Contents
Notice to shareholders
The Fund and Funds Management, LLC (“Funds Management”) have received an exemptive order from the SEC that permits Funds
Management, subject to the approval of the Board of Trustees of the Fund, to select or replace certain subadvisers to manage all or a portion of the Fund’s assets and enter into, amend or terminate a sub-advisory agreement with certain
subadvisers without obtaining shareholder approval (“Multi-manager Structure”). The Multi-manager Structure applies to subadvisers that are not affiliated with Funds Management or the Fund, except to the extent that affiliation arises
solely because such subadvisers provide sub-advisory services to the Fund (“Non-affiliated Subadvisers”), as well as subadvisers that are indirect or direct wholly-owned subsidiaries of Funds Management or of another company that,
indirectly or directly, wholly owns Funds Management (“Wholly-owned Subadvisers”).
Pursuant to the SEC order, Funds
Management, with the approval of the Board of Trustees, has the discretion to terminate any subadvisers and allocate and reallocate the Fund’s assets among any other Non-affiliated Subadvisers or Wholly-owned Subadvisers. Funds Management,
subject to oversight and supervision by the Board of Trustees, has responsibility to continue to oversee any subadvisers to the Fund and to recommend, for approval by the Board of Trustees, the hiring, termination and replacement of subadvisers for
the Fund. In the event that a new subadviser is hired pursuant to the Multi-manager Structure, the Fund is required to provide notice to shareholders within 90 days.
Please contact your investment professional or call us directly at
1-800-222-8222
if you have any questions
on this Notice to Shareholders.
The views expressed and any
forward-looking statements are as of December 31, 2013, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage
Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances
in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED
¡
NO BANK GUARANTEE
¡
MAY LOSE VALUE
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2
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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Performance highlights (unaudited)
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Investment objective
The Fund seeks total
return, consisting of current income and capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Lyle J. Fitterer, CFA, CPA
Robert J. Miller
Average annual total returns (%) as
of December 31, 2013
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Inception date
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1 year
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5 year
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Since
inception
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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4-14-2008
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(1.37
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)
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10.78
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8.25
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Barclays Municipal Bond Index
1
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–
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(2.55
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)
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5.89
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4.47
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Figures quoted represent past performance, which is no guarantee of future results and
do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares.
Investment return and principal value
of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted, which assumes the reinvestment of
dividends and capital gains. Current month-end performance is available by calling 1-800-368-0627.
Bond values fluctuate in response to the
financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond values fall and investors may lose principal value. The use of derivatives may reduce
returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to high-yield securities risk. Consult the Fund’s prospectus for additional
information on these and other risks. A portion of the Fund’s income may be subject to federal, state, and/or local income taxes or the Alternative Minimum Tax (AMT). Any capital gains distributions may be taxable.
CoreBuilder Shares are a series of investment options within the separately managed accounts advised or subadvised by Wells Fargo Funds Management, LLC. The shares are
fee-waived mutual funds that enable certain separately managed account investors to achieve greater diversification than smaller managed accounts might otherwise achieve.
Please remember that shares of the Fund may be purchased only by or on behalf of separately managed account clients where Wells Fargo Funds Management, LLC, has an
agreement to serve as investment adviser or subadviser to the account with the separately managed account sponsor (typically a registered investment adviser or broker/dealer) or directly with the client.
Please see footnotes on page 3.
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Performance highlights (unaudited)
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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3
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Growth of $10,000 investment
2
as of December 31, 2013
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1.
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The 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.
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2.
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The chart compares the performance of the Fund since inception with the Barclays Municipal Bond Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund.
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3.
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Effective maturity is calculated based on the total long-term investments of the Fund. It is subject to change and may have changed since the date specified.
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4.
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The credit quality of portfolio holdings reflected in the chart is based on ratings from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit quality ratings apply to the
underlying holdings of the Fund and not to the Fund itself. The percentages of the Fund’s portfolio with the ratings depicted in the chart are calculated based on the total market value of fixed income securities held by the Fund. If a security
was rated by all three rating agencies, the middle rating was utilized. If rated by two of three rating agencies, the lower rating was utilized, and if rated by one of the rating agencies, that rating was utilized. Standard & Poor’s
rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Ratings from A to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories. Standard &
Poor’s rates the creditworthiness of short-term notes from SP-1 (highest) to SP-3 (lowest). Moody’s rates the creditworthiness of bonds, ranging from Aaa (highest) to C (lowest). Ratings Aa to B may be modified by the addition of a number
1 (highest) to 3 (lowest) to show relative standing within the ratings categories. Moody’s rates the creditworthiness of short-term U.S. tax-exempt municipal securities from MIG 1/VMIG 1 (highest) to SG (lowest). Fitch rates the
creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Credit quality, and credit quality ratings, are subject to change.
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4
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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Performance highlights (unaudited)
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MANAGER’S DISCUSSION
Fund highlights
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n
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The Fund outperformed its benchmark, the Barclays Municipal Bond Index, during the 12-month period that ended December 31, 2013, by more than 100 basis points (100 basis points equals 1.00%). Individual security
selection drove the majority of the Fund’s outperformance.
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n
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A short duration position during the first half of the year contributed to performance when the market sold off. An underweight in Puerto Rico bonds helped relative performance.
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n
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Suboptimal credit and sector allocations detracted from relative results.
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Higher interest
rates and fund outflows caused municipal bonds to post negative returns for 2013.
Municipal bonds, as measured by the Barclays Municipal Bond Index,
returned -2.55% during 2013, the worst performance since 1994. Interest rates moved higher in anticipation of the Federal Reserve reducing its bond-buying program, with a particularly sharp upward spike in the second quarter. As a result, municipal
bond mutual fund outflows reached a record level of just over $60 billion in 2013. This lack of demand more than countered the benefit of significantly less supply of municipal debt issuance during the period. Despite continued improvement to
overall municipal credit quality, the high-profile bankruptcy filing by the city of Detroit, deteriorating credit quality in Puerto Rico, and concerns about ongoing pension issues weighed heavily on the market.
Strategy decisions focused on duration, yield-curve positioning, credit allocations, and issue selection.
Duration was a positive contributor to performance. The Fund began the year with its duration shorter than the benchmark’s, and we kept its duration short as
interest rates rose and the market sold off through the second quarter, which contributed to performance. Given this sharp rise in interest rates, we didn’t have a strong conviction about the short-term direction of interest rates and therefore
brought duration to neutral. Because technical factors looked likely to be supportive of municipal bond prices in early 2014, we continued to add duration.
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Effective maturity distribution
3
as of December 31, 2013
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Yield-curve positioning was a modest detractor of performance. Our underweight in the short end of the yield curve
detracted from performance because the short end outperformed; however, our underweight in the long end of the yield curve contributed to performance because the long end underperformed. We had our biggest overweight in the 10- to 20-year part of
the curve, which we believed provided the best relative value and would benefit the most from the roll, or a natural decline in yield (increase in price) as a bond’s maturity shortens. The outperformance of the short end and subsequent
steepening of the yield curve offset the benefits from the roll.
Credit positioning was a modest detractor from
performance. The Fund was overweight BBB-rated and A-rated investment-grade bonds, which underperformed. However, the fund was underweight Puerto Rico bonds, which benefited relative results because Puerto Rico debt had large negative results in
2013.
Please see footnotes on page 3.
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Performance highlights (unaudited)
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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5
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Credit quality
4
as of December 31, 2013
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Sector allocations also detracted. The Fund was overweight the underperforming revenue sector and underweight the
outperforming prerefunded sector. Within our sector decisions, the Fund was overweight local general obligation bonds and industrial development revenue/pollution control revenue bonds. We also liked the transportation and special tax sectors. We
believe our rigorous credit analysis benefited the Fund by both identifying opportunities and avoiding pitfalls.
We see opportunities
amid the challenges of 2014.
While we believe rates are headed modestly higher in 2014, we see opportunities in the municipal market. The economy is
improving, which we expect will lead to continued improvement in municipal credit quality and
tightening of credit spreads. The yield difference between AAA-rated and BBB-rated bonds is wider than its average over
the past 20 years. We believe income will be an important component of return in the coming year, and bond selection will be critical to achieve positive returns. We currently anticipate maintaining an overweight in lower-rated investment-grade
credit tiers, which as we expect should be a source of income in the short term and outperformance in the intermediate and longer term if credit spreads narrow.
We
expect to become more defensive by selling duration when prices increase, as we expect they will in the first quarter of 2014. At that point, we are likely to keep the Fund’s duration short in anticipation of higher rates. We will continue to
endeavor to minimize interest-rate risk by underweighting the long end of the yield curve and instead optimizing our yield-curve positioning to maximize the roll.
Please see footnotes on page 3.
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6
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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Fund expenses (unaudited)
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As a shareholder of the Fund, you incur ongoing costs and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of
investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
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 July 1, 2013 to December 31, 2013.
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 $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses paid during period” for your applicable
class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the
Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account
balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the
shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs. Therefore, the
“Hypothetical” line of the table is useful in comparing ongoing costs only and will not help you determine the relative total costs of owning different funds.
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Beginning
account value
7-1-2013
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Ending
account value
12-31-2013
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Expenses
paid during
the period
1
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Net annual
expense ratio
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Actual
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$
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1,000.00
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$
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1,002.40
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$
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0.00
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*
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0.00
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%*
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Hypothetical (5% return before expenses)
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$
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1,000.00
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$
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1,025.21
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$
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0.00
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*
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0.00
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%*
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1.
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Expenses paid is equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the
fiscal year (to reflect the one-half-year period).
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*
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Generally, no ordinary operating fees or expenses are charged to the Fund. Wells Fargo Funds Management, LLC has contractually committed to irrevocably absorb and pay or reimburse all ordinary operating expenses of the
Fund, except portfolio transactions or other investment-related costs (e.g., commissions), fees payable for services provided by the Fund’s securities lending agent, interest, taxes, leverage expenses and other expenses not incurred in the
ordinary course of the Fund’s business. This commitment has an indefinite term.
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Portfolio of investments—December 31, 2013
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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7
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Security name
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Interest rate
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Maturity date
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Principal
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Value
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Municipal Obligations: 98.33%
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Alabama: 0.59%
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Jefferson County AL Sewer Revenue Project CAB Series B
(
Water & Sewer Revenue
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¤
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0.00
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%
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10-1-2028
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$
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1,500,000
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$
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615,603
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Arizona: 4.56%
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Florence AZ IDA Legacy Traditional School Project Queen Creek & Casa Grande Campuses
(
Education Revenue
)
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5.00
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7-1-2023
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550,000
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514,393
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Phoenix AZ IDA Education Great Hearts Academies-Veritas Project
(
Education Revenue
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6.00
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7-1-2032
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500,000
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473,315
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Phoenix AZ IDA Education Great Hearts Academies-Veritas Project
(
Education Revenue
)
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6.25
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7-1-2032
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345,000
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335,795
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Salt Verde AZ Financial Corporation Project
(
Utilities Revenue
)
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5.25
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12-1-2026
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1,000,000
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1,057,170
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Salt Verde AZ Financial Corporation Project
(
Utilities Revenue
)
144A
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5.50
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12-1-2037
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1,500,000
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1,390,095
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Verrado AZ Community Facilities District #1
(
GO
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4.85
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7-15-2014
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85,000
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86,011
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Verrado AZ Community Facilities District #1
(
GO
)
144A
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5.00
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7-15-2022
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500,000
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505,530
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Yavapai County AZ IDA AgriBusiness & Equine Center Project
(
Education Revenue
)
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4.63
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3-1-2022
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445,000
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419,208
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4,781,517
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California: 9.91%
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California Foothill/Eastern Transportation Corridor Agency CAB Series A
(
Transportation Revenue
,
National Insured
)
¤
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0.00
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1-15-2019
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700,000
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530,390
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California Foothill/Eastern Transportation Corridor Agency CAB Series A
(
Transportation Revenue
)
%%¤
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0.00
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1-15-2036
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1,000,000
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254,320
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California HFFA Community Program for Persons with Developmental Disabilities Series A
(
Miscellaneous Revenue
)
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6.25
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2-1-2026
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100,000
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112,167
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California Municipal Finance Authority Charter School Revenue Albert Einstein Academies Project Series A
(
Miscellaneous Revenue
)
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7.13
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8-1-2043
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1,000,000
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999,610
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California PCFA Water Furnishing Revenue Bonds Poseidon Resources Desalination Project
(
IDR
)
144A
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5.00
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11-21-2045
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1,000,000
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798,170
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California Public Works Board Department of General Services Buildings 8 & 9A
(
Miscellaneous Revenue
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6.25
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4-1-2034
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250,000
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281,898
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California Statewide CDA Sutter Health Series A
(
Health Revenue
)
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6.00
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8-15-2042
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100,000
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111,838
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California Various Purposes
(
GO
)
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6.00
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4-1-2038
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200,000
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224,286
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Compton CA Community College District Election of 2002 CAB Series C
(
GO
)
¤
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0.00
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8-1-2029
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500,000
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202,350
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Compton CA Community College Series A
(
GO
,
National Insured
)
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5.25
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7-1-2019
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15,000
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15,312
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Corona-Norca CA Unified School District Election of 2006 CAB Series C
(
GO
,
AGM Insured
)
¤
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0.00
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8-1-2039
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130,000
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116,210
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Escondido CA Unified School District Election of 2008 CAB Series A
(
GO
,
AGM Insured
)
¤
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0.00
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8-1-2029
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200,000
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90,966
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Gilroy CA Unified School District CAB Series A
(
GO
,
AGM Insured
)
¤
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0.00
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8-1-2032
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70,000
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25,055
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Gilroy CA Unified School District Refunding CAB Series A
(
GO
,
AGM Insured
)
¤
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0.00
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8-1-2032
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130,000
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60,817
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Hawthorne CA School District CAB Series C
(
GO
,
National Insured
)
¤
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0.00
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11-1-2025
|
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|
100,000
|
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53,497
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|
Inland Valley CA Development Agency Series C
(
Tax Revenue
)
±
|
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4.50
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3-1-2041
|
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|
150,000
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158,816
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Long Beach CA Revenue Bond Financing Authority Natural Gas Purchase LIBOR Index Series B
(
Utilities Revenue
)
±
|
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|
1.61
|
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|
11-15-2027
|
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|
|
1,000,000
|
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|
805,540
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M-S-R Energy Authority California Gas Series B
(
Utilities Revenue
)
|
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|
6.13
|
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|
11-1-2029
|
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|
150,000
|
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|
166,406
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|
Northern California Gas Authority #1 LIBOR Series B
(
Utilities Revenue
)
±
|
|
|
0.80
|
|
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|
7-1-2019
|
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|
1,750,000
|
|
|
|
1,602,580
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|
Oakland CA Unified School District Alameda County Election of 2006 Series A
(
GO
)
|
|
|
6.50
|
|
|
|
8-1-2024
|
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|
100,000
|
|
|
|
111,403
|
|
|
Palo Alto CA Improvement Bond University Avenue Area Off-Street Parking Assessment District Project
(
Miscellaneous Revenue
)
|
|
|
4.00
|
|
|
|
9-2-2020
|
|
|
|
240,000
|
|
|
|
251,534
|
|
|
Palomar CA College District Election of 2006 CAB Series B
(
GO
)
¤
|
|
|
0.00
|
|
|
|
8-1-2032
|
|
|
|
570,000
|
|
|
|
210,769
|
|
|
Peralta CA Community College District Alameda County
(
GO
)
|
|
|
5.00
|
|
|
|
8-1-2024
|
|
|
|
450,000
|
|
|
|
500,922
|
|
The accompanying notes are an integral part of these financial statements.
|
|
|
|
|
|
|
8
|
|
Wells Fargo Managed Account CoreBuilder Shares—Series M
|
|
Portfolio of investments—December 31, 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
December 31, 2013
|
|
|
Year ended
December 31, 2012
|
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
$
|
3,068,718
|
|
|
|
|
|
|
$
|
1,393,920
|
|
|
Net realized gains (losses) on investments
|
|
|
|
|
|
|
(413,530
|
)
|
|
|
|
|
|
|
1,160,354
|
|
|
Net change in unrealized gains (losses) on investments
|
|
|
|
|
|
|
(3,684,156
|
)
|
|
|
|
|
|
|
1,484,565
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
|
|
|
|
(1,028,968
|
)
|
|
|
|
|
|
|
4,038,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to shareholders from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
(3,043,111
|
)
|
|
|
|
|
|
|
(1,393,391
|
)
|
|
Net realized gains
|
|
|
|
|
|
|
(205,839
|
)
|
|
|
|
|
|
|
(1,029,041
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to shareholders
|
|
|
|
|
|
|
(3,248,950
|
)
|
|
|
|
|
|
|
(2,422,432
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital share transactions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from shares sold
|
|
|
7,347,765
|
|
|
|
82,864,916
|
|
|
|
3,661,357
|
|
|
|
42,042,651
|
|
|
Payment for shares redeemed
|
|
|
(2,099,594
|
)
|
|
|
(23,584,081
|
)
|
|
|
(1,120,649
|
)
|
|
|
(12,974,905
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase in net assets resulting from capital share transactions
|
|
|
|
|
|
|
59,280,835
|
|
|
|
|
|
|
|
29,067,746
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total increase in net assets
|
|
|
|
|
|
|
55,002,917
|
|
|
|
|
|
|
|
30,684,153
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
|
|
|
|
Beginning of period
|
|
|
|
|
|
|
49,910,715
|
|
|
|
|
|
|
|
19,226,562
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period
|
|
|
|
|
|
$
|
104,913,632
|
|
|
|
|
|
|
$
|
49,910,715
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed net investment income
|
|
|
|
|
|
$
|
25,972
|
|
|
|
|
|
|
$
|
309
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
|
|
|
|
|
|
|
18
|
|
Wells Fargo Managed Account CoreBuilder Shares—Series M
|
|
Financial highlights
|
(For a share outstanding throughout each period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31
|
|
|
|
|
2013
|
|
|
2012
|
|
|
2011
|
|
|
2010
|
|
|
2009
|
|
|
Net asset value, beginning of period
|
|
$
|
11.61
|
|
|
$
|
10.93
|
|
|
$
|
10.28
|
|
|
$
|
10.26
|
|
|
$
|
9.06
|
|
|
Net investment income
|
|
|
0.44
|
|
|
|
0.44
|
|
|
|
0.52
|
|
|
|
0.52
|
|
|
|
0.55
|
|
|
Net realized and unrealized gains (losses) on investments
|
|
|
(0.60
|
)
|
|
|
0.93
|
|
|
|
0.70
|
|
|
|
0.14
|
|
|
|
1.70
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
(0.16
|
)
|
|
|
1.37
|
|
|
|
1.22
|
|
|
|
0.66
|
|
|
|
2.25
|
|
|
Distributions to shareholders from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.43
|
)
|
|
|
(0.44
|
)
|
|
|
(0.52
|
)
|
|
|
(0.52
|
)
|
|
|
(0.55
|
)
|
|
Net realized gains
|
|
|
(0.03
|
)
|
|
|
(0.25
|
)
|
|
|
(0.05
|
)
|
|
|
(0.12
|
)
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to shareholders
|
|
|
(0.46
|
)
|
|
|
(0.69
|
)
|
|
|
(0.57
|
)
|
|
|
(0.64
|
)
|
|
|
(1.05
|
)
|
|
Net asset value, end of period
|
|
$
|
10.99
|
|
|
$
|
11.61
|
|
|
$
|
10.93
|
|
|
$
|
10.28
|
|
|
$
|
10.26
|
|
|
Total return
|
|
|
(1.37
|
)%
|
|
|
12.81
|
%
|
|
|
12.18
|
%
|
|
|
6.53
|
%
|
|
|
25.50
|
%
|
|
Ratios to average net assets (annualized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net expenses
1
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Net investment income
|
|
|
3.94
|
%
|
|
|
3.76
|
%
|
|
|
4.91
|
%
|
|
|
4.93
|
%
|
|
|
5.50
|
%
|
|
Supplemental data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
56
|
%
|
|
|
57
|
%
|
|
|
47
|
%
|
|
|
41
|
%
|
|
|
157
|
%
|
|
Net assets, end of period (000s omitted)
|
|
|
$104,914
|
|
|
|
$49,911
|
|
|
|
$19,227
|
|
|
|
$7,957
|
|
|
|
$5,257
|
|
|
1.
|
The Adviser has contractually committed to irrevocably absorb and pay or reimburse all ordinary operating expenses of the Fund, except portfolio transactions or other investment-related costs (e.g., commissions), fees
payable for services provided by the Fund’s securities lending agent, interest, taxes, leverage expenses, and other expenses not incurred in the ordinary course of the Fund’s business. This commitment has an indefinite term. For the years
ended December 31, 2013, December 31, 2012 and December 31, 2011 the Fund’s gross expense ratios were 0.08%, 0.24% and 0.88%, respectively.
|
The accompanying notes are an integral part of these financial statements.
|
|
|
|
|
|
|
|
|
Notes to financial statements
|
|
Wells Fargo Managed Account CoreBuilder Shares—Series M
|
|
|
19
|
|
1. ORGANIZATION
Wells Fargo Funds Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment
company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on the
Wells Fargo Managed Account CoreBuilder Shares—Series M
(the “Fund”) which is a
diversified series of the Trust.
The Fund is a special purpose municipal bond fund that is used in combination with selected individual securities to effectively
model institutional-level investment strategies. As an investment option within the separately managed accounts advised or subadvised by Wells Fargo Funds Management, LLC (“Funds Management”), the Fund enables certain separately managed
account investors to achieve greater diversification than small managed accounts might otherwise achieve.
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).
Fixed income securities acquired with maturities exceeding 60 days are valued based on evaluated bid prices provided by an
independent pricing service which may utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If prices are not available from the independent
pricing service or prices received are deemed not representative of market value, prices will be obtained from an independent broker-dealer or otherwise determined based on the Fund’s Valuation Procedures.
Equity securities and futures that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If
no sale occurs on the primary exchange or market for the security that day, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Short-term securities, with maturities of 60 days or less at time of purchase, generally are valued at amortized cost which approximates fair value. The amortized cost
method involves valuing a security at its cost, plus accretion of discount or minus amortization of premium over the period until maturity.
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 of the Fund has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the
valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Funds
Management. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any
valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities
are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into
consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations
received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the
adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer
and the current market environment.
When-issued transactions
The Fund may purchase securities on a forward commitment or when-issued basis. The Fund records a when-issued transaction on the trade date and will segregate assets in
an amount at least equal in value to the Fund’s commitment to
|
|
|
|
|
|
|
20
|
|
Wells Fargo Managed Account CoreBuilder Shares—Series M
|
|
Notes to financial statements (unaudited)
|
purchase when-issued securities. Securities purchased on a when-issued basis are marked-to-market daily and the Fund begins earning interest on the settlement date. Losses may arise due to
changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
Futures contracts
The Fund may be subject to interest rate risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in
order to gain exposure to, or protect against, changes in security values and interest rates. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the
Fund and the prices of futures contracts, and the possibility of an illiquid market.
The aggregate principal amounts of the contracts are not recorded in the
financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at
which point they are recorded as net realized gains or losses on futures contracts. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to
all exchange traded futures, guarantees the futures against default.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations
are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer
subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.
Dividend income is recognized on the ex-dividend date.
Distributions to shareholders
Distributions to
shareholders from net investment income are accrued daily and paid monthly. Distributions from net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations,
which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all
of its investment company taxable and tax-exempt income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for
federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three
fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there
are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax
differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires 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 December 31, 2013, as a result of permanent book-to-tax differences, the
following reclassification adjustments were made on the Statement of Assets and Liabilities:
|
|
|
|
Undistributed
net investment
income
|
|
Accumulated net
realized losses
on investments
|
|
$56
|
|
$(56)
|
As of December 31, 2013, the Fund had capital loss carryforwards which consist of $444,896 in short-term capital losses.
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
|
|
|
|
|
|
|
|
|
Notes to financial statements
|
|
Wells Fargo Managed Account CoreBuilder Shares—Series M
|
|
|
21
|
|
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The
Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
|
n
|
|
Level 1 – quoted prices in active markets for identical securities
|
|
n
|
|
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.)
|
|
n
|
|
Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)
|
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2013, the inputs used in valuing investments in securities were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in securities
|
|
Quoted prices
(Level 1)
|
|
|
Other significant
observable inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
Municipal obligations
|
|
$
|
0
|
|
|
$
|
102,792,715
|
|
|
$
|
368,438
|
|
|
$
|
103,161,153
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment companies
|
|
|
739,758
|
|
|
|
0
|
|
|
|
0
|
|
|
|
739,758
|
|
|
|
|
$
|
739,758
|
|
|
$
|
102,792,715
|
|
|
$
|
368,438
|
|
|
$
|
103,900,911
|
|
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2013,
the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells
Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund. For providing these services, Funds Management does
not receive a fee from the Fund but is entitled to receive fees from the sponsors of the wrap-fee programs. Out of these fees, Funds Management pays Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect, wholly
owned subsidiary of Wells Fargo, for its services as the subadviser to the Fund.
Generally, no ordinary operating fees or expenses are charged to the Fund. Funds
Management has contractually committed to irrevocably absorb and pay or reimburse all ordinary operating expenses of the Fund, except portfolio transactions or other investment-related costs (e.g., commissions), fees payable for services provided by
the Fund’s securities lending agent, interest, taxes, leverage expenses, and other expenses not incurred in the ordinary course of the Fund’s business. This commitment has an indefinite term.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases
and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2013 were $100,053,344 and $41,746,904, respectively.
6. DERIVATIVE TRANSACTIONS
During the year
ended December 31, 2013, the Fund entered into futures contracts to take advantage of the differences between municipal and treasury yields and to help manage the duration of the portfolio.
As of December 31, 2013, the Fund did not have any open futures contracts but had an average notional amount of $550,042 in short futures contracts during the year ended
December 31, 2013. The realized gains and change in unrealized gains (losses) on futures contracts are reflected in the Statement of Operations.
7. BANK BORROWINGS
The Trust (excluding the money market funds and certain other funds in the Trust) and Wells Fargo Variable Trust
are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, 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
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22
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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Notes to financial statements (unaudited)
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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 0.10% of the unused balance is
allocated to each participating fund. For the year ended December 31, 2013, the Fund paid $78 in commitment fees.
For the year ended December 31, 2013,
there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2013 and December 31, 2012 were as follows:
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Year ended December 31
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2013
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2012
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Ordinary income
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$ 199,121
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$664,670
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Tax-exempt income
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2,965,004
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1,330,248
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Long-term capital gain
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84,825
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427,514
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As of December 31, 2013, the components of distributable earnings on a tax basis were as follows:
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Undistributed
tax-exempt
income
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Unrealized
losses
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Capital loss
carryforward
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$431,188
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$(1,352,323)
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$(444,896)
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9. CONCENTRATION OF OWNERSHIP
From time to time, the Fund may have a concentration of one or more of its shareholders that hold a significant percentage of the Fund’s shares outstanding.
Investment and/or voting activities of these shareholders with respect to their holdings in the Fund shares could have a material impact on the Fund.
At
December 31, 2013, the following shareholders held 44.58% of the outstanding shares of the Fund:
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% of ownership
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Morgan Stanley Smith Barney LLC
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24.13
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%
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Pershing LLC
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20.45
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%
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10. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties
to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on
future claims that may be made against the Fund and, therefore, cannot be estimated.
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Report of independent registered public accounting firm
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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23
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BOARD OF TRUSTEES
AND SHAREHOLDERS OF WELLS FARGO FUNDS TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of
investments, of the Wells Fargo Managed Account CoreBuilder Shares – Series M (the “Fund”), one of the funds constituting the Wells Fargo Funds Trust, as of December 31, 2013, and the related statement of operations for the year then
ended, statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the
responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. Our procedures included confirmation of securities owned as of December 31, 2013, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo
Managed Account CoreBuilder Shares – Series M as of December 31, 2013, 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.
Boston, Massachusetts
February 27, 2014
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24
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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Other information (unaudited)
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TAX INFORMATION
Pursuant to Section 852 of
the Internal Revenue Code, $84,825 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2013.
For the fiscal year
ended December 31, 2013, $78,052 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 December 31, 2013, $121,069 has been designated as short-term capital gain dividends for nonresident alien shareholders pursuant to Section 871
of the Internal Revenue Code.
Pursuant to Section 852 of the Internal Revenue Code, 97.44% of distributions paid from net investment income is designated as
exempt-interest dividends for the fiscal year ended December 31, 2013.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon
request, by calling
1-800-222-8222
, visiting our website at
wellsfargoadvantagefunds.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 without charge on the Fund’s website at
wellsfargoadvantagefunds.com
or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete
portfolio holdings for the Fund are publicly available on the Fund’s website (
wellsfargoadvantagefunds.com
) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information 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 without charge 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)
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Wells Fargo Managed Account CoreBuilder Shares—Series M
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25
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