

Wilshire Bancorp Incorporated

          68,381         704,324   
             6,308,561   
          

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Small/Mid Cap Value Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  
Capital Markets: 0.36%           

Safeguard Scientifics Incorporated †

          13,500       $ 178,875   
          

 

 

 
Consumer Finance: 0.82%           

Enova International Incorporated †

          64,015         403,935   
          

 

 

 
Insurance: 2.49%           

Conifer Holdings Incorporated †

          52,900         345,437   

First Acceptance Corporation †

              192,321         346,178   

Health Insurance Innovations Incorporated Class A †

          34,972         213,679   

James River Group Holdings Limited

          9,900         319,374   
             1,224,668   
          

 

 

 
REITs: 8.75%           

Owens Realty Mortgage Incorporated

          28,200         450,354   

Potlatch Corporation

          18,006         567,189   

Redwood Trust Incorporated

          43,600         570,288   

UMH Properties Incorporated

          273,900         2,717,088   
             4,304,919   
          

 

 

 
Thrifts & Mortgage Finance: 1.10%           

Northwest Bancshares Incorporated

          40,283         544,223   
          

 

 

 

Health Care: 2.12%

          
Health Care Equipment & Supplies: 0.19%           

Allied Healthcare Products Incorporated †

          33,100         23,167   

EnteroMedics Incorporated †

          71,193         68,844   
             92,011   
          

 

 

 
Health Care Providers & Services: 0.93%           

Cross Country Healthcare Incorporated †

          39,481         459,164   
          

 

 

 
Health Care Technology: 1.00%           

Allscripts Healthcare Solutions Incorporated †

          21,222         280,343   

Omnicell Incorporated †

          7,600         211,812   
             492,155   
          

 

 

 

Industrials: 15.57%

          
Airlines: 3.40%           

American Airlines Group Incorporated

          7,741         317,458   

JetBlue Airways Corporation †

          26,548         560,694   

LATAM Airlines Group ADR †

          53,766         376,362   

United Continental Holdings Incorporated †

          7,000         419,020   
             1,673,534   
          

 

 

 
Commercial Services & Supplies: 2.35%           

ACCO Brands Corporation †

          28,430         255,301   

Healthcare Services Group Incorporated

          14,636         538,751   

SP Plus Corporation †

          15,139         364,244   
             1,158,296   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Small/Mid Cap Value Fund     11   

      

 

 

Security name             Shares      Value  
Construction & Engineering: 6.32%           

Integrated Electrical Services Incorporated †

          180,100       $ 2,642,067   

Sterling Construction Company Incorporated †

          91,200         469,680   
             3,111,747   
          

 

 

 
Machinery: 2.57%           

Actuant Corporation Class A

          12,823         316,856   

Graco Incorporated

          3,600         302,256   

Kennametal Incorporated

          4,928         110,831   

Xylem Incorporated

          13,023         532,641   
             1,262,584   
          

 

 

 
Trading Companies & Distributors: 0.93%           

Applied Industrial Technologies Incorporated

          10,600         460,040   
          

 

 

 

Information Technology: 8.68%

          
Communications Equipment: 3.72%           

Applied Optoelectronics Incorporated †

          36,413         542,918   

Ruckus Wireless Incorporated †

          47,100         462,051   

Sandvine Corporation (a)†

          385,900         824,979   
             1,829,948   
          

 

 

 
Electronic Equipment, Instruments & Components: 2.12%           

Coherent Incorporated †

          2,100         192,990   

Knowles Corporation †

          21,181         279,166   

Mercury Computer Systems Incorporated †

          28,022         568,847   
             1,041,003   
          

 

 

 
Semiconductors & Semiconductor Equipment: 0.90%           

FormFactor Incorporated †

          61,120         444,342   
          

 

 

 
Technology Hardware, Storage & Peripherals: 1.94%           

Cray Incorporated †

          22,800         955,548   
          

 

 

 

Materials: 11.49%

          
Metals & Mining: 11.49%           

Agnico-Eagle Mines Limited – U.S. Exchange Traded Shares

          11,635         420,722   

Endeavour Mining Corporation †

          60,600         514,663   

Lucara Diamond Corporation – U.S. Exchange Traded Shares

          295,144         619,507   

Randgold Resources Limited ADR

          32,700         2,969,487   

Rockwell Diamonds Incorporated †(a)(i)

              490,000         28,261   

Rockwell Diamonds Incorporated – Legend Shares (i)

          701,000         40,481   

Royal Gold Incorporated

          6,900         353,901   

Sandstorm Gold Limited †

          115,700         380,652   

Silver Wheaton Corporation – U.S. Exchange Traded Shares

          19,769         327,770   
             5,655,444   
          

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Small/Mid Cap Value Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name                Shares      Value  

Telecommunication Services: 0.41%

         
Diversified Telecommunication Services: 0.41%          

Cincinnati Bell Incorporated †

         51,800       $ 200,466   
         

 

 

 

Total Common Stocks (Cost $32,275,592)

            46,018,282   
         

 

 

 

Exchange-Traded Funds: 0.87%

         

Market Vectors Junior Gold Miners ETF

         15,454         430,394   
         

 

 

 

Total Exchange-Traded Funds (Cost $464,456)

            430,394   
         

 

 

 
          Expiration date                
Warrants: 0.02%          

Health Care: 0.02%

         
Health Care Equipment & Supplies: 0.02%          

EnteroMedics Incorporated †(a)(i)

      5-14-2016         270,908         280   

EnteroMedics Incorporated †(a)(i)

      9-28-2016         13,680         1,964   

EnteroMedics Incorporated †(a)(i)

      2-27-2018         48,280         9,346   

Total Warrants (Cost $0)

            11,590   
         

 

 

 
    Yield                      
Short-Term Investments: 5.38%          
Investment Companies: 5.38%          

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

    0.44            2,646,493         2,646,493   
         

 

 

 

Total Short-Term Investments (Cost $2,646,493)

            2,646,493   
         

 

 

 

 

Total investments in securities (Cost $35,386,541) *     99.76        49,106,759   

Other assets and liabilities, net

    0.24           116,233   
 

 

 

      

 

 

 
Total net assets     100.00      $ 49,222,992   
 

 

 

      

 

 

 

 

 

Non-income-earning security

 

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

 

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

 

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

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $36,849,473 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 18,347,130   

Gross unrealized losses

     (6,089,844
  

 

 

 

Net unrealized gains

   $ 12,257,286   

 

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


Table of Contents

 

Statement of assets and liabilities—March 31, 2016   Wells Fargo Small/Mid Cap Value Fund     13   
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $32,740,048)

  $ 46,460,266   

In affiliated securities, at value (cost $2,646,493)

    2,646,493   
 

 

 

 

Total investments, at value (cost $35,386,541)

    49,106,759   

Cash

    2,899   

Receivable for investments sold

    362,424   

Receivable for Fund shares sold

    42,018   

Receivable for dividends

    51,786   

Prepaid expenses and other assets

    23,854   
 

 

 

 

Total assets

    49,589,740   
 

 

 

 

Liabilities

 

Payable for investments purchased

    218,598   

Payable for Fund shares redeemed

    77,294   

Management fee payable

    21,984   

Distribution fee payable

    1,823   

Administration fees payable

    8,271   

Professional fees payable

    4,145   

Shareholder report expenses payable

    18,452   

Accrued expenses and other liabilities

    16,181   
 

 

 

 

Total liabilities

    366,748   
 

 

 

 

Total net assets

  $ 49,222,992   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 34,835,431   

Accumulated net realized gains on investments

    667,312   

Net unrealized gains on investments

    13,720,249   
 

 

 

 

Total net assets

  $ 49,222,992   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 41,542,681   

Shares outstanding – Class A1

    3,579,604   

Net asset value per share – Class A

    $11.61   

Maximum offering price per share – Class A2

    $12.32   

Net assets – Class C

  $ 2,965,229   

Shares outstanding – Class C1

    271,410   

Net asset value per share – Class C

    $10.93   

Net assets – Administrator Class

  $ 2,665,138   

Shares outstanding – Administrator Class1

    222,297   

Net asset value per share – Administrator Class

    $11.99   

Net assets – Institutional Class

  $ 2,049,944   

Shares outstanding – Institutional Class1

    169,369   

Net asset value per share – Institutional Class

    $12.10   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

14   Wells Fargo Small/Mid Cap Value Fund   Statement of operations—year ended March 31, 2016
         

Investment income

 

Dividends (net of foreign withholding taxes of $6,556)

  $ 675,772   

Income from affiliated securities

    3,610   
 

 

 

 

Total investment income

    679,382   
 

 

 

 

Expenses

 

Management fee

    426,275   

Administration fees

 

Class A

    48,832   

Class C

    7,490   

Administrator Class

    3,456   

Institutional Class

    3,562   

Investor Class

    68,181 1 

Shareholder servicing fees

 

Class A

    56,552   

Class C

    8,316   

Administrator Class

    7,206   

Investor Class

    53,267 1 

Distribution fee

 

Class C

    24,949   

Custody and accounting fees

    15,837   

Professional fees

    42,748   

Registration fees

    75,921   

Shareholder report expenses

    36,534   

Trustees’ fees and expenses

    20,232   

Other fees and expenses

    8,968   
 

 

 

 

Total expenses

    908,326   

Less: Fee waivers and/or expense reimbursements

    (169,611
 

 

 

 

Net expenses

    738,715   
 

 

 

 

Net investment loss

    (59,333
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    3,124,491   

Net change in unrealized gains (losses) on investments

    (1,511,993
 

 

 

 

Net realized and unrealized gains (losses) on investments

    1,612,498   
 

 

 

 

Net increase in net assets resulting from operations

  $ 1,553,165   
 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

Statement of changes in net assets   Wells Fargo Small/Mid Cap Value Fund     15   
     Year ended
March 31, 2016
    Year ended
March 31, 2015
 

Operations

       

Net investment loss

    $ (59,333     $ (154,084

Net realized gains on investments

      3,124,491          10,733,260   

Net change in unrealized gains (losses) on investments

      (1,511,993       (29,960,089
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      1,553,165          (19,380,913
 

 

 

 

Distributions to shareholders from

       

Net realized gains

       

Class A

      (753,888       (3,859,460

Class C

      (57,077       (2,021,715

Administrator Class

      (44,503       (1,576,683

Institutional Class

      (57,749       (1,605,351

Investor Class

      0 1        (12,209,745
 

 

 

 

Total distributions to shareholders

      (913,217       (21,272,954
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    3,305,207        36,992,488        273,650        4,672,524   

Class C

    32,518        336,975        113,449        1,504,201   

Administrator Class

    52,107        607,564        115,653        2,005,080   

Institutional Class

    193,995        2,262,265        506,801        8,494,369   

Investor Class

    133,107 1      1,492,267 1      607,478        10,486,522   
 

 

 

 
      41,691,559          27,162,696   
 

 

 

 

Reinvestment of distributions

       

Class A

    69,118        741,633        339,370        3,824,702   

Class C

    4,991        50,509        108,994        1,168,410   

Administrator Class

    3,654        40,485        128,628        1,492,081   

Institutional Class

    4,919        55,000        72,544        847,311   

Investor Class

    0 1      0 1      1,069,774        12,099,144   
 

 

 

 
      887,627          19,431,648   
 

 

 

 

Payment for shares redeemed

       

Class A

    (788,500     (8,715,874     (725,009     (10,498,924

Class C

    (181,133     (1,922,252     (360,815     (4,563,950

Administrator Class

    (184,506     (2,168,373     (1,127,021     (19,233,321

Institutional Class

    (408,823     (4,578,247     (977,958     (15,827,735

Investor Class

    (3,670,314 )1      (41,284,417 )1      (1,533,274     (23,460,698
 

 

 

 
      (58,669,163       (73,584,628
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (16,089,977       (26,990,284
 

 

 

 

Total decrease in net assets

      (15,450,029       (67,644,151
 

 

 

 

Net assets

       

Beginning of period

      64,673,021          132,317,172   
 

 

 

 

End of period

    $ 49,222,992        $ 64,673,021   
 

 

 

 

Undistributed (accumulated) net investment income (loss)

    $ 0        $ (9,164
 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

16   Wells Fargo Small/Mid Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS A   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $11.36        $18.63        $17.66        $16.17        $14.61        $14.33   

Net investment income (loss)

    0.01 2      (0.01     0.09 2      0.11 2      0.07        0.06   

Net realized and unrealized gains (losses) on investments

    0.44        (3.13     1.93        1.42        1.55        0.35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.45        (3.14     2.02        1.53        1.62        0.41   

Distributions to shareholders from

       

Net investment income

    0.00        0.00        0.00        (0.04     (0.06     (0.13

Net realized gains

    (0.20     (4.13     (1.05     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.20     (4.13     (1.05     (0.04     (0.06     (0.13

Net asset value, end of period

    $11.61        $11.36        $18.63        $17.66        $16.17        $14.61   

Total return3

    4.13     (16.66 )%      12.22     9.47     11.13     2.76

Ratios to average net assets (annualized)

       

Gross expenses

    1.66     1.47     1.57     1.41     1.41     1.40

Net expenses

    1.35     1.35     1.39     1.40     1.40     1.40

Net investment income (loss)

    0.12     (0.11 )%      1.20     0.68     0.37     0.37

Supplemental data

       

Portfolio turnover rate

    34     33     24     29     32     34

Net assets, end of period (000s omitted)

    $41,543        $11,288        $20,599        $19,659        $25,612        $34,642   

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Small/Mid Cap Value Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS C   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $10.79        $18.07        $17.21        $15.84        $14.36        $14.10   

Net investment income (loss)

    (0.09 )2      (0.13 )2      0.03 2      (0.01 )2      (0.08     (0.06

Net realized and unrealized gains (losses) on investments

    0.43        (3.02     1.88        1.38        1.56        0.35   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.34        (3.15     1.91        1.37        1.48        0.29   

Distributions to shareholders from

       

Net investment income

    0.00        0.00        0.00        0.00        0.00        (0.03

Net realized gains

    (0.20     (4.13     (1.05     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.20     (4.13     (1.05     0.00        0.00        (0.03

Net asset value, end of period

    $10.93        $10.79        $18.07        $17.21        $15.84        $14.36   

Total return3

    3.32     (17.26 )%      11.88     8.65     10.31     2.05

Ratios to average net assets (annualized)

       

Gross expenses

    2.40     2.22     2.32     2.17     2.16     2.15

Net expenses

    2.10     2.10     2.14     2.15     2.15     2.15

Net investment income (loss)

    (0.84 )%      (0.87 )%      0.46     (0.07 )%      (0.40 )%      (0.38 )% 

Supplemental data

       

Portfolio turnover rate

    34     33     24     29     32     34

Net assets, end of period (000s omitted)

    $2,965        $4,476        $9,999        $9,347        $10,763        $12,204   

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

18   Wells Fargo Small/Mid Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $11.70        $19.00        $17.97        $16.46        $14.89        $14.60   

Net investment income (loss)

    0.01 2      (0.00 )2,3      0.11 2      0.15 2      0.10        0.09   

Net realized and unrealized gains (losses) on investments

    0.48        (3.17     1.97        1.44        1.58        0.36   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.49        (3.17     2.08        1.59        1.68        0.45   

Distributions to shareholders from

       

Net investment income

    0.00        0.00        0.00        (0.08     (0.11     (0.16

Net realized gains

    (0.20     (4.13     (1.05     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.20     (4.13     (1.05     (0.08     (0.11     (0.16

Net asset value, end of period

    $11.99        $11.70        $19.00        $17.97        $16.46        $14.89   

Total return4

    4.35     (16.48 )%      12.34     9.75     11.33     3.13

Ratios to average net assets (annualized)

       

Gross expenses

    1.54     1.28     1.39     1.24     1.24     1.24

Net expenses

    1.15     1.14     1.15     1.15     1.15     1.15

Net investment income (loss)

    0.13     (0.02 )%      1.44     0.91     0.59     0.61

Supplemental data

       

Portfolio turnover rate

    34     33     24     29     32     34

Net assets, end of period (000s omitted)

    $2,665        $4,107        $23,445        $24,127        $68,857        $76,668   

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Small/Mid Cap Value Fund     19   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $11.79        $19.08        $18.06        $16.54        $14.97        $14.67   

Net investment income

    0.03 2      0.04 2      0.12 2      0.18 2      0.11        0.11   

Net realized and unrealized gains (losses) on investments

    0.48        (3.20     1.98        1.46        1.60        0.38   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.51        (3.16     2.10        1.64        1.71        0.49   

Distributions to shareholders from

       

Net investment income

    0.00        0.00        (0.03     (0.12     (0.14     (0.19

Net realized gains

    (0.20     (4.13     (1.05     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.20     (4.13     (1.08     (0.12     (0.14     (0.19

Net asset value, end of period

    $12.10        $11.79        $19.08        $18.06        $16.54        $14.97   

Total return3

    4.49     (16.34 )%      12.46     9.94     11.61     3.28

Ratios to average net assets (annualized)

       

Gross expenses

    1.28     1.03     1.12     0.99     0.98     0.97

Net expenses

    0.95     0.95     0.95     0.95     0.95     0.95

Net investment income

    0.27     0.24     1.65     1.10     0.74     0.79

Supplemental data

       

Portfolio turnover rate

    34     33     24     29     32     34

Net assets, end of period (000s omitted)

    $2,050        $4,473        $14,842        $37,671        $47,737        $29,881   

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

20   Wells Fargo Small/Mid Cap Value Fund   Notes to financial statements

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Small/Mid Cap Value Fund (the “Fund”) which is a diversified series of the Trust.

Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

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

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2016, such fair value pricing was not used in pricing foreign securities.

Investments in registered open-end investment companies are valued at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

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


Table of Contents

 

Notes to financial statements   Wells Fargo Small/Mid Cap Value Fund     21   

used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Distributions to shareholders

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

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. In addition, the Fund may utilize equalization accounting for tax purposes and designate earnings and profits, including net realized gains distributed to shareholders on redemption of shares, as a part of the dividends paid deduction for income tax purposes. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends from certain securities, and net operating losses. At March 31, 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 gains
on investments

$(280,947)    $68,497    $212,450


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22   Wells Fargo Small/Mid Cap Value Fund   Notes to financial statements

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stock

           

Consumer discretionary

   $ 10,267,587       $ 394,800       $ 0       $ 10,662,387   

Energy

     3,554,432         0         0         3,554,432   

Financials

     12,965,181         0         0         12,965,181   

Health care

     1,043,330         0         0         1,043,330   

Industrials

     7,666,201         0         0         7,666,201   

Information technology

     3,445,862         824,979         0         4,270,841   

Materials

     4,967,195         688,249         0         5,655,444   

Telecommunication services

     200,466         0         0         200,466   

Exchange-traded funds

     430,394         0         0         430,394   

Warrants

           0      

Health care

     0         11,590         0         11,590   

Short-term investments

           0      

Investment companies

     2,646,493         0         0         2,646,493   

Total assets

   $ 47,187,141       $ 1,919,618       $ 0       $ 49,106,759   

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services,


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Notes to financial statements   Wells Fargo Small/Mid Cap Value Fund     23   

implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.80% and declining to 0.63% 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 0.75% and declined to 0.60% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.80% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.35% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class C

     0.21      0.26

Administrator Class

     0.13         0.10   

Institutional Class

     0.13         0.08   

Investor Class

     0.32         0.32   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.35% for Class A shares, 2.10% for Class C shares, 1.15% for Administrator Class shares, and 0.95% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fee

The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares.

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2016, Funds Distributor received $525 from the sale of Class A shares and $14 in contingent deferred sales charges from redemptions of Class C shares.


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24   Wells Fargo Small/Mid Cap Value Fund   Notes to financial statements

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, Administrator Class, and Investor Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $17,818,738 and $34,167,101, respectively.

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.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2016 and March 31, 2015 were as follows:

 

     Year ended March 31  
     2016      2015  

Ordinary income

   $ 0       $ 3,167,177   

Long-term capital gain

     913,217         18,105,777   

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

 

Undistributed

long-term

gain

  

Unrealized

gains

$2,149,357    $12,238,204

8. CONCENTRATION RISK

Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.

9. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.

10. REORGANIZATION

At a regular meeting of the Board of Trustees held on February 17-18, 2016, the Trustees of the Fund approved a Plan of Reorganization (the “Plan”). Under the Plan, Wells Fargo Small Cap Value Fund will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Small Cap Value Fund.

A Special Meeting of Shareholders of the Fund will be held on June 28, 2016 to consider and vote on the Plan. On May 6, 2016, materials for this meeting were mailed to shareholders of record on April 15, 2016.


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Report of independent registered public accounting firm   Wells Fargo Small/Mid Cap Value Fund     25   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Small/Mid Cap Value Fund (formerly known as Wells Fargo Advantage Small/Mid Cap Value Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the two-year period then ended, the period from November 1, 2013 to March 31, 2014 and each of the years in the three-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Small/Mid Cap Value Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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26   Wells Fargo Small/Mid Cap Value Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 852 of the Internal Revenue Code, $913,217 was designated as long-term capital gain distributions for the fiscal year ended March 31, 2016.

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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Other information (unaudited)   Wells Fargo Small/Mid Cap Value 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 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   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 Small/Mid Cap Value Fund   Other information (unaudited)

Name and

year of birth

 

Position held and

length of service*

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

 

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

Officers

 

Name and

year of birth

  Position held and
length of service
  Principal occupations during past five years or longer    
Karla M. Rabusch
(Born 1959)
  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Nancy Wiser1
(Born 1967)
  Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
C. David Messman
(Born 1960)
  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
David Berardi
(Born 1975)
  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)
  Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

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

 

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


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List of abbreviations   Wells Fargo Small/Mid Cap Value 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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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     

241818 05-16

A245/AR245 03-16


Table of Contents

Annual Report

March 31, 2016

 

LOGO

 

Wells Fargo Special Small Cap Value Fund

 

LOGO

 

 

LOGO


Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    14   

Statement of operations

    15   

Statement of changes in net assets

    16   

Financial highlights

    17   

Notes to financial statements

    24   

Report of independent registered public accounting firm

    30   

Other information

    31   

List of abbreviations

    34   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Throughout the period, stock performance was highly volatile.

 

 

 

 

Stock values recovered during the second half of the first quarter of 2016.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Special Small Cap Value Fund for the 12-month period that ended March 31, 2016. Throughout the period, stock performance was highly volatile. Investors reacted to slowing economic growth, moderating corporate earnings, weakening commodity prices, increasing central-bank intervention, and shifts in currency values. During the last four weeks of the period, investor sentiment appeared to move beyond these concerns as economic data firmed and stocks gained across the capitalization spectrum.

As investors grew concerned about global issues, volatility increased.

A common measure of investors’ stock volatility expectations—the Chicago Board Options Exchange (CBOE) Volatility Index (VIX)1—illustrated the shifts in investor sentiment. The VIX spiked to readings above 40 in August 2015, indicating increased investor anxiety. During a comparatively calm autumn, VIX readings trended to the midteens and closer to their five-year average. Then stock markets grew volatile again as the winter months arrived. After the new year began, VIX readings spiked to the high 20s as U.S. equity markets posted their worst start to a calendar year on record. Stock values recovered during the second half of the first quarter of 2016. Investors appeared to be encouraged by improving economic data and the reassurances of central bankers that they remain committed to spurring growth through policy initiatives.

However, business, economic, and central-bank policy development had countervailing influences. For example, while a stronger dollar benefited consumer purchasing power, it tended to negatively affect corporate earnings and investment gains earned overseas when translated to U.S. dollars. Lower energy costs helped consumers’ budgets but hampered the profits and stock performance in the energy sector. While lower interest rates encouraged spending, the potential for interest-rate increases caused uncertainty.

Central bankers responded with policy initiatives in response to shifting economic conditions.

In December 2015, the U.S. Federal Reserve (Fed) increased the federal funds rate, the first interest-rate increase since 2006. The Fed also expressed its intention to increase the rate several times during 2016. After the new year began, as data weakened and volatility increased, the Fed retrenched, which injected additional uncertainty into the markets. In the eurozone, the European Central Bank continued to encourage lending and investing by making funds available to banks at low interest rates, imposing a negative interest rate on bank deposits, and purchasing bonds through its quantitative easing program. In Japan, the central bank also implemented a negative interest-rate policy intended to spur lending and investment. In China, the People’s Bank of China lowered interest rates and bank reserve requirements, in addition to devaluing the country’s currency to support exports.

 

 

 

1  The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market’s expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006.


Table of Contents

 

Letter to shareholders (unaudited)   Wells Fargo Special Small Cap Value Fund     3   

Volatility and recoveries highlighted the value of a long-term investment strategy.

The experience of the past 12 months demonstrated the value of maintaining a disciplined, long-term investment strategy despite short-term volatility. Broad U.S. equity indexes trimmed their worst losses measured to the midpoint of the period to recover all or a portion of their lost values by the end of the period. For example, the S&P 500 Index,2 a commonly referenced gauge of large-cap stock performance, gained 1.78% for the 12-month period that ended March 31, 2016, after recording a 6.18% loss for the six-month period that ended September 30, 2015. Some observers attributed the S&P 500 Index’s relative outperformance to investors who moved their equity allocations higher in the capitalization structure in pursuit of the perceived safety of large-cap stocks. The Russell Midcap® Index3 lost 4.04% for the 12-month period that ended March 31, 2016, regaining more than half of the 9.42% loss it had recorded for the six-month period that ended September 30, 2015. For the 12-month period that ended March 31, 2016, the Russell 2000® Index,4 a common small-cap stock index, lost 9.76%, an improvement from the 11.55% loss it had recorded during the six-month period that ended September 30, 2015.

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.

 

 

2  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.

 

3  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

4  The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.


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4   Wells Fargo Special Small Cap Value Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Robert Rifkin, CFA®

James M. Tringas, CFA®, CPA

Bruant VanCronkhite, CFA®, CPA

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (ESPAX)   5-7-1993     (9.73     8.22        5.24        (4.21     9.51        5.86        1.35        1.35   
Class B (ESPBX)*   3-26-1999     (9.59     8.41        5.31        (4.92     8.70        5.31        2.10        2.10   
Class C (ESPCX)   12-12-2000     (5.93     8.70        5.08        (4.93     8.70        5.08        2.10        2.10   
Class R (ESPHX)   9-30-2015                          (4.44     9.13        5.47        1.60        1.60   
Class R6 (ESPRX)   10-31-2014                          (3.78     9.96        6.23        0.92        0.90   
Administrator Class (ESPIX)   7-23-1996                          (4.04     9.77        6.13        1.27        1.21   
Institutional Class (ESPNX)   7-30-2010                          (3.79     9.96        6.22        1.02        0.95   
Russell 2000® Value Index4                            (7.72     6.67        4.42                 
*   Class B shares are closed to investment, except in connection with the reinvestment of any distributions and permitted exchanges.

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Class R, Class R6, Administrator Class, and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Special Small Cap Value Fund     5   
Growth of $10,000 investment as of March 31, 20165
LOGO

 

 

 

1  Historical performance shown for Class R shares prior to their inception reflects the performance of the Institutional Class shares adjusted to reflect the higher expenses applicable to Class R. Historical performance for Class R6 shares prior to their inception reflects the performance of the Institutional Class shares, and includes the higher expenses applicable to Institutional Class shares. If these expenses had not been included, returns would be higher. Historical performance shown for Institutional Class shares prior to their inception reflects the performance of Administrator Class shares, and includes the higher expenses applicable to Administrator Class shares. If these expenses had not been included, returns would be higher. Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen Special Values Fund.

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.34% for Class A, 2.09% for Class B, 2.09% for Class C, 1.59% for Class R, 0.89% for Class R6, 1.20% for Administrator Class and 0.94% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Value Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

6  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

7  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

 


Table of Contents

 

6   Wells Fargo Special Small Cap Value Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund outperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2016.

 

n   Stock selection in the industrials, consumer staples, and health care sectors contributed to relative performance.

 

n   Underweights to utilities and financials, particularly banks and real estate investment trusts, detracted from performance.

The Fund outperformed through strong stock selection in an uncertain economic environment.

Over the past 12 months, we faced an extremely volatile U.S. equity market. Headlines about the U.S. Federal Reserve’s (the Fed’s) monetary policy dominated the news. In a long-awaited move, the Fed raised its target federal funds interest rate for the first time in nearly a decade. Other news that made headlines was the Greek debt crisis, a strong U.S. dollar, and oil and commodity weakness. China’s slowing growth and its potential repercussions also kept the market on edge. The past 12 months were filled with economic uncertainty and investor uneasiness; in an increasingly connected global economy, we have seen few signs of this abating.

 

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

Eagle Materials Incorporated

     2.65   

First Citizens BancShares Corporation Class A

     2.46   

Mueller Industries Incorporated

     1.97   

Brown & Brown Incorporated

     1.81   

Simpson Manufacturing Company Incorporated

     1.74   

TreeHouse Foods Incorporated

     1.70   

Franklin Electric Company Incorporated

     1.68   

GSI Group Incorporated

     1.66   

Analogic Corporation

     1.51   

Quaker Chemical Corporation

     1.51   

Stock selection in consumer staples contributed to performance. Within consumer staples, Cott Corporation was the best performer. Cott is one of the world’s largest producers of beverages, including carbonated soft drinks and juices. Recently, the company expanded into home and office distribution for water and coffee with the acquisition of DS Services Holdings, Incorporated. The acquisition closed at the end of 2014, and the company has already increased the expected synergy targets, which will culminate in better-than-expected margins. Over the past several months, Cott has closed on several acquisitions in the water and coffee business, including AquaTerra Corporation, the leading Canadian supplier. These deals are accretive and most of them come with cost synergies, as the businesses are rolled into DS

 

Services’ existing infrastructure. Cott is now earning over $1 per share in free cash flow, which is primarily being used for additional acquisitions and debt retirement. Cott’s risk/reward ratio remains attractive, and we continue to hold a meaningful position in the portfolio.

Many health care companies have been trading at lofty valuations because of their growth characteristics. By sticking to our process, which focuses on strong cash flows and a flexible balance sheet, the Fund has been able to benefit from strong stock selection within the pricey health care space during the period. An example of one such company is Owens & Minor, Incorporated, a domestic distributor of medical and surgical supplies to acute-care hospitals. A new chief executive officer, Cody Phipps, came on board in the summer of 2015 with plans to more effectively monetize the core domestic business and expand international operations. Given the renewed focus on improving efficiency and cost controls, the company reported better-than-expected fourth-quarter results, rewarding shareholders. At an investor meeting in December, management reiterated its commitment to long-term earnings-per-share growth of 8% to 10% while acknowledging lower growth in 2016 as the transition continues and further steps are taken to realign the cost structure. We are encouraged by the progress made thus far, but we will continue to monitor the risk/reward ratio and appropriately manage the size of our position in the company.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Special Small Cap Value Fund     7   
Sector distribution as of March 31, 20167
LOGO

An underweight to utilities detracted from performance as growth concerns fueled a perceived flight to safety, leading to the sector’s outperformance versus the benchmark. Utilities also had benefited from low interest rates and investors’ desire for dividend yield. Despite their stable cash-flow-generating ability, utilities typically do not have the balance sheet flexibility we desire. Because of their significant debt profiles, we have found their downside risk in a rising rate environment to be substantial, leading to less attractive risk/reward opportunities. We continue to remain underweight.

 

 

Both stock selection and a relative underweight in the banking industry detracted from performance. More specifically, TCF Financial Corporation, a Minneapolis-based regional bank, has experienced significant pressures relative to its industry peers, as the company’s aggressive consumer fee structure continues to be scrutinized by regulators. Additionally, high growth in potentially risky auto lending and recent changes to cash reserves related to that loan portfolio generated investor concerns. In our view, TCF Financial has adequately addressed many of the fee-related issues and has a respectable credit culture, which should serve it well in any elevated credit-loss environments. We believe that many of the concerns are adequately priced into the shares of TCF Financial, and we continue to hold the stock.

We continue to believe our risk/reward investment process will provide strong risk-adjusted returns.

The beginning of 2016 was tumultuous, and we believe equity market volatility will continue in the quarters to come as the current environment seems to have an unusual amount of dispersion regarding investor views on the state of the U.S. economy. Domestically, investors will continue to speculate about the path of future Fed rate hikes, as well as potential market influences associated with this year’s presidential and congressional elections. Globally, oil prices, currency fluctuations, monetary policy, and actions of extremist groups will be top of mind. Additionally, the U.K. referendum in June on whether Britain should remain a member of the European Union has the potential to disrupt many parts of the global economy. Our focus is not on forecasting future macroeconomic news and the short-term direction of the market. Through our bottom-up stock selection process, our focus is on making investments in companies that generate strong cash flows and have the balance sheet flexibility to make intelligent investment decisions at times when other companies are too skittish to invest in the future, which should better position our investments to reap outsized rewards relative to other stocks in any market environment. Because of this disciplined investment process, we remain confident in our ability to navigate all economic environments over the long term.

 

 

Please see footnotes on page 5.


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8   Wells Fargo Special Small Cap Value Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,075.07       $ 6.95         1.34

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.30       $ 6.76         1.34

Class B

           

Actual

   $ 1,000.00       $ 1,071.26       $ 10.81         2.09

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.56       $ 10.52         2.09

Class C

           

Actual

   $ 1,000.00       $ 1,070.92       $ 10.82         2.09

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.55       $ 10.52         2.09

Class R

           

Actual

   $ 1,000.00       $ 1,073.95       $ 8.21         1.58

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.08      $ 7.98         1.58

Class R6

           

Actual

   $ 1,000.00       $ 1,077.48       $ 4.62         0.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.55       $ 4.50         0.89

Administrator Class

           

Actual

   $ 1,000.00       $ 1,076.01       $ 6.23         1.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.00       $ 6.06         1.20

Institutional Class

           

Actual

   $ 1,000.00       $ 1,077.64       $ 4.88         0.94

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.30       $ 4.75         0.94

 

 

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—March 31, 2016   Wells Fargo Special Small Cap Value Fund     9   

    

 

 

Security name             Shares      Value  

Common Stocks: 92.67%

          

Consumer Discretionary: 10.49%

          
Diversified Consumer Services: 0.48%           

Liberty Tax Incorporated «

          207,847       $ 4,071,723   
          

 

 

 
Hotels, Restaurants & Leisure: 5.01%           

Denny’s Corporation †

          561,874         5,821,015   

DineEquity Incorporated

          133,250         12,449,548   

Krispy Kreme Doughnuts Incorporated †

          695,600         10,844,404   

Ruby Tuesday Incorporated †

          600,900         3,232,842   

The Wendy’s Company

          919,900         10,017,711   
             42,365,520   
          

 

 

 
Household Durables: 1.40%           

Dixie Group Incorporated †

          420,964         1,772,258   

Helen of Troy Limited †

          97,100         10,068,299   
             11,840,557   
          

 

 

 
Media: 1.67%           

A.H. Belo Corporation Class A

          939,929         4,521,058   

New Media Investment Group Incorporated

          255,242         4,247,227   

Time Incorporated

          349,300         5,393,192   
             14,161,477   
          

 

 

 
Specialty Retail: 1.37%           

Christopher & Banks Corporation †

          642,420         1,535,384   

Guess? Incorporated

          116,500         2,186,705   

The Buckle Incorporated «

          232,500         7,874,775   
             11,596,864   
          

 

 

 
Textiles, Apparel & Luxury Goods: 0.56%           

Delta Apparel Incorporated †

          248,339         4,753,208   
          

 

 

 

Consumer Staples: 5.87%

          
Beverages: 1.00%           

Cott Corporation

          611,100         8,488,179   
          

 

 

 
Food & Staples Retailing: 0.53%           

SUPERVALU Incorporated †

          771,000         4,440,960   
          

 

 

 
Food Products: 2.50%           

Nomad Foods Limited †

          328,100         2,956,181   

Snyders Lance Incorporated

          121,785         3,833,792   

TreeHouse Foods Incorporated †

          165,885         14,390,524   
             21,180,497   
          

 

 

 
Household Products: 1.84%           

Central Garden & Pet Company †

          407,392         6,656,785   

Central Garden & Pet Company Class A †

          74,700         1,216,863   

Spectrum Brands Holdings Incorporated

          70,600         7,715,168   
             15,588,816   
          

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Special Small Cap Value Fund   Portfolio of investments—March 31, 2016

    

 

 

Security name             Shares      Value  

Energy: 2.31%

          
Energy Equipment & Services: 1.66%           

Atwood Oceanics Incorporated «

          238,400       $ 2,186,128   

CARBO Ceramics Incorporated «

          190,800         2,709,360   

Patterson-UTI Energy Incorporated

          327,800         5,775,836   

Steel Excel Incorporated †

          346,013         3,359,786   
             14,031,110   
          

 

 

 
Oil, Gas & Consumable Fuels: 0.65%           

Energen Corporation

          152,000         5,561,680   
          

 

 

 

Financials: 23.42%

          
Banks: 9.46%           

Associated Banc-Corp

          508,000         9,113,520   

BBCN Bancorp Incorporated

          243,100         3,692,689   

First Citizens BancShares Corporation Class A

          83,100         20,863,917   

First Niagara Financial Group Incorporated

          1,051,400         10,177,552   

FirstMerit Corporation

          386,900         8,144,245   

Hancock Holding Company

          311,500         7,152,040   

TCF Financial Corporation

          718,936         8,814,155   

UMB Financial Corporation

          234,563         12,110,488   
             80,068,606   
          

 

 

 
Capital Markets: 2.33%           

Apollo Investment Corporation «

          622,000         3,452,100   

CIFC Corporation «

          179,685         1,275,764   

New Mountain Finance Corporation «

          265,100         3,350,864   

Westwood Holdings Group Incorporated

          198,812         11,660,324   
             19,739,052   
          

 

 

 
Insurance: 7.86%           

Allied World Assurance Company

          165,400         5,779,076   

Brown & Brown Incorporated

          427,500         15,304,500   

Endurance Specialty Holdings Limited

          113,100         7,389,954   

ProAssurance Corporation

          244,100         12,351,460   

RenaissanceRe Holdings Limited

          55,100         6,602,633   

Stewart Information Services Corporation

          185,500         6,729,940   

Validus Holdings Limited

          263,100         12,415,689   
             66,573,252   
          

 

 

 
REITs: 3.77%           

Apollo Commercial Real Estate Finance Incorporated «

          228,200         3,719,660   

Apollo Residential Mortgage

          302,800         4,063,576   

Gramercy Property Trust Incorporated

          799,816         6,758,445   

Hatteras Financial Corporation

          698,408         9,987,234   

LaSalle Hotel Properties

          290,900         7,362,679   
             31,891,594   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Special Small Cap Value Fund     11   

    

 

 

Security name             Shares      Value  

Health Care: 8.11%

          
Health Care Equipment & Supplies: 4.24%           

Analogic Corporation

          162,183       $ 12,814,079   

CryoLife Incorporated

          252,300         2,712,225   

Haemonetics Corporation †

          201,600         7,051,968   

Halyard Health Incorporated †

          187,600         5,389,748   

Steris Corporation

          111,300         7,907,865   
             35,875,885   
          

 

 

 
Health Care Providers & Services: 1.87%           

Owens & Minor Incorporated

          141,000         5,699,220   

Patterson Companies Incorporated

          218,500         10,166,805   
             15,866,025   
          

 

 

 
Health Care Technology: 0.57%           

HMS Holdings Corporation †

          336,500         4,828,775   
          

 

 

 
Life Sciences Tools & Services: 0.87%           

Bio-Rad Laboratories Incorporated Class A †

          53,600         7,328,192   
          

 

 

 
Pharmaceuticals: 0.56%           

Innoviva Incorporated «

          377,983         4,758,806   
          

 

 

 

Industrials: 16.56%

          
Building Products: 1.74%           

Simpson Manufacturing Company Incorporated

          385,718         14,722,856   
          

 

 

 
Commercial Services & Supplies: 3.55%           

ACCO Brands Corporation †

          1,167,769         10,486,566   

Brady Corporation Class A

          249,200         6,688,528   

Matthews International Corporation Class A

          86,898         4,472,640   

Viad Corporation

          288,200         8,403,912   
             30,051,646   
          

 

 

 
Construction & Engineering: 0.67%           

EMCOR Group Incorporated

          116,300         5,652,180   
          

 

 

 
Electrical Equipment: 2.46%           

EnerSys

          117,000         6,519,240   

Franklin Electric Company Incorporated

          443,187         14,257,326   
             20,776,566   
          

 

 

 
Machinery: 7.18%           

Douglas Dynamics Incorporated

          545,527         12,498,024   

ESCO Technologies Incorporated

          261,700         10,201,066   

Hillenbrand Incorporated

          293,602         8,793,380   

Kadant Incorporated

          279,144         12,606,143   

Mueller Industries Incorporated

          568,240         16,717,621   
             60,816,234   
          

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Special Small Cap Value Fund   Portfolio of investments—March 31, 2016

    

 

 

Security name             Shares      Value  
Professional Services: 0.96%           

Korn/Ferry International

          287,646       $ 8,137,505   
          

 

 

 

Information Technology: 11.76%

          
Communications Equipment: 1.67%           

Aviat Networks Incorporated †

          840,247         596,575   

NETGEAR Incorporated †

          165,400         6,677,198   

NetScout Systems Incorporated †

          298,300         6,851,951   
             14,125,724   
          

 

 

 
Electronic Equipment, Instruments & Components: 5.01%           

AVX Corporation

          505,698         6,356,624   

Coherent Incorporated †

          27,100         2,490,490   

GSI Group Incorporated †

          994,645         14,084,173   

Orbotech Limited †

          294,130         6,994,411   

Vishay Intertechnology Incorporated «

          1,024,101         12,504,273   
             42,429,971   
          

 

 

 
IT Services: 2.65%           

DST Systems Incorporated

          85,000         9,585,450   

Sykes Enterprises Incorporated †

          277,900         8,387,022   

Teradata Corporation †

          170,000         4,460,800   
             22,433,272   
          

 

 

 
Semiconductors & Semiconductor Equipment: 0.67%           

DSP Group Incorporated †

          360,915         3,291,545   

Exar Corporation †

          407,152         2,341,124   
             5,632,669   
          

 

 

 
Software: 1.41%           

ACI Worldwide Incorporated †

          228,652         4,753,675   

Progress Software Corporation †

          295,951         7,138,338   
             11,892,013   
          

 

 

 
Technology Hardware, Storage & Peripherals: 0.35%           

Imation Corporation †(l)

          1,929,730         2,991,082   
          

 

 

 

Materials: 11.69%

          
Chemicals: 6.08%           

A. Schulman Incorporated

          144,358         3,929,425   

Axiall Corporation

          100,200         2,188,368   

HB Fuller Company

          129,000         5,476,050   

Innospec Incorporated

          208,905         9,058,121   

Quaker Chemical Corporation

          150,890         12,804,525   

Scotts Miracle-Gro Company Class A

          111,300         8,099,301   

Sensient Technologies Corporation

          156,900         9,956,874   
             51,512,664   
          

 

 

 
Construction Materials: 2.65%           

Eagle Materials Incorporated

          319,600         22,407,156   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Special Small Cap Value Fund     13   

    

 

 

Security name              Shares      Value  
Containers & Packaging: 0.68%          

Silgan Holdings Incorporated

         107,600       $ 5,721,092   
         

 

 

 
Metals & Mining: 0.32%          

Real Industry Incorporated †

         140,100         1,218,870   

Royal Gold Incorporated

         28,500         1,461,765   
            2,680,635   
         

 

 

 
Paper & Forest Products: 1.96%          

Neenah Paper Incorporated

         131,471         8,369,444   

Schweitzer-Mauduit International Incorporated

         262,587         8,266,239   
            16,635,683   
         

 

 

 

Utilities: 2.46%

         
Electric Utilities: 2.46%          

Cleco Corporation

         86,000         4,748,060   

Empire District Electric Company

         175,600         5,803,580   

Hawaiian Electric Industries Incorporated

         316,600         10,257,837   
            20,809,477   
         

 

 

 

Total Common Stocks (Cost $712,862,745)

            784,439,203   
         

 

 

 

Exchange-Traded Funds: 0.75%

         

iShares Russell 2000 Value Index ETF

         68,429         6,378,267   
         

 

 

 

Total Exchange-Traded Funds (Cost $6,205,859)

            6,378,267   
         

 

 

 
    Yield                    

Short-Term Investments: 9.34%

         
Investment Companies: 9.34%          

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

    0.43        25,503,775         25,503,775   

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

    0.44           53,578,187         53,578,187   

Total Short-Term Investments (Cost $79,081,962)

            79,081,962      
         

 

 

 

 

Total investments in securities (Cost $798,150,566) *     102.76        869,899,432   

Other assets and liabilities, net

    (2.76        (23,375,027
 

 

 

      

 

 

 
Total net assets     100.00      $ 846,524,405   
 

 

 

      

 

 

 

 

 

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

 

Non-income-earning security

 

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

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $808,621,486 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 136,227,297   

Gross unrealized losses

     (74,949,351
  

 

 

 

Net unrealized gains

   $ 61,277,946   

 

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


Table of Contents

 

14   Wells Fargo Special Small Cap Value Fund   Statement of assets and liabilities—March 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $24,831,116 of securities loaned), at value (cost $691,879,292)

  $ 787,826,388   

In affiliated securities, at value (cost $106,271,274)

    82,073,044   
 

 

 

 

Total investments, at value (cost $798,150,566)

    869,899,432   

Receivable for investments sold

    1,484,111   

Receivable for Fund shares sold

    2,797,596   

Receivable for dividends

    1,527,566   

Receivable for securities lending income

    51,038   

Prepaid expenses and other assets

    57,504   
 

 

 

 

Total assets

    875,817,247   
 

 

 

 

Liabilities

 

Payable for investments purchased

    1,896,292   

Payable for Fund shares redeemed

    979,995   

Payable upon receipt of securities loaned

    25,503,775   

Due to custodian bank

    27,953   

Management fee payable

    524,237   

Distribution fees payable

    25,722   

Administration fees payable

    115,780   

Accrued expenses and other liabilities

    219,088   
 

 

 

 

Total liabilities

    29,292,842   
 

 

 

 

Total net assets

  $ 846,524,405   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 780,377,476   

Undistributed net investment income

    2,063,843   

Accumulated net realized losses on investments

    (7,665,780

Net unrealized gains on investments

    71,748,866   
 

 

 

 

Total net assets

  $ 846,524,405   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 417,160,817   

Shares outstanding – Class A1

    15,222,588   

Net asset value per share – Class A

    $27.40   

Maximum offering price per share – Class A2

    $29.07   

Net assets – Class B

  $ 1,261,588   

Shares outstanding – Class B1

    50,589   

Net asset value per share – Class B

    $24.94   

Net assets – Class C

  $ 40,511,691   

Shares outstanding – Class C1

    1,617,118   

Net asset value per share – Class C

    $25.05   

Net assets – Class R

  $ 26,852   

Shares outstanding – Class R1

    960   

Net asset value per share – Class R

    $27.97   

Net assets – Class R6

  $ 36,344,338   

Shares outstanding – Class R61

    1,297,604   

Net asset value per share – Class R6

    $28.01   

Net assets – Administrator Class

  $ 95,029,609   

Shares outstanding – Administrator Class1

    3,391,550   

Net asset value per share – Administrator Class

    $28.02   

Net assets – Institutional Class

  $ 256,189,510   

Shares outstanding – Institutional Class1

    9,141,224   

Net asset value per share – Institutional Class

    $28.03   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

Statement of operations—year ended March 31, 2016   Wells Fargo Special Small Cap Value Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $24,074)

  $ 14,749,338   

Securities lending income, net

    779,214   

Income from affiliated securities

    79,379   
 

 

 

 

Total investment income

    15,607,931   
 

 

 

 

Expenses

 

Management fee

    6,285,726   

Administration fees

 

Class A

    932,348   

Class B

    4,265   

Class C

    91,518   

Class R

    28 1 

Class R6

    3,314   

Administrator Class

    92,298   

Institutional Class

    236,278   

Shareholder servicing fees

 

Class A

    1,043,962   

Class B

    4,714   

Class C

    102,409   

Class R

    34 1 

Administrator Class

    185,931   

Distribution fees

 

Class B

    14,143   

Class C

    307,228   

Class R

    34 1 

Custody and accounting fees

    74,958   

Professional fees

    51,168   

Registration fees

    115,012   

Shareholder report expenses

    87,625   

Trustees’ fees and expenses

    9,310   

Other fees and expenses

    16,613   
 

 

 

 

Total expenses

    9,658,916   

Less: Fee waivers and/or expense reimbursements

    (312,131
 

 

 

 

Net expenses

    9,346,785   
 

 

 

 

Net investment income

    6,261,146   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    22,808,664   

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    (31,032,469

Affiiliated securities

    (24,198,231
 

 

 

 

Net change in unrealized gains (losses) on investments

    (55,230,700
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (32,422,036
 

 

 

 

Net decrease in net assets resulting from operations

  $ (26,160,890
 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to March 31, 2016.

 

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


Table of Contents

 

16   Wells Fargo Special Small Cap Value Fund   Statement of changes in net assets
     Year ended
March 31, 2016
       Year ended
March 31, 2015
 

Operations

                

Net investment income

       $ 6,261,146              $ 6,802,567   

Net realized gains on investments

         22,808,664                45,004,416   

Net change in unrealized gains (losses) on investments

         (55,230,700             1,853,024   
 

 

 

 

Net increase (decrease) in net assets resulting from operations

         (26,160,890             53,660,007   
 

 

 

 

Distributions to shareholders from

                

Net investment income

                

Class A

         (2,938,290             (3,226,001

Class C

         0                (11,114

Class R

         (265 )1              N/A   

Class R6

         (217,106             (306 )2 

Administrator Class

         (835,904             (558,514

Institutional Class

         (2,207,665             (2,040,765

Net realized gains

                

Class A

         (6,366,306             (66,808,530

Class B

         (27,232             (508,991

Class C

         (685,591             (7,206,152

Class R

         (393 )1              N/A   

Class R6

         (270,846             (3,880 )2 

Administrator Class

         (1,261,351             (9,100,902

Institutional Class

         (2,891,540             (27,568,111
 

 

 

 

Total distributions to shareholders

         (17,702,489             (117,033,266
 

 

 

 

Capital share transactions

    Shares                Shares        

Proceeds from shares sold

                

Class A

    2,676,891           72,673,241           2,415,533           73,079,829   

Class B

    311           7,784           831           22,261   

Class C

    213,185           5,190,192           146,593           4,105,094   

Class R

    936 1         24,829 1         N/A           N/A   

Class R6

    1,344,998           37,189,066           749 2         25,000 2 

Administrator Class

    2,198,004           61,025,708           1,104,188           34,033,327   

Institutional Class

    4,632,711           126,970,664           2,320,193           73,297,899   
 

 

 

 
         303,081,484                184,563,410   
 

 

 

 

Reinvestment of distributions

                

Class A

    341,445           9,032,174           2,471,872           67,960,767   

Class B

    1,077           25,725           19,500           486,712   

Class C

    25,222           605,329           256,095           6,422,643   

Class R

    24 1         658 1         N/A           N/A   

Class R6

    18,009           487,952           149 2         4,186 2 

Administrator Class

    76,324           2,067,731           331,510           9,331,809   

Institutional Class

    143,387           3,887,014           795,610           22,416,688   
 

 

 

 
         16,106,583                106,622,805   
 

 

 

 

Payment for shares redeemed

                

Class A

    (3,135,092        (84,541,811        (2,712,534        (83,101,895

Class B

    (53,053        (1,328,642        (57,981        (1,660,897

Class C

    (274,875        (6,736,107        (161,778        (4,569,660

Class R6

    (66,301        (1,738,734        0 2         0 2 

Administrator Class

    (1,223,745        (34,959,438        (1,460,618        (46,782,017

Institutional Class

    (1,981,648        (55,623,071        (1,170,774        (36,425,234
 

 

 

 
         (184,927,803             (172,539,703
 

 

 

 

Net increase in net assets resulting from capital share transactions

         134,260,264                118,646,512   
 

 

 

 

Total increase in net assets

         90,396,885                55,273,253   
 

 

 

 

Net assets

                

Beginning of period

         756,127,520                700,854,267   
 

 

 

 

End of period

       $ 846,524,405              $ 756,127,520   
 

 

 

 

Undistributed net investment income

       $ 2,063,843              $ 2,076,705   
 

 

 

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to March 31, 2016.

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Special Small Cap Value Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS A   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $29.27        $32.59        $31.35        $22.97        $20.97        $19.78   

Net investment income (loss)

    0.20        0.26        0.10        (0.01 )2      (0.05     (0.05

Net realized and unrealized gains (losses) on investments

    (1.46     1.81        3.14        8.37        2.05        1.24   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.26     2.07        3.24        8.38        2.00        1.19   

Distributions to shareholders from

           

Net investment income

    (0.19     (0.21     (0.03     0.00        0.00        0.00   

Net realized gains

    (0.42     (5.18     (1.97     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.61     (5.39     (2.00     0.00        0.00        0.00   

Net asset value, end of period

    $27.40        $29.27        $32.59        $31.35        $22.97        $20.97   

Total return3

    (4.21 )%      7.56     10.74     36.48     9.54     6.02

Ratios to average net assets (annualized)

           

Gross expenses

    1.36     1.39     1.41     1.40     1.38     1.37

Net expenses

    1.34     1.34     1.34     1.34     1.34     1.34

Net investment income (loss)

    0.73     0.90     0.75     0.04     (0.16 )%      (0.14 )% 

Supplemental data

           

Portfolio turnover rate

    46     79     37     65     69     54

Net assets, end of period (000s omitted)

    $417,161        $448,980        $429,089        $409,557        $366,320        $387,767   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

18   Wells Fargo Special Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS B   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $26.69        $30.19        $29.23        $21.58        $19.85        $18.87   

Net investment income (loss)

    (0.02 )2      0.03 2      0.00 2,3      (0.16 )2      (0.19 )2      (0.18 )2 

Net realized and unrealized gains (losses) on investments

    (1.31     1.65        2.93        7.81        1.92        1.16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.33     1.68        2.93        7.65        1.73        0.98   

Distributions to shareholders from

           

Net realized gains

    (0.42     (5.18     (1.97     0.00        0.00        0.00   

Net asset value, end of period

    $24.94        $26.69        $30.19        $29.23        $21.58        $19.85   

Total return4

    (4.92 )%      6.76     10.42     35.45     8.72     5.19

Ratios to average net assets (annualized)

           

Gross expenses

    2.11     2.14     2.16     2.14     2.12     2.13

Net expenses

    2.09     2.09     2.09     2.09     2.09     2.09

Net investment income (loss)

    (0.08 )%      0.09     0.02     (0.64 )%      (0.89 )%      (0.88 )% 

Supplemental data

           

Portfolio turnover rate

    46     79     37     65     69     54

Net assets, end of period (000s omitted)

    $1,262        $2,729        $4,224        $4,770        $9,171        $22,053   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Special Small Cap Value Fund     19   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS C   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $26.81        $30.31        $29.34        $21.66        $19.92        $18.94   

Net investment income (loss)

    (0.03     0.04 2      0.00 2,3      (0.18 )2      (0.19 )2      (0.18 )2 

Net realized and unrealized gains (losses) on investments

    (1.31     1.65        2.94        7.86        1.93        1.16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.34     1.69        2.94        7.68        1.74        0.98   

Distributions to shareholders from

           

Net investment income

    0.00        (0.01     0.00        0.00        0.00        0.00   

Net realized gains

    (0.42     (5.18     (1.97     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.42     (5.19     (1.97     0.00        0.00        0.00   

Net asset value, end of period

    $25.05        $26.81        $30.31        $29.34        $21.66        $19.92   

Total return4

    (4.93 )%      6.75     10.42     35.46     8.73     5.17

Ratios to average net assets (annualized)

           

Gross expenses

    2.11     2.14     2.16     2.15     2.13     2.13

Net expenses

    2.09     2.09     2.09     2.09     2.09     2.09

Net investment income (loss)

    (0.02 )%      0.15     0.00     (0.71 )%      (0.91 )%      (0.89 )% 

Supplemental data

           

Portfolio turnover rate

    46     79     37     65     69     54

Net assets, end of period (000s omitted)

    $40,512        $44,327        $42,816        $39,620        $33,478        $34,270   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


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20   Wells Fargo Special Small Cap Value Fund   Financial highlights

(For a share outstanding throughout the period)

 

CLASS R   Year ended
March 31 20161
 

Net asset value, beginning of period

    $26.72   

Net investment income

    0.08 2 

Net realized and unrealized gains (losses) on investments

    1.87   
 

 

 

 

Total from investment operations

    1.95   

Distributions to shareholders from

 

Net investment income

    (0.28

Net realized gains

    (0.42
 

 

 

 

Total distributions to shareholders

    (0.70

Net asset value, end of period

    $27.97   

Total return3

    7.40

Ratios to average net assets (annualized)

 

Gross expenses

    1.59

Net expenses

    1.58

Net investment income

    0.56

Supplemental data

 

Portfolio turnover rate

    46

Net assets, end of period (000s omitted)

    $27   

 

 

 

1  For the period from September 30, 2015 (commencement of class operations) to March 31, 2016.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Special Small Cap Value Fund     21   

(For a share outstanding throughout each period)

 

      Year ended March 31    
CLASS R6   2016     20151  

Net asset value, beginning of period

    $29.91        $33.38   

Net investment income

    0.39        0.26 2 

Net realized and unrealized gains (losses) on investments

    (1.54     1.80   
 

 

 

   

 

 

 

Total from investment operations

    (1.15     2.06   

Distributions to shareholders from

   

Net investment income

    (0.33     (0.35

Net realized gains

    (0.42     (5.18
 

 

 

   

 

 

 

Total distributions to shareholders

    (0.75     (5.53

Net asset value, end of period

    $28.01        $29.91   

Total return3

    (3.74 )%      7.42

Ratios to average net assets (annualized)

   

Gross expenses

    0.93     0.89

Net expenses

    0.89     0.89

Net investment income

    1.56     2.19

Supplemental data

   

Portfolio turnover rate

    46     79

Net assets, end of period (000s omitted)

    $36,344        $27   

 

 

 

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

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

22   Wells Fargo Special Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $29.94        $33.21        $31.85        $23.28        $21.21        $19.96   

Net investment income

    0.26 2      0.35 2      0.14 2      0.08 2      0.02 2      0.02 2 

Net realized and unrealized gains (losses) on investments

    (1.49     1.83        3.21        8.49        2.05        1.23   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.23     2.18        3.35        8.57        2.07        1.25   

Distributions to shareholders from

           

Net investment income

    (0.27     (0.27     (0.02     (0.00 )3      0.00        0.00   

Net realized gains

    (0.42     (5.18     (1.97     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.69     (5.45     (1.99     (0.00 )3      0.00        0.00   

Net asset value, end of period

    $28.02        $29.94        $33.21        $31.85        $23.28        $21.21   

Total return4

    (4.01 )%      7.78     10.91     36.82     9.76     6.26

Ratios to average net assets (annualized)

           

Gross expenses

    1.26     1.23     1.24     1.23     1.22     1.22

Net expenses

    1.17     1.09     1.09     1.09     1.09     1.09

Net investment income

    0.95     1.10     1.04     0.30     0.10     0.12

Supplemental data

           

Portfolio turnover rate

    46     79     37     65     69     54

Net assets, end of period (000s omitted)

    $95,030        $70,100        $78,563        $96,940        $232,283        $273,510   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Special Small Cap Value Fund     23   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $29.93        $33.21        $31.94        $23.36        $21.24        $19.96   

Net investment income

    0.30        0.43 2      0.15        0.10        0.05 2      0.04   

Net realized and unrealized gains (losses) on investments

    (1.46     1.80        3.22        8.53        2.07        1.24   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (1.16     2.23        3.37        8.63        2.12        1.28   

Distributions to shareholders from

           

Net investment income

    (0.32     (0.33     (0.13     (0.05     0.00        0.00   

Net realized gains

    (0.42     (5.18     (1.97     0.00        0.00        0.00   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    (0.74     (5.51     (2.10     (0.05     0.00        0.00   

Net asset value, end of period

    $28.03        $29.93        $33.21        $31.94        $23.36        $21.24   

Total return3

    (3.79 )%      7.96     10.97     37.02     9.98     6.41

Ratios to average net assets (annualized)

           

Gross expenses

    1.01     0.96     0.98     0.97     0.95     0.94

Net expenses

    0.94     0.94     0.94     0.94     0.94     0.93

Net investment income

    1.17     1.36     1.15     0.42     0.21     0.19

Supplemental data

           

Portfolio turnover rate

    46     79     37     65     69     54

Net assets, end of period (000s omitted)

    $256,190        $189,965        $146,162        $138,638        $88,067        $27,217   

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

24   Wells Fargo Special Small Cap Value Fund   Notes to financial statements

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Special Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment vehicles that are redeemable at net asset value are fair valued normally at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Security loans

The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.


Table of Contents

 

Notes to financial statements   Wells Fargo Special Small Cap Value Fund     25   

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Distributions to shareholders

Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in 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 and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Undistributed net
investment income
   Accumulated net
realized losses
on investments
$(74,778)    $74,778

As of March 31, 2016, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $1,418,962 expiring in 2017.

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the


Table of Contents

 

26   Wells Fargo Special Small Cap Value Fund   Notes to financial statements

lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

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

Assets

           

Investments in :

           

Common stocks

           

Consumer discretionary

   $ 88,789,349       $ 0       $ 0       $ 88,789,349   

Consumer staples

     49,698,452         0         0         49,698,452   

Energy

     16,233,004         3,359,786         0         19,592,790   

Financials

     198,272,504         0         0         198,272,504   

Health care

     68,657,683         0         0         68,657,683   

Industrials

     140,156,987         0         0         140,156,987   

Information technology

     99,504,731         0         0         99,504,731   

Materials

     98,957,230         0         0         98,957,230   

Utilities

     20,809,477         0         0         20,809,477   

Exchange-traded funds

     6,378,267         0         0         6,378,267   

Short-term investments

           

Investment companies

     53,578,187         0         0         53,578,187   

Investments measured at net asset value*

                                25,503,775   

Total assets

   $ 841,035,871       $ 3,359,786       $ 0       $ 869,899,432   

 

* Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $25,503,775 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.80% and declined to 0.68% as the average daily net assets of the


Table of Contents

 

Notes to financial statements   Wells Fargo Special Small Cap Value Fund     27   

Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.84% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class B, Class C

     0.21      0.26

Class R

     0.21         N/A   

Class R6

     0.03         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 expenses as follows:

 

     Expense
ratio cap
     Expiration date  

Class A

     1.34      July 31, 2016   

Class B

     2.09      July 31, 2016   

Class C

     2.09      July 31, 2016   

Class R

     1.59      July 31, 2017   

Class R6

     0.89      July 31, 2016   

Administrator Class

     1.20      July 31, 2016

Institutional Class

     0.94      July 31, 2016   

 

* Prior to August 1, 2015, the Fund’s expenses were capped at 1.09% for Administrator 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.


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28   Wells Fargo Special Small Cap Value Fund   Notes to financial statements

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2016, Funds Distributor received $7,690 from the sale of Class A shares and $84 in contingent deferred sales charges from redemptions of Class C shares, respectively.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, Class R, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $446,218,395 and $329,076,656, respectively.

6. INVESTMENTS IN AFFILIATES

An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.

 

    Shares,
beginning
of period
  Shares
purchased
    Shares
sold
   

Shares, end

of period

   

Value, end

of period

   

Income

from
affiliated

securities

   

Realized

losses

 

Imation Corporation

  1,929,730     0        0        1,929,730      $ 2,991,082      $ 0      $ 0   

7. 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.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2016 and March 31, 2015 were as follows:

 

     Year ended March 31  
     2016      2015  

Ordinary income

   $ 6,199,230       $ 30,012,386   

Long-term capital gain

     11,503,259         87,020,880   

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

 

Undistributed
ordinary
income
   Undistributed
long-term
gain
   Unrealized
gains
   Capital loss
carryforward
$2,100,930    $4,224,105    $61,277,946    $(1,418,962)


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Notes to financial statements   Wells Fargo Special Small Cap Value Fund     29   

9. CONCENTRATION RISK

Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.

10. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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30   Wells Fargo Special Small Cap Value Fund   Report of independent registered public accounting firm

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Special Small Cap Value Fund (formerly known as Wells Fargo Advantage Special Small Cap Value Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the two-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years in the three-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Special Small Cap Value Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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Other information (unaudited)   Wells Fargo Special Small Cap Value Fund     31   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 90.42% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2016.

Pursuant to Section 852 of the Internal Revenue Code, $11,503,259 was designated as long-term capital gain distributions for the fiscal year ended March 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $5,861,449 of income dividends paid during the fiscal year ended March 31, 2016 has been designated as qualified dividend income (QDI).

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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32   Wells Fargo Special Small Cap Value Fund   Other information (unaudited)

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships

William R. Ebsworth

(Born 1957)

  Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College.   Asset Allocation Trust

Jane A. Freeman

(Born 1953)

  Trustee, since 2015   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is Chair of Taproot Foundation (non-profit organization), a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst.   Asset Allocation Trust

Peter G. Gordon

(Born 1942)

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

Isaiah Harris, Jr.

(Born 1952)

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

Judith M. Johnson

(Born 1949)

  Trustee, since 2008; Audit Committee Chairman, since 2008   Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant.   Asset Allocation Trust

David F. Larcker

(Born 1950)

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


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Other information (unaudited)   Wells Fargo Special Small Cap Value Fund     33   

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

Current other

public company or
investment company
directorships

Olivia S. Mitchell

(Born 1953)

  Trustee, since 2006   International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993.   Asset Allocation Trust

Timothy J. Penny

(Born 1951)

  Trustee, since 1996   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   Asset Allocation Trust
Michael S. Scofield (Born 1943)   Trustee, since 2010   Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield.   Asset Allocation Trust

 

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

Officers

 

Name and

year of birth

 

Position held and

length of service

  Principal occupations during past five years or longer    

Karla M. Rabusch

(Born 1959)

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

Nancy Wiser1

(Born 1967)

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

C. David Messman

(Born 1960)

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

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

David Berardi

(Born 1975)

  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    

Jeremy DePalma1

(Born 1974)

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

 

 

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

 

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


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34   Wells Fargo Special Small Cap Value Fund   List of abbreviations

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

 

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


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LOGO

 

 

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For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

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

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

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

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241819 05-16

A246/AR246 03-16


Table of Contents

Annual Report

March 31, 2016

 

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Wells Fargo Traditional Small Cap Growth Fund

 

LOGO

 

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    12   

Statement of operations

    13   

Statement of changes in net assets

    14   

Financial highlights

    15   

Notes to financial statements

    19   

Report of independent registered public accounting firm

    24   

Other information

    25   

List of abbreviations

    28   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



Table of Contents

 

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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

Throughout the period, stock performance was highly volatile.

 

 

 

 

Stock values recovered during the second half of the first quarter of 2016.

 

 

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Traditional Small Cap Growth Fund for the 12-month period that ended March 31, 2016. Throughout the period, stock performance was highly volatile. Investors reacted to slowing economic growth, moderating corporate earnings, weakening commodity prices, increasing central-bank intervention, and shifts in currency values. During the last four weeks of the period, investor sentiment appeared to move beyond these concerns as economic data firmed and stocks gained across the capitalization spectrum.

As investors grew concerned about global issues, volatility increased.

A common measure of investors’ stock volatility expectations—the Chicago Board Options Exchange (CBOE) Volatility Index (VIX)1—illustrated the shifts in investor sentiment. The VIX spiked to readings above 40 in August 2015, indicating increased investor anxiety. During a comparatively calm autumn, VIX readings trended to the midteens and closer to their five-year average. Then stock markets grew volatile again as the winter months arrived. After the new year began, VIX readings spiked to the high 20s as U.S. equity markets posted their worst start to a calendar year on record. Stock values recovered during the second half of the first quarter of 2016. Investors appeared to be encouraged by improving economic data and the reassurances of central bankers that they remain committed to spurring growth through policy initiatives.

However, business, economic, and central-bank policy development had countervailing influences. For example, while a stronger dollar benefited consumer purchasing power, it tended to negatively affect corporate earnings and investment gains earned overseas when translated to U.S. dollars. Lower energy costs helped consumers’ budgets but hampered the profits and stock performance in the energy sector. While lower interest rates encouraged spending, the potential for interest-rate increases caused uncertainty.

Central bankers responded with policy initiatives in response to shifting economic conditions.

In December 2015, the U.S. Federal Reserve (Fed) increased the federal funds rate, the first interest-rate increase since 2006. The Fed also expressed its intention to increase the rate several times during 2016. After the new year began, as data weakened and volatility increased, the Fed retrenched, which injected additional uncertainty into the markets. In the eurozone, the European Central Bank continued to encourage lending and investing by making funds available to banks at low interest rates, imposing a negative interest rate on bank deposits, and purchasing bonds through its quantitative easing program. In Japan, the central bank also implemented a negative interest-rate policy intended to spur lending and investment. In China, the People’s Bank of China lowered interest rates and bank reserve requirements, in addition to devaluing the country’s currency to support exports.

 

 

 

 

1  The Chicago Board Options Exchange (CBOE) Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by the S&P 500 stock index option prices. Since its introduction in 1993, VIX has been considered by many to be the world’s premier barometer of investor sentiment and market volatility. Several investors expressed interest in trading instruments related to the market’s expectation of future volatility, and so VIX futures were introduced in 2004, and VIX options were introduced in 2006.


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Letter to shareholders (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     3   

Volatility and recoveries highlighted the value of a long-term investment strategy.

The experience of the past 12 months demonstrated the value of maintaining a disciplined, long-term investment strategy despite short-term volatility. Broad U.S. equity indexes trimmed their worst losses measured to the midpoint of the period to recover all or a portion of their lost values by the end of the period. For example, the S&P 500 Index,2 a commonly referenced gauge of large-cap stock performance, gained 1.78% for the 12-month period that ended March 31, 2016, after recording a 6.18% loss for the six-month period that ended September 30, 2015. Some observers attributed the S&P 500 Index’s relative outperformance to investors who moved their equity allocations higher in the capitalization structure in pursuit of the perceived safety of large-cap stocks. The Russell Midcap® Index3 lost 4.04% for the 12-month period that ended March 31, 2016, regaining more than half of the 9.42% loss it had recorded for the six-month period that ended September 30, 2015. For the 12-month period that ended March 31, 2016, the Russell 2000® Index,4 a common small-cap stock index, lost 9.76%, an improvement from the 11.55% loss it had recorded during the six-month period that ended September 30, 2015.

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.

 

 

 

2  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.

 

3  The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25% of the total market capitalization of the Russell 1000® Index. You cannot invest directly in an index.

 

4  The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000® Index. You cannot invest directly in an index.


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4   Wells Fargo Traditional Small Cap Growth Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio manager

Alexi Makkas

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (EGWAX)   6-5-1995     (17.87     4.22        4.01        (12.86     5.46        4.63        1.42        1.33   
Class C (EGWCX)   7-30-2010     (14.55     4.66        3.85        (13.55     4.66        3.85        2.17        2.08   
Administrator Class (EGWDX)   7-30-2010                          (12.76     5.61        4.73        1.34        1.20   
Institutional Class (EGRYX)   11-19-1997                          (12.58     5.82        4.96        1.09        0.98   
Russell 2000® Growth Index4                            (11.84     7.70        6.00                 

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


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Performance highlights (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     5   
Growth of $10,000 investment as of March 31, 20165
LOGO

 

 

1  Historical performance shown for Class C shares prior to their inception reflects the performance of Class A shares and has been adjusted to reflect the higher expenses applicable to Class C shares. Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen Growth Fund.

 

2  Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at the amounts shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index.

 

5  The chart compares the performance of Class A shares for the most recent ten years with the Russell 2000® Growth Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

6  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

7  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

 

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


Table of Contents

 

6   Wells Fargo Traditional Small Cap Growth Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

 

n   The Fund underperformed its benchmark, the Russell 2000® Growth Index, for the 12-month period that ended March 31, 2016.

 

n   Relative weakness within the health care, industrials, and financials sectors constrained Fund performance.

 

n   Holdings within the consumer discretionary and information technology (IT) sectors generated strong relative performance; underweights to the energy and materials sectors also contributed positively.

A variety of stock-specific and macro factors contributed to the Fund’s underperformance,. Throughout the period, we made strategic investment decisions that we believe could prove beneficial through similar periods of volatility. We increased the Fund’s exposure to profitable companies with strong balance sheets and cash-flow metrics that we believe may provide less volatile and more sustained returns over the mid and long term.

The Fund’s health care holdings detracted from overall results.

In early 2015, high-momentum and high-valuation stocks outperformed in an ongoing low-growth environment, negatively affecting the Fund’s relative performance. The health care sector’s strength at the time continued to be powered by biotechnology stocks, and we increased the Fund’s underweights to lower-quality, unprofitable companies in the sector while raising exposure to companies in outsourced care, such as IPC Healthcare, Incorporated,* and Surgical Care Affiliates Incorporated, two strong contributors throughout the period of sector volatility. Headlines about Valeant Pharmaceuticals International, Incorporated,* and the concurrent focus on drug pricing negatively affected holdings in specialty drugs, such as AMAG Pharmaceuticals, Incorporated, and Akorn, Incorporated. The Fund’s relative sector positioning and exposures to select individual stocks, including Emergent BioSolutions, Incorporated, and Globus Medical, Incorporated, improved the Fund’s health care performance as the months progressed.

Industrials holdings hindered relative performance.

The ongoing decline in commodities throughout the period negatively affected the Fund’s holdings of cyclical industrial companies, such as H&E Equipment Services, Incorporated; Mobile Mini, Incorporated; and Generac Holdings, Incorporated, despite minimal direct or indirect exposure to oil.

The Fund’s financials exposure contributed negatively to performance.

While the Fund held a slight overweight to the broad financials sector throughout the period, it lacked exposure to real estate investment trusts (REITs). That allocation decision drove sizable underperformance. The low-growth and low-interest-rate environment over the period encouraged a broad pursuit of yield, which favored REITs. While we continued to search for opportunities within REITs, their relative valuations, limited growth prospects, and interest-rate sensitivity generally led us into other areas for financials exposure. Also, our position in PRA Group, Incorporated, constrained performance; the stock struggled in the second half of the period.

Our focus on positive trends led to success in the consumer discretionary sector.

Within the consumer discretionary sector, the Fund’s overweight to consumer experiences and underweight to riskier fashion and specialty-retail trends contributed to performance. Also, we identified two companies within the broader automotive end market that we believed could perform well in the existing economic environment: Motorcar Parts of America, Incorporated, a remanufacturer of mission-critical vehicle parts, such as alternators and starters, and Cooper-Standard Holding Incorporated, a global supplier to original-equipment manufacturers. Motorcar generated one of the Fund’s better results within the consumer discretionary sector. The company’s success has been powered largely by the increased number of miles being driven and the ongoing trend of keeping cars on the road longer—in the U.S., the average age of cars on the road has continued to exceed 11 years. Cooper-Standard benefited from having a new management team focused on both returns of the business and returns to shareholders.

The Fund’s IT holdings contributed positively, as did underweights to the materials and energy sectors.

The IT sector delivered outperformance for the Fund, driven largely by investments in the secular evolution of payments via companies such as Bottomline Technologies (de), Incorporated; Heartland Payment Systems, Incorporated;* and Euronet Worldwide, Incorporated, and by reducing exposure to higher-valued software-as-a-service firms. Declines in oil

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     7   

and other commodities accelerated throughout 2015, leading us to substantially reduce the Fund’s underweights to the energy and materials sectors. Despite the volatility, we managed to opportunistically add positions in companies with unique growth drivers, such as Summit Materials, Incorporated, and Carpenter Technology Corporation.

While we recognize potential risks, our outlook remains optimistic.

We view the current economic environment as improving and feel optimistic about the potential for unexpected global and domestic economic strength in 2016. The U.S. dollar’s strength has begun to ease in the past few months, and comparisons with one-year-ago levels have become considerably less daunting. Also, U.S. manufacturing has shown signs of improvement, and a prolonged and disappointing U.S. economic outlook could reverse course. In our view, the Fund may be better positioned than its index to benefit from improving business and market environments. As of March 31, 2016, the Fund held underweights to the materials and industrials sectors, and its overweight to the IT sector included a sizable allocation toward companies influenced by cyclical factors. Also, we maintained an existing underweight to the more defensive consumer staples sector as this sector has tended to underperform in an improving economic environment.

Looking ahead over the next 12 months, if economic strength fails to materialize, the Fund’s defensive underweight to consumer staples could become challenging for Fund performance and would be reevaluated. Also, continued flattening of the U.S. yield curve could create a challenging environment for the financials sector, excluding real estate investment trusts (REITs) as they have tended to outperform in a falling-rate environment. Because we typically maintain an underweight to REITs in the Fund, performance of the Fund’s financials sector may suffer in a falling-rate environment.

On the positive side, we believe that, excluding an economic shock, long-term interest rates could stabilize and possibly begin to trade higher, decreasing interest-rate volatility and creating a potentially favorable environment for generating excess returns. We retain conviction in our belief that fundamentally sound companies may outperform in a market environment that offers reasonable growth expectations and normalized interest-rate volatility, and we feel the next 6 to 12 months could provide an opportune time for investing in high-quality, small-cap growth stocks.

 

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

Bottomline Technologies (de) Incorporated

     4.14   

Euronet Worldwide Incorporated

     4.03   

Surgical Care Affiliates Incorporated

     3.24   

Krispy Kreme Doughnuts Incorporated

     2.93   

Stewart Information Services Corporation

     2.84   

Cooper-Standard Holdings Incorporated

     2.78   

Imprivata Incorporated

     2.64   

Nautilus Group Incorporated

     2.62   

Motorcar Parts of America Incorporated

     2.58   

Littelfuse Incorporated

     2.57   
Sector distribution as of March 31, 20167
LOGO
 

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Traditional Small Cap Growth Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 973.38       $ 6.56         1.33

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.35       $ 6.71         1.33

Class C

           

Actual

   $ 1,000.00       $ 969.27       $ 10.24         2.08

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.60       $ 10.48         2.08

Administrator Class

           

Actual

   $ 1,000.00       $ 973.51       $ 5.92         1.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.00       $ 6.06         1.20

Institutional Class

           

Actual

   $ 1,000.00       $ 974.67       $ 4.84         0.98

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.10       $ 4.95         0.98

 

 

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—March 31, 2016   Wells Fargo Traditional Small Cap Growth Fund     9   

      

 

 

Security name             Shares      Value  

Common Stocks: 97.59%

          

Consumer Discretionary: 18.90%

        
Auto Components: 5.36%         

Cooper-Standard Holdings Incorporated †

          37,000       $ 2,658,080   

Motorcar Parts of America Incorporated †

          65,000         2,468,700   
             5,126,780   
          

 

 

 
Hotels, Restaurants & Leisure: 9.07%         

ClubCorp Holdings Incorporated

          160,000         2,246,400   

Krispy Kreme Doughnuts Incorporated †

          180,000         2,806,200   

Sonic Corporation

          70,000         2,461,200   

Zoe’s Kitchen Incorporated «†

          30,000         1,169,700   
             8,683,500   
          

 

 

 
Internet & Catalog Retail: 1.84%         

Shutterfly Incorporated †

          38,000         1,762,060   
          

 

 

 
Leisure Products: 2.63%         

Nautilus Group Incorporated †

          130,000         2,511,600   
          

 

 

 

Consumer Staples: 0.76%

          
Food Products: 0.76%           

Freshpet Incorporated Ǡ

          100,000         733,000   
          

 

 

 

Energy: 0.66%

          
Energy Equipment & Services: 0.66%           

Aspen Aerogels Incorporated †

          140,000         630,000   
          

 

 

 

Financials: 5.18%

          
Insurance: 2.84%           

Stewart Information Services Corporation

          75,000         2,721,000   
          

 

 

 
Thrifts & Mortgage Finance: 2.34%           

Bofi Holding Incorporated Ǡ

          105,000         2,240,700   
          

 

 

 

Health Care: 24.47%

          
Biotechnology: 5.40%           

AMAG Pharmaceuticals Incorporated Ǡ

          75,000         1,755,000   

Emergent BioSolutions Incorporated †

          55,000         1,999,250   

Novavax Incorporated Ǡ

          80,000         412,800   

Repligen Corporation †

          37,200         997,704   
             5,164,754   
          

 

 

 
Health Care Equipment & Supplies: 4.64%           

Globus Medical Incorporated †

              100,000         2,375,000   

Inogen Incorporated †

          40,000         1,799,200   

Zeltiq Aesthetics Incorporated †

          10,000         271,600   
             4,445,800   
          

 

 

 

 

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


Table of Contents

 

10   Wells Fargo Traditional Small Cap Growth Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name             Shares      Value  
Health Care Providers & Services: 4.55%           

Capital Senior Living Corporation †

          10,400       $ 192,608   

Ensign Group Incorporated

          46,800         1,059,552   

Surgical Care Affiliates Incorporated †

          67,000         3,100,760   
             4,352,920   
          

 

 

 
Health Care Technology: 3.43%           

Imprivata Incorporated †

          200,000         2,526,000   

Medidata Solutions Incorporated †

          19,500         754,845   
             3,280,845   
          

 

 

 
  
Life Sciences Tools & Services: 2.18%         

Charles River Laboratories International Incorporated †

          27,500         2,088,350   
          

 

 

 
Pharmaceuticals: 4.27%         

Akorn Incorporated †

          20,000         470,600   

Horizon Pharma plc Ǡ

          65,000         1,077,050   

Intersect ENT Incorporated †

          85,000         1,615,000   

TherapeuticsMD Incorporated Ǡ

          143,700         919,680   
             4,082,330   
          

 

 

 

Industrials: 13.82%

          
Air Freight & Logistics: 2.27%         

Echo Global Logistics Incorporated †

          80,000         2,172,800   
          

 

 

 
Building Products: 1.11%         

Apogee Enterprises Incorporated

          24,100         1,057,749   
          

 

 

 
Commercial Services & Supplies: 1.90%         

Mobile Mini Incorporated

          55,000         1,816,100   
          

 

 

 
Electrical Equipment: 2.33%         

Generac Holdings Incorporated †

          60,000         2,234,400   
          

 

 

 
Machinery: 2.32%         

Rexnord Corporation †

          110,000         2,224,200   
          

 

 

 
Professional Services: 2.33%         

Wageworks Incorporated †

          44,020         2,227,852   
          

 

 

 
Trading Companies & Distributors: 1.56%         

H&E Equipment Services Incorporated

          85,000         1,490,050   
          

 

 

 

Information Technology: 30.11%

          
Electronic Equipment, Instruments & Components: 2.57%         

Littelfuse Incorporated

          20,000         2,462,200   
          

 

 

 
Internet Software & Services: 4.01%           

Cimpress N.V. Ǡ

          20,000         1,813,800   

LogMeIn Incorporated †

          40,000         2,018,400   
             3,832,200   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Traditional Small Cap Growth Fund     11   

      

 

 

Security name              Shares      Value  
IT Services: 5.61%          

Blackhawk Network Incorporated †

         15,000       $ 514,500   

Euronet Worldwide Incorporated †

         52,000         3,853,720   

WEX Incorporated †

         12,000         1,000,320   
            5,368,540   
         

 

 

 
Semiconductors & Semiconductor Equipment: 4.37%          

Advanced Energy Industries Incorporated †

         27,000         939,330   

Cavium Incorporated †

         8,000         489,280   

Integrated Device Technology Incorporated †

         85,000         1,737,400   

Monolithic Power Systems Incorporated

         16,000         1,018,240   
            4,184,250   
         

 

 

 
Software: 13.55%          

AVG Technologies N.V. †

         70,000         1,452,500   

Bottomline Technologies (de) Incorporated †

         130,000         3,963,700   

Ellie Mae Incorporated †

         20,000         1,812,800   

Fleetmatics Group plc †

         59,212         2,410,521   

Guidewire Software Incorporated †

         22,000         1,198,560   

PTC Incorporated †

         7,000         232,120   

Rapid7 Incorporated Ǡ

         70,000         914,900   

Ultimate Software Group Incorporated †

         5,074         981,819   
            12,966,920   
         

 

 

 

Materials: 3.69%

         
Construction Materials: 2.37%          

Summit Materials Incorporated Class A †

         116,350         2,263,008   
         

 

 

 
Metals & Mining: 1.32%          

Carpenter Technology Corporation

         37,000         1,266,509   
         

 

 

 

Total Common Stocks (Cost $89,493,656)

  

          93,390,417   
         

 

 

 
    Yield                    
Short-Term Investments: 13.03%          
Investment Companies: 13.03%          

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

    0.43        9,814,825         9,814,825   

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

    0.44           2,648,261         2,648,261   

Total Short-Term Investments (Cost $12,463,086)

  

          12,463,086   
         

 

 

 

 

Total investments in securities (Cost $101,956,742) *     110.62        105,853,503   

Other assets and liabilities, net

    (10.62        (10,159,160
 

 

 

      

 

 

 
Total net assets     100.00        $95,694,343   
 

 

 

      

 

 

 

 

 

Non-income-earning security

 

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

 

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

 

(u) The rate represents the 7-day annualized yield at period end.

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

* Cost for federal income tax purposes is $103,112,687 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 10,291,772   

Gross unrealized losses

     (7,550,956
  

 

 

 

Net unrealized gains

   $ 2,740,816   

 

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


Table of Contents

 

12   Wells Fargo Traditional Small Cap Growth Fund   Statement of assets and liabilities—March 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $9,615,672 of securities loaned), at value (cost $89,493,656)

  $ 93,390,417   

In affiliated securities, at value (cost $12,463,086)

    12,463,086   
 

 

 

 

Total investments, at value (cost $101,956,742)

    105,853,503   

Receivable for investments sold

    946,868   

Receivable for Fund shares sold

    20,618   

Receivable for dividends

    6,002   

Receivable for securities lending income

    13,742   

Prepaid expenses and other assets

    18,694   
 

 

 

 

Total assets

    106,859,427   
 

 

 

 

Liabilities

 

Payable for investments purchased

    807,850   

Payable for Fund shares redeemed

    425,816   

Payable upon receipt of securities loaned

    9,814,825   

Management fee payable

    48,222   

Distribution fee payable

    99   

Administration fees payable

    15,719   

Accrued expenses and other liabilities

    52,553   
 

 

 

 

Total liabilities

    11,165,084   
 

 

 

 

Total net assets

  $ 95,694,343   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 93,095,660   

Accumulated net investment loss

    (147,798

Accumulated net realized losses on investments

    (1,150,280

Net unrealized gains on investments

    3,896,761   
 

 

 

 

Total net assets

  $ 95,694,343   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 84,138,920   

Shares outstanding – Class A1

    6,983,373   

Net asset value per share – Class A

    $12.05   

Maximum offering price per share – Class A2

    $12.79   

Net assets – Class C

  $ 162,164   

Shares outstanding – Class C1

    14,449   

Net asset value per share – Class C

    $11.22   

Net assets – Administrator Class

  $ 2,412,921   

Shares outstanding – Administrator Class1

    181,516   

Net asset value per share – Administrator Class

    $13.29   

Net assets – Institutional Class

  $ 8,980,338   

Shares outstanding – Institutional Class1

    663,083   

Net asset value per share – Institutional Class

    $13.54   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

Statement of operations—year ended March 31, 2016   Wells Fargo Traditional Small Cap Growth Fund     13   
         

Investment income

 

Dividends

  $ 507,056   

Securities lending income, net

    182,072   

Income from affiliated securities

    5,791   
 

 

 

 

Total investment income

    694,919   
 

 

 

 

Expenses

 

Management fee

    1,002,701   

Administration fees

 

Class A

    234,390   

Class C

    459   

Administrator Class

    3,743   

Institutional Class

    11,884   

Shareholder servicing fees

 

Class A

    261,017   

Class C

    512   

Administrator Class

    7,697   

Distribution fee

 

Class C

    1,536   

Custody and accounting fees

    17,955   

Professional fees

    46,722   

Registration fees

    71,789   

Shareholder report expenses

    39,280   

Trustees’ fees and expenses

    19,953   

Other fees and expenses

    7,033   
 

 

 

 

Total expenses

    1,726,671   

Less: Fee waivers and/or expense reimbursements

    (196,166
 

 

 

 

Net expenses

    1,530,505   
 

 

 

 

Net investment loss

    (835,586
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on investments

    16,977,555   

Net change in unrealized gains (losses) on investments

    (32,455,316
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (15,477,761
 

 

 

 

Net decrease in net assets resulting from operations

  $ (16,313,347
 

 

 

 

 

 

 

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


Table of Contents

 

14   Wells Fargo Traditional Small Cap Growth Fund   Statement of changes in net assets
    

Year ended

March 31, 2016

   

Year ended

March 31, 2015

 

Operations

     

Net investment loss

    $ (835,586     $ (1,186,546

Net realized gains on investments

      16,977,555          16,249,777   

Net change in unrealized gains (losses) on investments

      (32,455,316       (6,954,098
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (16,313,347       8,109,133   
 

 

 

 

Distributions to shareholders from

     

Net realized gains

       

Class A

      (21,823,283       (20,918,267

Class C

      (43,293       (64,164

Administrator Class

      (612,282       (489,047

Institutional Class

      (2,120,374       (2,109,310
 

 

 

 

Total distributions to shareholders

      (24,599,232       (23,580,788
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    205,629        2,995,422        166,240        3,105,325   

Class C

    3,267        48,895        4,689        87,580   

Administrator Class

    41,278        790,645        18,974        376,286   

Institutional Class

    170,790        2,840,853        145,847        2,948,534   
 

 

 

 
      6,675,815          6,517,725   
 

 

 

 

Reinvestment of distributions

       

Class A

    1,707,521        20,985,437        1,187,647        20,118,743   

Class C

    3,346        38,407        3,495        56,625   

Administrator Class

    44,979        609,919        26,596        485,372   

Institutional Class

    128,519        1,773,561        93,024        1,718,153   
 

 

 

 
      23,407,324          22,378,893   
 

 

 

 

Payment for shares redeemed

       

Class A

    (1,788,888     (27,309,379     (1,439,029     (27,107,396

Class C

    (5,663     (84,188     (15,128     (267,013

Administrator Class

    (65,656     (1,048,305     (64,575     (1,331,123

Institutional Class

    (236,206     (3,918,807     (421,031     (8,665,650
 

 

 

 
      (32,360,679       (37,371,182
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (2,277,540       (8,474,564
 

 

 

 

Total decrease in net assets

      (43,190,119       (23,946,219
 

 

 

 

Net assets

   

Beginning of period

      138,884,462          162,830,681   
 

 

 

 

End of period

    $ 95,694,343        $ 138,884,462   
 

 

 

 

Accumulated net investment loss

    $ (147,798     $ (321,280
 

 

 

 

 

 

 

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


Table of Contents

 

Financial highlights   Wells Fargo Traditional Small Cap Growth Fund     15   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS A   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $18.04        $20.37        $23.11        $17.08        $15.31        $14.31   

Net investment loss

    (0.12 )2      (0.18     (0.09 )2      (0.11 )2      (0.11 )2      (0.16 )2 

Net realized and unrealized gains (losses) on investments

    (2.13     1.33        0.96        6.34        1.88        1.16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (2.25     1.15        0.87        6.23        1.77        1.00   

Distributions to shareholders from

       

Net realized gains

    (3.74     (3.48     (3.61     (0.20     0.00        0.00   

Net asset value, end of period

    $12.05        $18.04        $20.37        $23.11        $17.08        $15.31   

Total return3

    (12.86 )%      6.77     4.14     36.98     11.56     6.99

Ratios to average net assets (annualized)

       

Gross expenses

    1.50     1.47     1.54     1.48     1.48     1.43

Net expenses

    1.33     1.33     1.33     1.33     1.33     1.33

Net investment loss

    (0.74 )%      (0.87 )%      (1.04 )%      (0.58 )%      (0.69 )%      (0.96 )% 

Supplemental data

       

Portfolio turnover rate

    123     73     36     77     57     123

Net assets, end of period (000s omitted)

    $84,139        $123,712        $141,446        $141,933        $119,490        $123,063   

 

 

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

16   Wells Fargo Traditional Small Cap Growth Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
CLASS C   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $17.21        $19.73        $22.56        $16.80        $15.18        $14.29   

Net investment loss

    (0.18     (0.29 )2      (0.15 )2      (0.26     (0.25     (0.27 )2 

Net realized and unrealized gains (losses) on investments

    (2.07     1.25        0.93        6.22        1.87        1.16   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (2.25     0.96        0.78        5.96        1.62        0.89   

Distributions to shareholders from

       

Net realized gains

    (3.74     (3.48     (3.61     (0.20     0.00        0.00   

Net asset value, end of period

    $11.22        $17.21        $19.73        $22.56        $16.80        $15.18   

Total return3

    (13.55 )%      5.98     3.85     35.92     10.74     6.16

Ratios to average net assets (annualized)

       

Gross expenses

    2.25     2.22     2.30     2.23     2.23     2.18

Net expenses

    2.08     2.08     2.08     2.08     2.08     2.08

Net investment loss

    (1.49 )%      (1.61 )%      (1.81 )%      (1.36 )%      (1.44 )%      (1.72 )% 

Supplemental data

       

Portfolio turnover rate

    123     73     36     77     57     123

Net assets, end of period (000s omitted)

    $162        $232        $403        $150        $116        $115   

 

 

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

Financial highlights   Wells Fargo Traditional Small Cap Growth Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
ADMINISTRATOR CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $19.44        $21.65        $24.33        $17.94        $16.06        $14.99   

Net investment loss

    (0.10 )2      (0.15 )2      (0.08 )2      (0.09 )2      (0.09 )2      (0.14 )2 

Net realized and unrealized gains (losses) on investments

    (2.31     1.42        1.01        6.68        1.97        1.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (2.41     1.27        0.93        6.59        1.88        1.07   

Distributions to shareholders from

       

Net realized gains

    (3.74     (3.48     (3.61     (0.20     0.00        0.00   

Net asset value, end of period

    $13.29        $19.44        $21.65        $24.33        $17.94        $16.06   

Total return3

    (12.76 )%      6.93     4.18     37.21     11.71     7.14

Ratios to average net assets (annualized)

       

Gross expenses

    1.39     1.29     1.32     1.26     1.26     1.23

Net expenses

    1.20     1.19     1.19     1.17     1.17     1.19

Net investment loss

    (0.61 )%      (0.73 )%      (0.90 )%      (0.43 )%      (0.54 )%      (0.83 )% 

Supplemental data

       

Portfolio turnover rate

    123     73     36     77     57     123

Net assets, end of period (000s omitted)

    $2,413        $3,128        $3,896        $3,882        $3,063        $3,413   

 

 

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

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

 

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


Table of Contents

 

18   Wells Fargo Traditional Small Cap Growth Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31     Year ended October 31  
INSTITUTIONAL CLASS   2016     2015     20141     2013     2012     2011  

Net asset value, beginning of period

    $19.69        $21.84        $24.50        $18.03        $16.11        $15.01   

Net investment income (loss)

    (0.07 )2      (0.11 )2      (0.07 )2      0.00 2,3      (0.06 )2      (0.10

Net realized and unrealized gains (losses) on investments

    (2.34     1.44        1.02        6.67        1.98        1.20   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (2.41     1.33        0.95        6.67        1.92        1.10   

Distributions to shareholders from

       

Net realized gains

    (3.74     (3.48     (3.61     (0.20     0.00        0.00   

Net asset value, end of period

    $13.54        $19.69        $21.84        $24.50        $18.03        $16.11   

Total return4

    (12.58 )%      7.16     4.29     37.42     11.92     7.33

Ratios to average net assets (annualized)

       

Gross expenses

    1.14     1.04     1.10     1.04     1.05     1.00

Net expenses

    0.98     0.98     0.98     0.98     0.98     0.98

Net investment income (loss)

    (0.39 )%      (0.52 )%      (0.69 )%      0.01     (0.35 )%      (0.61 )% 

Supplemental data

       

Portfolio turnover rate

    123     73     36     77     57     123

Net assets, end of period (000s omitted)

    $8,980        $11,812        $17,086        $17,997        $43,160        $71,493   

 

 

 

 

 

 

1  For the five months ended March 31, 2014. The Fund changed its fiscal year end from October 31 to March 31, effective March 31, 2014.

 

2  Calculated based upon average shares outstanding

 

3  Amount is less than $0.005.

 

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

 

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


Table of Contents

 

Notes to financial statements   Wells Fargo Traditional Small Cap Growth Fund     19   

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Traditional Small Cap Growth Fund (the “Fund”) which is a diversified series of the Trust.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal primary exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment vehicles that are redeemable at net asset value are fair valued normally at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Security loans

The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.


Table of Contents

 

20   Wells Fargo Traditional Small Cap Growth Fund   Notes to financial statements

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirectly wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date.

Distributions to shareholders

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

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital    Accumulated net
investment loss
$(1,009,068)    $1,009,068

As of March 31, 2016, the Fund had a qualified late-year ordinary loss of $135,230 which will be recognized on the first day of the following fiscal year.

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the


Table of Contents

 

Notes to financial statements   Wells Fargo Traditional Small Cap Growth Fund     21   

lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

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

Assets

           

Investments in:

           

Common stocks

           

Consumer discretionary

   $ 18,083,940       $ 0       $ 0       $ 18,083,940   

Consumer staples

     733,000         0         0         733,000   

Energy

     630,000         0         0         630,000   

Financials

     4,961,700         0         0         4,961,700   

Health care

     23,414,999         0         0         23,414,999   

Industrials

     13,223,151         0         0         13,223,151   

Information technology

     28,814,110         0         0         28,814,110   

Materials

     3,529,517         0         0         3,529,517   

Short-term investments

           

Investment companies

     2,648,261         0         0         2,648,261   

Investments measured at net asset value*

                                9,814,825   

Total assets

   $ 96,038,678       $ 0       $ 0       $ 105,853,503   

 

* Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $9,814,825 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.85% and declining to 0.71% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.80% and declined to 0.68% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets


Table of Contents

 

22   Wells Fargo Traditional Small Cap Growth Fund   Notes to financial statements

of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.

Administration fees

The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and a class level administration fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class C

     0.21      0.26

Administrator Class

     0.13         0.10   

Institutional Class

     0.13         0.08   

Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.33% for Class A shares, 2.08% for Class C shares, 1.20% for Administrator Class shares, and 0.98% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fee

The Trust has adopted a distribution plan for Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares.

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class C shares. For the year ended March 31, 2016, Funds Distributor received $1,066 from the sale of Class A shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $141,326,953 and $167,621,672, respectively.

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


Table of Contents

 

Notes to financial statements   Wells Fargo Traditional Small Cap Growth Fund     23   

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 was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2016 and March 31, 2015 were as follows:

 

     Year ended March 31  
     2016      2015  

Ordinary income

   $ 0       $ 5,316,703   

Long-term capital gain

     24,599,232         18,264,085   

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

 

Undistributed

long-term
gain

  

Unrealized

gains

  

Late-year ordinary

losses deferred

$5,666    $2,740,816    $(135,230)

8. CONCENTRATION RISK

Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.

9. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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24   Wells Fargo Traditional Small Cap Growth 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 Traditional Small Cap Growth Fund (formerly known as Wells Fargo Advantage Traditional Small Cap Growth Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the two-year period then ended, the period from November 1, 2013 to March 31, 2014, and each of the years in the three-year period ended October 31, 2013. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Traditional Small Cap Growth Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods noted in the first paragraph above, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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Other information (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     25   

TAX INFORMATION

Pursuant to Section 852 of the Internal Revenue Code, $24,599,232 was designated as long-term capital gain distributions for the fiscal year ended March 31, 2016.

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 Traditional Small Cap Growth Fund   Other information (unaudited)

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships
William R. Ebsworth (Born 1957)   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College.   Asset Allocation Trust
Jane A. Freeman (Born 1953)   Trustee, since 2015   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is Chair of Taproot Foundation (non-profit organization), a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst.   Asset Allocation Trust
Peter G. Gordon (Born 1942)   Trustee, since 1998; Chairman, since 2005   Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College.   Asset Allocation Trust
Isaiah Harris, Jr. (Born 1952)   Trustee, since 2009   Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation; Asset Allocation Trust
Judith M. Johnson (Born 1949)   Trustee, since 2008; Audit Committee Chairman, since 2008   Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant.   Asset Allocation Trust
David F. Larcker (Born 1950)   Trustee, since 2009   James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust


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Other information (unaudited)   Wells Fargo Traditional Small Cap Growth 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.    
Nancy Wiser1
(Born 1967)
  Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
C. David Messman
(Born 1960)
  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
David Berardi
(Born 1975)
  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)
  Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

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

 

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


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28   Wells Fargo Traditional Small Cap Growth Fund   List of abbreviations

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

 

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


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For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

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

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

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

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241820 05-16

A247/AR247 03-16


Table of Contents

Annual Report

March 31, 2016

 

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Wells Fargo Precious Metals Fund

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    6   

Fund expenses

    10   

Consolidated portfolio of investments

    11   
Financial statements  

Consolidated statement of assets and liabilities

    13   

Consolidated statement of operations

    14   

Consolidated statement of changes in net assets

    15   

Consolidated financial highlights

    16   

Notes to consolidated financial statements

    21   

Report of independent registered public accounting firm

    26   

Other information

    27   

List of abbreviations

    30   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Precious Metals Fund for the 12-month period that ended March 31, 2016. During this period, which began with the second quarter of 2015, U.S. and international stock markets experienced heightened volatility, with intermittent rebounds interspersed with sell-offs. The U.S. economy displayed resilience throughout the period, although growth stayed modest amid ongoing pressures such as slowing growth in China, a strengthening U.S. dollar, and uncertainty regarding interest-rate increases by the U.S. Federal Reserve (Fed). International economies faced deeper ongoing challenges.

U.S. stocks experienced challenges during the second quarter of 2015.

The broad U.S. stock market fluctuated widely, eventually eking out a small quarterly gain. Mid- and large-cap stocks at times were pressured by investor concerns over the potentially negative effects of financially troubled overseas economies and of a strengthening U.S. dollar on the profits of U.S. multinational firms. The U.S. economy picked up traction during the quarter, and U.S. Fed officials, who kept interest rates low while waiting for the U.S. jobs market to sufficiently improve and for inflation to approach their 2% target, made clear they could take action soon. Throughout the quarter, non-U.S. markets also experienced volatility, triggered by uncertainty over the potential impact of financial challenges in other locations—most notably in Greece and Puerto Rico. Questions over slower growth in China caused investor concern as well.

In the third quarter of 2015, China’s slowdown took a toll on economies and markets worldwide.

U.S. stocks sagged during the quarter, experiencing the most volatility since 2011. Economic data released during the quarter suggested the U.S. economy remained solid but had lost some steam, burdened by the drag of the U.S. dollar’s strength coupled with global economic turmoil. The fact that the Fed left the federal funds interest rate unchanged at its September 2015 meeting surprised investors and fueled increased uncertainty about the U.S. economy’s stamina to remain healthy while facing the challenges of slowing in China and troubles elsewhere in the world. Outside the U.S., markets were even more volatile and delivered generally weaker quarterly results, also largely due to investors’ increasing anxiety over China’s weakened economy. Because China is the world’s largest importer of many commodities, a number of emerging markets—key commodities exporters—struggled under the dual strains of reduced demand for commodities and, because of weaker demand, lower prices for the commodities they did sell. In the eurozone, however, where only about 3% of exports are sent to China, household spending and business investment appeared relatively unaffected by troubles elsewhere. The European Central Bank (ECB) warned, though, that China’s slowing could lead to slower growth and lower inflation rates in the eurozone than previously forecast and indicated additional stimulus could be provided should this occur.

Despite ongoing concerns, U.S. stocks generally rose in the fourth quarter of 2015; international markets lagged.

While the broad U.S. stock market bounced back in the quarter, stock markets outside the U.S. failed to keep pace as economic concerns, including China’s slowdown, continued to negatively affect many countries. U.S. economic data released during the quarter indicated the economy remained solid, with modest growth, although the strong U.S. dollar and weakness in international economies

 


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Letter to shareholders (unaudited)   Wells Fargo Precious Metals Fund     3   

continued to be headwinds. In December, the Fed, as expected, raised its target interest rate by 25 basis points (bps; 100 bps equals 1.00%) after keeping it near zero for seven years. The move reflected confidence in the U.S. economy’s ability to stay healthy with less central-bank support. The Fed also clarified that future interest-rate increases would be gradual.

In the first quarter of 2016, market volatility increased globally amid ongoing concerns.

Stock markets worldwide fluctuated widely in the first quarter of 2016. Most sold off sharply in the first six weeks of the year on concerns such as weak global growth, falling commodity prices, and uncertainty over the timing and impact of Fed interest-rate increases. As the quarter progressed, fears abated somewhat and global markets generally rallied back. The U.S. economy ended the quarter on a positive note as much of the quarter’s data reflected resiliency. With ongoing uncertainties about global growth and financial markets, however, the Fed held off from raising the target interest rate during the quarter. Outside the U.S., the eurozone fell into deflation in February; in response, the ECB announced an expansion of its stimulus program. In China, the government in March set a growth rate of 6.5% to 7.0% for 2016, an acknowledgment that the country’s growth has been slowing. In emerging markets, although central-bank stimulus and improved prices for oil and other commodities led to stock-market rallies in the quarter, many of these countries’ economies face credit downgrades due to challenges such as the likelihood of a stronger U.S. dollar, which would make dollar-denominated debt more expensive.

Gold prices rose 4% during the reporting period; the share prices of precious metals stocks rose more sharply.

In the second quarter of 2015, gold and gold-related stocks delivered relatively flat results, with minor price changes. Gold prices fluctuated within a narrow trading range in the third quarter of 2015, ultimately falling nearly 5% in those three months; gold-related stocks declined significantly more. Historically, gold-related stocks often have surpassed movements in underlying gold prices, both up or down, which is an unfavorable characteristic when investors expect the price of gold to decline but favorable when they expect gold to rise. In the fourth quarter of 2015, gold fell nearly 5%; as the U.S. dollar strengthened, gold sold off, partly in anticipation of a Fed interest-rate increase. Precious metals stocks generally performed much better than gold prices during this quarter. In the first quarter of 2016, gold rose more than 16% as global economic and financial concerns led many investors to turn to assets perceived as safe, such as gold. Gold stocks appreciated roughly three times more than gold during the quarter.

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

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

 

 

 

 

Gold prices rose 4% during the reporting period; the share prices of precious metals stocks rose more sharply.

 

 

 

 

We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.

 

 

 

 


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

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

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

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


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6   Wells Fargo Precious Metals Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Michael Bradshaw, CFA®

Oleg Makhorine

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross   Net3
Class A (EKWAX)   1-20-1998     6.40        (17.42     (1.96     12.90        (16.44     (1.38   1.17   1.09
Class B (EKWBX)*   1-30-1978     7.04        (17.39     (1.89     12.04        (17.07     (1.89   1.92   1.84
Class C (EKWCX)   1-29-1998     11.05        (17.06     (2.11     12.05        (17.06     (2.11   1.92   1.84
Administrator Class (EKWDX)   7-30-2010                          13.06        (16.31     (1.25   1.09   0.95
Institutional Class (EKWYX)   2-29-2000                          13.23        (16.17     (1.08   0.84   0.79
FTSE Gold Mines Index4                            20.65        (17.69     (4.42    
S&P 500 Index5                            1.78        11.58        7.01       
*   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.

While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in precious metals-related stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. Funds that concentrate their investments in limited sectors, such as gold-related investments, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk, geographic, nondiversification risk, smaller-company securities risk, and subsidiary risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 7.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Precious Metals Fund     7   
Growth of $10,000 investment as of March 31, 20166
LOGO

 

 

 

1  Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for all classes of the Fund prior July 19, 2010, is based on the Fund’s predecessor Evergreen Precious Metals Fund.

 

2  Reflect the expense ratios as stated in the most recent prospectuses. The expense ratios are subject to change and may differ from the annualized expense ratio shown in the financial highlights of this report.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at the amounts shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, fees and expenses of its wholly-owned subsidiary, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  FTSE Gold Mines Index is an unmanaged, open-ended index designed to reflect the performance of the worldwide market in the shares of companies whose principal activity is the mining of gold. You cannot invest directly in an index.

 

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

 

6  The chart compares the performance of Class A shares for the most recent ten years with the FTSE Gold Mines Index and the S&P 500 Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

7  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

8  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

 

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


Table of Contents

 

8   Wells Fargo Precious Metals Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed the FTSE Gold Mines Index for the 12-month period that ended March 31, 2016.

 

n   The Fund’s positions in Tahoe Resources Incorporated; Royal Gold, Incorporated; Silver Wheaton Corporation; and Aureus Mining Incorporated** detracted from results, as did its underweight to Barrick Gold Corporation.

 

n   The Fund’s holdings in Lake Shore Gold Corporation and Torex Gold Resources Incorporated aided results during the period. Overweights to Randgold Resources Limited ADR and Detour Gold Corporation also helped results.

 

n   The price of gold rose 4% during the 12-month period, and the share prices of precious metals stocks rose more sharply.

Gold prices declined 10% during the first three quarters of the reporting period as a stronger-than-expected economy caused the Federal Open Market Committee (FOMC) to announce that interest-rate increases would begin by the end of 2015. On December 16, 2015, the FOMC raised the federal funds rate by 25 basis points (bps; 100 bps equals 1.00%); the following day, the price of gold dropped to a low for the 12-month reporting period. During the final quarter of the reporting period (the first quarter of 2016), the price of gold rose 16% as weaker-than-expected economic growth and below-target inflation caused the FOMC to delay further interest-rate increases.

Purchases and sales of gold exchange-traded funds (ETFs) have an impact on gold prices. Sales of gold ETFs increased during the third quarter of the reporting period, negatively affecting the prices of gold and gold stocks. During the final quarter of the reporting period, gold-backed ETF purchases accelerated as investors worried about slowing economic growth in China and falling stock and bond markets worldwide.

 

Ten largest holdings (%) as of March 31, 20167  

Randgold Resources Limited ADR

    9.28   

Agnico-Eagle Mines Limited-U.S. Exchange Traded Shares

    5.33   

Gold Bullion

    5.27   

Newmont Mining Corporation

    5.13   

Kinross Gold Corporation

    4.51   

AngloGold Ashanti Limited ADR

    4.29   

Royal Gold Incorporated

    4.19   

Goldcorp Incorporated

    4.15   

Fresnillo plc

    4.08   

Barrick Gold Corporation

    3.83   

Gold-mining stocks outperformed relative to the price of gold.

The prices of gold-mining stocks typically rise or fall more sharply than the price of gold. This remained the case during the 12-month reporting period; higher-cost, financially leveraged companies fared the best. Companies with assets domiciled in jurisdictions experiencing depreciating currencies, such as Australia, South Africa, and Canada, also outperformed.

Two of the Fund’s most noteworthy detractors were Royal Gold and Silver Wheaton. Royal Gold declined after the firm reported disappointing results for the first quarter of its fiscal year; Silver Wheaton dropped on news that the Canadian government would be imposing a

 

higher-than-expected tax rate on the company’s foreign revenue. The Fund’s underweight to Barrick Gold also detracted from performance as the company benefited from a successful asset-disposal program.

Torex Gold Resources was among the Fund’s best contributors. The company benefited from the successful commissioning of its Mexico-based El Limon mine. Randgold Resources Limited ADR generated the Fund’s strongest contribution to relative results out of all of the securities held; the company, which has mining operations in West Africa, benefited from the expansion of its Kibali Mine. Other key contributors included Canada-based Detour Gold and Lake Shore Gold. Detour Gold pleased investors by delivering higher production and lower costs than expected; Lake Shore outperformed on news of a discovery at its Timmins West mine and a subsequent announcement that the company would be acquired by Tahoe Resources.

 

 

Please see footnotes on page 7.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Precious Metals Fund     9   
Country allocation as of March 31, 20168
LOGO

In our view, investment in gold and precious metals companies is likely to remain a perceived hedge against inflation.

We believe the short-term outlook for gold prices depends largely on economic data and their resulting impact on U.S. interest rates and the U.S. dollar. If the current period of weaker-than-expected U.S. economic growth continues beyond the first quarter of 2016, the U.S. Federal Reserve could delay interest-rate increases until the end of 2016. Should this occur, we believe the economic environment would continue to support gold prices and gold stocks. We also believe gold prices may benefit from strong Chinese demand for physical gold as well as continued purchases of gold ETFs by U.S. investors.

 

 

Over the longer term, eventual inflationary pressures could bode well for precious metals prices. In addition, gold prices could benefit from emerging markets investors’ investments in gold rather than in their local currencies or securities denominated in their local currencies. At the other end of the spectrum, Chinese investors could continue to diversify their U.S. dollar exposure into gold.

We believe gold-related stocks have better appreciation potential than the metal itself. However, stock selection will remain important because company fundamentals tend to drive stock prices; higher-quality companies with internal growth catalysts, such as effective execution of business plans and mining successes, are most likely to outperform. We also favor production companies over exploration or development firms because production companies are more established, generally have positive cash flow, and are at less risk of needing to raise capital.

 

 

Please see footnotes on page 7.


Table of Contents

 

10   Wells Fargo Precious Metals Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

    

Beginning

account value

10-1-2015

    

Ending

account value

3-31-2016

    

Expenses

paid during

the period¹

    

Net annualized

expense ratio

 

Class A

           

Actual

   $ 1,000.00       $ 1,401.71       $ 6.61         1.10

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.50       $ 5.56         1.10

Class B

           

Actual

   $ 1,000.00       $ 1,396.12       $ 11.09         1.85

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.75       $ 9.33         1.85

Class C

           

Actual

   $ 1,000.00       $ 1,396.35       $ 11.09         1.85

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.75       $ 9.33         1.85

Administrator Class

           

Actual

   $ 1,000.00       $ 1,402.81       $ 5.77         0.96

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.20       $ 4.85         0.96

Institutional Class

           

Actual

   $ 1,000.00       $ 1,403.63       $ 4.81         0.80

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.00       $ 4.04         0.80

 

 

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

 

Consolidated portfolio of investments—March 31, 2016   Wells Fargo Precious Metals Fund     11   

      

 

 

Security name             Shares      Value  

Common Stocks: 91.69%

          
Australia: 3.15%           

Newcrest Mining Limited (Materials, Metals & Mining) †

          888,440       $ 11,550,334   
          

 

 

 
Canada: 60.59%           

Agnico-Eagle Mines Limited (Materials, Metals & Mining)

          266,370         9,637,518   

Agnico-Eagle Mines Limited-Legend Shares (Materials, Metals & Mining)

          35,000         1,265,600   

Agnico-Eagle Mines Limited-U.S. Exchange Traded Shares (Materials, Metals & Mining)

          540,164         19,532,330   

Alamos Gold Incorporated Class A (Materials, Metals & Mining)

          1,738,980         9,212,075   

AuRico Metals Incorporated (Materials, Metals & Mining) †

          610,742         352,690   

B2Gold Corporation (Materials, Metals & Mining) †

          5,590,000         9,296,939   

Barrick Gold Corporation (Materials, Metals & Mining)

          1,034,083         14,042,847   

Centerra Gold Incorporated (Materials, Metals & Mining)

          460,000         2,135,746   

Centerra Gold Incorporated (Materials, Metals & Mining) 144A

          350,000         1,625,024   

Detour Gold Corporation (Materials, Metals & Mining) †

          491,057         7,732,139   

Detour Gold Corporation (Materials, Metals & Mining) †144A

          525,000         8,266,603   

Detour Gold Corporation-Legend Shares (Materials, Metals & Mining) †

          90,000         1,417,132   

Eldorado Gold Corporation (Materials, Metals & Mining)

          2,226,044         6,993,078   

Entree Gold Incorporated-Legend Shares (Materials, Metals & Mining)(i)

          1,275,000         377,960   

Exeter Resource Corporation-Legend Shares (Materials, Metals & Mining)

          585,000         324,312   

Franco-Nevada Corporation (Materials, Metals & Mining) 144A

          142,500         8,751,338   

Franco-Nevada Corporation (Materials, Metals & Mining)

          112,000         6,878,244   

Goldcorp Incorporated (Materials, Metals & Mining)

          937,254         15,205,345   

Goldcorp Incorporated-U.S. Exchange Traded Shares (Materials, Metals & Mining)

          646,694         10,495,844   

Kinross Gold Corporation (Materials, Metals & Mining) †

          4,850,553         16,545,101   

Lake Shore Gold Corporation (Materials, Metals & Mining) †

          4,600,000         6,694,129   

Mag Silver Corporation (Materials, Metals & Mining) †

          870,000         8,212,666   

Mag Silver Corporation-Legend Shares (Materials, Metals & Mining) †

          100,000         943,985   

Osisko Gold Royalties Limited (Materials, Metals & Mining)

          366,700         3,916,172   

Platinum Group Metals Limited (Materials, Metals & Mining) †

          345,000         1,306,949   

Platinum Group Metals Limited-Legend Shares (Materials, Metals & Mining) †

          80,000         301,829   

Platinum Group Metals Limited-U.S. Exchange Traded Shares (Materials, Metals & Mining) †

          144,000         547,200   

Semafo Incorporated (Materials, Metals & Mining) †

          3,660,400         13,049,203   

Silver Wheaton Corporation (Materials, Metals & Mining)

          12,950         214,878   

Silver Wheaton Corporation-U.S. Exchange Traded Shares (Materials, Metals & Mining)

          605,000         10,030,900   

Tahoe Resources Incorporated (Materials, Metals & Mining)

          920,000         9,223,022   

Tahoe Resources Incorporated-Legend Shares (Materials, Metals & Mining)

          280,000         2,807,007   

Torex Gold Resources Incorporated (Materials, Metals & Mining) †

          2,200,000         3,082,964   

Torex Gold Resources Incorporated (Materials, Metals & Mining) †144A(i)

          1,850,000         2,592,493   

Torex Gold Resources Incorporated-Legend Shares (Materials, Metals & Mining) †(i)

          2,662,500         3,731,088   

Yamana Gold Incorporated (Materials, Metals & Mining)

          1,162,731         3,527,361   

Yamana Gold Incorporated-U.S. Exchange Traded Shares (Materials, Metals & Mining)

          640,537         1,947,232   
             222,216,943   
          

 

 

 
Peru: 0.61%           

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

          304,644         2,242,180   
          

 

 

 
South Africa: 4.30%           

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

          1,150,591         15,751,591   
          

 

 

 

 

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


Table of Contents

 

12   Wells Fargo Precious Metals Fund   Consolidated portfolio of investments—March 31, 2016

      

 

 

Security name              Shares      Value  
United Kingdom: 13.72%          

Fresnillo plc (Materials, Metals & Mining)

         1,095,000       $ 14,979,900   

Hochschild Mining plc (Materials, Metals & Mining) †

         986,470         1,303,471   

Randgold Resources Limited ADR (Materials, Metals & Mining)

         375,000         34,053,750   
            50,337,121   
         

 

 

 
United States: 9.32%          

Newmont Mining Corporation (Materials, Metals & Mining)

         708,455         18,830,734   

Royal Gold Incorporated (Materials, Metals & Mining)

         299,436         15,358,071   
            34,188,805   
         

 

 

 

Total Common Stocks (Cost $303,163,086)

            336,286,974   
         

 

 

 
               Troy ounces         
Commodities: 5.27%          

Gold Bullion †**

         15,691         19,316,430   
         

 

 

 

Total Commodities (Cost $9,550,295)

            19,316,430   
         

 

 

 
    Yield          Shares         
Short-Term Investments: 2.80%          
Investment Companies: 2.80%          

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

    0.43        10,291,007         10,291,007   
         

 

 

 

Total Short-Term Investments (Cost $10,291,007)

            10,291,007   
         

 

 

 

 

Total investments in securities (Cost $323,004,388) *     99.76        365,894,411   

Other assets and liabilities, net

    0.24           883,466   
 

 

 

      

 

 

 
Total net assets     100.00      $ 366,777,877   
 

 

 

      

 

 

 

 

 

Non-income-earning security

 

144A The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933.

 

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

 

** Represents an investment held in Wells Fargo Special Investments (Cayman) SPC, the consolidated entity.

 

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

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $341,582,665 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 108,167,719   

Gross unrealized losses

     (83,855,973
  

 

 

 

Net unrealized gains

   $ 24,311,746   

 

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


Table of Contents

 

Consolidated statement of assets and liabilities—March 31, 2016   Wells Fargo Precious Metals Fund     13   
         

Assets

 

Investments

 

In unaffiliated securities, at value (cost $303,163,086)

  $ 336,286,974   

In commodities, at value (cost $9,550,295)

    19,316,430   

In affiliated securities, at value (cost $10,291,007)

    10,291,007   
 

 

 

 

Total investments, at value (cost $323,004,388)

    365,894,411   

Cash

    56,585   

Foreign currency, at value (cost $596,028)

    595,912   

Receivable for Fund shares sold

    1,314,864   

Receivable for dividends

    363,807   

Prepaid expenses and other assets

    69,876   
 

 

 

 

Total assets

    368,295,455   
 

 

 

 

Liabilities

 

Payable for Fund shares redeemed

    1,081,175   

Management fee payable

    169,255   

Distribution fees payable

    34,006   

Administration fees payable

    59,103   

Accrued expenses and other liabilities

    174,039   
 

 

 

 

Total liabilities

    1,517,578   
 

 

 

 

Total net assets

  $ 366,777,877   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 488,925,512   

Undistributed net investment income

    2,431,266   

Accumulated net realized losses on investments

    (167,468,930

Net unrealized gains on investments

    42,890,029   
 

 

 

 

Total net assets

  $ 366,777,877   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 236,309,683   

Shares outstanding – Class A1

    7,219,211   

Net asset value per share – Class A

    $32.73   

Maximum offering price per share – Class A2

    $34.73   

Net assets – Class B

  $ 1,550,174   

Shares outstanding – Class B1

    52,538   

Net asset value per share – Class B

    $29.51   

Net assets – Class C

  $ 52,648,341   

Shares outstanding – Class C1

    1,808,946   

Net asset value per share – Class C

    $29.10   

Net assets – Administrator Class

  $ 16,114,148   

Shares outstanding – Administrator Class1

    488,576   

Net asset value per share – Administrator Class

    $32.98   

Net assets – Institutional Class

    $60,155,531   

Shares outstanding – Institutional Class1

    1,811,410   

Net asset value per share – Institutional Class

    $33.21   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

14   Wells Fargo Precious Metals Fund   Consolidated statement of operations—year eded March 31, 2016
         

Investment income

 

Dividends (net of foreign withholding taxes of $277,282)

  $ 2,587,835   

Income from affiliated securities

    14,042   

Interest

    184   
 

 

 

 

Total investment income

    2,602,061   
 

 

 

 

Expenses

 

Management fee

    1,960,041   

Administration fees

 

Class A

    430,473   

Class B

    4,297   

Class C

    108,429   

Administrator Class

    20,458   

Institutional Class

    49,906   

Shareholder servicing fees

 

Class A

    479,692   

Class B

    4,724   

Class C

    120,080   

Administrator Class

    42,648   

Distribution fees

 

Class B

    14,173   

Class C

    360,242   

Custody and accounting fees

    43,528   

Professional fees

    69,396   

Registration fees

    62,191   

Shareholder report expenses

    98,029   

Trustees’ fees and expenses

    17,010   

Other fees and expenses

    41,666   
 

 

 

 

Total expenses

    3,926,983   

Less: Fee waivers and/or expense reimbursements

    (387,348
 

 

 

 

Net expenses

    3,539,635   
 

 

 

 

Net investment loss

    (937,574
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    (16,254,516

Commodities

    660,379   
 

 

 

 

Net realized losses on investments

    (15,594,137
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    55,899,684   

Commodities

    (22,925
 

 

 

 

Net change in unrealized gains (losses) on investments

    55,876,759   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    40,282,622   
 

 

 

 

Net increase in net assets resulting from operations

  $ 39,345,048   
 

 

 

 

 

 

 

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


Table of Contents

 

Consolidated statement of changes in net assets   Wells Fargo Precious Metals Fund     15   
     Year ended
March 31, 2016
    Year ended
March 31, 2015
 

Operations

     

Net investment loss

    $ (937,574     $ (1,850,832

Net realized losses on investments

      (15,594,137       (8,544,605

Net change in unrealized gains (losses) on investments

      55,876,759          (84,220,889
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      39,345,048          (94,616,326
 

 

 

 

Capital share transactions

    Shares        Shares     

Proceeds from shares sold

       

Class A

    2,573,064        68,840,471        2,090,045        74,515,784   

Class B

    564        12,571        1,003        31,925   

Class C

    240,087        5,729,445        216,694        6,828,594   

Administrator Class

    339,710        9,337,859        759,290        28,093,290   

Institutional Class

    1,329,839        35,409,488        1,064,094        38,355,131   
 

 

 

 
      119,329,834          147,824,724   
 

 

 

 

Payment for shares redeemed

       

Class A

    (2,647,478     (70,141,452     (3,006,178     (108,551,283

Class B

    (54,779     (1,360,269     (111,993     (3,694,954

Class C

    (705,445     (16,527,142     (810,107     (24,887,063

Administrator Class

    (602,465     (15,285,251     (883,304     (29,469,517

Institutional Class

    (985,059     (26,874,701     (733,544     (25,611,256
 

 

 

 
      (130,188,815       (192,214,073
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (10,858,981       (44,389,349
 

 

 

 

Total increase (decrease) in net assets

      28,486,067          (139,005,675
 

 

 

 

Net assets

   

Beginning of period

      338,291,810          477,297,485   
 

 

 

 

End of period

    $ 366,777,877        $ 338,291,810   
 

 

 

 

Undistributed (accumulated) net investment income (loss)

    $ 2,431,266        $ (594,242
 

 

 

 

 

 

 

 

 

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


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16   Wells Fargo Precious Metals Fund   Consolidated financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2016     2015     20141     20131     20121  

Net asset value, beginning of period

    $28.99        $36.65        $53.59        $70.30        $85.64   

Net investment income (loss)

    (0.05     (0.11 )2      0.05 2      (0.01 )2      (0.19 )2 

Net realized and unrealized gains (losses) on investments

    3.79        (7.55     (16.78     (14.47     (13.39
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.74        (7.66     (16.73     (14.48     (13.58

Distributions to shareholders from

         

Net investment income

    0.00        0.00        0.00        0.00        (1.27

Net realized gains

    0.00        0.00        (0.21     (2.23     (0.49
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    0.00        0.00        (0.21     (2.23     (1.76

Net asset value, end of period

    $32.73        $28.99        $36.65        $53.59        $70.30   

Total return3

    12.90     (20.90 )%      (31.17 )%      (21.14 )%      (15.95 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.23     1.23     1.22     1.18     1.14

Net expenses

    1.10     1.10     1.09     1.09     1.09

Net investment income (loss)

    (0.24 )%      (0.30 )%      0.12     (0.02 )%      (0.24 )% 

Supplemental data

         

Portfolio turnover rate

    18 %4      9 %4      16     6     4

Net assets, end of period (000s omitted)

    $236,310        $211,477        $300,906        $498,874        $699,773   

 

 

 

 

1  Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary.

 

2  Calculated based upon average shares outstanding

 

3  Total return calculations do not include any sales charges.

 

4  Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary.

 

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


Table of Contents

 

Consolidated financial highlights   Wells Fargo Precious Metals Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS B   2016     2015     20141     20131     20121  

Net asset value, beginning of period

    $26.33        $33.54        $49.44        $65.53        $79.20   

Net investment loss

    (0.25 )2      (0.36 )2      (0.22 )2      (0.47 )2      (0.77 )2 

Net realized and unrealized gains (losses) on investments

    3.43        (6.85     (15.47     (13.39     (12.29
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.18        (7.21     (15.69     (13.86     (13.06

Distributions to shareholders from

         

Net investment income

    0.00        0.00        0.00        0.00        (0.12

Net realized gains

    0.00        0.00        (0.21     (2.23     (0.49
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    0.00        0.00        (0.21     (2.23     (0.61

Net asset value, end of period

    $29.51        $26.33        $33.54        $49.44        $65.53   

Total return3

    12.08 %4      (21.50 )%      (31.68 )%      (21.74 )%      (16.58 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.99     1.98     1.96     1.93     1.89

Net expenses

    1.85     1.85     1.84     1.84     1.84

Net investment loss

    (1.01 )%      (1.08 )%      (0.60 )%      (0.78 )%      (1.01 )% 

Supplemental data

         

Portfolio turnover rate

    18 %5      9 %5      16     6     4

Net assets, end of period (000s omitted)

    $1,550        $2,811        $7,304        $20,570        $39,046   

 

 

 

 

1  Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary.

 

2  Calculated based upon average shares outstanding

 

3  Total return calculations do not include any sales charges.

 

4  Total return reflects adjustments to conform with generally accepted accounting principles.

 

5  Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary.

 

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


Table of Contents

 

18   Wells Fargo Precious Metals Fund   Consolidated financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2016     2015     20141     20131     20121  

Net asset value, beginning of period

    $25.97        $33.08        $48.76        $64.66        $78.43   

Net investment loss

    (0.24 )2      (0.35 )2      (0.22 )2      (0.46 )2      (0.75 )2 

Net realized and unrealized gains (losses) on investments

    3.37        (6.76     (15.25     (13.21     (12.18
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.13        (7.11     (15.47     (13.67     (12.93

Distributions to shareholders from

         

Net investment income

    0.00        0.00        0.00        0.00        (0.35

Net realized gains

    0.00        0.00        (0.21     (2.23     (0.49
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    0.00        0.00        (0.21     (2.23     (0.84

Net asset value, end of period

    $29.10        $25.97        $33.08        $48.76        $64.66   

Total return3

    12.05     (21.49 )%      (31.67 )%      (21.74 )%      (16.58 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.99     1.98     1.97     1.93     1.89

Net expenses

    1.85     1.85     1.84     1.84     1.84

Net investment loss

    (0.99 )%      (1.06 )%      (0.62 )%      (0.77 )%      (0.99 )% 

Supplemental data

         

Portfolio turnover rate

    18 %4      9 %4      16     6     4

Net assets, end of period (000s omitted)

    $52,648        $59,074        $94,865        $191,782        $290,513   

 

 

 

 

1  Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary.

 

2  Calculated based upon average shares outstanding

 

3  Total return calculations do not include any sales charges.

 

4  Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary.

 

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


Table of Contents

 

Consolidated financial highlights   Wells Fargo Precious Metals Fund     19   

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2016     2015     20141     20131     20121  

Net asset value, beginning of period

    $29.17        $36.82        $53.75        $70.42        $85.70   

Net investment income (loss)

    (0.03 )2      (0.06 )2      0.10 2      0.08 2      (0.06 )2 

Net realized and unrealized gains (losses) on investments

    3.84        (7.59     (16.82     (14.52     (13.41
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.81        (7.65     (16.72     (14.44     (13.47

Distributions to shareholders from

         

Net investment income

    0.00        0.00        0.00        0.00        (1.32

Net realized gains

    0.00        0.00        (0.21     (2.23     (0.49
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    0.00        0.00        (0.21     (2.23     (1.81

Net asset value, end of period

    $32.98        $29.17        $36.82        $53.75        $70.42   

Total return

    13.06     (20.78 )%      (31.06 )%      (21.05 )%      (15.81 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.13     1.07     1.04     1.01     0.94

Net expenses

    0.96     0.96     0.95     0.95     0.92

Net investment income (loss)

    (0.10 )%      (0.17 )%      0.26     0.13     (0.08 )% 

Supplemental data

         

Portfolio turnover rate

    18 %3      9 %3      16     6     4

Net assets, end of period (000s omitted)

    $16,114        $21,917        $32,230        $53,142        $53,497   

 

 

 

 

 

1  Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary.

 

2  Calculated based upon average shares outstanding

 

3  Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary.

 

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


Table of Contents

 

20   Wells Fargo Precious Metals Fund   Consolidated financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2016     2015     20141     20131     20121  

Net asset value, beginning of period

    $29.33        $36.96        $53.87        $70.43        $85.84   

Net investment income

    0.02 2      0.01 2      0.16 2      0.19        0.12   

Net realized and unrealized gains (losses) on investments

    3.86        (7.64     (16.86     (14.52     (13.45
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    3.88        (7.63     (16.70     (14.33     (13.33

Distributions to shareholders from

         

Net investment income

    0.00        0.00        0.00        0.00        (1.59

Net realized gains

    0.00        0.00        (0.21     (2.23     (0.49
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to shareholders

    0.00        0.00        (0.21     (2.23     (2.08

Net asset value, end of period

    $33.21        $29.33        $36.96        $53.87        $70.43   

Total return

    13.23     (20.64 )%      (30.95 )%      (20.89 )%      (15.64 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    0.88     0.80     0.79     0.75     0.71

Net expenses

    0.80     0.79     0.78     0.75     0.71

Net investment income

    0.06     0.03     0.41     0.32     0.14

Supplemental data

         

Portfolio turnover rate

    18 %3      9 %3      16     6     4

Net assets, end of period (000s omitted)

    $60,156        $43,014        $41,993        $59,349        $78,846   

 

 

 

 

 

1  Amounts do not reflect the consolidated financial results of its wholly-owned subsidiary.

 

2  Calculated based upon average shares outstanding

 

3  Portfolio turnover rate includes the purchases and sales transactions of its wholly-owned subsidiary.

 

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


Table of Contents

 

Notes to consolidated financial statements   Wells Fargo Precious Metals Fund     21   

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Precious Metals Fund (the “Fund”) which is a non-diversified series of the Trust.

2. INVESTMENT IN SUBSIDIARY

The Fund invests in precious metals and minerals through Wells Fargo Special Investments (Cayman) SPC (the “Subsidiary”), a wholly owned subsidiary incorporated on May 3, 2005 under the laws of the Cayman Islands as an exempted segregated portfolio company with limited liability. As of March 31, 2016, the Subsidiary held $19,316,430 in gold bullion representing 99.99% of its net assets. The Fund is the sole shareholder of the Subsidiary. As of March 31, 2016, the Fund held $19,317,430 in the Subsidiary, representing 5.27% of the Fund’s net assets.

The consolidated financial statements of the Fund include the financial results of its wholly-owned subsidiary. The Consolidated Portfolio of Investments includes positions of the Fund and the Subsidiary and the consolidated financial statements include the accounts of the Fund and the Subsidiary. Accordingly, all interfund balances and transactions between the Fund and the Subsidiary have been eliminated in consolidation.

3. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

Investments in commodities are valued at their last traded price.

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

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2016, such fair value pricing was not used in pricing foreign securities.

Investments in registered open-end investment companies are valued at net asset value.

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


Table of Contents

 

22   Wells Fargo Precious Metals Fund   Notes to consolidated financial statements

make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Distributions to shareholders

Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in 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 Subsidiary is classified as a controlled foreign corporation under Subchapter N of the Internal Revenue Code. Therefore, the Fund is required to increase its taxable income by its share of the Subsidiary’s income. Net investment losses of the Subsidiary cannot be deducted by the Fund in the current period nor carried forward to offset taxable income in future periods.

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent


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Notes to consolidated financial statements   Wells Fargo Precious Metals Fund     23   

differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to certain distributions paid, dividends from certain securities and passive foreign investment companies. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Consolidated Statement of Assets and Liabilities:

 

Paid-in capital    Undistributed net
investment income
   Accumulated net
realized losses
on investments
$(454,619)    $3,963,082    $(3,508,463)

As of March 31, 2016, the Fund had capital loss carryforwards which consist of $10,143,468 in short-term capital losses and $138,747,186 in long-term capital losses.

Class allocations

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

4. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

    

Quoted prices

(Level 1)

    

Other significant

observable inputs

(Level 2)

    

Significant

unobservable inputs

(Level 3)

     Total  

Assets

           

Common stocks

           

Australia

   $ 11,550,334       $ 0       $ 0       $ 11,550,334   

Canada

     189,812,572         32,404,371         0         222,216,943   

Peru

     2,242,180         0         0         2,242,180   

South Africa

     15,751,591         0         0         15,751,591   

United Kingdom

     50,337,121         0         0         50,337,121   

United States

     34,188,805         0         0         34,188,805   

Commodities

     19,316,430         0         0         19,316,430   

Short-term investments

           

Investment companies

     10,291,007         0         0         10,291,007   

Total assets

   $ 333,490,040       $ 32,404,371       $ 0       $ 365,894,411   


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24   Wells Fargo Precious Metals Fund   Notes to consolidated financial statements

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

5. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.65% and declining to 0.48% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.60% and declined to 0.45% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Consolidated Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.

The Subsidiary has entered into separate advisory contract with Funds Management to manage the investment and reinvestment of its assets in conformity with its investment objectives and restrictions. Under this agreement, the Subsidiary does not pay Funds Management a fee for its services.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.40% and declining to 0.30% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate     

Rate prior to

July 1, 2015

 

Class A, Class B, Class C

     0.21      0.26

Administrator Class

     0.13         0.10   

Institutional Class

     0.13         0.08   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses before consolidation of its wholly-owned subsidiary at 1.09% for Class A shares, 1.84% for Class B shares, 1.84% for Class C shares, 0.95% for Administrator Class shares, and 0.79% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.


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Notes to consolidated financial statements   Wells Fargo Precious Metals Fund     25   

Distribution fees

The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2016, Funds Distributor received $16,199 from the sale of Class A shares and $1,476 in contingent deferred sales charges from redemptions of Class C shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

6. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $51,709,887 and $76,858,603, respectively. These amounts include purchases and sales transactions of the Subsidiary.

7. 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.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

For the years ended March 31, 2016 and March 31, 2015, the Fund did not have any distributions paid to shareholders.

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

 

Undistributed

ordinary

income

  

Unrealized

gains

  

Capital loss

carryforward

$2,444,356    $24,311,752    $(148,890,654)

9. CONCENTRATION RISK

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

10. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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26   Wells Fargo Precious Metals Fund   Report of independent registered public accounting firm

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying consolidated statement of assets and liabilities, including the consolidated portfolio of investments, of the Wells Fargo Precious Metals Fund (formerly known as Wells Fargo Advantage Precious Metals Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related consolidated statement of operations for the year then ended, the consolidated statements of changes in net assets for each of the years in the two-year period then ended, and the consolidated financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Precious Metals Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

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Boston, Massachusetts

May 25, 2016


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Other information (unaudited)   Wells Fargo Precious Metals Fund     27   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $277,282 of income dividends paid during the fiscal year ended March 31, 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 March 31, 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

$277,282    $0.0244    100%

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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28   Wells Fargo Precious Metals Fund   Other information (unaudited)

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer   Current other public
company or investment
company directorships
William R. Ebsworth (Born 1957)   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College.   Asset Allocation Trust
Jane A. Freeman (Born 1953)   Trustee, since 2015   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is Chair of Taproot Foundation (non-profit organization), a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst.   Asset Allocation Trust
Peter G. Gordon (Born 1942)   Trustee, since 1998; Chairman, since 2005   Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College.   Asset Allocation Trust
Isaiah Harris, Jr. (Born 1952)   Trustee, since 2009   Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation; Asset Allocation Trust
Judith M. Johnson (Born 1949)   Trustee, since 2008; Audit Committee Chairman, since 2008   Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant.   Asset Allocation Trust
David F. Larcker (Born 1950)   Trustee, since 2009   James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust


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Other information (unaudited)   Wells Fargo Precious Metals Fund     29   

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.    

Nancy Wiser1

(Born 1967)

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

C. David Messman

(Born 1960)

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

Debra Ann Early

(Born 1964)

  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    

David Berardi

(Born 1975)

  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    

Jeremy DePalma1

(Born 1974)

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

 

 

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

 

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


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30   Wells Fargo Precious Metals Fund   List of abbreviations

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

 

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


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LOGO

 

 

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For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

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

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

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

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241821 05-16

A316/AR316 03-16


Table of Contents

Annual Report

March 31, 2016

 

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Wells Fargo Specialized Technology Fund

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    4   

Fund expenses

    8   

Portfolio of investments

    9   
Financial statements  

Statement of assets and liabilities

    12   

Statement of operations

    13   

Statement of changes in net assets

    14   

Financial highlights

    15   

Notes to financial statements

    19   

Report of independent registered public accounting firm

    25   

Other information

    26   

List of abbreviations

    29   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Specialized Technology Fund for the 12-month period that ended March 31, 2016. During this period, which began with the second quarter of 2015, U.S. and international stock markets experienced heightened volatility, with intermittent rebounds interspersed with sell-offs. The U.S. economy displayed resilience throughout the period, although growth stayed modest amid ongoing pressures such as slowing growth in China, a strengthening U.S. dollar, and uncertainty regarding interest-rate increases by the U.S. Federal Reserve (Fed). International economies faced deeper ongoing challenges.

U.S. stocks experienced challenges during the second quarter of 2015.

The broad U.S. stock market fluctuated widely, eventually eking out a small quarterly gain. Mid- and large-cap stocks at times were pressured by investor concerns over the potentially negative effects of financially troubled overseas economies and of a strengthening U.S. dollar on the profits of U.S. multinational firms. The U.S. economy picked up traction during the quarter, and U.S. Fed officials, who kept interest rates low while waiting for the U.S. jobs market to sufficiently improve and for inflation to approach their 2% target, made clear they could take action soon. Throughout the quarter, non-U.S. markets also experienced volatility, triggered by uncertainty over the potential impact of financial challenges in other locations—most notably in Greece and Puerto Rico. Questions over slower growth in China caused investor concern as well.

In the third quarter of 2015, China’s slowdown took a toll on economies and markets worldwide.

U.S. stocks sagged during the quarter, experiencing the most volatility since 2011. Economic data released during the quarter suggested the U.S. economy remained solid but had lost some steam, burdened by the drag of the U.S. dollar’s strength coupled with global economic turmoil. The fact that the Fed left the federal funds interest rate unchanged at its September 2015 meeting surprised investors and fueled increased uncertainty about the U.S. economy’s stamina to remain healthy while facing the challenges of slowing in China and troubles elsewhere in the world. Outside the U.S., markets were even more volatile and delivered generally weaker quarterly results, also largely due to investors’ increasing anxiety over China’s weakened economy. Because China is the world’s largest importer of many commodities, a number of emerging markets—key commodities exporters—struggled under the dual strains of reduced demand for commodities and, because of weaker demand, lower prices for the commodities they did sell. In the eurozone, however, where only about 3% of exports are sent to China, household spending and business investment appeared relatively unaffected by troubles elsewhere. The European Central Bank (ECB) warned, though, that China’s slowing could lead to slower growth and lower inflation rates in the eurozone than previously forecast and indicated additional stimulus could be provided should this occur.

Despite ongoing concerns, U.S. stocks generally rose in the fourth quarter of 2015; international markets lagged.

While the broad U.S. stock market bounced back in the quarter, stock markets outside the U.S. failed to keep pace as economic concerns, including China’s slowdown, continued to negatively affect many countries. U.S. economic data released during the quarter indicated the economy remained solid, with modest growth, although the strong U.S. dollar and weakness in international economies remained headwinds. In December, the Fed, as expected, raised its target interest rate by 25 basis points (bps; 100 bps equals 1.00%) after keeping it near zero for seven years. The move reflected confidence in the U.S. economy’s ability to stay healthy with less central-bank support. The Fed also clarified that future interest-rate increases would be gradual.

In the first quarter of 2016, market volatility increased globally amid ongoing concerns.

Stock markets worldwide fluctuated widely in the first quarter of 2016. Most sold off sharply in the first six weeks of the year on concerns such as weak global growth,

 


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Letter to shareholders (unaudited)   Wells Fargo Specialized Technology Fund     3   

falling commodity prices, and uncertainty over the timing and impact of Fed interest-rate increases. As the quarter progressed, fears abated somewhat and global markets generally rallied back. The U.S. economy ended the quarter on a positive note as much of the quarter’s data reflected resiliency. With ongoing uncertainties about global growth and financial markets, however, the Fed held off from raising the target interest rate during the quarter. Outside the U.S., the eurozone fell into deflation in February; in response, the ECB announced an expansion of its stimulus program. In China, the government in March set a growth rate of 6.5% to 7.0% for 2016, an acknowledgment that the country’s growth has been slowing. In emerging markets, although central-bank stimulus and improved prices for oil and other commodities led to stock-market rallies in the quarter, many of these countries’ economies face credit downgrades due to challenges such as the likelihood of a stronger U.S. dollar, which would make dollar-denominated debt more expensive.

Information technology (IT) stocks delivered positive results overall for the 12-month reporting period.

During the second quarter of 2015, the IT sector performed roughly in line with the broad U.S. stock market, pressured by similar investor concerns. In the third quarter of 2015, IT stocks declined overall, although less than the broader market; worried investors gravitated toward more defensive sectors as commodity prices weakened, the timing of a Fed interest-rate increase became less certain, and economies in emerging markets continued to struggle. IT stocks generally rebounded in the third quarter of 2015, aided by moderation of investors’ concerns about global growth and favorable earnings reports from a number of IT companies. In the first quarter of 2016, however, investors displayed a heavily defensive posture, primarily earlier in the quarter as oil prices continued to decline. Roughly halfway through the quarter, encouraging economic data led to a market rally. Within IT, investors tended to favor a select group of mega-cap stocks throughout much of the reporting period, reflecting ongoing risk aversion. Despite volatility within IT stocks over the 12-month period, the IT sector as a whole outperformed the broader U.S. stock market.

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

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

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

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

Despite volatility within IT stocks over the 12-month period, the IT sector as a whole outperformed the broader U.S. stock market.

 

 

 

 

We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.

 

 

 

 

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 Specialized Technology Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Allianz Global Investors U.S. LLC

Portfolio managers

Huachen Chen, CFA®

Walter C. Price, Jr., CFA®

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (WFSTX)   9-18-2000     (6.41     7.60        8.22        (0.66     8.88        8.86        1.45        1.45   
Class B (WFTBX)*   9-18-2000     (6.44     7.76        8.30        (1.44     8.05        8.30        2.20        2.20   
Class C (WFTCX)   9-18-2000     (2.45     8.05        8.04        (1.45     8.05        8.04        2.20        2.20   
Administrator Class (WFTDX)   7-30-2010                          (0.56     9.08        8.97        1.37        1.34   
S&P North American Technology Index4                            8.79        13.41        9.54                 
S&P 500 Index5                            1.78        11.58        7.01                 
*   Class B shares are closed to investment, except in connection with reinvestment of any distributions and permitted exchanges.

While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in technology-related stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.

Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Performance shown without sales charges would be lower if sales charges were reflected. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of dividends and capital gains. Current month-end performance is available on the Fund’s website, wellsfargofunds.com.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Funds that concentrate their investments in limited sectors, such as information technology, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to convertible securities risk, foreign investment risk, nondiversification risk, and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Specialized Technology Fund     5   
Growth of $10,000 investment as of March 31, 20166
LOGO

 

 

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

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.50% for Class A, 2.25% for Class B, 2.25% for Class C, and 1.33% for Administrator Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The S&P North American Technology Index (formerly the Goldman Sachs Technology Index) is a modified market-capitalization-weighted index of selected technology stocks. You cannot invest directly in an index.

 

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

 

6  The chart compares the performance of Class A shares for the most recent ten years with the S&P North American Technology Index and the S&P 500 Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

7  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

8  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

 

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


Table of Contents

 

6   Wells Fargo Specialized Technology Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed the S&P North American Technology Index for the 12-month period that ended March 31, 2016.

 

n   The Fund’s underweights or lack of exposure to select mega-cap stocks detracted from performance, as did its positioning in certain companies that were pressured during the period. Our selection of stocks experiencing unique growth drivers and the Fund’s relative weightings to certain stocks positively contributed to the Fund’s absolute and relative performance.

 

n   Stock-market volatility increased during the second half of the period, and investors shifted assets to investments with fewer perceived risks. In general, investors sold off stocks with high-growth expectations and high valuations in favor of larger companies with stable free-cash-flow generation and dividend yields.

We believe one of the most attractive qualities of the information technology (IT) sector is the regular emergence of new and disruptive trends. Many of these new technologies could potentially expand the influence of technology into other areas of the economy as well as draw value from predecessor technologies within the sector. Our primary goal always has been to identify these major trends ahead of the crowd and invest in the emerging leaders.

The Fund’s underweights to mega- and large-cap companies hindered performance; its exposures to certain pressured companies also detracted.

Historically, we have maintained a sizable underweight to mega-cap/large-cap companies, generally found in the traditional hardware and software markets, that tend to lack the robust growth rates advocated by our strategy. We since have moderated our view on mega caps and large caps largely because some of them have adapted to transition into new technology markets, which could accelerate their growth and lead to higher valuations. In general, we reduce our underweight to mega caps/large caps during periods of high investor risk aversion; however, the transition to new technology markets caused us to increase our exposure to mega caps and large caps even more than we typically would.

Semiconductor maker Skyworks Solutions, Incorporated, which makes semiconductors for smartphones and is a key supplier for Apple Incorporated’s iPhone, was among the Fund’s top detractors. The company’s shares declined as several smartphone-component suppliers lowered their guidance due to reduced demand. We believe Skyworks’ diversified exposure to the broader market coupled with the increasing content needs for most major smartphone platforms may generate attractive growth over time; besides smartphone semiconductors, the company supplies chips for the connected-home, smart-energy, wearables, and automotive markets.

The Fund’s largest detractors from relative performance included its underweight to Alphabet Incorporated (also known as Google). The company has been demonstrating an ability to capture some of the growth in mobile/video ads as advertisers shift spending away from traditional and internet media. Also, during the period, Google’s new chief financial officer emphasized that the company will focus more on maximizing shareholder value, which boosted investors’ optimism. We added to our position in Google during the period based on its progress in mobile/video ads and improved visibility into its operations. Overweights to Vipshop Holdings Limited** and Criteo S.A. and an underweight to Microsoft Corporation detracted from relative returns as well.

Also during the period, we continued to maintain large positions in several mid-cap companies that we believe could be future winners, especially in the mobile/consumer internet, data/network security, and cloud-computing groups. Our strategy can be somewhat disadvantaged in environments characterized by heightened macroeconomic uncertainty, when investors tend to value cash and yield over growth.

Select stocks contributed positively to the Fund’s performance, as did decisions to underweight or eliminate exposure to certain benchmark holdings.

Chinese online-gaming service provider NetEase, Incorporated, was among the Fund’s top contributors. NetEase, China’s leading online-games company, has exposure to a variety of internet segments, including news, email, and e-commerce. We believe investors may not be fully appreciating the potential upside from the company’s transition to mobile games, which have emerged as the driving force behind China’s online-gaming industry, and NetEase’s rich mobile-game pipeline.

 

 

Please see footnotes on page 5.


Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Specialized Technology Fund     7   

The Fund’s lack of exposure to IBM Corporation and underweights to certain holdings added to relative returns. In addition to the negative effects of the broad market sell-off, IBM continues to face company-specific challenges. The company’s disappointing 2016 forecast indicates ongoing issues as a shift to new technologies has not yet offset a persistent decline in demand for IBM’s traditional products. While the company’s new technologies include offerings in attractive growth areas such as cloud computing and data analytics, we believe the company’s transition started too late; its competitors have massive leads in these areas. IBM faces multiple challenges, and we believe it may take a considerable amount of time for the company to become competitive in new technology markets. Additionally, the Fund’s underweights to QUALCOMM Incorporated, Intel Corporation, and Hewlett-Packard Company boosted relative returns.

We retain an optimistic outlook for the sector and the Fund.

Looking forward, we continue to believe the IT sector can provide some of the stock markets’ best absolute- and relative-return opportunities, especially for bottom-up stock pickers like us. We have observed a wave of innovation within the sector that we believe could produce attractive returns for companies offering best-in-class solutions. We also see a number of companies with present valuations that in our view do not fully reflect positive company- and/or industry-specific tailwinds.

 

Ten largest holdings (%) as of March 31, 20167  

Microsoft Corporation

     7.91   

Facebook Incorporated Class A

     7.58   

Apple Incorporated

     6.32   

Amazon.com Incorporated

     4.50   

Visa Incorporated Class A

     4.24   

Alphabet Incorporated Class A

     4.04   

Alphabet Incorporated Class C

     4.00   

Cisco Systems Incorporated

     3.64   

Oracle Corporation

     3.47   

Skyworks Solutions Incorporated

     2.72   
Industry distribution as of March 31, 20168
LOGO
 

 

 

Please see footnotes on page 5.


Table of Contents

 

8   Wells Fargo Specialized Technology Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,059.48       $ 7.45         1.45

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,017.76       $ 7.30         1.45

Class B

           

Actual

   $ 1,000.00       $ 1,055.49       $ 11.29         2.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.02       $ 11.06         2.20

Class C

           

Actual

   $ 1,000.00       $ 1,055.66       $ 11.29         2.20

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,014.02       $ 11.06         2.20

Administrator Class

           

Actual

   $ 1,000.00       $ 1,060.84       $ 6.85         1.33

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,018.35       $ 6.71         1.33

 

 

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—March 31, 2016   Wells Fargo Specialized Technology Fund     9   

      

 

 

Security name
            Shares      Value  

Common Stocks: 98.50%

        

Consumer Discretionary: 8.78%

          
Household Durables: 1.21%         

Garmin Limited «

          95,206       $ 3,804,432   
          

 

 

 
Internet & Catalog Retail: 5.28%         

Amazon.com Incorporated †

          23,822         14,141,692   

Expedia Incorporated

          1,412         152,242   

Netflix Incorporated †

          7,412         757,729   

The Priceline Group Incorporated †

          1,192         1,536,440   
             16,588,103   
          

 

 

 
Media: 2.29%         

Comcast Corporation Class A

          117,482         7,175,801   
          

 

 

 

Financials: 0.47%

        
REITs: 0.47%         

American Tower Corporation

          14,368         1,470,852   
          

 

 

 

Information Technology: 86.56%

        
Communications Equipment: 5.89%         

Cisco Systems Incorporated

          401,708         11,436,627   

Palo Alto Networks Incorporated †

          16,367         2,670,112   

QUALCOMM Incorporated

          86,263         4,411,490   
             18,518,229   
          

 

 

 
Electronic Equipment, Instruments & Components: 1.91%         

CDW Corporation of Delaware

          11,648         483,392   

Corning Incorporated

          172,765         3,609,061   

Ingram Micro Incorporated Class A

          48,828         1,753,413   

Tech Data Corporation †

          1,960         150,469   
             5,996,335   
          

 

 

 
Internet Software & Services: 19.11%         

Alphabet Incorporated Class A †

          16,625         12,683,213   

Alphabet Incorporated Class C †

          16,885         12,578,481   

Criteo SA ADR †

          64,664         2,678,383   

Facebook Incorporated Class A †

          208,544         23,794,870   

NetEase Incorporated ADR

          16,008         2,298,429   

Tencent Holdings Limited

          159,700         3,260,969   

Youku.com Incorporated ADR †

          99,365         2,731,544   
             60,025,889   
          

 

 

 
IT Services: 14.18%         

Accenture plc Class A

          28,485         3,287,169   

Automatic Data Processing Incorporated

          51,856         4,652,002   

Cognizant Technology Solutions Corporation Class A †

          33,853         2,122,583   

Computer Sciences Corporation

          38,376         1,319,751   

Fidelity National Information Services Incorporated

          29,935         1,895,185   

 

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


Table of Contents

 

10   Wells Fargo Specialized Technology Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name
            Shares      Value  
IT Services (continued)         

Fiserv Incorporated †

          28,025       $ 2,874,805   

Global Payments Incorporated

          32,255         2,106,252   

MasterCard Incorporated Class A

          12,895         1,218,578   

Paychex Incorporated

          14,854         802,265   

PayPal Holdings Incorporated †

          108,326         4,181,384   

Sabre Corporation

          65,200         1,885,584   

Total System Services Incorporated

          54,565         2,596,203   

Vantiv Incorporated Class A †

          41,945         2,259,997   

Visa Incorporated Class A

          174,294         13,330,005   
             44,531,763   
          

 

 

 
Semiconductors & Semiconductor Equipment: 15.19%         

Analog Devices Incorporated

          18,290         1,082,585   

Applied Materials Incorporated

          239,105         5,064,244   

Atmel Corporation

          513,750         4,171,650   

Broadcom Limited

          55,001         8,497,655   

Intel Corporation

          47,985         1,552,315   

KLA-Tencor Corporation

          23,496         1,710,744   

Lam Research Corporation

          86,918         7,179,427   

Maxim Integrated Products Incorporated

          51,430         1,891,595   

Microchip Technology Incorporated «

          70,380         3,392,316   

Micron Technology Incorporated †

          54,055         565,956   

Skyworks Solutions Incorporated

          109,612         8,538,775   

Taiwan Semiconductor Manufacturing Company Limited ADR

          78,610         2,059,582   

Texas Instruments Incorporated

          24,820         1,425,164   

Xilinx Incorporated

          12,220         579,595   
             47,711,603   
          

 

 

 
Software: 20.60%         

Activision Blizzard Incorporated

          56,333         1,906,309   

Adobe Systems Incorporated †

          35,137         3,295,851   

Electronic Arts Incorporated †

          35,904         2,373,613   

Fortinet Incorporated †

          7,140         218,698   

Imperva Incorporated †

          82,738         4,178,269   

Intuit Incorporated

          61,170         6,362,292   

Microsoft Corporation

          449,735         24,838,864   

Oracle Corporation

          266,497         10,902,392   

Proofpoint Incorporated Ǡ

          33,002         1,774,848   

Salesforce.com Incorporated †

          74,765         5,519,900   

Tableau Software Incorporated Class A †

          37,575         1,723,565   

The Sage Group plc

          177,985         1,607,912   
             64,702,513   
          

 

 

 
Technology Hardware, Storage & Peripherals: 9.68%         

Apple Incorporated

          182,173         19,855,035   

EMC Corporation

          156,190         4,162,464   

Hewlett Packard Enterprise Company

          229,640         4,071,517   

NetApp Incorporated

          79,320         2,164,643   

Western Digital Corporation

          3,360         158,726   
             30,412,385   
          

 

 

 

 

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


Table of Contents

 

Portfolio of investments—March 31, 2016   Wells Fargo Specialized Technology Fund     11   

      

 

 

Security name
             Shares      Value  

Telecommunication Services: 2.69%

  

       
Diversified Telecommunication Services: 2.69%           

AT&T Incorporated

         123,339       $ 4,831,189   

Verizon Communications Incorporated

         66,971         3,621,792   
            8,452,981   
         

 

 

 

Total Common Stocks (Cost $242,733,193)

            309,390,886   
         

 

 

 
    Yield                    
Short-Term Investments: 4.07%          
Investment Companies: 4.07%          

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

    0.43        8,260,400         8,260,400   

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

    0.44           4,530,239         4,530,239       

Total Short-Term Investments (Cost $12,790,639)

            12,790,639   
         

 

 

 

 

Total investments in securities (Cost $255,523,832) *     102.57        322,181,525   

Other assets and liabilities, net

    (2.57        (8,077,755
 

 

 

      

 

 

 
Total net assets     100.00      $ 314,103,770   
 

 

 

      

 

 

 

 

 

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

 

Non-income-earning security

 

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

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

(u) The rate represents the 7-day annualized yield at period end.

 

* Cost for federal income tax purposes is $259,864,431 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 67,097,192   

Gross unrealized losses

     (4,780,098
  

 

 

 

Net unrealized gains

   $ 62,317,094   

 

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


Table of Contents

 

12   Wells Fargo Specialized Technology Fund   Statement of assets and liabilities—March 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $8,074,518 of securities loaned), at value (cost $242,733,193)

  $ 309,390,886   

In affiliated securities, at value (cost $12,790,639)

    12,790,639   
 

 

 

 

Total investments, at value (cost $255,523,832)

    322,181,525   

Cash

    16,994   

Foreign currency, at value (cost $14)

    13   

Receivable for investments sold

    1,715,226   

Receivable for Fund shares sold

    458,372   

Receivable for dividends

    89,599   

Receivable for securities lending income

    2,310   

Prepaid expenses and other assets

    16,659   
 

 

 

 

Total assets

    324,480,698   
 

 

 

 

Liabilities

 

Payable for investments purchased

    1,648,054   

Payable for Fund shares redeemed

    83,183   

Payable upon receipt of securities loaned

    8,260,400   

Management fee payable

    230,426   

Distribution fees payable

    8,558   

Administration fees payable

    51,976   

Accrued expenses and other liabilities

    94,331   
 

 

 

 

Total liabilities

    10,376,928   
 

 

 

 

Total net assets

  $ 314,103,770   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 234,303,815   

Accumulated net investment loss

    (250,851

Accumulated net realized gains on investments

    13,393,114   

Net unrealized gains on investments

    66,657,692   
 

 

 

 

Total net assets

  $ 314,103,770   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 267,811,347   

Shares outstanding – Class A1

    28,524,681   

Net asset value per share – Class A

    $9.39   

Maximum offering price per share – Class A2

    $9.96   

Net assets – Class B

  $ 122,276   

Shares outstanding – Class B1

    15,382   

Net asset value per share – Class B

    $7.95   

Net assets – Class C

  $ 13,797,110   

Shares outstanding – Class C1

    1,741,448   

Net asset value per share – Class C

    $7.92   

Net assets – Administrator Class

  $ 32,373,037   

Shares outstanding – Administrator Class1

    3,401,546   

Net asset value per share – Administrator Class

    $9.52   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

Statement of operations—year ended March 31, 2016   Wells Fargo Specialized Technology Fund     13   
         

Investment income

 

Dividends (net of foreign withholding taxes of $10,462)

  $ 2,643,652   

Securities lending income, net

    100,520   

Income from affiliated securities

    39,298   
 

 

 

 

Total investment income

    2,783,470   
 

 

 

 

Expenses

 

Management fee

    2,937,314   

Administration fees

 

Class A

    466,252   

Class B

    335   

Class C

    32,011   

Administrator Class

    38,906   

Investor Class

    218,304 1 

Shareholder servicing fees

 

Class A

    529,441   

Class B

    371   

Class C

    35,925   

Administrator Class

    79,526   

Investor Class

    170,334 1 

Distribution fees

 

Class B

    1,113   

Class C

    107,775   

Custody and accounting fees

    48,088   

Professional fees

    43,449   

Registration fees

    68,175   

Shareholder report expenses

    64,961   

Trustees’ fees and expenses

    18,659   

Other fees and expenses

    13,940   
 

 

 

 

Total expenses

    4,874,879   

Less: Fee waivers and/or expense reimbursements

    (15,252
 

 

 

 

Net expenses

    4,859,627   
 

 

 

 

Net investment loss

    (2,076,157
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    14,442,549   

Forward foreign currency contract transactions

    79,310   
 

 

 

 

Net realized gains on investments

    14,521,859   

Net change in unrealized gains (losses) on investments

    (15,139,717
 

 

 

 

Net realized and unrealized gains (losses) on investments

    (617,858
 

 

 

 

Net decrease in net assets resulting from operations

  $ (2,694,015
 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

14   Wells Fargo Specialized Technology Fund   Statement of changes in net assets
     Year ended
March 31, 2016
    Year ended
March 31, 2015
 

Operations

       

Net investment loss

    $ (2,076,157     $ (1,928,741

Net realized gains on investments

      14,521,859          39,950,258   

Net change in unrealized gains (losses) on investments

      (15,139,717       1,502,311   
 

 

 

 

Net increase (decrease) in net assets resulting from operations

      (2,694,015       39,523,828   
 

 

 

 

Distributions to shareholders from

       

Net realized gains

       

Class A

      (33,866,092       (18,125,259

Class B

      (18,254       (22,156

Class C

      (2,084,431       (1,636,338

Administrator Class

      (3,712,334       (3,932,263

Investor Class

      0 1        (12,824,710
 

 

 

 

Total distributions to shareholders

      (39,681,111       (36,540,726
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    12,556,326        135,884,127        1,762,029        19,362,721   

Class B

    2,502        23,835        2,720        25,600   

Class C

    330,874        3,019,167        408,438        3,904,420   

Administrator Class

    964,355        9,840,317        967,647        10,482,691   

Investor Class

    822,710 1      8,868,739 1      1,543,345        16,797,703   
 

 

 

 
      157,636,185          50,573,135   
 

 

 

 

Reinvestment of distributions

       

Class A

    3,418,828        32,889,128        1,669,631        17,397,551   

Class B

    2,234        18,254        2,371        21,580   

Class C

    233,582        1,901,356        156,108        1,415,903   

Administrator Class

    335,670        3,272,786        336,308        3,541,324   

Investor Class

    0 1      0 1      1,223,851        12,617,907   
 

 

 

 
      38,081,524          34,994,265   
 

 

 

 

Payment for shares redeemed

       

Class A

    (3,097,245     (30,864,012     (2,321,229     (25,436,134

Class B

    (9,094     (82,246     (22,695     (223,733

Class C

    (338,441     (2,967,650     (200,360     (1,924,869

Administrator Class

    (830,486     (8,685,149     (1,322,475     (14,127,800

Investor Class

    (12,028,498 )1      (129,965,727 )1      (1,422,163     (15,304,661
 

 

 

 
      (172,564,784       (57,017,197
 

 

 

 

Net increase in net assets resulting from capital share transactions

      23,152,925          28,550,203   
 

 

 

 

Total increase (decrease) in net assets

      (19,222,201       31,533,305   
 

 

 

 

Net assets

       

Beginning of period

      333,325,971          301,792,666   
 

 

 

 

End of period

    $ 314,103,770        $ 333,325,971   
 

 

 

 

Accumulated net investment loss

    $ (250,851     $ (539,030
 

 

 

 

 

 

1  For the period from April 1, 2015 to October 23, 2015. Effective at the close of business on October 23, 2015, Investor Class shares were converted to Class A shares and are no longer offered by the Fund.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Specialized Technology Fund     15   

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.74        $10.65        $8.15        $8.40        $8.88   

Net investment loss

    (0.06     (0.06     (0.06     (0.03 )1      (0.07

Net realized and unrealized gains (losses) on investments

    0.02        1.43        3.07        (0.00 )2      (0.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.04     1.37        3.01        (0.03     (0.12

Distributions to shareholders from

         

Net realized gains

    (1.31     (1.28     (0.51     (0.22     (0.36

Net asset value, end of period

    $9.39        $10.74        $10.65        $8.15        $8.40   

Total return3

    (0.66 )%      13.24     37.27     (0.17 )%      (0.74 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.45     1.52     1.60     1.64     1.70

Net expenses

    1.45     1.51     1.56     1.63     1.70

Net investment loss

    (0.53 )%      (0.58 )%      (0.63 )%      (0.34 )%      (0.92 )% 

Supplemental data

         

Portfolio turnover rate

    153     119     132     127     169

Net assets, end of period (000s omitted)

    $267,811        $168,108        $154,833        $115,145        $144,308   

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Amount is less than $0.005.

 

3  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

16   Wells Fargo Specialized Technology Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS B   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $9.36        $9.50        $7.37        $7.67        $8.20   

Net investment loss

    (0.12 )1      (0.13 )1      (0.12 )1      (0.08 )1      (0.13 )1 

Net realized and unrealized gains (losses) on investments

    0.02        1.27        2.76        (0.00 )2      (0.04
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.10     1.14        2.64        (0.08     (0.17

Distributions to shareholders from

         

Net realized gains

    (1.31     (1.28     (0.51     (0.22     (0.36

Net asset value, end of period

    $7.95        $9.36        $9.50        $7.37        $7.67   

Total return3

    (1.44 )%      12.40     36.18     (0.84 )%      (1.54 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.20     2.28     2.35     2.39     2.45

Net expenses

    2.20     2.27     2.32     2.38     2.45

Net investment loss

    (1.37 )%      (1.34 )%      (1.36 )%      (1.09 )%      (1.69 )% 

Supplemental data

         

Portfolio turnover rate

    153     119     132     127     169

Net assets, end of period (000s omitted)

    $122        $185        $355        $473        $851   

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Amount is less than $0.005.

 

3  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Specialized Technology Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $9.33        $9.47        $7.35        $7.65        $8.18   

Net investment loss

    (0.12 )1      (0.13 )1      (0.12 )1      (0.08 )1      (0.12 )1 

Net realized and unrealized gains (losses) on investments

    0.02        1.27        2.75        (0.00 )2      (0.05
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.10     1.14        2.63        (0.08     (0.17

Distributions to shareholders from

         

Net realized gains

    (1.31     (1.28     (0.51     (0.22     (0.36

Net asset value, end of period

    $7.92        $9.33        $9.47        $7.35        $7.65   

Total return3

    (1.45 )%      12.44     36.14     (0.84 )%      (1.55 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    2.20     2.27     2.35     2.39     2.45

Net expenses

    2.20     2.26     2.31     2.38     2.45

Net investment loss

    (1.34 )%      (1.33 )%      (1.38 )%      (1.09 )%      (1.66 )% 

Supplemental data

         

Portfolio turnover rate

    153     119     132     127     169

Net assets, end of period (000s omitted)

    $13,797        $14,143        $10,907        $6,563        $7,194   

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Amount is less than $0.005.

 

3  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

18   Wells Fargo Specialized Technology Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $10.86        $10.74        $8.20        $8.43        $8.88   

Net investment loss

    (0.05     (0.05     (0.05     (0.01 )1      (0.06

Net realized and unrealized gains (losses) on investments

    0.02        1.45        3.10        (0.00 )2      (0.03
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    (0.03     1.40        3.05        (0.01     (0.09

Distributions to shareholders from

         

Net realized gains

    (1.31     (1.28     (0.51     (0.22     (0.36

Net asset value, end of period

    $9.52        $10.86        $10.74        $8.20        $8.43   

Total return

    (0.56 )%      13.42     37.54     0.07     (0.51 )% 

Ratios to average net assets (annualized)

         

Gross expenses

    1.35     1.36     1.44     1.48     1.53

Net expenses

    1.33     1.35     1.40     1.42     1.50

Net investment loss

    (0.48 )%      (0.42 )%      (0.48 )%      (0.14 )%      (0.64 )% 

Supplemental data

         

Portfolio turnover rate

    153     119     132     127     169

Net assets, end of period (000s omitted)

    $32,373        $31,842        $31,681        $17,008        $7,546   

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Amount is less than $0.005.

 

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


Table of Contents

 

Notes to financial statements   Wells Fargo Specialized Technology Fund     19   

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Specialized Technology Fund (the “Fund”) which is a non-diversified series of the Trust.

Effective at the close of business on October 23, 2015, Investor Class shares became Class A shares in a tax-free conversion. Shareholders of Investor Class received Class A shares at a value equal to the value of their Investor Class shares immediately prior to the conversion. Investor Class shares are no longer offered by the Fund.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

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

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2016, such fair value pricing was not used in pricing foreign securities.

Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment vehicles that are redeemable at net asset value are fair valued normally at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent


Table of Contents

 

20   Wells Fargo Specialized Technology Fund   Notes to financial statements

broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Forward foreign currency contracts

The Fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on forward foreign currency contract transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains on the contracts. This risk may be mitigated if there is a master netting arrangement between the Fund and the counterparty.

Security loans

The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.


Table of Contents

 

Notes to financial statements   Wells Fargo Specialized Technology Fund     21   

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Distributions to shareholders

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

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital   

Accumulated net
investment loss

   Accumulated net
realized gains
on investments
$(2,418,981)    $2,364,336    $54,645

As of March 31, 2016, the Fund had a qualified late-year ordinary loss of $250,851 which will be recognized on the first day of the following fiscal year.

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.


Table of Contents

 

22   Wells Fargo Specialized Technology Fund   Notes to financial statements

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

     Quoted prices
(Level 1)
     Other significant
observable inputs
(Level 2)
    

Significant
unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Consumer discretionary

   $ 27,568,336       $ 0       $ 0       $ 27,568,336   

Financials

     1,470,852         0         0         1,470,852   

Information technology

     271,898,717         0         0         271,898,717   

Telecommunication Services

     8,452,981         0         0         8,452,981   

Short-term investments

           

Investment companies

     4,530,239         0         0         4,530,239   

Investments measured at net asset value*

                                8,260,400   
     $ 313,921,125       $ 0       $ 0       $ 322,181,525   

 

* Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $8,260,400 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.90% and declining to 0.78% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.85% and declined to 0.75% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.90% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Allianz Global Investors U.S. LLC, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.80% and declining to 0.55% as the average daily net assets of the Fund increase. Prior to July 1, 2015, the subadviser received a fee at an annual rate which started at 0.90% and declined to 0.55% as the average daily net assets of the Fund increased.


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Notes to financial statements   Wells Fargo Specialized Technology Fund     23   

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class B, Class C

     0.21      0.26

Administrator Class

     0.13         0.10   

Investor Class

     0.32         0.32   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.50% for Class A shares, 2.25% for Class B shares, 2.25% for Class C shares, and 1.33% for Administrator Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Prior to July 1, 2015, the Fund’s expenses were capped at 1.35% for Administrator Class shares.

Distribution fees

The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2016, Funds Distributor received $14,840 from the sale of Class A shares and $40 in contingent deferred sales charges from redemptions of Class C shares.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby each class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $478,013,902 and $489,135,033, respectively.

6. DERIVATIVE TRANSACTIONS

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

As of March 31, 2016, the Fund did not have any open forward foreign currency contracts. The Fund had average contract amounts of $15,924 and $166,518 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended March 31, 2016.

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


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24   Wells Fargo Specialized Technology Fund   Notes to financial statements

7. BANK BORROWINGS

The Trust (excluding the money market funds and certain other funds) and Wells Fargo Variable Trust are parties to a $200,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged

to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.20% of the unused balance is allocated to each participating fund. Prior to September 1, 2015, the revolving credit agreement amount was $150,000,000 and the annual commitment fee was equal to 0.10% of the unused balance which was allocated to each participating fund.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2016 and March 31, 2015 were as follows:

 

     Year ended March 31  
     2016      2015  

Ordinary income

   $ 0       $ 18,311,647   

Long-term capital gain

     39,681,111         18,229,079   

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

 

Undistributed
long-term
gain
   Unrealized
gains
   Late-year
ordinary losses
deferred
$17,733,712    $62,317,094    $(250,851)

9. CONCENTRATION RISK

The Fund invests a substantial portion of its assets in technology companies and, therefore, would be more affected by changes in the technology sector than would be a fund whose investments are not heavily weighted in the sector.

10. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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Report of independent registered public accounting firm   Wells Fargo Specialized Technology Fund     25   

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Specialized Technology Fund (formerly known as Wells Fargo Advantage Specialized Technology Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Specialized Technology Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


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26   Wells Fargo Specialized Technology Fund   Other information (unaudited)

TAX INFORMATION

Pursuant to Section 852 of the Internal Revenue Code, $39,681,111 was designated as long-term capital gain distributions for the fiscal year ended March 31, 2016.

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


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Other information (unaudited)   Wells Fargo Specialized Technology Fund     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 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

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

 

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

Officers

 

Name and
year of birth
  Position held and
length of service
  Principal occupations during past five years or longer    
Karla M. Rabusch
(Born 1959)
  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Nancy Wiser1
(Born 1967)
  Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
C. David Messman
(Born 1960)
  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
David Berardi
(Born 1975)
  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)
  Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

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

 

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


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List of abbreviations   Wells Fargo Specialized Technology 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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LOGO

 

 

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For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

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

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

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

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241822 05-16

A317/AR317 03-16


Table of Contents

Annual Report

March 31, 2016

 

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Wells Fargo Utility and Telecommunications Fund

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

    2   

Performance highlights

    6   

Fund expenses

    10   

Portfolio of investments

    11   
Financial statements  

Statement of assets and liabilities

    14   

Statement of operations

    15   

Statement of changes in net assets

    16   

Financial highlights

    17   

Notes to financial statements

    22   

Report of independent registered public accounting firm

    30   

Other information

    31   

List of abbreviations

    34   

 

The views expressed and any forward-looking statements are as of March 31, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE



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

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

Dear Valued Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Utility and Telecommunications Fund for the 12-month period that ended March 31, 2016. During this period, which began with the second quarter of 2015, U.S. and international stock markets experienced heightened volatility, with intermittent rebounds interspersed with sell-offs. The U.S. economy displayed resilience throughout the period, although growth stayed modest amid ongoing pressures such as slowing growth in China, a strengthening U.S. dollar, and uncertainty regarding interest-rate increases by the U.S. Federal Reserve (Fed). International economies faced deeper ongoing challenges.

U.S. stocks experienced challenges during the second quarter of 2015.

The broad U.S. stock market fluctuated widely, eventually eking out a small quarterly gain. Mid- and large-cap stocks at times were pressured by investor concerns over the potentially negative effects of financially troubled overseas economies and of a strengthening U.S. dollar on the profits of U.S. multinational firms. The U.S. economy picked up traction during the quarter, and U.S. Fed officials, who kept interest rates low while waiting for the U.S. jobs market to sufficiently improve and for inflation to approach their 2% target, made clear they could take action soon. Throughout the quarter, non-U.S. markets also experienced volatility, triggered by uncertainty over the potential impact of financial challenges in other locations—most notably in Greece and Puerto Rico. Questions over slower growth in China caused investor concern as well.

In the third quarter of 2015, China’s slowdown took a toll on economies and markets worldwide.

U.S. stocks sagged during the quarter, experiencing the most volatility since 2011. Economic data released during the quarter suggested the U.S. economy remained solid but had lost some steam, burdened by the drag of the U.S. dollar’s strength coupled with global economic turmoil. The fact that the Fed left the federal funds interest rate unchanged at its September 2015 meeting surprised investors and fueled increased uncertainty about the U.S. economy’s stamina to remain healthy while facing the challenges of slowing in China and troubles elsewhere in the world. Outside the U.S., markets were even more volatile and delivered generally weaker quarterly results, also largely due to investors’ increasing anxiety over China’s weakened economy. Because China is the world’s largest importer of many commodities, a number of emerging markets—key commodities exporters—struggled under the dual strains of reduced demand for commodities and, because of weaker demand, lower prices for the commodities they did sell. In the eurozone, however, where only about 3% of exports are sent to China, household spending and business investment appeared relatively unaffected by troubles elsewhere. The European Central Bank (ECB) warned, though, that China’s slowing could lead to slower growth and lower inflation rates in the eurozone than previously forecast and indicated additional stimulus could be provided should this occur.

Despite ongoing concerns, U.S. stocks generally rose in the fourth quarter of 2015; international markets lagged.

While the broad U.S. stock market bounced back in the quarter, stock markets outside the U.S. failed to keep pace as economic concerns, including China’s slowdown, continued to negatively affect many countries. U.S. economic data released during the quarter indicated the economy remained solid, with modest growth, although the strong U.S. dollar and weakness in international economies

 


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Letter to shareholders (unaudited)   Wells Fargo Utility and Telecommunications Fund     3   

continued to be headwinds. In December, the Fed, as expected, raised its target interest rate by 25 basis points (bps; 100 bps equals 1.00%) after keeping it near zero for seven years. The move reflected confidence in the U.S. economy’s ability to stay healthy with less central-bank support. The Fed also clarified that future interest-rate increases would be gradual.

In the first quarter of 2016, market volatility increased globally amid ongoing concerns.

Stock markets worldwide fluctuated widely in the first quarter of 2016. Most sold off sharply in the first six weeks of the year on concerns such as weak global growth, falling commodity prices, and uncertainty over the timing and impact of Fed interest-rate increases. As the quarter progressed, fears abated somewhat and global markets generally rallied back. The U.S. economy ended the quarter on a positive note as much of the quarter’s data reflected resiliency. With ongoing uncertainties about global growth and financial markets, however, the Fed held off from raising the target interest rate during the quarter. Outside the U.S., the eurozone fell into deflation in February; in response, the ECB announced an expansion of its stimulus program. In China, the government in March set a growth rate of 6.5% to 7.0% for 2016, an acknowledgment that the country’s growth has been slowing. In emerging markets, although central-bank stimulus and improved prices for oil and other commodities led to stock-market rallies in the quarter, many of these countries’ economies face credit downgrades due to challenges such as the likelihood of a stronger U.S. dollar, which would make dollar-denominated debt more expensive.

Utilities and telecommunication services stocks delivered positive results overall for the 12-month reporting period.

During the second quarter of 2015, utilities stocks underperformed the broad U.S. stock market while telecom stocks delivered slightly better results than the broad market. Similar to bonds, utilities stocks are desired for the income they provide and thus are sensitive to interest-rate movements; as a result, they can underperform the broader stock market when investors believe interest rates will be rising soon. During the third quarter, utilities delivered positive results, significantly outperforming the broad U.S. stock market; telecom stocks declined along with the broader stock market. Utilities benefited as investors’ growing anxiety caused them to move toward investments perceived as more stable; utilities in particular are especially desirable in a defensive environment because many tend to deliver steady revenues and profits as a result of their regulated businesses. While telecom stocks rallied along with the broader U.S. stock market in the fourth quarter of 2015, utilities stocks underperformed; investors’ worries over declining prices for oil, natural gas, and other commodities likely influenced utilities’ weakness. However, in the defensive market environment during the first quarter of 2016, utilities and telecom stocks rallied strongly as many investors turned to the perceived stability of these sectors. Despite volatility within utilities and telecom stocks over the 12-month period, both sectors outperformed the broader U.S. stock market.

 

 

 

 

 

Despite volatility within utilities and telecom stocks over the 12-month period, both sectors outperformed the broader U.S. stock market.

 

 

 


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

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

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

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

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Funds

 

 

 

We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.

 

 

 

 

 

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


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6   Wells Fargo Utility and Telecommunications Fund   Performance highlights (unaudited)

Investment objective

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

Manager

Wells Fargo Funds Management, LLC

Subadviser

Crow Point Partners, LLC

Portfolio manager

Timothy P. O’Brien , CFA®

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

 

        Including sales charge     Excluding sales charge     Expense ratios2 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
Class A (EVUAX)   1-4-1994     (1.70     9.21        7.41        4.30        10.51        8.05        1.18        1.15   
Class B (EVUBX)*   1-4-1994     (1.48     9.42        7.48        3.52        9.69        7.48        1.93        1.90   
Class C (EVUCX)   9-2-1994     2.49        9.69        7.24        3.49        9.69        7.24        1.93        1.90   
Administrator Class (EVUDX)   7-30-2010                          4.49        10.75        8.20        1.10        0.96   
Institutional Class (EVUYX)   2-28-1994                          4.63        10.87        8.35        0.85        0.79   
S&P Utilities Index4                            15.96        13.68        9.10                 
S&P 500 Index5                            1.78        11.58        7.01                 
*   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.

While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in utilities and telecommunication services stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.

Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.

For Class A shares, the maximum front-end sales charge is 5.75%. For Class B shares, the maximum contingent deferred sales charge is 5.00%. For Class C shares, the maximum contingent deferred sales charge is 1.00%. Performance including a contingent deferred sales charge assumes the sales charge for the corresponding time period. Administrator Class and Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge.

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. The use of derivatives may reduce returns and/or increase volatility. Funds that concentrate their investments in limited sectors, such as utilities and telecommunication services, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to convertible securities risk, foreign investment risk, high-yield securities risk, smaller-company securities risk, non-diversification risk and subsidiary risk. Consult the fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 7.


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Performance highlights (unaudited)   Wells Fargo Utility and Telecommunications Fund     7   
Growth of $10,000 investment as of March 31, 20166
LOGO

 

 

1  Historical performance shown for Administrator Class shares prior to their inception reflects the performance of Institutional Class shares and has been adjusted to reflect the higher expenses applicable to Administrator Class shares. Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen Utility and Telecommunications Fund.

 

2  Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

3  The manager has contractually committed through July 31, 2016, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver at 1.14% for Class A, 1.89% for Class B, 1.89% for Class C, 0.95% for Administrator Class and 0.78% for Institutional Class. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower.

 

4  The S&P Utilities Index is a market-value-weighted index, measuring the performance of all stocks within the utility sector of the S&P 500 Index. You cannot invest directly in an index.

 

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

 

6  The chart compares the performance of Class A shares for the most recent ten years with the S&P Utilities Index and the S&P 500 Index. The chart assumes a hypothetical investment of $10,000 in Class A shares and reflects all operating expenses and assumes the maximum initial sales charge of 5.75%.

 

7  The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

8  Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.


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8   Wells Fargo Utility and Telecommunications Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

n   The Fund underperformed the S&P Utilities Index for the 12-month period that ended March 31, 2016.

 

n   Holdings with greater sensitivity to energy and commodity prices detracted from returns, as did real estate investment trusts (REITs).

 

n   The Fund benefited from strength in regulated utilities and telecommunication services firms.

The Fund’s energy and REIT positions negatively affected relative performance

Energy prices continued to decline substantially during the 12-month reporting period. Oil prices fell sharply as weak demand failed to absorb increased production, especially in North America. Gas prices also were weak. High rates of gas production, particularly in the Marcellus and Utica shales and the Permian Basin, depressed prices; mild winter weather didn’t help the situation either. Energy-sensitive holdings that detracted from performance included Energy & Exploration Partners, Incorporated; Veresen Incorporated; Sempra Energy; and The Williams Companies, Incorporated. The Fund’s REIT positions generally dragged on performance. REIT detractors included Chatham Lodging Trust; Ashford Hospitality Trust, Incorporated; and Wheeler Real Estate Investment Trust, Incorporated. The Fund’s relatively large cash position in the first quarter of 2016 hindered performance as well.

Regulated utilities posted strong returns.

Some of the Fund’s best-performing utilities holdings were regulated network companies with little commodities exposure, including CMS Energy Corporation; Eversource Energy; Edison International; Alliant Energy Corporation; and PNM Resources, Incorporated.

We made only moderate changes to the Fund during the reporting period.

The Fund’s composition did not change dramatically during the reporting period, and turnover remained low. We initiated positions in American Campus Communities, Incorporated; CenturyLink, Incorporated; magicJack VocalTec Limited; and Sprint Corporation, among others. Also, positions we eliminated during the period included ITC Holdings Corporation; Ashford Hospitality Trust, Incorporated; Cellcom Israel Limited; Convergys Corporation; Veresen Incorporated; The Williams Companies, Incorporated; Wheeler Real Estate Investment Trust, Incorporated; and National Fuel Gas Company, among others.

Our outlook for utilities remains favorable.

In our view, the fundamentals of regulated network utilities appear strong. Regulated utilities have abundant opportunities to invest in their core business at returns we view as attractive. While the U.S. retains adequate generation capacity, regulatory mandates are requiring utilities to increase renewable-energy sources and reduce the country’s historical reliance on fossil fuels in general and coal in particular. The development of U.S. shale-gas production has been providing us with opportunities to make investments in gas gathering, processing, and transport infrastructure. Overall, utilities may be growing faster than at any time since the 1950s, and their growth could be sustainable for the intermediate term or longer. While our outlook for telecommunication services companies generally is less robust, select stocks do present opportunities.

 

 

Please see footnotes on page 7.


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Performance highlights (unaudited)   Wells Fargo Utility and Telecommunications Fund     9   
Ten largest holdings (%) as of March 31, 20167  

CMS Energy Corporation

     6.40   

Eversource Energy

     6.24   

NextEra Energy Incorporated

     5.95   

Edison International

     5.88   

Alliant Energy Corporation

     5.42   

Sempra Energy

     5.23   

Visa Incorporated Class A

     5.19   

PNM Resources Incorporated

     5.09   

Shenandoah Telecommunications Company

     4.37   

Chatham Lodging Trust

     3.50   

 

Industry distribution as of March 31, 20168
LOGO

Short-term interest rates have begun to normalize at a glacial pace; thus far, the modest tightening at the short end of the yield curve has not visibly affected the longer rates to which utilities stocks are sensitive. A continued low-interest-rate environment should help support the prices of utilities stocks because income-seeking investors favor their relatively generous dividends. Also, the tax environment remains reasonably favorable for utilities investors; the tax rate on qualified dividend income increased to 23.8% from 15.0% in 2013 with little visible impact on utilities-stock performance. However, the fairness of lower taxes on capital compared with the income tax rates paid by individuals and families has become an issue in the current presidential campaign and bears watching. We believe utilities stocks would be negatively affected by the elimination of the preferential tax rate on qualified dividend income. For now, we view the outlook for utilities as reasonably bright, with many important positives outweighing a few limited concerns.

 

 

 

Please see footnotes on page 7.


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10   Wells Fargo Utility and Telecommunications Fund   Fund expenses (unaudited)

As a shareholder of the Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchase payments and contingent deferred sales charges (if any) on redemptions and (2) ongoing costs, including management fees, distribution (12b-1) and/or shareholder servicing fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2015 to March 31, 2016.

Actual expenses

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

Hypothetical example for comparison purposes

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

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

 

     Beginning
account value
10-1-2015
     Ending
account value
3-31-2016
     Expenses
paid during
the period¹
     Net annualized
expense ratio
 

Class A

           

Actual

   $ 1,000.00       $ 1,104.20       $ 6.00         1.14

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,019.30       $ 5.76         1.14

Class B

           

Actual

   $ 1,000.00       $ 1,100.35       $ 9.92         1.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.55       $ 9.52         1.89

Class C

           

Actual

   $ 1,000.00       $ 1,099.90       $ 9.92         1.89

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,015.55       $ 9.52         1.89

Administrator Class

           

Actual

   $ 1,000.00       $ 1,105.78       $ 5.00         0.95

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,020.25       $ 4.80         0.95

Institutional Class

           

Actual

   $ 1,000.00       $ 1,106.22       $ 4.11         0.78

Hypothetical (5% return before expenses)

   $ 1,000.00       $ 1,021.10       $ 3.94         0.78

 

 

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).


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Portfolio of investments—March 31, 2016   Wells Fargo Utility and Telecommunications Fund     11   

      

 

 

Security name             Shares      Value  

Common Stocks: 90.06%

          

Consumer Discretionary: 3.46%

          
Media: 3.46%           

Comcast Corporation Class A

          225,100       $ 13,749,108   
          

 

 

 

Energy: 0.99%

          
Oil, Gas & Consumable Fuels: 0.99%           

EQT Corporation

          58,600         3,941,436   
          

 

 

 

Financials: 5.97%

          
REITs: 5.97%           

American Campus Communities Incorporated

          79,000         3,720,110   

Ashford Hospitality Prime Incorporated

          49,117         573,195   

Chatham Lodging Trust

          650,000         13,929,500   

DuPont Fabros Technology Incorporated

          11,000         445,830   

Preferred Apartment Communities Incorporated

          400,000         5,072,000   
             23,740,635   
          

 

 

 

Industrials: 0.04%

          
Construction & Engineering: 0.04%           

Ameresco Incorporated Class A †

          35,000         166,950   
          

 

 

 

Information Technology: 7.09%

          
IT Services: 7.09%           

MasterCard Incorporated Class A

          80,000         7,560,000   

Visa Incorporated Class A

          270,000         20,649,600   
             28,209,600   
          

 

 

 

Telecommunication Services: 12.09%

          
Diversified Telecommunication Services: 6.10%           

AT&T Incorporated

          150,000         5,875,500   

CenturyLink Incorporated #

          340,000         10,866,400   

magicJack VocalTec Limited Ǡ

          320,800         2,104,448   

Verizon Communications Incorporated

          100,000         5,408,000   
             24,254,348   
          

 

 

 
Wireless Telecommunication Services: 5.99%           

Shenandoah Telecommunications Company

          650,000         17,387,500   

Sprint Corporation Ǡ#

              1,850,000         6,438,000   
             23,825,500   
          

 

 

 

Utilities: 60.42%

          
Electric Utilities: 30.52%           

ALLETE Incorporated

          10,000         560,700   

American Electric Power Company Incorporated

          175,000         11,620,000   

Edison International

          325,000         23,364,250   

Eversource Energy

          425,000         24,794,500   

 

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


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12   Wells Fargo Utility and Telecommunications Fund   Portfolio of investments—March 31, 2016

      

 

 

Security name                Shares      Value  
Electric Utilities (continued)          

Great Plains Energy Incorporated

         200,000       $ 6,450,000   

IDACORP Incorporated

         75,000         5,594,250   

NextEra Energy Incorporated

         200,000         23,668,000   

PNM Resources Incorporated

         600,000         20,232,000   

Spark Energy Incorporated Class A (l)

         281,837         5,073,066   
            121,356,766   
         

 

 

 
Gas Utilities: 0.79%          

Snam SpA

         500,000         3,132,069   
         

 

 

 
Multi-Utilities: 25.64%          

Alliant Energy Corporation

         290,000         21,541,200   

CenterPoint Energy Incorporated

         250,000         5,230,000   

CMS Energy Corporation

         600,000         25,464,000   

Dominion Resources Incorporated

         175,000         13,146,000   

Northwestern Corporation

         102,411         6,323,880   

Public Service Enterprise Group Incorporated

         200,000         9,428,000   

Sempra Energy

         200,000         20,810,000   
            101,943,080   
         

 

 

 
Water Utilities: 3.47%          

American Water Works Company Incorporated

         200,000         13,786,000   
         

 

 

 

Total Common Stocks (Cost $183,328,852)

            358,105,492   
         

 

 

 
    Interest rate     Maturity date      Principal         
Convertible Debentures: 0.00%          

Energy: 0.00%

         
Energy Equipment & Services: 0.00%          

Energy & Exploration Partners Incorporated (s)(i)

    8.00     7-1-2019       $     5,000,000         5,000   
         

 

 

 

Total Convertible Debentures (Cost $5,000,000)

            5,000   
         

 

 

 
                 Shares         
Exchange-Traded Funds: 0.12%          

Recon Capital NASDAQ 100 Covered Call ETF

         21,500         481,170   
         

 

 

 

Total Exchange-Traded Funds (Cost $512,990)

            481,170   
         

 

 

 
    Dividend yield                      
Preferred Stocks: 0.19%          

Utilities: 0.19%

         
Electric Utilities: 0.19%          

SCE Trust V ±

    5.45           27,500         732,875   
         

 

 

 

Total Preferred Stocks (Cost $687,500)

            732,875   
         

 

 

 

 

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


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Portfolio of investments—March 31, 2016   Wells Fargo Utility and Telecommunications Fund     13   

      

 

 

Security name         Expiration date      Shares      Value  

Warrants: 0.01%

         

Energy: 0.01%

         
Oil, Gas & Consumable Fuels: 0.01%          

Kinder Morgan Incorporated †

      5-27-2017         496,000       $ 18,104   

Magnum Hunter Resources Corporation Ǡ(a)

      4-15-2016         140,000         0   

Total Warrants (Cost $553,300)

            18,104   
         

 

 

 
    Yield                      
Short-Term Investments: 12.26%          
Investment Companies: 12.26%          

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

    0.43        7,771,650         7,771,650   

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

    0.44               40,990,641         40,990,641   

Total Short-Term Investments (Cost $48,762,291)

            48,762,291   
         

 

 

 

 

Total investments in securities (Cost $238,844,933) *     102.64        408,104,932   

Other assets and liabilities, net

    (2.64        (10,492,425
 

 

 

      

 

 

 
Total net assets     100.00      $ 397,612,507   
 

 

 

      

 

 

 

 

 

 

Non-income-earning security

 

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

 

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

 

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

 

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

 

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

 

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

 

(r) The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan.

 

(u) The rate represents the 7-day annualized yield at period end.

 

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

 

* Cost for federal income tax purposes is $238,908,635 and unrealized gains (losses) consists of:

 

Gross unrealized gains

   $ 176,254,004   

Gross unrealized losses

     (7,057,707
  

 

 

 

Net unrealized gains

   $ 169,196,297   

 

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


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14   Wells Fargo Utility and Telecommunications Fund   Statement of assets and liabilities—March 31, 2016
         

Assets

 

Investments

 

In unaffiliated securities (including $7,312,078 of securities loaned), at value (cost $185,009,085)

  $ 354,269,575   

In affiliated securities, at value (cost $53,835,848)

    53,835,357   
 

 

 

 

Total investments, at value (cost $238,844,933)

    408,104,932   

Cash

    26,141   

Segregated cash

    2,000   

Foreign currency, at value (cost $342,333)

    346,252   

Receivable for investments sold

    2,234,323   

Receivable for Fund shares sold

    187,205   

Receivable for dividends

    479,815   

Receivable for securities lending income

    16,301   

Prepaid expenses and other assets

    32,428   
 

 

 

 

Total assets

    411,429,397   
 

 

 

 

Liabilities

 

Payable for investments purchased

    5,073,557   

Payable for Fund shares redeemed

    371,971   

Payable upon receipt of securities loaned

    7,771,650   

Written options, at value (premiums received $302,831)

    173,334   

Management fee payable

    189,352   

Distribution fees payable

    37,511   

Administration fees payable

    67,493   

Accrued expenses and other liabilities

    132,022   
 

 

 

 

Total liabilities

    13,816,890   
 

 

 

 

Total net assets

  $ 397,612,507   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 251,650,353   

Undistributed net investment income

    646,272   

Accumulated net realized losses on investments

    (24,077,533

Net unrealized gains on investments

    169,393,415   
 

 

 

 

Total net assets

  $ 397,612,507   
 

 

 

 

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

 

Net assets – Class A

  $ 315,238,323   

Shares outstanding – Class A1

    16,857,997   

Net asset value per share – Class A

    $18.70   

Maximum offering price per share – Class A2

    $19.84   

Net assets – Class B

  $ 2,909,260   

Shares outstanding – Class B1

    155,100   

Net asset value per share – Class B

    $18.76   

Net assets – Class C

  $ 57,430,514   

Shares outstanding – Class C1

    3,071,204   

Net asset value per share – Class C

    $18.70   

Net assets – Administrator Class

  $ 6,739,722   

Shares outstanding – Administrator Class1

    360,093   

Net asset value per share – Administrator Class

    $18.72   

Net assets – Institutional Class

  $ 15,294,688   

Shares outstanding – Institutional Class1

    818,238   

Net asset value per share – Institutional Class

    $18.69   

 

 

1  The Fund has an unlimited number of authorized shares.

 

2  Maximum offering price is computed as 100/94.25 of net asset value. On investments of $50,000 or more, the offering price is reduced.

 

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


Table of Contents

 

Statement of operations—year ended March 31, 2016   Wells Fargo Utility and Telecommunications Fund     15   
         

Investment income

 

Dividends (net of foreign withholding taxes of $116,855)

  $ 11,033,691   

Interest

    98,482   

Securities lending income, net

    59,712   

Income from affiliated securities

    52,210   
 

 

 

 

Total investment income

    11,244,095   
 

 

 

 

Expenses

 

Management fee

    2,542,730   

Administration fees

 

Class A

    690,826   

Class B

    9,966   

Class C

    127,946   

Administrator Class

    8,292   

Institutional Class

    15,591   

Shareholder servicing fees

 

Class A

    773,388   

Class B

    10,951   

Class C

    143,177   

Administrator Class

    17,090   

Distribution fees

 

Class B

    32,852   

Class C

    429,531   

Custody and accounting fees

    36,464   

Professional fees

    62,942   

Registration fees

    75,422   

Shareholder report expenses

    77,761   

Trustees’ fees and expenses

    19,132   

Other fees and expenses

    13,590   
 

 

 

 

Total expenses

    5,087,651   

Less: Fee waivers and/or expense reimbursements

    (226,756
 

 

 

 

Net expenses

    4,860,895   
 

 

 

 

Net investment income

    6,383,200   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains on:

 

Unaffiliated securities

    257,309   

Written options

    549,118   
 

 

 

 

Net realized gains on investments

    806,427   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    6,746,612   

Affiliated securities

    (491

Written options

    129,497   
 

 

 

 

Net change in unrealized gains (losses) on investments

    6,875,618   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    7,682,045   
 

 

 

 

Net increase in net assets resulting from operations

  $ 14,065,245   
 

 

 

 

 

 

 

 

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


Table of Contents

 

16   Wells Fargo Utility and Telecommunications Fund   Statement of changes in net assets
     Year ended
March 31, 2016
    Year ended
March 31, 2015
 

Operations

  

Net investment income

    $ 6,383,200        $ 6,560,533   

Net realized gains (losses) on investments

      806,427          23,373,912   

Net change in unrealized gains (losses) on investments

      6,875,618          (9,639,771
 

 

 

 

Net increase in net assets resulting from operations

      14,065,245          20,294,674   
 

 

 

 

Distributions to shareholders from

     

Net investment income

       

Class A

      (5,017,303       (6,403,863

Class B

      (37,027       (104,423

Class C

      (553,510       (693,137

Administrator Class

      (117,637       (183,512

Institutional Class

      (272,938       (306,091
 

 

 

 

Total distributions to shareholders

      (5,998,415       (7,691,026
 

 

 

 

Capital share transactions

    Shares          Shares     

Proceeds from shares sold

       

Class A

    921,079        16,278,558        2,072,323        37,834,688   

Class B

    552        9,644        1,562        29,964   

Class C

    133,314        2,345,310        382,365        6,988,536   

Administrator Class

    89,892        1,573,242        260,834        4,786,634   

Institutional Class

    337,439        5,942,211        453,039        8,303,139   
 

 

 

 
      26,148,965          57,942,961   
 

 

 

 

Reinvestment of distributions

       

Class A

    274,180        4,706,483        325,162        6,016,355   

Class B

    1,759        30,109        4,647        86,670   

Class C

    28,775        491,914        32,978        614,675   

Administrator Class

    6,530        112,501        8,290        153,428   

Institutional Class

    12,478        214,732        14,526        267,923   
 

 

 

 
      5,555,739          7,139,051   
 

 

 

 

Payment for shares redeemed

       

Class A

    (3,057,415     (53,748,727     (3,436,374     (62,486,613

Class B

    (261,426     (4,631,829     (363,882     (6,686,336

Class C

    (577,794     (10,133,822     (387,363     (7,054,107

Administrator Class

    (194,700     (3,370,659     (339,970     (6,214,019

Institutional Class

    (308,285     (5,341,959     (273,028     (4,941,344
 

 

 

 
      (77,226,996       (87,382,419
 

 

 

 

Net decrease in net assets resulting from capital share transactions

      (45,522,292       (22,300,407
 

 

 

 

Total decrease in net assets

      (37,455,462       (9,696,759
 

 

 

 

Net assets

   

Beginning of period

      435,067,969          444,764,728   
 

 

 

 

End of period

    $ 397,612,507        $ 435,067,969   
 

 

 

 

Undistributed (overdistributed) net investment income

    $ 646,272        $ (9,772
 

 

 

 

 

 

 

 

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


Table of Contents

 

Financial highlights   Wells Fargo Utility and Telecommunications Fund     17   

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.23        $17.71        $15.85        $13.78        $12.59   

Net investment income

    0.31        0.29        0.36        0.36        0.28   

Net realized and unrealized gains (losses) on investments

    0.45        0.57        1.84        2.07        1.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.76        0.86        2.20        2.43        1.49   

Distributions to shareholders from

         

Net investment income

    (0.29     (0.34     (0.34     (0.36     (0.30

Net asset value, end of period

    $18.70        $18.23        $17.71        $15.85        $13.78   

Total return1

    4.30     4.82     14.12     17.94     12.01

Ratios to average net assets (annualized)

         

Gross expenses

    1.20     1.22     1.22     1.23     1.20

Net expenses

    1.14     1.14     1.14     1.14     1.14

Net investment income

    1.73     1.57     2.21     2.47     2.11

Supplemental data

         

Portfolio turnover rate

    15     29     20     21     36

Net assets, end of period (000s omitted)

    $315,238        $341,342        $350,029        $316,551        $288,228   

 

 

 

 

 

1  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

18   Wells Fargo Utility and Telecommunications Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS B   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.28        $17.75        $15.87        $13.79        $12.59   

Net investment income

    0.21 1      0.16 1      0.24 1      0.24 1      0.18 1 

Net realized and unrealized gains (losses) on investments

    0.42        0.55        1.85        2.09        1.22   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.63        0.71        2.09        2.33        1.40   

Distributions to shareholders from

     

Net investment income

    (0.15     (0.18     (0.21     (0.25     (0.20

Net asset value, end of period

    $18.76        $18.28        $17.75        $15.87        $13.79   

Total return2

    3.52     3.98     13.32     17.08     11.21

Ratios to average net assets (annualized)

     

Gross expenses

    1.95     1.97     1.97     1.97     1.95

Net expenses

    1.89     1.89     1.89     1.89     1.89

Net investment income

    1.16     0.86     1.46     1.70     1.35

Supplemental data

     

Portfolio turnover rate

    15     29     20     21     36

Net assets, end of period (000s omitted)

    $2,909        $7,573        $13,698        $17,240        $20,613   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

Financial highlights   Wells Fargo Utility and Telecommunications Fund     19   

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.25        $17.73        $15.86        $13.79        $12.59   

Net investment income

    0.17 1      0.15        0.24 1      0.23        0.18 1 

Net realized and unrealized gains (losses) on investments

    0.45        0.57        1.85        2.09        1.22   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.62        0.72        2.09        2.32        1.40   

Distributions to shareholders from

     

Net investment income

    (0.17     (0.20     (0.22     (0.25     (0.20

Net asset value, end of period

    $18.70        $18.25        $17.73        $15.86        $13.79   

Total return2

    3.49     4.04     13.31     17.03     11.23

Ratios to average net assets (annualized)

     

Gross expenses

    1.95     1.97     1.97     1.98     1.95

Net expenses

    1.89     1.89     1.89     1.89     1.89

Net investment income

    0.99     0.82     1.46     1.71     1.36

Supplemental data

     

Portfolio turnover rate

    15     29     20     21     36

Net assets, end of period (000s omitted)

    $57,431        $63,632        $61,329        $57,431        $58,555   

 

 

 

 

1  Calculated based upon average shares outstanding

 

2  Total return calculations do not include any sales charges.

 

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


Table of Contents

 

20   Wells Fargo Utility and Telecommunications Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.25        $17.73        $15.86        $13.79        $12.59   

Net investment income

    0.34        0.33        0.40        0.39        0.30 1 

Net realized and unrealized gains (losses) on investments

    0.45        0.56        1.84        2.07        1.23   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.79        0.89        2.24        2.46        1.53   

Distributions to shareholders from

     

Net investment income

    (0.32     (0.37     (0.37     (0.39     (0.33

Net asset value, end of period

    $18.72        $18.25        $17.73        $15.86        $13.79   

Total return

    4.49     5.01     14.41     18.16     12.32

Ratios to average net assets (annualized)

     

Gross expenses

    1.09     1.06     1.04     1.04     1.01

Net expenses

    0.95     0.95     0.95     0.95     0.94

Net investment income

    1.93     1.79     2.38     2.66     2.32

Supplemental data

     

Portfolio turnover rate

    15     29     20     21     36

Net assets, end of period (000s omitted)

    $6,740        $8,365        $9,383        $5,803        $4,945   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

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


Table of Contents

 

Financial highlights   Wells Fargo Utility and Telecommunications Fund     21   

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2016     2015     2014     2013     2012  

Net asset value, beginning of period

    $18.23        $17.74        $15.87        $13.80        $12.61   

Net investment income

    0.36 1      0.35 1      0.42        0.46        0.33   

Net realized and unrealized gains (losses) on investments

    0.45        0.54        1.85        2.03        1.21   
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.81        0.89        2.27        2.49        1.54   

Distributions to shareholders from

     

Net investment income

    (0.35     (0.40     (0.40     (0.42     (0.35

Net asset value, end of period

    $18.69        $18.23        $17.74        $15.87        $13.80   

Total return

    4.63     5.02     14.58     18.34     12.42

Ratios to average net assets (annualized)

     

Gross expenses

    0.84     0.79     0.79     0.80     0.77

Net expenses

    0.78     0.78     0.78     0.78     0.77

Net investment income

    2.03     1.89     2.56     2.97     2.50

Supplemental data

     

Portfolio turnover rate

    15     29     20     21     36

Net assets, end of period (000s omitted)

    $15,295        $14,156        $10,325        $8,317        $6,918   

 

 

 

 

 

1  Calculated based upon average shares outstanding

 

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


Table of Contents

 

22   Wells Fargo Utility and Telecommunications Fund   Notes to financial statements

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo Utility and Telecommunications Fund (the “Fund”) which is a non-diversified series of the Trust.

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

Equity securities and options that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

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

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

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On March 31, 2016, such fair value pricing was not used in pricing foreign securities.

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

Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment vehicles that are redeemable at net asset value are fair valued normally at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange


Table of Contents

 

Notes to financial statements   Wells Fargo Utility and Telecommunications Fund     23   

or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the manager and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Security loans

The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.

Options

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may write covered call options or secured put options on individual securities and/or indexes. When the Fund writes an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from written options that expire unexercised are recognized as realized gains on the expiration date. For exercised options, the difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in calculating the realized gain or loss on the sale. If a put option is exercised, the premium reduces the cost of the security purchased. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security and/or index underlying the written option.

The Fund may also purchase call or put options. The premium is included in the Statement of Assets and Liabilities as an investment, the value of which is subsequently adjusted based on the current market value of the option. Premiums paid


Table of Contents

 

24   Wells Fargo Utility and Telecommunications Fund   Notes to financial statements

for purchased options that expire are recognized as realized losses on the expiration date. Premiums paid for purchased options that are exercised or closed are added to the amount paid or offset against the proceeds received for the underlying security to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.

Options traded on an exchange are regulated and terms of the options are standardized. Purchased options traded over-the-counter expose the Fund to counterparty risk in the event the counterparty does not perform. This risk can be mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

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

Distributions to shareholders

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

Federal and other taxes

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

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to certain distributions paid, foreign currency transactions and recognition of partnership income. At March 31, 2016, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Paid-in capital    Undistributed net
investment income
  

Accumulated net

realized losses

on investments

$44,253    $271,259    $(315,512)

As of March 31, 2016, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $12,121,728 expiring in 2017.

As of March 31, 2016, the Fund had current year deferred post-October capital losses consisting of $11,892,103 in long-term losses 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.


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Notes to financial statements   Wells Fargo Utility and Telecommunications Fund     25   

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

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

 

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

 

n   Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2016:

 

    

Quoted prices

(Level 1)

    

Other significant

observable inputs
(Level 2)

    

Significant

unobservable inputs

(Level 3)

     Total  

Assets

           

Investments in:

           

Common stocks

           

Consumer discretionary

   $ 13,749,108       $ 0       $ 0       $ 13,749,108   

Energy

     3,941,436         0         0         3,941,436   

Financials

     23,740,635         0         0         23,740,635   

Industrials

     166,950         0         0         166,950   

Information technology

     28,209,600         0         0         28,209,600   

Telecommunication services

     48,079,848         0         0         48,079,848   

Utilities

     240,217,915         0         0         240,217,915   

Convertible debenture

     0         5,000         0         5,000   

Exchange-traded funds

           

Financials

     481,170         0         0         481,170   

Preferred stocks

           

Utilities

     732,875         0         0         732,875   

Warrants

           

Energy

     0         18,104         0         18,104   

Short-term investments

           

Investment companies

     40,990,641         0         0         40,990,641   

Investment measured at net asset value*

                                7,771,650   

Total assets

   $ 400,310,178       $ 23,104       $ 0       $ 408,104,932   

Liabilities

           

Written options

   $ 0       $ 173,334       $ 0       $ 173,334   

Total liabilities

   $ 0       $ 173,334       $ 0       $ 173,334   

 

* Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $7,771,650 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments.

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At March 31, 2016, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.


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26   Wells Fargo Utility and Telecommunications Fund   Notes to financial statements

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the applicable subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.65% and declining to 0.48% as the average daily net assets of the Fund increase.

Prior to July 1, 2015, Funds Management provided advisory services pursuant to an investment advisory agreement and was entitled to receive an annual fee which started at 0.60% and declined to 0.45% as the average daily net assets of the Fund increased. In addition, fund-level administrative services were provided by Funds Management under a separate administration agreement at an annual fee which started at 0.05% and declined to 0.03% as the average daily net assets of the Fund increased. For financial statement purposes, the advisory fee and fund-level administration fee for the year ended March 31, 2016 have been included in management fee on the Statement of Operations.

For the year ended March 31, 2016, the management fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Crow Point Partners, LLC is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.20% and declining to 0.10% as the average daily net assets of the Fund increase.

Administration fees

Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee which is calculated based on the average daily net assets of each class as follows:

 

     Class-level administration fee  
     Current rate      Rate prior to
July 1, 2015
 

Class A, Class B, Class C

     0.21      0.26

Administrator Class

     0.13         0.10   

Institutional Class

     0.13         0.08   

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 31, 2016 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.14% for Class A shares, 1.89% for Class B shares, 1.89% for Class C shares, 0.95% for Administrator Class shares, and 0.78% for Institutional Class shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fees

The Trust has adopted a distribution plan for Class B and Class C shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class B and Class C shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class B and Class C shares.

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class B and Class C shares. For the year ended March 31, 2016, Funds Distributor received $12,111 from the sale of Class A shares and $444 in contingent deferred sales charges from redemptions of Class C shares.


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Notes to financial statements   Wells Fargo Utility and Telecommunications Fund     27   

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class B, Class C, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class.

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

5. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended March 31, 2016 were $57,134,350 and $124,392,480, respectively.

6. INVESTMENTS IN AFFILIATES

An affiliated investment is a company which is under common ownership or control of the Fund or which the Fund has ownership of at least 5% of the outstanding voting shares. The following is a summary of transactions for the long-term holdings of issuers that were either affiliates of the Fund at the beginning of the period or the end of the period.

 

     Shares,
beginning of
period
    

Shares
purchased

    

Shares
sold

    

Shares, end

of period

    

Value, end

of period

    

Income

from affiliated

securities

    

Realized

gains

(losses)

 

Spark Energy Incorporated Class A

     0         281,837         0         281,837       $ 5,073,066       $ 0       $ 0   

7. DERIVATIVE TRANSACTIONS

During the year ended March 31, 2016, the Fund entered into written options for economic hedging purposes.

During the year ended March 31, 2016, the Fund had written option activities as follows:

 

     Call options      Put options  
     Number of
contracts
    

Premiums

received

     Number of
contracts
    

Premiums

received

 

Options outstanding at March 31, 2015

     0       $ 0         0       $ 0   

Options written

     9,795         829,134         369         49,238   

Options expired

     (1,500      (322,818      (369      (49,238

Options closed

     (3,500      (203,485      0         0   

Options exercised

     0         0         0         0   

Options outstanding at March 31, 2016

     4,795       $ 302,831         0       $ 0   

Open call options written at March 31, 2016 were as follows:

 

Expiration date      Counterparty      Number of contracts      Strike price        Value  

5-20-2016

     JPMorgan      3,000      $ 4.00         $ (47,684

7-15-2016

     JPMorgan      1,795        34.00           (125,650

The Fund had an average of 1,240 written option contracts during the year ended March 31, 2016. As of March 31, 2016, the Fund had segregated $2,000 as cash collateral for written options.

At March 31, 2016, the Fund did not have any purchased options but had an average of 790 purchased option contracts during the year ended March 31, 2016.

A summary of derivative instruments by primary risk exposure is outlined in the following table, unless the only primary risk exposure category is already reflected in the appropriate financial statements.


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28   Wells Fargo Utility and Telecommunications Fund   Notes to financial statements

The effect of derivative instruments on the Statement of Operations for the year ended March 31, 2016 was as follows for the Fund:

 

    

Amount of realized gains
on derivatives

    

Change in unrealized gains
(losses) on derivatives

 
     Unaffiliated
securities
  

Written

options

    

Unaffiliated

securities

  

Written

options

 

Equity contracts

   $2,168,192*    $ 549,118       $0*    $ 129,497   

 

  * Amount relates to purchased options  

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

 

Derivative type      Counterparty     

Gross amounts
of liabilities in the

Statement of

Assets and

Liabilities

    

Amounts

subject to

netting

agreements

      

Collateral

pledged1

       Net amount
of liabilities
 

Written options

     JPMorgan      $173,334      $ 0         $ (173,334      $ 0   

 

  1 Collateral pledged within this table is limited to the collateral for the net transaction with the counterparty.  

8. 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.

For the year ended March 31, 2016, there were no borrowings by the Fund under the agreement.

9. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid was $5,998,415 and $7,691,026 of ordinary income for the years ended March 31, 2016 and March 31, 2015, respectively.

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

 

Undistributed
ordinary
income
  

Unrealized
gains

   Post-October
capital losses
deferred
  

Capital loss

carryforward

$654,308   

$169,329,713

   $(11,892,103)    $(12,121,728)


Table of Contents

 

Notes to financial statements   Wells Fargo Utility and Telecommunications Fund     29   

10. CONCENTRATION RISK

The Fund invests a substantial portion of its assets in utility and telecommunications companies and, therefore, may be more affected by changes in the utility and telecommunications sectors than would be a fund whose investments are not heavily weighted in any sector.

11. INDEMNIFICATION

Under the Trust’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.


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30   Wells Fargo Utility and Telecommunications 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 Utility and Telecommunications Fund (formerly known as Wells Fargo Advantage Utility and Telecommunications Fund) (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of March 31, 2016, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of March 31, 2016, by correspondence with custodian and brokers, or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Utility and Telecommunications Fund as of March 31, 2016, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

LOGO

Boston, Massachusetts

May 25, 2016


Table of Contents

 

Other information (unaudited)   Wells Fargo Utility and Telecommunications Fund     31   

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2016.

Pursuant to Section 854 of the Internal Revenue Code, $5,998,428 of income dividends paid during the fiscal year ended March 31, 2016 has been designated as qualified dividend income (QDI).

For the fiscal year ended March 31, 2016, $78,579 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

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

PORTFOLIO HOLDINGS INFORMATION

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


Table of Contents

 

32   Wells Fargo Utility and Telecommunications Fund   Other information (unaudited)

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

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


Table of Contents

 

Other information (unaudited)   Wells Fargo Utility and Telecommunications Fund     33   

Name and

year of birth

 

Position held and

length of service*

  Principal occupations during past five years or longer  

Current other public

company or investment
company directorships

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

 

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

Officers

 

Name and

year of birth

 

Position held and

length of service

  Principal occupations during past five years or longer    
Karla M. Rabusch
(Born 1959)
  President, since 2003   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.    
Nancy Wiser1
(Born 1967)
  Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
C. David Messman
(Born 1960)
  Secretary, since 2000; Chief Legal Officer, since 2003   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2007   Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.    
David Berardi
(Born 1975)
  Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)
  Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

1 Nancy Wiser acts as Treasurer of 72 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.
2 The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling
1-800-222-8222 or by visiting the website at wellsfargofunds.com.


Table of Contents

 

34   Wells Fargo Utility and Telecommunications Fund   List of abbreviations

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

 

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


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LOGO

 

 

LOGO

For more information

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

Wells Fargo Funds

P.O. Box 8266

Boston, MA 02266-8266

Email: fundservice@wellsfargo.com

Website: wellsfargofunds.com

Individual investors: 1-800-222-8222

Retail investment professionals: 1-888-877-9275

Institutional investment professionals: 1-866-765-0778

 

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

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

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

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

 

LOGO     

241823 05-16

A318/AR318 03-16


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ITEM 2. CODE OF ETHICS

(a) As of the end of the period covered by the report, Wells Fargo Funds Trust has adopted a code of ethics that applies to its President and Treasurer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.

(c) During the period covered by this report, there were no amendments to the provisions of the code of ethics adopted in Item 2(a) above.

(d) During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above.

 

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Trustees of Wells Fargo Funds Trust has determined that Judith Johnson is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mrs. Johnson is independent for purposes of Item 3 of Form N-CSR.

 

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a), (b), (c), (d) The following table presents aggregate fees billed in each of the last two fiscal years for services rendered to the Registrant by the Registrant’s principal accountant. These fees were billed to the registrant and were approved by the Registrant’s audit committee.

 

     Fiscal
year ended
March 31, 2016
     Fiscal
year ended
March 31, 2015
 

Audit fees

   $ 267,703       $ 262,390   

Audit-related fees

     —           15,000   

Tax fees (1)

     38,125         27,090   

All other fees

     —           —     
  

 

 

    

 

 

 
   $ 305,828       $ 304,480   
  

 

 

    

 

 

 

 

(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.

 

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.


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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:   May 25, 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:   May 25, 2016
By:  
  /s/ Nancy Wiser
  Nancy Wiser
  Treasurer
Date:   May 25, 2016

Dates Referenced Herein   and   Documents Incorporated by Reference

This ‘N-CSR’ Filing    Date    Other Filings
7/31/17
7/31/16
7/1/16
6/28/16
Filed on / Effective on:5/31/16497K
5/25/16N-14
5/6/16485BPOS,  497,  497K,  DEF 14A,  N-MFP1
4/15/16N-MFP/A
For Period End:3/31/16485BPOS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
12/31/1524F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-Q,  NSAR-A,  NSAR-B
12/16/15485BPOS
10/23/15497
10/1/15485BPOS,  497J,  497K,  AW
9/30/1524F-2NT,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B
9/1/15485BPOS
8/1/15485BPOS
7/1/15485BPOS,  497,  497K
4/1/15
3/31/1524F-2NT,  485APOS,  497,  497K,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B
10/31/1424F-2NT,  N-CSR,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-B,  NSAR-B/A
3/31/1424F-2NT,  N-CSR,  N-CSR/A,  N-CSRS,  N-MFP,  N-MFP/A,  N-Q,  NSAR-A,  NSAR-A/A,  NSAR-B
11/1/13485BPOS,  N-CSR,  N-CSRS
10/31/13N-CSR,  N-MFP,  N-MFP/A,  N-Q,  NSAR-B
6/28/13497,  NSAR-A
7/19/10485BPOS,  497,  497K
6/1/10485BXT,  497K,  N-Q,  NSAR-A
5/3/05
3/10/99
 List all Filings 
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