N-CSR 1 d734078dncsr.htm N-CSR N-CSR
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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)

 

 

Alexander Kymn

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 8 of its series:

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

Date of reporting period: March 31, 2019

 

 

 

Table of Contents

ITEM 1. REPORT TO STOCKHOLDERS

Table of Contents

Annual Report

March 31, 2019

 

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Wells Fargo Intrinsic Small Cap Value Fund

 

LOGO

 

 

Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

     2  

Performance highlights

     6  

Fund expenses

     10  

Portfolio of investments

     11  
Financial statements  

Statement of assets and liabilities

     15  

Statement of operations

     16  

Statement of changes in net assets

     17  

Financial highlights

     18  

Notes to financial statements

     22  

Report of independent registered public accounting firm

     27  

Other information

     28  

Appendix A

     32  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

    

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Ann Miletti

Christopher G. Miller, CFA®‡

Average annual total returns (%) as of March 31, 2019

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net2  
 
Class A (WFSMX)   3-31-2008     -9.32       4.14       12.28       -3.78       5.38       12.95       1.55       1.36  
 
Class C (WSCDX)   3-31-2008     -5.51       4.60       12.11       -4.51       4.60       12.11       2.30       2.11  
 
Administrator Class (WFSDX)   4-8-2005     –       –       –       -3.65       5.55       13.18       1.47       1.21  
 
Institutional Class (WFSSX)   4-8-2005     –       –       –       -3.45       5.77       13.41       1.22       1.01  
 
Russell 2000® Value Index3   –     –       –       –       0.17       5.59       14.12       –       –  

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

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

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

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

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Intrinsic Small Cap Value Fund     7  
Growth of $10,000 investment as of March 31, 20194
LOGO

 

 

‡

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

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

 

2 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at 1.35% for Class A, 2.10% for Class C, 1.20% for Administrator Class, and 1.00% for Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

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.

 

4 

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%.

 

5 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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.

 

6 

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 no longer held at the end of the reporting period.

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

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund underperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2019.

 

∎  

Stock selection in the financials and information technology (IT) sectors were the largest detractors from performance relative to the benchmark.

 

∎  

Stock selection in the health care and consumer staples sectors contributed the most to performance relative to the benchmark.

Volatility was notable at times in the small-cap market during the period.

The small-cap value segment of the U.S. stock market, represented by the benchmark Russell 2000® Value Index, moved sharply in both directions during the reporting period. The benchmark rose 10% during the second and third quarters of 2018, declined 19% during the fourth quarter of 2018, and then rebounded 12% in the first quarter of 2019 to end the reporting period just 0.17% above where it began. The utilities, communication services, and real estate sectors rose the most while the energy, materials, and consumer staples sectors declined the most during the reporting period. Volatility spiked when the markets declined but remained relatively low for the rest of the period. Across the broader market spectrum, larger-cap and growth stocks generally outperformed smaller-cap and value stocks.

The lowering of corporate taxes, reduction in burdensome regulations, and other progrowth government policies fueled optimism among U.S. businesses and bolstered overall economic activity to continue the nearly 10-year-old economic expansion. U.S. equity markets also benefited from the repatriation of cash held overseas, a significant ramp-up in share buybacks, increased capital spending, initial public offerings, and high-profile merger and acquisition activity. The U.S. economy remained resilient, with the gross domestic product having increased for 19 quarters in a row, unemployment reaching recovery lows, and job openings at recovery highs. Lower personal income taxes and household debt ratios, combined with higher household net worth and new housing starts, contributed to consumer confidence and optimism. However, investor sentiment turned negative during the fourth quarter of 2018 over concerns about inflation, interest rates, trade disputes, and the slowing of global economic growth. While the U.S. government has negotiated agreements with its North American neighbors and Europe, trade discussions with China are still ongoing and creating uncertainty in the market. The U.S. Federal Reserve (Fed) raised its benchmark interest rate three times during the reporting period, most recently to a range of 2.25% to 2.50% at its December 2018 meeting. However, the Fed has pivoted its posture since then and has not raised rates any further. It also has indicated a slowdown in reducing balance sheet assets. The yield curve continued to flatten for most of the reporting period, with the spread between the 3-month and 10-year U.S. Treasury yields briefly inverting in March 2019.

 

Ten largest holdings (%) as of March 31, 20195  

AngioDynamics Incorporated

      2.43  

Steris plc

      2.33  

Bio-Rad Laboratories Incorporated Class A

      2.30  

Webster Financial Corporation

      2.22  

Sterling Bancorp

      2.04  

WPX Energy Incorporated

      2.02  

National General Holdings Corporation

      2.01  

Cimarex Energy Company

      1.98  

Four Corners Property Trust Incorporated

      1.97  

Essent Group Limited

      1.94  

Throughout all of the market and economic events that occurred during the reporting period, we continued to seek well-positioned companies—those with good business models, strong management teams, and healthy cash flows—trading at attractive discounts to their private market valuations (PMVs). The PMV represents the expected price an investor would pay for the entire company as a stand-alone private entity.

Portfolio holdings in the financials and IT sectors were the largest detractors from relative performance.

Within the financials sector, banks and insurance company holdings underperformed their peers. Banks suffered from the flattening and brief inversion of the

 

yield curve, declining valuation multiples, and generally less lending from late-cycle fears. Regional banks including Ameris Bancorp, Sterling Bancorp, and PacWest Bancorp were the largest detractors. Maiden Holdings, Limited*, a reinsurance company, had ongoing issues with its commercial automobile insurance reserves. When the chief executive officer and chief financial officer were replaced, we lost confidence in the company’s ability to fix these issues and exited our position. Within

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Intrinsic Small Cap Value Fund     9  

the IT sector, holdings in equipment and peripherals underperformed their peers. Infinera Corporation, a provider of optical networking equipment, was affected by negative investor sentiment related to integration risk and indebtedness from a large acquisition. We exited our position in Diebold Nixdorf, Incorporated, best known for its ATM machines, as it continued to report weak financial results and disappointing forecasts. Utilities were the best-performing sector in the benchmark, rising over 21% during the period, and a lack of exposure to this sector in the portfolio hurt relative performance.

 

Sector distribution as of March 31, 20196
LOGO

Stock selection in the health care and consumer staples sectors contributed the most to relative performance.

Holdings in the health care equipment and life sciences industries benefited from the market recognizing their ability to grow profits while keeping up with product innovation. STERIS plc, a medical/surgical equipment company; AngioDynamics, Incorporated, and Integer Holdings Corporation, both medical device providers; and Bio-Rad Laboratories, Incorporated, a life sciences research company, were a few of our holdings that outperformed their peers. In the consumer staples sector, TreeHouse Foods, Incorporated, is a food and beverage manufacturing company that specializes in the

 

production of private-label products. The company had been dealing with competitive pressures that caused the stock to decline in the prior year. However, we retained conviction in the company as a new management team was able to turn around operations and profitability, and we benefited from a 69% gain in the stock for the reporting period.

Our methodology includes buying stocks at a discount to their estimated PMV and selling stocks as they approach or exceed the upper end of their PMV range.

Our disciplined, bottom-up investment process leads us to be overweight or underweight certain sectors. This positioning changes over time based on macroeconomic and industry-specific factors. During the reporting period, our process led us to be overweight the industrials and health care sectors while being underweight the utilities and financials sectors. Through our investment process, we remain keenly aware of both price and enterprise values on a company-by-company basis. Our proprietary database of company acquisitions across industries, sectors, and time frames enables us to maintain a steady foundation for assessing the PMVs of companies compared with their public stock prices. We strive to take advantage of those price discrepancies for the benefit of Fund shareholders by purchasing stocks when we believe they are selling at a discount to their PMV.

Some of these themes may prevail into 2019.

Looking ahead into 2019, interest rates, the policies of the U.S. government, energy prices, and global trade agreements may likely be themes that influence the overall market and the relative performance of the Fund. Lower taxes and reduced regulations already have had an effect on the overall U.S. economy, but a divided U.S. Congress after the 2018 midterm elections may slow down the pace and direction of reform. The U.S. and China are in the middle of intense trade negotiations that could affect bilateral as well as global trade. The U.S. economy is on its way to the longest expansion in history and the aging economic cycle is a constant factor in investor sentiment, but there are still indicators that do not foreshadow a recession in the near future. Most major global economies are expected to slow down, in contrast to the synchronized growth of previous years. The Fed has signaled no further interest rate hikes in the near future as well as a slowdown in the reduction to its balance sheet, which could have a positive effect on the markets.

 

 

Please see footnotes on page 7.

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

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

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 917.83      $ 6.45        1.35 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.20      $ 6.79        1.35 % 

Class C

            

Actual

    $ 1,000.00      $ 914.38      $ 10.02        2.10 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,014.46      $ 10.55        2.10 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 918.25      $ 5.74        1.20 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.95      $ 6.04        1.20 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 919.31      $ 4.79        1.00 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,019.95      $ 5.04        1.00 % 

 

 

1

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

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Portfolio of investments—March 31, 2019   Wells Fargo Intrinsic Small Cap Value Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 96.13%

           

Communication Services: 0.93%

           
Entertainment: 0.93%           

Lions Gate Entertainment Class B

           41,451      $ 625,914  
          

 

 

  

Consumer Discretionary: 9.75%

           
Auto Components: 3.58%           

American Axle & Manufacturing Holdings Incorporated †

           60,228        861,863  

Dana Incorporated

           52,301        927,820  

Gentherm Incorporated †

           16,641        613,387  
             2,403,070  
          

 

 

  
Diversified Consumer Services: 0.81%           

Houghton Mifflin Harcourt Company †

           74,219        539,572  
          

 

 

  
Hotels, Restaurants & Leisure: 1.78%           

Jack in the Box Incorporated

           10,524        853,075  

Playa Hotels & Resorts NV †

           44,283        337,879  
             1,190,954  
          

 

 

  
Internet & Direct Marketing Retail: 1.05%           

Groupon Incorporated †

           198,630        705,137  
          

 

 

  
Specialty Retail: 1.30%           

National Vision Holdings Incorporated †

           27,834        874,823  
          

 

 

  
Textiles, Apparel & Luxury Goods: 1.23%           

Carter’s Incorporated

           8,205        826,982  
          

 

 

  

Consumer Staples: 1.24%

           
Food Products: 1.24%           

TreeHouse Foods Incorporated †

           12,929        834,567  
          

 

 

  

Energy: 4.89%

           
Oil, Gas & Consumable Fuels: 4.89%           

Cimarex Energy Company

           18,987        1,327,191  

Concho Resources Incorporated

           3,594        398,790  

Matador Resources Company †

           10,431        201,631  

WPX Energy Incorporated †

           103,168        1,352,532  
             3,280,144  
          

 

 

  

Financials: 24.20%

           
Banks: 15.99%           

Ameris Bancorp

           28,641        983,818  

LegacyTexas Financial Group

           26,264        982,011  

PacWest Bancorp

           26,358        991,324  

Pinnacle Financial Partners Incorporated

           18,969        1,037,604  

Renasant Corporation

           27,650        935,953  

 

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, 2019

      

 

 

Security name                 Shares      Value  
Banks (continued)           

Sterling Bancorp

           73,407      $ 1,367,572  

United Community Bank

           33,897        845,052  

Webster Financial Corporation

           29,399        1,489,647  

Wintrust Financial Corporation

           13,637        918,179  

Zions Bancorporation

           26,016        1,181,387  
             10,732,547  
          

 

 

  
Capital Markets: 1.07%           

Stifel Financial Corporation

           13,648        720,068  
          

 

 

  
Insurance: 5.19%           

CNO Financial Group Incorporated

           67,835        1,097,570  

First American Financial Corporation

           20,109        1,035,614  

National General Holdings Corporation

           56,950        1,351,424  
             3,484,608  
          

 

 

  
Thrifts & Mortgage Finance: 1.95%           

Essent Group Limited †

           30,018        1,304,282  
          

 

 

  

Health Care: 11.99%

           
Health Care Equipment & Supplies: 7.74%           

AngioDynamics Incorporated †

           71,418        1,632,615  

Haemonetics Corporation †

           10,912        954,582  

Integer Holdings Corporation †

           13,882        1,046,980  

Steris plc

           12,208        1,562,990  
             5,197,167  
          

 

 

  
Health Care Providers & Services: 0.55%           

MEDNAX Incorporated †

           13,502        366,849  
          

 

 

  
Life Sciences Tools & Services: 3.70%           

Bio-Rad Laboratories Incorporated Class A †

           5,047        1,542,767  

Bruker Corporation

           24,467        940,511  
             2,483,278  
          

 

 

  

Industrials: 18.35%

           
Airlines: 1.13%           

Spirit Airlines Incorporated †

           14,334        757,695  
          

 

 

  
Building Products: 1.39%           

Masonite International Corporation †

           18,717        933,791  
          

 

 

  
Commercial Services & Supplies: 5.03%           

Advanced Disposal Services Incorporated †

           28,946        810,488  

Interface Incorporated

           59,017        904,140  

KAR Auction Services Incorporated

           15,518        796,229  

Knoll Incorporated

           45,909        868,139  
             3,378,996  
          

 

 

  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Intrinsic Small Cap Value Fund     13  

      

 

 

Security name                 Shares      Value  
Machinery: 6.21%           

Altra Holdings Incorporated

           31,322      $ 972,548  

ITT Incorporated

           17,956        1,041,448  

Rexnord Corporation †

           38,864        977,041  

SPX Corporation †

           33,793        1,175,658  
             4,166,695  
          

 

 

  
Road & Rail: 2.07%           

Avis Budget Group Incorporated †

           11,599        404,341  

Genesee & Wyoming Incorporated Class A †

           11,284        983,288  
             1,387,629  
          

 

 

  
Trading Companies & Distributors: 2.52%           

Air Lease Corporation

           25,203        865,723  

MRC Global Incorporated †

           47,383        828,255  
             1,693,978  
          

 

 

  

Information Technology: 12.29%

           
Communications Equipment: 0.86%           

Infinera Corporation †

           133,086        577,593  
          

 

 

  
Electronic Equipment, Instruments & Components: 6.04%           

Anixter International Incorporated †

           16,401        920,260  

Avnet Incorporated

           24,937        1,081,518  

SYNNEX Corporation

           9,300        887,127  

Zebra Technologies Corporation Class A †

           5,558        1,164,568  
             4,053,473  
          

 

 

  
IT Services: 2.37%           

Conduent Incorporated †

           58,283        806,054  

WEX Incorporated †

           4,092        785,623  
             1,591,677  
          

 

 

  
Semiconductors & Semiconductor Equipment: 1.41%           

Brooks Automation Incorporated

           32,338        948,474  
          

 

 

  
Software: 1.61%           

Mimecast Limited †

           22,734        1,076,455  
          

 

 

  

Materials: 2.85%

           
Metals & Mining: 2.85%           

Reliance Steel & Aluminum Company

           11,255        1,015,876  

Royal Gold Incorporated

           9,847        895,388  
             1,911,264  
          

 

 

  

Real Estate: 9.64%

           
Equity REITs: 9.64%           

Cousins Properties Incorporated

           117,840        1,138,334  

Four Corners Property Trust Incorporated

           44,663        1,322,025  

 

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

Table of Contents

 

14   Wells Fargo Intrinsic Small Cap Value Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                                   Shares      Value  
Equity REITs (continued)          

Hudson Pacific Properties Incorporated

          28,467      $ 979,834  

Physicians Realty Trust

          62,200        1,169,982  

Retail Opportunity Investment Corporation

          63,850        1,107,159  

Taubman Centers Incorporated

          14,288        755,549  
            6,472,883  
         

 

 

  

Total Common Stocks (Cost $56,658,497)

             64,520,565  
         

 

 

  
    Yield                      
Short-Term Investments: 4.26%          
Investment Companies: 4.26%          

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

     2.38 %         2,859,333        2,859,333  
         

 

 

  

Total Short-Term Investments (Cost $2,859,333)

             2,859,333        
         

 

 

  

 

Total investments in securities (Cost $59,517,830)     100.39 %         67,379,898  

Other assets and liabilities, net

     (0.39 )         (262,677 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 67,117,221  
 

 

 

       

 

 

  

 

 

†

Non-income-earning security

 

(l)

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

 

(u)

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

Abbreviations:

 

REIT

Real estate investment trust

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Portfolio at the beginning of the period or the end of the period were as follows:

 

    Shares,
beginning of
period		     Shares
purchased		    

Shares

sold

     Shares,
end of
period		     Net
realized
gains
(losses)		     Net
change in
unrealized
gains
(losses)		     Income
from
affiliated
securities		    

Value,

end
of period

     % of
net
assets		  

Short-Term Investments

                  

Investment Companies

                  

Securities Lending Cash Investments LLC *

     4,579,892       14,874,073       19,453,965       0     $ 37     $ 69     $ 30,454     $ 0    

Wells Fargo Government Money Market Fund Select Class

     893,311       19,621,400       17,655,378       2,859,333       0       0       34,285       2,859,333    
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ 37     $ 69     $ 64,739     $ 2,859,333       4.26 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  *

No longer held at the end of the period.

 

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

Table of Contents

 

Statement of assets and liabilities—March 31, 2019   Wells Fargo Intrinsic Small Cap Value Fund     15  
         

Assets

  

Investments in unaffiliated securities, at value (cost $56,658,497)

   $ 64,520,565  

Investments in affiliated securities, at value (cost $2,859,333)

     2,859,333  

Receivable for investments sold

     581,788  

Receivable for Fund shares sold

     22,040  

Receivable for dividends

     45,748  

Prepaid expenses and other assets

     29,333  
 

 

 

  

Total assets

     68,058,807  
 

 

 

  

Liabilities

  

Payable for investments purchased

     788,280  

Payable for Fund shares redeemed

     46,243  

Management fee payable

     36,944  

Administration fees payable

     10,675  

Trustees’ fees and expenses payable

     1,928  

Distribution fee payable

     346  

Accrued expenses and other liabilities

     57,170  
 

 

 

  

Total liabilities

     941,586  
 

 

 

  

Total net assets

   $ 67,117,221  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 55,685,693  

Total distributable earnings

     11,431,528  
 

 

 

  

Total net assets

   $ 67,117,221  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 44,028,005  

Shares outstanding – Class A1

     1,454,513  

Net asset value per share – Class A

     $30.27  

Maximum offering price per share – Class A2

     $32.12  

Net assets – Class C

   $ 526,121  

Shares outstanding – Class C1

     18,802  

Net asset value per share – Class C

     $27.98  

Net assets – Administrator Class

   $ 1,164,886  

Shares outstanding – Administrator Class1

     37,707  

Net asset value per share – Administrator Class

     $30.89  

Net assets – Institutional Class

   $ 21,398,209  

Shares outstanding – Institutional Class1

     682,901  

Net asset value per share – Institutional Class

     $31.33  

 

 

1 

The Fund has an unlimited number of authorized shares.

 

2 

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

 

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

Table of Contents

 

16   Wells Fargo Intrinsic Small Cap Value Fund   Statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends (net of foreign withholding taxes of $872)

   $ 884,140  

Income from affiliated securities

     44,493  
 

 

 

  

Total investment income

     928,633  
 

 

 

  

Expenses

  

Management fee

     637,288  

Administration fees

  

Class A

     99,941  

Class C

     1,500  

Administrator Class

     1,548  

Institutional Class

     33,123  

Shareholder servicing fees

  

Class A

     118,978  

Class C

     1,785  

Administrator Class

     2,977  

Distribution fee

  

Class C

     5,356  

Custody and accounting fees

     4,652  

Professional fees

     38,210  

Registration fees

     60,209  

Shareholder report expenses

     36,575  

Trustees’ fees and expenses

     22,368  

Other fees and expenses

     11,535  
 

 

 

  

Total expenses

     1,076,045  

Less: Fee waivers and/or expense reimbursements

     (149,490 ) 
 

 

 

  

Net expenses

     926,555  
 

 

 

  

Net investment income

     2,078  
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains on:

  

Unaffiliated securities

     4,077,425  

Affiliated securities

     37  
 

 

 

  

Net realized gains on investments

     4,077,462  
 

 

 

  

Net change in unrealized gains (losses) on:

  

Unaffiliated securities

     (6,626,673 ) 

Affiliated securities

     (69 ) 
 

 

 

  

Net change in unrealized gains (losses) on investments

     (6,626,742 ) 
 

 

 

  

Net realized and unrealized gains (losses) on investments

     (2,549,280 ) 
 

 

 

  

Net decrease in net assets resulting from operations

   $ (2,547,202 ) 
 

 

 

  

 

 

 

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

Table of Contents

 

Statement of changes in net assets   Wells Fargo Intrinsic Small Cap Value Fund     17  
    

Year ended

March 31, 2019

    

Year ended

March 31, 2018

  

Operations

        

Net investment income (loss)

     $ 2,078       $ (122,689 ) 

Net realized gains on investments

       4,077,462         8,079,158  

Net change in unrealized gains (losses) on investments

       (6,626,742 )        (1,592,607 ) 
 

 

 

  

Net increase (decrease) in net assets resulting from operations

       (2,547,202 )        6,363,862  
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

        

Class A

     32,828       1,010,693       56,287       1,697,291  

Class C

     1,268       37,710       3,291       88,944  

Administrator Class

     13,111       411,209       9,745       302,977  

Institutional Class

     40,538       1,300,358       134,112       4,360,186  
 

 

 

  
      2,759,970         6,449,398  
 

 

 

  

Payment for shares redeemed

        

Class A

     (199,126 )      (6,242,566 )      (261,867 )      (7,767,468 ) 

Class C

     (11,127 )      (325,796 )      (11,065 )      (298,907 ) 

Administrator Class

     (17,407 )      (542,222 )      (115,713 )      (3,702,140 ) 

Institutional Class

     (221,373 )      (7,195,900 )      (1,288,079 )      (37,985,828 ) 
 

 

 

  
      (14,306,484 )        (49,754,343 ) 
 

 

 

  

Net decrease in net assets resulting from capital share transactions

       (11,546,514 )        (43,304,945 ) 
 

 

 

  

Total decrease in net assets

       (14,093,716 )        (36,941,083 ) 
 

 

 

  

Net assets

        

Beginning of period

       81,210,937         118,152,020  
 

 

 

  

End of period

     $ 67,117,221       $ 81,210,937  
 

 

 

  

 

 

 

 

 

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  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $31.46       $28.92       $23.49       $25.50       $23.53  

Net investment income (loss)

     (0.04 )1      (0.08 )1      (0.15 )1      0.22 1      0.04  

Net realized and unrealized gains (losses) on investments

     (1.15 )      2.62       5.71       (2.09 )      1.93  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.19 )      2.54       5.56       (1.87 )      1.97  

Distributions to shareholders from

          

Net investment income

     0.00       0.00       (0.13 )      (0.14 )      0.00  

Net asset value, end of period

     $30.27       $31.46       $28.92       $23.49       $25.50  

Total return2

     (3.78 )%      8.78 %      23.68 %      (7.36 )%      8.37 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.54 %      1.54 %      1.48 %      1.47 %      1.46 % 

Net expenses

     1.35 %      1.35 %      1.35 %      1.35 %      1.40 % 

Net investment income (loss)

     (0.11 )%      (0.26 )%      (0.57 )%      0.95 %      0.15 % 

Supplemental data

          

Portfolio turnover rate

     34 %      27 %      142 %      66 %      60 % 

Net assets, end of period (000s omitted)

     $44,028       $50,993       $52,817       $49,898       $817  

 

 

 

 

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 Intrinsic Small Cap Value Fund     19  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $29.30       $27.14       $22.11       $24.04       $22.35  

Net investment loss

     (0.25 )1      (0.28 )1      (0.39 )1      (0.00 )1,2      (0.14 )1 

Net realized and unrealized gains (losses) on investments

     (1.07 )      2.44       5.42       (1.93 )      1.83  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.32 )      2.16       5.03       (1.93 )      1.69  

Net asset value, end of period

     $27.98       $29.30       $27.14       $22.11       $24.04  

Total return3

     (4.51 )%      7.96 %      22.75 %      (8.03 )%      7.56 % 

Ratios to average net assets (annualized)

          

Gross expenses

     2.29 %      2.29 %      2.22 %      2.22 %      2.21 % 

Net expenses

     2.10 %      2.10 %      2.10 %      2.12 %      2.15 % 

Net investment loss

     (0.85 )%      (1.02 )%      (1.52 )%      (0.00 )%      (0.62 )% 

Supplemental data

          

Portfolio turnover rate

     34 %      27 %      142 %      66 %      60 % 

Net assets, end of period (000s omitted)

     $526       $840       $989       $285       $304  

 

 

 

 

1 

Calculated based upon average shares outstanding

 

2 

Amount is more 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

 

20   Wells Fargo Intrinsic Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $32.06       $29.43       $23.89       $25.95       $23.90  

Net investment income (loss)

     0.01 1      (0.03 )1      (0.10 )1      0.22 1      0.07 1 

Net realized and unrealized gains (losses) on investments

     (1.18 )      2.66       5.80       (2.08 )      1.98  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.17 )      2.63       5.70       (1.86 )      2.05  

Distributions to shareholders from

          

Net investment income

     0.00       0.00       (0.16 )      (0.20 )      0.00  

Net asset value, end of period

     $30.89       $32.06       $29.43       $23.89       $25.95  

Total return

     (3.65 )%      8.94 %      23.86 %      (7.17 )%      8.58 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.46 %      1.46 %      1.40 %      1.37 %      1.30 % 

Net expenses

     1.20 %      1.20 %      1.20 %      1.20 %      1.20 % 

Net investment income (loss)

     0.05 %      (0.10 )%      (0.38 )%      0.91 %      0.27 % 

Supplemental data

          

Portfolio turnover rate

     34 %      27 %      142 %      66 %      60 % 

Net assets, end of period (000s omitted)

     $1,165       $1,347       $4,355       $4,893       $5,110  

 

 

 

 

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 Intrinsic Small Cap Value Fund     21  

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $32.45       $29.73       $24.13       $26.22       $24.19  

Net investment income (loss)

     0.08 1      0.03 1      (0.07 )1      0.33       0.14 1 

Net realized and unrealized gains (losses) on investments

     (1.20 )      2.69       5.89       (2.17 )      1.99  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.12 )      2.72       5.82       (1.84 )      2.13  

Distributions to shareholders from

          

Net investment income

     0.00       0.00       (0.22 )      (0.25 )      (0.10 ) 

Net asset value, end of period

     $31.33       $32.45       $29.73       $24.13       $26.22  

Total return

     (3.45 )%      9.15 %      24.14 %      (7.02 )%      8.83 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.21 %      1.21 %      1.15 %      1.12 %      1.03 % 

Net expenses

     1.00 %      1.00 %      1.00 %      1.00 %      1.00 % 

Net investment income (loss)

     0.24 %      0.08 %      (0.26 )%      1.10 %      0.57 % 

Supplemental data

          

Portfolio turnover rate

     34 %      27 %      142 %      66 %      60 % 

Net assets, end of period (000s omitted)

     $21,398       $28,032       $59,991       $71,072       $84,563  

 

 

 

 

 

1 

Calculated based upon average shares outstanding

 

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

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22   Wells Fargo 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.

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 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 companies that are redeemable at net asset value are fair valued normally at net asset value.

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

Securities lending

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

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

valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund (net of fees and rebates), if any, is included in income from affiliated securities 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 any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $60,005,271 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 11,896,999  

Gross unrealized losses

      (4,522,372 ) 

Net unrealized gains

    $ 7,374,627  

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

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

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 625,914      $ 0      $ 0      $ 625,914  

Consumer discretionary

      6,540,538        0        0        6,540,538  

Consumer staples

      834,567        0        0        834,567  

Energy

      3,280,144        0        0        3,280,144  

Financials

      16,241,505        0        0        16,241,505  

Health care

      8,047,294        0        0        8,047,294  

Industrials

      12,318,784        0        0        12,318,784  

Information technology

      8,247,672        0        0        8,247,672  

Materials

      1,911,264        0        0        1,911,264  

Real estate

      6,472,883        0        0        6,472,883  

Short-term investments

            

Investment companies

      2,859,333        0        0        2,859,333  

Total assets

    $ 67,379,898      $ 0      $ 0      $ 67,379,898  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $500 million

      0.850 % 

Next $500 million

      0.825  

Next $1 billion

      0.800  

Next $1 billion

      0.775  

Next $1 billion

      0.750  

Next $1 billion

      0.730  

Next $5 billion

      0.720  

Over $10 billion

      0.710  

For the year ended March 31, 2019, the management fee was equivalent to an annual rate of 0.85% of the Fund’s average daily net assets.

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Notes to financial statements   Wells Fargo Intrinsic Small Cap Value Fund     25  

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.

Administration fees

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

 

     Class-level
administration fee		  

Class A, Class C

      0.21 % 

Administrator Class, Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.35% for Class A shares, 2.10% for Class C shares, and 1.20% for Administrator Class shares, and 1.00% for Institutional Class shares. Prior to or after the commitment expiration date, 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, 2019, Funds Distributor received $105 from the sale of Class A shares. No contingent deferred sales charges were incurred by Class A and Class C shares for the year ended March 31, 2019.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, and Administrator Class of the Fund is charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class. A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.

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, 2019 were $24,545,859 and $37,288,789, respectively.

6. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

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

For the year ended March 31, 2019, there were no borrowings by the Fund under the agreement.

7. DISTRIBUTIONS TO SHAREHOLDERS

For the years ended March 31, 2019 and March 31, 2018, the Fund did not have any distributions paid to shareholders.

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income		   

Undistributed
long-term

gain

   

Unrealized
gains

$920,734    $3,136,167    $7,374,627

8. CONCENTRATION RISK

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

9. INDEMNIFICATION

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

10. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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Report of independent registered public accounting firm   Wells Fargo Intrinsic Small Cap Value Fund     27  

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Intrinsic Small Cap Value Fund (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 24, 2019

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

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.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     29  

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

  

Position held and

length of service*

   Principal occupations during past five years or longer   Current other
public company or
investment company
directorships

William R. Ebsworth

(Born 1957)

   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

  

Trustee, since 2015;

Chair Liaison, since 2018

   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

  

Trustee, since 2009;

Audit Committee Chairman, since 2019

   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation

Judith M. Johnson

(Born 1949)

  

Trustee, since 2008;

Audit Committee Chairman, from 2009 to 2018

   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.   N/A

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30   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

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.   N/A

Olivia S. Mitchell

(Born 1953)

   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A

Timothy J. Penny

(Born 1951)

   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A

James G. Polisson

(Born 1959)

   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A

Pamela Wheelock

(Born 1959)

   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

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

Officers

 

Name and

year of birth

  

Position held and

length of service

   Principal occupations during past five years or longer    

Andrew Owen

(Born 1960)

   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    

Nancy Wiser1

(Born 1967)

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

Alexander Kymn

(Born 1973)

   Secretary and Chief Legal Officer, since 2018   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    

Michael H. Whitaker

(Born 1967)

   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    

David Berardi

(Born 1975)

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

Jeremy DePalma1

(Born 1974)

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

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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32   Wells Fargo Intrinsic Small Cap Value Fund   Appendix A (unaudited)

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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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, visit the Fund’s website, or call:

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

401591 05-19

A242/AR242 03-19

 

Table of Contents

Annual Report

March 31, 2019

 

LOGO

 

Wells Fargo Disciplined Small Cap Fund

(formerly, Wells Fargo Small Cap Opportunities Fund)

 

LOGO

 

 

Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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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

     21  

Statement of operations

     22  

Statement of changes in net assets

     23  

Financial highlights

     24  

Notes to financial statements

     28  

Report of independent registered public accounting firm

     35  

Other information

     36  

Appendix A

     40  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


Table of Contents

 

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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear Shareholder:

We are pleased to offer you this annual report for the Wells Fargo Disciplined Small Cap Fund for the 12-month period that ended March 31, 2019. Effective June 27, 2018, the Fund changed its name from Wells Fargo Small Cap Opportunities Fund to Wells Fargo Disciplined Small Cap Fund. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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4   Wells Fargo Disciplined Small Cap Fund   Letter to shareholders (unaudited)

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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6   Wells Fargo Disciplined Small Cap 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+

Justin P. Carr, CFA®‡

Greg G. Golden, CFA®‡

Robert M. Wicentowski, CFA®‡

Average annual total returns (%) as of March 31, 2019

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net2  
 
Class A (WDSAX)3   7-31-2018     -12.28       4.43       12.51       -6.93       5.68       13.18       1.10       0.99  
 
Class R6 (WSCJX)4   10-31-2016     –       –       –       -6.75       5.94       13.32       0.67       0.56  
 
Administrator Class (NVSOX)   8-1-1993     –       –       –       -7.01       5.66       13.17       1.02       0.91  
 
Institutional Class (WSCOX)5   10-31-2014     –       –       –       -6.79       5.90       13.29       0.77       0.66  
 
Russell 2000® Index6   –     –       –       –       2.05       7.05       15.36       –       –  

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, wfam.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%. 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. 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 Disciplined Small Cap Fund     7  
Growth of $10,000 investment as of March 31, 20197
LOGO

 

 

 

*

Wells Capital Management Incorporated became the subadviser of the Fund on June 27, 2018.

 

+ 

Mr. Carr, Mr. Golden, and Mr. Wicentowski became portfolio managers of the Fund on June 27, 2018.

 

‡ 

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.06% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses.

 

2 

The manager has contractually committed through July 31, 2019 (July 31, 2020 for Class A shares), to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at 0.93% for Class A, 0.50% for Class R6, 0.85% for Administrator Class, and 0.60% for Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

Historical performance shown for Class A shares prior to their inception reflects the performance of the Administrator Class shares, and is adjusted to reflect the higher expenses and sales charges of the Class A shares.

 

4 

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

 

5 

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

 

6 

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.

 

7 

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

 

8 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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.

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8   Wells Fargo Disciplined Small Cap Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund underperformed its benchmark, the Russell 2000® Index, for the 12-month period that ended March 31, 2019.

 

∎  

Negative stock selection occurred most significantly within the information technology (IT), consumer discretionary, and materials sectors.

 

∎  

The Fund benefited from positive stock selection in the health care, real estate, and consumer staples sectors.

A strong economy and tax bill stimulus sent U.S. stocks climbing higher.

The global economy appears to be losing steam. According to Capital Economics, global gross domestic product growth has slowed from 3.8% in the first quarter of 2018 to around 3.0% in the first quarter of 2019, a level the International Monetary Fund considers a perilously slow growth rate. The slowdown has been particularly severe in Europe and, to a lesser extent, in Asia. Manufacturing has slowed markedly along with the sharp decline in global trade, while the service sector has been more resilient.

The v-shaped recovery in the equity markets from the fourth quarter of 2018 through the first quarter of 2019 was driven by a dovish pivot from the Federal Open Market Committee (FOMC), expectations for a trade deal between the U.S. and China, and better-than-expected corporate earnings. On the trade front, the planned early-March increase in the tariff rate on $200 billion of Chinese imports was delayed and talk of a summit between U.S. President Donald Trump and People’s Republic of China President Xi Jinping boosted confidence. However, the summit did not materialize as progress on a trade deal stalled. On the earnings front during the first quarter of 2019, the S&P 500 Index7 registered the fifth-straight quarter of double-digit earnings growth, indicating greater resilience than expected at the end of 2018. The Russell 2000® Index rose by 2.05% for the reporting period. The broader small-cap equity market was driven by periods of high growth and high beta followed by reversal. Quality also outperformed.

 

Ten largest holdings (%) as of March 31, 20198  

Performance Food Group Company

      0.88  

Verint Systems Incorporated

      0.88  

J2 Global Incorporated

      0.83  

Ryman Hospitality Properties Incorporated

      0.83  

Steven Madden Limited

      0.80  

SYNNEX Corporation

      0.78  

MGIC Investment Corporation

      0.74  

CACI International Incorporated Class A

      0.73  

EMCOR Group Incorporated

      0.73  

Horizon Pharma plc

      0.72  

Changes to the Fund’s portfolio during the period were minimal.

Investor concerns about the duration of the economic expansion and slowing economic growth caused crowding into a narrow segment of the market. There has been a preference for growth, even at high valuations, and quality. Value, however, has drastically underperformed. With the changes in investors’ attitudes toward risk assets, sentiment drove rallies in the market that were characterized by risk-on sentiment during the first quarter of 2019 and risk-off sentiment during the last quarter of 2018. Significant and well-timed exposures to risk factors has been the recipe for successful performance. Fundamental factors largely have been ineffective, making this the most challenging period in

 

the history of the Fund. Our past experience demonstrates that fundamentally weighted strategies that invest in relatively inexpensive companies with improving fundamentals reward long-term investors. We continue to build portfolios that adhere to this philosophy while recognizing that pervasive macroeconomic risks require an elevated emphasis on risk controls, particularly as it relates to industry exposures and secular growth.

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Disciplined Small Cap Fund     9  
Sector distribution as of March 31, 20199
LOGO

Stock selection was strongest in health care, real estate, and consumer staples.

Stock selection was strongest in the health care, real estate, and consumer staples sectors. Within health care, the Fund benefited from not owning Nektar Therapeutics, a previously high-flying name that declined on setbacks in its pipeline and competition. An overweight to Horizon Pharma plc, which commercializes late-stage biopharmaceutical therapies, was a consistent performer all year with results that bested consensus estimates on the top and bottom lines. Gout treatment Krystexxa experienced double-digit growth and continues to be strong. Teprotumumab, which treats thyroid eye disease, is also tracking well. In real estate,

 

NexPoint Residential Trust, Incorporated, which operates multifamily properties throughout the southeast and southwest, delivered strong growth despite mixed results relative to consensus expectations. Fundamentals in the apartment sector remain strong. Across consumer staples, Medifast, Incorporated, was the top-performing name. While the company has finished higher for the year, prudent trimming of the position preserved some gains as the stock demonstrated weakness in the back half of the year. Overall, the company delivered double-digit earnings and revenue growth while raising guidance early in the year.

Stock selection was weakest in IT, consumer discretionary, and materials.

The strategy’s risk-control discipline and its focus on bottom-up stock selection tend to limit the effect of sector allocations on relative performance. Though the cumulative effect of generally neutral sector positioning was small, it was not immaterial this period. Stock selection was weakest in IT, consumer discretionary, and materials. Across consumer discretionary, particularly within specialty retail, names such as Tailored Brands, Incorporated, detracted from relative performance. Stronger growth prospects led internet retail stocks higher, while valuation multiples for traditional brick-and-mortar retail names contracted to mid-single digits. Late-cycle industries in the IT sector lagged over supply and margin concerns. As an example, the Fund’s overweight exposure to Ultra Clean Holdings, Incorporated, a supplier of critical subsystems in the semiconductor manufacturing process, detracted from relative performance. Trinseo S.A., a manufacturer of polymers and plastics in the materials sector’s chemical industry, detracted from relative performance on global macroeconomic weakness, particularly in Europe, and foreign currency exchange headwinds.

We will continue to diligently focus on company fundamentals and disciplined portfolio risk management.

Though U.S. economic growth is expected to be lower than in 2018, it is most likely to remain positive in the coming months as unemployment remains near a record low, consumer confidence remains high, and personal incomes are growing. Corporate fundamentals have deteriorated somewhat as the earnings outlook has weakened; however, investment spending and corporate balance sheets remain healthy. With the downward revision to earnings expectations over the past several months, consensus estimates have been lowered to a point that they may lead to an upside surprise. However, we recognize that the largest source of risk to earnings is linked to uncertainty regarding trade sanctions, which have the potential to result in higher input costs, higher labor costs, and profit margin compression. Further delays to a negotiated trade settlement could cause market disappointment, while the resolution of the dispute may only provide a small positive catalyst.

The risk of slow economic growth for several quarters or an economic downturn has increased. However, the combination of weak core inflation and slower economic growth will likely keep the FOMC on hold in 2019 with a bias toward loosening monetary policy. As we monitor the macroeconomic environment, we will continue to diligently focus on company fundamentals and disciplined portfolio risk management.

 

 

Please see footnotes on page 7.

Table of Contents

 

10   Wells Fargo Disciplined Small Cap 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, 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, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 878.87      $ 4.31        0.92 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.35      $ 4.63        0.92 % 

Class R6

            

Actual

    $ 1,000.00      $ 878.91      $ 2.34        0.50 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,022.44      $ 2.52        0.50 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 877.65      $ 3.98        0.85 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.69      $ 4.28        0.85 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 878.88      $ 2.81        0.60 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,021.94      $ 3.02        0.60 % 

 

 

1

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Disciplined Small Cap Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 98.95%

           

Communication Services: 2.85%

           
Diversified Telecommunication Services: 0.33%           

Vonage Holdings Corporation †

           26,155      $ 262,596  
          

 

 

  
Entertainment: 0.61%           

Marcus Corporation

           6,121        245,146  

World Wrestling Entertainment Incorporated Class A

           2,787        241,856  
             487,002  
          

 

 

  
Interactive Media & Services: 0.54%           

QuinStreet Incorporated †

           26,190        350,684  

Yelp Incorporated †

           2,319        80,006  
             430,690  
          

 

 

  
Media: 1.29%           

Gray Television Incorporated †

           13,126        280,371  

MSG Networks Incorporated Class A †

           13,144        285,882  

Nexstar Media Group Incorporated Class A

           4,266        462,306  
             1,028,559  
          

 

 

  
Wireless Telecommunication Services: 0.08%           

Boingo Wireless Incorporated †

           2,565        59,713  
          

 

 

  

Consumer Discretionary: 11.36%

           
Auto Components: 0.77%           

Dana Incorporated

           18,667        331,153  

Modine Manufacturing Company †

           13,504        187,300  

Tower International Incorporated

           4,561        95,918  
             614,371  
          

 

 

  
Diversified Consumer Services: 1.17%           

Career Education Corporation †

           17,102        282,525  

Grand Canyon Education Incorporated †

           3,171        363,111  

K12 Incorporated †

           8,419        287,340  
             932,976  
          

 

 

  
Hotels, Restaurants & Leisure: 3.06%           

Bloomin’ Brands Incorporated

           12,197        249,429  

Brinker International Incorporated

           11,555        512,811  

Dave & Buster’s Entertainment Incorporated

           6,779        338,069  

Marriott Vacations Worldwide Corporation

           2,731        255,349  

Planet Fitness Incorporated Class A †

           7,561        519,592  

Playags Incorporated †

           9,526        227,957  

Ruth’s Chris Steak House Incorporated

           12,838        328,524  
             2,431,731  
          

 

 

  

 

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

Table of Contents

 

12   Wells Fargo Disciplined Small Cap Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  
Household Durables: 1.43%           

Helen of Troy Limited †

           4,834      $ 560,551  

La-Z-Boy Incorporated

           7,179        236,835  

Universal Electronics Incorporated †

           9,153        340,034  
             1,137,420  
          

 

 

  
Internet & Direct Marketing Retail: 0.60%           

Etsy Incorporated †

           4,285        288,038  

Stamps.com Incorporated †

           2,319        188,790  
             476,828  
          

 

 

  
Specialty Retail: 2.20%           

American Eagle Outfitters Incorporated

           14,411        319,492  

Caleres Incorporated

           9,695        239,370  

Children’s Place Retail Stores Incorporated

           2,297        223,452  

Designer Brands Incorporated

           12,255        272,306  

Five Below Incorporated †

           1,014        125,990  

Tailored Brands Incorporated

           7,140        55,978  

Tilly’s Incorporated Class A

           29,232        325,352  

Zumiez Incorporated †

           7,736        192,549  
             1,754,489  
          

 

 

  
Textiles, Apparel & Luxury Goods: 2.13%           

G-III Apparel Group Limited †

           8,956        357,882  

Movado Group Incorporated

           11,782        428,629  

Skechers U.S.A. Incorporated Class A †

           8,042        270,292  

Steven Madden Limited

           18,938        640,862  
             1,697,665  
          

 

 

  

Consumer Staples: 3.01%

           
Food & Staples Retailing: 0.88%           

Performance Food Group Company †

           17,731        702,857  
          

 

 

  
Food Products: 0.91%           

Fresh Del Monte Produce Incorporated

           14,516        392,367  

Simply Good Foods Company †

           16,006        329,564  
             721,931  
          

 

 

  
Personal Products: 0.71%           

Medifast Incorporated

           2,410        307,396  

USANA Health Sciences Incorporated †

           3,086        258,823  
             566,219  
          

 

 

  
Tobacco: 0.51%           

Turning Point Brands Incorporated

           8,805        405,822  
          

 

 

  

Energy: 4.01%

           
Energy Equipment & Services: 1.45%           

Archrock Incorporated

           41,607        406,916  

Helix Energy Solutions Group Incorporated †

           36,654        289,933  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Disciplined Small Cap Fund     13  

      

 

 

Security name                 Shares      Value  
Energy Equipment & Services (continued)           

ProPetro Holding Corporation †

           17,252      $ 388,860  

Tetra Technologies Incorporated †

           28,806        67,406  
             1,153,115  
          

 

 

  
Oil, Gas & Consumable Fuels: 2.56%           

Abraxas Petroleum Corporation †

           82,264        102,830  

Callon Petroleum Company †

           15,640        118,082  

Delek US Holdings Incorporated

           13,565        494,037  

Denbury Resources Incorporated †

           42,907        87,959  

HighPoint Resources Corporation †

           30,518        67,445  

Northern Oil & Gas Incorporated †

           50,836        139,291  

Oasis Petroleum Incorporated †

           20,963        126,617  

Par Pacific Holdings Incorporated †

           11,349        202,126  

Renewable Energy Group Incorporated †

           14,149        310,712  

SRC Energy Incorporated †

           31,112        159,293  

World Fuel Services Corporation

           7,854        226,902  
             2,035,294  
          

 

 

  

Financials: 16.83%

           
Banks: 7.49%           

Bank of N.T. Butterfield & Son Limited

           9,006        323,135  

Central Pacific Financial Company

           5,470        157,755  

CNB Financial Corporation

           7,238        182,904  

Enterprise Financial Service

           9,225        376,103  

First Bancorp of North Carolina

           11,113        386,288  

First Financial Bancorp

           6,712        161,491  

First Financial Corporation

           6,530        274,260  

First Interstate BancSystem Class A

           8,844        352,168  

First Merchants Corporation

           7,379        271,916  

Great Southern Bancorp Incorporated

           7,278        377,728  

Great Western Bancorp Incorporated

           7,943        250,919  

Hancock Holding Company

           11,539        466,176  

Heritage Commerce Corporation

           11,406        138,013  

IBERIABANK Corporation

           984        70,563  

Independent Bank Corporation

           10,142        218,053  

Mercantile Bank Corporation

           8,482        277,531  

NBT Bancorp Incorporated

           5,895        212,279  

Peoples Bancorp Incorporated

           11,428        353,925  

Preferred Bank (Los Angeles)

           6,966        313,261  

Shore Bancshares Incorporated

           3,781        56,375  

Simmons First National Corporation Class A

           1,887        46,194  

Sterling Bancorp

           6,059        112,879  

TriCo Bancshares

           4,246        166,825  

Umpqua Holdings Corporation

           16,774        276,771  

WesBanco Incorporated

           3,498        139,046  
             5,962,558  
          

 

 

  
Capital Markets: 2.57%           

BGC Partners Incorporated Class A

           27,820        147,724  

Blucora Incorporated †

           14,599        487,315  

 

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

Table of Contents

 

14   Wells Fargo Disciplined Small Cap Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  
Capital Markets (continued)           

BrightSphere Investment Group Incorporated

           22,927      $ 310,890  

Evercore Partners Incorporated Class A

           4,576        416,416  

Houlihan Lokey Incorporated

           10,430        478,216  

Stifel Financial Corporation

           3,930        207,347  
             2,047,908  
          

 

 

  
Consumer Finance: 0.72%           

Enova International Incorporated †

           15,573        355,376  

Regional Management Corporation †

           8,934        218,168  
             573,544  
          

 

 

  
Diversified Financial Services: 0.29%           

On Deck Capital Incorporated †

           42,673        231,288  
          

 

 

  
Insurance: 2.88%           

Argo Group International Holdings Limited

           3,351        236,782  

FBL Financial Group Incorporated

           3,774        236,705  

Health Insurance Innovations Incorporated Class A «†

           4,929        132,196  

Kemper Corporation

           6,883        524,072  

National General Holdings Corporation

           17,681        419,570  

Selective Insurance Group Incorporated

           5,609        354,938  

Universal Insurance Holdings Company

           12,454        386,074  
             2,290,337  
          

 

 

  
Thrifts & Mortgage Finance: 2.88%           

Essent Group Limited †

           12,078        524,789  

First Defiance Financial Corporation

           6,587        189,310  

MGIC Investment Corporation †

           44,479        586,678  

Provident Financial Services Incorporated

           7,543        195,288  

Radian Group Incorporated

           27,188        563,879  

Walker & Dunlop Incorporated

           4,519        230,062  
             2,290,006  
          

 

 

  

Health Care: 15.51%

           
Biotechnology: 5.57%           

Akebia Therapeutics Incorporated †

           18,264        149,582  

Arena Pharmaceuticals Incorporated †

           5,176        232,040  

Array BioPharma Incorporated †

           19,010        463,464  

CytomX Therapeutics Incorporated †

           3,377        36,303  

Emergent BioSolutions Incorporated †

           5,026        253,914  

Exelixis Incorporated †

           11,378        270,796  

Fibrogen Incorporated †

           7,517        408,549  

Halozyme Therapeutics Incorporated †

           13,024        209,686  

Heron Therapeutics Incorporated †

           11,175        273,117  

Inovio Pharmaceuticals Incorporated Ǡ

           32,454        121,053  

Intercept Pharmaceuticals Incorporated †

           2,049        229,201  

Ligand Pharmaceuticals Incorporated †

           2,208        277,568  

Pfenex Incorporated †

           26,209        161,972  

REGENXBIO Incorporated †

           4,345        249,012  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Disciplined Small Cap Fund     15  

      

 

 

Security name                 Shares      Value  
Biotechnology (continued)           

Repligen Corporation †

           2,076      $ 122,650  

Rigel Pharmaceuticals Incorporated †

           76,575        196,798  

Sangamo Therapeutics Incorporated †

           12,277        117,123  

Spectrum Pharmaceuticals Incorporated †

           4,382        46,844  

Ultragenyx Pharmaceutical Incorporated †

           1,843        127,830  

Vanda Pharmaceuticals Incorporated †

           11,465        210,956  

Vericel Corporation †

           15,760        275,958  
             4,434,416  
          

 

 

  
Health Care Equipment & Supplies: 3.40%           

Globus Medical Incorporated Class A †

           7,061        348,884  

Haemonetics Corporation †

           2,569        224,736  

Inogen Incorporated †

           2,768        263,984  

Merit Medical Systems Incorporated †

           7,736        478,317  

Novocure Limited †

           6,313        304,097  

Orthofix Medical Incorporated †

           4,014        226,430  

Seaspine Holdings Corporation †

           16,275        245,427  

STAAR Surgical Company †

           9,332        319,061  

Wright Medical Group NV †

           9,531        299,750  
             2,710,686  
          

 

 

  
Health Care Providers & Services: 2.77%           

Amedisys Incorporated †

           2,589        319,120  

BioTelemetry Incorporated †

           6,720        420,806  

Centene Corporation †

           5,904        313,502  

Encompass Health Corporation

           4,172        243,645  

Ensign Group Incorporated

           8,997        460,556  

Magellan Health Services Incorporated †

           1,342        88,465  

R1 RCM Incorporated †

           37,153        359,270  
             2,205,364  
          

 

 

  
Health Care Technology: 0.32%           

Omnicell Incorporated †

           3,111        251,493  
          

 

 

  
Life Sciences Tools & Services: 0.70%           

Medpace Holdings Incorporated †

           4,733        279,105  

PRA Health Sciences Incorporated †

           2,519        277,821  
             556,926  
          

 

 

  
Pharmaceuticals: 2.75%           

ANI Pharmaceuticals Incorporated †

           3,909        275,741  

Catalent Incorporated †

           8,633        350,413  

Horizon Pharma plc †

           21,581        570,386  

Intersect ENT Incorporated †

           8,361        268,806  

Mallinckrodt plc †

           14,722        320,056  

Supernus Pharmaceuticals Incorporated †

           11,578        405,693  
             2,191,095  
          

 

 

  

 

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

Table of Contents

 

16   Wells Fargo Disciplined Small Cap Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  

Industrials: 14.90%

           
Aerospace & Defense: 0.78%           

Ducommun Incorporated †

           5,320      $ 231,526  

Moog Incorporated Class A

           4,472        388,840  
             620,366  
          

 

 

  
Airlines: 0.61%           

SkyWest Incorporated

           9,002        488,719  
          

 

 

  
Building Products: 0.77%           

Builders FirstSource Incorporated †

           14,693        196,005  

CSW Industrials Incorporated †

           5,013        287,195  

NCI Building Systems Incorporated †

           7,809        48,103  

Patrick Industries Incorporated †

           1,857        84,159  
             615,462  
          

 

 

  
Commercial Services & Supplies: 2.67%           

Ennis Incorporated

           11,521        239,176  

Knoll Incorporated

           13,645        258,027  

McGrath RentCorp

           7,270        411,264  

Tetra Tech Incorporated

           9,422        561,457  

UniFirst Corporation

           895        137,383  

Viad Corporation

           9,227        519,388  
             2,126,695  
          

 

 

  
Construction & Engineering: 2.23%           

Ameresco Incorporated Class A †

           15,844        256,356  

Comfort Systems Incorporated

           4,537        237,693  

EMCOR Group Incorporated

           7,899        577,259  

MasTec Incorporated †

           8,770        421,837  

Primoris Services Corporation

           9,365        193,668  

Sterling Construction Company Incorporated †

           7,087        88,729  
             1,775,542  
          

 

 

  
Electrical Equipment: 1.29%           

Atkore International Incorporated †

           19,282        415,141  

Encore Wire Corporation

           5,592        319,974  

EnerSys

           4,422        288,138  
             1,023,253  
          

 

 

  
Electronic Equipment, Instruments & Components: 0.47%           

ScanSource Incorporated †

           10,404        372,671  
          

 

 

  
Machinery: 2.71%           

EnPro Industries Incorporated

           4,401        283,644  

Global Brass & Copper Holdings Incorporated

           10,018        345,020  

Kadant Incorporated

           3,215        282,791  

Kennametal Incorporated

           12,073        443,683  

Meritor Incorporated †

           23,837        485,083  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Disciplined Small Cap Fund     17  

      

 

 

Security name                 Shares      Value  
Machinery (continued)           

Park Ohio Holdings Corporation

           9,867      $ 319,493  
             2,159,714  
          

 

 

  
Professional Services: 1.57%           

BG Staffing Incorporated

           7,877        172,034  

CBIZ Incorporated †

           7,806        157,993  

Insperity Incorporated

           4,151        513,313  

TriNet Group Incorporated †

           6,760        403,842  
             1,247,182  
          

 

 

  
Road & Rail: 0.38%           

Covenant Transport Incorporated Class A †

           5,991        113,709  

USA Truck Incorporated †

           13,262        191,503  
             305,212  
          

 

 

  
Trading Companies & Distributors: 1.42%           

Applied Industrial Technologies Incorporated

           5,777        343,558  

DXP Enterprises Incorporated †

           11,009        428,470  

Rush Enterprises Incorporated

           8,513        355,929  
             1,127,957  
          

 

 

  

Information Technology: 16.19%

           
Communications Equipment: 1.40%           

Ciena Corporation †

           13,208        493,187  

Extreme Networks Incorporated †

           38,305        286,904  

Quantenna Communications Incorporated †

           13,702        333,370  
             1,113,461  
          

 

 

  
Electronic Equipment, Instruments & Components: 3.15%           

Control4 Corporation †

           3,809        64,486  

Fabrinet †

           7,549        395,266  

Insight Enterprises Incorporated †

           5,647        310,924  

Kemet Corporation

           13,970        237,071  

Plexus Corporation †

           2,740        167,003  

SYNNEX Corporation

           6,491        619,176  

TTM Technologies Incorporated †

           27,279        319,983  

Vishay Precision Group †

           11,645        398,375  
             2,512,284  
          

 

 

  
IT Services: 4.95%           

CACI International Incorporated Class A †

           3,204        583,192  

Cardtronics Incorporated Class A †

           9,161        325,948  

CSG Systems International Incorporated

           9,633        407,476  

EPAM Systems Incorporated †

           2,994        506,375  

Evertec Incorporated

           10,834        301,294  

MAXIMUS Incorporated

           5,606        397,914  

Perficient Incorporated †

           14,305        391,814  

The Trade Desk Incorporated †

           1,652        327,013  

 

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

Table of Contents

 

18   Wells Fargo Disciplined Small Cap Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  
IT Services (continued)           

Unisys Corporation †

           14,511      $ 169,343  

Virtusa Corporation †

           9,895        528,888  
             3,939,257  
          

 

 

  
Semiconductors & Semiconductor Equipment: 2.09%           

Diodes Incorporated †

           6,399        222,045  

Entegris Incorporated

           9,603        342,731  

Ichor Holdings Limited Ǡ

           12,943        292,253  

MKS Instruments Incorporated

           1,536        142,925  

Rudolph Technologies Incorporated †

           3,740        85,272  

Ultra Clean Holdings Incorporated †

           14,742        152,580  

Xperi Corporation

           18,396        430,466  
             1,668,272  
          

 

 

  
Software: 4.46%           

ACI Worldwide Incorporated †

           4,546        149,427  

Amber Road Incorporated †

           27,718        240,315  

American Software Incorporated Class A

           9,238        110,394  

AppFolio Incorporated Class A †

           5,046        400,652  

HubSpot Incorporated †

           1,400        232,694  

J2 Global Incorporated

           7,606        658,680  

New Relic Incorporated †

           2,715        267,971  

Qualys Incorporated †

           1,298        107,397  

SPS Commerce Incorporated †

           4,532        480,664  

Upland Software Incorporated †

           4,783        202,608  

Verint Systems Incorporated †

           11,640        696,770  
             3,547,572  
          

 

 

  
Technology Hardware, Storage & Peripherals: 0.14%           

Immersion Corporation †

           13,289        112,026  
          

 

 

  

Materials: 3.64%

           
Chemicals: 1.53%           

Ferro Corporation †

           6,643        125,752  

Innospec Incorporated

           5,781        481,846  

Kraton Performance Polymers Incorporated †

           4,029        129,653  

PolyOne Corporation

           8,180        239,756  

Trinseo SA

           5,358        242,717  
             1,219,724  
          

 

 

  
Containers & Packaging: 0.55%           

Berry Global Group Incorporated †

           4,256        229,271  

Greif Incorporated Class A

           4,979        205,384  
             434,655  
          

 

 

  
Metals & Mining: 0.22%           

Suncoke Energy Incorporated †

           20,698        175,726  
          

 

 

  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Disciplined Small Cap Fund     19  

      

 

 

Security name                 Shares      Value  
Paper & Forest Products: 1.34%           

Boise Cascade Company

           5,698      $ 152,478  

Louisiana-Pacific Corporation

           13,776        335,859  

Schweitzer-Mauduit International Incorporated

           5,695        220,510  

Verso Corporation Class A †

           16,922        362,469  
             1,071,316  
          

 

 

  

Real Estate: 7.21%

           
Equity REITs: 6.33%           

Ashford Hospitality Trust Incorporated

           27,599        131,095  

Catchmark Timber Trust Incorporated Class A

           30,163        296,201  

CoreCivic Incorporated

           8,761        170,401  

CyrusOne Incorporated

           7,451        390,730  

Digital Realty Trust Incorporated

           4,369        519,911  

Global Medical REIT Incorporated

           28,229        277,209  

NexPoint Residential Trust Incorporated

           9,801        375,770  

Piedmont Office Realty Trust Incorporated Class A

           21,838        455,322  

Preferred Apartment Communities Incorporated Class A

           29,803        441,680  

Ryman Hospitality Properties Incorporated

           7,995        657,509  

STAG Industrial Incorporated

           16,335        484,333  

Tier Incorporated

           11,906        341,226  

Xenia Hotels & Resorts Incorporated

           22,517        493,347  
             5,034,734  
          

 

 

  
Real Estate Management & Development: 0.88%           

Kennedy Wilson Holdings Incorporated

           15,244        326,069  

Newmark Group Incorporated Class A

           45,239        377,293  
             703,362  
          

 

 

  

Utilities: 3.44%

           
Electric Utilities: 2.43%           

IDACORP Incorporated

           4,254        423,443  

Otter Tail Corporation

           8,704        433,633  

PNM Resources Incorporated

           6,122        289,815  

Portland General Electric Company

           10,822        561,012  

Spark Energy Incorporated Class A

           25,063        223,311  
             1,931,214  
          

 

 

  
Gas Utilities: 0.50%           

Southwest Gas Corporation

           4,791        394,108  
          

 

 

  
Independent Power & Renewable Electricity Producers: 0.32%           

Clearway Energy Incorporated

           17,774        258,438  
          

 

 

  
Water Utilities: 0.19%           

Consolidated Water Company

           12,018        154,672  
          

 

 

  

Total Common Stocks (Cost $81,667,238)

              78,778,493  
          

 

 

  

 

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

Table of Contents

 

20   Wells Fargo Disciplined Small Cap Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name   Yield            Shares      Value  

Short-Term Investments: 1.90%

 

Investment Companies: 1.74%

 

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

     2.55 %         533,068      $ 533,142  

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

     2.38          849,992        849,992  
            1,383,134  
         

 

 

  
          Maturity date      Principal         
U.S. Treasury Securities: 0.16%

 

Treasury Bill (z)#

     2.44       7-5-2019      $     130,000        129,189  
         

 

 

  

Total Short-Term Investments (Cost $1,512,294)

 

      1,512,323        
         

 

 

  

 

Total investments in securities (Cost $83,179,532)     100.85 %         80,290,816  

Other assets and liabilities, net

     (0.85 )         (673,856 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 79,616,960  
 

 

 

       

 

 

  

 

 

†

Non-income-earning security

 

«

All or a portion of this security is on loan.

 

(l)

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

 

(r)

The investment is a non-registered investment company purchased with cash collateral received from securities on loan.

 

(u)

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

 

(z)

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

 

#

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

Abbreviations:

 

REIT

Real estate investment trust

Futures Contracts

 

Description    Number of
contracts		      Expiration
date		      Notional
cost		      Notional
value		      Unrealized
gains		      Unrealized
losses		  

Long

                  

Russell 2000 E-Mini Index

      8        6-21-2019      $ 621,444      $ 617,520      $ 0      $ (3,924 ) 

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:

 

    Shares,
beginning of
period		     Shares
purchased		     Shares
sold		     Shares,
end of
period		     Net
realized
gains
(losses)		     Net
change in
unrealized
gains
(losses)		     Income
from
affiliated
securities		     Value,
end
of period		     % of
net
assets		  

Short-Term Investments

                  

Investment Companies

                  

Securities Lending Cash Investments LLC

     13,754,682       55,235,285       68,456,899       533,068     $ 0     $ 0     $ 97,828     $ 533,142    

Wells Fargo Government Money Market Fund Select Class

     14,793,357       49,632,418       63,575,783       849,992       0       0       73,626       849,992    
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ 0     $ 0     $ 171,454     $ 1,383,134       1.74 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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

Table of Contents

 

Statement of assets and liabilities—March 31, 2019   Wells Fargo Disciplined Small Cap Fund     21  
         

Assets

  

Investments in unaffiliated securities (including $525,426 of securities loaned), at value (cost $81,796,398)

   $ 78,907,682  

Investments in affiliated securities, at value (cost $1,383,134)

     1,383,134  

Cash

     2,927  

Receivable for Fund shares sold

     52,071  

Receivable for dividends

     76,161  

Receivable for daily variation margin on open futures contracts

     1,440  

Receivable for securities lending income

     57  

Prepaid expenses and other assets

     30,859  
 

 

 

  

Total assets

     80,454,331  
 

 

 

  

Liabilities

  

Payable upon receipt of securities loaned

     531,851  

Payable for Fund shares redeemed

     214,918  

Management fee payable

     15,081  

Administration fees payable

     8,597  

Trustees’ fees and expenses payable

     1,912  

Accrued expenses and other liabilities

     65,012  
 

 

 

  

Total liabilities

     837,371  
 

 

 

  

Total net assets

   $ 79,616,960  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 84,999,865  

Total distributable loss

     (5,382,905 ) 
 

 

 

  

Total net assets

   $ 79,616,960  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE1

  

Net assets – Class A

   $ 34,499  

Shares outstanding – Class A1

     4,114  

Net asset value per share – Class A

     $8.39  

Maximum offering price per share – Class A2

     $8.90  

Net assets – Class R6

   $ 4,013,530  

Shares outstanding – Class R61

     472,030  

Net asset value per share – Class R6

     $8.50  

Net assets – Administrator Class

   $ 49,911,392  

Shares outstanding – Administrator Class1

     5,941,030  

Net asset value per share – Administrator Class

     $8.40  

Net assets – Institutional Class

   $ 25,657,539  

Shares outstanding – Institutional Class1

     3,024,737  

Net asset value per share – Institutional Class

     $8.48  

 

 

 

 

 

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

 

22   Wells Fargo Disciplined Small Cap Fund   Statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends (net of foreign withholding taxes of $1,600)

   $ 1,463,483  

Income from affiliated securities

     113,864  
 

 

 

  

Total investment income

     1,577,347  
 

 

 

  

Expenses

  

Management fee

     859,735  

Administration fees

  

Class A

     41 1 

Class R6

     3,999  

Administrator Class

     97,776  

Institutional Class

     68,899  

Shareholder servicing fees

  

Class A

     48 1 

Administrator Class

     186,592  

Custody and accounting fees

     19,480  

Professional fees

     46,392  

Registration fees

     73,526  

Shareholder report expenses

     39,777  

Trustees’ fees and expenses

     22,693  

Other fees and expenses

     12,688  
 

 

 

  

Total expenses

     1,431,646  

Less: Fee waivers and/or expense reimbursements

     (255,682 ) 
 

 

 

  

Net expenses

     1,175,964  
 

 

 

  

Net investment income

     401,383  
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains (losses) on:

  

Unaffiliated securities

     28,906,757  

Futures contracts

     (296,940 ) 
 

 

 

  

Net realized gains on investments

     28,609,817  
 

 

 

  

Net change in unrealized gains (losses) on:

  

Unaffiliated securities

     (38,974,894 ) 

Futures contracts

     (3,924 ) 
 

 

 

  

Net change in unrealized gains (losses) on investments

     (38,978,818 ) 
 

 

 

  

Net realized and unrealized gains (losses) on investments

     (10,369,001 ) 
 

 

 

  

Net decrease in net assets resulting from operations

   $ (9,967,618 ) 
 

 

 

  

 

 

 

 

 

1 

For the period from July 31, 2018 (commencement of class operations) to March 31, 2019

 

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

Table of Contents

 

Statement of changes in net assets   Wells Fargo Disciplined Small Cap Fund     23  
     Year ended
March 31, 2019		     Year ended
March 31, 20181		  

Operations

        

Net investment income

     $ 401,383       $ 502,956  

Net realized gains on investments

       28,609,817         54,267,385  

Net change in unrealized gains (losses) on investments

       (38,978,818 )        (28,401,505 ) 
 

 

 

  

Net increase (decrease) in net assets resulting from operations

       (9,967,618 )        26,368,836  
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

        

Class A

       (23,529 )2        N/A  

Class R6

       (4,570,209 )        (265,386 ) 

Administrator Class

       (37,650,733 )        (27,391,629 ) 

Institutional Class

       (22,694,010 )        (10,224,030 ) 
 

 

 

  

Total distributions to shareholders

       (64,938,481 )        (37,881,045 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

        

Class A

     2,960 2      51,409 2      N/A       N/A  

Class R6

     220,833       4,395,129       1,016,892       23,696,710  

Administrator Class

     348,961       5,660,352       1,003,396       24,583,627  

Institutional Class

     657,651       12,223,841       1,609,570       39,079,106  
 

 

 

  
      22,330,731         87,359,443  
 

 

 

  

Reinvestment of distributions

        

Class A

     1,361 2      10,912 2      N/A       N/A  

Class R6

     523,136       4,271,599       11,427       261,336  

Administrator Class

     4,686,419       37,625,033       1,202,741       27,387,299  

Institutional Class

     2,679,230       21,773,661       386,831       8,839,448  
 

 

 

  
      63,681,205         36,488,083  
 

 

 

  

Payment for shares redeemed

        

Class A

     (207 )2      (1,692 )2      N/A       N/A  

Class R6

     (1,326,785 )      (24,323,015 )      (41,737 )      (978,591 ) 

Administrator Class

     (3,156,760 )      (42,530,327 )      (7,857,302 )      (184,787,406 ) 

Institutional Class

     (3,311,260 )      (47,808,217 )      (1,280,303 )      (30,434,668 ) 
 

 

 

  
      (114,663,251 )        (216,200,665 ) 
 

 

 

  

Net decrease in net assets resulting from capital share transactions

       (28,651,315 )        (92,353,139 ) 
 

 

 

  

Total decrease in net assets

       (103,557,414 )        (103,865,348 ) 
 

 

 

  

Net assets

        

Beginning of period

       183,174,374         287,039,722  
 

 

 

  

End of period

     $ 79,616,960       $ 183,174,374  
 

 

 

  

 

 

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and permitted the aggregation of distributions, with the exception of tax basis returns of capital. Undistributed net investment income at March 31, 2018 was $168,078. The disaggregated distributions information for the year ended March 31, 2018 is included in Note 7, Distributions to Shareholders, in the notes to the financial statements.

 

2 

For the period from July 31, 2018 (commencement of class operations) to March 31, 2019

 

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

Table of Contents

 

24   Wells Fargo Disciplined Small Cap Fund   Financial highlights

(For a share outstanding throughout each period)

 

CLASS A   Year ended
March 31, 20191		  

Net asset value, beginning of period

     $23.70  

Net investment income

     0.02  

Net realized and unrealized gains (losses) on investments

     (3.37 ) 
 

 

 

  

Total from investment operations

     (3.35 ) 

Distributions to shareholders from

  

Net investment income

     (0.04 ) 

Net realized gains

     (11.92 ) 
 

 

 

  

Total distributions to shareholders

     (11.96 ) 

Net asset value, end of period

     $8.39  

Total return2

     (11.52 )% 

Ratios to average net assets (annualized)

  

Gross expenses

     1.14 % 

Net expenses

     0.92 % 

Net investment income

     0.16 % 

Supplemental data

  

Portfolio turnover rate

     176 % 

Net assets, end of period (000s omitted)

     $34  

 

 

 

 

1 

For the period from July 31, 2018 (commencement of class operations) to March 31, 2019

 

2 

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

 

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

Table of Contents

 

Financial highlights   Wells Fargo Disciplined Small Cap Fund     25  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS R6   2019     2018     20171  

Net asset value, beginning of period

     $22.63       $23.82       $22.43  

Net investment income

     0.06       0.07       0.14  

Net realized and unrealized gains (losses) on investments

     (2.19 )      2.08       3.32  
 

 

 

    

 

 

    

 

 

  

Total from investment operations

     (2.13 )      2.15       3.46  

Distributions to shareholders from

      

Net investment income

     (0.08 )      (0.06 )      (0.14 ) 

Net realized gains

     (11.92 )      (3.28 )      (1.93 ) 
 

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (12.00 )      (3.34 )      (2.07 ) 

Net asset value, end of period

     $8.50       $22.63       $23.82  

Total return2

     (6.75 )%      8.95 %      15.63 % 

Ratios to average net assets (annualized)

      

Gross expenses

     0.82 %      1.06 %      0.92 % 

Net expenses

     0.64 %      0.85 %      0.85 % 

Net investment income

     0.48 %      0.14 %      0.67 % 

Supplemental data

      

Portfolio turnover rate

     176 %      48 %      73 % 

Net assets, end of period (000s omitted)

     $4,014       $23,871       $1,626  

 

 

 

1 

For the period from October 31, 2016 (commencement of class operations) to March 31, 2017

 

2 

Return for periods of less than one year are not annualized.

 

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

Table of Contents

 

26   Wells Fargo Disciplined Small Cap Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $22.53       $23.79       $21.15       $25.19       $37.93  

Net investment income

     0.03 1      0.06       0.08 1      0.06       0.02  

Net realized and unrealized gains (losses) on investments

     (2.21 )      2.00       4.56       (1.24 )      3.13  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (2.18 )      2.06       4.64       (1.18 )      3.15  

Distributions to shareholders from

          

Net investment income

     (0.03 )      (0.04 )      (0.07 )      (0.02 )      0.00  

Net realized gains

     (11.92 )      (3.28 )      (1.93 )      (2.84 )      (15.89 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (11.95 )      (3.32 )      (2.00 )      (2.86 )      (15.89 ) 

Net asset value, end of period

     $8.40       $22.53       $23.79       $21.15       $25.19  

Total return

     (7.01 )%      8.52 %      22.13 %      (4.39 )%      11.75 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.13 %      1.30 %      1.28 %      1.29 %      1.24 % 

Net expenses

     0.95 %      1.20 %      1.20 %      1.20 %      1.20 % 

Net investment income

     0.16 %      0.12 %      0.36 %      0.25 %      0.06 % 

Supplemental data

          

Portfolio turnover rate

     176 %      48 %      73 %      59 %      60 % 

Net assets, end of period (000s omitted)

     $49,911       $91,506       $231,039       $264,560       $306,628  

 

 

 

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 Disciplined Small Cap Fund     27  

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2019     2018     2017     2016     20151  

Net asset value, beginning of period

     $22.61       $23.82       $21.18       $25.22       $39.04  

Net investment income

     0.07 2      0.09       0.09       0.16 2      0.06  

Net realized and unrealized gains (losses) on investments

     (2.22 )      2.03       4.61       (1.28 )      2.01  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (2.15 )      2.12       4.70       (1.12 )      2.07  

Distributions to shareholders from

          

Net investment income

     (0.06 )      (0.05 )      (0.13 )      (0.08 )      0.00  

Net realized gains

     (11.92 )      (3.28 )      (1.93 )      (2.84 )      (15.89 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (11.98 )      (3.33 )      (2.06 )      (2.92 )      (15.89 ) 

Net asset value, end of period

     $8.48       $22.61       $23.82       $21.18       $25.22  

Total return3

     (6.79 )%      8.81 %      22.43 %      (4.12 )%      8.68 % 

Ratios to average net assets (annualized)

          

Gross expenses

     0.89 %      1.07 %      1.03 %      1.05 %      0.92 % 

Net expenses

     0.71 %      0.95 %      0.95 %      0.95 %      0.92 % 

Net investment income

     0.41 %      0.37 %      0.56 %      0.71 %      0.59 % 

Supplemental data

          

Portfolio turnover rate

     176 %      48 %      73 %      59 %      60 % 

Net assets, end of period (000s omitted)

     $25,658       $67,798       $54,375       $263       $11  

 

 

 

 

 

1 

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

 

2 

Calculated based upon average shares outstanding

 

3 

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

 

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

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28   Wells Fargo Disciplined Small Cap 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 Disciplined Small Cap Fund (the “Fund”), (formerly, Wells Fargo Small Cap Opportunities 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 contracts 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, 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 Wells Fargo Asset Management Pricing Committee at 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, 2019, such fair value pricing was not used in pricing foreign securities.

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

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

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 Wells Fargo Asset Management Pricing Committee. 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

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Notes to financial statements   Wells Fargo Disciplined Small Cap Fund     29  

foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Securities lending

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

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

Futures contracts

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific amount of a commodity, financial instrument or currency at specified price and on a specified date. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in security values. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are generally entered into on a regulated futures exchange and cleared through a clearinghouse associated with the exchange. With futures contracts, there is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures contracts against default.

Upon entering into a futures contracts, the Fund is required to deposit either cash or securities (initial margin) with the broker in an amount equal to a certain percentage of the contract value. Subsequent payments (variation margin) are paid to or from the broker each day equal to the daily changes in the contract value. Such payments are recorded as unrealized gains or losses and, if any, shown as variation margin receivable (payable) in the Statement of Assets and Liabilities. Should the Fund fail to make requested variation margin payments, the broker can gain access to the initial margin to satisfy the Fund’s payment obligations. When the contracts are closed, a realized gain or loss is recorded in the Statement of Operations.

Security transactions and income recognition

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

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

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30   Wells Fargo Disciplined Small Cap Fund   Notes to financial statements

Income dividends and capital gain distributions from investment companies are recorded on the ex-dividend date. Capital gain distributions from investment companies are treated as realized gains.

Distributions to shareholders

Distributions to shareholders from net investment income and any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $83,780,500 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 5,766,477  

Gross unrealized losses

      (9,260,085 ) 

Net unrealized losses

    $ (3,493,608 ) 

As of March 31, 2019, the Fund had current year net deferred post-October capital losses consisting of $1,969,221 in short-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, shareholder servicing, and administration fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.

3. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

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Notes to financial statements   Wells Fargo Disciplined Small Cap Fund     31  

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Significant
unobservable inputs

(Level 3)

      Total  

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 2,268,560      $ 0      $ 0      $ 2,268,560  

Consumer discretionary

      9,045,480        0        0        9,045,480  

Consumer staples

      2,396,829        0        0        2,396,829  

Energy

      3,188,409        0        0        3,188,409  

Financials

      13,395,641        0        0        13,395,641  

Health care

      12,349,980        0        0        12,349,980  

Industrials

      11,862,773        0        0        11,862,773  

Information technology

      12,892,872        0        0        12,892,872  

Materials

      2,901,421        0        0        2,901,421  

Real estate

      5,738,096        0        0        5,738,096  

Utilities

      2,738,432        0        0        2,738,432  

Short-term investments

            

Investment companies

      849,992        533,142        0        1,383,134  

U.S. Treasury securities

      129,189        0        0        129,189  

Total assets

    $ 79,757,674      $ 533,142      $ 0      $ 80,290,816  

Liabilities

            

Futures contracts

    $ 3,924      $ 0      $ 0      $ 3,924  

Total liabilities

    $ 3,924      $ 0      $ 0      $ 3,924  

Futures contracts are reported at their cumulative unrealized gains (losses) at measurement date as reported in the table following the Portfolio of Investments. For futures contracts, the current day’s variation margin is reported on the Statement of Assets and Liabilities. All other assets and liabilities are reported at their market value at measurement date.

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $1 billion

      0.500 % 

Next $4 billion

      0.475  

Next $5 billion

      0.440  

Over $10 billion

      0.430  

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32   Wells Fargo Disciplined Small Cap Fund   Notes to financial statements

Prior to June 27, 2018, the management fee rate was as follows:

 

Average daily net assets    Management fee  

First $500 million

      0.850 % 

Next $500 million

      0.825  

Next $1 billion

      0.800  

Next $1 billion

      0.775  

Next $1 billion

      0.750  

Next $1 billion

      0.730  

Next $5 billion

      0.720  

Over $10 billion

      0.710  

For the year ended March 31, 2019, the management fee was equivalent to an annual rate of 0.61% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.35% and declining to 0.25% as the average daily net assets of the Fund increase. Prior to June 27, 2018, Schroder Investment Management North America Inc., which is not an affiliate of Funds Management, was the subadviser to the fund and was entitled to receive a fee from Funds Management at an annual rate which started at 0.50% and declined to 0.45% as the average daily net assets of the Fund increased

Administration fees

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

 

     Class-level
administration fee		  

Class A

      0.21 % 

Class R6

      0.03  

Administrator Class, Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level 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

      0.93 %       July 31, 2020  

Class R6

      0.50 %       July 31, 2019  

Administrator Class

      0.85 %       July 31, 2019  

Institutional Class

      0.60 %       July 31, 2019  

Prior to or after the commitment expiration date, 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 June 27, 2018, the Fund’s expenses were capped at 0.85% for Class R6 shares, 1.20% for Administrator Class shares, and 0.95% for Institutional Class shares.

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Notes to financial statements   Wells Fargo Disciplined Small Cap Fund     33  

Sales charges

Wells Fargo Funds Distributor, LLC (“Funds Distributor’), the principal underwriter, 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 did not receive any front-end or contingent deferred sales charges from Class A shares for the year ended March 31, 2019.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A 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.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.

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, 2019 were $238,956,435 and $317,379,696, respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended March 31, 2019, the Fund entered into futures contracts for economic hedging purposes. The Fund had an average notional amount of $674,718 in long futures contracts during the year ended March 31, 2019.

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

6. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

For the year ended March 31, 2019, 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, 2019 and March 31, 2018 were as follows:

 

     Year ended March 31  
     2019      2018  

Ordinary income

    $ 1,060,055      $ 4,968,700  

Long-term capital gain

      63,878,426        32,912,345  

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

   

Unrealized

losses

   

Post-October

capital losses

deferred

$79,924    $(3,493,608)    $(1,969,221)

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net investment
income		      Net realized
gains		  

Class R6

    $ 5,027      $ 260,359  

Administrator Class

      339,109        27,052,520  

Institutional Class

      183,973        10,040,057  

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34   Wells Fargo Disciplined Small Cap Fund   Notes to financial statements

8. INDEMNIFICATION

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

9. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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Report of independent registered public accounting firm   Wells Fargo Disciplined Small Cap Fund     35  

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Disciplined Small Cap Fund (formerly known as Wells Fargo Small Cap Opportunities Fund) (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 24, 2019

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36   Wells Fargo Disciplined Small Cap 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, 2019.

Pursuant to Section 852 of the Internal Revenue Code, $63,878,426 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2019.

Pursuant to Section 854 of the Internal Revenue Code, $1,060,055 of income dividends paid during the fiscal year ended March 31, 2019 has been designated as qualified dividend income (QDI).

For the fiscal year ended March 31, 2019, $30,175 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

For the fiscal year ended March 31, 2019, $493,040 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.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 Disciplined Small Cap Fund     37  

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

Independent Trustees

 

Name and
year of birth		   Position held and
length of service*		   Principal occupations during past five years or longer   Current other
public company or
investment company
directorships
William R. Ebsworth (Born 1957)   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A
Jane A. Freeman
(Born 1953)		   Trustee, since 2015; Chair Liaison, since 2018   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

   Trustee, since 2009; Audit Committee Chairman, since 2019   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation
Judith M. Johnson
(Born 1949)		   Trustee, since 2008; Audit Committee Chairman, from 2009 to 2018   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.   N/A

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38   Wells Fargo Disciplined Small Cap 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
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.   N/A
Olivia S. Mitchell
(Born 1953)		   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A

Timothy J. Penny

(Born 1951)

   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A
James G. Polisson
(Born 1959)		   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A
Pamela Wheelock
(Born 1959)		   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

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Other information (unaudited)   Wells Fargo Disciplined Small Cap Fund     39  

Officers

 

Name and

year of birth

   Position held and
length of service		   Principal occupations during past five years or longer    
Andrew Owen
(Born 1960)		   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    
Nancy Wiser1
(Born 1967)		   Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
Alexander Kymn
(Born 1973)		   Secretary and
Chief Legal Officer, since 2018		   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    
Michael H. Whitaker
(Born 1967)		   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    
David Berardi
(Born 1975)		   Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)		   Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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40   Wells Fargo Disciplined Small Cap Fund   Appendix A (unaudited)

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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For more information

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

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

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401592 05-19

A243/AR243 03-19

 

Table of Contents

Annual Report

March 31, 2019

 

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Wells Fargo Small Cap Value Fund

 

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Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

     2  

Performance highlights

     6  

Fund expenses

     10  

Portfolio of investments

     11  
Financial statements  

Statement of assets and liabilities

     17  

Statement of operations

     18  

Statement of changes in net assets

     19  

Financial highlights

     20  

Notes to financial statements

     25  

Report of independent registered public accounting firm

    31  

Other information

     32  

Appendix A

     36  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


Table of Contents

 

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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

    

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers*

Jeff Goverman

Garth R. Nisbet, CFA®‡

Craig Pieringer, CFA®‡

Average annual total returns (%) as of March 31, 2019

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net2  
 
Class A (SMVAX)   11-30-2000     -12.34       2.05       10.78       -7.00       3.27       11.43       1.34       1.29  
 
Class C (SMVCX)   11-30-2000     -8.67       2.49       10.60       -7.67       2.49       10.60       2.09       2.04  
 
Class R6 (SMVRX)3   6-28-2013     –       –       –       -6.55       3.73       11.92       0.91       0.84  
 
Administrator Class (SMVDX)4   7-30-2010     –       –       –       -6.85       3.46       11.67       1.26       1.09  
 
Institutional Class (WFSVX)   7-31-2007     –       –       –       -6.61       3.68       11.89       1.01       0.89  
 
Russell 2000® Value Index5   –     –       –       –       0.17       5.59       14.12       –       –  

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

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

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

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

 

 

Please see footnotes on page 7.

Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Small Cap Value Fund     7  
Growth of $10,000 investment as of March 31, 20196
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*

Mr. Goverman, Mr. Nisbet and Mr. Pieringer became portfolio managers of the Fund on May 23, 2019.

 

‡

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

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

 

2 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at 1.28% for Class A, 2.03% for Class C, 0.83% for Class R6, 1.08% for Administrator Class, and 0.88% for Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

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

 

4 

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.

 

5 

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.

 

6 

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.

 

7 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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 Small Cap Value Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund underperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2019.

 

∎  

Weakness in our industrials and financials holdings detracted from performance.

 

∎  

Strong stock selection in the materials, information technology (IT), and communication services sectors contributed to performance.

Small-cap stock performance ranged widely during the period.

U.S. small-cap stocks performed poorly in the back half of 2018, driven by fears of a recession in the U.S., potential trade wars, increased interest rates, and a slowing global economy. Stocks have rebounded since the beginning of 2019 as these fears have abated. The U.S. economy remains on sound footing; it appears increasingly likely the U.S. will sign a trade deal with China; the U.S. Federal Reserve (Fed) has halted its program of interest rate increases; and while global growth has slowed, it may have bottomed and could improve from here. Given the strong recent performance of equities, stocks may pause for a quarter or two in order to digest recent gains. Nevertheless, our outlook is cautiously optimistic and we believe many of our investments are trading at extremely attractive valuations.

We increased the Fund’s industrials weight and modestly trimmed materials sector holdings.

We are bottom-up stock pickers, so sector weights are a reflection of individual stock selection. Over the past year, the Fund’s weighting in industrials increased materially. We initiated positions in Air Lease Corporation and Seaspan Corporation and are encouraged about both opportunities. Air Lease is an aircraft leasing company that stands to benefit from an improvement in lease rates due to healthy airline passenger trends and the aging of the existing fleet. Seaspan is an owner of containerships and is benefiting from an inflection in time charter rates and the expansion of its containership and infrastructure footprint. We also decreased our exposure to select materials sector stocks; however, we still remain overweight the sector. The decreased weight was driven primarily by the exit of our steel investments during the year.

Weakness in our industrials and financials holdings detracted from performance.

Industrials were a relative underperformer during the period, with the top detractors being ACCO Brands Corporation and FreightCar America, Incorporated. ACCO, a provider of office and computer supplies, was hurt in late 2018 by margin pressure due to tariffs and the destocking of inventory by its wholesale customers. FreightCar America, which manufactures freight cars for the railroad industry, made good progress on its operational turnaround in the first half of the year but took a step back in the third quarter as margins were hit by higher costs related to manufacturing a new railcar model.

Our overweight to banks hurt our performance. Macro concerns increased investors’ caution toward credit-exposed entities, including banks. Late-cycle fears also sent interest rates lower and flattened the yield curve—negatives for banks. Nevertheless, we remain overweight banks. We believe the underperformance is overdone. We believe the stocks are very cheap, expect earnings to be solid, and believe merger and acquisition (M&A) activity is likely to increase, driven by an improved regulatory backdrop.

Also affecting relative performance was our underweight to both the utilities and real estate sectors. Strong performance in these sectors was driven by the Fed’s signal to stop increasing interest rates, driving yield stocks higher.

Strong stock selection in the materials, IT, and communication services sectors contributed to performance.

Strong stock selection in the materials sector helped the Fund’s performance. Key contributors were our largest gold positions, Randgold Resources Limited and Sandstorm Gold Limited. Randgold announced a merger with Barrick Gold Corporation that closed at year-end to form a company that will have the lowest total cash cost position among its peers and will own a diversified asset portfolio. Sandstorm, a gold-streaming and royalty company, has a strong portfolio of underlying mines and has had strong recent results.

Within the IT and communication services sectors, the Fund’s holdings contributed to performance. OSI Systems, Incorporated, provides security and inspection systems for airports and border stations and also has a health care business. Shares improved, driven by continued positive results within its security business. Iridium Communications Incorporated, which operates a satellite communications network, recently completed the launch of its new satellite constellation, creating a highly competitive network.

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Performance highlights (unaudited)   Wells Fargo Small Cap Value Fund     9  

We are cautiously optimistic.

We remain positive on how the portfolio is positioned. Despite the strong start to the year, we believe many of our stocks continue to trade at extremely attractive valuations. This includes our bank investments, which have underperformed the market for most of the past two years and continue to appear undervalued to us. We expect our bank holdings to benefit from deregulation and increased M&A activity. Although gold has lagged the recent market upturn, this is not surprising, as the gold price often lags other asset classes in a risk-on environment. We believe our investments in the gold miners can provide the Fund with important diversification benefits in times of market volatility.

 

Ten largest holdings (%) as of March 31, 20197  

Navigator Holdings Limited

      4.13  

Barrick Gold Corporation

      3.75  

The Bancorp Incorporated

      3.63  

National General Holdings Corporation

      3.60  

IBERIABANK Corporation

      3.44  

Cray Incorporated

      3.41  

Century Casinos Incorporated

      3.04  

Air Lease Corporation

      2.85  

Sterling Bancorp

      2.70  

Sandstorm Gold Limited

      2.62  
Sector distribution as of March 31, 20198
LOGO
 

 

 

Please see footnotes on page 7.

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

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

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 904.04      $ 6.08        1.28 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.55      $ 6.44        1.28 % 

Class C

            

Actual

    $ 1,000.00      $ 899.98      $ 9.62        2.03 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,014.81      $ 10.20        2.03 % 

Class R6

            

Actual

    $ 1,000.00      $ 906.17      $ 3.94        0.83 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.79      $ 4.18        0.83 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 904.35      $ 5.13        1.08 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,019.55      $ 5.44        1.08 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 906.00      $ 4.18        0.88 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.54      $ 4.43        0.88 % 

 

 

1

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

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Portfolio of investments—March 31, 2019   Wells Fargo Small Cap Value Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 99.02%

           

Communication Services: 0.74%

           
Diversified Telecommunication Services: 0.74%           

Iridium Communications Incorporated †

           120,760      $ 3,192,894  
          

 

 

  

Consumer Discretionary: 8.22%

           
Auto Components: 0.39%           

Modine Manufacturing Company †

           122,073        1,693,153  
          

 

 

  
Automobiles: 0.05%           

Thor Industries Incorporated

           3,600        224,532  
          

 

 

  
Hotels, Restaurants & Leisure: 3.79%           

Century Casinos Incorporated †

           1,439,000        13,037,340  

Scientific Games Corporation †

           156,900        3,203,898  
             16,241,238  
          

 

 

  
Household Durables: 3.30%           

Cavco Industries Incorporated †

           28,100        3,302,593  

Nobility Homes Incorporated

           89,800        2,020,500  

Skyline Champion Corporation

           86,692        1,647,148  

Taylor Morrison Home Corporation Class A †

           181,000        3,212,750  

The New Home Company Incorporated †

           829,800        3,949,848  
             14,132,839  
          

 

 

  
Leisure Products: 0.65%           

Vista Outdoor Incorporated †

           349,800        2,801,898  
          

 

 

  
Textiles, Apparel & Luxury Goods: 0.04%           

G-III Apparel Group Limited †

           4,000        159,840  
          

 

 

  

Energy: 9.95%

           
Energy Equipment & Services: 3.68%           

CARBO Ceramics Incorporated †

           717,700        2,511,950  

Newpark Resources Incorporated †

           575,800        5,274,328  

Parker Drilling Company †

           8,360        129,581  

Smart Sand Incorporated †

           466,300        2,075,035  

Tidewater Incorporated †

           249,400        5,783,586  
             15,774,480  
          

 

 

  
Oil, Gas & Consumable Fuels: 6.27%           

Navigator Holdings Limited †

           1,609,400        17,703,400  

Nordic American Tanker Limited

           692,500        1,398,850  

Oasis Petroleum Incorporated †

           342,800        2,070,512  

Paramount Resources Limited Class A †

           266,500        1,420,445  

Range Resources Corporation

           306,100        3,440,564  

Southwestern Energy Company †

           184,900        867,181  
             26,900,952  
          

 

 

  

 

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

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12   Wells Fargo Small Cap Value Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  

Financials: 30.33%

           
Banks: 24.10%           

Ameris Bancorp

           233,600      $ 8,024,160  

Bank OZK

           189,800        5,500,404  

BankUnited Incorporated

           245,400        8,196,360  

CenterState Banks Incorporated

           404,000        9,619,240  

First Horizon National Corporation

           586,300        8,196,474  

Hanmi Financial Corporation

           194,900        4,145,523  

Hope Bancorp Incorporated

           677,200        8,857,776  

IBERIABANK Corporation

           206,000        14,772,260  

LegacyTexas Financial Group

           216,400        8,091,196  

Sterling Bancorp

           620,900        11,567,367  

The Bancorp Incorporated †

           1,924,400        15,549,152  

Valley National Bancorp

           91,200        873,696  
             103,393,608  
          

 

 

  
Consumer Finance: 0.80%           

Enova International Incorporated †

           149,600        3,413,872  
          

 

 

  
Insurance: 3.62%           

First Acceptance Corporation †

           83,100        103,875  

National General Holdings Corporation

           650,500        15,436,365  
             15,540,240  
          

 

 

  
Mortgage REITs: 0.13%           

Redwood Trust Incorporated

           35,100        566,865  
          

 

 

  
Thrifts & Mortgage Finance: 1.68%           

Axos Financial Incorporated †

           91,500        2,649,840  

Essent Group Limited †

           99,700        4,331,965  

NMI Holdings Incorporated Class A †

           8,400        217,308  
             7,199,113  
          

 

 

  

Health Care: 3.93%

           
Health Care Equipment & Supplies: 0.41%           

Hologic Incorporated †

           32,500        1,573,000  

Lantheus Holdings Incorporated †

           7,381        180,687  
             1,753,687  
          

 

 

  
Health Care Providers & Services: 1.45%           

Cross Country Healthcare Incorporated †

           43,300        304,399  

Tivity Health Incorporated †

           337,900        5,933,524  
             6,237,923  
          

 

 

  
Health Care Technology: 1.30%           

Allscripts Healthcare Solutions Incorporated †

           582,300        5,555,142  
          

 

 

  
Pharmaceuticals: 0.77%           

Prestige Consumer Healthcare Incorporated †

           110,300        3,299,073  
          

 

 

  

 

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

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Portfolio of investments—March 31, 2019   Wells Fargo Small Cap Value Fund     13  

      

 

 

Security name                 Shares      Value  

Industrials: 21.44%

           
Air Freight & Logistics: 1.04%           

Atlas Air Worldwide Holdings Incorporated †

           87,800      $ 4,439,168  
          

 

 

  
Building Products: 4.46%           

Armstrong Flooring Incorporated †

           379,900        5,166,640  

Builders FirstSource Incorporated †

           777,500        10,371,850  

CSW Industrials Incorporated †

           62,900        3,603,541  
             19,142,031  
          

 

 

  
Commercial Services & Supplies: 2.71%           

ABM Industries Incorporated

           98,100        3,565,935  

ACCO Brands Corporation

           881,700        7,547,352  

Healthcare Services Group Incorporated

           5,400        178,146  

Hudson Technologies Incorporated †

           180,500        348,365  
             11,639,798  
          

 

 

  
Construction & Engineering: 1.98%           

Bird Construction Incorporated (a)

           250,500        1,469,908  

IES Holdings Incorporated †

           104,000        1,848,080  

Tutor Perini Corporation †

           302,500        5,178,800  
             8,496,788  
          

 

 

  
Machinery: 3.13%           

FreightCar America Incorporated (l)†

           736,700        4,538,072  

Milacron Holdings Corporation †

           309,000        3,497,880  

Mueller Water Products Incorporated Class A

           536,100        5,382,444  
             13,418,396  
          

 

 

  
Marine: 1.20%           

Seaspan Corporation

           592,700        5,156,490  
          

 

 

  
Professional Services: 1.10%           

Hill International Incorporated †

           1,609,700        4,700,324  
          

 

 

  
Trading Companies & Distributors: 5.82%           

Air Lease Corporation

           355,800        12,221,730  

Applied Industrial Technologies Incorporated

           77,500        4,608,925  

Beacon Roofing Supply Incorporated †

           90,500        2,910,480  

BMC Stock Holdings Incorporated †

           205,400        3,629,418  

Textainer Group Holdings Limited †

           166,300        1,604,795  
             24,975,348  
          

 

 

  

Information Technology: 9.95%

           
Communications Equipment: 2.01%           

Finisar Corporation †

           127,400        2,951,858  

Harmonic Incorporated †

           1,042,400        5,649,808  
             8,601,666  
          

 

 

  

 

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

Table of Contents

 

14   Wells Fargo Small Cap Value Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  
Electronic Equipment, Instruments & Components: 1.25%           

Coherent Incorporated †

           19,200      $ 2,721,024  

OSI Systems Incorporated †

           30,100        2,636,760  
             5,357,784  
          

 

 

  
IT Services: 1.40%           

CACI International Incorporated Class A †

           7,900        1,437,958  

Net 1 UEPS Technologies Incorporated †

           384,700        1,381,073  

Unisys Corporation †

           274,300        3,201,081  
             6,020,112  
          

 

 

  
Semiconductors & Semiconductor Equipment: 0.92%           

Ichor Holdings Limited †

           52,200        1,178,676  

Tower Semiconductor Limited †

           166,200        2,752,272  
             3,930,948  
          

 

 

  
Technology Hardware, Storage & Peripherals: 4.37%           

Cray Incorporated †

           562,000        14,640,100  

Quantum Corporation (l)†

           1,733,100        4,124,778  
             18,764,878  
          

 

 

  

Materials: 10.98%

           
Containers & Packaging: 1.07%           

Intertape Polymer Group Incorporated (a)

           338,200        4,570,952  
          

 

 

  
Metals & Mining: 9.91%           

Agnico Eagle Mines Limited-U.S. Exchange Traded Shares

           5,000        217,500  

Argonaut Gold Incorporated †

           534,600        748,440  

Barrick Gold Corporation

           1,173,301        16,085,957  

Carpenter Technology Corporation

           90,100        4,131,085  

Eldorado Gold Corporation †

           172,860        800,342  

Haynes International Incorporated

           202,500        6,648,075  

NovaGold Resources Incorporated †

           153,800        641,346  

Olympic Steel Incorporated

           4,900        77,763  

Sandstorm Gold Limited †

           2,052,034        11,245,146  

Schnitzer Steel Industries Incorporated Class A

           9,400        225,600  

SSR Mining Incorporated †

           130,800        1,655,929  

TimkenSteel Corporation †

           4,100        44,526  
             42,521,709  
          

 

 

  

Real Estate: 3.48%

           
Equity REITs: 3.48%           

PotlatchDeltic Corporation

           169,800        6,416,742  

UMH Properties Incorporated

           603,300        8,494,464  
             14,911,206  
          

 

 

  

Total Common Stocks (Cost $408,033,400)

              424,728,947  
          

 

 

  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Small Cap Value Fund     15  

      

 

 

Security name                Shares      Value  

Exchange-Traded Funds: 0.85%

          

SPDR S&P Regional Banking ETF

          22,400      $ 1,150,016  

VanEck Vectors Gold Miners ETF

          72,300        1,620,966  

VanEck Vectors Junior Gold Miners ETF

          27,000        856,710  

Total Exchange-Traded Funds (Cost $2,927,612)

             3,627,692  
         

 

 

  
    Yield                      
Short-Term Investments: 0.16%          
Investment Companies: 0.16%          

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

     2.38 %                                  681,307        681,307  
         

 

 

  

Total Short-Term Investments (Cost $681,307)

             681,307        
         

 

 

  

 

Total investments in securities (Cost $411,642,319)     100.03 %         429,037,946  

Other assets and liabilities, net

     (0.03 )         (123,363 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 428,914,583  
 

 

 

       

 

 

  

 

 

†

Non-income-earning security

 

(a)

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

 

(l)

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

 

(u)

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

Abbreviations:

 

REIT

Real estate investment trust

 

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

Table of Contents

 

16   Wells Fargo Small Cap Value Fund   Portfolio of investments—March 31, 2019

      

 

 

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:

 

    Shares,
beginning of
period		     Shares
purchased		     Shares
sold		     Shares,
end of
period		     Net
realized
gains
(losses)		     Net
change in
unrealized
gains
(losses)		     Income
from
affiliated
securities		     Value,
end
of period		     % of
net
assets		  

Common Stocks

                  

Industrials

                  

Machinery

                  

FreightCar America Incorporated †

     697,800       38,900       0       736,700     $ 0     $ (5,434,331 )    $ 0     $ 4,538,072    

Information Technology

                  

Technology Hardware, Storage & Peripherals

                  

Quantum Corporation †

     1,090,300       642,800       0       1,733,100       0       (9,885,880 )      0       4,124,778    

Financials

                  

Capital Markets

                  

Medley Management Incorporated Class A *

     323,400       0       323,400       0       (3,574,301 )      3,438,521       121,160       0    
                  8,662,850       2.02 % 
               

 

 

    

Short-Term Investments

                  

Investment Companies

                  

Wells Fargo Government Money Market Fund Select Class

     1,673,791       93,580,781       94,573,265       681,307       0       0       43,998       681,307       0.16  
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ (3,574,301 )    $ (11,881,690 )    $ 165,158     $ 9,344,157       2.18 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  *

No longer held at the end of the period.

 

  †

Non-income-earning security

 

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

Table of Contents

 

Statement of assets and liabilities—March 31, 2019   Wells Fargo Small Cap Value Fund     17  
         

Assets

  

Investments in unaffiliated securities, at value (cost $385,770,621)

   $ 419,693,789  

Investments in affiliated securities, at value (cost $25,871,698)

     9,344,157  

Receivable for investments sold

     1,623,466  

Receivable for Fund shares sold

     439,411  

Receivable for dividends

     298,611  

Prepaid expenses and other assets

     37,506  
 

 

 

  

Total assets

     431,436,940  
 

 

 

  

Liabilities

  

Payable for investments purchased

     1,516,761  

Payable for Fund shares redeemed

     336,750  

Management fee payable

     276,718  

Due to custodian bank

     114,727  

Administration fees payable

     70,872  

Distribution fee payable

     7,078  

Trustees’ fees and expenses payable

     1,906  

Accrued expenses and other liabilities

     197,545  
 

 

 

  

Total liabilities

     2,522,357  
 

 

 

  

Total net assets

   $ 428,914,583  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 381,795,977  

Total distributable earnings

     47,118,606  
 

 

 

  

Total net assets

   $ 428,914,583  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 353,030,781  

Shares outstanding – Class A1

     27,997,544  

Net asset value per share – Class A

     $12.61  

Maximum offering price per share – Class A2

     $13.38  

Net assets – Class C

   $ 10,609,857  

Shares outstanding – Class C1

     1,433,231  

Net asset value per share – Class C

     $7.40  

Net assets – Class R6

   $ 34,135,544  

Shares outstanding – Class R61

     2,435,079  

Net asset value per share – Class R6

     $14.02  

Net assets – Administrator Class

   $ 7,571,408  

Shares outstanding – Administrator Class1

     548,482  

Net asset value per share – Administrator Class

     $13.80  

Net assets – Institutional Class

   $ 23,566,993  

Shares outstanding – Institutional Class1

     1,685,998  

Net asset value per share – Institutional Class

     $13.98  

 

 

 

1 

The Fund has an unlimited number of authorized shares.

 

2 

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

 

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

Table of Contents

 

18   Wells Fargo Small Cap Value Fund   Statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends (net of foreign withholding taxes of $36,631)

   $ 4,713,069  

Income from affiliated securities

     165,158  
 

 

 

  

Total investment income

     4,878,227  
 

 

 

  

Expenses

  

Management fee

     4,247,020  

Administration fees

  

Class A

     846,172  

Class C

     42,359  

Class R6

     11,977  

Administrator Class

     11,695  

Institutional Class

     36,962  

Shareholder servicing fees

  

Class A

     1,007,347  

Class C

     50,427  

Administrator Class

     22,257  

Distribution fee

  

Class C

     151,282  

Custody and accounting fees

     31,260  

Professional fees

     57,228  

Registration fees

     73,587  

Shareholder report expenses

     92,725  

Trustees’ fees and expenses

     22,721  

Other fees and expenses

     26,130  
 

 

 

  

Total expenses

     6,731,149  

Less: Fee waivers and/or expense reimbursements

     (485,332 ) 
 

 

 

  

Net expenses

     6,245,817  
 

 

 

  

Net investment loss

     (1,367,590 ) 
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains (losses) on:

  

Unaffiliated securities

     54,825,615  

Affiliated securities

     (3,574,301 ) 
 

 

 

  

Net realized gains on investments

     51,251,314  
 

 

 

  

Net change in unrealized gains (losses) on:

  

Unaffiliated securities

     (72,028,665 ) 

Affiiliated securities

     (11,881,690 ) 
 

 

 

  

Net change in unrealized gains (losses) on investments

     (83,910,355 ) 
 

 

 

  

Net realized and unrealized gains (losses) on investments

     (32,659,041 ) 
 

 

 

  

Net decrease in net assets resulting from operations

   $ (34,026,631 ) 
 

 

 

  

 

 

 

 

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

Table of Contents

 

Statement of changes in net assets   Wells Fargo Small Cap Value Fund     19  
     Year ended
March 31, 2019		     Year ended
March 31, 20181		  

Operations

      

Net investment loss

     $ (1,367,590 )      $ (2,802,360 ) 

Net realized gains on investments

       51,251,314         316,315,049  

Net change in unrealized gains (losses) on investments

       (83,910,355 )        (259,345,164 ) 
 

 

 

  

Net increase (decrease) in net assets resulting from operations

       (34,026,631 )        54,167,525  
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

 

Class A

       (71,877,689 )        (139,185,621 ) 

Class C

       (5,381,139 )        (11,577,587 ) 

Class R6

       (6,938,699 )        (18,852,432 ) 

Administrator Class

       (1,539,465 )        (3,280,317 ) 

Institutional Class

       (4,505,760 )        (59,214,889 ) 
 

 

 

  

Total distributions to shareholders

       (90,242,752 )        (232,110,846 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

        

Class A

     1,378,910       19,869,995       1,049,139       20,283,556  

Class C

     85,413       760,928       82,745       1,093,645  

Class R6

     314,495       4,957,498       362,552       7,674,684  

Administrator Class

     72,948       1,228,586       79,721       1,605,699  

Institutional Class

     371,588       6,490,839       453,494       9,352,699  
 

 

 

  
      33,307,846         40,010,283  
 

 

 

  

Reinvestment of distributions

        

Class A

     5,855,579       70,149,839       7,549,312       135,464,919  

Class C

     724,350       5,106,665       870,426       10,955,100  

Class R6

     477,445       6,350,028       964,823       18,847,152  

Administrator Class

     101,619       1,332,230       144,268       2,762,509  

Institutional Class

     327,365       4,340,864       2,910,455       57,830,989  
 

 

 

  
      87,279,626         225,860,669  
 

 

 

  

Payment for shares redeemed

        

Class A

     (4,853,428 )      (75,405,593 )      (5,792,964 )      (110,590,516 ) 

Class C

     (1,548,014 )      (13,673,784 )      (909,855 )      (12,886,548 ) 

Class R6

     (714,540 )      (11,020,449 )      (2,930,324 )      (61,212,656 ) 

Administrator Class

     (167,945 )      (2,777,438 )      (251,974 )      (5,114,206 ) 

Institutional Class

     (781,425 )      (13,646,724 )      (19,803,060 )      (399,900,378 ) 
 

 

 

  
      (116,523,988 )        (589,704,304 ) 
 

 

 

  

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

       4,063,484         (323,833,352 ) 
 

 

 

  

Total decrease in net assets

       (120,205,899 )        (501,776,673 ) 
 

 

 

  

Net assets

    

Beginning of period

       549,120,482         1,050,897,155  
 

 

 

  

End of period

     $ 428,914,583       $ 549,120,482  
 

 

 

  

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and permitted the aggregation of distributions, with the exception of tax basis returns of capital. Accumulated net investment loss at March 31, 2018 was $666,360. The disaggregated distributions information for the year ended March 31, 2018 is included in Note 7, Distributions to Shareholders, in the notes to the financial statements.

 

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  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $17.09       $21.68       $18.84       $27.51       $35.74  

Net investment income (loss)

     (0.05 )1      (0.09 )1      (0.11 )      (0.06 )1      0.01 1 

Net realized and unrealized gains (losses) on investments

     (1.31 )      1.62       5.45       (1.19 )      (2.55 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.36 )      1.53       5.34       (1.25 )      (2.54 ) 

Distributions to shareholders from

          

Net investment income

     0.00       0.00       0.00       0.00       (0.13 ) 

Net realized gains

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.56 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.69 ) 

Net asset value, end of period

     $12.61       $17.09       $21.68       $18.84       $27.51  

Total return2

     (7.00 )%      7.97 %      29.92 %      (2.90 )%      (7.29 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     1.37 %      1.33 %      1.32 %      1.36 %      1.35 % 

Net expenses

     1.28 %      1.28 %      1.28 %      1.28 %      1.29 % 

Net investment income (loss)

     (0.31 )%      (0.47 )%      (0.48 )%      (0.27 )%      0.02 % 

Supplemental data

          

Portfolio turnover rate

     37 %      36 %      31 %      16 %      9 % 

Net assets, end of period (000s omitted)

     $353,031       $437,704       $494,607       $441,679       $289,669  

 

 

 

 

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 Small Cap Value Fund     21  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $11.56       $16.67       $15.09       $23.80       $31.89  

Net investment loss

     (0.11 )1      (0.17 )1      (0.20 )1      (0.24 )1      (0.20 )1 

Net realized and unrealized gains (losses) on investments

     (0.93 )      1.18       4.28       (1.05 )      (2.27 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.04 )      1.01       4.08       (1.29 )      (2.47 ) 

Distributions to shareholders from

          

Net investment income

     0.00       0.00       0.00       0.00       (0.06 ) 

Net realized gains

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.56 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.62 ) 

Net asset value, end of period

     $7.40       $11.56       $16.67       $15.09       $23.80  

Total return2

     (7.67 )%      7.08 %      28.93 %      (3.58 )%      (8.00 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     2.12 %      2.08 %      2.07 %      2.11 %      2.10 % 

Net expenses

     2.03 %      2.03 %      2.03 %      2.03 %      2.04 % 

Net investment loss

     (1.02 )%      (1.23 )%      (1.23 )%      (1.18 )%      (0.70 )% 

Supplemental data

          

Portfolio turnover rate

     37 %      36 %      31 %      16 %      9 % 

Net assets, end of period (000s omitted)

     $10,610       $25,111       $35,470       $33,601       $80,969  

 

 

 

 

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

 

22   Wells Fargo Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS R6   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $18.52       $22.93       $19.72       $28.29       $36.52  

Net investment income (loss)

     0.03 1      (0.00 )1,2      (0.01 )1      0.03 1      0.23 1 

Net realized and unrealized gains (losses) on investments

     (1.41 )      1.71       5.72       (1.18 )      (2.69 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.38 )      1.71       5.71       (1.15 )      (2.46 ) 

Distributions to shareholders from

          

Net investment income

     0.00       0.00       0.00       0.00       (0.21 ) 

Net realized gains

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.56 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.77 ) 

Net asset value, end of period

     $14.02       $18.52       $22.93       $19.72       $28.29  

Total return

     (6.55 )%      8.38 %      30.50 %      (2.43 )%      (6.90 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     0.94 %      0.89 %      0.89 %      0.92 %      0.87 % 

Net expenses

     0.83 %      0.83 %      0.83 %      0.83 %      0.83 % 

Net investment income (loss)

     0.15 %      (0.01 )%      (0.03 )%      0.12 %      0.72 % 

Supplemental data

          

Portfolio turnover rate

     37 %      36 %      31 %      16 %      9 % 

Net assets, end of period (000s omitted)

     $34,136       $43,671       $90,809       $92,929       $52,613  

 

 

 

 

1 

Calculated based upon average shares outstanding

 

2 

Amount is more than $(0.005).

 

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

Table of Contents

 

Financial highlights   Wells Fargo Small Cap Value Fund     23  

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $18.34       $22.80       $19.66       $28.30       $36.40  

Net investment income (loss)

     (0.02 )1      (0.06 )1      (0.07 )1      (0.06 )1      0.01 1 

Net realized and unrealized gains (losses) on investments

     (1.40 )      1.72       5.71       (1.16 )      (2.55 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.42 )      1.66       5.64       (1.22 )      (2.54 ) 

Distributions to shareholders from

          

Net realized gains

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.56 ) 

Net asset value, end of period

     $13.80       $18.34       $22.80       $19.66       $28.30  

Total return

     (6.85 )%      8.18 %      30.22 %      (2.70 )%      (7.16 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     1.29 %      1.24 %      1.24 %      1.25 %      1.19 % 

Net expenses

     1.08 %      1.08 %      1.08 %      1.08 %      1.09 % 

Net investment income (loss)

     (0.11 )%      (0.28 )%      (0.31 )%      (0.24 )%      0.03 % 

Supplemental data

          

Portfolio turnover rate

     37 %      36 %      31 %      16 %      9 % 

Net assets, end of period (000s omitted)

     $7,571       $9,936       $12,994       $24,927       $74,820  

 

 

 

 

 

1 

Calculated based upon average shares outstanding

 

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

Table of Contents

 

24   Wells Fargo Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $18.49       $22.90       $19.71       $28.29       $36.53  

Net investment income (loss)

     0.02 1      (0.02 )1      (0.01 )1      (0.01 )1      0.17 1 

Net realized and unrealized gains (losses) on investments

     (1.41 )      1.73       5.70       (1.15 )      (2.65 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (1.39 )      1.71       5.69       (1.16 )      (2.48 ) 

Distributions to shareholders from

          

Net investment income

     0.00       0.00       0.00       0.00       (0.20 ) 

Net realized gains

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.56 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (3.12 )      (6.12 )      (2.50 )      (7.42 )      (5.76 ) 

Net asset value, end of period

     $13.98       $18.49       $22.90       $19.71       $28.29  

Total return

     (6.61 )%      8.39 %      30.41 %      (2.46 )%      (6.95 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     1.04 %      0.99 %      0.99 %      0.99 %      0.92 % 

Net expenses

     0.88 %      0.88 %      0.88 %      0.88 %      0.89 % 

Net investment income (loss)

     0.09 %      (0.11 )%      (0.06 )%      (0.03 )%      0.52 % 

Supplemental data

          

Portfolio turnover rate

     37 %      36 %      31 %      16 %      9 % 

Net assets, end of period (000s omitted)

     $23,567       $32,699       $417,018       $283,728       $1,017,115  

 

 

 

 

 

1 

Calculated based upon average shares outstanding

 

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

Table of Contents

 

Notes to financial statements   Wells Fargo Small Cap Value Fund     25  

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 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.

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, a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

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

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

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 Wells Fargo Asset Management Pricing Committee. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Security transactions and income recognition

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

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

Income dividends and capital gain distributions from investment companies are recorded on the ex-dividend date. Capital gain distributions from investment companies are treated as realized gains.

Table of Contents

 

26   Wells Fargo Small Cap Value Fund   Notes to financial statements

Distributions to shareholders

Distributions to shareholders from net investment income and any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $412,555,210 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 82,633,669  

Gross unrealized losses

      (66,150,933 ) 

Net unrealized gains

    $ 16,482,736  

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

Table of Contents

 

Notes to financial statements   Wells Fargo Small Cap Value Fund     27  

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Significant
unobservable inputs

(Level 3)

      Total  

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 3,192,894      $ 0      $ 0      $ 3,192,894  

Consumer discretionary

      33,233,000        2,020,500        0        35,253,500  

Energy

      42,675,432        0        0        42,675,432  

Financials

      130,113,698        0        0        130,113,698  

Health care

      16,845,825        0        0        16,845,825  

Industrials

      90,498,435        1,469,908        0        91,968,343  

Information technology

      42,675,388        0        0        42,675,388  

Materials

      42,521,709        4,570,952        0        47,092,661  

Real estate

      14,911,206        0        0        14,911,206  

Exchange-traded funds

      3,627,692        0        0        3,627,692  

Short-term investments

            

Investment companies

      681,307        0        0        681,307  

Total assets

    $ 420,976,586      $ 8,061,360      $ 0      $ 429,037,946  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”), is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $500 million

      0.850 % 

Next $500 million

      0.825  

Next $1 billion

      0.800  

Next $1 billion

      0.775  

Next $1 billion

      0.750  

Next $1 billion

      0.730  

Next $5 billion

      0.720  

Over $10 billion

      0.710  

For the year ended March 31, 2019, 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. 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.

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28   Wells Fargo Small Cap Value Fund   Notes to financial statements

Administration fees

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

 

     Class-level
administration fee		  

Class A, Class C

      0.21 % 

Class R6

      0.03  

Administrator Class, Institutional Class

      0.13  

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. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.28% for Class A shares, 2.03% for Class C shares, 0.83% for Class R6 shares, 1.08% for Administrator Class shares, and 0.88% for Institutional Class shares. Prior to or after the commitment expiration date, 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, 2019, Funds Distributor received $371 from the sale of Class A shares. No contingent deferred sales charges were incurred by Class A and Class C shares for the year ended March 31, 2019.

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.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.

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, 2019 were $183,716,277 and $267,978,201, respectively.

6. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

For the year ended March 31, 2019, there were no borrowings by the Fund under the agreement.

Table of Contents

 

Notes to financial statements   Wells Fargo Small Cap Value Fund     29  

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2019 and March 31, 2018 were as follows:

 

     Year ended March 31  
     2019      2018  

Ordinary income

    $ 0      $ 1,352,843  

Long-term capital gain

      90,242,752        230,758,003  

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income		   

Undistributed
long-term

gain

    Unrealized
gains
$14,978,067    $15,657,779    $16,482,760

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net realized
gains		  

Class A

      $139,185,621  

Class C

      11,577,587  

Class R6

      18,852,432  

Administrator Class

      3,280,317  

Institutional Class

      59,214,889  

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. REDEMPTION IN-KIND

After the close of business on July 7, 2017, the Fund redeemed assets through an in-kind redemption. In the redemption transaction, the Fund issued securities with a value of $317,068,893 and cash in the amount of $17,087,078. The Fund recognized gains in the amount of $145,197,411. The redemption in-kind by a shareholder of the Institutional Class represented 34% of the Fund and is reflected on the Statement of Changes in Net Assets.

11. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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30   Wells Fargo Small Cap Value Fund   Notes to financial statements

12. SUBSEQUENT EVENT

At a regular meeting of the Board of Trustees held on May 21-22, 2019, the Trustees of the Fund approved the merger of the Fund into Wells Fargo Small Company Value Fund. As a result of the merger, Wells Fargo Small Company Value Fund will acquire the assets and assume the liabilities of the Fund in exchange for shares of Wells Fargo Small Company Value Fund. The merger does not require approval by the Fund’s shareholders.

Shareholders of the Fund will receive a prospectus/information statement with information on the principal aspects of the merger of the Fund into Wells Fargo Small Company Value Fund in June 2019. The merger is scheduled to take place on or about September 20, 2019.

Table of Contents

 

Report of independent registered public accounting firm   Wells Fargo Small Cap Value Fund     31  

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Small Cap Value Fund (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 29, 2019

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

TAX INFORMATION

Pursuant to Section 852 of the Internal Revenue Code, $90,242,752 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2019.

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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Other information (unaudited)   Wells Fargo Small Cap Value Fund     33  

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and
year of birth		   Position held and
length of service*		   Principal occupations during past five years or longer   Current other
public company or
investment company
directorships

William R. Ebsworth

(Born 1957)

   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

   Trustee, since 2015; Chair Liaison, since 2018   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

   Trustee, since 2009; Audit Committee Chairman, since 2019   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation

Judith M. Johnson

(Born 1949)

   Trustee, since 2008; Audit Committee Chairman, from 2009 to 2018   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.   N/A

Table of Contents

 

34   Wells Fargo Small Cap Value Fund   Other information (unaudited)
Name and
year of birth		   Position held and
length of service*		   Principal occupations during past five years or longer   Current other
public company or
investment company
directorships

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.   N/A

Olivia S. Mitchell

(Born 1953)

   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A
Timothy J. Penny
(Born 1951)		   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A

James G. Polisson

(Born 1959)

   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A

Pamela Wheelock

(Born 1959)

   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

Table of Contents

 

Other information (unaudited)   Wells Fargo Small Cap Value Fund     35  

Officers

 

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

Andrew Owen

(Born 1960)

   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    

Nancy Wiser1

(Born 1967)

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

Alexander Kymn

(Born 1973)

   Secretary and Chief Legal Officer, since 2018   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    
Michael H. Whitaker
(Born 1967)		   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    

David Berardi

(Born 1975)

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

Jeremy DePalma1

(Born 1974)

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

 

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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36   Wells Fargo Small Cap Value Fund   Appendix A (unaudited)

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

Table of Contents

LOGO

 

 

LOGO

For more information

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

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

401593 05-19

A244/AR244 03-19

 

Table of Contents

Annual Report

March 31, 2019

 

LOGO

 

Wells Fargo Special Small Cap Value Fund

 

LOGO

 

 

Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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Table of Contents

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Contents

 

 

 

Letter to shareholders

     2  

Performance highlights

     6  

Fund expenses

     10  

Portfolio of investments

     11  
Financial statements  

Statement of assets and liabilities

     18  

Statement of operations

     19  

Statement of changes in net assets

     20  

Financial highlights

     21  

Notes to financial statements

     27  

Report of independent registered public accounting firm

    33  

Other information

     34  

Appendix A

     38  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: 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

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

Table of Contents

 

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

    

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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

The Fund is currently closed to most new investors.1

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®‡

Bryant VanCronkhite, CFA®‡, CPA

Average annual total returns (%) as of March 31, 2019

 

        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)4   5-7-1993     -6.57       5.43       14.36       -0.87       6.69       15.03       1.31       1.31  
 
Class C (ESPCX)4   12-12-2000     -2.59       5.89       14.17       -1.59 *      5.89       14.17       2.06       2.06  
 
Class R (ESPHX)5   9-30-2015     –       –       –       -1.08 *      6.44       14.73       1.56       1.56  
 
Class R6 (ESPRX)6   10-31-2014     –       –       –       -0.42       7.14       15.49       0.88       0.88  
 
Administrator Class (ESPIX)4   7-23-1996     –       –       –       -0.77       6.84       15.27       1.23       1.20  
 
Institutional Class (ESPNX)7   7-30-2010     –       –       –       -0.50 *      7.10       15.46       0.98       0.94  
 
Russell 2000® Value Index8   –     –       –       –       0.17       5.59       14.12       –       –  
*   Total return differs from the return in the Financial Highlights in this report. The total return presented is calculated based on the NAV at which the shareholder transactions were processed. The NAV and total return presented in the Financial Highlights reflects certain adjustments made to the net assets of the Fund that are necessary under U.S. generally accepted accounting principles.

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, wfam.com.

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

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

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

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Special Small Cap Value Fund     7  
Growth of $10,000 investment as of March 31, 20199
LOGO

 

 

‡ 

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

Please see the Fund’s current Statement of Additional Information for further details.

 

2 

Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report.

 

3 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at 1.34% for Class A, 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. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

4 

Historical performance shown for this class prior to July 19, 2010, is based on the performance of the same class of the Fund’s predecessor, Evergreen Special Values Fund.

 

5 

Historical performance shown for Class R shares prior to their inception reflects the performance of the Institutional Class shares adjusted to reflect the higher expenses applicable to Class R shares.

 

6 

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

 

7 

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

 

8 

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.

 

9 

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%.

 

10 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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.

 

11 

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

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8   Wells Fargo Special Small Cap Value Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund underperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended March 31, 2019.

 

∎  

Stock selection in the information technology (IT) sector and an underweight to the real estate sector detracted from performance.

 

∎  

Stock selection in the consumer discretionary and industrials sectors contributed to relative performance.

Equity markets saw significant volatility over the period.

Over the 12-month reporting period, equity markets saw significant volatility, but the Russell 2000® Value Index posted a benign return of 0.17%. The first five months of the period saw small-cap value stocks post healthy returns as many investors believed small-cap stocks would benefit from the new U.S. corporate tax reform legislation as well as insulation from global trade disputes. The last four months of 2018 saw volatility increase and stocks moved sharply lower, driven by a fear of rising interest rates, rising trade tensions, and high-yield credit spreads widening. These concerns began to subside as 2018 came to a close. Small-cap stocks rallied in early 2019, largely due to the Federal Open Market Committee stating that it would pause and evaluate the need for future interest rate increases and the administration saying it would allow for more time to negotiate a trade agreement with China.

 

Ten largest holdings (%) as of March 31, 201910  

Mueller Industries Incorporated

      2.53  

Dine Brands Global Incorporated

      2.51  

Innospec Incorporated

      2.50  

Eagle Materials Incorporated

      2.37  

Denny’s Corporation

      2.35  

Neenah Paper Incorporated

      2.18  

UMB Financial Corporation

      2.14  

Nomad Foods Limited

      1.95  

Franklin Electric Company Incorporated

      1.94  

Simpson Manufacturing Company Incorporated

      1.89  

Recent market volatility strengthens our belief that it is always prudent to protect downside risks. Our bottom-up process is designed to seek out companies that can control their own destiny via their clear competitive advantages, strong and sustainable free cash flows, and flexible balance sheets that can be used to grow shareholder value regardless of the macro environment. We did not make any major changes to portfolio positioning during the reporting period; however, we did adjust individual positions as reward/risk levels changed. We continue to emphasize companies that can control their destiny by using their balance sheets to protect capital during periods of volatility and also be offensive when their competitors are forced to be defensive.

 

 

Key contributors included stock selection within the consumer discretionary and industrials sectors.

Stock selection in the consumer discretionary sector contributed to relative performance. Full-service restaurant operator, Dine Brands Global, Incorporated, was a top contributor. The manager of restaurant brands IHOP and Applebee’s reported several strong quarters that highlighted much improved same-store growth comparisons from its Applebee’s unit. We continue to like the company’s franchise model, which generates significant free cash flow, requires minimal capital investments, and allows for shareholder value appreciation via future capital deployment opportunities. In the industrials sector, copper tubing and piping systems manufacturer Mueller Industries, Incorporated, contributed to results as the company’s gross margins benefited from its operational improvement initiatives and the company continues to make accretive acquisitions to diversify and strengthen its market share.

Detractors from performance included stock selection in the IT sector and an underweight to real estate.

Security selection in the IT sector detracted from relative performance. Belden Incorporated designs and manufactures signal transmission solutions worldwide. The company had a volatile year as investors’ fears of industrial end markets softening increased. Although we are disappointed with the stock’s performance, we continue to see an attractive reward/risk opportunity going forward. The company continues to diversify and has ample dry powder on the balance sheet to continue to pursue its diversification strategy and provide further value creation. The Fund’s underweight to the real estate sector detracted from relative performance. The sector outperformed as investors preferred more defensive stocks during the volatile fourth quarter of 2018 and as Treasury yields declined in early 2019. Our decision to underweight the sector is based on the view that there are more attractive long-term reward/risk opportunities outside of the sector that possess more attractive long-term prospects.

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Special Small Cap Value Fund     9  

Our outlook is cautious yet confident.

As we look out over the next 12 months, we expect volatility could remain elevated. We believe it is prudent to protect the Fund’s downside risks as we look for investment opportunities to present themselves. We do not focus on forecasting future macroeconomic news or the short-term direction of the market. Through our bottom-up stock-selection process, we focus on investing in companies that we believe have the potential to generate strong cash flows and have the balance sheet flexibility to make intelligent investment decisions. In our view, this approach may better position our investments to reap outsized rewards relative to other stocks. Because of this disciplined investment process, we remain confident in our ability to navigate all economic environments over the long term.

Sector distribution as of March 31, 201911

 

LOGO

 

 

 

 

Please see footnotes on page 7.

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10   Wells Fargo Special Small Cap Value Fund   Fund expenses (unaudited)

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

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 924.15      $ 6.20        1.29 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.49      $ 6.50        1.29 % 

Class C

            

Actual

    $ 1,000.00      $ 920.91      $ 9.78        2.04 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,014.75      $ 10.25        2.04 % 

Class R

            

Actual

    $ 1,000.00      $ 923.39      $ 7.41        1.54 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,017.23      $ 7.77        1.54 % 

Class R6

            

Actual

    $ 1,000.00      $ 926.20      $ 4.15        0.86 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.62      $ 4.36        0.86 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 924.56      $ 5.76        1.20 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.95      $ 6.04        1.20 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 925.98      $ 4.51        0.94 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.24      $ 4.74        0.94 % 

 

 

1

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

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Portfolio of investments—March 31, 2019   Wells Fargo Special Small Cap Value Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 92.49%

           

Communication Services: 1.11%

           
Media: 1.11%           

A.H. Belo Corporation Class A (l)

           1,658,289      $ 6,168,835  

Gannett Company Incorporated

           1,220,821        12,867,453  

New Media Investment Group Incorporated

           935,139        9,818,960  
             28,855,248  
          

 

 

  

Consumer Discretionary: 8.89%

           
Diversified Consumer Services: 0.10%           

Liberty Tax Incorporated «

           274,046        2,710,315  
          

 

 

  
Hotels, Restaurants & Leisure: 6.09%           

Denny’s Corporation (l)†

           3,316,971        60,866,418  

Dine Brands Global Incorporated

           713,300        65,117,157  

The Wendy’s Company

           1,797,800        32,162,642  
             158,146,217  
          

 

 

  
Household Durables: 1.24%           

Dixie Group Incorporated †

           616,935        579,919  

Helen of Troy Limited †

           271,400        31,471,544  
             32,051,463  
          

 

 

  
Specialty Retail: 0.17%           

Christopher & Banks Corporation «†

           1,086,348        370,445  

The Buckle Incorporated «

           210,120        3,933,446  
             4,303,891  
          

 

 

  
Textiles, Apparel & Luxury Goods: 1.29%           

Delta Apparel Incorporated (l)†

           519,692        11,547,556  

Steven Madden Limited

           648,100        21,931,704  
             33,479,260  
          

 

 

  

Consumer Staples: 8.53%

           
Beverages: 1.03%           

Cott Corporation

           1,822,700        26,629,647  
          

 

 

  
Food Products: 5.12%           

Hostess Brands Incorporated †

           1,541,623        19,270,288  

J & J Snack Foods Corporation

           264,600        42,029,064  

Nomad Foods Limited †

           2,469,330        50,497,799  

TreeHouse Foods Incorporated †

           328,985        21,235,982  
             133,033,133  
          

 

 

  
Household Products: 2.38%           

Central Garden & Pet Company (l)«†

           743,522        19,004,422  

Central Garden & Pet Company Class A †

           735,533        17,101,142  

Spectrum Brands Holdings Incorporated

           470,001        25,746,655  
             61,852,219  
          

 

 

  

 

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, 2019

      

 

 

Security name                 Shares      Value  

Energy: 4.02%

           
Energy Equipment & Services: 2.07%           

C&J Energy Services Incorporated †

           547,074      $ 8,490,588  

Forum Energy Technologies Incorporated †

           871,000        4,450,810  

Oil States International Incorporated †

           594,100        10,075,936  

Patterson-UTI Energy Incorporated

           1,799,010        25,222,120  

Tetra Technologies Incorporated †

           2,372,700        5,552,118  
             53,791,572  
          

 

 

  
Oil, Gas & Consumable Fuels: 1.95%           

Berry Petroleum Corporation

           590,242        6,811,393  

Callon Petroleum Company †

           1,083,400        8,179,670  

Magnolia Oil & Gas Corporation †

           501,100        6,013,200  

Penn Virginia Corporation †

           217,000        9,569,700  

QEP Resources Incorporated †

           2,582,300        20,116,117  
             50,690,080  
          

 

 

  

Financials: 19.62%

           
Banks: 10.66%           

Associated Banc Corporation

           1,591,500        33,978,525  

First Citizens BancShares Corporation Class A

           97,950        39,885,240  

First Hawaiian Incorporated

           1,049,100        27,329,055  

Hancock Holding Company

           757,245        30,592,698  

IBERIABANK Corporation

           399,800        28,669,658  

Renasant Corporation

           1,005,645        34,041,083  

South State Corporation

           391,800        26,775,612  

UMB Financial Corporation

           866,286        55,476,955  
             276,748,826  
          

 

 

  
Capital Markets: 3.24%           

Apollo Investment Corporation «

           1,255,636        19,010,329  

Artisan Partners Asset Management Incorporated Class A

           1,126,695        28,358,913  

New Mountain Finance Corporation

           1,574,526        21,366,318  

Westwood Holdings Group Incorporated

           436,883        15,408,863  
             84,144,423  
          

 

 

  
Insurance: 4.22%           

ProAssurance Corporation

           875,400        30,297,594  

Stewart Information Services Corporation

           707,507        30,203,474  

The Hanover Insurance Group Incorporated

           217,091        24,785,279  

White Mountains Insurance Group Limited

           26,100        24,155,028  
             109,441,375  
          

 

 

  
Mortgage REITs: 1.50%           

Apollo Commercial Real Estate Finance Incorporated

           1,117,037        20,330,073  

Invesco Mortgage Capital Incorporated

           605,880        9,572,904  

Two Harbors Investment Corporation

           665,000        8,997,450  
             38,900,427  
          

 

 

  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Special Small Cap Value Fund     13  

      

 

 

Security name                 Shares      Value  

Health Care: 2.16%

           
Health Care Equipment & Supplies: 0.39%           

Avanos Medical Incorporated †

           233,700      $ 9,974,316  
          

 

 

  
Health Care Providers & Services: 0.49%           

Hanger Incorporated †

           667,280        12,711,684  
          

 

 

  
Pharmaceuticals: 1.28%           

Innoviva Incorporated †

           900,702        12,636,849  

Prestige Consumer Healthcare Incorporated †

           691,300        20,676,783  
             33,313,632  
          

 

 

  

Industrials: 21.36%

           
Building Products: 4.75%           

CSW Industrials Incorporated (l)†

           759,969        43,538,624  

Griffon Corporation

           649,185        11,996,939  

Quanex Building Products Corporation

           1,179,133        18,736,423  

Simpson Manufacturing Company Incorporated

           828,896        49,128,666  
             123,400,652  
          

 

 

  
Commercial Services & Supplies: 4.26%           

ACCO Brands Corporation

           1,492,561        12,776,322  

Brady Corporation Class A

           319,009        14,805,208  

Deluxe Corporation

           692,931        30,294,943  

Ennis Incorporated

           1,223,593        25,401,791  

Viad Corporation

           484,050        27,247,175  
             110,525,439  
          

 

 

  
Electrical Equipment: 2.14%           

Atkore International Incorporated †

           1,525,890        32,852,412  

EnerSys

           346,135        22,554,157  
             55,406,569  
          

 

 

  
Machinery: 9.29%           

Douglas Dynamics Incorporated

           714,847        27,214,225  

Franklin Electric Company Incorporated

           983,936        50,269,290  

Global Brass & Copper Holdings Incorporated

           1,074,272        36,997,928  

Hillenbrand Incorporated

           712,776        29,601,587  

Kadant Incorporated

           268,384        23,607,057  

Mueller Industries Incorporated

           2,095,171        65,662,661  

NN Incorporated

           1,026,510        7,688,560  
             241,041,308  
          

 

 

  
Professional Services: 0.62%           

Korn/Ferry International

           361,832        16,202,837  
          

 

 

  
Trading Companies & Distributors: 0.30%           

Aircastle Limited

           385,800        7,808,592  
          

 

 

  

 

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

Table of Contents

 

14   Wells Fargo Special Small Cap Value Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  

Information Technology: 9.09%

           
Communications Equipment: 0.59%           

NETGEAR Incorporated

           463,802      $ 15,361,122  
          

 

 

  
Electronic Equipment, Instruments & Components: 3.47%           

AVX Corporation

           1,043,630        18,096,544  

Badger Meter Incorporated

           184,477        10,264,300  

Belden Incorporated

           388,268        20,849,992  

Coherent Incorporated †

           49,900        7,071,828  

Novanta Incorporated †

           399,285        33,831,418  
             90,114,082  
          

 

 

  
IT Services: 1.40%           

Conduent Incorporated †

           368,300        5,093,589  

MAXIMUS Incorporated

           139,500        9,901,710  

Sykes Enterprises Incorporated †

           755,200        21,357,056  
             36,352,355  
          

 

 

  
Semiconductors & Semiconductor Equipment: 2.44%           

Brooks Automation Incorporated

           395,200        11,591,216  

Cabot Microelectronics Corporation

           305,213        34,171,647  

DSP Group Incorporated †

           659,148        9,274,212  

KLA-Tencor Corporation

           69,557        8,305,801  
             63,342,876  
          

 

 

  
Software: 0.64%           

ACI Worldwide Incorporated †

           282,300        9,279,201  

Cision Limited †

           534,201        7,355,948  
             16,635,149  
          

 

 

  
Technology Hardware, Storage & Peripherals: 0.55%           

Glassbridge Enterprises Incorporated (l)Ǡ

           305,421        61,084  

NCR Corporation †

           514,700        14,046,163  
             14,107,247  
          

 

 

  

Materials: 12.36%

           
Chemicals: 4.58%           

Element Solutions Incorporated †

           299,200        3,021,920  

Innospec Incorporated

           777,572        64,810,626  

PolyOne Corporation

           656,401        19,239,113  

PQ Group Holdings Incorporated †

           566,273        8,590,361  

Sensient Technologies Corporation

           341,468        23,148,116  
             118,810,136  
          

 

 

  
Construction Materials: 2.37%           

Eagle Materials Incorporated

           730,300        61,564,290  
          

 

 

  
Containers & Packaging: 1.60%           

Silgan Holdings Incorporated

           1,399,542        41,468,429  
          

 

 

  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Special Small Cap Value Fund     15  

      

 

 

Security name                Shares      Value  
Metals & Mining: 0.42%          

Compass Minerals International Incorporated

          199,800      $ 10,863,126  
         

 

 

  
Paper & Forest Products: 3.39%          

Neenah Paper Incorporated (l)

          877,121        56,451,508  

Schweitzer-Mauduit International Incorporated

          814,387        31,533,065  
            87,984,573  
         

 

 

  

Real Estate: 2.59%

          
Equity REITs: 2.59%          

Acadia Realty Trust

          648,300        17,679,141  

Pebblebrook Hotel Trust

          764,280        23,738,537  

Washington REIT

          908,562        25,784,990  
            67,202,668  
         

 

 

  

Utilities: 2.76%

          
Electric Utilities: 2.76%          

Hawaiian Electric Industries Incorporated

          1,091,637        44,506,040  

IDACORP Incorporated

          272,500        27,124,650  
            71,630,690  
         

 

 

  

Total Common Stocks (Cost $2,258,733,643)

             2,400,599,868  
         

 

 

  

Exchange-Traded Funds: 1.45%

          

iShares Russell 2000 Index ETF «

          135,500        20,743,695  

iShares Russell 2000 Value Index ETF «

          140,400        16,833,960  

Total Exchange-Traded Funds (Cost $38,073,683)

             37,577,655  
         

 

 

  
    Dividend yield                      
Preferred Stocks: 0.35%          

Industrials: 0.35%

          
Industrial Conglomerates: 0.35%          

Steel Partners Holdings LP

     6.93 %         419,586        9,075,645  
         

 

 

  

Total Preferred Stocks (Cost $9,312,343)

             9,075,645  
         

 

 

  
          Expiration date                
Rights: 0.01%          

Financials: 0.01%

          
Diversified Financial Services: 0.01%          

Schulman Incorporated Class A †(a)‡

       12-31-2099        593,658        257,054  
         

 

 

  

Total Rights (Cost $257,054)

             257,054  
         

 

 

  

 

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

Table of Contents

 

16   Wells Fargo Special Small Cap Value Fund   Portfolio of investments—March 31, 2019

      

 

 

    Yield            Shares      Value  

Short-Term Investments: 7.20%

          
Investment Companies: 7.20%                                   

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

     2.55 %         57,964,218      $ 57,970,015  

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

     2.38          128,767,336        128,767,336  

Total Short-Term Investments (Cost $186,737,351)

             186,737,351        
         

 

 

  

 

Total investments in securities (Cost $2,493,114,074)     101.50 %         2,634,247,573  

Other assets and liabilities, net

     (1.50 )         (38,818,369 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 2,595,429,204  
 

 

 

       

 

 

  

 

 

(l)

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

 

«

All or a portion of this security is on loan.

 

†

Non-income-earning security

 

(a)

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

 

‡

Security is valued using significant unobservable inputs.

 

(r)

The investment is a non-registered investment company purchased with cash collateral received from securities on loan.

 

(u)

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

Abbreviations:

 

REIT

Real estate investment trust

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Special Small Cap Value Fund     17  

      

 

 

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:

 

   

Shares,

beginning of

period

    

Shares

purchased

    

Shares

sold

    

Shares,

end of

period

    

Net

realized

gains

(losses)

    

Net

change in

unrealized

gains

(losses)

    

Income

from

affiliated

securities

    

Value,

end

of period

    

% of

net

assets

  

Common Stocks

                  

Communication Services

                  

Media

                  

A.H. Belo Corporation Class A

     1,423,589       234,700       0       1,658,289     $ 0     $ (2,245,390 )    $ 494,660     $ 6,168,835    

Consumer Discretionary

                  

Hotels, Restaurants & Leisure

                  

Denny’s Corporation †

     2,668,018       946,753       297,800       3,316,971       758,602       22,219,311       0       60,866,418    

Textiles, Apparel & Luxury Goods

                  

Delta Apparel Incorporated †

     459,492       60,200       0       519,692       0       2,150,944       0       11,547,556    

Consumer Staples

                  

Household Products

                  

Central Garden & Pet Company †

     553,580       194,042       4,100       743,522       (24,132 )      3,002,444       0       19,004,422    

Industrials

                  

Building Products

                  

CSW Industrials Incorporated †

     664,244       95,725       0       759,969       0       15,478,835       0       43,538,624    

Commercial Services & Supplies

                  

Ennis Incorporated *

     1,320,620       163,273       260,300       1,223,593       140,786       1,370,302       1,186,963       25,401,791    

Information Technology

                  

Technology Hardware, Storage & Peripherals

                  

Glassbridge Enterprises Incorporated †

     305,221       200       0       305,421       0       (302,317 )      0       61,084    

Materials

                  

Paper and Forest Products

                  

Neenah Paper Incorporated

     623,520       255,201       1,600       877,121       (27,006 )      (5,753,520 )      1,211,644       56,451,508    
                  223,040,238       8.59 % 
               

 

 

    

Short-Term Investments

                  

Investment Companies

                  

Securities Lending Cash Investments LLC

     81,074,217       311,429,137       334,539,136       57,964,218       242       0       1,009,779       57,970,015    

Wells Fargo Government Money Market Fund Select Class

     139,485,748       863,750,440       874,468,852       128,767,336       0       0       3,237,079       128,767,336    
                  186,737,351       7.20  
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ 848,492     $ 35,920,609     $ 7,140,125     $ 409,777,589       15.79 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  *

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

 

  †

Non-income-earning security

 

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

Table of Contents

 

18   Wells Fargo Special Small Cap Value Fund   Statement of assets and liabilities—March 31, 2019
         

Assets

  

Investments in unaffiliated securities (including $56,429,332 of securities loaned), at value (cost $2,094,878,838)

   $ 2,224,469,984  

Investments in affiliated securities, at value (cost $398,235,236)

     409,777,589  

Cash

     59  

Receivable for investments sold

     19,538,111  

Receivable for Fund shares sold

     7,868,960  

Receivable for dividends

     5,049,477  

Receivable for securities lending income

     2,609  

Prepaid expenses and other assets

     80,225  
 

 

 

  

Total assets

     2,666,787,014  
 

 

 

  

Liabilities

  

Payable upon receipt of securities loaned

     57,965,377  

Payable for investments purchased

     6,941,261  

Payable for Fund shares redeemed

     4,079,974  

Management fee payable

     1,775,525  

Administration fees payable

     284,064  

Distribution fees payable

     17,277  

Trustees’ fees and expenses payable

     1,908  

Accrued expenses and other liabilities

     292,424  
 

 

 

  

Total liabilities

     71,357,810  
 

 

 

  

Total net assets

   $ 2,595,429,204  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 2,446,401,127  

Total distributable earnings

     149,028,077  
 

 

 

  

Total net assets

   $ 2,595,429,204  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 526,655,658  

Shares outstanding – Class A1

     16,593,124  

Net asset value per share – Class A

     $31.74  

Maximum offering price per share – Class A2

     $33.68  

Net assets – Class C

   $ 24,333,942  

Shares outstanding – Class C1

     853,987  

Net asset value per share – Class C

     $28.49  

Net assets – Class R

   $ 6,655,998  

Shares outstanding – Class R1

     206,688  

Net asset value per share – Class R

     $32.20  

Net assets – Class R6

   $ 518,377,158  

Shares outstanding – Class R61

     15,926,919  

Net asset value per share – Class R6

     $32.55  

Net assets – Administrator Class

   $ 160,368,773  

Shares outstanding – Administrator Class1

     4,926,477  

Net asset value per share – Administrator Class

     $32.55  

Net assets – Institutional Class

   $ 1,359,037,675  

Shares outstanding – Institutional Class1

     41,735,490  

Net asset value per share – Institutional Class

     $32.56  

 

 

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, 2019   Wells Fargo Special Small Cap Value Fund     19  
         

Investment income

  

Dividends (net of foreign withholding taxes of $55,162)

   $ 42,702,888  

Income from affiliated securities

     7,352,809  

Interest

     499  
 

 

 

  

Total investment income

     50,056,196  
 

 

 

  

Expenses

  

Management fee

     20,420,941  

Administration fees

  

Class A

     1,141,115  

Class C

     98,047  

Class R

     12,045  

Class R6

     118,377  

Administrator Class

     246,173  

Institutional Class

     1,745,380  

Shareholder servicing fees

  

Class A

     1,358,470  

Class C

     116,722  

Class R

     14,339  

Administrator Class

     470,993  

Distribution fees

  

Class C

     350,167  

Class R

     14,339  

Custody and accounting fees

     79,311  

Professional fees

     52,873  

Registration fees

     202,601  

Shareholder report expenses

     216,811  

Trustees’ fees and expenses

     22,719  

Interest expense

     1,197  

Other fees and expenses

     38,193  
 

 

 

  

Total expenses

     26,720,813  

Less: Fee waivers and/or expense reimbursements

     (351,006 ) 
 

 

 

  

Net expenses

     26,369,807  
 

 

 

  

Net investment income

     23,686,389  
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains on:

  

Unaffiliated securities

     70,020,020  

Affiliated securities

     848,492  
 

 

 

  

Net realized gains on investments

     70,868,512  
 

 

 

  

Net change in unrealized gains (losses) on:

  

Unaffiliated securities

     (168,401,892 ) 

Affiliated securities

     35,920,609  
 

 

 

  

Net change in unrealized gains (losses) on investments

     (132,481,283 ) 
 

 

 

  

Net realized and unrealized gains (losses) on investments

     (61,612,771 ) 
 

 

 

  

Net decrease in net assets resulting from operations

   $ (37,926,382 ) 
 

 

 

  

 

 

 

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

Table of Contents

 

20   Wells Fargo Special Small Cap Value Fund   Statement of changes in net assets
     Year ended
March 31, 2019		     Year ended
March 31, 20181		  

Operations

      

Net investment income

     $ 23,686,389       $ 18,358,131  

Net realized gains on investments

       70,868,512         148,275,813  

Net change in unrealized gains (losses) on investments

       (132,481,283 )        21,367,502  
 

 

 

  

Net increase (decrease) in net assets resulting from operations

       (37,926,382 )        188,001,446  
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

        

Class A

       (34,950,655 )        (28,923,817 ) 

Class C

       (3,190,299 )        (2,701,391 ) 

Class R

       (404,926 )        (151,245 ) 

Class R6

       (29,776,704 )        (13,961,093 ) 

Administrator Class

       (10,505,173 )        (11,096,481 ) 

Institutional Class

       (92,413,835 )        (59,336,216 ) 
 

 

 

  

Total distributions to shareholders

       (171,241,592 )        (116,170,243 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

        

Class A

     4,399,455       147,434,144       2,772,875       94,731,826  

Class C

     176,335       5,606,048       191,743       5,942,942  

Class R

     108,771       3,732,400       122,899       4,239,675  

Class R6

     10,731,533       369,575,214       4,147,795       146,057,838  

Administrator Class

     1,731,106       60,553,466       2,707,738       94,110,194  

Institutional Class

     25,518,350       892,397,775       15,040,023       526,877,607  
 

 

 

  
      1,479,299,047         871,960,082  
 

 

 

  

Reinvestment of distributions

        

Class A

     1,076,242       31,879,046       772,732       26,881,022  

Class C

     114,907       3,053,065       82,534       2,591,651  

Class R

     13,400       402,776       4,226       149,401  

Class R6

     757,094       23,032,048       360,421       12,863,108  

Administrator Class

     339,786       10,323,048       304,887       10,860,280  

Institutional Class

     2,401,764       73,095,306       1,252,402       44,708,634  
 

 

 

  
      141,785,289         98,054,096  
 

 

 

  

Payment for shares redeemed

        

Class A

     (4,558,516 )      (151,304,840 )      (5,222,764 )      (178,462,050 ) 

Class B

     N/A       N/A       (11,387 )2      (339,787 )2 

Class C

     (1,140,298 )      (33,300,231 )      (568,844 )      (17,485,661 ) 

Class R

     (48,026 )      (1,606,676 )      (17,869 )      (617,184 ) 

Class R6

     (2,789,106 )      (93,680,041 )      (2,479,153 )      (87,096,747 ) 

Administrator Class

     (3,674,115 )      (131,798,914 )      (2,360,366 )      (81,310,178 ) 

Institutional Class

     (20,110,486 )      (683,366,611 )      (9,522,751 )      (332,025,710 ) 
 

 

 

  
      (1,095,057,313 )        (697,337,317 ) 
 

 

 

  

Net increase in net assets resulting from capital share transactions

       526,027,023         272,676,861  
 

 

 

  

Total increase in net assets

       316,859,049         344,508,064  
 

 

 

  

Net assets

    

Beginning of period

       2,278,570,155         1,934,062,091  
 

 

 

  

End of period

     $ 2,595,429,204       $ 2,278,570,155  
 

 

 

  

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and permitted the aggregation of distributions, with the exception of tax basis returns of capital. Undistributed net investment income at March 31, 2018 was $3,571,012. The disaggregated distributions information for the period ended March 31, 2018 is included in Note 7, Distributions to Shareholders, in the notes to the financial statements.

 

2 

For the period from April 1, 2017 to May 5, 2017. Effective at the close of business on May 5, 2017, Class B 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 Special Small Cap Value Fund     21  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $34.42       $33.15       $27.40       $29.27       $32.59  

Net investment income

     0.22       0.24       0.35 1      0.20       0.26  

Net realized and unrealized gains (losses) on investments

     (0.69 )      2.89       6.15       (1.46 )      1.81  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (0.47 )      3.13       6.50       (1.26 )      2.07  

Distributions to shareholders from

          

Net investment income

     (0.15 )      (0.32 )      (0.18 )      (0.19 )      (0.21 ) 

Net realized gains

     (2.06 )      (1.54 )      (0.57 )      (0.42 )      (5.18 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (2.21 )      (1.86 )      (0.75 )      (0.61 )      (5.39 ) 

Net asset value, end of period

     $31.74       $34.42       $33.15       $27.40       $29.27  

Total return2

     (0.87 )%      9.42 %      23.69 %      (4.21 )%      7.56 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.29 %      1.31 %      1.32 %      1.36 %      1.39 % 

Net expenses

     1.29 %      1.31 %      1.32 %      1.34 %      1.34 % 

Net investment income

     0.67 %      0.66 %      1.14 %      0.73 %      0.90 % 

Supplemental data

          

Portfolio turnover rate

     32 %      41 %      51 %      46 %      79 % 

Net assets, end of period (000s omitted)

     $526,656       $539,499       $575,269       $417,161       $448,980  

 

 

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

 

22   Wells Fargo Special Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $31.21       $30.19       $25.05       $26.81       $30.31  

Net investment income (loss)

     (0.05 )1      (0.03 )1      0.12 1      (0.03 )      0.04 1 

Net realized and unrealized gains (losses) on investments

     (0.61 )      2.64       5.59       (1.31 )      1.65  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (0.66 )      2.61       5.71       (1.34 )      1.69  

Distributions to shareholders from

          

Net investment income

     0.00       (0.05 )      0.00       0.00       (0.01 ) 

Net realized gains

     (2.06 )      (1.54 )      (0.57 )      (0.42 )      (5.18 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (2.06 )      (1.59 )      (0.57 )      (0.42 )      (5.19 ) 

Net asset value, end of period

     $28.49       $31.21       $30.19       $25.05       $26.81  

Total return2

     (1.63 )%      8.60 %      22.75 %      (4.93 )%      6.75 % 

Ratios to average net assets (annualized)

          

Gross expenses

     2.04 %      2.06 %      2.07 %      2.11 %      2.14 % 

Net expenses

     2.04 %      2.06 %      2.07 %      2.09 %      2.09 % 

Net investment income (loss)

     (0.13 )%      (0.10 )%      0.42 %      (0.02 )%      0.15 % 

Supplemental data

          

Portfolio turnover rate

     32 %      41 %      51 %      46 %      79 % 

Net assets, end of period (000s omitted)

     $24,334       $53,145       $60,309       $40,512       $44,327  

 

 

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 Special Small Cap Value Fund     23  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS R   2019     2018     2017     20161  

Net asset value, beginning of period

     $34.94       $33.73       $27.97       $26.72  

Net investment income

     0.18       0.17       0.63 2      0.08 2 

Net realized and unrealized gains (losses) on investments

     (0.74 )      2.92       5.94       1.87  
 

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (0.56 )      3.09       6.57       1.95  

Distributions to shareholders from

        

Net investment income

     (0.12 )      (0.34 )      (0.24 )      (0.28 ) 

Net realized gains

     (2.06 )      (1.54 )      (0.57 )      (0.42 ) 
 

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (2.18 )      (1.88 )      (0.81 )      (0.70 ) 

Net asset value, end of period

     $32.20       $34.94       $33.73       $27.97  

Total return3

     (1.11 )%      9.13 %      23.47 %      7.40 % 

Ratios to average net assets (annualized)

        

Gross expenses

     1.55 %      1.57 %      1.56 %      1.59 % 

Net expenses

     1.55 %      1.56 %      1.56 %      1.58 % 

Net investment income

     0.47 %      0.43 %      1.86 %      0.56 % 

Supplemental data

        

Portfolio turnover rate

     32 %      41 %      51 %      46 % 

Net assets, end of period (000s omitted)

     $6,656       $4,631       $785       $27  

 

 

1 

For the period from September 30, 2015 (commencement of class operations) to March 31, 2016.

 

2 

Calculated based upon average shares outstanding

 

3 

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

 

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

Table of Contents

 

24   Wells Fargo Special Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS R6   2019     2018     2017     2016     20151  

Net asset value, beginning of period

     $35.25       $33.93       $28.01       $29.91       $33.38  

Net investment income

     0.38       0.38 2      0.61 2      0.39       0.26 2 

Net realized and unrealized gains (losses) on investments

     (0.72 )      2.97       6.18       (1.54 )      1.80  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (0.34 )      3.35       6.79       (1.15 )      2.06  

Distributions to shareholders from

          

Net investment income

     (0.30 )      (0.49 )      (0.30 )      (0.33 )      (0.35 ) 

Net realized gains

     (2.06 )      (1.54 )      (0.57 )      (0.42 )      (5.18 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (2.36 )      (2.03 )      (0.87 )      (0.75 )      (5.53 ) 

Net asset value, end of period

     $32.55       $35.25       $33.93       $28.01       $29.91  

Total return3

     (0.42 )%      9.85 %      24.22 %      (3.74 )%      7.42 % 

Ratios to average net assets (annualized)

          

Gross expenses

     0.86 %      0.88 %      0.89 %      0.93 %      0.89 % 

Net expenses

     0.86 %      0.88 %      0.89 %      0.89 %      0.89 % 

Net investment income

     1.16 %      1.10 %      1.87 %      1.56 %      2.19 % 

Supplemental data

          

Portfolio turnover rate

     32 %      41 %      51 %      46 %      79 % 

Net assets, end of period (000s omitted)

     $518,377       $254,801       $176,362       $36,344       $27  

 

 

1 

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

 

2 

Calculated based upon average shares outstanding

 

3 

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

 

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

Table of Contents

 

Financial highlights   Wells Fargo Special Small Cap Value Fund     25  

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $35.22       $33.90       $28.02       $29.94       $33.21  

Net investment income

     0.27 1      0.27 1      0.44 1      0.26 1      0.35 1 

Net realized and unrealized gains (losses) on investments

     (0.71 )      2.97       6.24       (1.49 )      1.83  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (0.44 )      3.24       6.68       (1.23 )      2.18  

Distributions to shareholders from

          

Net investment income

     (0.17 )      (0.38 )      (0.23 )      (0.27 )      (0.27 ) 

Net realized gains

     (2.06 )      (1.54 )      (0.57 )      (0.42 )      (5.18 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (2.23 )      (1.92 )      (0.80 )      (0.69 )      (5.45 ) 

Net asset value, end of period

     $32.55       $35.22       $33.90       $28.02       $29.94  

Total return

     (0.77 )%      9.52 %      23.82 %      (4.01 )%      7.78 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.21 %      1.23 %      1.24 %      1.26 %      1.23 % 

Net expenses

     1.20 %      1.20 %      1.20 %      1.17 %      1.09 % 

Net investment income

     0.74 %      0.76 %      1.36 %      0.95 %      1.10 % 

Supplemental data

          

Portfolio turnover rate

     32 %      41 %      51 %      46 %      79 % 

Net assets, end of period (000s omitted)

     $160,369       $229,992       $199,262       $95,030       $70,100  

 

 

1 

Calculated based upon average shares outstanding

 

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

Table of Contents

 

26   Wells Fargo Special Small Cap Value Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $35.27       $33.94       $28.03       $29.93       $33.21  

Net investment income

     0.33       0.33       0.60 1      0.30       0.43 1 

Net realized and unrealized gains (losses) on investments

     (0.70 )      3.01       6.17       (1.46 )      1.80  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     (0.37 )      3.34       6.77       (1.16 )      2.23  

Distributions to shareholders from

          

Net investment income

     (0.28 )      (0.47 )      (0.29 )      (0.32 )      (0.33 ) 

Net realized gains

     (2.06 )      (1.54 )      (0.57 )      (0.42 )      (5.18 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (2.34 )      (2.01 )      (0.86 )      (0.74 )      (5.51 ) 

Net asset value, end of period

     $32.56       $35.27       $33.94       $28.03       $29.93  

Total return

     (0.53 )%      9.82 %      24.13 %      (3.79 )%      7.96 % 

Ratios to average net assets (annualized)

          

Gross expenses

     0.96 %      0.98 %      0.99 %      1.01 %      0.96 % 

Net expenses

     0.94 %      0.94 %      0.94 %      0.94 %      0.94 % 

Net investment income

     1.04 %      1.02 %      1.86 %      1.17 %      1.36 % 

Supplemental data

          

Portfolio turnover rate

     32 %      41 %      51 %      46 %      79 % 

Net assets, end of period (000s omitted)

     $1,359,038       $1,196,501       $921,732       $256,190       $189,965  

 

 

1 

Calculated based upon average shares outstanding

 

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

Table of Contents

 

Notes to financial statements   Wells Fargo Special Small Cap Value Fund     27  

1. ORGANIZATION

Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 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.

Effective at the close of business on May 5, 2017, Class B shares were converted to Class A shares and are no longer offered by the Fund. Information for Class B shares reflected in the financial statements represents activity through May 5, 2017.

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 contracts 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, a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

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

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

Securities lending

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

Table of Contents

 

28   Wells Fargo Special Small Cap Value Fund   Notes to financial statements

fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund (net of fees and rebates), if any, is included in income from affiliated securities on the Statement of Operations.

Futures contracts

The Fund is subject to equity price risk in the normal course of pursuing its investment objectives. Futures contracts are agreements between the Fund and a counterparty to buy or sell a specific amount of a commodity, financial instrument or currency at specified price and on a specified date. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in security values. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market. Futures contracts are generally entered into on a regulated futures exchange and cleared through a clearinghouse associated with the exchange. With futures contracts, there is minimal counterparty risk to the Fund since futures contracts are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures contracts against default.

Upon entering into a futures contracts, the Fund is required to deposit either cash or securities (initial margin) with the broker in an amount equal to a certain percentage of the contract value. Subsequent payments (variation margin) are paid to or from the broker each day equal to the daily changes in the contract value. Such payments are recorded as unrealized gains or losses and, if any, shown as variation margin receivable (payable) in the Statement of Assets and Liabilities. Should the Fund fail to make requested variation margin payments, the broker can gain access to the initial margin to satisfy the Fund’s payment obligations. When the contracts are closed, a realized gain or loss is recorded in 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.

Income dividends and capital gain distributions from investment companies are recorded on the ex-dividend date. Capital gain distributions from investment companies are treated as realized gains.

Distributions to shareholders

Distributions to shareholders from net investment income and any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $2,506,347,059 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 346,870,587  

Gross unrealized losses

      (218,970,073 ) 

Net unrealized gains

    $ 127,900,514  

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Notes to financial statements   Wells Fargo Special Small Cap Value Fund     29  

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Significant
unobservable inputs

(Level 3)

      Total  

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 28,855,248      $ 0      $ 0      $ 28,855,248  

Consumer discretionary

      230,691,146        0        0        230,691,146  

Consumer staples

      221,514,999        0        0        221,514,999  

Energy

      104,481,652        0        0        104,481,652  

Financials

      509,235,051        0        0        509,235,051  

Health care

      55,999,632        0        0        55,999,632  

Industrials

      554,385,397        0        0        554,385,397  

Information technology

      235,851,747        61,084        0        235,912,831  

Materials

      320,690,554        0        0        320,690,554  

Real estate

      67,202,668        0        0        67,202,668  

Utilities

      71,630,690        0        0        71,630,690  

Exchange-traded funds

      37,577,655        0        0        37,577,655  

Preferred stocks

            

Industrials

      9,075,645        0        0        9,075,645  

Rights

            

Financials

      0        0        257,054        257,054  

Short-term investments

            

Investment companies

      128,767,336        57,970,015        0        186,737,351  

Total assets

    $ 2,575,959,420      $ 58,031,099      $ 257,054      $ 2,634,247,573  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

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30   Wells Fargo Special Small Cap Value Fund   Notes to financial statements

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $500 million

      0.850 % 

Next $500 million

      0.825  

Next $1 billion

      0.800  

Next $1 billion

      0.775  

Next $1 billion

      0.750  

Next $1 billion

      0.730  

Next $5 billion

      0.720  

Over $10 billion

      0.710  

For the year ended March 31, 2019, the management fee was equivalent to an annual rate of 0.81% 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		  

Class A, Class C, Class R

      0.21 % 

Class R6

      0.03  

Administrator Class, Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.34% for Class A shares, 2.09% for Class C shares, 1.59% for Class R shares, 0.89% for Class R6 shares, 1.20% for Administrator Class shares, and 0.94% for Institutional Class shares. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Distribution fees

The Trust has adopted a distribution plan for Class C and Class R shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class C and Class R shares and paid to Wells Fargo Funds Distributor, LLC (“Funds Distributor”), the principal underwriter, at an annual rate of 0.75% of the average daily net assets of Class C shares and 0.25% of the average daily net assets of Class R shares.

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Notes to financial statements   Wells Fargo Special Small Cap Value Fund     31  

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, 2019, Funds Distributor received $20,435 from the sale of Class A shares and $11 in contingent deferred sales charges from redemptions of Class C shares. No contingent deferred sales charges were incurred by Class A for the year ended March 31, 2019.

Shareholder servicing fees

The Trust has entered into contracts with one or more shareholder servicing agents, whereby Class A, Class C, Class R, and Administrator Class of the Fund are charged a fee at an annual rate of 0.25% of the average daily net assets of each respective class. A portion of these total shareholder servicing fees were paid to affiliates of Wells Fargo.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices. Pursuant to these procedures, the Fund had $36,052,084 and $11,514 in interfund purchases and sales, respectively, during the year ended March 31, 2019.

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, 2019 were $1,236,453,350 and $755,764,306, respectively.

6. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

During the year ended March 31, 2019, the Fund had average borrowings outstanding of $33,909 at an average interest rate of 3.53% and paid interest in the amount of $1,197.

7. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended March 31, 2019 and March 31, 2018 were as follows:

 

     Year ended March 31  
     2019      2018  

Ordinary income

    $ 30,852,484      $ 55,288,780  

Long-term capital gain

      140,389,108        60,881,463  

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income		    Undistributed
long-term
gain		    Unrealized
gains
$8,534,901    $12,628,316    $127,900,514

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32   Wells Fargo Special Small Cap Value Fund   Notes to financial statements

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net investment
income		        Net realized
gains		  

Class A

      $5,156,558          $23,767,259  

Class C

      80,902          2,620,489  

Class R

      28,233          123,012  

Class R6

      3,491,795          10,469,298  

Administrator Class

      2,253,608          8,842,873  

Institutional Class

      14,206,922          45,129,294  

8. INDEMNIFICATION

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

9. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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Report of independent registered public accounting firm   Wells Fargo Special Small Cap Value Fund     33  

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Special Small Cap Value Fund (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 24, 2019

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34   Wells Fargo Special Small Cap Value Fund   Other information (unaudited)

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 79.55% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2019.

Pursuant to Section 852 of the Internal Revenue Code, $140,389,108 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2019.

Pursuant to Section 854 of the Internal Revenue Code, $24,887,510 of income dividends paid during the fiscal year ended March 31, 2019 has been designated as qualified dividend income (QDI).

For the fiscal year ended March 31, 2019, $1,095,299 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

For the fiscal year ended March 31, 2019, $12,094,330 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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Other information (unaudited)   Wells Fargo Special Small Cap Value Fund     35  

BOARD OF TRUSTEES AND OFFICERS

Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and
year of birth		   Position held and
length of service*		   Principal occupations during past five years or longer   Current other
public company or
investment company
directorships
William R. Ebsworth
(Born 1957)		   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

   Trustee, since 2015; Chair Liaison, since 2018   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

   Trustee, since 2009; Audit Committee Chairman, since 2019   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation
Judith M. Johnson
(Born 1949)		   Trustee, since 2008; Audit Committee Chairman, from 2009 to 2018   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.   N/A

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36   Wells Fargo Special Small Cap Value Fund   Other information (unaudited)
Name and
year of birth		   Position held and
length of service*		   Principal occupations during past five years or longer   Current other
public company or
investment company
directorships
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.   N/A
Olivia S. Mitchell
(Born 1953)		   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A
Timothy J. Penny
(Born 1951)		   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A
James G. Polisson
(Born 1959)		   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A
Pamela Wheelock
(Born 1959)		   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

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Other information (unaudited)   Wells Fargo Special Small Cap Value Fund     37  

Officers

 

Name and
year of birth		   Position held and
length of service		   Principal occupations during past five years or longer    
Andrew Owen
(Born 1960)		   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    
Nancy Wiser1
(Born 1967)		   Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
Alexander Kymn
(Born 1973)		   Secretary and Chief Legal Officer, since 2018   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    
Michael H. Whitaker
(Born 1967)		   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    
David Berardi
(Born 1975)		   Assistant Treasurer, since 2009   Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.    
Jeremy DePalma1
(Born 1974)		   Assistant Treasurer, since 2009   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.    

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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38   Wells Fargo Special Small Cap Value Fund   Appendix A (unaudited)

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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For more information

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

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

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401594 05-19

A246/AR246 03-19

 

Table of Contents

Annual Report

March 31, 2019

 

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Wells Fargo Traditional Small Cap Growth Fund

 

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Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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Table of Contents

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

Contents

 

 

 

Letter to shareholders

     2  

Performance highlights

     6  

Fund expenses

     10  

Portfolio of investments

     11  
Financial statements  

Statement of assets and liabilities

     15  

Statement of operations

     16  

Statement of changes in net assets

     17  

Financial highlights

     18  

Notes to financial statements

     22  

Report of independent registered public accounting firm

    28  

Other information

     29  

Appendix A

     33  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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6   Wells Fargo Traditional Small Cap Growth Fund   Performance highlights (unaudited)

Investment objective

The Fund seeks long-term capital appreciation.

Manager

Wells Fargo Funds Management, LLC

Subadviser

Wells Capital Management Incorporated

Portfolio managers

Michael T. Smith, CFA®‡

Christopher J. Warner, CFA®‡

Average annual total returns (%) as of March 31, 2019

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net3  
 
Class A (EGWAX)3   6-5-1995     10.74       7.51       15.01       17.46       8.78       15.69       1.54       1.25  
 
Class C (EGWCX)4   7-30-2010     15.69       7.99       14.84       16.69       7.99       14.84       2.29       2.00  
 
Administrator Class (EGWDX)5   7-30-2010     –       –       –       17.59       8.97       15.86       1.46       1.17  
 
Institutional Class (EGRYX)3   11-19-1997     –       –       –       17.85       9.16       16.08       1.21       0.92  
 
Russell 2000® Growth Index6   –     –       –       –       3.85       8.41       16.52       –       –  

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, wfam.com.

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

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

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

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     7  
Growth of $10,000 investment as of March 31, 20197
LOGO

 

 

 

‡

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

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.

 

2 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at 1.23% for Class A, 1.98% for Class C, 1.15% for Administrator Class, and 0.90% for Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

Historical performance shown for this class prior to July 19, 2010, is based on the performance of the same class of the Fund’s predecessor, Evergreen Growth Fund.

 

4 

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.

 

5 

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.

 

6 

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

 

7 

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%.

 

8 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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 no longer held at the end of the reporting period.

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8   Wells Fargo Traditional Small Cap Growth Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund outperformed its benchmark, the Russell 2000® Growth Index, for the 12-month period that ended March 31, 2019.

 

∎  

Security selection within the health care and consumer discretionary sectors contributed to the Fund’s performance.

 

∎  

Select holdings within the consumer staples and industrials sectors negatively affected performance.

Volatility reemerged during the second half of the 12-month period.

A year that began with optimism for synchronized global economic growth eventually evolved into a decidedly risk-off equity market over the past year. The change in sentiment was driven by escalating uncertainty and fears as the year progressed. Mounting geopolitical concerns, the chaos with Brexit, rising domestic interest rates, concern over the stability of select emerging market economies, and escalating fears of a trade war with China were all contributing factors. These events contributed to a spike in downward volatility toward the end of 2018. The Federal Reserve’s (Fed’s) shift toward a dovish policy stance provided a tailwind for equities to recover most of their losses during the first quarter of 2019. With the exception of the volatile fourth quarter of 2018, domestic stocks were largely tied to company-specific fundamentals. This backdrop proved beneficial to the Fund’s positioning.

In terms of portfolio positioning of the Fund, we continue to emphasize companies with a secular rather than a cyclical growth profile. The Fund remains positioned toward companies with high visibility of earnings growth and those positioned toward innovation and disruption. We consider these businesses to be on the right side of change. We believe this strategy will prove beneficial in the months to come.

Select holdings in the health care and consumer discretionary sectors contributed to performance.

The Fund’s outperformance in the health care sector was driven in large part by the Fund’s holdings in idiosyncratic growth companies. OrthoPediatrics Corporation, a medical device company, launched new products designed to grow with children’s bones. Increasing market penetration drove a high rate of revenue growth during the year. Additionally within health care, Amedisys, Incorporated*, is the largest player within the home health market and added to returns in the sector. The company benefited from a favorable demand environment as patient care migrated away from nursing homes to an at-home setting where care is more customized and realized at lower costs. A greater focus on cost controls, along with the improved organic sales growth, led to considerable profit expansion during our time holding the shares.

Within the consumer discretionary sector, Etsy, Incorporated, benefited from the ongoing strength of e-commerce vis-a-vis traditional brick and mortar retailers. Etsy operates a global online marketplace for unique and creative goods. Over the past year, the company reported better-than-expected revenue and earnings growth, which helped propel shares sharply higher. The company is benefiting from two vectors of growth as its current customer base has increased its activity while at the same time attracting new customers to its platform. During the period, Etsy was also able to raise its transaction fees without a material impact to business trends.

Select holdings in consumer staples and industrials detracted from Fund performance.

The underperformance in the consumer staples sector was partially driven by the Fund’s position in National Beverage Corporation*. The company benefited from rapid growth of its La Croix sparkling water brand. However, a combination of growing competition, rising input costs, and scrutiny of ingredients caused an unexpected slowdown in sales of La Croix. The shares underperformed as growth expectations were revised lower.

Within the industrials sector, water treatment and technology company Evoqua Water Technologies Corporation* saw its shares decline after reporting disappointing results and announcing a restructuring plan. Evoqua unexpectedly undertook longer, capital-intensive projects that affected the stable revenue stream we expected. Additionally, rising raw material costs have negatively affected margins. These factors contributed to the underperformance and compromised our investment thesis in the holding.

While market volatility may continue in 2019, we remain confident in the Fund’s positioning.

As we look toward the balance of 2019, our viewpoint remains consistent. We believe the U.S. economy will avoid recessionary pressures and continue to expand. However, central to our outlook is that investors should expect a new

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     9  

normal of prolonged levels of slow economic growth. Strong evidence to support this view arrived in early 2019 as policymakers in China launched stimulus programs and the Fed changed course. Expectations from the Fed went from further rate hikes to a brief pause in policy normalization and then to expectations of interest rate cuts in 2019.

From an investing standpoint, innovative companies on the right side of change have benefited from this environment. This is largely due to scarcity. These businesses are not reliant on cyclicality or policy stimulus. In our view, right-side-of-change companies can produce predictable earnings and cash flows into the future—characteristics hard to find in the current economy. In a world starved of growth, investors tend to seek out that which is more certain and reward these attributes with a scarcity premium.

 

Ten largest holdings (%) as of March 31, 20198  

WNS Holdings Limited ADR

      2.72  

Casella Waste Systems Incorporated Class A

      2.54  

Envestnet Incorporated

      2.11  

Globant SA

      1.99  

World Wrestling Entertainment Incorporated Class A

      1.89  

MSA Safety Incorporated

      1.87  

The Brink’s Company

      1.86  

Eldorado Resorts Incorporated

      1.79  

Ingevity Corporation

      1.79  

Haemonetics Corporation

      1.60  
Sector distribution as of March 31, 20199

 

LOGO

 

 

 

 

Please see footnotes on page 7.

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10   Wells Fargo Traditional Small Cap Growth Fund   Fund expenses (unaudited)

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

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 982.24      $ 6.08        1.23 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.80      $ 6.19        1.23 % 

Class C

            

Actual

    $ 1,000.00      $ 979.32      $ 9.77        1.98 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,015.06      $ 9.95        1.98 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 982.67      $ 5.68        1.15 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,019.20      $ 5.78        1.15 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 983.80      $ 4.45        0.90 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.45      $ 4.53        0.90 % 

 

 

1

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Traditional Small Cap Growth Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 96.42%

 

         

Communication Services: 3.22%

           
Entertainment: 3.22%

 

         

CD Projekt SA †

           24,054      $ 1,278,839  

World Wrestling Entertainment Incorporated Class A

           20,957        1,818,648  
             3,097,487  
          

 

 

  

Consumer Discretionary: 14.14%

 

Auto Components: 1.58%

 

Stoneridge Incorporated †

           52,508        1,515,381  
          

 

 

  
Diversified Consumer Services: 5.47%

 

Adtalem Global Education Incorporated †

           29,722        1,376,723  

Bright Horizons Family Solutions Incorporated †

           11,178        1,420,836  

Chegg Incorporated †

           39,305        1,498,307  

OneSpaWorld Holdings Limited Ǡ

           70,696        965,707  
             5,261,573  
          

 

 

  
Hotels, Restaurants & Leisure: 1.79%

 

Eldorado Resorts Incorporated †

           36,888        1,722,301  
          

 

 

  
Household Durables: 1.09%

 

Skyline Champion Corporation

           54,972        1,044,468  
          

 

 

  
Internet & Direct Marketing Retail: 3.03%

 

Etsy Incorporated †

           18,811        1,264,475  

Waitr Holdings Incorporated †

           64,659        794,659  

Zooplus AG Ǡ

           7,539        859,219  
             2,918,353  
          

 

 

  
Leisure Products: 1.18%

 

Games Workshop Group plc

           27,720        1,135,468  
          

 

 

  

Energy: 2.10%

 

Oil, Gas & Consumable Fuels: 2.10%

 

Texas Pacific Land Trust «

           930        719,495  

Viper Energy Partners LP

           39,054        1,295,031  
             2,014,526  
          

 

 

  

Financials: 2.85%

 

Consumer Finance: 2.85%

 

Green Dot Corporation Class A †

           24,680        1,496,842  

SLM Corporation

           125,251        1,241,237  
             2,738,079  
          

 

 

  

Health Care: 26.43%

 

Biotechnology: 10.41%

 

AnaptysBio Incorporated †

           7,451        544,296  

Array BioPharma Incorporated †

           48,957        1,193,572  

 

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

Table of Contents

 

12   Wells Fargo Traditional Small Cap Growth Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  
Biotechnology (continued)

 

         

CareDx Incorporated †

           20,757      $ 654,261  

Coherus Biosciences Incorporated †

           41,723        569,102  

CRISPR Therapeutics AG Ǡ

           9,429        336,804  

Deciphera Pharmaceuticals Incorporated †

           10,463        242,846  

Heron Therapeutics Incorporated †

           13,917        340,131  

Immunomedics Incorporated Ǡ

           35,110        674,463  

Invitae Corporation †

           35,371        828,389  

KalVista Pharmaceuticals Incorporated †

           26,680        763,582  

Mirati Therapeutics Incorporated †

           8,724        639,469  

Precision BioSciences Incorporated †

           13,144        235,935  

Stemline Therapeutics Incorporated †

           41,937        538,890  

Veracyte Incorporated †

           37,832        946,557  

Vericel Corporation †

           58,762        1,028,923  

Zai Lab Limited ADR Ǡ

           16,022        472,809  
           10,010,029  
          

 

 

  
Health Care Equipment & Supplies: 10.98%

 

Avanos Medical Incorporated †

           23,977        1,023,338  

Axonics Modulation Technologies Incorporated †

           31,824        762,185  

BioLife Solutions Incorporated †

           74,400        1,331,016  

ConforMIS Incorporated Ǡ

           262,429        755,796  

Haemonetics Corporation †

           17,605        1,540,084  

ICU Medical Incorporated †

           5,327        1,274,911  

Insulet Corporation †

           15,895        1,511,456  

iRhythm Technologies Incorporated †

           15,348        1,150,486  

Orthopediatrics Corporation †

           27,243        1,204,958  
           10,554,230  
          

 

 

  
Health Care Providers & Services: 1.09%

 

HealthEquity Incorporated †

           14,137        1,045,855  
          

 

 

  
Health Care Technology: 0.86%

 

Inspire Medical Systems Incorporated †

           14,620        830,124  
          

 

 

  
Life Sciences Tools & Services: 2.08%

 

Fluidigm Corporation †

           106,806        1,419,452  

Quanterix Corporation †

           22,649        585,024  
           2,004,476  
          

 

 

  
Pharmaceuticals: 1.01%

 

GW Pharmaceuticals plc ADR Ǡ

           2,978        502,001  

Wave Life Sciences Limited Ǡ

           12,128        471,173  
           973,174  
          

 

 

  

Industrials: 17.15%

 

Aerospace & Defense: 4.60%

 

Aerojet Rocketdyne Holdings †

           42,905        1,524,415  

Axon Enterprise Incorporated †

           27,960        1,521,304  

Mercury Computer Systems Incorporated †

           21,473        1,375,990  
           4,421,709  
          

 

 

  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Traditional Small Cap Growth Fund     13  

      

 

 

Security name                 Shares      Value  
Airlines: 1.03%

 

Spirit Airlines Incorporated †

           18,766      $ 991,971  
          

 

 

  
Commercial Services & Supplies: 6.27%

 

Casella Waste Systems Incorporated Class A †

           68,681        2,442,296  

MSA Safety Incorporated

           17,417        1,800,918  

The Brink’s Company

           23,656        1,783,899  
           6,027,113  
          

 

 

  
Construction & Engineering: 1.46%

 

         

WillScot Corporation †

           127,134        1,409,916  
          

 

 

  
Road & Rail: 1.58%

 

Saia Incorporated †

           24,874        1,519,801  
          

 

 

  
Trading Companies & Distributors: 2.21%

 

SiteOne Landscape Supply Incorporated †

           15,746        899,884  

Univar Incorporated †

           55,270        1,224,783  
           2,124,667  
          

 

 

  

Information Technology: 27.59%

 

Electronic Equipment, Instruments & Components: 4.03%

 

Littelfuse Incorporated

           7,060        1,288,309  

Novanta Incorporated †

           17,040        1,443,799  

Rogers Corporation †

           7,212        1,145,843  
           3,877,951  
          

 

 

  
IT Services: 9.52%

 

EPAM Systems Incorporated †

           8,805        1,489,190  

Euronet Worldwide Incorporated †

           10,282        1,466,110  

InterXion Holding NV †

           6,302        420,532  

Keywords Studios plc

           68,944        1,038,042  

Okta Incorporated †

           8,406        695,428  

WEX Incorporated †

           7,451        1,430,517  

WNS Holdings Limited ADR †

           49,038        2,612,253  
           9,152,072  
          

 

 

  
Semiconductors & Semiconductor Equipment: 0.63%

 

Universal Display Corporation «

           3,933        601,159  
          

 

 

  
Software: 12.07%

 

2U Incorporated †

           10,202        722,812  

Avalara Incorporated †

           18,886        1,053,650  

Blue Prism Group plc Ǡ

           34,943        754,581  

Bottomline Technologies (de) Incorporated †

           24,702        1,237,323  

Envestnet Incorporated †

           30,975        2,025,455  

Globant SA †

           26,827        1,915,448  

LivePerson Incorporated †

           47,066        1,365,855  

Model N Incorporated †

           71,501        1,254,127  

Pluralsight Incorporated Class A †

           40,236        1,277,091  
           11,606,342  
          

 

 

  

 

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

Table of Contents

 

14   Wells Fargo Traditional Small Cap Growth Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                Shares      Value  
Technology Hardware, Storage & Peripherals: 1.34%

 

NCR Corporation †

          47,273      $ 1,290,080  
         

 

 

  

Materials: 1.79%

 

Chemicals: 1.79%

 

Ingevity Corporation †

          16,264        1,717,641  
         

 

 

  

Real Estate: 1.15%

 

Equity REITs: 1.15%

 

Innovative Industrial Properties Incorporated «

          13,507        1,103,387  
         

 

 

  

Total Common Stocks (Cost $77,133,761)

 

      92,709,333  
         

 

 

  
    Yield                      
Short-Term Investments: 9.61%          
Investment Companies: 9.61%          

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

     2.55 %                                  6,840,260        6,840,944  

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

     2.38          2,404,400        2,404,400  

Total Short-Term Investments (Cost $9,245,344)

             9,245,344  
         

 

 

  

 

Total investments in securities (Cost $86,379,105)     106.03 %         101,954,677  

Other assets and liabilities, net

     (6.03 )         (5,801,660 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 96,153,017  
 

 

 

       

 

 

  

 

 

†

Non-income-earning security

 

«

All or a portion of this security is on loan.

 

(l)

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

 

(r)

The investment is a non-registered investment company purchased with cash collateral received from securities on loan.

 

(u)

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

Abbreviations:

 

ADR

American depositary receipt

REIT

Real estate investment trust

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:

 

    Shares,
beginning of
period		     Shares
purchased		     Shares
sold		     Shares,
end of
period		     Net
realized
gains
(losses)		     Net
change in
unrealized
gains
(losses)		     Income
from
affiliated
securities		     Value,
end
of period		     % of
net
assets		  

Short-Term Investments

                  

Investment Companies

                  

Securities Lending Cash Investments LLC

     10,521,186       77,494,522       81,175,448       6,840,260     $ 689     $ 0     $ 203,560     $ 6,840,944    

Wells Fargo Government Money Market Fund Select Class

     870,700       45,126,108       43,592,408       2,404,400       0       0       54,377       2,404,400    
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ 689     $ 0     $ 257,937     $ 9,245,344       9.61 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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

Table of Contents

 

Statement of assets and liabilities—March 31, 2019   Wells Fargo Traditional Small Cap Growth Fund     15  
         

Assets

  

Investments in unaffiliated securities (including $6,708,374 of securities loaned), at value (cost $77,133,761)

   $ 92,709,333  

Investments in affiliated securities, at value (cost $9,245,344)

     9,245,344  

Foreign currency, at value (cost $335)

     323  

Receivable for investments sold

     2,884,803  

Receivable for Fund shares sold

     6,800  

Receivable for dividends

     12,236  

Receivable for securities lending income

     5,273  

Prepaid expenses and other assets

     22,884  
 

 

 

  

Total assets

     104,886,996  
 

 

 

  

Liabilities

  

Payable upon receipt of securities loaned

     6,839,267  

Payable for investments purchased

     1,464,922  

Due to custodian bank

     164,815  

Payable for Fund shares redeemed

     133,086  

Management fee payable

     46,240  

Administration fees payable

     16,457  

Trustees’ fees and expenses payable

     1,959  

Distribution fee payable

     216  

Accrued expenses and other liabilities

     67,017  
 

 

 

  

Total liabilities

     8,733,979  
 

 

 

  

Total net assets

   $ 96,153,017  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 78,700,529  

Total distributable earnings

     17,452,488  
 

 

 

  

Total net assets

   $ 96,153,017  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 86,005,510  

Shares outstanding – Class A1

     6,475,613  

Net asset value per share – Class A

     $13.28  

Maximum offering price per share – Class A2

     $14.09  

Net assets – Class C

   $ 348,701  

Shares outstanding – Class C1

     30,179  

Net asset value per share – Class C

     $11.55  

Net assets – Administrator Class

   $ 103,999  

Shares outstanding – Administrator Class1

     6,738  

Net asset value per share – Administrator Class

     $15.43  

Net assets – Institutional Class

   $ 9,694,807  

Shares outstanding – Institutional Class1

     608,087  

Net asset value per share – Institutional Class

     $15.94  

 

 

 

1 

The Fund has an unlimited number of authorized shares.

 

2 

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

 

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

Table of Contents

 

16   Wells Fargo Traditional Small Cap Growth Fund   Statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends

   $ 327,148  

Securities lending income from affiliates, net

     95,026  

Income from affiliated securities

     54,377  
 

 

 

  

Total investment income

     476,551  
 

 

 

  

Expenses

  

Management fee

     824,401  

Administration fees

  

Class A

     182,299  

Class C

     657  

Administrator Class

     170  

Institutional Class

     12,656  

Shareholder servicing fees

  

Class A

     217,023  

Class C

     783  

Administrator Class

     326  

Distribution fee

  

Class C

     2,348  

Custody and accounting fees

     8,248  

Professional fees

     52,349  

Registration fees

     60,991  

Shareholder report expenses

     43,714  

Trustees’ fees and expenses

     22,578  

Other fees and expenses

     8,180  
 

 

 

  

Total expenses

     1,436,723  

Less: Fee waivers and/or expense reimbursements

     (273,650 ) 
 

 

 

  

Net expenses

     1,163,073  
 

 

 

  

Net investment loss

     (686,522 ) 
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains on:

  

Unaffiliated securities

     22,169,810  

Affiliated securities

     689  
 

 

 

  

Net realized gains on investments

     22,170,499  

Net change in unrealized gains (losses) on investments

     (6,083,970 ) 
 

 

 

  

Net realized and unrealized gains (losses) on investments

     16,086,529  
 

 

 

  

Net increase in net assets resulting from operations

   $ 15,400,007  
 

 

 

  

 

 

 

 

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

Table of Contents

 

Statement of changes in net assets   Wells Fargo Traditional Small Cap Growth Fund     17  
     Year ended
March 31, 2019		     Year ended
March 31, 2018¹		  

Operations

        

Net investment loss

     $ (686,522 )      $ (710,379 ) 

Net realized gains on investments

       22,170,499         6,532,249  

Net change in unrealized gains (losses) on investments

       (6,083,970 )        8,067,432  
 

 

 

  

Net increase in net assets resulting from operations

       15,400,007         13,889,302  
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

        

Class A

       (20,884,975 )        (5,360,360 ) 

Class C

       (93,417 )        (16,142 ) 

Administrator Class

       (53,408 )        (7,844 ) 

Institutional Class

       (2,160,122 )        (468,228 ) 
 

 

 

  

Total distributions to shareholders

       (23,191,922 )        (5,852,574 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

        

Class A

     264,201       3,988,191       100,773       1,525,252  

Class C

     11,256       157,108       3,801       52,022  

Administrator Class

     8,969       158,898       6,799       114,428  

Institutional Class

     202,779       3,570,799       85,364       1,472,577  
 

 

 

  
      7,874,996         3,164,279  
 

 

 

  

Reinvestment of distributions

        

Class A

     1,770,518       20,467,178       352,388       5,243,537  

Class C

     8,060       81,241       975       13,232  

Administrator Class

     3,408       45,808       362       6,032  

Institutional Class

     129,330       1,792,511       26,092       443,822  
 

 

 

  
      22,386,738         5,706,623  
 

 

 

  

Payment for shares redeemed

        

Class A

     (1,090,350 )      (16,060,877 )      (795,898 )      (11,972,813 ) 

Class C

     (8,765 )      (106,912 )      (2,471 )      (34,576 ) 

Administrator Class

     (13,374 )      (189,489 )      (10,531 )      (172,453 ) 

Institutional Class

     (230,424 )      (3,981,806 )      (107,067 )      (1,838,265 ) 
 

 

 

  
      (20,339,084 )        (14,018,107 ) 
 

 

 

  

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

       9,922,650         (5,147,205 ) 
 

 

 

  

Total increase in net assets

       2,130,735         2,889,523  
 

 

 

  

Net assets

        

Beginning of period

       94,022,282         91,132,759  
 

 

 

  

End of period

     $ 96,153,017       $ 94,022,282  
 

 

 

  

 

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and permitted the aggregation of distributions, with the exception of tax basis returns of capital. Accumulated net investment loss at March 31, 2018 was $73,600. The disaggregated distributions information for the year ended March 31, 2018 is included in Note 7, Distributions to Shareholders, in the notes to the financial statements.

 

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  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $15.32       $14.08       $12.05       $18.04       $20.37  

Net investment loss

     (0.11 )1      (0.12 )1      (0.10 )1      (0.12 )1      (0.18 ) 

Net realized and unrealized gains (losses) on investments

     2.17       2.35       2.51       (2.13 )      1.33  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     2.06       2.23       2.41       (2.25 )      1.15  

Distributions to shareholders from

          

Net realized gains

     (4.10 )      (0.99 )      (0.38 )      (3.74 )      (3.48 ) 

Net asset value, end of period

     $13.28       $15.32       $14.08       $12.05       $18.04  

Total return2

     17.46 %      16.08 %      20.10 %      (12.86 )%      6.77 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.51 %      1.52 %      1.51 %      1.50 %      1.47 % 

Net expenses

     1.23 %      1.33 %      1.33 %      1.33 %      1.33 % 

Net investment loss

     (0.74 )%      (0.79 )%      (0.77 )%      (0.74 )%      (0.87 )% 

Supplemental data

          

Portfolio turnover rate

     155 %      44 %      113 %      123 %      73 % 

Net assets, end of period (000s omitted)

     $86,006       $84,738       $82,734       $84,139       $123,712  

 

 

 

 

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 Traditional Small Cap Growth Fund     19  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $13.94       $12.99       $11.22       $17.21       $19.73  

Net investment loss

     (0.20 )1      (0.21 )1      (0.18 )1      (0.18 )1      (0.29 )1 

Net realized and unrealized gains (losses) on investments

     1.91       2.15       2.33       (2.07 )      1.25  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     1.71       1.94       2.15       (2.25 )      0.96  

Distributions to shareholders from

          

Net realized gains

     (4.10 )      (0.99 )      (0.38 )      (3.74 )      (3.48 ) 

Net asset value, end of period

     $11.55       $13.94       $12.99       $11.22       $17.21  

Total return2

     16.69 %      15.17 %      19.26 %      (13.55 )%      5.98 % 

Ratios to average net assets (annualized)

          

Gross expenses

     2.26 %      2.27 %      2.26 %      2.25 %      2.22 % 

Net expenses

     1.98 %      2.08 %      2.08 %      2.08 %      2.08 % 

Net investment loss

     (1.48 )%      (1.54 )%      (1.52 )%      (1.49 )%      (1.61 )% 

Supplemental data

          

Portfolio turnover rate

     155 %      44 %      113 %      123 %      73 % 

Net assets, end of period (000s omitted)

     $349       $274       $225       $162       $232  

 

 

 

 

1 

Calculated based upon average shares outstanding

 

2 

Total return calculations do not include any sales charges.

 

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

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20   Wells Fargo Traditional Small Cap Growth Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $17.14       $15.63       $13.29       $19.44       $21.65  

Net investment loss

     (0.11 )1      (0.11 )1      (0.09 )1      (0.10 )1      (0.15 )1 

Net realized and unrealized gains (losses) on investments

     2.50       2.61       2.81       (2.31 )      1.42  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     2.39       2.50       2.72       (2.41 )      1.27  

Distributions to shareholders from

          

Net realized gains

     (4.10 )      (0.99 )      (0.38 )      (3.74 )      (3.48 ) 

Net asset value, end of period

     $15.43       $17.14       $15.63       $13.29       $19.44  

Total return

     17.59 %      16.21 %      20.56 %      (12.76 )%      6.93 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.43 %      1.44 %      1.43 %      1.39 %      1.29 % 

Net expenses

     1.15 %      1.20 %      1.20 %      1.20 %      1.19 % 

Net investment loss

     (0.63 )%      (0.66 )%      (0.64 )%      (0.61 )%      (0.73 )% 

Supplemental data

          

Portfolio turnover rate

     155 %      44 %      113 %      123 %      73 % 

Net assets, end of period (000s omitted)

     $104       $133       $174       $2,413       $3,128  

 

 

 

 

 

1 

Calculated based upon average shares outstanding

 

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

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Financial highlights   Wells Fargo Traditional Small Cap Growth Fund     21  

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $17.53       $15.94       $13.54       $19.69       $21.84  

Net investment loss

     (0.07 )1      (0.08 )1      (0.06 )1      (0.07 )1      (0.11 )1 

Net realized and unrealized gains (losses) on investments

     2.58       2.66       2.84       (2.34 )      1.44  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     2.51       2.58       2.78       (2.41 )      1.33  

Distributions to shareholders from

          

Net realized gains

     (4.10 )      (0.99 )      (0.38 )      (3.74 )      (3.48 ) 

Net asset value, end of period

     $15.94       $17.53       $15.94       $13.54       $19.69  

Total return

     17.85 %      16.40 %      20.62 %      (12.58 )%      7.16 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.18 %      1.19 %      1.18 %      1.14 %      1.04 % 

Net expenses

     0.90 %      0.98 %      0.98 %      0.98 %      0.98 % 

Net investment loss

     (0.41 )%      (0.44 )%      (0.43 )%      (0.39 )%      (0.52 )% 

Supplemental data

          

Portfolio turnover rate

     155 %      44 %      113 %      123 %      73 % 

Net assets, end of period (000s omitted)

     $9,695       $8,878       $8,001       $8,980       $11,812  

 

 

 

 

 

 

1 

Calculated based upon average shares outstanding

 

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

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22   Wells Fargo Traditional Small Cap Growth Fund   Notes to financial statements

1. ORGANIZATION

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

2. SIGNIFICANT ACCOUNTING POLICIES

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

Securities valuation

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

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

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

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, 2019, such fair value pricing was not used in pricing foreign securities.

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 Wells Fargo Asset Management Pricing Committee at 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 Wells Fargo Asset Management Pricing Committee which may include items for ratification.

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 Wells Fargo Asset Management Pricing Committee. 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

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Notes to financial statements   Wells Fargo Traditional Small Cap Growth Fund     23  

changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Securities lending

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

The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund, if any, is included in securities lending income from affiliates (net of fees and rebates) 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 any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $86,540,150 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 19,042,189  

Gross unrealized losses

      (3,627,662 ) 

Net unrealized gains

    $ 15,414,527  

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24   Wells Fargo Traditional Small Cap Growth Fund   Notes to financial statements

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. At March 31, 2019, 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   

Total distributable

earnings

$(1,501)    $1,501

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Significant
unobservable inputs

(Level 3)

      Total  

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 3,097,487      $ 0      $ 0      $ 3,097,487  

Consumer discretionary

      13,597,544        0        0        13,597,544  

Energy

      2,014,526        0        0        2,014,526  

Financials

      2,738,079        0        0        2,738,079  

Health care

      25,417,888        0        0        25,417,888  

Industrials

      16,495,177        0        0        16,495,177  

Information technology

      26,527,604        0        0        26,527,604  

Materials

      1,717,641        0        0        1,717,641  

Real estate

      1,103,387        0        0        1,103,387  

Short-term investments

            

Investment companies

      2,404,400        6,840,944        0        9,245,344  

Total assets

    $ 95,113,733      $ 6,840,944      $ 0      $ 101,954,677  

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Notes to financial statements   Wells Fargo Traditional Small Cap Growth Fund     25  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $500 million

      0.850 % 

Next $500 million

      0.825  

Next $1 billion

      0.800  

Next $1 billion

      0.775  

Next $1 billion

      0.750  

Next $1 billion

      0.730  

Next $5 billion

      0.720  

Over $10 billion

      0.710  

For the year ended March 31, 2019, 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

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

 

     Class-level
administration fee		  

Class A, Class C

      0.21 % 

Administrator Class, Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.23% for Class A shares, 1.98% for Class C shares, 1.15% for Administrator Class shares, and 0.90% for Institutional Class shares. Prior to or after the commitment expiration date, 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 April 2, 2018, the Fund’s expenses were capped 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.

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26   Wells Fargo Traditional Small Cap Growth Fund   Notes to financial statements

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, 2019, Funds Distributor received $1,157 from the sale of Class A shares. No contingent deferred sales charges were incurred by Class A and Class C shares for the year ended March 31, 2019.

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.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.

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, 2019 were $146,347,146 and $161,867,540, respectively.

6. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

For the year ended March 31, 2019, 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, 2019 and March 31, 2018 were as follows:

 

     Year ended March 31  
     2019      2018  

Ordinary income

    $ 2,828,951      $ 2,191,875  

Long-term capital gain

      20,362,971        3,660,699  

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

ordinary
income

   

Undistributed

long-term
gain

   

Unrealized

gains

$1,713,085    $336,969    $15,414,514

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Notes to financial statements   Wells Fargo Traditional Small Cap Growth Fund     27  

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net realized
gains		  

Class A

    $ 5,360,360  

Class C

      16,142  

Administrator Class

      7,844  

Institutional Class

      468,228  

8. CONCENTRATION RISK

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

9. INDEMNIFICATION

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

10. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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28   Wells Fargo Traditional Small Cap Growth Fund   Report of independent registered public accounting firm

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Traditional Small Cap Growth Fund (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 24, 2019

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Other information (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     29  

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 2.35% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2019.

Pursuant to Section 852 of the Internal Revenue Code, $20,362,971 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2019.

Pursuant to Section 854 of the Internal Revenue Code, $86,566 of income dividends paid during the fiscal year ended March 31, 2019 has been designated as qualified dividend income (QDI).

For the fiscal year ended March 31, 2019, $2,828,951 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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30   Wells Fargo 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 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

  

Position held and

length of service*

   Principal occupations during past five years or longer  

Current other

public company or

investment company

directorships

William R. Ebsworth (Born 1957)   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

   Trustee, since 2015;
Chair Liaison, since 2018		   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

   Trustee, since 2009;
Audit Committee Chairman, since 2019		   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation

Judith M. Johnson

(Born 1949)

   Trustee, since 2008;
Audit Committee Chairman, from 2009 to 2018		   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.   N/A

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Other information (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     31  

Name and

year of birth

  

Position held and

length of service*

   Principal occupations during past five years or longer  

Current other

public company or

investment company

directorships

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.   N/A
Olivia S. Mitchell
(Born 1953)		   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A
Timothy J. Penny
(Born 1951)		   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A
James G. Polisson
(Born 1959)		   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A
Pamela Wheelock
(Born 1959)		   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently the Board Chair of Minnesota Wild Foundation since 2010.   N/A

 

*

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

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32   Wells Fargo Traditional Small Cap Growth Fund   Other information (unaudited)

Officers

 

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

Andrew Owen

(Born 1960)

   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    

Nancy Wiser1

(Born 1967)

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

Alexander Kymn

(Born 1973)

   Secretary and
Chief Legal Officer, since 2018		   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    

Michael H. Whitaker

(Born 1967)

   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    

David Berardi

(Born 1975)

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

Jeremy DePalma1

(Born 1974)

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

 

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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Appendix A (unaudited)   Wells Fargo Traditional Small Cap Growth Fund     33  

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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For more information

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

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

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401595 05-19

A247/AR247 03-19

 

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Annual Report

March 31, 2019

 

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Wells Fargo Precious Metals Fund

 

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Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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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

     20  

Report of independent registered public accounting firm

     26  

Other information

    27  

Appendix A

    31  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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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Letter to shareholders (unaudited)   Wells Fargo Precious Metals Fund     3  

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

    

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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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, 2019

 

        Including sales charge     Excluding sales charge           Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year           Gross     Net2  
 
Class A (EKWAX)3   1-20-1998     -2.47       -2.18       -3.07       3.48       -1.02       -2.49               1.21       1.09  
 
Class C (EKWCX)3   1-29-1998     1.72       -1.75       -3.21       2.72       -1.75       -3.21               1.96       1.84  
 
Administrator Class (EKWDX)4   7-30-2010     –       –       –       3.63       -0.87       -2.35               1.13       0.95  
 
Institutional Class (EKWYX)3   2-29-2000     –       –       –       3.81       -0.72       -2.19               0.88       0.79  
 
FTSE Gold Mines Index5   –     –       –       –       2.29       0.76       -4.31               –       –  
 
S&P 500 Index6   –     –       –       –       9.50       10.91       15.92               –       –  

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, wfam.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 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, much as gold-related investments, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk, geographic, non-diversification risk, smaller-company securities risk, and subsidiary risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 7.

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Performance highlights (unaudited)   Wells Fargo Precious Metals Fund     7  
Growth of $10,000 investment as of March 31, 20197
LOGO

 

 

 

‡

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

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 ratios shown in the financial highlights of this report.

 

2 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at the amounts shown. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

Historical performance shown for this class prior to July 19, 2010, is based on the performance of the same class of the Fund’s predecessor, Evergreen Precious Metals Fund.

 

4 

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.

 

5 

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.

 

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 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%.

 

8 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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.

Table of Contents

 

8   Wells Fargo Precious Metals Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund outperformed its benchmark, the FTSE Gold Mines Index, for the 12-month period that ended March 31, 2019.

 

∎  

The Fund’s positions in Torex Gold Resources Incorporated and Wheaton Precious Metals Corporation aided results, as did its overweight to Kirkland Lake Gold Limited. Underweights to Goldcorp Incorporated and Newmont Mining Corporation also helped results.

 

∎  

The Fund’s overweights to Fresnillo plc, IAMGOLD Corporation, and Detour Gold Corporation detracted from results during the period. Underweights to Anglogold Ashanti Limited, Barrick Gold Corporation, and Newcrest Mining Limited also detracted from results.

 

∎  

The price of gold fell approximately 2.6% during the 12-month period, and the share prices of precious metals stocks outperformed the gold price.

Gold prices fell during the first half of the period and increased during the second half.

The price of gold declined 10% during the first two quarters of the reporting period. Positive U.S. economic data including higher gross domestic product growth and lower unemployment caused the U.S. Federal Reserve (Fed) to raise interest rates, pushing bond yields and the U.S. dollar higher and the gold price lower. During the third and fourth quarters of the reporting period, gold prices rose 8.4%. The gold price was propelled higher during the fall and winter months by a weakening global economy. The economic weakness caused a decline in stock and commodity markets as well as bond yields.

 

Ten largest holdings (%) as of March 31, 20198  

Barrick Gold Corporation

     7.81  

Newmont Mining Corporation

     7.34  

Royal Gold Incorporated

     5.77  

Kirkland Lake Gold Limited

     5.64  

Newcrest Mining Limited

     5.55  

Kinross Gold Corporation

     4.65  

Agnico Eagle Mines Limited-U.S. Exchange Traded Shares

     4.53  

Gold Bullion

     4.45  

Wheaton Precious Metals Corporation-U.S. Exchange Traded Shares

     4.45  

Franco-Nevada Corporation-Legend Shares

     3.81  

Purchases and sales of gold exchange-traded funds (ETFs) have an impact on gold prices. Purchases of gold ETFs declined during the first half of the reporting period, negatively affecting the price of gold. During the second half of the reporting period, gold-backed ETF purchases accelerated as rising economic uncertainty caused the stock market and bond yields to fall and physical demand for gold to rise.

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. However, this was not the case during the 12-month reporting period. Companies that delivered better-than-expected operating and financial results fared the best.

 

 

Torex Gold’s share price more than doubled during the reporting period. The company benefited from the successful restart of its El Limon Mine in Mexico. As a result, production guidance was raised for both 2018 and 2019. Kirkland Lake Gold was one of the Fund’s best contributors as multiple revisions to guidance caused the stock to outperform. Wheaton Precious Metals was another key contributor, rising on news of a positive tax settlement with the Canada Revenue Agency.

 

 

Please see footnotes on page 7.

Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Precious Metals Fund     9  
Country allocation as of March 31, 20199

LOGO

 

Three of the Fund’s most noteworthy detractors were Fresnillo, IAMGOLD, and Detour Gold. Fresnillo declined after the firm announced that 2019 production would be lower than expected and that its Juanicipio development project would be delayed. IAMGOLD dropped on news that the company would be deferring the development of its Cote Lake Mine until market conditions improved. The Fund’s underweight to Barrick Gold also detracted from performance as the company benefited from the positive market reaction to its announced merger with Randgold Resources Limited.

 

 

In our view, investment in gold and precious metals companies likely will remain a perceived hedge against economic and political uncertainty.

We believe the short-term outlook for gold prices depends largely on economic data and their resulting impact on U.S. interest rates and the U.S. dollar. With economic growth slowing during the fourth quarter of the reporting period and inflation expectations falling, the Fed removed its previous outlook of additional interest rate increases in 2019. Should this occur, we believe the economic environment likely would continue to support gold prices and gold stocks.

Over the longer term, we believe the primary drivers of gold are positive. First, rising fiscal deficits in the U.S. could cause the dollar to weaken. Second, increasing inflation in the U.S., caused by a tight labor market and higher-cost imported goods, could benefit the price of gold. And finally, increased stock market volatility from rising geopolitical risks may cause investors to offset this risk by adding gold to their investment portfolios.

We believe gold-related stocks may have better appreciation potential than the metal itself. However, stock selection will remain important because, in our view, company fundamentals tend to drive stock prices. We believe higher-quality companies with internal growth catalysts, such as effective execution of business plans and mining successes, are most likely to outperform their peers.

 

 

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, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 1,213.88      $ 6.02        1.09 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,019.50      $ 5.49        1.09 % 

Class C

            

Actual

    $ 1,000.00      $ 1,209.72      $ 10.14        1.84 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,015.76      $ 9.25        1.84 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 1,215.10      $ 5.25        0.95 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.19      $ 4.78        0.95 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 1,215.97      $ 4.36        0.79 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.99      $ 3.98        0.79 % 

 

 

1

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

Table of Contents

 

Consolidated portfolio of investments—March 31, 2019   Wells Fargo Precious Metals Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 94.47%

 

Australia: 10.79%

 

Evolution Mining Limited (Materials, Metals & Mining)

           2,800,000      $ 7,276,590  

Newcrest Mining Limited (Materials, Metals & Mining)

           862,294        15,619,050  

Northern Star Resources Limited (Materials, Metals & Mining)

           1,175,000        7,467,061  
             30,362,701  
          

 

 

  
Canada: 65.57%

 

Agnico-Eagle Mines Limited (Materials, Metals & Mining)

           225,370        9,798,329  

Agnico-Eagle Mines Limited-Legend Shares (Materials, Metals & Mining)

           35,000        1,522,500  

Agnico-Eagle Mines Limited-U.S. Exchange Traded Shares (Materials, Metals & Mining)

           293,164        12,752,634  

Alamos Gold Incorporated Class A (Materials, Metals & Mining)

           813,980        4,129,745  

B2Gold Corporation (Materials, Metals & Mining) †

           2,650,000        7,416,470  

Barrick Gold Corporation (Materials, Metals & Mining)

           1,601,723        21,959,622  

Centerra Gold Incorporated-Legend Shares (Materials, Metals & Mining) 144A

           350,000        1,835,971  

Continental Gold Incorporated (Materials, Metals & Mining) †

           1,200,000        2,595,129  

Detour Gold Corporation (Materials, Metals & Mining) †

           221,057        2,074,348  

Detour Gold Corporation-Legend Shares (Materials, Metals & Mining) 144A

           525,000        4,926,479  

Detour Gold Corporation-Legend Shares (Materials, Metals & Mining)

           90,000        844,539  

Endeavour Mining Corporation (Materials, Metals & Mining) †

           410,000        6,154,525  

Franco-Nevada Corporation-Legend Shares (Materials, Metals & Mining) 144A

           142,948        10,717,222  

Goldcorp Incorporated (Materials, Metals & Mining)

           500,454        5,726,001  

Goldcorp Incorporated-U.S. Exchange Traded Shares (Materials, Metals & Mining)

           165,694        1,895,539  

IAMGOLD Corporation (Materials, Metals & Mining) †

           1,955,000        6,773,413  

Kinross Gold Corporation (Materials, Metals & Mining) †

           3,800,553        13,082,309  

Kirkland Lake Gold Limited (Materials, Metals & Mining)

           522,000        15,874,644  

Mag Silver Corporation (Materials, Metals & Mining) †

           590,000        6,300,221  

Mag Silver Corporation-Legend Shares (Materials, Metals & Mining)

           100,000        1,067,834  

OceanaGold Corporation (Materials, Metals & Mining)

           1,450,000        4,557,189  

Osisko Gold Royalties Limited (Materials, Metals & Mining)

           246,700        2,770,956  

Pan American Silver Corporation (Materials, Metals & Mining)

           160,000        2,120,000  

Pretium Resources Incorporated (Materials, Metals & Mining) †

           175,000        1,495,491  

Semafo Incorporated (Materials, Metals & Mining) †

           2,660,400        7,385,853  

SSR Mining Incorporated (Materials, Metals & Mining) †

           500,000        6,330,000  

Torex Gold Resources Incorporated (Materials, Metals & Mining) †

           160,000        2,013,844  

Torex Gold Resources Incorporated-Legend Shares (Materials, Metals & Mining) 144A

           185,000        2,328,507  

Torex Gold Resources Incorporated-Legend Shares (Materials, Metals & Mining)

           266,250        3,351,162  

Wheaton Precious Metals Corporation (Materials, Metals & Mining)

           12,950        308,257  

Wheaton Precious Metals Corporation-U.S. Exchange Traded Shares (Materials, Metals & Mining)

           525,000        12,505,500  

Yamana Gold Incorporated (Materials, Metals & Mining)

           700,000        1,822,876  
             184,437,109  
          

 

 

  
Peru: 0.77%

 

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

           125,000        2,160,000  
          

 

 

  
South Africa: 1.00%

 

AngloGold Ashanti Limited ADR (Materials, Metals & Mining)

           215,591        2,824,242  
          

 

 

  
United Kingdom: 3.23%

 

Fresnillo plc (Materials, Metals & Mining)

           800,000        9,073,385  
          

 

 

  

 

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, 2019

      

 

 

Security name                Shares      Value  
United States: 13.11%

 

Newmont Mining Corporation (Materials, Metals & Mining)

          577,455      $ 20,655,565  

Royal Gold Incorporated (Materials, Metals & Mining)

          178,436        16,225,186  
            36,880,751  
         

 

 

  

Total Common Stocks (Cost $185,181,486)

 

      265,738,188  
  

 

 

  
                                    Troy ounces         
Commodities: 4.45%          

Gold Bullion †**

          5,352        12,522,932  
         

 

 

  

Total Commodities (Cost $5,772,407)

             12,522,932  
         

 

 

  
    Yield            Shares         
Short-Term Investments: 1.19%          
Investment Companies: 1.19%          

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

     2.38 %         3,331,397        3,331,397  
         

 

 

  

Total Short-Term Investments (Cost $3,331,397)

             3,331,397        
         

 

 

  

 

Total investments (Cost $194,285,290)     100.11 %         281,592,517  

Other assets and liabilities, net

     (0.11 )         (308,088 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 281,284,429  
 

 

 

       

 

 

  

 

 

†

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.

 

**

Represents an investment held in 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.

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:    

 

    Shares,
beginning of
period		     Shares
purchased		     Shares
sold		     Shares,
end of
period		     Net
realized
gains
(losses)		     Net
change in
unrealized
gains
(losses)		     Income
from
affiliated
securities		     Value,
end
of period		     % of
net
assets		  

Short-Term Investments

                  

Investment Companies

                  

Wells Fargo Government Money Market Fund Select Class

     4,941,346       80,329,061       81,939,010       3,331,397     $ 0     $ 0     $ 87,990     $ 3,331,397       1.19 % 

 

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

Table of Contents

 

Consolidated statement of assets and liabilities—March 31, 2019   Wells Fargo Precious Metals Fund     13  
         

Assets

  

Investments in unaffiliated securities, at value (cost $185,181,486)

   $ 265,738,188  

Investments in commodities, at value (cost $5,772,407)

     12,522,932  

Investments in affiliated securities, at value (cost $3,331,397)

     3,331,397  

Cash

     28,311  

Foreign currency, at value (cost $642,186)

     642,853  

Receivable for investments sold

     1,369  

Receivable for Fund shares sold

     489,829  

Receivable for dividends

     104,942  

Prepaid expenses and other assets

     50,609  
 

 

 

  

Total assets

     282,910,430  
 

 

 

  

Liabilities

  

Payable for Fund shares redeemed

     1,166,274  

Management fee payable

     126,266  

Administration fees payable

     43,423  

Distribution fee payable

     9,677  

Trustees’ fees and expenses payable

     1,943  

Accrued expenses and other liabilities

     278,418  
 

 

 

  

Total liabilities

     1,626,001  
 

 

 

  

Total net assets

   $ 281,284,429  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 392,405,441  

Total distributable loss

     (111,121,012 ) 
 

 

 

  

Total net assets

   $ 281,284,429  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 162,859,665  

Shares outstanding – Class A1

     4,797,891  

Net asset value per share – Class A

     $33.94  

Maximum offering price per share – Class A2

     $36.01  

Net assets – Class C

   $ 14,907,629  

Shares outstanding – Class C1

     498,981  

Net asset value per share – Class C

     $29.88  

Net assets – Administrator Class

   $ 8,085,717  

Shares outstanding – Administrator Class1

     235,832  

Net asset value per share – Administrator Class

     $34.29  

Net assets – Institutional Class

   $ 95,431,418  

Shares outstanding – Institutional Class1

     2,760,746  

Net asset value per share – Institutional Class

     $34.57  

 

 

 

1 

The Fund has an unlimited number of authorized shares.

 

2 

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

 

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

Table of Contents

 

14   Wells Fargo Precious Metals Fund   Consolidated statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends (net of foreign withholding taxes of $144,223)

   $ 2,671,723  

Income of affiliated securities

     87,990  
 

 

 

  

Total investment income

     2,759,713  
 

 

 

  

Expenses

  

Management fee

     1,821,506  

Administration fees

 

Class A

     328,820  

Class C

     54,450  

Administrator Class

     11,071  

Institutional Class

     115,968  

Shareholder servicing fees

 

Class A

     391,452  

Class C

     64,822  

Administrator Class

     21,289  

Distribution fee

 

Class C

     194,466  

Custody and accounting fees

     47,968  

Professional fees

     65,435  

Registration fees

     70,721  

Shareholder report expenses

     77,123  

Trustees’ fees and expenses

     22,579  

Transfer agent fees

     7,733  

Other fees and expenses

     23,294  
 

 

 

  

Total expenses

     3,318,697  

Less: Fee waivers and/or expense reimbursements

     (344,379 ) 
 

 

 

  

Net expenses

     2,974,318  
 

 

 

  

Net investment loss

     (214,605 ) 
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized losses on investments

     (7,313,853 ) 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

     15,057,413  

Commodities

     (331,112 ) 
 

 

 

  

Net change in unrealized gains (losses) on investments

     14,726,301  
 

 

 

  

Net realized and unrealized gains (losses) on investments

     7,412,448  
 

 

 

  

Net increase in net assets resulting from operations

   $ 7,197,843  
 

 

 

  

 

 

 

 

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, 2019		     Year ended
March 31, 20181		  

Operations

 

  

Net investment loss

     $ (214,605 )      $ (1,185,623 ) 

Net realized losses on investments

       (7,313,853 )        (589,728 ) 

Net change in unrealized gains (losses) on investments

       14,726,301         (24,177,396 ) 
 

 

 

  

Net increase (decrease) in net assets resulting from operations

       7,197,843         (25,952,747 ) 
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

 

  

Class A

       0         (2,808,058 ) 

Class C

       0         (414,068 ) 

Administrator Class

       0         (169,120 ) 

Institutional Class

       0         (1,238,811 ) 
 

 

 

  

Total distributions to shareholders

       0         (4,630,057 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

 

Class A

     1,198,292       37,973,472       1,343,343       47,874,671  

Class C

     42,566       1,175,460       71,931       2,255,869  

Administrator Class

     22,524       739,042       312,074       11,409,031  

Institutional Class

     1,646,466       53,786,635       1,240,353       44,707,060  
 

 

 

  
      93,674,609         106,246,631  
 

 

 

  

Reinvestment of distributions

 

Class A

     0       0       76,499       2,579,538  

Class C

     0       0       12,259       367,387  

Administrator Class

     0       0       4,880       165,920  

Institutional Class

     0       0       34,049       1,164,824  
 

 

 

  
      0         4,277,669  
 

 

 

  

Payment for shares redeemed

 

Class A

     (1,822,759 )      (56,867,045 )      (2,732,751 )      (97,070,775 ) 

Class B

     N/A       N/A       (9,235 )2      (291,832 )2 

Class C

     (678,903 )      (19,431,951 )      (467,766 )      (14,797,679 ) 

Administrator Class

     (63,191 )      (2,054,168 )      (463,024 )      (16,820,569 ) 

Institutional Class

     (1,367,558 )      (43,913,813 )      (1,251,776 )      (44,720,355 ) 
 

 

 

  
      (122,266,977 )        (173,701,210 ) 
 

 

 

  

Net decrease in net assets resulting from capital share transactions

       (28,592,368 )        (63,176,910 ) 
 

 

 

  

Total decrease in net assets

       (21,394,525 )        (93,759,714 ) 
 

 

 

  

Net assets

    

Beginning of period

       302,678,954         396,438,668  
 

 

 

  

End of period

     $ 281,284,429       $ 302,678,954  
 

 

 

  

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and to disaggregate distributions to shareholders between distributions from net investment income and distributions from realized gains. Accumulated net investment loss at March 31, 2018 was $12,736. The disaggregated distributions information for the year ended March 31, 2018 is included in Note 8, Distributions to Shareholders, in the notes to the financial statements.

 

2 

For the period from April 1, 2017 to May 5, 2017. Effective at the close of business on May 5, 2017, Class B 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 Precious Metals Fund   Consolidated financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $32.80       $35.99       $32.73       $28.99       $36.65  

Net investment loss

     (0.03 )1      (0.11 )1      (0.22 )1      (0.05 )      (0.11 )1 

Net realized and unrealized gains (losses) on investments

     1.17       (2.60 )      3.85       3.79       (7.55 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     1.14       (2.71 )      3.63       3.74       (7.66 ) 

Distributions to shareholders from net investment income

     0.00       (0.48 )      (0.37 )      0.00       0.00  

Net asset value, end of period

     $33.94       $32.80       $35.99       $32.73       $28.99  

Total return2

     3.48 %      (7.56 )%      11.24 %      12.90 %      (20.90 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     1.22 %      1.21 %      1.20 %      1.23 %      1.23 % 

Net expenses

     1.09 %      1.04 %      1.09 %      1.10 %      1.10 % 

Net investment loss

     (0.11 )%      (0.32 )%      (0.57 )%      (0.24 )%      (0.30 )% 

Supplemental data

          

Portfolio turnover rate3

     19 %      27 %      21 %      18 %      9 % 

Net assets, end of period (000s omitted)

     $162,860       $177,859       $242,423       $236,310       $211,477  

 

 

 

 

1 

Calculated based upon average shares outstanding

 

2 

Total return calculations do not include any sales charges.

 

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

 

Consolidated financial highlights   Wells Fargo Precious Metals Fund     17  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $29.09       $32.07       $29.10       $25.97       $33.08  

Net investment loss

     (0.24 )1      (0.33 )1      (0.46 )1      (0.24 )1      (0.35 )1 

Net realized and unrealized gains (losses) on investments

     1.03       (2.30 )      3.49       3.37       (6.76 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     0.79       (2.63 )      3.03       3.13       (7.11 ) 

Distributions to shareholders from net investment income

     0.00       (0.35 )      (0.06 )      0.00       0.00  

Net asset value, end of period

     $29.88       $29.09       $32.07       $29.10       $25.97  

Total return2

     2.72 %      (8.24 )%      10.42 %      12.05 %      (21.49 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     1.97 %      1.96 %      1.95 %      1.99 %      1.98 % 

Net expenses

     1.84 %      1.79 %      1.84 %      1.85 %      1.85 % 

Net investment loss

     (0.88 )%      (1.07 )%      (1.32 )%      (0.99 )%      (1.06 )% 

Supplemental data

          

Portfolio turnover rate3

     19 %      27 %      21 %      18 %      9 % 

Net assets, end of period (000s omitted)

     $14,908       $33,022       $48,710       $52,648       $59,074  

 

 

 

 

1 

Calculated based upon average shares outstanding

 

2 

Total return calculations do not include any sales charges.

 

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

 

18   Wells Fargo Precious Metals Fund   Consolidated financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $33.09       $36.27       $32.98       $29.17       $36.82  

Net investment income (loss)

     0.01 1      (0.09 )1      (0.17 )1      (0.03 )1      (0.06 )1 

Net realized and unrealized gains (losses) on investments

     1.19       (2.59 )      3.87       3.84       (7.59 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     1.20       (2.68 )      3.70       3.81       (7.65 ) 

Distributions to shareholders from net investment income

     0.00       (0.50 )      (0.41 )      0.00       0.00  

Net asset value, end of period

     $34.29       $33.09       $36.27       $32.98       $29.17  

Total return

     3.63 %      (7.40 )%      11.37 %      13.06 %      (20.78 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     1.14 %      1.15 %      1.12 %      1.13 %      1.07 % 

Net expenses

     0.95 %      0.91 %      0.95 %      0.96 %      0.96 % 

Net investment income (loss)

     0.04 %      (0.25 )%      (0.44 )%      (0.10 )%      (0.17 )% 

Supplemental data

          

Portfolio turnover rate2

     19 %      27 %      21 %      18 %      9 % 

Net assets, end of period (000s omitted)

     $8,086       $9,148       $15,325       $16,114       $21,917  

 

 

 

 

 

1 

Calculated based upon average shares outstanding

 

2 

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  
INSTITUTIONAL CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $33.30       $36.47       $33.21       $29.33       $36.96  

Net investment income (loss)

     0.04       0.02       (0.09 )1      0.02 1      0.01 1 

Net realized and unrealized gains (losses) on investments

     1.23       (2.67 )      3.85       3.86       (7.64 ) 
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     1.27       (2.65 )      3.76       3.88       (7.63 ) 

Distributions to shareholders from net investment income

     0.00       (0.52 )      (0.50 )      0.00       0.00  

Net asset value, end of period

     $34.57       $33.30       $36.47       $33.21       $29.33  

Total return

     3.81 %      (7.27 )%      11.49 %      13.23 %      (20.64 )% 

Ratios to average net assets (annualized)

          

Gross expenses

     0.89 %      0.88 %      0.88 %      0.88 %      0.80 % 

Net expenses

     0.79 %      0.73 %      0.79 %      0.80 %      0.79 % 

Net investment income (loss)

     0.21 %      0.01 %      (0.24 )%      0.06 %      0.03 % 

Supplemental data

          

Portfolio turnover rate2

     19 %      27 %      21 %      18 %      9 % 

Net assets, end of period (000s omitted)

     $95,431       $82,650       $89,680       $60,156       $43,014  

 

 

 

 

 

1 

Calculated based upon average shares outstanding.

 

2 

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   Notes to consolidated 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 Precious Metals Fund (the “Fund”) which is a non-diversified series of the Trust.

Effective at the close of business on May 5, 2017, Class B shares were converted to Class A shares and are no longer offered by the Fund. Information for Class B shares reflected in the financial statements represents activity through May 5, 2017.

2. INVESTMENT IN SUBSIDIARY

The Fund invests in precious metals and minerals through 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, 2019, the Subsidiary held $12,522,932 in gold bullion representing 99.59% of its net assets. The Fund is the sole shareholder of the Subsidiary. As of March 31, 2019, the Fund held $12,471,591 in the Subsidiary, representing 4.43% of the Fund’s net assets prior to consolidation.

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 consolidated 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, 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 Wells Fargo Asset Management Pricing Committee at 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, 2019, 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

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Notes to consolidated financial statements   Wells Fargo Precious Metals Fund     21  

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 Wells Fargo Asset Management Pricing Committee. 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 Wells Fargo Asset Management Pricing Committee which may include items for ratification.

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 Wells Fargo Asset Management Pricing Committee. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Security transactions and income recognition

Securities transactions and commodities 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 any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $205,447,674 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 95,510,022  

Gross unrealized losses

      (19,365,179 ) 

Net unrealized gains

    $ 76,144,843  

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

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22   Wells Fargo Precious Metals Fund   Notes to consolidated financial statements

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, 2019, 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    Total distributable
loss
$(4,866)    $4,866

As of March 31, 2019, the Fund had capital loss carryforwards which consist of $29,456,427 in short-term capital losses and $158,488,084 in long-term capital losses.

Class allocations

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

4. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Assets

            

Investments in:

            

Common stocks

            

Australia

    $ 30,362,701      $ 0      $ 0      $ 30,362,701  

Canada

      157,842,895        26,594,214        0        184,437,109  

Peru

      2,160,000        0        0        2,160,000  

South Africa

      2,824,242        0        0        2,824,242  

United Kingdom

      9,073,385        0        0        9,073,385  

United States

      36,880,751        0        0        36,880,751  

Commodities

      12,522,932        0        0        12,522,932  

Short-term investments

            

Investment companies

      3,331,397        0        0        3,331,397  

Total assets

    $ 254,998,303      $ 26,594,214      $ 0      $ 281,592,517  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019 the Fund did not have any transfers into/out of Level 3.

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Notes to consolidated financial statements   Wells Fargo Precious Metals Fund     23  

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 subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Annual fee rate  

First $500 million

      0.650 % 

Next $500 million

      0.600  

Next $1 billion

      0.550  

Next $2 billion

      0.525  

Next $1 billion

      0.500  

Next $5 billion

      0.490  

Over $10 billion

      0.480  

For the year ended March 31, 2019, 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 a separate advisory contract with Funds Management to manage the investment and reinvestment of its assets in conformity with its investment objectives and restrictions. Under this agreement, the Subsidiary does not pay Funds Management a fee for its services.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.40% and declining to 0.30% as the average daily net assets of the Fund increase.

Administration fees

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

 

     Class-level
administration fee		  

Class A, Class C

      0.21 % 

Administrator Class , Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.09% for Class A shares, 1.84% for Class C shares, 0.95% for Administrator Class shares, and 0.79% for Institutional Class shares. Prior to or after the commitment expiration date, 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 Precious Metals Fund   Notes to consolidated 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, 2019, Funds Distributor received $3,469 from the sale of Class A shares. No contingent deferred sales charges were incurred by Class A and Class C shares for the year ended March 31, 2019.

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.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.

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, 2019 were $53,125,477 and $78,885,162, respectively. These amounts include purchases and sales transactions of the Subsidiary.

7. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

For the year ended March 31, 2019, there were no borrowings by the Fund under the agreement.

8. DISTRIBUTIONS TO SHAREHOLDERS

For the year ended March 31, 2019, the Fund did not have any distributions paid to shareholders. The tax character of distributions paid for the year ended March 31, 2018 was $4,630,057 of ordinary income.

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed
ordinary
income		    Unrealized
gains (losses)		    Capital loss
carryforward
$690,503    $76,145,579    $(187,944,511)

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net investment
income		  

Class A

      $2,808,058  

Class C

      414,068  

Administrator Class

      169,120  

Institutional Class

      1,238,811  

9. CONCENTRATION RISK

The Fund invests a substantial portion of its assets in precious metals companies and, therefore, may be more affected by changes in the precious metals sector than a fund whose investments are not heavily weighted in any sector.

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Notes to consolidated financial statements   Wells Fargo Precious Metals Fund     25  

10. INDEMNIFICATION

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

11. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has early adopted the removal and modification disclosures, as permitted, and will adopt the additional new disclosures at the effective date.

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26   Wells Fargo Precious Metals Fund   Report of independent registered public accounting firm

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying consolidated statement of assets and liabilities of Wells Fargo Precious Metals Fund and subsidiary (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the consolidated portfolio of investments, as of March 31, 2019, 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 related consolidated notes (collectively, the consolidated financial statements) and the consolidated financial highlights for each of the years in the five-year period then ended. In our opinion, the consolidated financial statements and consolidated financial highlights present fairly, in all material respects, the consolidated financial position of the Fund as of March 31, 2019, the results of their operations for the year then ended, the changes in their 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.

Basis for Opinion

These consolidated financial statements and consolidated financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these consolidated financial statements and consolidated financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements and consolidated financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements and consolidated financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements and consolidated financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements and consolidated financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 24, 2019

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Other information (unaudited)   Wells Fargo Precious Metals Fund     27  

TAX INFORMATION

Pursuant to Section 853 of the Internal Revenue Code, the Fund expects to designate amounts as foreign taxes paid for the fiscal year ended March 31, 2019. Additional details will be available in the semiannual report.

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.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 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and
year of birth		   Position held and
length of service*		  

Principal occupations during past five years or longer

   Current other
public company or
investment company
directorships

William R. Ebsworth

(Born 1957)

   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

  

Trustee, since 2015;

Chair Liaison, since 2018

   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

  

Trustee, since 2009;

Audit Committee

Chairman, since 2019

   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation

Judith M. Johnson

(Born 1949)

  

Trustee, since 2008;

Audit Committee

Chairman, from 2009 to 2018

   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.   N/A

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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

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.   N/A

Olivia S. Mitchell

(Born 1953)

   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A

Timothy J. Penny

(Born 1951)

   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A

James G. Polisson

(Born 1959)

   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A

Pamela Wheelock

(Born 1959)

   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

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30   Wells Fargo Precious Metals Fund   Other information (unaudited)

Officers

 

Name and
year of birth		   Position held and
length of service		   Principal occupations during past five years or longer    
Andrew Owen
(Born 1960)		   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    

Nancy Wiser1

(Born 1967)

   Treasurer, since 2012   Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.    
Alexander Kymn (Born 1973)   Secretary and Chief Legal Officer, since 2018   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    
Michael H. Whitaker (Born 1967)   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    

David Berardi

(Born 1975)

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

Jeremy DePalma1

(Born 1974)

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

 

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.    

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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Appendix A (unaudited)   Wells Fargo Precious Metals Fund     31  

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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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, visit the Fund’s website, or call:

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

401596 05-19

A316/AR316 03-19

 

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Annual Report

March 31, 2019

 

LOGO

 

Wells Fargo Specialized Technology Fund

 

LOGO

 

 

 

Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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Table of Contents

Reduce clutter. Save trees.

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

Contents

 

 

 

Letter to shareholders

     2  

Performance highlights

     6  

Fund expenses

     10  

Portfolio of investments

     11  
Financial statements  

Statement of assets and liabilities

     15  

Statement of operations

     16  

Statement of changes in net assets

     17  

Financial highlights

     18  

Notes to financial statements

     22  

Report of independent registered public accounting firm

     28  

Other information

     29  

Appendix A

     33  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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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Letter to shareholders (unaudited)   Wells Fargo Specialized Technology Fund     3  

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

    

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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6   Wells Fargo Specialized Technology Fund   Performance highlights (unaudited)

Investment objective    

The Fund seeks long-term capital appreciation.    

Manager    

Wells Fargo Funds Management, LLC    

Subadviser    

Allianz Global Investors U.S. LLC    

Portfolio managers    

Huachen Chen, CFA®‡    

Walter C. Price, Jr., CFA®‡    

Michael A. Seidenberg*    

Average annual total returns (%) as of March 31, 2019    

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net2  
 
Class A (WFSTX)   9-18-2000     10.07       16.19       19.89       16.80       17.57       20.59       1.42       1.39  
 
Class C (WFTCX)   9-18-2000     15.01       16.72       19.70       16.01       16.72       19.70       2.17       2.14  
 
Administrator Class (WFTDX)3   7-30-2010     –       –       –       17.02       17.72       20.76       1.34       1.29  
 
Institutional Class (WFTIX)4   10-31-2016     –       –       –       17.25       17.83       20.81       1.09       1.04  
 
S&P North American Technology Index5   –     –       –       –       15.70       19.15       20.77       –       –  
 
S&P 500 Index6   –     –       –       –       9.50       10.91       15.92       –       –  

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, wfam.com.

While the S&P 500 Index is comprised of U.S. equity securities of companies diversified across ten sectors, the Fund’s holdings are concentrated primarily in technology related stocks. Therefore, the performance of the S&P 500 Index is displayed only to show how the concentrated Fund performed compared with a diversified selection of U.S. equity securities.

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

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

Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Funds that concentrate their investments in limited sectors, such as information technology, are more vulnerable to adverse market, economic, regulatory, political, or other developments affecting those sectors. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to convertible securities risk, foreign investment risk, non-diversification risk, and smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.

 

 

Please see footnotes on page 7.

Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Specialized Technology Fund     7  
Growth of $10,000 investment as of March 31, 20197
LOGO

 

 

 

‡

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

*

Mr. Seidenberg became a portfolio manager of the Fund on August 1, 2018.

 

1 

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

 

2 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at 1.38% for Class A, 2.13% for Class C, 1.28% for Administrator Class, and 1.03% for Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

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

 

4 

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

 

5 

The S&P North American Technology Index is a modified market-capitalization-weighted index of select technology stocks. You cannot invest directly in an index.

 

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 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%.

 

8 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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.

Table of Contents

 

8   Wells Fargo Specialized Technology Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund outperformed the S&P North American Technology Index for the 12-month period that ended March 31, 2019.

 

∎  

The primary drivers for the Fund’s absolute and relative performance included our overweights to select high-growth software companies.

 

∎  

The Fund’s overweights to certain hardware and semiconductor companies detracted from relative returns.

Information technology continues to be a rich source of investment returns.

Information technology (IT) companies continued to demonstrate strong earnings growth and delivered solid stock returns relative to the broad market. Despite the increased market volatility and sharp sell-off in the fourth quarter of 2018, underlying fundamentals remain strong for many IT companies. Suppliers of innovative technologies should continue to benefit as businesses across the economy look to invest in solutions that help increase productivity and enhance efficiency.

We believe one of the most attractive qualities of the IT sector is the regular emergence of new and disruptive trends. Many of these new technologies potentially could 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 continues to be to identify these major trends ahead of the crowd and invest in the emerging leaders.

Over the 12-month period, we increased our exposure to select software companies benefiting from the accelerating adoption of cloud computing and software-as-a-service (SaaS) solutions. Many of these stocks performed well due to higher demand for their innovative product offerings, which led to consistently strong earnings growth. We also added exposure to payments companies in the period. Conversely, the team reduced exposure to the more cyclical segments of the IT sector, including semiconductors, hardware, and communications equipment. These segments were negatively affected by weaker global growth and the ongoing trade dispute between the U.S. and China.

Overweights to Twilio Incorporated and Paycom Software, Incorporated, were the largest contributors.

Our position in Twilio Incorporated was a top contributor during the period. The company provides a cloud-based platform that enables developers to build, scale, and operate real-time communications within software applications as a pay-as-you-go service. Twilio’s platform is being increasingly leveraged by companies that are building artificial intelligence applications to enable them to design more intimate, real-time interactions with their customers. We believe the company is extending its lead in the communications platform-as-a-service market, driven by differentiated solutions and strong developer relationships.

Paycom Software, Incorporated, was also among the top contributors. Paycom provides cloud-based payroll and human capital management software in a SaaS format to small and medium-size businesses in the U.S. Paycom’s software provides unique value to customers because it typically replaces multiple systems and helps manage complex compliance requirements. We see the company as a unique cloud asset modernizing the payroll market, which gives it the opportunity to rapidly grow revenue over the next few years while maintaining a best-in-class earnings before interest, tax, depreciation, and amortization (EBITDA) margin.

Other top contributors to relative returns included overweights to MongoDB, Incorporated; Okta, Incorporated; and Square, Incorporated.

The portfolio’s overweight to DXC Technology Company was the largest detractor as the company faced challenges staffing its sales team, which led to slower revenue growth. While orders have been strong, service delivery has been limited due to this staffing issue. We believe the company is solving this problem via internal adjustments and a recent acquisition. DXC offers a variety of solutions for customers, including analytics, applications, and cloud-workload consulting. In our view, cash flow should continue to increase as DXC improves efficiencies across the company, and valuation remains compelling.

Nutanix, Incorporated, was also among the top detractors. The company provides enterprise cloud-platform solutions that converge traditional silos of server, virtualization, and storage into one integrated solution. Shares have been weak recently amid the company’s transition to a subscription- and cloud-based business model. This process has led to a realignment of the sales and marketing function, as well as other investments that have limited earnings growth. We believe the business model transition and recent investments should be positive for the company’s earnings growth longer term.

 

 

Please see footnotes on page 7.

Table of Contents

 

Performance highlights (unaudited)   Wells Fargo Specialized Technology Fund     9  

Other top detractors from relative returns included overweights to Micron Technology, Incorporated, and Microchip Technology Incorporated and an underweight to Cisco Systems, Incorporated.

We retain an optimistic outlook for the IT sector and for the Fund.

Looking forward, we continue to believe the IT sector may provide some of the stock markets’ best absolute- and relative-return opportunities, especially for bottom-up stock pickers like us. We have observed a wave of innovation within the sector that we believe could produce attractive returns for companies offering best-in-class solutions. We also see a number of companies with present valuations that, in our view, do not fully reflect positive company-specific and/or industry-specific tailwinds. We believe some of the attractive growth themes include cloud computing, auto technology, artificial intelligence, robotics, and cybersecurity.

 

Ten largest holdings (%) as of March 31, 20198  

Facebook Incorporated Class A

      5.37  

ServiceNow Incorporated

      5.06  

Amazon.com Incorporated

      4.89  

Microsoft Corporation

      4.83  

Paycom Software Incorporated

      4.80  

Twilio Incorporated Class A

      4.48  

NetApp Incorporated

      3.59  

Okta Incorporated

      3.39  

RingCentral Incorporated Class A

      3.00  

Square Incorporated Class A

      2.88  
Industry distribution as of March 31, 20199
LOGO
 

 

 

Please see footnotes on page 7.

Table of Contents

 

10   Wells Fargo Specialized Technology Fund   Fund expenses (unaudited)

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

The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from October 1, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 982.38      $ 6.82        1.38 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.05      $ 6.94        1.38 % 

Class C

            

Actual

    $ 1,000.00      $ 979.34      $ 10.51        2.13 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,014.31      $ 10.70        2.13 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 982.98      $ 6.33        1.28 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,018.55      $ 6.44        1.28 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 984.19      $ 5.10        1.03 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,019.80      $ 5.19        1.03 % 

 

 

1

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Specialized Technology Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 96.59%

           

Communication Services: 10.67%

           
Entertainment: 1.32%           

Electronic Arts Incorporated †

           15,990      $ 1,625,064  

Netflix Incorporated †

           13,515        4,818,908  

Tencent Music ADR (a)

           3        54  
             6,444,026  
          

 

 

  
Interactive Media & Services: 9.35%           

Alphabet Incorporated Class A †

           8,720        10,262,481  

Alphabet Incorporated Class C †

           6,540        7,673,447  

Facebook Incorporated Class A †

           156,965        26,164,496  

Tencent Holdings Limited

           12,915        593,929  

Yandex NV Class A †

           25,570        878,074  
             45,572,427  
          

 

 

  

Consumer Discretionary: 5.68%

           
Automobiles: 0.30%           

Tesla Motors Incorporated †«

           5,210        1,458,071  
          

 

 

  
Internet & Direct Marketing Retail: 5.38%           

Alibaba Group Holding Limited ADR †

           11,095        2,024,283  

Amazon.com Incorporated †

           13,380        23,826,435  

GrubHub Incorporated †

           5,660        393,200  
             26,243,918  
          

 

 

  

Health Care: 0.29%

           
Health Care Technology: 0.29%           

Veeva Systems Incorporated Class A †

           10,975        1,392,289  
          

 

 

  

Industrials: 1.07%

           
Electrical Equipment: 0.64%           

Bloom Energy Corporation Class A †«

               240,765        3,110,684  
          

 

 

  
Industrial Conglomerates: 0.43%           

Roper Industries Incorporated

           6,130        2,096,276  
          

 

 

  

Information Technology: 78.88%

           
Communications Equipment: 3.52%           

Arista Networks Incorporated †

           20,945        6,586,365  

Cisco Systems Incorporated

           28,730        1,551,133  

Nokia Corporation ADR «

           69,540        397,769  

Palo Alto Networks Incorporated †

           33,590        8,158,339  

Viavi Solutions Incorporated †

           36,625        453,418  
             17,147,024  
          

 

 

  
Electronic Equipment, Instruments & Components: 0.16%           

Cognex Corporation

           14,875        756,543  
          

 

 

  

 

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

Table of Contents

 

12   Wells Fargo Specialized Technology Fund   Portfolio of investments—March 31, 2019

      

 

 

Security name                 Shares      Value  
IT Services: 22.54%           

Capgemini SA

           11,450      $ 1,388,441  

DXC Technology Company

           133,915        8,612,074  

First Data Corporation Class A †

           33,230        872,952  

Fiserv Incorporated †

           6,700        591,476  

MasterCard Incorporated Class A

           52,845        12,442,355  

MongoDB Incorporated †«

           77,525        11,397,726  

Okta Incorporated †

           199,710        16,522,008  

PayPal Holdings Incorporated †

           93,170        9,674,773  

Square Incorporated Class A †

           187,245        14,028,395  

Twilio Incorporated Class A †

           169,140        21,849,505  

Visa Incorporated Class A

           69,750        10,894,253  

Worldpay Incorporated Class A †

           13,955        1,583,893  
             109,857,851  
          

 

 

  
Semiconductors & Semiconductor Equipment: 13.29%           

Analog Devices Incorporated

           31,035        3,267,054  

Broadcom Incorporated

           37,070        11,147,320  

Cree Incorporated †

           198,645        11,366,467  

Cypress Semiconductor Corporation

           102,850        1,534,522  

Infineon Technologies AG

           95,250        1,889,584  

Intel Corporation

           38,880        2,087,856  

KLA-Tencor Corporation

           37,200        4,442,052  

Lam Research Corporation

           2,725        487,802  

Microchip Technology Incorporated «

           97,455        8,084,867  

Micron Technology Incorporated †

           64,165        2,651,939  

ON Semiconductor Corporation †

           545,900        11,229,163  

Taiwan Semiconductor Manufacturing Company Limited ADR

           11,485        470,426  

Teradyne Incorporated

           54,395        2,167,097  

Texas Instruments Incorporated

           36,905        3,914,513  
             64,740,662  
          

 

 

  
Software: 34.22%           

Adobe Systems Incorporated †

           7,510        2,001,340  

Aspen Technology Incorporated †

           4,725        492,629  

Atlassian Corporation plc Class A †

           44,260        4,974,381  

Autodesk Incorporated †

           3,425        533,684  

AVEVA Group plc

           51,435        2,161,146  

CyberArk Software Limited †

           14,065        1,674,438  

DocuSign Incorporated †

           8,175        423,792  

Elastic NV †

           31,639        2,527,007  

FireEye Incorporated †

           24,710        414,881  

ForeScout Technologies Incorporated †

           42,185        1,767,973  

Fortinet Incorporated †

           34,975        2,936,851  

Guidewire Software Incorporated †

           4,540        441,106  

HubSpot Incorporated †

           6,810        1,131,890  

Intuit Incorporated

           3,920        1,024,727  

Micro Focus International plc

           22,920        595,998  

Microsoft Corporation

               199,730        23,556,156  

New Relic Incorporated †

           8,760        864,612  

 

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

Table of Contents

 

Portfolio of investments—March 31, 2019   Wells Fargo Specialized Technology Fund     13  

      

 

 

Security name                 Shares      Value  
Software (continued)           

Nutanix Incorporated Class A †

           197,135      $ 7,439,875  

Oracle Corporation

                                    55,360        2,973,386  

Paycom Software Incorporated †

           123,645        23,384,979  

Proofpoint Incorporated †

           69,530        8,443,028  

Rapid7 Incorporated †

           28,400        1,437,324  

RealPage Incorporated †

           14,150        858,764  

RingCentral Incorporated Class A †

               135,435        14,599,893  

Salesforce.com Incorporated †

           62,179        9,847,288  

ServiceNow Incorporated †

           99,965        24,640,373  

Smartsheet Incorporated Class A †

           10,590        431,966  

Sophos Group plc 144A

           90,370        354,049  

Tableau Software Incorporated Class A †

           51,525        6,558,102  

Temenos Group AG

           6,550        965,644  

Workday Incorporated Class A †

           60,500        11,667,425  

Zendesk Incorporated †

           15,150        1,287,750  

Zscaler Incorporated †

           51,425        3,647,575  

Zynga Incorporated Class A †

           134,955        719,310  
             166,779,342  
          

 

 

  
Technology Hardware, Storage & Peripherals: 5.15%           

Apple Incorporated

           26,350        5,005,183  

NetApp Incorporated

           252,580        17,513,894  

Pure Storage Incorporated Class A †

           48,310        1,052,675  

Samsung Electronics Company Limited

           38,780        1,525,440  
             25,097,192  
          

 

 

  

Total Common Stocks (Cost $291,921,823)

              470,696,305  
          

 

 

  
     Yield                      
Short-Term Investments: 8.04%

 

Investment Companies: 8.04%

 

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

      2.55 %         20,473,818        20,475,865  

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

      2.38          18,717,955        18,717,955  

Total Short-Term Investments (Cost $39,193,820)

 

      39,193,820        
          

 

 

  

 

Total investments in securities (Cost $331,115,643)     104.63 %         509,890,125  

Other assets and liabilities, net

     (4.63 )         (22,581,999 ) 
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 487,308,126  
 

 

 

       

 

 

  

 

 

†

Non-income-earning security

 

(a)

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

 

«

All or a portion of this security is on loan.

 

144A

The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933.

 

(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 company purchased with cash collateral received from securities on loan.

 

(u)

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

Abbreviations:

 

ADR

American depositary receipt

 

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

Table of Contents

 

14   Wells Fargo Specialized Technology Fund   Portfolio of investments—March 31, 2019

      

 

 

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:

 

    Shares,
beginning of
period		     Shares
purchased		     Shares
sold		     Shares,
end of
period		     Net
realized
gains
(losses)		     Net
change in
unrealized
gains
(losses)		     Income
from
affiliated
securities		     Value,
end
of period		     % of
net
assets		  

Short-Term Investments

                  

Investment Companies

                  

Securities Lending Cash Investments LLC

     23,934,530       229,767,809       233,228,521       20,473,818     $ 33     $ 0     $ 410,387     $ 20,475,865    

Wells Fargo Government Money Market Fund Select Class

     2,705,051       221,415,282       205,402,378       18,717,955       0       0       502,234       18,717,955    
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ 33     $ 0     $ 912,621     $ 39,193,820       8.04 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

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

Table of Contents

 

Statement of assets and liabilities—March 31, 2019   Wells Fargo Specialized Technology Fund     15  
         

Assets

  

Investments in unaffiliated securities (including $20,369,187 of securities loaned), at value (cost $291,921,823)

   $ 470,696,305  

Investments in affiliated securities, at value (cost $39,193,820)

     39,193,820  

Foreign currency, at value (cost $29)

     29  

Receivable for investments sold

     3,180,559  

Receivable for Fund shares sold

     443,120  

Receivable for dividends

     100,885  

Prepaid expenses and other assets

     23,609  
 

 

 

  

Total assets

     513,638,327  
 

 

 

  

Liabilities

  

Payable upon receipt of securities loaned

     20,475,809  

Payable for investments purchased

     4,702,599  

Payable for Fund shares redeemed

     536,446  

Management fee payable

     350,318  

Administration fees payable

     80,790  

Distribution fee payable

     7,461  

Trustees’ fees and expenses payable

     1,983  

Accrued expenses and other liabilities

     174,795  
 

 

 

  

Total liabilities

     26,330,201  
 

 

 

  

Total net assets

   $ 487,308,126  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 275,565,237  

Total distributable earnings

     211,742,889  
 

 

 

  

Total net assets

   $ 487,308,126  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 401,989,600  

Shares outstanding – Class A1

    30,148,807  

Net asset value per share – Class A

     $13.33  

Maximum offering price per share – Class A2

    $14.14  

Net assets – Class C

   $ 11,614,934  

Shares outstanding – Class C1

    1,151,623  

Net asset value per share – Class C

     $10.09  

Net assets – Administrator Class

   $ 22,480,114  

Shares outstanding – Administrator Class1

    1,647,217  

Net asset value per share – Administrator Class

     $13.65  

Net assets – Institutional Class

   $ 51,223,478  

Shares outstanding – Institutional Class1

    3,730,800  

Net asset value per share – Institutional Class

     $13.73  

 

 

 

1 

The Fund has an unlimited number of authorized shares.

 

2 

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

 

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

Table of Contents

 

16   Wells Fargo Specialized Technology Fund   Statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends (net of foreign withholding taxes of $17,340)

   $ 2,216,653  

Income from affiliated securities

     622,307  
 

 

 

  

Total investment income

     2,838,960  
 

 

 

  

Expenses

  

Management fee

     4,054,138  

Administration fees

  

Class A

     798,092  

Class C

     32,757  

Administrator Class

     29,225  

Institutional Class

     55,364  

Shareholder servicing fees

  

Class A

     950,110  

Class C

     38,997  

Administrator Class

     55,972  

Distribution fee

  

Class C

     116,991  

Custody and accounting fees

     30,861  

Professional fees

     46,434  

Registration fees

     89,365  

Shareholder report expenses

     71,916  

Trustees’ fees and expenses

     22,726  

Other fees and expenses

     25,145  
 

 

 

  

Total expenses

     6,418,093  

Less: Fee waivers and/or expense reimbursements

     (79,499 ) 
 

 

 

  

Net expenses

     6,338,594  
 

 

 

  

Net investment loss

     (3,499,634 ) 
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains on:

  

Unaffiliated securities

     35,765,223  

Affiliated securities

     33  

Forward foreign currency contracts

     1,464  
 

 

 

  

Net realized gains on investments

     35,766,720  
 

 

 

  

Net change in unrealized gains (losses) on:

  

Unaffiliated securities

     32,209,674  

Forward foreign currency contracts

     (860 ) 
 

 

 

  

Net change in unrealized gains (losses) on investments

     32,208,814  
 

 

 

  

Net realized and unrealized gains (losses) on investments

     67,975,534  
 

 

 

  

Net increase in net assets resulting from operations

   $ 64,475,900  
 

 

 

  

 

 

 

 

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

Table of Contents

 

Statement of changes in net assets   Wells Fargo Specialized Technology Fund     17  
     Year ended
March 31, 2019		     Year ended
March 31, 20181		  

Operations

      

Net investment loss

     $ (3,499,634 )      $ (2,968,325 ) 

Net realized gains on investments

       35,766,720         85,463,589  

Net change in unrealized gains (losses) on investments

       32,208,814         45,515,664  
 

 

 

  

Net increase in net assets resulting from operations

       64,475,900         128,010,928  
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

 

Class A

       (67,273,231 )        (22,775,603 ) 

Class C

       (3,624,112 )        (1,248,847 ) 

Administrator Class

       (4,975,885 )        (3,999,359 ) 

Institutional Class

       (7,475,902 )        (1,741,744 ) 
 

 

 

  

Total distributions to shareholders

       (83,349,130 )        (29,765,553 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

 

Class A

     4,113,717       60,597,284       2,084,687       27,533,950  

Class C

     268,796       3,062,171       192,101       2,045,595  

Administrator Class

     1,538,764       23,150,690       1,546,441       19,850,044  

Institutional Class

     2,894,403       42,700,368       564,328       7,724,961  
 

 

 

  
      129,510,513         57,154,550  
 

 

 

  

Reinvestment of distributions

 

Class A

     5,657,801       65,404,176       1,731,116       22,071,725  

Class C

     398,400       3,489,984       116,005       1,198,329  

Administrator Class

     419,248       4,955,513       307,642       3,990,121  

Institutional Class

     620,076       7,372,701       123,913       1,610,864  
 

 

 

  
      81,222,374         28,871,039  
 

 

 

  

Payment for shares redeemed

 

Class A

     (4,727,403 )      (66,144,891 )      (3,040,823 )      (38,796,202 ) 

Class C

     (914,962 )      (9,401,210 )      (323,924 )      (3,371,408 ) 

Administrator Class

     (1,645,125 )      (21,244,618 )      (4,102,652 )      (57,561,216 ) 

Institutional Class

     (1,697,391 )      (23,893,325 )      (561,375 )      (7,267,274 ) 
 

 

 

  
      (120,684,044 )        (106,996,100 ) 
 

 

 

  

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

       90,048,843         (20,970,511 ) 
 

 

 

  

Total increase in net assets

       71,175,613         77,274,864  
 

 

 

  

Net assets

    

Beginning of period

       416,132,513         338,857,649  
 

 

 

  

End of period

     $ 487,308,126       $ 416,132,513  
 

 

 

  

 

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and permitted the aggregation of distributions, with the exception of tax basis returns of capital. Accumulated net investment loss at March 31, 2018 was $860. The disaggregated distributions information for the year ended March 31, 2018 is included in Note 7, Distributions to Shareholders, in the notes to the financial statements.

 

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

Table of Contents

 

18   Wells Fargo Specialized Technology Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $14.08       $10.95       $9.39       $10.74       $10.65  

Net investment loss

     (0.11 )      (0.10 )1      (0.03 )1      (0.06 )      (0.06 ) 

Net realized and unrealized gains (losses) on investments

     2.06       4.20       2.17       0.02       1.43  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     1.95       4.10       2.14       (0.04 )      1.37  

Distributions to shareholders from

          

Net realized gains

     (2.70 )      (0.97 )      (0.58 )      (1.31 )      (1.28 ) 

Net asset value, end of period

     $13.33       $14.08       $10.95       $9.39       $10.74  

Total return2

     16.80 %      38.41 %      23.55 %      (0.66 )%      13.24 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.40 %      1.41 %      1.44 %      1.45 %      1.52 % 

Net expenses

     1.39 %      1.41 %      1.44 %      1.45 %      1.51 % 

Net investment loss

     (0.77 )%      (0.75 )%      (0.28 )%      (0.53 )%      (0.58 )% 

Supplemental data

          

Portfolio turnover rate

     107 %      109 %      131 %      153 %      119 % 

Net assets, end of period (000s omitted)

     $401,990       $353,552       $266,329       $267,811       $168,108  

 

 

 

 

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 Specialized Technology Fund     19  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $11.38       $9.06       $7.92       $9.33       $9.47  

Net investment loss

     (0.17 )1      (0.16 )      (0.09 )1      (0.12 )1      (0.13 )1 

Net realized and unrealized gains (losses) on investments

     1.58       3.45       1.81       0.02       1.27  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     1.41       3.29       1.72       (0.10 )      1.14  

Distributions to shareholders from

          

Net realized gains

     (2.70 )      (0.97 )      (0.58 )      (1.31 )      (1.28 ) 

Net asset value, end of period

     $10.09       $11.38       $9.06       $7.92       $9.33  

Total return2

     16.01 %      37.45 %      22.59 %      (1.45 )%      12.44 % 

Ratios to average net assets (annualized)

          

Gross expenses

     2.15 %      2.16 %      2.19 %      2.20 %      2.27 % 

Net expenses

     2.14 %      2.16 %      2.19 %      2.20 %      2.26 % 

Net investment loss

     (1.52 )%      (1.49 )%      (1.03 )%      (1.34 )%      (1.33 )% 

Supplemental data

          

Portfolio turnover rate

     107 %      109 %      131 %      153 %      119 % 

Net assets, end of period (000s omitted)

     $11,615       $15,932       $12,827       $13,797       $14,143  

 

 

 

 

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 Specialized Technology Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $14.34       $11.12       $9.52       $10.86       $10.74  

Net investment loss

     (0.09 )1      (0.09 )1      (0.02 )      (0.05 )      (0.05 ) 

Net realized and unrealized gains (losses) on investments

     2.10       4.28       2.20       0.02       1.45  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     2.01       4.19       2.18       (0.03 )      1.40  

Distributions to shareholders from

          

Net realized gains

     (2.70 )      (0.97 )      (0.58 )      (1.31 )      (1.28 ) 

Net asset value, end of period

     $13.65       $14.34       $11.12       $9.52       $10.86  

Total return

     17.02 %      38.55 %      23.65 %      (0.56 )%      13.42 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.32 %      1.33 %      1.36 %      1.35 %      1.36 % 

Net expenses

     1.29 %      1.32 %      1.33 %      1.33 %      1.35 % 

Net investment loss

     (0.65 )%      (0.66 )%      (0.17 )%      (0.48 )%      (0.42 )% 

Supplemental data

          

Portfolio turnover rate

     107 %      109 %      131 %      153 %      119 % 

Net assets, end of period (000s omitted)

     $22,480       $19,140       $39,833       $32,373       $31,842  

 

 

 

 

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 Specialized Technology Fund     21  

(For a share outstanding throughout each period)

 

    Year ended March 31  
INSTITUTIONAL CLASS   2019     2018     20171  

Net asset value, beginning of period

     $14.37       $11.12       $10.42  

Net investment income (loss)

     (0.07 )      (0.05 )      0.01 2 

Net realized and unrealized gains (losses) on investments

     2.13       4.27       1.27  
 

 

 

    

 

 

    

 

 

  

Total from investment operations

     2.06       4.22       1.28  

Distributions to shareholders from

      

Net realized gains

     (2.70 )      (0.97 )      (0.58 ) 

Net asset value, end of period

     $13.73       $14.37       $11.12  

Total return3

     17.25 %      38.91 %      12.97 % 

Ratios to average net assets (annualized)

      

Gross expenses

     1.07 %      1.08 %      1.11 % 

Net expenses

     1.04 %      1.07 %      1.08 % 

Net investment income (loss)

     (0.42 )%      (0.40 )%      0.17 % 

Supplemental data

      

Portfolio turnover rate

     107 %      109 %      131 % 

Net assets, end of period (000s omitted)

     $51,223       $27,509       $19,869  

 

 

 

 

1 

For the period from October 31, 2016 (commencement of class operations) to March 31, 2017

 

2 

Calculated based upon average shares outstanding

 

3 

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

 

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

Table of Contents

 

22   Wells Fargo Specialized Technology 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 Specialized Technology 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 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, 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 Wells Fargo Asset Management Pricing Committee at 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, 2019, such fair value pricing was not used in pricing foreign securities.

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

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

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 Wells Fargo Asset Management Pricing Committee. 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

Table of Contents

 

Notes to financial statements   Wells Fargo Specialized Technology Fund     23  

foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Forward foreign currency contracts

The Fund is subject to foreign currency 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 contracts. 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.

Securities lending

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

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

Security transactions and income recognition

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

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

Distributions to shareholders

Distributions to shareholders from net investment income and any net realized gains are recorded on the ex-dividend date and paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

Table of Contents

 

24   Wells Fargo Specialized Technology Fund   Notes to financial statements

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.

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $334,334,452 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 178,565,548  

Gross unrealized losses

      (3,009,875 ) 

Net unrealized gains

   $ 175,555,673  

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 reclassification is due to net operating losses. At March 31, 2019, 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   

Total distributable

earnings

$(2,760,676)    $2,760,676

As of March 31, 2019, the Fund had a qualified late-year ordinary loss of $783,694 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 unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

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Notes to financial statements   Wells Fargo Specialized Technology Fund     25  

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

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

Significant
unobservable inputs

(Level 3)

      Total  

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 52,016,399      $ 54      $ 0      $ 52,016,453  

Consumer discretionary

      27,701,989        0        0        27,701,989  

Health care

      1,392,289        0        0        1,392,289  

Industrials

      5,206,960        0        0        5,206,960  

Information technology

      384,378,614        0        0        384,378,614  

Short-term investments

            

Investment companies

      18,717,955        20,475,865        0        39,193,820  

Total assets

    $ 489,414,206      $ 20,475,919      $ 0      $ 509,890,125  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Management fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $500 million

      0.880 % 

Next $500 million

      0.875  

Next $1 billion

      0.850  

Next $2 billion

      0.825  

Next $1 billion

      0.800  

Next $5 billion

      0.790  

Over $10 billion

      0.780  

For the year ended March 31, 2019, the management fee was equivalent to an annual rate of 0.88% of the Fund’s average daily net assets.

Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Allianz Global Investors U.S. LLC, which is not an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.80% and declining to 0.55% as the average daily net assets of the Fund increase.

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26   Wells Fargo Specialized Technology Fund   Notes to financial statements

Administration fees

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

 

     Class-level
administration fee		  

Class A, Class C

      0.21 % 

Administrator Class, Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.38% for Class A shares, 2.13% for Class C shares, 1.28% for Administrator Class shares, and 1.03% for Institutional Class shares. Prior to or after the commitment expiration date, 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 August 1, 2018, the Fund’s expenses were capped at 1.41% for Class A shares, 2.16% for Class C shares, 1.31% for Administrator Class shares and 1.06% for Institutional Class shares.

Distribution fee

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

In addition, Funds Distributor is entitled to receive the front-end sales charge from the purchase of Class A shares and a contingent deferred sales charge on the redemption of certain Class A shares. Funds Distributor is also entitled to receive the contingent deferred sales charges from redemptions of Class C shares. For the year ended March 31, 2019, Funds Distributor received $26,790 from the sale of Class A shares and $178 in contingent deferred sales charges from redemptions of Class C shares. No contingent deferred sales charges were incurred by Class A for the year ended March 31, 2019.

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.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.

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, 2019 were $471,617,981 and $466,911,864 respectively.

6. DERIVATIVE TRANSACTIONS

During the year ended March 31, 2019, the Fund entered into forward foreign currency contracts for economic hedging purposes. The Fund had average contract amounts of $3,278 in forward foreign currency contracts to sell during the year ended March 31, 2019.

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

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Notes to financial statements   Wells Fargo Specialized Technology Fund     27  

7. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

For the year ended March 31, 2019, 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, 2018 and March 31, 2017 were as follows:

 

     Year ended March 31  
     2019      2018  

Ordinary income

    $ 30,325,807      $ 7,805,610  

Long-term capital gain

      53,023,323        21,959,943  

As of March 31, 2019, the components of distributable earnings on a tax basis were as follows:

 

Undistributed

long-term

gains

   

Late-year

ordinary losses

deferred

   

Unrealized

gains

$36,973,608    $(783,694)    $175,552,975

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net realized
gains		  

Class A

      $22,775,603  

Class C

      1,248,847  

Administrator Class

      3,999,359  

Institutional Class

      1,741,744  

9. CONCENTRATION RISK

The Fund invests a substantial portion of its assets in technology companies and, therefore, would be more affected by changes in the technology sector than would be a fund whose investments are not heavily weighted in the sector.

10. INDEMNIFICATION

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

11. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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28   Wells Fargo Specialized Technology Fund   Report of independent registered public accounting firm

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Specialized Technology Fund (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years or periods in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 24, 2019

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Other information (unaudited)   Wells Fargo Specialized Technology Fund     29  

TAX INFORMATION

For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 5.83% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended March 31, 2019.

Pursuant to Section 852 of the Internal Revenue Code, $53,023,323 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2019.

Pursuant to Section 854 of the Internal Revenue Code, $2,265,338 of income dividends paid during the fiscal year ended March 31, 2019 has been designated as qualified dividend income (QDI).

For the fiscal year ended March 31, 2019, $30,325,807 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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30   Wells Fargo Specialized Technology 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 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees    

 

Name and

year of birth

  

Position held and

length of service*

   Principal occupations during past five years or longer  

Current other

public company or
investment company
directorships

William R. Ebsworth

(Born 1957)

   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

   Trustee, since 2015; Chair Liaison, since 2018   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

   Trustee, since 2009; Audit Committee Chairman, since 2019   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation

Judith M. Johnson

(Born 1949)

   Trustee, since 2008; Audit Committee Chairman, from 2009 to 2018   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.   N/A

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Other information (unaudited)   Wells Fargo Specialized Technology Fund     31  

Name and

year of birth

  

Position held and

length of service*

   Principal occupations during past five years or longer  

Current other

public company or
investment company
directorships

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.   N/A

Olivia S. Mitchell

(Born 1953)

   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A

Timothy J. Penny

(Born 1951)

   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A

James G. Polisson

(Born 1959)

   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A

Pamela Wheelock

(Born 1959)

   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

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32   Wells Fargo Specialized Technology Fund   Other information (unaudited)

Officers    

 

Name and

year of birth

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

Andrew Owen

(Born 1960)

   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    

Nancy Wiser1

(Born 1967)

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

Alexander Kymn

(Born 1973)

   Secretary and Chief Legal Officer, since 2018   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    

Michael H. Whitaker

(Born 1967)

   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    

David Berardi

(Born 1975)

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

Jeremy DePalma1

(Born 1974)

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

 

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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Appendix A (unaudited)   Wells Fargo Specialized Technology Fund     33  

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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For more information

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

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

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401597 05-19

A317/AR317 03-19

 

Table of Contents

Annual Report

March 31, 2019

 

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Wells Fargo Utility and Telecommunications Fund

 

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Beginning on January 1, 2021, as permitted by new regulations adopted by the Securities and Exchange Commission, paper copies of the Wells Fargo Funds’ annual and semi-annual shareholder reports issued after this date will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website, and you will be notified by mail each time a report is posted and provided with a website address to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by calling 1-800-222-8222 or by enrolling at wellsfargo.com/advantagedelivery.

You may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports; if you invest directly with the Fund, you can call 1-800-222-8222. Your election to receive reports in paper will apply to all Wells Fargo Funds held in your account with your financial intermediary or, if you are a direct investor, to all Wells Fargo Funds that you hold.

 

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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

     13  

Statement of operations

     14  

Statement of changes in net assets

     15  

Financial highlights

     16  

Notes to financial statements

     20  

Report of independent registered public accounting firm

    26  

Other information

    27  

Appendix A

    31  

 

The views expressed and any forward-looking statements are as of March 31, 2019, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Asset Management. 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE


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

 

LOGO

Andrew Owen

President

Wells Fargo Funds

 

 

Global trade tensions escalated during the second quarter of 2018.

 

 

Dear 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, 2019. An upward trend for short-term interest rates, inflation concerns, trade tensions, and geopolitical events contributed to investment market volatility for much of 2018. Equity investor sentiment improved during the first quarter of 2019 thanks to a shift in U.S. Federal Reserve (Fed) policy and consistent if not spectacular economic and business growth metrics.

For the period, U.S. stocks, as measured by the S&P 500 Index,1 gained 9.50% and international stocks, as measured by the MSCI ACWI ex USA Index (Net),2 declined 4.22%. Based on the MSCI EM Index (Net),3 emerging market stocks fell 7.41%. For bond investors, the Bloomberg Barclays U.S. Aggregate Bond Index4 added 4.48% while the Bloomberg Barclays Global Aggregate ex-USD Index5 lost 4.13%. The Bloomberg Barclays Municipal Bond Index6 added 5.38%, and the ICE BofAML U.S. High Yield Index7 gained 5.94%.

Trade tensions and U.S. interest rates influenced markets.

Global trade tensions escalated during the second quarter of 2018. A tit-for-tat tariff spat intensified between the U.S. and other governments. The Fed raised the federal funds rate by 25 basis points (bps; 100 bps equal 1.00%) to a target range of between 1.75% and 2.00% in June 2018. Market index results reflected the global concerns. The MSCI ACWI ex USA Index (Net) lost 2.61%, while the Bloomberg Barclays Global Aggregate ex-USD Index dropped 4.76%.

Not all news was bad. The U.S. Bureau of Economic Analysis reported second-quarter annualized gross domestic product (GDP) growth of 4.2%. Hiring improved. Unemployment declined. Consumer confidence and spending increased. The S&P 500 Index recorded a 3.43% second-quarter gain. Stocks of companies with smaller capitalizations did even better, as measured by the Russell 2000® Index,8 adding 7.75%.

 

 

 

1

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

 

2 

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

 

3 

The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index.

 

4

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

 

5 

The Bloomberg Barclays Global Aggregate ex-USD Index is an unmanaged index that provides a broad-based measure of the global investment-grade fixed-income markets excluding the U.S. dollar-denominated debt market. You cannot invest directly in an index.

 

6 

The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index.

 

7

The ICE BofAML U.S. High Yield Index is a market-capitalization-weighted index of domestic and Yankee high-yield bonds. The index tracks the performance of high-yield securities traded in the U.S. bond market. You cannot invest directly in an index. Copyright 2019. ICE Data Indices, LLC. All rights reserved.

 

8 

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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Letter to shareholders (unaudited)   Wells Fargo Utility and Telecommunications Fund     3  

Investors appeared to shake off lingering concerns during the third quarter.

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors. U.S. trade negotiations with Mexico and Canada progressed. The Conference Board Consumer Confidence Index®9 reached its highest level in 18 years during September 2018. The Fed raised the federal funds rate by 25 bps to a target range of between 2.00% and 2.25% in September 2018. For the quarter that ended September 30, 2018, the S&P 500 Index added 7.71%.

Investors in international markets were not as confident. Tensions between the U.S. and China increased. The U.S. imposed $200 billion in tariffs on Chinese goods. China reacted with $60 billion in tariffs on U.S. goods. Economic growth in China caused concern. The Bank of England raised its monetary policy rate to 0.75% in August 2018. During the quarter, the MSCI ACWI ex USA Index (Net) gained 0.71%. The MSCI EM Index (Net) declined 1.09%. In fixed-income markets, U.S. bonds were flat, as measured by the Bloomberg Barclays U.S. Aggregate Bond Index. The Bloomberg Barclays Global Aggregate ex-USD Index fell 1.74%.

Conflicting data unsettled markets during the fourth quarter.

November’s U.S. midterm elections shifted control of the House of Representatives from Republicans to Democrats, presaging potential partisan clashes. Third-quarter U.S. GDP was announced at an annualized 3.4% rate, lower than the second-quarter rate. Brexit efforts stalled ahead of the March 2019 deadline. The People’s Bank of China cut reserve requirement ratios, accelerated infrastructure spending, and cut taxes even as the value of the yuan declined to low levels last seen in 2008.

December’s S&P 500 Index performance was the worst since 1931. Globally, fixed-income investments fared better than stocks during the last two months of the year. The Fed increased the federal funds rate by 25 bps in December 2018 to a target range of between 2.25% and 2.50% and softened its outlook for 2019 rate increases.

The market climbs a wall of worry.

Investors entered 2019 with reasons to be concerned. A partial U.S. government shutdown driven by partisan spending and immigration policy disputes extended into January. Investors expected high levels of stock market volatility to continue based on the VIX10.

January’s returns tended to support the investing adage that markets climb a wall of worry. The S&P 500 Index gained 8.01% for the month that ended January 31, 2019, its best monthly performance in 30 years. Returns for the MSCI ACWI ex USA Index (Net), the Bloomberg Barclays U.S. Aggregate Bond Index, and the Bloomberg Barclays Global Aggregate ex-USD Index also were positive. The Fed indicated that it would pause its program of regular rate increases during 2019 as inflation remained low. Businesses and investors responded positively to the shift in policy.

In February, concerns over slowing global growth reemerged. The Bureau of Economic Analysis announced fourth-quarter 2018 GDP grew at an annualized 2.2% rate, down from the 4.2% annualized rate for the second quarter and the 3.4% annualized rate for the third quarter. Analysts attributed the lower growth rate to a slowing housing market and larger trade deficit. The U.S. Department of

 

 

 

 

Favorable third-quarter economic indicators and corporate earnings reports encouraged domestic stock investors.

 

 

 

 

9 

The Conference Board Consumer Confidence Index® measures the degree of optimism on the state of the U.S. economy that consumers are expressing through their activities of savings and spending. You cannot invest directly in an index.

 

10 

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

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

Labor said that the economy created just 20,000 jobs in February 2019. In a February report, the Bank of England forecast the slowest growth since the financial crisis for 2019. China and the U.S., while putting future tariffs on hold for the time being, continued to wrangle over trade issues.

By the end of March 2019, the combination of dovish Fed sentiment and consistent, if not spectacular, economic and business metrics reinforced investors’ enthusiasm for equity investing. Monthly job creation data regained its momentum. Corporate profits, while lower than 2018’s lofty levels, remained consistent. Inflation rates were relatively low in the U.S., Europe, and Japan. China announced a roughly $300 billion stimulus package through tax and fee cuts intended to reinvigorate economic growth.

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

Andrew Owen

President

Wells Fargo Funds

    

 

 

For further information about your Fund, contact your investment professional, visit our website at wfam.com, or call us directly at 1-800-222-8222.

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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, 2019

 

        Including sales charge     Excluding sales charge     Expense ratios1 (%)  
    Inception date   1 year     5 year     10 year     1 year     5 year     10 year     Gross     Net2  
 
Class A (EVUAX)3   1-4-1994     12.71       6.89       11.40       19.59       8.16       12.07       1.17       1.14  
 
Class C (EVUCX)3   9-2-1994     17.65       7.34       11.23       18.65       7.34       11.23       1.92       1.89  
 
Administrator Class (EVUDX)4   7-30-2010     –       –       –       19.80       8.35       12.26       1.09       0.95  
 
Institutional Class (EVUYX)3   2-28-1994     –       –       –       20.03       8.51       12.43       0.84       0.78  
 
S&P 500 Utilities Index5   –     –       –       –       19.33       10.89       12.88       –       –  
 
S&P 500 Index6   –     –       –       –       9.50       10.91       15.92       –       –  

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, wfam.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 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, 20197
LOGO

 

 

‡ 

CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.

 

1 

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.

 

2 

The manager has contractually committed through July 31, 2019, to waive fees and/or reimburse expenses to the extent necessary to cap the expenses of each class after fee waivers at the amounts shown. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the expense cap. Prior to or after the commitment expiration date, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectuses.

 

3 

Historical performance shown for this class prior to July 19, 2010, is based on the performance of the same class of the Fund’s predecessor, Evergreen Utility and Telecommunications Fund.

 

4 

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.

 

5 

The S&P 500 Utilities Index is a market-value-weighted index that measures the performance of all stocks within the utilities sector of the S&P 500 Index. You cannot invest directly in an index.

 

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 chart compares the performance of Class A shares for the most recent ten years with the S&P 500 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%.

 

8 

The ten largest holdings, excluding cash, cash equivalents and any money market funds, 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.

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8   Wells Fargo Utility and Telecommunications Fund   Performance highlights (unaudited)

MANAGER’S DISCUSSION

Fund highlights

∎  

The Fund (Class A, excluding sales charges) outperformed its benchmark, the S&P 500 Utilities Index, for the 12-month period that ended March 31, 2019.

 

∎  

The Fund benefited from strength in a number of regulated utilities stocks, certain telecommunication services companies, and two payment network companies.

 

∎  

A Southern California electric utility, a couple of other U.S. utilities, and an Italian multiutility detracted from performance.

A strong economy for much of the period accompanied rising energy prices and interest rates.

Energy prices recovered substantially during the 12-month reporting period. Oil prices rose following producer-output reductions and modestly higher demand. The recovery in natural gas prices was less impressive, with demand depressed by comparatively warm winter weather. Interest rates rose during the year on the short end but actually fell about 30 basis points (bps; 100 bps equal 1.00%) on the long end, and the yield curve ended the year very flat. Lower bond yields made the higher dividends of utility stocks relatively more attractive to income-oriented investors and contributed to the relatively strong performance of utility shares in the year just ended.

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 CMS Energy Corporation and NextEra Energy Capital Holdings, Incorporated. We increased our positions in A-Mark Precious Metals Incorporated; Perma-Pipe International Holdings, Incorporated; and Shenandoah Telecommunications Company. We sold ALLETE, Incorporated; Preferred Apartment Communities, Incorporated, a real estate investment trust; CenterPoint Energy, Incorporated; Northwestern Corporation; Spark Energy, Incorporated, common shares (although we still hold Spark Energy preferred shares); AT&T Incorporated; and Wheeler Real Estate Investment Trust, Incorporated.

Some of the Fund’s best-performing utility holdings included American Water Works Company, Incorporated, and PNM Resources, Incorporated, both for the second consecutive year. Utility Eversource Energy also contributed to performance. Shenandoah performed particularly well, as did the Visa Incorporated and MasterCard Incorporated positions. The Fund’s lack of exposure to California utility PG&E Corporation, a major weight in the Fund’s benchmark index, also aided relative performance.

Detractors included A-Mark, Perma-Pipe, Edison International, Spark Energy, and Hera S.p.A.

Our outlook for utilities remains, on balance, favorable.

In our view, the fundamentals of regulated network utilities appear strong. Regulated utilities have abundant opportunities to invest in their core businesses at returns we view as attractive. While the U.S. retains adequate power-generation capacity, current regulatory mandates are requiring utilities to increase renewable energy sources and reduce the country’s historical reliance on fossil fuels in general and coal in particular. The development of U.S. shale-gas production has been providing investors with opportunities to make investments in gas gathering, processing, and transportation infrastructure. Overall, utilities may be growing faster than at any time since the 1950s, due to a combination of the drive toward renewables and a massive replacement capital spending cycle, and their growth could be sustainable for the intermediate term or longer. Our outlook for telecommunication services companies generally is less robust, with the legacy local-exchange telephone business in secular decline, cable under pressure, and wireless approaching saturation; however, select telecommunication services stocks likely present opportunities.

Short-term interest rates have begun to normalize after years of central-bank suppression, although the U.S. Federal Reserve now looks to be on hold for the balance of 2019, spooked by the economic hiccup and market swoon in the fourth quarter of calendar-year 2018. We do not believe that rates are likely to go up much on the short or the long end of the yield curve, as inflation seems well contained. A continued low interest rate environment likely should help support the prices of utilities stocks because income-seeking investors favor their relatively generous and growing dividends. Also, the tax environment has remained reasonably favorable for utilities investors. While the tax rate on qualified dividend income increased to 23.8% from 15.0% in 2013, it remains well below the top marginal tax rate for ordinary income and has had little visible impact on the performance of utilities stocks. For now, we view the outlook for utilities as reasonably bright, with many important positives outweighing a few limited concerns.

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Performance highlights (unaudited)   Wells Fargo Utility and Telecommunications Fund     9  
Ten largest holdings (%) as of March 31, 20198  

Visa Incorporated Class A

      10.41  

NextEra Energy Incorporated

      8.35  

CMS Energy Corporation

      8.22  

Eversource Energy

      7.44  

PNM Resources Incorporated

      7.01  

Alliant Energy Corporation

      6.84  

Shenandoah Telecommunications Company

      6.40  

Sempra Energy

      6.21  

MasterCard Incorporated Class A

      5.52  

American Water Works Company Incorporated

      5.15  

 

Industry distribution as of March 31, 20199

 

LOGO

 

 

 

 

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, 2018 to March 31, 2019.

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
10-1-2018		      Ending
account value
3-31-2019		      Expenses
paid during
the period¹		      Annualized net
expense ratio		  

Class A

            

Actual

    $ 1,000.00      $ 1,108.78      $ 5.99        1.14 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,019.25      $ 5.74        1.14 % 

Class C

            

Actual

    $ 1,000.00      $ 1,104.46      $ 9.92        1.89 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,015.51      $ 9.50        1.89 % 

Administrator Class

            

Actual

    $ 1,000.00      $ 1,109.76      $ 5.00        0.95 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,020.19      $ 4.78        0.95 % 

Institutional Class

            

Actual

    $ 1,000.00      $ 1,110.82      $ 4.10        0.78 % 

Hypothetical (5% return before expenses)

    $ 1,000.00      $ 1,021.04      $ 3.93        0.78 % 

 

 

1

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

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Portfolio of investments—March 31, 2019   Wells Fargo Utility and Telecommunications Fund     11  

      

 

 

Security name                 Shares      Value  

Common Stocks: 94.63%

           

Communication Services: 14.50%

           
Diversified Telecommunication Services: 3.65%           

Verizon Communications Incorporated

           250,000      $ 14,782,500  
          

 

 

  
Media: 4.44%           

Comcast Corporation Class A

           450,200        17,998,996  
          

 

 

  
Wireless Telecommunication Services: 6.41%           

Shenandoah Telecommunications Company

           585,000        25,950,600  
          

 

 

  

Financials: 0.32%

           
Diversified Financial Services: 0.32%           

A-Mark Precious Metals Incorporated †

           109,999        1,308,988  
          

 

 

  

Industrials: 0.58%

           
Machinery: 0.58%           

Perma-Pipe International Holdings Incorporated †

           266,500        2,342,535  
          

 

 

  

Information Technology: 15.93%

           
IT Services: 15.93%           

MasterCard Incorporated Class A

           95,000        22,367,750  

Visa Incorporated Class A

           270,000        42,171,300  
             64,539,050  
          

 

 

  

Utilities: 63.30%

           
Electric Utilities: 34.78%           

Alliant Energy Corporation

           588,000        27,712,440  

American Electric Power Company Incorporated

           175,000        14,656,250  

Edison International

           100,000        6,192,000  

Eversource Energy

           425,000        30,153,750  

NextEra Energy Incorporated

           175,000        33,831,000  

PNM Resources Incorporated

           600,000        28,404,000  
             140,949,440  
          

 

 

  
Gas Utilities: 0.02%           

Spire Incorporated

           1,000        82,290  
          

 

 

  
Multi-Utilities: 23.35%           

CMS Energy Corporation

           600,000        33,324,000  

Dominion Energy Incorporated

           269,000        20,621,540  

Hera SpA

           1,000,000        3,616,523  

Public Service Enterprise Group Incorporated

           200,000        11,882,000  

Sempra Energy

           200,000        25,172,000  
             94,616,063  
          

 

 

  
Water Utilities: 5.15%           

American Water Works Company Incorporated

           200,000        20,852,000  
          

 

 

  

Total Common Stocks (Cost $135,737,220)

              383,422,462  
          

 

 

  

 

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, 2019

      

 

 

Security name   Dividend yield            Shares      Value  

Preferred Stocks: 2.47%

          

Utilities: 2.47%

          
Electric Utilities: 0.86%          

Spark Energy Incorporated «

     9.41 %         150,000      $ 3,487,500  
         

 

 

  
Independent Power & Renewable Electricity Producers: 0.31%          

NextEra Energy Capital Holdings Incorporated †

     0.00          50,000        1,268,500  
         

 

 

  
Multi-Utilities: 1.30%          

CMS Energy Corporation †

     0.00          205,000        5,278,750  
         

 

 

  

Total Preferred Stocks (Cost $10,187,100)

             10,034,750  
         

 

 

  
    Yield                                         
Short-Term Investments: 2.63%          
Investment Companies: 2.63%          

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

     2.55          137,186        137,200  

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

     2.38          10,518,041        10,518,041  

Total Short-Term Investments (Cost $10,655,241)

             10,655,241        
         

 

 

  

 

Total investments in securities (Cost $156,579,561)     99.73 %         404,112,453  

Other assets and liabilities, net

     0.27          1,076,890  
 

 

 

       

 

 

  
Total net assets     100.00 %       $ 405,189,343  
 

 

 

       

 

 

  

 

 

†

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.

 

(r)

The investment is a non-registered investment company purchased with cash collateral received from securities on loan.

 

(u)

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

Investments in Affiliates

An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Portfolio at the beginning of the period or the end of the period were as follows:

 

    Shares,
beginning of
period		     Shares
purchased		     Shares
sold		     Shares,
end of
period		     Net
realized
gains
(losses)		    

Net

change in
unrealized
gains
(losses)

     Income
from
affiliated
securities		    

Value,

end

of period

    

% of

net

assets

  

Common Stocks

                  

Utilities

                  

Electric Utilities

                  

Spark Energy Incorporated Class A *

     729,006       0       729,006       0     $ (158,537 )    $ (1,882,680 )    $ 132,132     $ 0       0.00 % 

Short-Term Investments

                  

Investment Companies

                  

Securities Lending Cash Investments LLC

     1,328,142       3,009,753       4,200,709       137,186       0       0       14,907       137,200    

Wells Fargo Government Money Market Fund Select Class

     9,340,273       63,203,650       62,025,882       10,518,041       0       0       130,359       10,518,041    
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  
          $ (158,537 )    $ (1,882,680 )    $ 277,398     $ 10,655,241       2.63 % 
         

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

 

  *

No longer held at the end of the period.

 

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

Table of Contents

 

Statement of assets and liabilities—March 31, 2019   Wells Fargo Utility and Telecommunications Fund     13  
         

Assets

  

Investments in unaffiliated securities (including $131,264 of securities loaned), at value (cost $145,924,320)

   $ 393,457,212  

Investments in affiliated securities, at value (cost $10,655,241)

     10,655,241  

Foreign currency, at value (cost $276,123)

     256,532  

Receivable for investments sold

     1,100,725  

Receivable for Fund shares sold

     196,834  

Receivable for dividends

     348,401  

Prepaid expenses and other assets

     2,604  
 

 

 

  

Total assets

     406,017,549  
 

 

 

  

Liabilities

  

Payable for Fund shares redeemed

     227,202  

Management fee payable

     205,120  

Payable upon receipt of securities loaned

     137,150  

Shareholder servicing fees payable

     76,263  

Administration fees payable

     68,317  

Distribution fee payable

     12,594  

Trustees’ fees and expenses payable

     1,901  

Accrued expenses and other liabilities

     99,659  
 

 

 

  

Total liabilities

     828,206  
 

 

 

  

Total net assets

   $ 405,189,343  
 

 

 

  

NET ASSETS CONSIST OF

  

Paid-in capital

   $ 154,376,469  

Total distributable earnings

     250,812,874  
 

 

 

  

Total net assets

   $ 405,189,343  
 

 

 

  

COMPUTATION OF NET ASSET VALUE AND OFFERING PRICE PER SHARE

  

Net assets – Class A

   $ 337,847,827  

Shares outstanding – Class A1

     14,061,576  

Net asset value per share – Class A

     $24.03  

Maximum offering price per share – Class A2

     $25.50  

Net assets – Class C

   $ 19,618,235  

Shares outstanding – Class C1

     815,307  

Net asset value per share – Class C

     $24.06  

Net assets – Administrator Class

   $ 5,295,969  

Shares outstanding – Administrator Class1

     220,187  

Net asset value per share – Administrator Class

     $24.05  

Net assets – Institutional Class

   $ 42,427,312  

Shares outstanding – Institutional Class1

     1,766,720  

Net asset value per share – Institutional Class

     $24.01  

 

 

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 Utility and Telecommunications Fund   Statement of operations—year ended March 31, 2019
         

Investment income

  

Dividends (net of foreign withholding taxes of $16,751)

   $ 9,426,980  

Income from affiliated securities

     295,665  
 

 

 

  

Total investment income

     9,722,645  
 

 

 

  

Expenses

  

Management fee

     2,419,206  

Administration fees

  

Class A

     621,830  

Class C

     77,483  

Administrator Class

     6,016  

Institutional Class

     44,918  

Shareholder servicing fees

  

Class A

     740,274  

Class C

     92,241  

Administrator Class

     11,569  

Distribution fee

  

Class C

     276,723  

Custody and accounting fees

     23,673  

Professional fees

     53,193  

Registration fees

     90,282  

Shareholder report expenses

     82,294  

Trustees’ fees and expenses

     22,972  

Other fees and expenses

     12,887  
 

 

 

  

Total expenses

     4,575,561  

Less: Fee waivers and/or expense reimbursements

     (190,558 ) 
 

 

 

  

Net expenses

     4,385,003  
 

 

 

  

Net investment income

     5,337,642  
 

 

 

  

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

  

Net realized gains (losses) on:

  

Unaffiliated securities

     14,229,639  

Affiliated securities

     (158,537 ) 
 

 

 

  

Net realized gains on investments

     14,071,102  
 

 

 

  

Net change in unrealized gains (losses) on:

  

Unaffiliated securities

     50,020,960  

Affiliated securities

     (1,882,680 ) 
 

 

 

  

Net change in unrealized gains (losses) on investments

     48,138,280  
 

 

 

  

Net realized and unrealized gains (losses) on investments

     62,209,382  
 

 

 

  

Net increase in net assets resulting from operations

   $ 67,547,024  
 

 

 

  

 

 

 

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

Table of Contents

 

Statement of changes in net assets   Wells Fargo Utility and Telecommunications Fund     15  
     Year ended
March 31, 2019		     Year ended
March 31, 20181		  

Operations

        

Net investment income

     $ 5,337,642       $ 5,986,877  

Net realized gains (losses) on investments

       14,071,102         (3,563,384 ) 

Net change in unrealized gains (losses) on investments

       48,138,280         13,369,403  
 

 

 

  

Net increase in net assets resulting from operations

       67,547,024         15,792,896  
 

 

 

  

Distributions to shareholders from net investment income and net realized gains

        

Class A

       (5,340,753 )        (5,216,624 ) 

Class C

       (367,071 )        (426,300 ) 

Administrator Class

       (93,347 )        (90,935 ) 

Institutional Class

       (753,499 )        (572,093 ) 
 

 

 

  

Total distributions to shareholders

       (6,554,670 )        (6,305,952 ) 
 

 

 

  

Capital share transactions

     Shares         Shares    

Proceeds from shares sold

        

Class A

     1,320,405       29,507,498       516,687       10,873,178  

Class C

     54,882       1,186,781       32,953       695,831  

Administrator Class

     45,614       1,005,325       69,039       1,434,536  

Institutional Class

     635,353       13,820,300       667,149       13,862,735  
 

 

 

  
      45,519,904         26,866,280  
 

 

 

  

Reinvestment of distributions

        

Class A

     229,766       5,021,772       231,217       4,823,724  

Class C

     16,325       353,472       19,292       401,388  

Administrator Class

     4,234       92,538       4,175       87,094  

Institutional Class

     33,858       740,651       25,626       532,962  
 

 

 

  
      6,208,433         5,845,168  
 

 

 

  

Payment for shares redeemed

        

Class A

     (1,517,053 )      (32,912,173 )      (2,125,163 )      (44,280,111 ) 

Class B

     N/A       N/A       (34,601 )2      (704,872 )2 

Class C

     (1,294,523 )      (28,777,618 )      (568,843 )      (11,910,983 ) 

Administrator Class

     (59,230 )      (1,267,063 )      (101,645 )      (2,105,048 ) 

Institutional Class

     (445,017 )      (9,601,338 )      (379,011 )      (7,884,279 ) 
 

 

 

  
      (72,558,192 )        (66,885,293 ) 
 

 

 

  

Net decrease in net assets resulting from capital share transactions

       (20,829,855 )        (34,173,845 ) 
 

 

 

  

Total increase (decrease) in net assets

       40,162,499         (24,686,901 ) 
 

 

 

  

Net assets

        

Beginning of period

       365,026,844         389,713,745  
 

 

 

  

End of period

     $ 405,189,343       $ 365,026,844  
 

 

 

  

 

 

1 

Effective for all filings after November 4, 2018, the SEC prospectively eliminated the requirement to parenthetically disclose undistributed net investment income at the end of the period and permitted the aggregation of distributions, with the exception of tax basis returns of capital. Undistributed net investment income at March 31, 2018 was $451,894. The disaggregated distributions information for the year ended March 31, 2018 is included in Note 7, Distributions to Shareholders, in the notes to the financial statements.

 

2 

For the period from April 1, 2017 to May 5, 2017. Effective at the close of business on May 5, 2017, Class B 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 Utility and Telecommunications Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS A   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $20.46       $20.01       $18.70       $18.23       $17.71  

Net investment income

     0.32       0.34       0.35       0.31       0.29  

Net realized and unrealized gains (losses) on investments

     3.65       0.47       1.30       0.45       0.57  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     3.97       0.81       1.65       0.76       0.86  

Distributions to shareholders from

          

Net investment income

     (0.34 )      (0.36 )      (0.34 )      (0.29 )      (0.34 ) 

Net realized gains

     (0.06 )      0.00       0.00       0.00       0.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (0.40 )      (0.36 )      (0.34 )      (0.29 )      (0.34 ) 

Net asset value, end of period

     $24.03       $20.46       $20.01       $18.70       $18.23  

Total return1

     19.59 %      4.00 %      8.87 %      4.30 %      4.82 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.19 %      1.17 %      1.18 %      1.20 %      1.22 % 

Net expenses

     1.14 %      1.14 %      1.14 %      1.14 %      1.14 % 

Net investment income

     1.47 %      1.60 %      1.79 %      1.73 %      1.57 % 

Supplemental data

          

Portfolio turnover rate

     10 %      7 %      22 %      15 %      29 % 

Net assets, end of period (000s omitted)

     $337,848       $287,047       $308,152       $315,238       $341,342  

 

 

1 

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     17  

(For a share outstanding throughout each period)

 

    Year ended March 31  
CLASS C   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $20.47       $20.01       $18.70       $18.25       $17.73  

Net investment income

     0.16 1      0.13       0.16       0.17 1      0.15  

Net realized and unrealized gains (losses) on investments

     3.63       0.52       1.34       0.45       0.57  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     3.79       0.65       1.50       0.62       0.72  

Distributions to shareholders from

          

Net investment income

     (0.14 )      (0.19 )      (0.19 )      (0.17 )      (0.20 ) 

Net realized gains

     (0.06 )      0.00       0.00       0.00       0.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (0.20 )      (0.19 )      (0.19 )      (0.17 )      (0.20 ) 

Net asset value, end of period

     $24.06       $20.47       $20.01       $18.70       $18.25  

Total return2

     18.65 %      3.24 %      8.04 %      3.49 %      4.04 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.94 %      1.92 %      1.93 %      1.95 %      1.97 % 

Net expenses

     1.89 %      1.89 %      1.89 %      1.89 %      1.89 % 

Net investment income

     0.74 %      0.85 %      1.02 %      0.99 %      0.82 % 

Supplemental data

          

Portfolio turnover rate

     10 %      7 %      22 %      15 %      29 % 

Net assets, end of period (000s omitted)

     $19,618       $41,729       $51,123       $57,431       $63,632  

 

 

1 

Calculated based upon average shares outstanding

 

2 

Total return calculations do not include any sales charges.

 

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

Table of Contents

 

18   Wells Fargo Utility and Telecommunications Fund   Financial highlights

(For a share outstanding throughout each period)

 

    Year ended March 31  
ADMINISTRATOR CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $20.48       $20.03       $18.72       $18.25       $17.73  

Net investment income

     0.36       0.37       0.38       0.34       0.33  

Net realized and unrealized gains (losses) on investments

     3.65       0.48       1.30       0.45       0.56  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     4.01       0.85       1.68       0.79       0.89  

Distributions to shareholders from

          

Net investment income

     (0.38 )      (0.40 )      (0.37 )      (0.32 )      (0.37 ) 

Net realized gains

     (0.06 )      0.00       0.00       0.00       0.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (0.44 )      (0.40 )      (0.37 )      (0.32 )      (0.37 ) 

Net asset value, end of period

     $24.05       $20.48       $20.03       $18.72       $18.25  

Total return

     19.80 %      4.21 %      9.04 %      4.49 %      5.01 % 

Ratios to average net assets (annualized)

          

Gross expenses

     1.11 %      1.09 %      1.10 %      1.09 %      1.06 % 

Net expenses

     0.95 %      0.95 %      0.95 %      0.95 %      0.95 % 

Net investment income

     1.66 %      1.80 %      1.93 %      1.93 %      1.79 % 

Supplemental data

          

Portfolio turnover rate

     10 %      7 %      22 %      15 %      29 % 

Net assets, end of period (000s omitted)

     $5,296       $4,702       $5,168       $6,740       $8,365  

 

 

 

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  
INSTITUTIONAL CLASS   2019     2018     2017     2016     2015  

Net asset value, beginning of period

     $20.45       $20.00       $18.69       $18.23       $17.74  

Net investment income

     0.41       0.41       0.42       0.36 1      0.35 1 

Net realized and unrealized gains (losses) on investments

     3.62       0.47       1.30       0.45       0.54  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total from investment operations

     4.03       0.88       1.72       0.81       0.89  

Distributions to shareholders from

          

Net investment income

     (0.41 )      (0.43 )      (0.41 )      (0.35 )      (0.40 ) 

Net realized gains

     (0.06 )      0.00       0.00       0.00       0.00  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total distributions to shareholders

     (0.47 )      (0.43 )      (0.41 )      (0.35 )      (0.40 ) 

Net asset value, end of period

     $24.01       $20.45       $20.00       $18.69       $18.23  

Total return

     20.03 %      4.38 %      9.26 %      4.63 %      5.02 % 

Ratios to average net assets (annualized)

          

Gross expenses

     0.86 %      0.84 %      0.85 %      0.84 %      0.79 % 

Net expenses

     0.78 %      0.78 %      0.78 %      0.78 %      0.78 % 

Net investment income

     1.83 %      1.95 %      2.18 %      2.03 %      1.89 % 

Supplemental data

          

Portfolio turnover rate

     10 %      7 %      22 %      15 %      29 % 

Net assets, end of period (000s omitted)

     $42,427       $31,548       $24,575       $15,295       $14,156  

 

 

1 

Calculated based upon average shares outstanding

 

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

Table of Contents

 

20   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 Telecomunications Fund (the “Fund”) which is a non-diversified series of the Trust.

Effective at the close of business on May 5, 2017, Class B shares were converted to Class A shares and are no longer offered by the Fund. Information for Class B shares reflected in the financial statements represents activity through May 5, 2017.

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, 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 Wells Fargo Asset Management Pricing Committee at 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, 2019 such fair value pricing was not used in pricing foreign securities.

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

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

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 Wells Fargo Asset Management Pricing Committee. Purchases and sales of

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Notes to financial statements   Wells Fargo Utility and Telecommunications Fund     21  

securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates of securities and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

Securities lending

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

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

Security transactions and income recognition

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

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

Distributions to shareholders

Distributions to shareholders are recorded on the ex-dividend date and paid from net investment income quarterly and any net realized gains are paid at least annually. Such distributions are determined in accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital at year end.

Federal and other taxes

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

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22   Wells Fargo Utility and Telecommunications Fund   Notes to financial statements

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

As of March 31, 2019, the aggregate cost of all investments for federal income tax purposes was $156,602,275 and the unrealized gains (losses) consisted of:

 

Gross unrealized gains

    $ 247,869,899  

Gross unrealized losses

      (359,721 ) 

Net unrealized gains

    $ 247,510,178  

Class allocations

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

3. FAIR VALUATION MEASUREMENTS

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

 

∎  

Level 1 – quoted prices in active markets for identical securities

 

∎  

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

 

∎  

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

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

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of March 31, 2019:

 

    

Quoted prices

(Level 1)

      Other significant
observable inputs
(Level 2)		     

Significant
unobservable inputs

(Level 3)

      Total  

Assets

            

Investments in:

            

Common stocks

            

Communication services

    $ 58,732,096      $ 0      $ 0      $ 58,732,096  

Financials

      1,308,988        0        0        1,308,988  

Industrials

      2,342,535        0        0        2,342,535  

Information technology

      64,539,050        0        0        64,539,050  

Utilities

      256,499,793        0        0        256,499,793  

Preferred stocks

            

Utilities

      10,034,750        0        0        10,034,750  

Short-term investments

            

Investment companies

      10,518,041        137,200        0        10,655,241  

Total assets

    $ 403,975,253      $ 137,200      $ 0      $ 404,112,453  

Additional sector, industry or geographic detail is included in the Portfolio of Investments.

At March 31, 2019, the Fund did not have any transfers into/out of Level 3.

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Notes to financial statements   Wells Fargo Utility and Telecommunications 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 subadviser and providing fund-level administrative services in connection with the Fund’s operations. As compensation for its services under the investment management agreement, Funds Management is entitled to receive a management fee at the following annual rate based on the Fund’s average daily net assets:

 

Average daily net assets    Management fee  

First $500 million

      0.650 % 

Next $500 million

      0.600 % 

Next $1 billion

      0.550 % 

Next $2 billion

      0.525 % 

Next $1 billion

      0.500 % 

Next $5 billion

      0.490 % 

Over $10 billion

      0.480 % 

For the year ended March 31, 2019, 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, which is not an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.20% and declining to 0.10% as the average daily net assets of the Fund increase.

Administration fees

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

 

     Class-level
administration fee		  

Class A, Class C

      0.21 % 

Administrator Class, Institutional Class

      0.13  

Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. When each class of the Fund has exceeded its expense cap, Funds Management has waived fees and/or reimbursed expenses from fund level expenses on a proportionate basis and then from class specific expenses. When only certain classes exceed their expense caps, waivers and/or reimbursements are applied against class specific expenses before fund level expenses. Funds Management has committed through July 31, 2019 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.14% for Class A shares, 1.89% for Class C shares, and 0.95% for Administrator Class shares, and 0.78% for Institutional Class. Prior to or after the commitment expiration date, 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

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24   Wells Fargo Utility and Telecommunications Fund   Notes to financial statements

the contingent deferred sales charges from redemptions of Class C shares. For the year ended March 31, 2019, Funds Distributor received $12,077 from the sale of Class A shares. No contingent deferred sales charges were incurred by Class A and Class C shares for the year ended March 31, 2019.

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.

Interfund transactions

The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices. Pursuant to these procedures, the Fund had $5,316,910 and $9,503,004 in interfund purchases and sales, respectively, during the year ended March 31, 2019.

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, 2019 were $36,756,795 and $57,035,066, respectively.

6. BANK BORROWINGS

The Trust (excluding the money market funds), Wells Fargo Master Trust and Wells Fargo Variable Trust are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund.

For the ended March 31, 2019, 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, 2019 and March 31, 2018 were as follows:

 

     Year ended March 31  
     2019      2018  

Ordinary income

    $ 5,554,488      $ 6,305,952  

Long-term capital gain

      1,000,182        0  

As of March 31, 2019, the components of distribution earnings on a tax basis were as follows:

 

Undistributed

ordinary

income

   

Undistributed

long-term

gain

   

Unrealized

gains

$250,975    $3,079,037    $247,490,587

Effective for all filings after November 4, 2018, the Securities and Exchange Commission eliminated the requirement to separately state the components of distributions to shareholders under U.S. generally accepted accounting principles. The amounts of distributions to shareholders for the year ended March 31, 2018 were as follows:

 

     Net investment
income		  

Class A

      $5,216,624  

Class C

      426,300  

Administrator Class

      90,935  

Institutional Class

      572,093  

8. CONCENTRATION RISK

The Fund invests a substantial portion of its assets in utility companies and, therefore, may be more affected by changes in the utility sector than would be a fund whose investments are not heavily weighted in any sector.

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Notes to financial statements   Wells Fargo Utility and Telecommunications Fund     25  

9. INDEMNIFICATION

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

10. NEW ACCOUNTING PRONOUNCEMENT

In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value Measurement (Topic 820) Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.

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26   Wells Fargo Utility and Telecommunications Fund   Report of independent registered public accounting firm

TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES OF WELLS FARGO FUNDS TRUST:

Opinion on the Financial Statements

We have audited the accompanying statement of assets and liabilities of Wells Fargo Utility and Telecommunications Fund (the Fund), one of the funds constituting Wells Fargo Funds Trust, including the portfolio of investments, as of March 31, 2019, 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 related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of March 31, 2019, 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.

Basis for Opinion

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 are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of March 31, 2019, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.

 

LOGO

We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.

Boston, Massachusetts

May 29, 2019

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Other information (unaudited)   Wells Fargo Utility and Telecommunications 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, 2019.

Pursuant to Section 852 of the Internal Revenue Code, $1,000,182 was designated as a 20% rate gain distribution for the fiscal year ended March 31, 2019.

Pursuant to Section 854 of the Internal Revenue Code, $5,554,488 of income dividends paid during the fiscal year ended March 31, 2019 has been designated as qualified dividend income (QDI).

For the fiscal year ended March 31, 2019, $71,806 has been designed 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 used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.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 wfam.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 (wfam.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 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 151 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.

Independent Trustees

 

Name and

year of birth

  

Position held and

length of service*

   Principal occupations during past five years or longer  

Current other

public company or
investment company
directorships

William R. Ebsworth

(Born 1957)

   Trustee, since 2015   Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong, and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he led a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Audit Committee Chair and Investment Committee Chair of the Vincent Memorial Hospital Endowment (non-profit organization). Mr. Ebsworth is a CFA® charterholder.   N/A

Jane A. Freeman

(Born 1953)

   Trustee, since 2015; Chair Liaison, since 2018   Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is a Board Member of The Ruth Bancroft Garden (non-profit organization). She is also an inactive Chartered Financial Analyst.   N/A

Isaiah Harris, Jr.3

(Born 1952)

   Trustee, since 2009; Audit Committee Chairman, since 2019   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 (private school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).   CIGNA Corporation

Judith M. Johnson

(Born 1949)

   Trustee, since 2008; Audit Committee Chairman, from 2009 to 2018   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.   N/A

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Other information (unaudited)   Wells Fargo Utility and Telecommunications 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

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.   N/A

Olivia S. Mitchell

(Born 1953)

   Trustee, since 2006; Nominating and Governance Committee Chairman, since 2018   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.   N/A

Timothy J. Penny

(Born 1951)

   Trustee, since 1996; Chairman, since 2018   President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   N/A

James G. Polisson

(Born 1959)

   Trustee, since 2018   Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations.   N/A

Pamela Wheelock

(Born 1959)

   Trustee, since 2018   Board member of the Destination Medical Center Economic Development Agency, Rochester, Minnesota since 2019. Chief Operating Officer, Twin Cities Habitat for Humanity from 2017 to 2019. Vice President of University Services, University of Minnesota from 2012 to 2016. Prior thereto, on the Board of Directors, Governance Committee and Finance Committee for the Minnesota Philanthropy Partners (Saint Paul Foundation) from 2012 to 2018, Interim Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2011 to 2012, Chairman of the Board from 2009 to 2012 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Executive Vice President of the Minnesota Wild Foundation from 2004 to 2008. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently Board Chair of the Minnesota Wild Foundation since 2010.   N/A

 

*

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

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30   Wells Fargo Utility and Telecommunications Fund   Other information (unaudited)

Officers

 

Name and

year of birth

  

Position held and

length of service

   Principal occupations during past five years or longer    

Andrew Owen

(Born 1960)

   President, since 2017   Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014.    

Nancy Wiser1

(Born 1967)

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

Alexander Kymn

(Born 1973)

   Secretary and Chief Legal Officer, since 2018   Senior Company Counsel of Wells Fargo Bank, N.A. since 2018 (previously Senior Counsel from 2007 to 2018). Vice President of Wells Fargo Funds Management, LLC from 2008 to 2014.    

Michael H. Whitaker

(Born 1967)

   Chief Compliance Officer, since 2016   Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016.    

David Berardi

(Born 1975)

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

Jeremy DePalma1

(Born 1974)

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

 

 

1

Nancy Wiser acts as Treasurer of 65 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 86 funds and Assistant Treasurer of 65 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 wfam.com.

 

3 

Mr. Harris became Chairman of the Audit Committee effective January 1, 2019.

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Appendix A (unaudited)   Wells Fargo Utility and Telecommunications Fund     31  

SALES CHARGE REDUCTIONS AND WAIVERS FOR CERTAIN INTERMEDIARIES

Raymond James & Associates, Inc., Raymond James Financial Services & Raymond James affiliates (“Raymond James”)

Effective on or about March 1, 2019, shareholders purchasing Fund shares through a Raymond James platform or account will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the Fund’s Prospectus or SAI.

Front-end Sales Load Waivers on Class A shares Available at Raymond James

 

  •  

Shares purchased in an investment advisory program.

 

  •  

Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).

 

  •  

Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.

 

  •  

Shares purchased from the proceeds of redemptions within the same fund family, provided (1) the repurchase occurs within 90 days following the redemption, (2) the redemption and purchase occur in the same account, and (3) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).

 

  •  

A shareholder in the fund’s Class C shares will have their shares automatically exchanged at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the exchange is in line with the policies and procedures of Raymond James.

CDSC Waivers on Class A and C Shares Available at Raymond James

 

  •  

Death or disability of the shareholder.

 

  •  

Shares sold as part of a systematic withdrawal plan as described in the Fund’s Prospectus.

 

  •  

Return of excess contributions from an IRA Account.

 

  •  

Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching age 70½ as described in the Fund’s prospectus.

 

  •  

Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.

 

  •  

Shares acquired through a right of reinstatement.

Front-end Load Discounts Available at Raymond James: Breakpoints, and/or Rights of Accumulation

 

  •  

Breakpoints as described in the Fund’s Prospectus.

 

  •  

Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.

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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, visit the Fund’s website, or call:

Wells Fargo Funds

P.O. Box 219967

Kansas City, MO 64121-9967

Website: wfam.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 wfam.com. Read the prospectus carefully before you invest or send money.

Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).

This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.

INVESTMENT PRODUCTS: NOT FDIC INSURED  ◾  NO BANK GUARANTEE  ◾   MAY LOSE VALUE

© 2019 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

401598 05-19

A318/AR318 03-19

 

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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, 2019		      Fiscal
year ended
March 31, 2018		  

Audit fees

    $ 299,890      $ 295,730  

Audit-related fees

      —          —    

Tax fees (1)

      41,385        40,565  

All other fees

      —          —    
  

 

 

     

 

 

  
   $ 341,275      $ 336,295  
  

 

 

     

 

 

  

 

(1)

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

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

(f) Not applicable

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(g) Not applicable

(h) Not applicable

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS

Not applicable.

ITEM 6. INVESTMENTS

A Portfolio of Investments for each series of Wells Fargo Funds Trust is included as part of the report to shareholders filed under Item 1 of this Form.

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 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 registrant 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 registrant’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the most recent fiscal quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

ITEM 12. DISCLOSURES OF SECURITIES LENDING ACTIVITES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

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ITEM 13. 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.

(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Wells Fargo Funds Trust
By:  
  /s/ Andrew Owen
  Andrew Owen
  President
Date:   May 29, 2019

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

 

Wells Fargo Funds Trust
By:  
  /s/ Andrew Owen
  Andrew Owen
  President
Date:   May 29, 2019
By:  
  /s/ Nancy Wiser
  Nancy Wiser
  Treasurer
Date:   May 29, 2019