AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 28, 2009
Registration No. 333-74295; 811-09253
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 []
PRE-EFFECTIVE AMENDMENT NO. []
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POST-EFFECTIVE AMENDMENT NO. 139 [x]
And
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 []
AMENDMENT NO. 140 [x]
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WELLS FARGO FUNDS TRUST
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
525 MARKET STREET
SAN FRANCISCO, CA 94105
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES, INCLUDING ZIP CODE)
WITH A COPY TO:
MARCO E. ADELFIO, ESQ.
GOODWIN PROCTER LLP
901 NEW YORK AVENUE, N.W.
WASHINGTON, D.C. 20001
It is proposed that this filing will become effective (check appropriate box):
Immediately upon filing pursuant to Rule 485(b), or
[x] on October 1, 2009, pursuant to Rule 485(b)
[] 60 days after filing pursuant to Rule 485(a)(1), or
[] on [date], pursuant to Rule 485(a)(1)
[] 75 days after filing pursuant to Rule 485(a)(2), or
[] on [date], pursuant to Rule 485(a)(2)
If appropriate, check the following box:
[] this post-effective amendment designates a new effective date for a
previously filed post-effective amendment.
Explanatory Note: This Post-Effective Amendment No. 139 to the Registration Statement of Wells Fargo Funds Trust (the "Trust") is being filed primarily to add the audited financial statements and certain related financial information for the fiscal period ended May 31, 2009, for the Wells Fargo Advantage Income Funds and WealthBuilder Portfolios, and to make certain other non-material changes to the Registration Statement.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
OCTOBER 1, 2009
Prospectus
Classes A, B, C
WELLS FARGO ADVANTAGE FUNDS (Reg. TM) - INCOME FUNDS
Government Securities Fund
High Income Fund
Income Plus Fund
Inflation-Protected Bond Fund
Short Duration Government Bond Fund
Short-Term Bond Fund
(Class A and Class C only)
Short-Term High Yield Bond Fund
(Class A and Class C only)
Stable Income Fund
Strategic Income Fund
Total Return Bond Fund
Ultra Short-Term Income Fund
(Class A and Class C only)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (SEC), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, WELLS FARGO BANK, N.A., ITS AFFILIATES OR ANY OTHER DEPOSITORY INSTITUTION. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE FUNDS
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING, INCLUDING:
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENTS, PRINCIPAL INVESTMENT STRATEGIES, PRINCIPAL RISKS, PERFORMANCE HISTORY, FEES AND EXPENSES
Key Fund Information 3 Government Securities Fund 4 High Income Fund 9 Income Plus Fund 14 Inflation-Protected Bond Fund 19 Short Duration Government 24 Bond Fund Short-Term Bond Fund 29 Short-Term High Yield Bond 34 Fund Stable Income Fund 39 Strategic Income Fund 45 Total Return Bond Fund 50 Ultra Short-Term Income Fund 55 Description of Principal 61 Investment Risks Portfolio Holdings 65 Information |
ORGANIZATION AND MANAGEMENT OF
THE FUNDS
INFORMATION ABOUT THE FUNDS' ORGANIZATION AND THE COMPANIES MANAGING YOUR MONEY
Organization and Management 66 of the Funds About Wells Fargo Funds Trust 66 The Investment Adviser 66 The Sub-Advisers and 67 Portfolio Managers Dormant Investment Advisory 70 Arrangement Dormant Multi-Manager 70 Arrangement |
YOUR ACCOUNT
INFORMATION ABOUT HOW FUND SHARES ARE PRICED AND HOW TO OPEN AN ACCOUNT, AND BUY, SELL AND EXCHANGE FUND SHARES
A Choice of Share Classes 71 Reductions and Waivers of 75 Sales Charges Compensation to Dealers and 79 Shareholder Servicing Agents Pricing Fund Shares 81 How to Open an Account 82 How to Buy Shares 83 How to Sell Shares 85 How to Exchange Shares 89 Account Policies 92 |
OTHER INFORMATION
INFORMATION ABOUT DISTRIBUTIONS, TAXES AND FINANCIAL HIGHLIGHTS
Distributions 94 Taxes 95 Master/Gateway (Reg. TM) 96 Structure Financial Highlights 99 For More Information Back Cover |
Please find WELLS FARGO ADVANTAGE FUNDS' PRIVACY POLICY inside the back cover of this Prospectus.
The information provided in this Prospectus is not intended for distribution to, or use by, any person or entity in any non-U.S. jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Fund shares to any registration requirement within such jurisdiction or country.
The Funds are distributed by Wells Fargo Funds Distributor, LLC, a member of FINRA/SIPC, and an affiliate of Wells Fargo & Company. Securities Investor Protection Corporation ("SIPC") information and brochure are available at www.SIPC.org or by calling SIPC at (202)371-8300.
This Prospectus contains information about certain Funds within the WELLS FARGO ADVANTAGE FUNDS (Reg. TM) family and is designed to provide you with important information to help you with your investment decisions. Please read it carefully and keep it for future reference.
In this Prospectus, "we" generally refers to Wells Fargo Funds Management, LLC (Funds Management), the sub-advisers, or the portfolio managers. "We" may also refer to the Funds' other service providers. "You" refers to the shareholder or potential investor.
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes the Fund different from the other Funds offered in this Prospectus.
This section also provides a summary of each Fund's principal investments and practices. Unless otherwise indicated, these investment policies and practices apply on an ongoing basis. Percentages of "the Fund's net assets" are measured as percentages of net assets plus borrowings for investment purposes. The investment policies of the Government Securities Fund, Inflation-Protected Bond Fund, Short Duration Government Bond Fund, Short-Term Bond Fund, Short-Term High Yield Bond Fund, and Total Return Bond Fund concerning "80% of the Fund's net assets" may be changed by the Board of Trustees without shareholder approval, but shareholders would be given at least 60 days notice.
PRINCIPAL RISK FACTORS
This section lists the principal risk factors for each Fund. A complete
description of these and other risks is found in the "Description of Principal
Investment Risks" section. It is possible to lose money by investing in a Fund.
KEY FUND INFORMATION 3
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
Jay N. Mueller, CFA
FUND INCEPTION:
10/29/1986
CLASS A
Ticker: SGVDX
Fund Number: 3004
CLASS B
Ticker: WGSBX
Fund Number: 3421
CLASS C
Ticker: WGSCX
Fund Number: 3507
INVESTMENT OBJECTIVE
The Government Securities Fund seeks current income.
o at least 80% of the Fund's net assets in U.S. Government obligations and repurchase agreements collateralized by U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. These securities may have fixed, floating or
variable rates and also include mortgage-backed securities. As part of our
mortgage-backed securities investment strategy, we may enter into dollar rolls
or invest in stripped securities. We may also use futures, options or swap
agreements, as well as other derivatives, to manage risk or to enhance return.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. We may sell a security due to changes in our outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
4 GOVERNMENT SECURITIES FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
GOVERNMENT SECURITIES FUND 5
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS
FOR CLASS
A/1,2/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-1.42% 11.03% 8.46% 10.24% 2.66% 3.20% 2.20% 3.50% 6.98% 7.67%
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BEST AND WORST QUARTER
Best Quarter: Q3 2002 5.58%
Worst Quarter: Q2 2004 -2.81%
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The Fund's year-to-date performance through June 30, 2009, was 0.93%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1,2/ Returns Before Taxes 2.82% 3.73% 4.90% Returns After Taxes on 1.09% 2.03% 2.93% Distributions/3/ Returns After Taxes on 1.78% 2.16% 2.97% Distributions and Sale of Fund Shares/3/ CLASS B/1 /Returns Before 1.82% 3.45% 4.85% Taxes CLASS C/1 /Returns Before 5.84% 3.80% 4.51% Taxes BARCLAYS CAPITAL 10.43% 5.30% 5.74% INTERMEDIATE U.S. GOVERNMEN T BOND INDEX/4/ (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 7.86% 5.27% N/A AGGREGATE EXCLUDING CREDIT BOND INDEX/5/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A shares incepted on August 31, 1999. Effective June 20, 2008, the Advisor Class was renamed Class A and modified to assume the features and attributes of Class A. Class B shares incepted on July 18, 2008. Class C shares incepted on December 26, 2002. Performance shown for the Class A shares from August 31, 1999, through December 31, 2007, includes Advisor Class expenses and is adjusted to reflect Class A sales charges. Performance shown prior to August 31, 1999, for the Class A shares reflects the performance of the Investor Class shares, adjusted to reflect Advisor Class expenses and Class A sales charges. Performance shown prior to the inception of the Class B shares reflects the performance of the Class C shares and includes expenses that are not applicable to the Class B shares and is adjusted to reflect Class B sales charges. Performance shown prior to the inception of the Class C shares reflects the performance of the Investor Class shares, adjusted to reflect Class C sales charges and expenses.
2 Class A Calendar Year Total Returns and Returns After Taxes are being shown because Class A has a longer period of returns than Class B and Class C. 3 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class B and Class C shares will vary.
4 The Barclays Capital Intermediate U.S. Government Bond Index is an unmanaged index composed of U.S. Government securities with maturities in the one- to ten-year range, including securities issued by the U.S. Treasury and U.S. Government agencies. You cannot invest directly in an index.
5 The Barclays Capital U.S. Aggregate Excluding Credit Bond Index is composed of the Barclays Capital U.S. Government Bond Index and the Barclays Capital U.S. Mortgage-Backed Securities Index and includes Treasury issues, agency issues, and mortgage-backed securities. The limited performance history of the Barclays Capital U.S. Aggregate Excluding Credit Bond Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of May 1, 2001. You cannot invest directly in an index.
6 GOVERNMENT SECURITIES FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) CLASS A CLASS B CLASS C Maximum sales charge 4.50% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 5.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/2/ 0.37% 0.37% 0.37% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/3/ 0.54% 0.53% 0.54% Acquired Fund Fees and 0.01% 0.01% 0.01% Expenses/4/ TOTAL ANNUAL FUND 0.92% 1.66% 1.67% OPERATING EXPENSES/5,6/ Fee Waivers 0.01% 0.00% 0.01% NET EXPENSES/6,7,8/ 0.91% 1.66% 1.66% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may
be assessed a 1.00% contingent deferred sales charge if they are redeemed
within eighteen months of purchase. See "A Choice of Share Classes" for
further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.40% for the first $500 million;
0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for
the next $2 billion; and 0.30% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of any money
market fund or other fund held by the Fund. Shareholders indirectly bear
these underlying expenses because the NAV and/or distributions paid reflect
such underlying expenses.
5 Expenses have been adjusted as necessary from amounts incurred during the
Fund's most recent fiscal year to reflect current fees and expenses.
6 The expense ratio shown does not correlate to the corresponding expense ratio shown in the Financial Highlights, which reflects only the operating expenses of the Fund and also does not include expenses of any Acquired fund.
7 The net operating expense ratios shown here include the expenses of any money market fund or other fund held by the Fund.
8 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratios of 0.90% for Class A shares, and 1.65% for Class B and Class C shares. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
GOVERNMENT SECURITIES FUND 7
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 539 $ 669 $ 269
3 Years $ 730 $ 825 $ 527
5 Years $ 937 $1,106 $ 908
10 Years $1,534 $1,682 $1,979
If you do NOT sell your shares at the end of the period:
1 Year $ 539 $ 169 $ 169
3 Years $ 730 $ 525 $ 527
5 Years $ 937 $ 906 $ 908
10 Years $1,534 $1,682 $1,979
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8 GOVERNMENT SECURITIES FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Kevin J. Maas, CFA
Thomas M. Price, CFA
Michael J. Schueller, CFA
FUND INCEPTION:
12/28/1995
CLASS A
Ticker: SHBAX
Fund Number: 3014
CLASS B
Ticker: WFNBX
Fund Number: 3423
CLASS C
Ticker: WFNCX
Fund Number: 3546
INVESTMENT OBJECTIVE
The High Income Fund seeks total return, consisting of a high level of current
income and capital appreciation.
o at least 80% of the Fund's net assets in corporate debt securities that are below investment-grade;
o up to 30% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers;
o up to 20% of the Fund's total assets in equities and convertible debt securities; and
o up to 10% of the Fund's total assets in debt securities that are in default at the time of purchase.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in below investment-grade debt securities (often called "high-yield" securities or "junk bonds") of corporate issuers. These include traditional corporate bonds as well as bank loans. These securities may have fixed, floating or variable rates. As part of our below investment-grade debt securities investment strategy, we will generally invest in securities that are rated BB through CCC by Standard & Poor's, or an equivalent quality rating from another Nationally Recognized Statistical Ratings Organization, or are deemed by us to be of comparable quality. Below investment-grade debt securities offer the potential for higher returns, as they generally carry a higher yield to compensate for the higher risk associated with their investment. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Additionally, we may invest in stripped securities.
We start our investment process with a top-down, macroeconomic outlook to determine industry and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
HIGH INCOME FUND 9
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Stripped Securities Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
10 HIGH INCOME FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1,2/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003
7.53% -7.41% -1.04% -6.82% 24.34%
1999 2004 2005 2006 2007 2008
7.53% 10.11% 3.29% 9.52% 3.27% -18.23%
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BEST AND WORST QUARTER
Best Quarter: Q2 2003 7.79%
Worst Quarter: Q4 2008 -11.85%
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The Fund's year-to-date performance through June 30, 2009, was 17.01%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1,2/ Returns Before Taxes -21.91% 0.09% 1.38% Returns After Taxes on -23.94% -2.35% -1.77% Distributions/3/ Returns After Taxes on -14.07% -1.18% -0.65% Distributions and Sale of Fund Shares/3/ CLASS B/1/ Returns Before -23.89% -0.11% 1.46% Taxes CLASS C/1/ Returns Before -19.89% 0.29% 1.22% Taxes BARCLAYS CAPITAL U.S. -26.16% -0.82% 2.20% CORPORATE HIGH YIELD BOND INDEX/4/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A shares incepted on February 29, 2000. Class B and Class C shares incepted on July 18, 2008. Effective June 20, 2008, the Advisor Class was renamed Class A and modified to assume the features and attributes of Class A. Performance shown for the Class A shares from February 29, 2000, through June 19, 2008, includes Advisor Class expenses and is adjusted to reflect Class A sales charges. Performance shown prior to February 29, 2000, for the Class A shares, reflects the performance of the Investor Class shares, adjusted to reflect Advisor Class expenses and Class A sales charges. Performance shown prior to the inception of the Class B and Class C shares reflects the performance of the Class A shares, adjusted to reflect Class B and Class C sales charges and expenses, as applicable.
2 Class A Calendar Year Total Returns and Returns After Taxes are being shown because Class A has a longer period of returns than Class B and Class C. 3 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class B and Class C shares will vary.
4 The Barclays Capital U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar-denominated, nonconvertible, non-investment grade debt index.The Index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million.You cannot invest directly in an index.
HIGH INCOME FUND 11
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS B CLASS C Maximum sales charge 4.50% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 5.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) Redemption Fee/2/ 2.00% 2.00% 2.00% |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/3/ 0.50% 0.50% 0.50% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/4/ 0.55% 0.56% 0.55% Acquired Fund Fees and 0.02% 0.02% 0.02% Expenses/5/ TOTAL ANNUAL FUND 1.07% 1.83%/7/ 1.82%/7/ OPERATING EXPENSES/6/ Fee Waivers 0.15% 0.16% 0.15% NET EXPENSES/6,8,9/ 0.92% 1.67% 1.67% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may
be assessed a 1.00% contingent deferred sales charge if they are redeemed
within eighteen months of purchase. See "A Choice of Share Classes" for
further information.
2 Percentage of the net proceeds deducted if shares are redeemed (or exchanged)
within 30 days after purchase. This fee is retained by the Fund. Please see
the "Redemption Fees" section under "How to Sell Shares" for further
information.
3 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.50% for the first $500 million; 0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for the next $2 billion; and 0.40% for assets over $5 billion.
4 Includes expenses payable to affiliates of Wells Fargo & Company. 5 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
6 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
7 Expenses have been adjusted as necessary from amounts incurred during the
Fund's most recent fiscal year to reflect current fees and expenses.
8 The net operating expense ratios shown here include the expenses of any money market fund or other fund held by the Fund.
9 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratios of 0.90% for Class A shares, and 1.65% for Class B and Class C shares. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
12 HIGH INCOME FUND
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 540 $ 670 $ 270
3 Years $ 762 $ 861 $ 558
5 Years $1,001 $1,176 $ 971
10 Years $1,687 $1,843 $2,125
If you do NOT sell your shares at the end of the
period:
1 Year $ 540 $ 170 $ 170
3 Years $ 762 $ 561 $ 558
5 Years $1,001 $ 976 $ 971
10 Years $1,687 $1,843 $2,125
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HIGH INCOME FUND 13
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
Janet S. Rilling, CFA, CPA
FUND INCEPTION:
7/13/1998
CLASS A
Ticker: STYAX
Fund Number: 59
CLASS B
Ticker: STYBX
Fund Number: 159
CLASS C
Ticker: WFIPX
Fund Number: 559
INVESTMENT OBJECTIVE
The Income Plus Fund seeks to maximize income while maintaining prospects for
capital appreciation.
o at least 80% of the Fund's net assets in income-producing securities;
o up to 35% of the Fund's total assets in debt securities that are below investment-grade; and
o up to 25% of the Fund's total assets in debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in debt securities, including corporate, mortgage- and
asset-backed securities, bank loans and U.S. Government obligations. These
securities may have fixed, floating or variable rates and may include debt
securities of both domestic and foreign issuers. We invest in both
investment-grade and below investment-grade debt securities. Below
investment-grade debt securities (often called "high yield" securities or "junk
bonds") offer the potential for higher returns, as they generally carry a
higher yield to compensate for the higher risk associated with their
investment. As part of our below investment-grade debt securities investment
strategy, we will generally invest in securities that are rated at least Caa by
Moody's or CCC by Standard & Poor's, or an equivalent quality rating from
another Nationally Recognized Statistical Ratings Organization, or are deemed
by us to be of comparable quality. We expect to maintain an average credit
quality for this portion of the Fund's portfolio equivalent to B or higher. We
may also use futures, options or swap agreements, as well as other derivatives,
to manage risk or to enhance return.
We start our investment process with a top-down, macroeconomic outlook to determine portfolio duration and yield curve positioning as well as industry, sector and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
14 INCOME PLUS FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
INCOME PLUS FUND 15
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-3.47% 2.77% 7.76% 7.33% 8.41% 6.55% 1.41% 5.32% 6.24% 2.29%
|
BEST AND WORST QUARTERS
Best Quarter: Q2 2003 4.16%
Worst Quarter: Q2 2004 -1.96%
|
The Fund's year-to-date performance through June 30, 2009, was 4.84%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1/ Returns Before Taxes -2.31% 3.39% 3.92% Returns After Taxes on -3.78% 1.53% 1.64% Distributions/2/ Returns After Taxes on -1.52% 1.79% 1.91% Distributions and Sale of Fund Shares/2/ CLASS B/1/ Returns Before -3.51% 3.20% 3.85% Taxes CLASS C/1/ Returns Before 0.53% 3.56% 3.61% Taxes BARCLAYS CAPITAL U.S. 2.38% 4.30% 5.58% UNIVERSAL BOND INDEX/3/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A, Class B and Class C shares incepted on July 13, 1998.
2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class B and Class C shares will vary.
3 The Barclays Capital U.S. Universal Bond Index is an unmanaged market value-weighted performance benchmark for the U.S. dollar denominated bond market, which includes investment-grade, high yield, and emerging market debt securities with maturities of one year or more. You cannot invest directly in an index.
16 INCOME PLUS FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) CLASS A CLASS B CLASS C Maximum sales charge 4.50% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 5.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/2/ 0.50% 0.50% 0.50% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/3/ 0.55% 0.56% 0.57% Acquired Fund Fees and 0.02% 0.02% 0.02% Expenses/4/ TOTAL ANNUAL FUND 1.07% 1.83%/6/ 1.84%/6/ OPERATING EXPENSES/5/ Fee Waivers 0.15% 0.16% 0.17% NET EXPENSES/5,7,8/ 0.92% 1.67% 1.67% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may
be assessed a 1.00% contingent deferred sales charge if they are redeemed
within eighteen months of purchase. See "A Choice of Share Classes" for
further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.50% for the first $500 million;
0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for
the next $2 billion; and 0.40% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of any money
market fund or other fund held by the Fund. Shareholders indirectly bear
these underlying expenses because the NAV and/or distributions paid reflect
such underlying expenses.
5 The expense ratios shown do not correlate to the corresponding expense ratios shown in the Financial Highlights, which do not reflect changes in operating expenses of the Fund and also do not include expenses of any Acquired Fund. 6 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
7 The net operating expense ratios shown here include the expenses of any money market fund or other fund held by the Fund.
8 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratios of 0.90% for Class A shares, and 1.65% for Class B and Class C shares. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
INCOME PLUS FUND 17
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 540 $ 670 $ 270
3 Years $ 762 $ 862 $ 563
5 Years $1,002 $1,179 $ 981
10 Years $1,689 $1,848 $2,147
If you do NOT sell your shares at the end of the period:
1 Year $ 540 $ 170 $ 170
3 Years $ 762 $ 562 $ 563
5 Years $1,002 $ 979 $ 981
10 Years $1,689 $1,848 $2,147
|
18 INCOME PLUS FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
Jay N. Mueller, CFA
FUND INCEPTION:
2/28/2003
CLASS A
Ticker: IPBAX
Fund Number: 1753
CLASS B
Ticker: IPBBX
Fund Number: 1754
CLASS C
Ticker: IPBCX
Fund Number: 1755
INVESTMENT OBJECTIVE
The Inflation-Protected Bond Fund seeks total return, consisting of income and
capital appreciation, while providing protection against inflation.
o at least 80% of the Fund's net assets in inflation-protected debt securities issued or guaranteed by the U.S. Treasury, U.S. Government agencies or government-sponsored entities; and
o up to 20% of the Fund's net assets in adjustable or variable rate debt securities, including mortgage- and asset-backed securities.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Inflation-Protected Bond Portfolio, a master portfolio with a substantially
identical investment objective and substantially similar investment strategies.
We may invest in additional master portfolios, in other WELLS FARGO ADVANTAGE
FUNDS, or directly in a portfolio of securities.
We invest principally in inflation-protected debt securities issued or guaranteed by the U.S. Treasury, U.S. Government agencies or government-sponsored entities. We will purchase only securities that are rated, at the time of purchase, within the two highest rating categories assigned by a Nationally Recognized Statistical Ratings Organization, or are deemed by us to be of comparable quality. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return.
We generally will purchase securities that we believe have strong relative value based on an analysis of a security's characteristics (such as its principal value, coupon rate, maturity, duration and yield) in light of the current market environment. We may sell a security due to changes in our outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
INFLATION-PROTECTED BOND FUND 19
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Inflation-Protected Debt Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
20 INFLATION-PROTECTED BOND FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1/
AS OF 12/31 EACH YEAR
2004 2005 2006 2007 2008
7.30% 2.14% -0.18% 10.99% -2.60%
|
BEST AND WORST QUARTERS
Best Quarter: Q1 2008 5.19%
Worst Quarter: Q3 2008 -3.58%
|
The Fund's year-to-date performance through June 30, 2009, was 4.29%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS LIFE OF FUND/1/ CLASS A/1/ Returns Before Taxes -6.99% 2.46% 2.70% Returns After Taxes on -8.42% 0.88% 1.12% Distributions/2/ Returns After Taxes on -4.51% 1.20% 1.40% Distributions and Sale of Fund Shares/2/ CLASS B/1/ Returns Before -8.35% 2.24% 2.54% Taxes CLASS C/1/ Returns Before -4.35% 2.62% 2.70% Taxes BARCLAYS CAPITAL U.S. TIPS -2.35% 4.07% 4.13% INDEX/3/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A, Class B and Class C shares incepted on February 28, 2003. Returns for the Class A, Class B and Class C shares and the Index shown in the Life of Fund column are as of the inception date. 2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class B and Class C shares will vary.
3 The Barclays Capital U. S. TIPS (Treasury Inflation-Protected Securities) Index is an index of inflation-indexed linked U.S. Treasury securities. You cannot invest directly in an index.
INFLATION-PROTECTED BOND FUND 21
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) CLASS A CLASS B CLASS C Maximum sales charge 4.50% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 5.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/2/ 0.40% 0.40% 0.40% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/3/ 0.59% 0.59% 0.59% TOTAL ANNUAL FUND 0.99% 1.74% 1.74% OPERATING EXPENSES/4,5/ Fee Waivers 0.14% 0.14% 0.14% NET EXPENSES/6,7/ 0.85% 1.60% 1.60% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may be assessed a 1.00% contingent deferred sales charge if they are redeemed within eighteen months of purchase. See "A Choice of Share Classes" for further information.
2 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Includes gross expenses allocated from the master portfolio in which the Fund invests.
5 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, including the underlying master portfolio's fees and
expenses and excluding brokerage commissions, interest, taxes, and
extraordinary expenses, do not exceed the net operating ratios shown. The
committed net operating expense ratios may be increased only with approval
of the Board of Trustees.
7 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund.
22 INFLATION-PROTECTED BOND FUND
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 533 $ 663 $ 263
3 Years $ 738 $ 834 $ 535
5 Years $ 959 $1,130 $ 931
10 Years $1,596 $1,585 $2,041
If you do NOT sell your shares at the end of the period:
1 Year $ 533 $ 163 $ 163
3 Years $ 738 $ 534 $ 535
5 Years $ 959 $ 930 $ 931
10 Years $1,596 $1,585 $2,041
|
INFLATION-PROTECTED BOND FUND 23
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Thomas O'Connor, CFA
William Stevens
FUND INCEPTION:
12/18/1992
CLASS A
Ticker: MSDAX
Fund Number: 932
CLASS B
Ticker: MSDBX
Fund Number: 933
CLASS C
Ticker: MSDCX
Fund Number: 934
INVESTMENT OBJECTIVE
The Short Duration Government Bond Fund seeks to provide current income
consistent with capital preservation.
o at least 80% of the Fund's net assets in U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government mortgage- and asset-backed securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. We will purchase only securities that are rated,
at the time of purchase, within the two highest rating categories assigned by a
Nationally Recognized Statistical Ratings Organization, or are deemed by us to
be of comparable quality. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements. We may also use futures, options or swap agreements, as well as
other derivatives, to manage risk or to enhance return. Generally, the
portfolio's overall dollar-weighted average effective duration is less than
that of a 3-year U.S. Treasury note.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential, relative to other debt securities of similar credit quality and interest rate sensitivity. As part of our investment strategy, we invest in mortgage-backed securities guaranteed by U.S. Government agencies, and to a lesser extent, other securities rated AAA or Aaa, that we believe will sufficiently outperform U.S. Treasuries. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
24 SHORT DURATION GOVERNMENT BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
SHORT DURATION GOVERNMENT BOND FUND 25
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2.31% 7.83% 7.55% 5.99% 1.92% 1.16% 1.28% 3.86% 5.80% 3.94%
|
BEST AND WORST QUARTERS
Best Quarter: Q3 2001 3.34%
Worst Quarter: Q2 2004 -1.31%
|
The Fund's year-to-date performance through June 30, 2009, was 5.24%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1/ Returns Before Taxes 0.82% 2.57% 3.82% Returns After Taxes on -0.56% 1.29% 2.19% Distributions/2/ Returns After Taxes on 0.52% 1.43% 2.26% Distributions and Sale of Fund Shares/2/ CLASS B/1/ Returns Before 0.17% 2.58% 4.05% Taxes CLASS C/1/ Returns Before 2.16% 2.44% 3.58% Taxes BARCLAYS CAPITAL U.S. 1-3 6.66% 4.11% 4.81% YEAR GOVERNMENT BOND INDEX/3/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges. Class A shares incepted on March 11, 1996. Class B
and Class C shares incepted on May 31, 2002. Performance shown prior to the
inception of the Class B and Class C shares reflects the performance of the
Administrator Class shares, adjusted to reflect Class B and Class C sales
charges and expenses, as applicable.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts. After-tax returns are shown only for the Class A
shares. After-tax returns for the Class B and Class C shares will vary.
3 The Barclays Capital U.S. 1-3 Year Government Bond Index is the 1-3 Year component of the Barclays Capital U.S. Government Bond Index and is composed of all publicly issued, non-convertible domestic debt of the U.S. Government and its agencies. The Barclays Capital U.S. 1-3 Year Government Bond Index also includes corporate debt guaranteed by the U.S. Government. Only notes and bonds with a minimum maturity of one year up to a maximum maturity of 2.9 years are included. You cannot invest directly in an index.
26 SHORT DURATION GOVERNMENT BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS B CLASS C Maximum sales charge 3.00% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 3.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/2/ 0.40% 0.40% 0.39% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/3/ 0.54% 0.54% 0.55% Acquired Fund Fees and 0.01% 0.01% 0.01% Expenses/4/ TOTAL ANNUAL FUND 0.95% 1.70% 1.70% OPERATING EXPENSES/5/ Fee Waivers 0.09% 0.09% 0.09% NET EXPENSES/5,6,7/ 0.86% 1.61% 1.61% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may
be assessed a 0.50% contingent deferred sales charge if they are redeemed
within eighteen months of purchase. See "A Choice of Share Classes" for
further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.40% for the first $500 million;
0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for
the next $2 billion; and 0.30% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
5 The expense ratios shown do not correlate to the corresponding expense ratios
shown in the Financial Highlights, which do not reflect changes in operating
expenses of the Fund and also do not include expenses of any Acquired Fund.
6 The net operating expense ratios shown here include the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratios of
0.85% for Class A shares, and 1.60% for Class B and Class C shares. The
committed net operating expense ratios may be increased only with approval
of the Board of Trustees.
SHORT DURATION GOVERNMENT BOND FUND 27
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 385 $ 464 $ 264
3 Years $ 585 $ 627 $ 527
5 Years $ 801 $ 915 $ 914
10 Years $1,423 $1,710 $2,000
If you do NOT sell your shares at the end of the period:
1 Year $ 385 $ 164 $ 164
3 Years $ 585 $ 527 $ 527
5 Years $ 801 $ 915 $ 914
10 Years $1,423 $1,710 $2,000
|
28 SHORT DURATION GOVERNMENT BOND FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
Janet S. Rilling, CFA, CPA
FUND INCEPTION:
8/31/1987
CLASS A
Ticker: SSTVX
Fund Number: 3005
CLASS C
Ticker: WFSHX
Fund Number: 3540
INVESTMENT OBJECTIVE
The Short-Term Bond Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in debt securities. We may invest in a variety of debt
securities, including corporate, mortgage- and asset-backed securities, bank
loans and U.S. Government obligations. These securities may have fixed,
floating or variable rates. We invest in both investment-grade and below
investment-grade debt securities (often called "high yield securities" or "junk
bonds") and may also invest in U.S. dollar-denominated debt securities of
foreign issuers. As part of our below investment-grade debt securities
investment strategy, we will generally invest in securities that are rated at
least BB by Standard & Poor's or Ba by Moody's, or an equivalent quality rating
from another Nationally Recognized Statistical Ratings Organization, or are
deemed by us to be of comparable quality. We may also use futures, options or
swap agreements, as well as other derivatives, to manage risk or to enhance
return. Additionally, we may invest in stripped securities. Under normal
circumstances, we expect the Fund's dollar-weighted average effective maturity
to be three years or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and industry allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to determine the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
SHORT-TERM BOND FUND 29
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
30 SHORT-TERM BOND FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1,2/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
3.88% 7.05% 4.10% 0.40% 3.57% 1.98% 1.95% 4.41% 4.55% -0.40%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 3.19%
Worst Quarter: Q1 2002 -1.98%
|
The Fund's year-to-date performance through June 30, 2009, was 4.03%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1,2/ Returns Before Taxes -3.39% 1.86% 2.82% Returns After Taxes on -4.83% 0.36% 1.00% Distributions/3/ Returns After Taxes on -2.19% 0.71% 1.29% Distributions and Sale of Fund Shares/3/ CLASS C/1 /Returns Before -2.25% 1.81% 2.58% Taxes BARCLAYS CAPITAL U.S 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/4/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A shares incepted on August 31, 1999. Effective June 20, 2008, the Advisor Class was renamed Class A and modified to assume the features and attributes of Class A. Class C shares incepted on March 31, 2008. Performance shown for the Class A shares from August 31, 1999, through June 19, 2008, includes Advisor Class expenses and is adjusted to reflect Class A sales charges. Performance shown prior to August 31, 1999, for the Class A shares, reflects the performance of the Investor Class shares, adjusted to reflect Advisor Class expenses and Class A sales charges. Performance shown prior to the inception of the Class C shares reflects the performance of the Class A shares, adjusted to reflect Class C sales charges and expenses.
2 Class A Calendar Year Total Returns and Returns After Taxes are being shown because Class A has a longer period of returns than Class C. 3 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class C shares will vary.
4 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. You cannot invest directly in an index.
SHORT-TERM BOND FUND 31
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS C Maximum sales charge 3.00% None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS C Management Fees/2/ 0.40% 0.39% Distribution (12b-1) Fees 0.00% 0.75% Other Expenses/3/ 0.54% 0.54% Acquired Fund Fees and 0.02% 0.02% Expenses/4/ TOTAL ANNUAL FUND 0.96% 1.70%/6/ OPERATING EXPENSES/5/ Fee Waivers 0.14% 0.13% NET EXPENSES/5,7,8/ 0.82% 1.57% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may be assessed a 0.50% contingent deferred sales charge if they are redeemed within eighteen months of purchase. See "A Choice of Share Classes" for further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion. 3 Includes expenses payable to affiliates of Wells Fargo & Company. 4 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
5 The expense ratios shown do not correlate to the corresponding expense ratios shown in the Financial Highlights, which do not reflect changes in operating expenses of the Fund and also do not include expenses of any Acquired Fund.
6 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses. 7 The net operating expense ratios shown here include the expenses of any money market fund or other fund held by the Fund.
8 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed net operating expense ratios of 0.80% for Class A shares and 1.55% for Class C shares. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
32 SHORT-TERM BOND FUND
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS C
If you sell your shares at the end of
the period:
1 Year $ 382 $ 260
3 Years $ 585 $ 524
5 Years $ 805 $ 913
10 Years $1,437 $2,003
If you do NOT sell your shares at the
end of the period:
1 Year $ 382 $ 160
3 Years $ 585 $ 524
5 Years $ 805 $ 913
10 Years $1,437 $2,003
|
SHORT-TERM BOND FUND 33
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Kevin J. Maas, CFA
Thomas M. Price, CFA
Michael J. Schueller, CFA
FUND INCEPTION:
6/30/1997
CLASS A
Ticker: SSTHX
Fund Number: 3017
CLASS C
Ticker: WFHYX
Fund Number: 3541
INVESTMENT OBJECTIVE
The Short-Term High Yield Bond Fund seeks total return, consisting of a high
level of current income and capital appreciation.
o at least 80% of the Fund's net assets in below investment-grade corporate debt securities; and
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in below investment-grade debt securities (often called
"high-yield" securities or "junk bonds") of corporate issuers. These include
traditional corporate bonds as well as bank loans. These securities may have
fixed, floating or variable rates. As part of our below investment-grade debt
securities investment strategy, we will generally invest in securities that are
rated BB through CCC by Standard & Poor's, or an equivalent quality rating from
another Nationally Recognized Statistical Ratings Organization, or are deemed
by us to be of comparable quality. Below investment-grade debt securities offer
the potential for higher returns, as they generally carry a higher-yield to
compensate for the higher risk associated with the investment. We may use
futures, options or swap agreements, as well as other derivatives, to manage
risk or to enhance return. We may also invest in stripped securities. Under
normal circumstances, we expect the Fund's dollar-weighted average effective
maturity to be three years or less.
We start our investment process with a top-down, macroeconomic outlook to determine portfolio duration and yield curve positioning as well as industry, sector and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics, liquidity and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
34 SHORT-TERM HIGH YIELD BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Stripped Securities Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
SHORT-TERM HIGH YIELD BOND FUND 35
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1,2/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
5.00% 4.70% -0.69% -0.26% 9.30% 4.40% 2.84% 5.97% 3.24% -5.82%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 3.69%
Worst Quarter: Q4 2008 -5.69%
|
The Fund's year-to-date performance through June 30, 2009, was 8.36%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1,2/ Returns Before Taxes -8.65% 1.42% 2.48% Returns After Taxes on -10.28% -0.38% 0.18% Distributions/3/ Returns After Taxes on -5.57% 0.20% 0.72% Distributions and Sale of Fund Shares/3/ CLASS C/1 /Returns Before -7.55% 1.40% 2.25% Taxes MERRILL LYNCH HIGH YIELD -16.20% 0.68% 3.17% U.S. CORPORATES, CASH PAY, BB RATED 1-5 YEARS INDEX/4/(reflects no deduction for fees, expense s or taxes) SHORT-TERM HIGH YIELD BOND -18.02% 0.61% 3.43% INDEX III/5/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A shares incepted on February 29, 2000. Effective June 20, 2008, the Advisor Class was renamed Class A and modified to assume the features and attributes of Class A. Class C shares incepted on March 31, 2008. Performance shown for the Class A shares from February 29, 2000, through June 19, 2008, includes Advisor Class expenses and is adjusted to reflect Class A sales charges. Performance shown prior to February 29, 2000, for the Class A shares, reflects the performance of the Investor Class shares, adjusted to reflect Advisor Class expenses and Class A sales charges. Performance shown prior to the inception of the Class C shares reflects the performance of the Class A shares, adjusted to reflect Class C sales charges and expenses.
2 Class A Calendar Year Total Returns and Returns After Taxes are being shown
because Class A has a longer period of returns than Class C.
3 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts. After-tax returns are shown only for the Class A
shares. After-tax returns for the Class C shares will vary.
4 The Merrill Lynch High Yield U.S. Corporates, Cash Pay, BB Rated, 1-5 Years
Index is an unmanaged index that generally tracks the performance of BB
rated U.S. dollar-denominated corporate bonds publicly issued in the U.S.
domestic market with maturities of 1 to 5 years. You cannot invest directly
in an index.
5 The Short-Term High Yield Bond Index III is comprised of 70% Merrill Lynch
High Yield U.S. Corporates, Cash Pay, BB Rated, 1-5 Years Index and 30%
Merrill Lynch High Yield U.S. Corporates, Cash Pay, B Rated, 1-5 Years
Index. The Merrill Lynch High Yield U.S. Corporates, Cash Pay, BB Rated, 1-5
Years Index is an unmanaged index that generally tracks the performance of
BB Rated U.S. dollar-denominated corporate bonds publicly issued in the U.S.
domestic market with maturities of 1 to 5 years. The Merrill Lynch High
Yield U.S. Corporates, Cash Pay, B Rated, 1-5 Years Index is an unmanaged
index that generally tracks the performance of B rated U.S.
dollar-denominated corporate bonds publicly issued in the U.S. domestic
market with maturities of 1 to 5 years. You cannot invest directly in an
index.
36 SHORT-TERM HIGH YIELD BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS C Maximum sales charge 3.00% None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) Redemption Fee/2/ 2.00% 2.00% |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS C Management Fees/3/ 0.50% 0.48% Distribution (12b-1) Fees 0.00% 0.75% Other Expenses/4/ 0.60% 0.57% Acquired Fund Fees and 0.04% 0.04% Expenses/5/ TOTAL ANNUAL FUND 1.14% 1.84% OPERATING EXPENSES/6,7/ Fee Waivers 0.29% 0.24% NET EXPENSES/6,8,9/ 0.85% 1.60% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may be assessed a 0.50% contingent deferred sales charge if they are redeemed within eighteen months of purchase. See "A Choice of Share Classes" for further information.
2 Percentage of the net proceeds deducted if shares are redeemed (or exchanged)
within 30 days after purchase. This fee is retained by the Fund. Please see
the "Redemption Fees" section under "How to Sell Shares" for further
information.
3 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.50% for the first $500 million;
0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for
the next $2 billion; and 0.40% for assets over $5 billion.
4 Includes expenses payable to affiliates of Wells Fargo & Company.
5 Reflects the pro-rata portion of the net operating expenses of any money
market fund or other fund held by the Fund. Shareholders indirectly bear
these underlying expenses because the NAV and/or distributions paid reflect
such underlying expenses.
6 The expense ratios shown do not correlate to the corresponding expense ratios shown in the Financial Highlights, which do not reflect changes in operating expenses of the Fund and also do not include expenses of any Acquired Fund. 7 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
8 The net operating expense ratios shown here include the expenses of any money market fund or other fund held by the Fund.
9 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratios of 0.81% for Class A shares and 1.56% for Class C shares. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
SHORT-TERM HIGH YIELD BOND FUND 37
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS C
If you sell your shares at the end of
the period:
1 Year $ 384 $ 263
3 Years $ 625 $ 556
5 Years $ 884 $ 974
10 Years $1,625 $2,140
If you do NOT sell your shares at the
end of the period:
1 Year $ 384 $ 163
3 Years $ 625 $ 556
5 Years $ 884 $ 974
10 Years $1,625 $2,140
|
38 SHORT-TERM HIGH YIELD BOND FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Galliard Capital Management, Inc.
PORTFOLIO MANAGERS
Richard Merriam, CFA
Ajay Mirza, CFA
FUND INCEPTION:
11/11/1994
CLASS A
Ticker: NVSAX
Fund Number: 19
CLASS B
Ticker: NVSBX
Fund Number: 399
CLASS C
Ticker: WSICX
Fund Number: 1827
INVESTMENT OBJECTIVE
The Stable Income Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in income-producing debt securities; and
o up to 20% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Stable Income Portfolio, a master portfolio with a substantially identical
investment objective and substantially similar investment strategies. We may
invest in additional master portfolios, in other WELLS FARGO ADVANTAGE FUNDS,
or directly in a portfolio of securities.
We invest principally in income-producing debt securities. We may invest in a variety of debt securities, including corporate, mortgage- and asset-backed securities, and U.S. Government obligations. These securities may have fixed, floating or variable rates and may include U.S. dollar-denominated debt securities of foreign issuers. We only purchase investment-grade securities, though we may continue to hold a security that falls below investment-grade. We may use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Under normal circumstances, we expect the Fund's dollar-weighted average effective duration to be between 0.7 to 1.2 years.
We emphasize investments in the debt securities market with higher yield and return expectations than U.S. Treasury securities. Our security selection process is based on a disciplined valuation process that considers cash flow, liquidity, quality and general economic sentiment. We then purchase those securities that we believe offer the best relative value. We tend to buy and hold these securities, which results in a relatively lower turnover strategy. We will sell securities based on deteriorating credit, overvaluation or to replace them with more attractively valued issues.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
STABLE INCOME FUND 39
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
40 STABLE INCOME FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
3.43% 6.82% 5.53% 3.03% 1.50% 1.07% 2.14% 4.22% 3.90% -7.18%
|
BEST AND WORST QUARTERS
Best Quarter: Q1 2001 2.32%
Worst Quarter: Q4 2008 -4.19%
|
The Fund's year-to-date performance through June 30, 2009, was 3.27%.
STABLE INCOME FUND 41
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1/ Returns Before Taxes -9.03% 0.34% 2.17% Returns After Taxes on -10.18% -0.80% 0.81% Distributions/2/ Returns After Taxes on -5.84% -0.34% 1.04% Distributions and Sale of Fund Shares/2/ CLASS B/1/ Returns Before -9.31% 0.14% 2.08% Taxes CLASS C/1/ Returns Before -8.80% 0.01% 1.60% Taxes BARCLAYS CAPITAL 9-12 4.67% 3.66% 4.03% MONTHS U.S. SHORT TREASURY INDEX/3/ (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/4,5/ (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL 9-12 4.45% N/A N/A MONTHS SHORT-TERM U.S. GOVERNMENT/CREDIT BOND INDEX/6,7/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges. Class A shares incepted on May 2, 1996. Class B
shares incepted on May 17, 1996. Class C shares incepted on June 30, 2003.
Performance shown prior to the inception of the Class C shares reflects the
performance of the Class A shares, adjusted to reflect Class C sales charges
and expenses.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts. After-tax returns are shown only for the Class A
shares. After-tax returns for the Class B and Class C shares will vary.
3 The Barclays Capital 9-12 Months U.S. Short Treasury Index includes aged
U.S.treasury bills, notes and bonds with a remaining maturity from 9 up to
(but not including) 12 months. It excludes zero coupon strips. The Barclays
Capital 9-12 Months U.S. Short Treasury Index provides an approximation of
the interest rate risk of the Fund's portfolio (as measured by duration),
but the credit risk of the Index is significantly different than that of the
Fund due to differences in portfolio composition. You cannot invest directly
in an index.
4 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3
year component of the Barclays Capital Government/Credit Bond Index which
includes securities in the Government and Credit Indices. The Government
Index includes treasuries (I.E., public obligations of the U.S. Treasury
that have remaining maturities of more than one year) and agencies (I.E.,
publicly issued debt of U.S. Government agencies, quasi-federal
corporations, and corporate or foreign debt guaranteed by the U.S.
Government). The Credit Index includes publicly issued U.S. corporate and
foreign debentures and secured notes that meet specified maturity,
liquidity, and quality requirements. The Barclays Capital 1-3 Year U.S.
Government/Credit Bond Index provides an approximate comparison to the
credit risk of the Fund's portfolio, however, its interest rate risk (as
measured by duration) may be significantly greater than that of the Fund.
You cannot invest directly in an index.
5 The Barclays Capital 9-12 Months Short-Term U.S. Government/Credit Bond Index is the 9-12 month component of the Short-Term U.S. Government/Credit Bond Index, which contains securities that have fallen out of the U.S. Government/Credit Index because of the standard minimum one-year to maturity constraint. Securities in the Short-Term U.S. Government/Credit Bond Index must have a maturity from 1 up to (but not including) 12 months. The Barclays Capital 9-12 Months Short-Term U.S. Government/Credit Bond Index provides the most appropriate comparison to the Fund with respect to interest rate risk (as measured by duration) and credit risk (based on the composition of the Index and the Fund's portfolio). However, the limited performance history of the Index does not allow for comparison to all periods of the Fund's performance. The Index has an inception date of August 1, 2004. You cannot invest directly in an index.
42 STABLE INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS B CLASS C Maximum sales charge 2.00% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 1.50% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/2/ 0.40% 0.40% 0.40% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/3/ 0.52% 0.52% 0.52% TOTAL ANNUAL FUND 0.92% 1.67% 1.67% OPERATING EXPENSES/4,5/ Fee Waivers 0.07% 0.07% 0.07% NET EXPENSES/6/ 0.85% 1.60% 1.60% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may
be assessed a 0.50% contingent deferred sales charge if they are redeemed
within eighteen months of purchase. See "A Choice of Share Classes" for
further information.
2 Reflects the fees charged by Funds Management for providing investment
advisory services to the master portfolio in which the Fund invests
substantially all of its assets. The following advisory fee schedule is
charged to the master portfolio as a percentage of the master portfolio's
average daily net assets: 0.40% for the first $500 million; 0.375% for the
next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2
billion; and 0.30% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Includes gross expenses allocated from the master portfolio in which the Fund invests.
5 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
6 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratios shown. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
STABLE INCOME FUND 43
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 285 $ 313 $ 263
3 Years $ 481 $ 520 $ 519
5 Years $ 692 $ 901 $ 900
10 Years $1,302 $1,518 $1,969
If you do NOT sell your shares at the end of the period:
1 Year $ 285 $ 163 $ 163
3 Years $ 481 $ 520 $ 519
5 Years $ 692 $ 901 $ 900
10 Years $1,302 $1,518 $1,969
|
44 STABLE INCOME FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Kevin J. Maas, CFA
Thomas M. Price, CFA
Michael J. Schueller, CFA
FUND INCEPTION:
11/30/2000
CLASS A
Ticker: SASAX
Fund Number: 3308
CLASS B
Ticker: SASIX
Fund Number: 3411
CLASS C
Ticker: SASCX
Fund Number: 3517
INVESTMENT OBJECTIVE
The Strategic Income Fund seeks total return, consisting of a high level of
current income and capital appreciation.
o at least 80% of the Fund's net assets in income-producing securities;
o up to 30% of the Fund's total assets in debt securities of foreign issuers;
o up to 20% of the Fund's total assets in debt securities that are in default at the time of purchase; and
o up to 20% of the Fund's total assets in equities and convertible securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in income-producing securities. These may include
corporate obligations, convertible securities and bank loans.We typically
invest in debt securities that are rated BB through C by Standard & Poor's, or
an equivalent quality rating from another Nationally Recognized Statistical
Ratings Organization, or are deemed by us to be of comparable quality. The Fund
may invest all of its assets in below investment-grade debt securities (often
called "high-yield" securities or "junk bonds"). We may also use futures,
options or swap agreements, as well as other derivatives, to manage risk or to
enhance return. We may also invest in stripped securities.
We start our investment process with a top-down, macroeconomic outlook to determine industry and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
STRATEGIC INCOME FUND 45
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
46 STRATEGIC INCOME FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1/
AS OF 12/31 EACH YEAR
2001 2002 2003 2004 2005 2006 2007 2008
6.96% -6.41% 33.38% 11.96% 2.81% 11.04% 2.52% -23.31%
|
BEST AND WORST QUARTERS
Best Quarter: Q2 2003 12.13%
Worst Quarter: Q4 2008 -14.99%
|
The Fund's year-to-date performance through June 30, 2009, was 22.22%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS LIFE OF FUND/1/ CLASS A/1/ Returns Before Taxes -26.76% -0.82% 3.77% Returns After Taxes on -28.81% -3.33% 0.59% Distributions/2/ Returns After Taxes on -17.16% -1.87% 1.47% Distributions and Sale of Fund Shares/2/ CLASS B/1/ Returns Before -28.85% -1.13% 3.43% Taxes CLASS C/1/ Returns Before -24.91% -0.75% 3.31% Taxes BARCLAYS CAPITAL U.S. -26.16% -0.82% 3.41% CORPORATE HIGH YIELD BOND INDEX/3/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A, Class B and Class C shares incepted on November 30, 2000. Returns for the Class A, Class B and Class C shares and the Index shown in the Life of Fund column are as of the inception date. 2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class B and Class C shares will vary.
3 The Barclays Capital U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar-denominated, nonconvertible, non-investment grade debt index.The Index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million.You cannot invest directly in an index.
STRATEGIC INCOME FUND 47
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS B CLASS C Maximum sales charge 4.50% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 5.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) Redemption Fee/2/ 2.00% 2.00% 2.00% |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/3/ 0.50% 0.50% 0.50% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/4/ 0.98% 0.99% 0.98% TOTAL ANNUAL FUND 1.48% 2.24%/5/ 2.23%/5/ OPERATING EXPENSES Fee Waivers 0.38% 0.39% 0.38% NET EXPENSES/6/ 1.10% 1.85% 1.85% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may be assessed a 1.00% contingent deferred sales charge if they are redeemed within eighteen months of purchase. See "A Choice of Share Classes" for further information.
2 Percentage of the net proceeds deducted if shares are redeemed (or exchanged) within 30 days after purchase. This fee is retained by the Fund. Please see the "Redemption Fees" section under "How to Sell Shares" for further information.
3 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.50% for the first $500 million;
0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for
the next $2 billion; and 0.40% for assets over $5 billion.
4 Includes expenses payable to affiliates of Wells Fargo & Company, and may
include expenses of any money market or other fund held by the Fund.
5 Expenses have been adjusted as necessary from amounts incurred during the
Fund's most recent fiscal year to reflect current fees and expenses.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes and
extraordinary expenses, do not exceed the net operating expense ratios
shown. The committed net operating expense ratios may be increased only with
approval of the Board of Trustees.
48 STRATEGIC INCOME FUND
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell your shares at the end of the period:
1 Year $ 558 $ 688 $ 288
3 Years $ 863 $ 964 $ 663
5 Years $1,190 $1,367 $1,164
10 Years $2,114 $2,267 $2,543
If you do NOT sell your shares at the end of the period:
1 Year $ 558 $ 188 $ 188
3 Years $ 863 $ 664 $ 663
5 Years $1,190 $1,167 $1,164
10 Years $2,114 $2,267 $2,543
|
STRATEGIC INCOME FUND 49
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Troy Ludgood
Thomas O'Connor, CFA
Lynne A. Royer
William Stevens
FUND INCEPTION:
6/30/1997
CLASS A
Ticker: MBFAX
Fund Number: 940
CLASS B
Ticker: MBFBX
Fund Number: 941
CLASS C
Ticker: MBFCX
Fund Number: 942
INVESTMENT OBJECTIVE
The Total Return Bond Fund seeks total return, consisting of income and capital
appreciation.
o at least 80% of the Fund's net assets in bonds;
o at least 80% of the Fund's total assets in investment-grade debt securities;
o up to 25% of the Fund's total assets in asset-backed securities, other than mortgage-backed securities; and
o up to 20% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Total Return Bond Portfolio, a master portfolio with a substantially identical
investment objective and substantially similar investment strategies. We may
invest in additional master portfolios, in other WELLS FARGO ADVANTAGE FUNDS,
or directly in a portfolio of securities.
We invest principally in investment-grade debt securities, including U.S. Government obligations, corporate bonds and mortgage- and asset-backed securities. As part of our investment strategy, we may invest in stripped securities or enter into mortgage dollar rolls and reverse repurchase agreements, as well as invest in U.S. dollar-denominated debt securities of foreign issuers. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Under normal circumstances, we expect to maintain an overall dollar-weighted average effective duration range between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential relative to other debt securities of similar credit quality and interest rate sensitivity. From time to time, we may also invest in unrated bonds that we believe are comparable to investment-grade debt securities. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
50 TOTAL RETURN BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
TOTAL RETURN BOND FUND 51
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.78% 11.85% 9.37% 9.80% 4.37% 3.99% 1.91% 3.89% 6.14% 2.63%
|
BEST AND WORST QUARTERS
Best Quarter: Q3 2002 4.86%
Worst Quarter: Q2 2004 -2.44%
|
The Fund's year-to-date performance through June 30, 2009, was 5.60%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1/ Returns Before Taxes -1.99% 2.75% 4.77% Returns After Taxes on -3.61% 1.27% 2.81% Distributions/2/ Returns After Taxes on -1.31% 1.47% 2.86% Distributions and Sale of Fund Shares/2/ CLASS B/1/ Returns Before -3.13% 2.57% 4.91% Taxes CLASS C/1/ Returns Before 0.94% 2.95% 4.62% Taxes BARCLAYS CAPITAL U.S. 5.24% 4.65% 5.63% AGGREGATE BOND INDEX/3/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges. Class A, Class B and Class C shares incepted on
October 31, 2001. Performance shown prior to the inception of the Class A,
Class B and Class C shares reflects the performance of the Administrator
Class shares, adjusted to reflect Class A, Class B, and Class C sales
charges and expenses, as applicable.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts. After-tax returns are shown only for the Class A
shares. After-tax returns for the Class B and Class C shares will vary.
3 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
52 TOTAL RETURN BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS B CLASS C Maximum sales charge 4.50% None None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ 5.00% 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS B CLASS C Management Fees/2/ 0.37% 0.37% 0.37% Distribution (12b-1) Fees 0.00% 0.75% 0.75% Other Expenses/3/ 0.50% 0.50% 0.51% TOTAL ANNUAL FUND 0.87% 1.62% 1.63% OPERATING EXPENSES/4,5/ Fee Waivers 0.02% 0.02% 0.03% NET EXPENSES/6/ 0.85% 1.60% 1.60% |
1 Class A shares that are purchased at NAV in amounts of $1,000,000 or more may be assessed a 1.00% contingent deferred sales charge if they are redeemed within eighteen months of purchase. See "A Choice of Share Classes" for further information.
2 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Includes gross expenses allocated from the master portfolio in which the Fund invests.
5 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses. 6 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratios shown. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
TOTAL RETURN BOND FUND 53
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS B CLASS C
If you sell you shares at the end of the period:
1 Year $ 533 $ 663 $ 263
3 Years $ 714 $ 810 $ 511
5 Years $ 909 $1,081 $ 884
10 Years $1,475 $1,480 $1,931
If you do NOT sell your shares at the end of the period:
1 Year $ 533 $ 163 $ 163
3 Years $ 714 $ 510 $ 511
5 Years $ 909 $ 881 $ 884
10 Years $1,475 $1,480 $1,931
|
54 TOTAL RETURN BOND FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
FUND INCEPTION:
11/25/1988
CLASS A
Ticker: SADAX
Fund Number: 3006
CLASS C
Ticker: WUSTX
Fund Number: 3547
INVESTMENT OBJECTIVE
The Ultra Short-Term Income Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in income-producing debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in income-producing debt securities. Our portfolio
holdings may include U.S. Government obligations, corporate debt securities,
bank loans and mortgage- and asset-backed debt securities. We may invest in
investment-grade and below investment-grade debt securities (often called
"high-yield" securities or "junk bonds"), as well as in debt securities of both
domestic and foreign issuers. As part of our below investment-grade debt
securities investment strategy, we will generally invest in securities that are
rated at least BB by Standard & Poor's or Ba by Moody's, or an equivalent
quality rating from another Nationally Recognized Statistical Ratings
Organization, or are deemed by us to be of comparable quality. We may also use
futures, options or swap agreements, as well as other derivatives, to manage
risk or to enhance return. We may also invest in stripped securities. Under
normal circumstances, we expect the Fund's dollar-weighted average effective
maturity to be one year or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning, credit quality and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
ULTRA SHORT-TERM INCOME FUND 55
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
56 ULTRA SHORT-TERM INCOME FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR CLASS A/1,2/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
4.76% 6.31% 4.02% 0.45% 2.09% 1.60% 3.46% 4.91% 3.21% -6.85%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 2.09%
Worst Quarter: Q4 2008 - 4.74%
|
The Fund's year-to-date performance through June 30, 2009, was 2.99%.
ULTRA SHORT-TERM INCOME FUND 57
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS CLASS A/1,2/ Returns Before Taxes -8.71% 0.77% 2.13% Returns After Taxes on -10.07% -0.73% 0.42% Distributions/3/ Returns After Taxes on -5.62% -0.18% 0.80% Distributions and Sale of Fund Shares/3/ CLASS C/1 /Returns Before -8.56% 0.58% 1.85% Taxes BARCLAYS CAPITAL 9-12 4.67% 3.66% 4.03% MONTHS U.S. SHORT TREASURY INDEX/4/ (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/5/ (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL SHORT-TERM 3.67% N/A N/A U.S. GOVERNMENT/CREDIT BON D Index/6/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If they did, returns would be lower. Average Annual Total Returns reflect applicable sales charges. Class A shares incepted on August 31, 1999. Class C shares incepted on July 18, 2008. Effective June 20, 2008, the Advisor Class was renamed Class A and modified to assume the features and attributes of Class A. Performance shown for the Class A shares from August 31, 1999, through June 19, 2008, includes Advisor Class expenses and is adjusted to reflect Class A sales charges. Performance shown prior to August 31, 1999, for the Class A shares, reflects the performance of the Investor Class shares, adjusted to reflect Advisor Class expenses and Class A sales charges. Performance shown prior to the inception of the Class C shares reflects the performance of the Class A shares, adjusted to reflect Class C sales charges and expenses.
2 Class A Calendar Year Total Returns and Returns After Taxes are being shown because Class A has a longer period of returns than Class C. 3 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts. After-tax returns are shown only for the Class A shares. After-tax returns for the Class C shares will vary.
4 The Barclays Capital 9-12 Months U.S. Short Treasury Index includes aged U.S.
treasury bills, notes and bonds with a remaining maturity from 9 up to (but
not including) 12 months. It excludes zero coupon strips. The Barclays
Capital 9-12 Months U.S. Short Treasury Index provides an approximation of
the interest rate risk of the Fund's portfolio (as measured by duration),
but the credit risk of the Index is significantly different than that of the
Fund due to differences in portfolio composition. You cannot invest directly
in an index.
5 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The Barclays Capital 1-3 Year U.S. Government/Credit Bond Index provides an approximate comparison to the credit risk of the Fund's portfolio, however, its interest rate risk (as measured by duration) may be significantly greater than that of the Fund. You cannot invest directly in an index.
6 The Barclays Capital Short-Term U.S. Government/Credit Bond Index contains securities that have fallen out of the U.S. Government/Credit Index because of the standard minimum one-year to maturity constraint. Securities in the Short-Term U.S. Government/Credit Bond Index must have a maturity from 1 up to (but not including) 12 months. The Barclays Capital Short-Term U.S. Government/Credit Bond Index provides the most appropriate comparison to the Fund with respect to interest rate risk (as measured by duration) and credit risk (based on the composition of the Index and the Fund's portfolio). However, the limited performance history of the Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of August 1, 2004. You cannot invest directly in an index.
58 ULTRA SHORT-TERM INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) CLASS A CLASS C Maximum sales charge 2.00% None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None 1.00% charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) CLASS A CLASS C Management Fees/1/ 0.39% 0.39% Distribution (12b-1) Fees 0.00% 0.75% Other Expenses/2/ 0.56% 0.55% Acquired Fund Fee and 0.02% 0.02% Expenses/3/ TOTAL ANNUAL FUND 0.97% 1.71% OPERATING EXPENSES/4,5/ Fee Waivers 0.25% 0.24% NET EXPENSES/4,6,7/ 0.72% 1.47% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratios shown do not correlate to the corresponding expense ratios shown in the Financial Highlights, which do not reflect changes in operating expenses of the Fund and also do not include expenses of any Acquired Fund. 5 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
6 The net operating expense ratios shown here include the expenses of any money market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratios of 0.70% for Class A shares and 1.45% for Class C shares. The committed net operating expense ratios may be increased only with approval of the Board of Trustees.
ULTRA SHORT-TERM INCOME FUND 59
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
CLASS A CLASS C
If you sell your shares at the end of
the period:
1 Year $ 272 $ 249
3 Years $ 477 $ 513
5 Years $ 698 $ 901
10 Years $1,336 $1,990
If you do NOT sell your shares at the
end of the period:
1 Year $ 272 $ 149
3 Years $ 477 $ 513
5 Years $ 698 $ 901
10 Years $1,336 $1,990
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60 ULTRA SHORT-TERM INCOME FUND
Understanding the risks involved in mutual fund investing will help you make an informed decision that takes into account your risk tolerance and preferences. The factors that are most likely to have a material effect on a particular Fund as a whole are called "principal risks." The principal risks for each Fund have been previously identified and are described below. Additional information about the principal risks is included in the Statement of Additional Information.
ACTIVE TRADING RISK Frequent trading will result in a higher-than-average portfolio turnover ratio and increased
trading expenses, and may generate higher short-term capital gains.
COUNTER-PARTY RISK When a Fund enters into a repurchase agreement, an agreement where it buys a security
from a seller that agrees to repurchase the security at an agreed upon price and time, the
Fund is exposed to the risk that the other party will not fulfill its contractual obligation.
Similarly, the Fund is exposed to the same risk if it engages in a reverse repurchase
agreement where a broker-dealer agrees to buy securities and the Fund agrees to
repurchase them at a later date.
DEBT SECURITIES RISK Debt securities, such as notes and bonds, are subject to credit risk and interest rate risk.
Credit risk is the possibility that an issuer of an instrument will be unable to make interest
payments or repay principal when due. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate risk is the risk that
market interest rates may increase, which tends to reduce the resale value of certain debt
securities, including U.S. Government obligations. Debt securities with longer durations are
generally more sensitive to interest rate changes than those with shorter durations. Changes
in market interest rates do not affect the rate payable on an existing debt security, unless the
instrument has adjustable or variable rate features, which can reduce its exposure to interest
rate risk. Changes in market interest rates may also extend or shorten the duration of certain
types of instruments, such as asset-backed securities, thereby affecting their value and
returns. Debt securities may also have, or become subject to, liquidity constraints.
DERIVATIVES RISK The term "derivatives" covers a broad range of investments, including futures, options and
swap agreements. In general, a derivative refers to any financial instrument whose value is
derived, at least in part, from the price of another security or a specified index, asset or rate.
For example, a swap agreement is a commitment to make or receive payments based on
agreed upon terms, and whose value and payments are derived by changes in the value of
an underlying financial instrument. The use of derivatives presents risks different from, and
possibly greater than, the risks associated with investing directly in traditional securities. The
use of derivatives can lead to losses because of adverse movements in the price or value of
the underlying asset, index or rate, which may be magnified by certain features of the
derivatives. These risks are heightened when the portfolio manager uses derivatives to
enhance a Fund's return or as a substitute for a position or security, rather than solely to
hedge (or offset) the risk of a position or security held by the Fund. The success of
management's derivatives strategies will depend on its ability to assess and predict the
impact of market or economic developments on the underlying asset, index or rate and the
derivative itself, without the benefit of observing the performance of the derivative under all
possible market conditions.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 61
FOREIGN INVESTMENT RISK Foreign investments are subject to more risks than U.S. domestic investments. These
additional risks may potentially include lower liquidity, greater price volatility and risks
related to adverse political, regulatory, market or economic developments. Foreign
companies also may be subject to significantly higher levels of taxation than U.S. companies,
including potentially confiscatory levels of taxation, thereby reducing the earnings potential
of such foreign companies. In addition, amounts realized on sales or distributions of foreign
securities may be subject to high and potentially confiscatory levels of foreign taxation and
withholding when compared to comparable transactions in U.S. securities. Investments in
foreign securities involve exposure to fluctuations in foreign currency exchange rates. Such
fluctuations may reduce the value of the investment. Foreign investments are also subject to
risks including potentially higher withholding and other taxes, trade settlement, custodial,
and other operational risks and less stringent investor protection and disclosure standards in
certain foreign markets. In addition, foreign markets can and often do perform differently
from U.S. markets.
HIGH YIELD SECURITIES RISK High yield securities (sometimes referred to as "junk bonds") are debt securities that are
rated below investment-grade, are unrated and deemed by us to be below investment-
grade, or are in default at the time of purchase. These securities have a much greater risk of
default (or in the case of bonds currently in default, of not returning principal) and may be
more volatile than higher-rated securities of similar maturity. The value of these securities
can be affected by overall economic conditions, interest rates, and the creditworthiness of
the individual issuers. Additionally, these securities may be less liquid and more difficult to
value than higher-rated securities.
INFLATION-PROTECTED DEBT Inflation-protected debt securities are structured to provide protection against the negative
SECURITIES RISK effects of inflation. Inflation is a general rise in the prices of goods and services which can
erode an investor's purchasing power. Unlike traditional debt securities whose return is
based on the payment of interest on a fixed principal amount, the principal value of
inflation-protected debt securities is periodically adjusted according to the rate of inflation
and as a result, interest payments will vary. For example, if the index measuring the rate of
inflation falls, the principal value of an inflation-protected debt security will fall and the
amount of interest payable on such security will consequently be reduced. Conversely, if the
index measuring the rate of inflation rises, the principal value on such securities will rise and
the amount of interest payable will also increase. The value of inflation-protected debt
securities is expected to change in response to changes in real interest rates. Generally, the
value of an inflation-protected debt security will fall when real interest rates rise and
inversely, rise when real interest rates fall.
ISSUER RISK The value of a security may decline for a number of reasons that directly relate to the issuer
or an entity providing credit support or liquidity support, such as management
performance, financial leverage, and reduced demand for the issuer's goods, services or
securities.
LEVERAGE RISK Certain transactions may give rise to a form of leverage. Such transactions may include,
among others, reverse repurchase agreements, loans of portfolio securities, and the use of
when-issued, delayed delivery or forward commitment transactions. The use of derivatives
may also create a leveraging risk. The use of leverage may cause a Fund to liquidate portfolio
positions when it may not be advantageous to do so. Leveraging, including borrowing, may
cause a Fund to be more volatile than if the Fund had not been leveraged. This is because
leverage tends to increase a Fund's exposure to market risk, interest rate risk or other risks
by, in effect, increasing assets available for investment.
LIQUIDITY RISK A security may not be sold at the time desired or without adversely affecting the price.
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62 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
MANAGEMENT RISK We cannot guarantee that a Fund will meet its investment objective. We do not guarantee
the performance of a Fund, nor can we assure you that the market value of your investment
will not decline. We will not "make good" on any investment loss you may suffer, nor does
anyone we contract with to provide services, such as selling agents or investment advisers,
promise to make good on any such losses.
MARKET RISK The market price of securities owned by a Fund may go up or down, sometimes rapidly or
unpredictably. Securities may decline in value or become illiquid due to factors affecting
securities markets generally or particular industries represented in the securities markets.
The value or liquidity of a security may decline or become illiquid due to general market
conditions which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates or adverse investor sentiment generally. They
may also decline or become illiquid due to factors that affect a particular industry or
industries, such as labor shortages or increased production costs and competitive conditions
within an industry. During a general downturn in the securities markets, multiple asset
classes may decline or become illiquid in value simultaneously.
MORTGAGE- AND ASSET-BACKED Mortgage- and asset-backed securities represent interests in "pools" of mortgages or other
SECURITIES RISK assets, including consumer loans or receivables held in trust. In addition, mortgage dollar
rolls are transactions in which a Fund sells mortgage-backed securities to a dealer and
simultaneously agrees to purchase similar securities in the future at a predetermined price.
Mortgage- and asset-backed securities, including mortgage dollar roll transactions, are
subject to certain additional risks. Rising interest rates tend to extend the duration of these
securities, making them more sensitive to changes in interest rates. As a result, in a period of
rising interest rates, these securities may exhibit additional volatility. This is known as
extension risk. In addition, these securities are subject to prepayment risk. When interest
rates decline, borrowers may pay off their debts sooner than expected. This can reduce the
returns of a Fund because the Fund will have to reinvest that money at the lower prevailing
interest rates. This is known as contraction risk. These securities also are subject to risk of
default on the underlying mortgage or assets, particularly during periods of economic
downturn.
REGULATORY RISK Changes in government regulations may adversely affect the value of a security. An
insufficiently regulated market might also permit inappropriate practices that adversely
affect an investment.
STRIPPED SECURITIES RISK Stripped securities are the separate income or principal components of debt securities.
These securities are particularly sensitive to changes in interest rates, and therefore subject
to greater fluctuations in price than typical interest bearing debt securities. For example,
stripped mortgage-backed securities have greater interest rate risk than mortgage-backed
securities with like maturities, and stripped treasury securities have greater interest rate risk
than traditional government securities with identical credit ratings.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 63
U.S. GOVERNMENT OBLIGATIONS U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government
RISK agencies or government-sponsored entities. While U.S. Treasury obligations are backed by
the "full faith and credit" of the U.S. Government, securities issued by U.S. Government
agencies or government-sponsored entities may not be backed by the full faith and credit of
the U.S. Government. The Government National Mortgage Association (GNMA), a wholly
owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit
of the U.S. Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of mortgages insured by the Federal
Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or
government-sponsored entities (i.e. not backed by the full faith and credit of the U.S.
Government) include the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of
interest and ultimate collection or scheduled payment of principal, but its participation
certificates are not backed by the full faith and credit of the U.S. Government. If a
government-sponsored entity is unable to meet its obligations, the performance of a Fund
that holds securities of the entity will be adversely impacted. U.S. Government obligations
are subject to low but varying degrees of credit risk, and are still subject to interest rate and
market risk.
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64 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
A description of the WELLS FARGO ADVANTAGE FUNDS' policies and procedures with respect to disclosure of the WELLS FARGO ADVANTAGE FUNDS' portfolio holdings is available in the Funds' Statement of Additional Information and on the WELLS FARGO ADVANTAGE FUNDS' Web site at www.wellsfargo.com/advantagefunds. In addition, Funds Management will, from time to time, include portfolio holdings information in quarterly commentaries for certain Funds. The substance of the information contained in such commentaries will also be posted to the Funds' Web site at www.wellsfargo.com/advantagefunds.
PORTFOLIO HOLDINGS INFORMATION 65
ABOUT WELLS FARGO FUNDS TRUST
The Trust was organized as a Delaware statutory trust on March 10, 1999. The
Board of Trustees of the Trust (Board) supervises each Fund's activities,
monitors its contractual arrangements with various service providers and
decides on matters of general policy.
The Board supervises the Funds and approves the selection of various companies hired to manage the Funds' operations. Except for the Funds' investment advisers, which generally may be changed only with shareholder approval, if the Board believes that it is in the best interests of the shareholders, it may change other service providers.
THE INVESTMENT ADVISER
Wells Fargo Funds Management, LLC, located at 525 Market Street, San Francisco,
CA 94105, serves as the investment adviser for the Funds. Funds Management, an
indirect, wholly owned subsidiary of Wells Fargo & Company, was created to
assume the mutual fund advisory responsibilities of Wells Fargo Bank and is an
affiliate of Wells Fargo Bank. Wells Fargo Bank, which was founded in 1852, is
the oldest bank in the western United States and is one of the largest banks in
the United States. As adviser, Funds Management is responsible for implementing
the investment policies and guidelines for the Funds and for supervising the
sub-advisers who are responsible for the day-to-day portfolio management of the
Funds. For providing these services, Funds Management is entitled to receive
fees as described in each Fund's table of Annual Fund Operating Expenses under
the caption "Management Fees." A discussion regarding the basis for the Board's
approval of the investment advisory and sub-advisory agreements for each Fund
is available in the Funds' annual report for the fiscal year ended May 31,
2008.
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services. The involvement of various subsidiaries of Wells Fargo & Company, including Funds Management, in the management and operation of the Funds and in providing other services or managing other accounts gives rise to certain actual and potential conflicts of interest.
For example, certain investments may be appropriate for a Fund and also for other clients advised by Funds Management and its affiliates, and there may be market or regulatory limits on the amount of investment, which may cause competition for limited positions. Also, various client and proprietary accounts may at times take positions that are adverse to a Fund. Funds Management applies various policies to address these situations, but a Fund may nonetheless incur losses or underperformance during periods when Wells Fargo & Company, its affiliates and their clients achieve profits or outperformance.
Wells Fargo & Company may have interests in or provide services to portfolio companies or Fund shareholders or intermediaries that may not be fully aligned with the interests of all investors. Funds Management and its affiliates serve in multiple roles, including as investment adviser and, for most WELLS FARGO ADVANTAGE FUNDS, sub-adviser, as well as administrator, principal underwriter and securities lending agent. Additionally, until October 26, 2009, Wells Fargo Bank will serve as custodian for the Inflation-Protected Bond Fund, Stable Income Fund, and Total Return Bond Fund.
These are all considerations of which an investor should be aware and which may cause conflicts that could disadvantage a Fund. Funds Management has instituted business and compliance policies, procedures and disclosures that are designed to identify, monitor and mitigate conflicts of interest.
66 ORGANIZATION AND MANAGEMENT OF THE FUNDS
GALLIARD CAPITAL MANAGEMENT, INC. (Galliard), an affiliate of Funds Management, located at 800 LaSalle Avenue, Suite 1100, Minneapolis, MN 55479, is the investment sub-adviser for the Stable Income Fund. In this capacity, Galliard is responsible for the day-to-day investment management of the Stable Income Fund. Galliard is a registered investment adviser that provides investment advisory services to bank and thrift institutions, pension and profit sharing plans, trusts and charitable organizations and corporate and other business entities.
RICHARD MERRIAM, CFA Mr. Merriam is jointly responsible for managing the Stable Income Fund, which he has
Stable Income Fund managed since 2004. Mr. Merriam joined Galliard at the firm's inception in 1995 as a
managing partner and has since been responsible for investment process and strategy.
Education: B.A., Economics and English, University of Michigan; M.B.A., University of
Minnesota.
AJAY MIRZA, CFA Mr. Mirza is jointly responsible for managing the Stable Income Fund, which he has
Stable Income Fund managed since 2004. Mr. Mirza joined Galliard at the firm's inception in 1995 and has
since been serving as a portfolio manager and mortgage specialist. Education: B.E.,
Instrumentation, Birla Institute of Technology (India), M.A., Economics, Tulane
University; M.B.A., University of Minnesota.
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MICHAEL J. BRAY, CFA Mr. Bray is jointly responsible for managing the Government Securities Fund and the
Government Securities Fund Inflation-Protected Bond Fund, both of which he has managed since 2005. He is also
Income Plus Fund jointly responsible for managing the Income Plus Fund, which he has managed since
Inflation-Protected Bond 2008. Mr. Bray joined Wells Capital Management in 2005 as a portfolio manager on the
Fund Customized Fixed Income Team specializing in government, agency and interest rate
derivative instruments. Prior to joining Wells Capital Management, Mr. Bray was a
principal responsible for multi-currency yield curve arbitrage business at Windward
Capital, LLC from 2004 to 2005. From 1996 to 2004, he was the managing director at
State Street Research and Management, focusing on mutual fund and institutional
account management. Education: B.S., Math and Actuarial Science, University of
Connecticut, Storrs; M.B.A., Pennsylvania State University.
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ORGANIZATION AND MANAGEMENT OF THE FUNDS 67
TROY LUDGOOD Mr. Ludgood is jointly responsible for managing the Total Return Bond Fund, which he
Total Return Bond Fund has managed since 2007. In 2008, Mr. Ludgood was named as co-head and senior
portfolio manager of the Montgomery Fixed Income Strategies Team at Wells Capital
Management, where he has also served as a portfolio manager since 2007, Director of
Credit Trading since 2006, and a senior credit trader since 2004. Prior to joining Wells
Capital Management, he was a trader at Lehman Brothers since 2000. Education: B.S.,
Industrial Engineering, Georgia Institute of Technology; M.B.A., Wharton School of the
University of Pennsylvania.
KEVIN J. MAAS, CFA Mr. Maas is jointly responsible for managing the High Income Fund, the Short-Term
High Income Fund High Yield Bond Fund, and the Strategic Income Fund, all of which he has managed
Short-Term High Yield since 2007. Mr. Maas is a portfolio manager for the Wells Capital Management Fixed
Bond Fund Income Team and also serves as a senior research analyst. He joined Wells Capital
Strategic Income Fund Management in 2005 as a senior research analyst specializing in taxable high yield
securities. Prior to joining Wells Capital Management, Mr. Maas was a high-yield,
fixed-income analyst with Strong Capital Management, Inc. since 1999. Education: B.S.,
Finance, University of Minnesota.
JAY N. MUELLER, CFA Mr. Mueller is jointly responsible for managing the Government Securities Fund, the
Government Securities Fund Short-Term Bond Fund, and the Ultra Short-Term Income Fund, each of which he has
Inflation-Protected Bond managed since 2004. He is also jointly responsible for managing the Inflation-
Fund Protected Bond Fund, which he has managed since 2005. Mr. Mueller joined Wells
Short-Term Bond Fund Capital Management in 2005 as a portfolio manager specializing in macroeconomic
Ultra Short-Term Income Fund analysis. Prior to joining Wells Capital Management, he served as a portfolio manager
with Strong Capital Management, Inc. (SCM) since 1991. Additional responsibilities at
SCM included, serving as director of fixed income from 2002 to 2004. Education: B.A.,
Economics, University of Chicago.
D. JAMES NEWTON II, CFA, CPA Mr. Newton is jointly responsible for managing the Income Plus Fund and the Ultra
Income Plus Fund Short-Term Income Fund, both of which he has managed since 2008. Mr. Newton
Ultra Short-Term Income Fund joined Wells Capital Management in 2005 as a portfolio manager and head of
investment grade credit research. Prior to joining Wells Capital Management, Mr.
Newton served as a high-grade, fixed-income analyst with Strong Capital
Management, Inc. (SCM) since 2002. Prior to joining SCM, he was at Northwestern
Mutual Life Insurance Company from 1998 to 2002, first as an associate in the Private
Placement Department, and later as an investment grade credit analyst and
subsequent director in the Public Fixed Income Department. Education: B.A.,
Economics, Albion College; M.B.A., University of Michigan.
THOMAS O'CONNOR, CFA Mr. O'Connor is jointly responsible for managing the Short Duration Government Bond
Short Duration Government Fund and the Total Return Bond Fund, both of which he has managed since 2003. In
Bond Fund 2008, Mr. O'Connor was named as co-head of the Montgomery Fixed Income Strategies
Total Return Bond Fund Team at Wells Capital Management, where he has also served as a senior portfolio
manager since 2007 and portfolio manager since 2003. Mr. O'Connor is responsible for
identifying relative value in the mortgage and structured product sectors of the
market. Prior to joining Wells Capital Management, Mr. O'Connor was a portfolio
manager in the Fixed Income Division of Montgomery Asset Management from 2000
to 2003. Education: B.A., Business Administration, University of Vermont.
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68 ORGANIZATION AND MANAGEMENT OF THE FUNDS
THOMAS M. PRICE, CFA Mr. Price is jointly responsible for managing the Income Plus Fund, which he has
High Income Fund managed since 2005 and the Ultra Short-Term Income Fund, which he has managed
Income Plus Fund since 2002. He is also jointly responsible for managing the Strategic Income Fund,
Short-Term High Yield Bond which he has managed since 2004 and the High Income Fund and the Short-Term
Fund High Yield Bond Fund, both of which he has managed since 1998. Mr. Price joined Wells
Strategic Income Fund Capital Management in 2005 as a portfolio manager specializing in taxable high yield
Ultra Short-Term Income Fund securities. Prior to joining Wells Capital Management, Mr. Price was with Strong Capital
Management, Inc. (SCM) since 1996 as a fixed income research analyst and, since 1998,
as a portfolio manager. Education: B.B.A., Finance, University of Michigan; M.B.A.,
Finance, Kellogg Graduate School of Management, Northwestern University.
JANET S. RILLING, CFA, CPA Ms. Rilling is jointly responsible for managing the Income Plus Fund, which she has
Income Plus Fund managed since 2008, and the Short-Term Bond Fund, which she has managed since
Short-Term Bond Fund 2005. Ms. Rilling joined Wells Capital Management in 2005 as a portfolio manager and
specializes in investment-grade corporate debt securities. Prior to joining Wells Capital
Management, she was a portfolio manager with Strong Capital Management, Inc.
(SCM) since 2000 and a research analyst at SCM since 1995. Education: B.A., Accounting
and Finance; M.S., Finance, University of Wisconsin.
LYNNE A. ROYER Ms. Royer is jointly responsible for managing the Total Return Bond Fund, which she
Total Return Bond Fund has managed since 2007. In 2008, Ms. Royer was named as co-head of the Montgomery
Fixed Income Strategies Team at Wells Capital Management, where she has also served
as a senior portfolio manager since 2007, a portfolio manager since 2006, and as the
Director of Credit Research since 2005. Prior to joining Wells Capital Management as a
senior analyst in 2003, she was a senior analyst in the Fixed Income Division of
Montgomery Asset Management since 1997. Education: B.A., Gettysburg College;
M.B.A., Anderson Graduate School of Management, University of California, Los
Angeles.
MICHAEL J. SCHUELLER, CFA Mr. Schueller is jointly responsible for managing the High Income Fund, the Short-Term
High Income Fund High-Yield Bond Fund, and the Strategic Income Fund, all of which he has managed
Short-Term High Yield Bond since 2007. Mr. Schueller joined Wells Capital Management in 2005 as a senior research
Fund analyst specializing in high yield securities and, since 2007, as a portfolio manager. Prior
Strategic Income Fund to joining Wells Capital Management, Mr. Schueller was with Strong Capital
Management, Inc. (SCM) since 2000 as a leveraged loan trader and, since 2002, a fixed
income research analyst. Education: B.A., Economics, University of Minnesota; J.D.,
University of Wisconsin.
WILLIAM STEVENS Mr. Stevens is jointly responsible for managing the Short Duration Government Bond
Short Duration Government Fund, which he has managed since 1992 and the Total Return Bond Fund, which he has
Bond Fund managed since 1997. Mr. Stevens joined Wells Capital Management in 2003 as chief
Total Return Bond Fund fixed income officer and senior managing director. He currently serves as senior
portfolio manager and co-head of the Montgomery Fixed Income Investment
Strategies Team. Prior to joining Wells Capital Management, Mr. Stevens was president
and chief investment officer of Montgomery Asset Management, with oversight
responsibility for all investment related activities, as well as co-head and founder of
Montgomery's Fixed Income Division since 1992. Education: B.A., Economics, Wesleyan
University; M.B.A., Harvard Business School.
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ORGANIZATION AND MANAGEMENT OF THE FUNDS 69
DORMANT INVESTMENT ADVISORY ARRANGEMENT
Under the investment advisory contract for the Inflation-Protected Bond Fund,
Stable Income Fund and Total Return Bond Fund, each a gateway fund, Funds
Management does not receive any compensation from a Fund as long as the Fund
continues to invest, as it does today, substantially all of its assets in a
single master portfolio. Under this structure, Funds Management receives only
an advisory fee from the master portfolio. If a Fund were to change its
investment structure so that it begins to invest substantially all of its
assets in two or more master portfolios, Funds Management would be entitled to
receive an annual fee of 0.25% of the Fund's average daily net assets for
providing investment advisory services to the Fund, including the determination
of the asset allocations of the Fund's investments in the various master
portfolios.
DORMANT MULTI-MANAGER ARRANGEMENT
The Board has adopted a "multi-manager" arrangement for the Government
Securities Fund, High Income Fund, Inflation-Protected Bond Fund, Short
Duration Government Bond Fund, Short-Term Bond Fund, Short-Term High Yield Bond
Fund, Strategic Income Fund, Total Return Bond Fund, and Ultra Short-Term
Income Fund. Under this arrangement, each Fund and Funds Management may engage
one or more sub-advisers to make day-to-day investment decisions for the Fund's
assets. Funds Management would retain ultimate responsibility (subject to the
oversight of the Board) for overseeing the sub-advisers and may, at times,
recommend to the Board that the Fund: (1) change, add or terminate one or more
sub-advisers; (2) continue to retain a sub-adviser even though the
sub-adviser's ownership or corporate structure has changed; or (3) materially
change a sub-advisory agreement with a sub-adviser.
Applicable law generally requires a Fund to obtain shareholder approval for most of these types of recommendations, even if the Board approves the proposed action. Under the "multi-manager" arrangement approved by the Board, the Fund will seek exemptive relief, if necessary, from the SEC to permit Funds Management (subject to the Board's oversight and approval) to make decisions about the Fund's sub-advisory arrangements without obtaining shareholder approval. The Fund will continue to submit matters to shareholders for their approval to the extent required by applicable law. Meanwhile, this multi-manager arrangement will remain dormant and will not be implemented until shareholders are further notified.
70 ORGANIZATION AND MANAGEMENT OF THE FUNDS
After choosing a Fund, your next most important choice will be which share class to buy. The table below summarizes the features of the classes of shares available through this Prospectus. Not all Funds offer all three share classes. In addition, the Funds no longer offer Class B shares, except in connection with the reinvestment of any distributions and exchanges of Class B shares for Class B shares of other WELLS FARGO ADVANTAGE FUNDS permitted by our exchange policy (see "How to Exchange Shares" later in this Prospectus). Specific Fund charges may vary, so you should review each Fund's fee table as well as the sales charge schedules that follow. Finally, you should review the "Reductions and Waivers of Sales Charges" section of the Prospectus before making your decision as to which share class to buy.
CLASS A CLASS B/1/ CLASS C
INITIAL SALES CHARGE 2%, 3% or 4.5% depending None. Your entire investment None. Your entire investment
on the Fund goes to work immediately. goes to work immediately.
CONTINGENT DEFERRED None (except that, for Funds 1.5%, 3% or 5% and declines 1% if shares are sold within
SALES CHARGE (CDSC) other than the Ultra Short- until it reaches 0% at the one year after purchase.
Term Income Fund, beginning of the 3rd, 4th or
depending on the Fund, a 7th year depending on the
charge of 0.50% or 1% Fund.
applies to certain
redemptions made within
eighteen months, following
purchases of $1 million or
more without an initial sales
charge).
ONGOING DISTRIBUTION None. 0.75% 0.75%
(12B-1) FEES
PURCHASE MAXIMUM None. Volume reductions $ 100,000 $ 1,000,000/2/
given upon providing
adequate proof of eligibility.
ANNUAL EXPENSES Lower ongoing expenses Higher ongoing expenses Higher ongoing expenses
than Classes B and C. than Class A because of than Class A because of
higher 12b-1 fees. higher 12b-1 fees.
CONVERSION FEATURE Not applicable. Yes. Converts to Class A No. Does not convert to
shares after a certain Class A shares, so annual
number of years depending expenses do not decrease.
on the Fund, so annual
expenses decrease.
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1 Class B shares are closed to new investors and additional investments from
existing shareholders, except in connection with the reinvestment of any
distributions and permitted exchanges. For Class B shares currently
outstanding and Class B shares acquired upon reinvestment of dividends, all
Class B share attributes, including associated CDSC schedules, conversion
features, any applicable CDSC waivers, and distribution plan and shareholder
services plan fees, will continue in effect.
2 The purchase maximum for Class C shares of the Ultra Short-Term Income Fund
is $250,000.
Information regarding the Funds' sales charges, breakpoints, and waivers is available free of charge on our Web site at www.wellsfargo.com/advantagefunds. You may wish to discuss this choice with your financial consultant.
A CHOICE OF SHARE CLASSES 71
CLASS A SHARES SALES CHARGE SCHEDULES
If you choose to buy Class A shares, you will pay the public offering price
(POP) which is the net asset value (NAV) plus the applicable sales charge.
Since sales charges are reduced for Class A share purchases above certain
dollar amounts, known as "breakpoint levels," the POP is lower for these
purchases. The dollar amount of the sales charge is the difference between the
POP of the shares purchased (based on the applicable sales charge in the table
below) and the NAV of those shares. Because of rounding in the calculation of
the POP, the actual sales charge you pay may be more or less than that
calculated using the percentages shown below.
CLASS A SHARES SALES CHARGE SCHEDULE FOR ALL FUNDS (EXCEPT FOR THE
SHORT DURATION GOVERNMENT BOND FUND,
SHORT-TERM BOND FUND, SHORT-TERM HIGH YIELD BOND FUND, STABLE INCOME
FUND, AND ULTRA SHORT-TERM INCOME
FUND)
FRONT-END SALES FRONT-END SALES
CHARGE AS % CHARGE AS %
OF PUBLIC OF NET AMOUNT
AMOUNT OF PURCHASE OFFERING PRICE INVESTED
Less than $50,000 4.50% 4.71%
$50,000 to $99,999 4.00% 4.17%
$100,000 to $249,999 3.50% 3.63%
$250,000 to $499,999 2.50% 2.56%
$500,000 to $999,999 2.00% 2.04%
$1,000,000 and over/1/ 0.00% 0.00%
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1 We will assess a 1.00% CDSC on Class A share purchases of $1,000,000 or more if they are redeemed within 18 months from the date of purchase, unless the dealer of record waived its commission. Certain exceptions apply (see "CDSC Waivers"). The CDSC percentage you pay is applied to the NAV of the shares on the date of original purchase.
CLASS A SHARES SALES CHARGE SCHEDULE FOR THE SHORT DURATION
GOVERNMENT BOND FUND, SHORT-TERM BOND FUND,
AND SHORT-TERM HIGH YIELD BOND FUND
FRONT-END SALES FRONT-END SALES
CHARGE AS % CHARGE AS %
OF PUBLIC OF NET AMOUNT
AMOUNT OF PURCHASE OFFERING PRICE INVESTED
Less than $50,000 3.00% 3.09%
$50,000 to $99,999 2.50% 2.56%
$100,000 to $249,999 2.00% 2.04%
$250,000 to $499,999 1.50% 1.52%
$500,000 to $999,999 1.00% 1.01%
$1,000,000 and over/1/ 0.00% 0.00%
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1 We will assess a 0.50% CDSC on Class A share purchases of $1,000,000 or more if they are redeemed within 18 months from the date of purchase, unless the dealer of record waived its commission. Certain exceptions apply (see "CDSC Waivers"). The CDSC percentage you pay is applied to the NAV of the shares on the date of original purchase.
CLASS A SHARES SALES CHARGE SCHEDULE FOR THE STABLE INCOME FUND
FRONT-END SALES FRONT-END SALES
CHARGE AS % CHARGE AS %
OF PUBLIC OF NET AMOUNT
AMOUNT OF PURCHASE OFFERING PRICE INVESTED
Less than $50,000 2.00% 2.04%
$50,000 to $99,999 1.50% 1.52%
$100,000 to $249,999 1.00% 1.01%
$250,000 to $499,999 0.75% 0.76%
$500,000 to $999,999 0.50% 0.50%
$1,000,000 and over/1/ 0.00% 0.00%
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1 We will assess a 0.50% CDSC on Class A share purchases of $1,000,000 or more if they are redeemed within 18 months from the date of purchase, unless the dealer of record waived its commission. Certain exceptions apply (see "CDSC Waivers"). The CDSC percentage you pay is applied to the NAV of the shares on the date of original purchase.
72 A CHOICE OF SHARE CLASSES
CLASS A SHARES SALES CHARGE SCHEDULE FOR THE ULTRA SHORT-TERM INCOME
FUND
FRONT-END SALES FRONT-END SALES
CHARGE AS % CHARGE AS %
OF PUBLIC OF NET AMOUNT
AMOUNT OF PURCHASE OFFERING PRICE INVESTED
Less than $50,000 2.00% 2.04%
$50,000 to $99,999 1.50% 1.52%
$100,000 to $249,999 1.00% 1.01%
$250,000 to $499,999 0.50% 0.50%
$500,000 and over 0.00% 0.00%
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CLASS B SHARES CDSC SCHEDULES
Class B shares are closed to new investors and additional investments from
existing shareholders, except that existing shareholders of Class B shares may
reinvest any distributions into Class B shares and exchange their Class B
shares for Class B shares of other WELLS FARGO ADVANTAGE FUNDS (as permitted by
our exchange policy). No new or subsequent investments, including through
automatic investment plans, will be allowed in Class B shares of the Funds,
except through a distribution reinvestment or permitted exchange. For Class B
shares currently outstanding and Class B shares acquired upon reinvestment of
dividends, all Class B shares attributes, including associated CDSC schedules,
conversion features, any applicable CDSC waivers, and distribution plan and
shareholder services plan fees, will continue in effect. Existing shareholders
of Class B shares who redeem their shares within six years of the purchase
date, three years for the Short Duration Government Bond Fund, and two years
for the Stable Income Fund, may pay a CDSC based on how long such shareholders
have held their shares. Certain exceptions apply (see "CDSC Waivers"). The CDSC
schedules are as follows:
CLASS B SHARES CDSC
SCHEDULE FOR THE
FUNDS
(EXCEPT FOR THE
SHORT
DURATION GOVERNMENT
BOND
FUND AND
STABLE
INCOME FUND)
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS
CDSC 5.00% 4.00% 3.00% 3.00% 2.00% 1.00% 0.00% A shares
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CLASS B SHARES CDSC SCHEDULE FOR THE SHORT DURATION GOVERNMENT BOND
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS
CDSC 3.00% 2.00% 1.00% 0.00% A Shares
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CLASS B SHARES CDSC FOR THE STABLE INCOME FUND
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS
CDSC 1.50% 0.75% 0.00% 0.00% A Shares
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To determine whether the CDSC applies to a redemption, the Fund will first redeem shares acquired by reinvestment of any distributions and then will redeem shares in the order in which they were purchased (such that shares held the longest are redeemed first). After shares are held for six years, three years for the Short Duration Government Bond Fund, and two years for the Stable Income Fund, the CDSC expires. After shares are held for seven years, four years for the Short Duration Government Bond Fund and the Stable Income Fund, the Class B shares are converted to Class A shares to reduce your future ongoing expenses
Class B shares received in exchange for Strong Fund shares purchased prior to the April 11, 2005 Strong Funds reorganization are subject to the following CDSC schedule on the exchanged shares, and such shares convert to Class A shares automatically after eight years:
CLASS B SHARES CDSC SCHEDULE (FOR ALL PRIOR STRONG FUNDS)
FOR SHARES RECEIVED IN EXCHANGE FOR STRONG FUND SHARES PURCHASED PRIOR TO APRIL 11, 2005
REDEMPTION WITHIN 1 YEAR 2 YEARS 3 YEARS 4 YEARS 5 YEARS 6 YEARS 7 YEARS 8 YEARS 9 YEARS
CDSC 5.00% 4.00% 4.00% 3.00% 2.00% 1.00% 0.00% 0.00% A shares
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A CHOICE OF SHARE CLASSES 73
To determine whether the CDSC applies to a redemption, the Fund will first redeem shares acquired by reinvestment of any distributions and then will redeem shares in the order in which they were purchased (such that shares held the longest are redeemed first). After shares are held for six years, the CDSC expires. After shares are held for seven years, the Class B shares are converted to Class A shares to reduce your future ongoing expenses.
If you exchange Class B shares received in a reorganization for Class B shares of another Fund, you will retain the CDSC schedules of your exchanged shares. Additional shares purchased will age at the currently effective higher CDSC schedule first shown above.
CLASS C SHARES SALES CHARGES
If you choose Class C shares, you buy them at NAV and agree that if you redeem your shares within one year of the purchase date, you will pay a CDSC of 1.00%. At the time of purchase, the Fund's distributor pays sales commissions of up to 1.00% of the purchase price to selling agents and up to 1.00% annually thereafter. The CDSC percentage you pay is applied to the NAV of the shares on the date of original purchase. To determine whether the CDSC applies to a redemption, the Fund will first redeem shares acquired by reinvestment of any distributions and then will redeem shares in the order in which they were purchased (such that shares held the longest are redeemed first). Class C shares do not convert to Class A shares, and therefore continue to pay higher ongoing expenses.
74 A CHOICE OF SHARE CLASSES
Generally, we offer more sales charge reductions or waivers for Class A shares than for Class B and Class C shares, particularly if you intend to invest greater amounts. You should consider whether you are eligible for any of the potential reductions or waivers when you are deciding which share class to buy. Consult the Statement of Additional Information for further details regarding reductions and waivers of sales charges.
CLASS A SHARES SALES CHARGE REDUCTIONS AND WAIVERS
You can pay a lower or no sales charge for the following types of purchases. If
you believe you are eligible for any of the following reductions or waivers, it
is up to you to ask the selling agent or shareholder servicing agent for the
reduction or waiver and to provide appropriate proof of eligibility.
o You pay no sales charges on Fund shares you buy with reinvested distributions.
o You pay a lower sales charge if you are investing an amount over a breakpoint level. See "Class A Shares Sales Charge Schedule" above.
o You pay no sales charges on Fund shares you purchase with the proceeds of a redemption of either Class A or Class B shares of the same Fund within 120 days of the date of the redemption. (Please note, you will still be charged any applicable CDSC on Class B shares you redeem.)
o By signing a LETTER OF INTENT (LOI) prior to purchase, you pay a lower sales charge now in exchange for promising to invest an amount over a specified breakpoint within the next 13 months. Reinvested dividends and capital gains do not count as purchases made during this period. We will hold in escrow shares equal to approximately 5% of the amount you say you intend to buy. If you do not invest the amount specified in the LOI before the expiration date, we will redeem enough escrowed shares to pay the difference between the reduced sales load you paid and the sales load you should have paid. Otherwise, we will release the escrowed shares when you have invested the agreed amount.
o RIGHTS OF ACCUMULATION (ROA) allow you to combine Class A, Class B, Class C and WealthBuilder Portfolio shares of any Wells Fargo Advantage Fund already owned (excluding Wells Fargo Advantage money market fund shares, unless you notify us that you previously paid a sales load on these assets) in order to reach breakpoint levels and to qualify for sales load discounts on subsequent purchases of Class A or WealthBuilder Portfolio shares. The purchase amount used in determining the sales charge on your purchase will be calculated by multiplying the maximum public offering price by the number of Class A, Class B, Class C and WealthBuilder Portfolio shares of any Wells Fargo Advantage Fund already owned and adding the dollar amount of your current purchase.
HOW A LETTER OF INTENT CAN SAVE YOU MONEY!
If you plan to invest, for example, $100,000 in a Wells Fargo Advantage Fund in installments over the next year, by signing a letter of intent you would pay only 3.50% sales load on the entire purchase. Otherwise, you might pay 4.50% on the first $49,999, then 4.00% on the next $50,000!
REDUCTIONS AND WAIVERS OF SALES CHARGES 75
ACCOUNTS THAT CAN BE AGGREGATED
You may aggregate the following types of accounts indicated below to qualify
for a volume discount:
CAN THIS TYPE OF ACCOUNT BE AGGREGATED? YES NO Individual accounts X Joint accounts X UGMA/UTMA accounts X Trust accounts over which X the shareholder has individual or shared authority Solely owned business X accounts RETIREMENT PLANS Traditional and Roth IRAs X SEP IRAs X SIMPLE IRAs that use the X WELLS FARGO ADVANTAGE FUND S prototype agreement* SIMPLE IRAs that do not use X the WELLS FARGO ADVANTAGE FUNDS prototype agreement 403(b) Plan accounts** X 401(k) Plan accounts X OTHER ACCOUNTS 529 Plan accounts* X Accounts held through other X brokerage firms |
* These accounts may be aggregated at the plan level for purposes of establishing eligibility for volume discounts. When plan assets in Fund Class A, Class B, Class C and WealthBuilder Portfolio shares (excluding Wells Fargo Advantage money market fund shares) reach a breakpoint, all plan participants benefit from the reduced sales charge. Participant accounts will not be aggregated with personal accounts. ** Effective January 1, 2009, WELLS FARGO ADVANTAGE FUNDS will no longer offer new, or accept purchases in existing, 403(b) accounts utilizing the WELLS FARGO ADVANTAGE FUNDS prototype agreement.
Based on the above chart, if you believe that you own Fund shares in one or more accounts that can be combined with your current purchase to achieve a sales charge breakpoint, you must, at the time of your purchase specifically identify those shares to your selling agent or shareholder servicing agent. For an account to qualify for a volume discount, it must be registered in the name of, or held for the shareholder, his or her spouse or domestic partner, as recognized by applicable state law, or his or her children under the age of 21. Class A shares purchased at NAV will not be aggregated with other Fund shares for purposes of receiving a volume discount.
CLASS A SHARES SALES CHARGE WAIVERS FOR CERTAIN PARTIES
We reserve the right to enter into agreements that reduce or waive sales
charges for groups or classes of shareholders. If you own Fund shares as part
of another account or package such as an IRA or a sweep account, you should
read the materials for that account. Those terms may supercede the terms and
conditions discussed here. If you fall into any of the following categories,
you can buy Class A shares at NAV:
o Current and retired employees, directors/trustees and officers of:
o WELLS FARGO ADVANTAGE FUNDS (including any predecessor funds);
o Wells Fargo & Company and its affiliates; and
o family members (spouse, domestic partner, parents, grandparents,
children, grandchildren and siblings (including step and in-law)) of any
of the above.
o Current employees of:
o the Fund's transfer agent;
o broker-dealers who act as selling agents;
o family members (spouse, domestic partner, parents, grandparents,
children, grandchildren and siblings (including step and in-law)) of any
of the above; and
o each Fund's sub-adviser, but only for the Fund(s) for which such
sub-adviser provides investment advisory services.
76 REDUCTIONS AND WAIVERS OF SALES CHARGES
o Qualified registered investment advisers who buy through a broker-dealer or service agent who has entered into an agreement with the Fund's distributor that allows for load-waived Class A purchases.
o Investment companies exchanging shares or selling assets pursuant to a reorganization, merger, acquisition, or exchange offer to which the Fund is a party.
o Section 529 college savings plan accounts.
o Insurance company separate accounts.
o Fund of Funds, including those advised by Funds Management (WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/), subject to review and approval by Funds Management.
o Investors who held Advisor Class shares of a Wells Fargo Advantage Fund at
the close of business on June 20, 2008 (the "Eligibility Time"), so long as
the following conditions are met:
o any purchases at NAV are limited to Class A shares of the same Fund in
which the investor held Advisor Class shares at the Eligibility Time;
o share purchases are made in the same account through which the investor
held Advisor Class shares at the Eligibility Time;
o the owner of the account remains the same as the account owner at the
Eligibility Time; and
o following the Eligibility Time, the account maintains a positive account
balance at some time during a period of at least six months in length.
Investors who held Advisor Class shares at the Eligibility Time are also eligible to exchange their Class A shares for Class A shares of another Wells Fargo Advantage Fund without imposition of any Class A sales charges and would be eligible to make additional purchases of Class A shares of such other Fund at NAV in the account holding the shares received in exchange.
The eligibility of such investors that hold Fund shares through an account maintained by a financial institution is also subject to the following additional limitation. In the event that such an investor's relationship with and/or the services such investor receives from the financial institution subsequently changes, such investor shall thereafter no longer be eligible to purchase Class A shares at NAV. Please consult with your financial representative for further details.
o Income Plus Fund investors who held Advisor Class shares of the WELLS FARGO
ADVANTAGE CORPORATE BOND FUND at the close of business on July 18, 2008
(the "Merger Eligibility Time"), so long as the following conditions are
met:
o any purchases at NAV are limited to Class A shares of the Income Plus
Fund;
o share purchases are made in the same account through which the investor
held Advisor Class shares at the Merger Eligibility Time;
o the owner of the account remains the same as the account owner at the
Merger Eligibility Time; and
o following the Merger Eligibility Time, the account maintains a positive
account balance at some time during a period of at least six months in
length.
Investors who held Advisor Class shares of the WELLS FARGO ADVANTAGE CORPORATE BOND FUND at the Merger Eligibility Time are also eligible to exchange their Class A shares of the Income Plus Fund for Class A shares of another WELLS FARGO ADVANTAGE FUND without imposition of any Class A sales charges and would be eligible to make additional purchases of Class A shares of such other Fund at NAV in the account holding the shares received in exchange.
The eligibility of such investors that hold Fund shares through an account maintained by a financial institution is also subject to the following additional limitation. In the event that such an investor's relationship with and/or the services such investor receives from the financial institution subsequently changes, such investor shall thereafter no longer be eligible to purchase Class A shares at NAV. Please consult with your financial representative for further details.
o Investors who receive annuity payments under either an annuity option or from death proceeds previously invested in a Fund may reinvest such payments or proceeds in the Fund within 120 days of receiving such distribution.
o Investors who purchase shares that are to be included in certain retirement, benefit, pension, trust or investment "wrap accounts" or through an omnibus account maintained with a Fund by a broker-dealer.
REDUCTIONS AND WAIVERS OF SALES CHARGES 77
CDSC WAIVERS
o You will not be assessed a CDSC on Fund shares you redeem that were
purchased with reinvested distributions.
o We waive the CDSC for all redemptions made because of scheduled (Internal Revenue Code Section 72(t)(2) withdrawal schedule) or mandatory (withdrawals generally made after age 701/2 according to Internal Revenue Service (IRS) guidelines) distributions from traditional IRAs and certain other retirement plans. (See your retirement plan information for details.)
o We waive the CDSC for redemptions made in the event of the last surviving
shareholder's death or for a disability suffered after purchasing shares.
("Disabled" is defined in Internal Revenue Code Section 72(m)(7).)
o We waive the CDSC for redemptions made at the direction of Funds Management in order to, for example, complete a merger or effect a Fund liquidation.
o We waive the Class C shares CDSC if the dealer of record waived its commission.
o We waive the Class C shares CDSC where a Fund did not pay a sales commission at the time of purchase.
We also reserve the right to enter into agreements that reduce or eliminate sales charges for groups or classes of shareholders, or for Fund shares included in other investment plans such as "wrap accounts." If you own Fund shares as part of another account or package, such as an IRA or a sweep account, you should read the terms and conditions that apply for that account. Those terms and conditions may supercede the terms and conditions discussed here. Contact your selling agent for further information.
78 REDUCTIONS AND WAIVERS OF SALES CHARGES
DISTRIBUTION PLAN
Each Fund has adopted a Distribution Plan (12b-1 Plan) pursuant to Rule 12b-1
under the 1940 Act for the Class B and Class C shares. The 12b-1 Plan
authorizes the payment of all or part of the cost of preparing and distributing
prospectuses and distribution-related services or other activities including
ongoing compensation to selling agents. The 12b-1 Plan also provides that, if
and to the extent any shareholder servicing payments are recharacterized as
payments for distribution-related services, they are approved and payable under
the 12b-1 Plan. Fees paid under the 12b-1 Plan by Class B shares that are
closed to new investors and additional investments (except in connection with
reinvestment of any distributions and permitted exchanges) primarily cover past
sales and distribution services, as well as ongoing services to shareholders.
The fees paid under this 12b-1 Plan are as follows:
FUND CLASS B CLASS C Government Securities Fund 0.75% 0.75% High Income Fund 0.75% 0.75% Income Plus Fund 0.75% 0.75% Inflation-Protected Bond 0.75% 0.75% Fund Short Duration Government 0.75% 0.75% Bond Fund Short-Term Bond Fund N/A 0.75% Short-Term High Yield Bond N/A 0.75% Fund Stable Income Fund 0.75% 0.75% Strategic Income Fund 0.75% 0.75% Total Return Bond Fund 0.75% 0.75% Ultra Short-Term Income Fund N/A 0.75% |
These fees are paid out of each Fund's assets on an ongoing basis. Over time, these fees will increase the cost of your investment and may cost you more than other types of sales charges.
SHAREHOLDER SERVICING PLAN
The Funds have a shareholder servicing plan. Under this plan, each Fund has
agreements with various shareholder servicing agents to process purchase and
redemption requests, to service shareholder accounts, and to provide other
related services. For these services, each Fund pays an annual fee of up to
0.25% of its average daily net assets. Selling or shareholder servicing agents,
in turn, may pay some or all of these amounts to their employees or registered
representatives who recommend or sell Fund shares or make investment decisions
on behalf of their clients.
ADDITIONAL PAYMENTS TO DEALERS
In addition to dealer reallowances and payments made by each Fund for
distribution and shareholder servicing, the Fund's adviser, the distributor or
their affiliates make additional payments ("Additional Payments") to certain
selling or shareholder servicing agents for the Fund, which include
broker-dealers. These Additional Payments are made in connection with the sale
and distribution of shares of the Fund or for services to the Fund and its
shareholders. These Additional Payments, which may be significant, are paid by
the Fund's adviser, the distributor or their affiliates, out of their revenues,
which generally come directly or indirectly from fees paid by the entire Fund
complex.
In return for these Additional Payments, the Fund's adviser and distributor expect to receive certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments. Such advantages are expected to include, without limitation, placement of the Fund on a list of mutual funds offered as investment options to the selling agent's clients (sometimes referred to as "Shelf Space"); access to the selling agent's registered representatives; and/or ability to assist in training and educating the selling agent's registered representatives.
Certain selling or shareholder servicing agents receive these Additional Payments to supplement amounts payable by the Fund under the shareholder servicing plans. In exchange, these agents provide services including, but not limited to,
COMPENSATION TO DEALERS AND SHAREHOLDER SERVICING AGENTS 79
establishing and maintaining accounts and records; answering inquiries regarding purchases, exchanges and redemptions; processing and verifying purchase, redemption and exchange transactions; furnishing account statements and confirmations of transactions; processing and mailing monthly statements, prospectuses, shareholder reports and other SEC-required communications; and providing the types of services that might typically be provided by each Fund's transfer agent (E.G., the maintenance of omnibus or omnibus-like accounts, the use of the National Securities Clearing Corporation for the transmission of transaction information and the transmission of shareholder mailings).
The Additional Payments may create potential conflicts of interests between an investor and a selling agent who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial consultant and review carefully any disclosure by the selling agent as to what monies they receive from mutual fund advisers and distributors, as well as how your financial consultant is compensated.
The Additional Payments are typically paid in fixed dollar amounts, or based on the number of customer accounts maintained by the selling or shareholder servicing agent, or based on a percentage of sales and/or assets under management, or a combination of the above. The Additional Payments are either up-front or ongoing or both. The Additional Payments differ among selling and shareholder servicing agents. Additional Payments to a selling agent that is compensated based on its customers' assets typically range between 0.05% and 0.30% in a given year of assets invested in the Fund by the selling agent's customers. Additional Payments to a selling agent that is compensated based on a percentage of sales typically range between 0.10% and 0.15% of the gross sales of the Fund attributable to the selling agent. In addition, representatives of the Fund's distributor visit selling agents on a regular basis to educate their registered representatives and to encourage the sale of Fund shares. The costs associated with such visits may be paid for by the Fund's adviser, distributor, or their affiliates, subject to applicable FINRA regulations.
More information on the FINRA member firms that have received the Additional Payments described in this section is available in the Statement of Additional Information, which is on file with the SEC and is also available on the WELLS FARGO ADVANTAGE FUNDS website at www.wellsfargo.com/advantagefunds.
80 COMPENSATION TO DEALERS AND SHAREHOLDER SERVICING AGENTS
The share price (net asset value per share or NAV) for a Fund is calculated each business day as of the close of trading on the New York Stock Exchange (NYSE) (generally 4 p.m. ET). To calculate a Fund's NAV, the Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The price at which a purchase or redemption of Fund shares is effected is based on the next calculation of NAV after the order is placed. Each Fund does not calculate its NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
With respect to any portion of a Fund's assets that may be invested in other mutual funds, the Fund's NAV is calculated based upon the net asset values of the other mutual funds in which the Fund invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
With respect to any portion of a Fund's assets invested directly in securities, the Fund's investments are generally valued at current market prices. Securities are generally valued based on the last sale price during the regular trading session if the security trades on an exchange (closing price). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price (NOCP), and if no NOCP is available, then at the last reported sales price.
We are required to depart from these general valuation methods and use fair value pricing methods to determine the values of certain investments if we believe that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Fund calculates its NAV. In addition, we use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before a Fund calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security.
In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate or that it reflects the price that the Fund could obtain for such security if it were to sell the security as of the time of fair value pricing. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. See the Statement of Additional Information for additional details regarding the pricing of Fund shares.
PRICING FUND SHARES 81
You can open a WELLS FARGO ADVANTAGE FUNDS account through any of the following means:
o directly with the Fund. Complete a WELLS FARGO ADVANTAGE FUNDS application, which you may obtain by visiting our Web site at www.wellsfargo.com/advantagefunds or by calling Investor Services at 1-800-222-8222. Be sure to indicate the Fund name and the share class into which you intend to invest when completing the application;
o through a brokerage account with an approved selling agent; or
o through certain retirement, benefit and pension plans or certain packaged investment products. (Please contact the providers of the plan or product for instructions.)
82 HOW TO OPEN AN ACCOUNT
This section explains how you can buy shares directly from WELLS FARGO ADVANTAGE FUNDS. If you're opening a new account, an account application is available on-line at www.wellsfargo.com/advantagefunds or by calling Investor Services at 1-800-222-8222. For Fund shares held through brokerage and other types of accounts, please consult your selling agent.
MINIMUM INVESTMENTS INITIAL PURCHASE SUBSEQUENT PURCHASES
--------------------------- -------------------------------------------------- -------------------------------------
Regular accounts $1,000 $100
IRAs, IRA rollovers, Roth $250 $100
IRAs
UGMA/UTMA accounts $50 $50
Employer Sponsored no minimum no minimum
Retirement Plans
BUYING SHARES OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------- -------------------------------------------------- -------------------------------------
By Internet A new account may not be opened by o To buy additional shares or buy
--------------------------- Internet unless you have another Wells Fargo shares of a new Fund, visit
Advantage Fund account with your bank www.wellsfargo.com/
information on file. If you do not currently advantagefunds.
have an account, refer to the section on o Subsequent online purchases
buying shares by mail or wire. have a minimum of $100 and a
------------------------------------------------- maximum of $100,000. You may
be eligible for an exception to
this maximum. Please call
Investor Services at
1-800-222-8222 for more
information.
-----
By Mail o Complete and sign your account o Enclose a voided check (for
--------------------------- application. checking accounts) or a deposit
o Mail the application with your check made slip (savings accounts).
payable to the Fund to Investor Services at: Alternatively, include a note
with your name, the Fund name,
REGULAR MAIL
--------------------------------------------------
and your account number.
WELLS FARGO ADVANTAGE FUNDS
o Mail the deposit slip or note
P.O. Box 8266
with your check made payable
Boston, MA 02266-8266
to the Fund to the address on
OVERNIGHT ONLY the left.
-------------------------------------------------- -------------------------------------
WELLS FARGO ADVANTAGE FUNDS
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
--------------------------------------------------
By Telephone A new account may not be opened by To buy additional shares or to buy
--------------------------- telephone unless you have another Wells shares of a new Fund call:
Fargo Advantage Fund account with your o Investor Services at
bank information on file. If you do not 1-800-222-8222 or
currently have an account, refer to the section o 1-800-368-7550 for the
on buying shares by mail or wire. automated phone system.
-------------------------------------------------- -------------------------------------
|
HOW TO BUY SHARES 83
BUYING SHARES
-----------------------------------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------- ---------------------------------------
In Person Investors are welcome to visit the Investor See instructions shown to the left.
-------------------------- --------------------------------------
Center in person to ask questions or conduct
any Fund transaction. The Investor Center is
located at 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
----------------------------------------------
By Wire o Complete, sign and mail your account To buy additional shares, instruct
-------------------------- application (refer to the section on buying your bank or financial institution to
shares by mail) use the same wire instructions
o Provide the following instructions to your shown to the left.
financial institution: --------------------------------------
State Street Bank & Trust
Boston, MA
Bank Routing Number: ABA 011000028
Wire Purchase Account: 9905-437-1
Attention: WELLS FARGO ADVANTAGE FUNDS
(Name of Fund, Account
Number and any applicable
share class)
Account Name: Provide your
name as registered on the
Fund account
----------------------------------------------
Through Your Investment Contact your investment representative. Contact your investment
----------------------------------------------
Representative representative.
-------------------------- --------------------------------------
|
GENERAL NOTES FOR BUYING SHARES
o PROPER FORM. If the transfer agent receives your application in proper order before the close of the NYSE, your transactions will be priced at that day's NAV. If your application is received after the close of trading on the NYSE, it will be priced at the next business day's NAV. Failure to complete an account application properly may result in a delay in processing your request. You are eligible to earn distributions beginning on the business day after the transfer agent receives your application in proper form.
o U.S. DOLLARS ONLY. All payments must be in U.S. dollars, and all checks must be drawn on U.S. banks.
o INSUFFICIENT FUNDS. You will be charged a $25.00 fee for every check or Electronic Funds Transfer that is returned to us as unpaid.
o NO FUND NAMED. When all or a portion of a payment is received for investment without a clear Fund designation, we may direct the undesignated portion or the entire amount, as applicable, into the Wells Fargo Advantage Money Market Fund. We will treat your inaction as approval of this purchase until you later direct us to sell or exchange these shares of the Money Market Fund, at the next NAV calculated after we receive your order in proper form.
o RIGHT TO REFUSE AN ORDER. We reserve the right to refuse or cancel a purchase or exchange order for any reason, including if we believe that doing so would be in the best interests of a Fund and its shareholders.
o MINIMUM INITIAL AND SUBSEQUENT INVESTMENT WAIVERS. We allow a reduced minimum initial investment of $50 if you sign up for at least a $50 monthly automatic investment purchase plan. If you opened your account with the set minimum amount shown in the above chart, you may make reduced subsequent purchases for a minimum of $50 a month through an automatic investment plan. We may also waive or reduce the minimum initial and subsequent investment amounts for purchases made through certain retirement, benefit and pension plans, certain packaged investment products, or for certain classes of shareholders as permitted by the SEC. Check specific disclosure statements and applications for the program through which you intend to invest.
84 HOW TO BUY SHARES
The following section explains how you can sell shares held directly through an account with WELLS FARGO ADVANTAGE FUNDS. For Fund shares held through brokerage or other types of accounts, please consult your selling agent.
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
-------------------- ----------------------------------------------------------------------
Minimum Redemption $100 (or remainder of account balance)
-------------------- ----------------------------------------------------------------------
By Internet Visit our Web site at www.wellsfargo.com/advantagefunds.
--------------------
Redemptions requested online are limited to a minimum of $100
and a maximum of $100,000. You may be eligible for an exception
to this maximum. Please call Investor Services at 1-800-222-8222
for more information.
----------------------------------------------------------------------
By Mail o Send a Letter of Instruction providing your name, account
number, the Fund from which you wish to redeem and the
dollar amount you wish to receive (or write "Full Redemption"
to redeem your remaining account balance) to the address
below.
o Make sure all account owners sign the request exactly as their
names appear on the account application.
o A medallion guarantee may be required under certain
circumstances (see "General Notes for Selling Shares").
REGULAR MAIL
-------------------- ----------------------------------------------------------------------
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
OVERNIGHT ONLY
----------------------------------------------------------------------
WELLS FARGO ADVANTAGE FUNDS
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
----------------------------------------------------------------------
By Wire o To arrange for a Federal Funds wire, call 1-800-222-8222.
--------------------
o Be prepared to provide information on the commercial bank
that is a member of the Federal Reserve wire system.
o Wire requests are sent to your bank account next business day
if your request to redeem is received before the NYSE close.
o There is a $10 fee for each request.
----------------------------------------------------------------------
In Person Investors are welcome to visit the Investor Center in person to ask
-------------------- questions or conduct any Fund transaction. The Investor Center is
located at 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051.
----------------------------------------------------------------------
|
HOW TO SELL SHARES 85
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
--------------------------- ------------------------------------------------------------------
By Telephone / o Call an Investor Services representative at 1-800-222-8222 or
Electronic Funds Transfer use the automated phone system 1-800-368-7550.
---------------------------
(EFT)
----------------------- --
o Telephone privileges are automatically made available to you
unless you specifically decline them on your account
application or subsequently in writing.
o Redemption requests may not be made by phone if the
address on your account was changed in the last 15 days. In
this event, you must request your redemption by mail (refer to
the section on selling shares by mail).
o A check will be mailed to the address on record (if there have
been no changes communicated to us within the last 15 days)
or transferred to a linked bank account.
o Transfers made to a Wells Fargo Bank account are made
available sooner than transfers to an unaffiliated institution.
o Redemptions processed by EFT to a linked Wells Fargo Bank
account occur same day for Wells Fargo Advantage money
market funds, and next day for all other WELLS FARGO ADVANTAGE
FUNDS.
o Redemptions to any other linked bank account may post in
two business days. Please check with your financial institution
for timing of posting and availability of funds.
NOTE: Telephone transactions such as redemption requests
made over the phone generally require only one of the
account owners to call unless you have instructed us
otherwise.
-----------------------------------------------------------------
Through Your Investment Contact your investment representative.
Representative
--------------------------- -----------------------------------------------------------------
|
GENERAL NOTES FOR SELLING SHARES
o PROPER FORM. We will process requests to sell shares at the first NAV calculated after a request in proper form is received by the transfer agent. If your request is not in proper form, you may have to provide us with additional documentation to redeem your shares. Requests received before the cutoff time are processed on the same business day.
o CDSC FEES OR REDEMPTION FEES. Your redemption proceeds are net of any CDSC fees and/or redemption fees.
o FORM OF REDEMPTION PROCEEDS. You may request that your redemption proceeds be sent to you by check, by Electronic Funds Transfer into a bank account, or by wire. Please call Investor Services regarding requirements for linking bank accounts or for wiring funds. Although generally we pay redemption requests in cash, we reserve the right to determine in our sole discretion, whether to satisfy redemption requests by making payment in securities (known as a redemption in kind). In such case, we may pay all or part of the redemption in securities of equal value as permitted under the 1940 Act, and the rules thereunder. The redeeming shareholder should expect to incur transaction costs upon the disposition of the securities received.
o TELEPHONE/INTERNET REDEMPTIONS. We will take reasonable steps to confirm that telephone and internet instructions are genuine. For example, we require proof of your identification, such as a Taxpayer Identification Number or username and password, before we will act on instructions received by telephone or the internet. We will not be liable for any losses incurred if we follow telephone or internet instructions we reasonably believe to be genuine. Your call may be recorded.
86 HOW TO SELL SHARES
o RIGHT TO DELAY PAYMENT. We normally will send out checks within one business day, and in any event no more than seven days, after we accept your request to redeem. If you redeem shares recently purchased by check or through EFT or the Automatic Investment Plan, you may be required to wait up to seven business days before we will send your redemption proceeds. Our ability to determine with reasonable certainty that investments have been finally collected is greater for investments coming from accounts with banks affiliated with Funds Management than it is for investments coming from accounts with unaffiliated banks. Redemption payments also may be delayed under extraordinary circumstances or as permitted by the SEC in order to protect remaining shareholders. Such extraordinary circumstances are discussed further in the Statement of Additional Information.
o RETIREMENT PLANS AND OTHER PRODUCTS. If you purchased shares through a packaged investment product or retirement plan, read the directions for selling shares provided by the product or plan. There may be special requirements that supercede the directions in this Prospectus.
o MEDALLION GUARANTEES. Medallion guarantees are required for mailed redemption requests under the following circumstances: (1) if the request is for over $100,000; (2) if the address on your account was changed within the last 15 days; or (3) if the redemption is made payable to a third party. You can get a Medallion guarantee at a financial institution such as a bank or brokerage house. We do not accept notarized signatures.
REDEMPTION FEES
For the High Income Fund, Short-Term High Yield Bond Fund, and Strategic Income
Fund, a 2.00% redemption fee will be assessed on the NAV of shares redeemed or
exchanged within 30 days after purchase and will be deducted from the proceeds
otherwise payable to the shareholder. The redemption fee for a Fund is intended
to compensate the Fund for the increased expenses to longer-term shareholders
and the disruptive effect on the Fund's portfolio caused by short-term
investments. This redemption fee is retained by the Fund.
To determine whether the redemption fee applies, the Fund will first redeem shares acquired by reinvestment of any distributions of net investment income and realized net capital gain, and then will redeem shares in the order in which they were purchased (such that shares held the longest are redeemed first).
Please note that in certain cases, your financial intermediary or the Investor Center will need to be notified in order to waive the redemption fee. The redemption fee will be waived on sales or exchanges of Fund shares made under the following circumstances.
o shares that were purchased with reinvested distributions;
o in order to meet scheduled (Internal Revenue Code Section 72(t) withdrawal schedule) or mandatory distributions (withdrawals generally made after age 701/2 according to IRS guidelines) from traditional IRAs and certain other retirement plans. (See your retirement plan information for details);
o in the event of the last surviving shareholder's death or for a disability suffered after purchasing shares. ("Disability" is defined in Internal Revenue Code Section 72(m)(7));
o redemptions initiated by a Fund;
o conversion of shares from one share class to another in the same Fund;
o redemptions in connection with a non-discretionary portfolio rebalancing associated with certain wrap accounts and certain retirement plans;
o taking out a distribution or loan from a defined contribution plan;
o to effect, through a redemption and subsequent purchase, an account registration change within the same Fund;
o due to participation in the Systematic Withdrawal Plan;
o Fund of Funds, including those advised by Funds Management (WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/), subject to review and approval by Funds Management;
o transactions by Section 529 college savings plan accounts; and
HOW TO SELL SHARES 87
o if Funds Management determines in its discretion such a waiver is consistent with the best interests of a Fund's shareholders.
In addition, certain brokers, retirement plan administrators and/or fee-based program sponsors who maintain underlying shareholder accounts do not have the systems capability to track and assess redemption fees.Though these intermediaries will be asked to assess redemption fees on shareholder and participant accounts and remit these fees to the Fund, there are no assurances that all intermediaries will properly assess redemption fees. Further, a financial intermediary may apply different methodologies than those described above in assessing redemption fees or may impose their own redemption fee that may differ from the Fund's redemption fee. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about whether and how redemption fees will be applied to your account.
88 HOW TO SELL SHARES
Exchanges between WELLS FARGO ADVANTAGE FUNDS involve two transactions: (1) a sale of shares of one Fund; and (2) the purchase of shares of another. In general, the same rules and procedures that apply to sales and purchases apply to exchanges. There are, however, additional factors you should keep in mind while making or considering an exchange:
o In general, exchanges may be made between like share classes of any Wells Fargo Advantage Fund offered to the general public for investment (I.E., a Fund not closed to new accounts), with the following exceptions:
o Class A shares of non-money market funds may also be exchanged for Service Class shares of any money market fund; and
o Class C shares of non-money market funds may be exchanged for Class A shares of the Wells Fargo Advantage Money Market Fund. Class A shares purchased in such an exchange may only be re-exchanged for Class C shares of non-money market funds.
o An exchange request will be processed on the same business day, provided that both Funds are open at the time the request is received. If one or both Funds are closed, the exchange will be processed on the following business day.
o You should carefully read the prospectus for the Wells Fargo Advantage Fund into which you wish to exchange.
o Every exchange involves selling Fund shares, which may produce a capital gain or loss for tax purposes.
o If you are making an initial investment into a Fund through an exchange, you must exchange at least the minimum initial purchase amount for the new Fund, unless your balance has fallen below that amount due to investment performance.
o Any exchange between two WELLS FARGO ADVANTAGE FUNDS must meet the minimum redemption and subsequent purchase amounts.
o Class B and Class C share exchanges will not trigger the CDSC. The new shares will continue to age according to their original schedule and will be charged the CDSC applicable to the original shares upon redemption.
o The High Income Fund, the Short-Term High Yield Bond Fund and the Strategic Income Fund each impose a 2.00% redemption fee on shares that are exchanged within 30 days of purchase. See "Redemption Fees" under "How to Sell Shares" for additional information.
Generally, we will notify you at least 60 days in advance of any changes in our exchange policy.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Funds reserve the right to reject any purchase or exchange order for any reason. The Funds are not designed to serve as vehicles for frequent trading. Purchases or exchanges that a Fund determines could harm the Fund may be rejected.
Excessive trading by Fund shareholders can negatively impact a Fund and its long-term shareholders in several ways, including disrupting Fund investment strategies, increasing transaction costs, decreasing tax efficiency, and diluting the value of shares held by long-term shareholders. Excessive trading in Fund shares can negatively impact a Fund's long-term performance by requiring it to maintain more assets in cash or to liquidate portfolio holdings at a disadvantageous time. Certain Funds may be more susceptible than others to these negative effects. For example, Funds that have a greater percentage of their investments in non-U.S. securities may be more susceptible than other Funds to arbitrage opportunities resulting from pricing variations due to time zone differences across international financial markets. Similarly, Funds that have a greater percentage of their investments in small company securities may be more susceptible than other Funds to arbitrage opportunities due to the less liquid nature of small company securities. Both types of Funds also may incur higher transaction costs in liquidating portfolio holdings to meet excessive redemption levels. Fair value pricing may reduce these arbitrage opportunities, thereby reducing some of the negative effects of excessive trading.
The Funds actively discourage and take steps to prevent the portfolio disruption and negative effects on long-term shareholders that can result from excessive trading activity by Fund shareholders. The Board has approved the Funds' policies
HOW TO EXCHANGE SHARES 89
and procedures, which provide, among other things, that Funds Management may deem trading activity to be excessive if it determines that such trading activity would likely be disruptive to a Fund by increasing expenses or lowering returns. In this regard, the Funds take steps to avoid accommodating frequent purchases and redemptions of shares by Fund shareholders. Except as noted below for the Ultra Short-Term Income Fund, Funds Management monitors available shareholder trading information across all Funds on a daily basis. Funds Management will temporarily suspend the purchase and exchange privileges of an investor who completes a purchase and redemption in a Fund within 30 calendar days. Such investor will be precluded from investing in the Fund for a period of 30 calendar days.
Because the Ultra Short-Term Income Fund is often used for short-term investments, it is designed to accommodate more frequent purchases and redemptions than longer-term income funds. As a result, the Ultra Short-Term Income Fund does not anticipate that frequent purchases and redemptions, under normal circumstances, will have significant adverse consequences to the Ultra Short-Term Income Fund or its shareholders. Although the policies adopted by the Ultra Short-Term Income Fund do not prohibit frequent trading, Funds Management will seek to prevent an investor from utilizing the Fund to facilitate frequent purchases and redemptions of shares in long-term Funds in contravention of the policies and procedures adopted by the long-term Funds.
In addition, Funds Management reserves the right to accept purchases, redemptions and exchanges made in excess of applicable trading restrictions in designated accounts held by Funds Management or its affiliate that are used at all times exclusively for addressing operational matters related to shareholder accounts, such as testing of account functions, and are maintained at low balances that do not exceed specified dollar amount limitations.
A financial intermediary through whom you may purchase shares of a Fund may independently attempt to identify excessive trading and take steps to deter such activity. As a result, a financial intermediary may on its own limit or permit trading activity of its customers who invest in Fund shares using standards different from the standards used by Funds Management and described in this Prospectus. Funds Management may permit a financial intermediary to enforce its own internal policies and procedures concerning frequent trading in instances where Funds Management reasonably believes that the intermediary's policies and procedures effectively discourage disruptive trading activity. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about the restrictions or limitations on trading activity that will be applied to your account.
Certain purchases and redemptions made under the following circumstances will not be factored into Funds Management's analysis of frequent trading activity including, but not limited to: reinvestment of dividends; retirement plan contributions, loans and distributions (including hardship withdrawals); non-discretionary portfolio rebalancing associated with certain wrap accounts and retirement plans; and transactions in Section 529 Plans and registered funds of funds.
Effective March 1, 2010, the Funds' (except for the Ultra Short-Term Income Fund) short-term trading policy will be modified. Funds Management will continue to monitor available shareholder trading information across all Funds on a daily basis. If a shareholder redeems more than $5,000 (including redemptions that are part of an exchange transaction) from a Fund, that shareholder will be "blocked" from purchasing shares of that Fund (including purchases that are part of an exchange transaction) for 30 calendar days after the redemption. This modified policy will not apply to:
o Money market funds;
o Ultra-short funds;
o Purchases of shares through dividend reinvestments;
o Systematic purchases, redemptions or exchanges where a financial intermediary maintaining a shareholder account identifies the transaction as a systematic purchase, redemption or exchange at the time of the transaction;
o Rebalancing transactions within certain asset allocation or "wrap" programs where the financial intermediary maintaining a shareholder account is able to identify the transaction as part of an asset allocation program approved by Funds Management;
o Transactions initiated by a registered "fund of funds" or Section 529 Plan into an underlying fund investment;
90 HOW TO EXCHANGE SHARES
o Certain transactions involving participants in employer-sponsored retirement plans, including: participant withdrawals due to mandatory distributions, rollovers and hardships, withdrawals of shares acquired by participants through payroll deductions, and shares purchased or redeemed by a participant in connection with plan loans; and
o Purchases below $5,000 (including purchases that are part of an exchange transaction).
HOW TO EXCHANGE SHARES 91
AUTOMATIC PLANS
These plans help you conveniently purchase and/or redeem shares each month.
Once you select a plan, tell us the day of the month you would like the
transaction to occur. If you do not specify a date, we will process the
transaction on or about the 25th day of the month. Call Investor Services at
1-800-222-8222 for more information.
o AUTOMATIC INVESTMENT PLAN - With this plan, you can regularly purchase shares of a Wells Fargo Advantage Fund with money automatically transferred from a linked bank account.
o AUTOMATIC EXCHANGE PLAN - With this plan, you can regularly exchange shares of a Wells Fargo Advantage Fund you own for shares of another Wells Fargo Advantage Fund. See the "How to Exchange Shares" section of this Prospectus for the conditions that apply to your shares. This feature may not be available for certain types of accounts.
o SYSTEMATIC WITHDRAWAL PLAN - With this plan, you can regularly redeem shares
and receive the proceeds by check or by transfer to a linked bank account.
To participate in this plan, you:
o must have a Fund account valued at $10,000 or more;
o must have your distributions reinvested; and
o may not simultaneously participate in the Automatic Investment Plan.
o PAYROLL DIRECT DEPOSIT - With this plan, you may transfer all or a portion of your paycheck, social security check, military allotment, or annuity payment for investment into the Fund of your choice.
It generally takes about ten business days to establish a plan once we have received your instructions. It generally takes about five business days to change or cancel participation in a plan. We may automatically cancel your plan if the linked bank account you specified is closed, or for other reasons.
HOUSEHOLDING
To help keep Fund expenses low, a single copy of a prospectus or shareholder
report may be sent to shareholders of the same household. If your household
currently receives a single copy of a prospectus or shareholder report and you
would prefer to receive multiple copies, please contact your financial
intermediary.
RETIREMENT ACCOUNTS
We offer prototype documents for a variety of retirement accounts for individuals and small businesses. Please call 1-800-222-8222 for information on:
o Individual Retirement Plans, including Traditional IRAs and Roth IRAs.
o Small Business Retirement Plans, including Simple IRAs and SEP IRAs.
There may be special distribution requirements for a retirement account, such as required distributions or mandatory Federal income tax withholdings. For more information, call the number listed above. You may be charged a $10 annual account maintenance fee for each retirement account up to a maximum of $30 annually and a $25 fee for transferring assets to another custodian or for closing a retirement account. Fees charged by institutions may vary.
SMALL ACCOUNT REDEMPTIONS
We reserve the right to redeem certain accounts that fall below the minimum
initial investment amount as the result of shareholder redemptions (as opposed
to market movement). Before doing so, we will give you approximately 60 days to
bring your account above the minimum investment amount. Please call Investor
Services at 1-800-222-8222 or contact your selling agent for further details.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed quarterly.
Confirmations are mailed following each purchase, sale, exchange, or transfer
of Fund shares, except generally for Automatic Investment Plan transactions,
Systematic Withdrawal Plan transactions using Electronic Funds Transfer, and
purchases of new shares through the automatic reinvestment of
92 ACCOUNT POLICIES
distributions. Upon your request and for the applicable fee, you may obtain a reprint of an account statement. Please call Investor Services at 1-800-222-8222 for more information.
ELECTRONIC DELIVERY OF FUND DOCUMENTS
You may elect to receive your Fund prospectuses, shareholder reports and other Fund documents electronically in lieu of paper form by enrolling on the Funds' Web site at www.wellsfargo.com/advantagedelivery. If you make this election, you will be notified by e-mail when the most recent Fund documents are available for electronic viewing and downloading.
To receive Fund documents electronically, you must have an e-mail account and an internet browser that meets the requirements described in the Privacy & Security section of the Funds' Web site at www.wellsfargo.com/advantagefunds. You may change your electronic delivery preferences or revoke your election to receive Fund documents electronically at any time by visiting www.wellsfargo.com/advantagedelivery.
STATEMENT INQUIRIES
Contact us in writing regarding any errors or discrepancies noted on your
account statement within 60 days after the date of the statement confirming a
transaction. We may deny your ability to refute a transaction if we do not hear
from you within those 60 days.
TRANSACTION AUTHORIZATIONS
Telephone, electronic, and clearing agency privileges allow us to accept
transaction instructions by anyone representing themselves as the shareholder
and who provides reasonable confirmation of their identity. Neither we nor
WELLS FARGO ADVANTAGE FUNDS will be liable for any losses incurred if we follow
such instructions we reasonably believe to be genuine. For transactions through
the automated phone system and our Web site, we will assign personal
identification numbers (PINs) and/or passwords to help protect your account
information. To safeguard your account, please keep your PINs and passwords
confidential. Contact us immediately if you believe there is a discrepancy on
your confirmation statement or if you believe someone has obtained unauthorized
access to your account, PIN or password.
USA PATRIOT ACT
In compliance with the USA PATRIOT Act, all financial institutions (including
mutual funds) at the time an account is opened, are required to obtain, verify
and record the following information for all registered owners or others who
may be authorized to act on the account: full name, date of birth, taxpayer
identification number (usually your Social Security Number), and permanent
street address. Corporate, trust and other entity accounts require additional
documentation. This information will be used to verify your identity. We will
return your application if any of this information is missing, and we may
request additional information from you for verification purposes. In the rare
event that we are unable to verify your identity, we reserve the right to
redeem your account at the current day's NAV. You will be responsible for any
losses, taxes, expenses, fees, or other results of such a redemption.
ACCOUNT POLICIES 93
The Funds generally make distributions of any net investment income monthly and any realized net capital gains at least annually. Please note, distributions have the effect of reducing the NAV per share by the amount distributed.
We offer the following distribution options. To change your current option for payment of distributions, please call 1-800-222-8222.
o AUTOMATIC REINVESTMENT OPTION - Allows you to buy new shares of the same class of the Fund that generated the distributions. The new shares are purchased at NAV generally on the day the distribution is paid. This option is automatically assigned to your account unless you specify another option.
o CHECK PAYMENT OPTION - Allows you to have checks for distributions mailed to your address of record or to another name and address which you have specified in written, medallion guaranteed instructions. If checks remain uncashed for six months or are undeliverable by the Post Office, we will reinvest the distributions at the earliest date possible, and future distributions will be automatically reinvested.
o BANK ACCOUNT PAYMENT OPTION - Allows you to receive distributions directly in a checking or savings account through Electronic Funds Transfer. The bank account must be linked to your Wells Fargo Advantage Fund account. In order to establish a new linked bank account, you must send a written, medallion guaranteed instruction along with a copy of a voided check or deposit slip. Any distribution returned to us due to an invalid banking instruction will be sent to your address of record by check at the earliest date possible, and future distributions will be automatically reinvested.
o DIRECTED DISTRIBUTION PURCHASE OPTION - Allows you to buy shares of a different Wells Fargo Advantage Fund of the same share class. The new shares are purchased at NAV generally on the day the distribution is paid. In order to establish this option, you need to identify the Fund and account the distributions are coming from, and the Fund and account to which the distributions are being directed. You must meet any required minimum purchases in both Funds prior to establishing this option.
94 DISTRIBUTIONS
The following discussion regarding federal income taxes is based on laws that were in effect as of the date of this Prospectus and summarizes only some of the important federal income tax considerations affecting the Funds and you as a shareholder. It does not apply to foreign or tax-exempt shareholders or those holding Fund shares through a tax-advantaged account, such as a 401(k) Plan or IRA. This discussion is not intended as a substitute for careful tax planning. You should consult your tax adviser about your specific tax situation. Please see the Statement of Additional Information for additional federal income tax information.
We will pass on to a Fund's shareholders substantially all of the Fund's net investment income and realized net capital gains, if any. Distributions from a Fund's ordinary income and net short-term capital gain, if any, generally will be taxable to you as ordinary income. Distributions from a Fund's net long-term capital gain, if any, generally will be taxable to you as long-term capital gain.
Corporate shareholders should not expect, except for those of the Strategic Income Fund, to deduct a portion of their distributions when determining their taxable income.
An individual's net long-term capital gain is subject to a reduced, maximum 15% rate of tax. These reduced rates of tax will expire after December 31, 2010. In general, reduced rates of taxation on qualified dividend income will not apply to Fund distributions; however, such reduced rates may apply to distributions from the Strategic Income Fund.
Distributions from a Fund normally will be taxable to you when paid, whether you take distributions in cash or automatically reinvest them in additional Fund shares. Following the end of each year, we will notify you of the federal income tax status of your distributions for the year.
If the principal value of an inflation-protected debt security is adjusted downward due to deflation, amounts previously distributed in the taxable year may be characterized in some circumstances as return of capital. Estimates of inflation may be used in the determination of monthly income distribution rates.
If you buy shares of a Fund shortly before it makes a taxable distribution, your distribution will, in effect, be a taxable return of part of your investment. Similarly, if you buy shares of a Fund when it holds appreciated securities, you will receive a taxable return of part of your investment if and when the Fund sells the appreciated securities and distributes the gain. The Funds have built up, or have the potential to build up, high levels of unrealized appreciation.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares ordinarily will result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Such capital gain or loss generally will be long-term capital gain or loss if you have held your redeemed or exchanged Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, losses realized on the redemption or exchange of Fund shares may be disallowed.
In certain circumstances, Fund shareholders may be subject to backup withholding taxes.
TAXES 95
The Inflation-Protected Bond Fund, Stable Income Fund, and Total Return Bond Fund are gateway funds in a MASTER/GATEWAY structure. In this structure, a gateway or feeder fund invests substantially all of its assets in one or more master portfolios of Wells Fargo Master Trust or other stand-alone funds of WELLS FARGO ADVANTAGE FUNDS whose objectives and investment strategies are consistent with the gateway fund's investment objective and strategies. Through this structure, gateway funds can enhance their investment opportunities and reduce their expenses by sharing the costs and benefits of a larger pool of assets. Master portfolios offer their shares to multiple gateway funds and other master portfolios rather than directly to the public. Certain administrative and other fees and expenses are charged to both the gateway fund and the master portfolio(s). The services provided and fees charged to a gateway fund are in addition to and not duplicative of the services provided and fees charged to the master portfolios. Fees relating to investments in other stand-alone funds are waived to the extent that they are duplicative, or would exceed certain defined limits.
DESCRIPTION OF MASTER PORTFOLIOS
The following table lists the master portfolios in which certain Funds invest.
The master portfolio's investment objective is provided followed by a
description of the master portfolio's principal investment strategies.
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
INFLATION-PROTECTED BOND INVESTMENT OBJECTIVE: The Portfolio seeks total return, consisting of income and
PORTFOLIO capital appreciation, while providing protection against inflation.
PRINCIPAL INVESTMENT STRATEGIES: We invest in a portfolio consisting principally of
inflation-protected debt securities issued or guaranteed by the U.S. Treasury, U.S.
Government agencies or government-sponsored entities. We will purchase only
securities that are rated, at the time of purchase, within the two highest rating
categories assigned by a Nationally Recognized Statistical Ratings Organization, or
are deemed by us to be of comparable quality. We may also use futures, options or
swap agreements, as well as other derivatives, to manage risk or to enhance return.
We generally will purchase securities that we believe have strong relative value
based on an analysis of a security's characteristics (such as its principal value,
coupon rate, maturity, duration and yield) in light of the current market
environment. We may sell a security due to changes in its outlook, as well as
changes in portfolio strategy or cash flow needs. A security may also be sold and
replaced with one that presents a better value or risk/reward profile.
|
96 MASTER/GATEWAY(Reg. TM) STRUCTURE
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
STABLE INCOME PORTFOLIO INVESTMENT OBJECTIVE: The Portfolio seeks current income consistent with capital
preservation.
PRINCIPAL INVESTMENT STRATEGIES: We invest principally in income-producing debt
securities. We may invest in a variety of debt securities, including corporate,
mortgage- and asset-backed securities, and U.S. Government obligations. These
securities may have fixed, floating or variable rates and may include U.S. dollar-
denominated debt securities of foreign issuers. We only purchase investment-grade
securities, though we may continue to hold a security that falls below investment-
grade. We may use futures, options or swap agreements, as well as other derivatives,
to manage risk or to enhance return. Under normal circumstances, we expect the
Portfolio's dollar-weighted average effective duration to be between 0.7 to 1.2
years.
We emphasize investments in the debt securities market with higher yield and
return expectations than U.S. Treasury securities. Our security selection process is
based on a disciplined valuation process that considers cash flow, liquidity, quality,
and general economic sentiment. We then purchase those securities that we believe
offer the best relative value. We tend to buy and hold these securities which results
in a relatively lower turnover strategy. We will sell securities based on deteriorating
credit, over-valuation or to replace them with more attractively valued issues.
TOTAL RETURN BOND PORTFOLIO INVESTMENT OBJECTIVE: The Portfolio seeks total return, consisting of income and
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: We invest principally in investment-grade debt
securities, including U.S. Government obligations, corporate bonds and mortgage-
and asset-backed securities. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements, as well as invest in U.S. dollar-denominated debt securities of foreign
issuers. We may also use futures, options or swap agreements, as well as other
derivatives, to manage risk or to enhance return. Under normal circumstances, we
expect to maintain an overall dollar-weighted average effective duration range
between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are
undervalued, offering additional income and/or price appreciation potential,
relative to other debt securities of similar credit quality and interest rate sensitivity.
From time to time, we may also invest in unrated bonds that we believe are
comparable to investment-grade debt securities. We may sell a security that has
achieved its desired return or if we believe the security or its sector has become
overvalued. We may also sell a security if a more attractive opportunity becomes
available or if the security is no longer attractive due to its risk profile or as a result
of changes in the overall market environment. We may actively trade portfolio
securities.
|
MASTER/GATEWAY(Reg. TM) STRUCTURE 97
THE SUB-ADVISERS FOR THE MASTER PORTFOLIOS
The sub-advisers for the master portfolios are compensated for their services
by Funds Management from the fees Funds Management receives for its services as
adviser to the master portfolios.
98 MASTER/GATEWAY(Reg. TM) STRUCTURE
The following tables are intended to help you understand each Fund's financial performance for the past 5 years. Certain information reflects financial results for a single Fund share. Total returns represent the rate you would have earned (or lost) on an investment in each Fund (assuming reinvestment of all distributions). An independent registered public accounting firm has audited the information for each period. The information, along with the report of an independent registered public accounting firm and each Fund's financial statements, is also contained in each Fund's annual report, a copy of which is available upon request.
FINANCIAL HIGHLIGHTS 99
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $10.45 $10.22 $10.15 $10.77 $10.93 $11.05
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39/2/ 0.48 0.48 0.43 0.20 0.25
(loss)
Net realized and
unrealized gain (loss)
on investments 0.34 0.25 0.09 (0.51) 0.00/3/ 0.21
-------- ------- ------- ------- -------- -------
Total from investment 0.73 0.73 0.57 (0.08) 0.20 0.46
-------- ------- ------- ------- -------- -------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.44) (0.50) (0.50) (0.48) (0.24) (0.35)
Distributions from net (0.03) 0.00 0.00 (0.06) (0.12) (0.23)
-------- ------- ------- ------- -------- -------
realized gain
Total distributions (0.47) (0.50) (0.50) (0.54) (0.36) (0.58)
-------- ------- ------- ------- -------- -------
NET ASSET VALUE, END OF $10.71 $10.45 $10.22 $10.15 $10.77 $10.93
======== ======= ======= ======= ======== =======
PERIOD
TOTAL RETURN/4/ 7.17% 7.21% 5.71% (0.74)% 1.85% 4.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $181,342 $71,233 $59,760 $60,242 $69,267 $76,283
(000s)
Ratio of net investment
income (loss) to
average net assets/5/ 3.65% 4.54% 4.64% 4.14% 3.33% 2.57%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/5/ 0.90% 1.03% 1.06% 1.05% 1.16% 1.18%
Waived fees and reimbursed 0.00% (0.13)% (0.14)% (0.10)% (0.09)% (0.06)%
expenses/5/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/5/ 0.90% 0.90% 0.92% 0.95% 1.07% 1.12%
Portfolio turnover rate/6/ 368% 263% 159% 207% 139% 390%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Calculated based upon average shares outstanding.
3 Amount calculated is less than $0.005.
4 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
5 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
100 FINANCIAL HIGHLIGHTS
GOVERNMENT SECURITIES FUND
CLASS B SHARES-COMMENCED ON JULY 18, 2008
For a share outstanding throughout each period
MAY 31,
FOR THE PERIOD ENDED: 2009/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.32
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.27/2/
(loss)
Net realized and
unrealized gain
(loss) on investments 0.45
------
Total from investment
operations 0.72
------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.31)
Distributions from net
realized
gain (0.03)
------
Total distributions (0.34)
------
NET ASSET VALUE, END OF $10.70
======
PERIOD
TOTAL RETURN/3/ 7.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $5,297
(000s)
Ratio of net investment
income
(loss) to average net 2.94%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4/ 1.65%
Waived fees and reimbursed
expenses/4/ 0.00%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/4/ 1.65%
Portfolio turnover rate/5/ 368%
|
1 For the period July 18, 2008, (commencement of operations) to May 31, 2009.
2 Calculated based upon average shares outstanding.
3 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 101
GOVERNMENT SECURITIES FUND
CLASS C SHARES-COMMENCED ON DECEMBER 26, 2002
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $10.45 $10.22 $10.15 $10.77 $10.92 $11.05
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.30/2/ 0.39 0.40 0.35 0.12 0.15
(loss)
Net realized and
unrealized gain (loss)
on investments 0.35 0.25 0.09 (0.50) 0.01 0.20
-------- -------- -------- -------- -------- --------
Total from investment 0.65 0.64 0.49 (0.15) 0.13 0.35
-------- -------- -------- -------- -------- --------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.37) (0.41) (0.42) (0.41) (0.16) (0.25)
Distributions from net (0.03) 0.00 0.00 (0.06) (0.12) (0.23)
-------- -------- -------- -------- -------- --------
realized gain
Total distributions (0.40) (0.41) (0.42) (0.47) (0.28) (0.48)
-------- -------- -------- -------- -------- --------
NET ASSET VALUE, END OF $10.70 $10.45 $10.22 $10.15 $10.77 $10.92
======== ======== ======== ======== ======== ========
PERIOD
TOTAL RETURN/3/ 6.28% 6.36% 4.89% (1.48)% 1.24% 3.20%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $21,783 $2,595 $1,335 $1,370 $2,257 $2,979
(000s)
Ratio of net investment
income (loss) to
average net assets/4/ 2.78% 3.69% 3.87% 3.39% 2.14% 1.65%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/4/ 1.63% 1.77% 1.81% 1.80% 2.30% 2.10%
Waived fees and reimbursed 0.00% (0.07)% (0.11)% (0.10)% (0.04)% (0.04)%
expenses/4/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/4/ 1.63% 1.70% 1.70% 1.70% 2.26% 2.06%
Portfolio turnover rate/5/ 368% 263% 159% 207% 139% 390%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Calculated based upon average shares outstanding.
3 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
102 FINANCIAL HIGHLIGHTS
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $7.25 $7.89 $7.63 $7.63 $7.84 $7.49
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.50 0.53 0.55 0.53 0.30 0.53
(loss)
Net realized and
unrealized gain (loss)
on investments (0.90) (0.64) 0.26 0.02 (0.21) 0.35
------ ------ ------ ------ ------ ------
Total from investment (0.40) (0.11) 0.81 0.55 0.09 0.88
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.50) (0.53) (0.55) (0.55) (0.30) (0.53)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.50) (0.53) (0.55) (0.55) (0.30) (0.53)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $6.35 $7.25 $7.89 $7.63 $7.63 $7.84
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (5.07)% (1.40)% 10.96% 7.34% 1.16% 12.11%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $105,678 $10,471 $115,254 $113,433 $17,681 $22,315
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 8.13% 7.04% 7.07% 6.39% 6.59% 6.90%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 1.05% 1.19% 1.16% 1.17% 1.20% 1.20%
Waived fees and reimbursed (0.16)% (0.33)% (0.30)% (0.30)% (0.14)% (0.07)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.89% 0.86% 0.86% 0.87% 1.06% 1.13%
Portfolio turnover rate/4/ 52% 53% 82% 98% 52% 133%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 103
HIGH INCOME FUND
CLASS B SHARES -COMMENCED ON JULY 18, 2008
For a share outstanding throughout each period
MAY 31,
FOR THE PERIOD ENDED: 2009/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $6.99
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39
(loss)
Net realized and
unrealized gain
(loss) on investments (0.64)
-------
Total from investment
operations (0.25)
-------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.39)
Distributions from net
realized
gain 0.00
-------
Total distributions (0.39)
-------
NET ASSET VALUE, END OF $6.35
=======
PERIOD
TOTAL RETURN/2/ (3.11)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $7,908
(000s)
Ratio of net investment
income
(loss) to average net 7.35%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.79%
Waived fees and reimbursed
expenses/3/ (0.14)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.65%
Portfolio turnover rate/4/ 52%
|
1 For the period July 18, 2008, (commencement of operations) to May 31, 2009.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
104 FINANCIAL HIGHLIGHTS
HIGH INCOME FUND
CLASS C SHARES -COMMENCED ON JULY 18, 2008
For a share outstanding throughout each period
MAY 31,
FOR THE PERIOD ENDED: 2009/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $6.99
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39
(loss)
Net realized and
unrealized gain
(loss) on investments (0.64)
-------
Total from investment
operations (0.25)
-------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.39)
Distributions from net
realized
gain 0.00
-------
Total distributions (0.39)
-------
NET ASSET VALUE, END OF $6.35
=======
PERIOD
TOTAL RETURN/2/ (3.12)%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $13,460
(000s)
Ratio of net investment
income
(loss) to average net 7.29%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.79%
Waived fees and reimbursed
expenses/3/ (0.14)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.65%
Portfolio turnover rate/4/ 52%
|
1 For the period July 18, 2008, (commencement of operations) to May 31, 2009.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
FINANCIAL HIGHLIGHTS 105
INCOME PLUS FUND
CLASS A SHARES-COMMENCED ON JULY 13, 1998
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.70 $10.65 $10.49 $10.99 $10.84
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.42/1/ 0.48/1/ 0.53/1/ 0.47/1/ 0.57
(loss)
Net realized and
unrealized gain
(loss) on investments 0.15 0.08 0.19 (0.37) 0.20
--------- --------- --------- --------- --------
Total from investment
operations 0.57 0.56 0.72 0.10 0.77
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.45) (0.51) (0.56) (0.60) (0.62)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------
Total distributions (0.45) (0.51) (0.56) (0.60) (0.62)
--------- --------- --------- --------- --------
NET ASSET VALUE, END OF $10.82 $10.70 $10.65 $10.49 $10.99
========= ========= ========= ========= ========
PERIOD
TOTAL RETURN/2/ 5.52% 5.37% 7.04% 0.97% 7.27%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $94,938 $43,481 $37,526 $38,995 $42,676
(000s)
Ratio of net investment
income
(loss) to average net 4.01% 4.50% 4.96% 4.38% 5.48%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.05% 1.35% 1.34% 1.29% 1.25%
Waived fees and reimbursed
expenses/3/ (0.15)% (0.35)% (0.34)% (0.29)% (0.67)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 0.90% 1.00% 1.00% 1.00% 0.58%
Portfolio turnover rate/4/ 455% 245% 205% 171% 132%
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
106 FINANCIAL HIGHLIGHTS
INCOME PLUS FUND
CLASS B SHARES-COMMENCED ON JULY 13, 1998
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.70 $10.65 $10.49 $10.99 $10.84
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.35/1/ 0.40/1/ 0.45/1/ 0.39/1/ 0.46
(loss)
Net realized and
unrealized gain
(loss) on investments 0.14 0.08 0.29 (0.37) 0.23
--------- --------- --------- --------- --------
Total from investment
operations 0.49 0.48 0.74 0.02 0.69
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.37) (0.43) (0.48) (0.52) (0.54)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------
Total distributions (0.37) (0.43) (0.48) (0.52) (0.54)
--------- --------- --------- --------- --------
NET ASSET VALUE, END OF $10.82 $10.70 $10.65 $10.49 $10.99
========= ========= ========= ========= ========
PERIOD
TOTAL RETURN/2/ 4.69% 4.58% 6.24% 0.21% 6.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $3,937 $7,067 $10,682 $14,833 $20,165
(000s)
Ratio of net investment
income
(loss) to average net 3.30% 3.75% 4.24% 3.61% 4.76%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.80% 2.10% 2.09% 2.04% 2.00%
Waived fees and reimbursed
expenses/3/ (0.15)% (0.35)% (0.34)% (0.29)% (0.68)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.65% 1.75% 1.75% 1.75% 1.32%
Portfolio turnover rate/4/ 455% 245% 205% 171% 132%
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
FINANCIAL HIGHLIGHTS 107
INCOME PLUS FUND
CLASS C SHARES-COMMENCED ON JULY 13, 1998
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.69 $10.65 $10.49 $10.99 $10.84
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.35/1/ 0.40/1/ 0.45/1/ 0.39/1/ 0.51
(loss)
Net realized and
unrealized gain
(loss) on investments 0.15 0.07 0.21 (0.37) 0.18
--------- --------- --------- --------- --------
Total from investment
operations 0.50 0.47 0.66 0.02 0.69
--------- --------- --------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.37) (0.43) (0.48) (0.52) (0.54)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
--------- --------- --------- --------- --------
Total distributions (0.37) (0.43) (0.48) (0.52) (0.54)
--------- --------- --------- --------- --------
NET ASSET VALUE, END OF $10.82 $10.69 $10.65 $10.49 $10.99
========= ========= ========= ========= ========
PERIOD
TOTAL RETURN/2/ 4.85% 4.50% 6.24% 0.21% 6.47%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $7,242 $4,870 $4,633 $5,581 $6,451
(000s)
Ratio of net investment
income
(loss) to average net 3.32% 3.75% 4.23% 3.63% 4.74%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.80% 2.10% 2.09% 2.04% 2.00%
Waived fees and reimbursed
expenses/3/ (0.15)% (0.35)% (0.34)% (0.29)% (0.68)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.65% 1.75% 1.75% 1.75% 1.32%
Portfolio turnover rate/4/ 455% 245% 205% 171% 132%
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
108 FINANCIAL HIGHLIGHTS
INFLATION-PROTECTED BOND FUND
CLASS A SHARES-COMMENCED ON FEBRUARY 28, 2003
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.22 $9.62 $9.60 $10.45 $10.04
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.07 0.54 0.40 0.42/1/ 0.37
(loss)
Net realized and
unrealized gain
(loss) on investments (0.25) 0.62 (0.04) (0.63) 0.43
-------- ------- ------- --------- --------
Total from investment
operations (0.18) 1.16 0.36 (0.21) 0.80
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.19) (0.56) (0.34) (0.46) (0.33)
Distributions from net
realized
gain 0.00 0.00 0.00 (0.18) (0.06)
Return of Capital (0.09) 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.28) (0.56) (0.34) (0.64) (0.39)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $9.76 $10.22 $9.62 $9.60 $10.45
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/2/ (1.68)% 12.34% 3.74% (2.11)% 8.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $31,826 $24,982 $21,115 $27,726 $28,437
(000s)
Ratio of net investment
income
(loss) to average net 0.66% 5.52% 3.89% 4.18% 3.63%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 0.95% 1.23% 1.05% 1.22% 1.23%
Waived fees and reimbursed
expenses/3/ (0.12)% (0.38)% (0.20)% (0.37)% (0.37)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.83% 0.85% 0.85% 0.85% 0.86%
expenses/3,4/
Portfolio turnover 53% 40% 37% 47% 425%
rate/5,6/
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for preiods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
FINANCIAL HIGHLIGHTS 109
INFLATION-PROTECTED BOND FUND
CLASS B SHARES-COMMENCED ON FEBRUARY 28, 2003
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.20 $9.60 $9.58 $10.42 $10.03
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.03 0.48 0.34 0.35/1/ 0.31
(loss)
Net realized and
unrealized gain
(loss) on investments (0.29) 0.61 (0.06) (0.63) 0.40
-------- ------- ------- --------- --------
Total from investment
operations (0.26) 1.09 0.28 (0.28) 0.71
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.14) (0.49) (0.26) (0.38) (0.26)
Distributions from net
realized
gain 0.00 0.00 0.00 (0.18) (0.06)
Return of Capital (0.09) 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.23) (0.49) (0.26) (0.56) (0.32)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $9.71 $10.20 $9.60 $9.58 $10.42
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/2/ (2.51)% 11.53% 2.97% (2.76)% 7.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $5,255 $7,365 $7,321 $10,149 $12,168
(000s)
Ratio of net investment
income
(loss) to average net 0.42% 4.61% 3.27% 3.50% 2.99%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 1.72% 1.98% 1.80% 1.97% 1.99%
Waived fees and reimbursed
expenses/3/ (0.13)% (0.38)% (0.20)% (0.37)% (0.39)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 1.59% 1.60% 1.60% 1.60% 1.60%
expenses/3,4/
Portfolio turnover 53% 40% 37% 47% 425%
rate/5,6/
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates presented for preiods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
110 FINANCIAL HIGHLIGHTS
INFLATION-PROTECTED BOND FUND
CLASS C SHARES-COMMENCED ON FEBRUARY 28, 2003
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.20 $9.61 $9.58 $10.43 $10.04
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.01 0.45 0.35 0.35/1/ 0.31
(loss)
Net realized and
unrealized gain
(loss) on investments (0.26) 0.63 (0.06) (0.63) 0.40
-------- ------- ------- --------- --------
Total from investment
operations (0.25) 1.08 0.29 (0.28) 0.71
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.14) (0.49) (0.26) (0.39) (0.26)
Distributions from net
realized
gain 0.00 0.00 0.00 (0.18) (0.06)
Return of Capital (0.09) 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.23) (0.49) (0.26) (0.57) (0.32)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $9.72 $10.20 $9.61 $9.58 $10.43
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/2/ (2.41)% 11.41% 3.08% (2.85)% 7.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $10,237 $9,913 $7,202 $10,248 $13,873
(000s)
Ratio of net investment
income
(loss) to average net 0.18% 4.78% 3.27% 3.50% 3.00%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 1.69% 1.98% 1.80% 1.97% 1.99%
Waived fees and reimbursed
expenses/3/ (0.10)% (0.38)% (0.20)% (0.37)% (0.39)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 1.59% 1.60% 1.60% 1.60% 1.60%
expenses/3,4/
Portfolio turnover 53% 40% 37% 47% 425%
rate/5,6/
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates presented for preiods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
FINANCIAL HIGHLIGHTS 111
SHORT DURATION GOVERNMENT BOND FUND
CLASS A SHARES-COMMENCED ON MARCH 11, 1996
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.01 $9.85 $9.81 $10.01 $10.13
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.37 0.40 0.39 0.33/1/ 0.27
(loss)
Net realized and
unrealized gain
(loss) on investments 0.32 0.18 0.06 (0.18) (0.09)
-------- ------- ------- --------- --------
Total from investment
operations 0.69 0.58 0.45 0.15 0.18
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.40) (0.42) (0.41) (0.35) (0.30)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.40) (0.42) (0.41) (0.35) (0.30)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $10.30 $10.01 $9.85 $9.81 $10.01
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/2/ 7.05% 5.95% 4.69% 1.51% 1.79%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $105,430 $66,495 $77,602 $77,886 $94,059
(000s)
Ratio of net investment
income
(loss) to average net 3.61% 4.02% 4.04% 3.30% 2.44%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 0.94% 1.11% 1.10% 1.08% 1.28%
Waived fees and reimbursed
expenses/3/ (0.09)% (0.26)% (0.25)% (0.23)% (0.42)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 0.85% 0.85% 0.85% 0.85% 0.86%
Portfolio turnover rate/4/ 277% 210% 493% 316% 272%
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
112 FINANCIAL HIGHLIGHTS
SHORT DURATION GOVERNMENT BOND FUND
CLASS B SHARES-COMMENCED ON MAY 31, 2002
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.01 $9.86 $9.81 $10.02 $10.13
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.30 0.33 0.33 0.25/1/ 0.19
(loss)
Net realized and
unrealized gain
(loss) on investments 0.32 0.16 0.06 (0.19) (0.08)
-------- ------- ------- --------- --------
Total from investment
operations 0.62 0.49 0.39 0.06 0.11
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.32) (0.34) (0.34) (0.27) (0.22)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.32) (0.34) (0.34) (0.27) (0.22)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $10.31 $10.01 $9.86 $9.81 $10.02
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/2/ 6.36% 5.06% 4.01% 0.66% 1.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $4,779 $7,260 $12,230 $18,338 $27,078
(000s)
Ratio of net investment
income
(loss) to average net 2.90% 3.29% 3.29% 2.55% 1.74%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.69% 1.86% 1.85% 1.83% 2.02%
Waived fees and reimbursed
expenses/3/ (0.09)% (0.26)% (0.25)% (0.23)% (0.41)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.60% 1.60% 1.60% 1.60% 1.61%
Portfolio turnover rate/4/ 277% 210% 493% 316% 272%
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
FINANCIAL HIGHLIGHTS 113
SHORT DURATION GOVERNMENT BOND FUND
CLASS C SHARES-COMMENCED ON MAY 31, 2002
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.02 $9.87 $9.82 $10.03 $10.14
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.34 0.31 0.30 0.25/1/ 0.14
(loss)
Net realized and
unrealized gain
(loss) on investments 0.28 0.18 0.09 (0.19) (0.03)
-------- ------- ------- --------- --------
Total from investment
operations 0.62 0.49 0.39 0.06 0.11
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.32) (0.34) (0.34) (0.27) (0.22)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.32) (0.34) (0.34) (0.27) (0.22)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $10.32 $10.02 $9.87 $9.82 $10.03
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/2/ 6.34% 5.06% 4.01% 0.66% 1.13%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $18,009 $7,087 $8,440 $11,540 $19,553
(000s)
Ratio of net investment
income
(loss) to average net 2.82% 3.28% 3.29% 2.54% 1.59%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.69% 1.86% 1.85% 1.83% 2.04%
Waived fees and reimbursed
expenses/3/ (0.09)% (0.26)% (0.25)% (0.23)% (0.42)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.60% 1.60% 1.60% 1.60% 1.62%
Portfolio turnover rate/4/ 277% 210% 493% 316% 272%
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
114 FINANCIAL HIGHLIGHTS
SHORT-TERM BOND FUND
CLASS A SHARES (EFFECTIVE JUNE 20, 2008, THE ADVISOR CLASS WAS RENAMED CLASS A)
- COMMENCED ON AUGUST 31, 1999
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.38 $8.49 $8.47 $8.62 $8.77 $8.81
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32 0.40 0.40 0.35 0.18 0.26
(loss)
Net realized and
unrealized gain (loss)
on investments (0.15) (0.11) 0.03 (0.13) (0.14) (0.01)
------ ------ ------- ------- ------- ------
Total from investment 0.17 0.29 0.43 0.22 0.04 0.25
------ ------ ------- ------- ------- ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.32) (0.40) (0.41) (0.37) (0.19) (0.29)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------- ------- ------- ------
realized gain
Total distributions (0.32) (0.40) (0.41) (0.37) (0.19) (0.29)
------ ------ ------- ------- ------- ------
NET ASSET VALUE, END OF $8.23 $8.38 $8.49 $8.47 $8.62 $8.77
====== ====== ======= ======= ======= ======
PERIOD
TOTAL RETURN/2/ 2.14% 3.50% 5.18% 2.60% 0.45% 2.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $16,456 $11,904 $6,938 $6,035 $8,142 $10,240
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 3.86% 4.69% 4.77% 4.14% 3.53% 2.96%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 0.95% 1.09% 1.10% 1.09% 1.18% 1.19%
Waived fees and reimbursed (0.15)% (0.28)% (0.25)% (0.24)% (0.14)% (0.07)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.80% 0.81% 0.85% 0.85% 1.04% 1.12%
Portfolio turnover rate/4/ 50% 47% 38% 28% 14% 37%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 115
SHORT-TERM BOND FUND
CLASS C SHARES - COMMENCED ON MARCH 31, 2008
For a share outstanding throughout each period
MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $8.37 $8.45
Net investment income 0.26 0.05
(loss)
Net realized and
unrealized gain
(loss) on investments (0.15) (0.08)
----------- ------------
Total from investment
operations 0.11 (0.03)
----------- ------------
Distributions from net
investment income (0.26) (0.05)
Distributions from net
realized
gain 0.00 0.00
----------- ------------
Total distributions (0.26) (0.05)
----------- ------------
NET ASSET VALUE, END OF $8.22 $8.37
=========== ============
PERIOD
TOTAL RETURN/2/ 1.35% (0.37)%
Net assets, end of period $1,199 $10
(000s)
Ratio of net investment
income
(loss) to average net 2.72% 3.56%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.67% 1.85%
Waived fees and reimbursed
expenses/3/ (0.14)% (0.27)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.53% 1.58%
Portfolio turnover rate/4/ 50% 47%
|
1 For the period from March 31, 2008, (commencement of Class) to May 31, 2008.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
116 FINANCIAL HIGHLIGHTS
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.31 $8.54 $8.49 $8.51 $8.69 $8.66
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.40 0.47 0.49 0.43 0.22 0.39
(loss)
Net realized and
unrealized gain (loss)
on investments (0.49) (0.23) 0.05 (0.02) (0.18) 0.03
------ ------ ------ ------ ------ ------
Total from investment (0.09) 0.24 0.54 0.41 0.04 0.42
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.40) (0.47) (0.49) (0.43) (0.22) (0.39)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.40) (0.47) (0.49) (0.43) (0.22) (0.39)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $7.82 $8.31 $8.54 $8.49 $8.51 $8.69
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (0.89)% 2.98% 6.48% 4.94% 0.47% 4.96%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $110,451 $15,781 $22,076 $30,637 $40,297 $55,553
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 5.27% 5.70% 5.70% 5.05% 4.32% 4.54%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 1.08% 1.20% 1.22% 1.20% 1.23% 1.20%
Waived fees and reimbursed (0.27)% (0.34)% (0.36)% (0.25)% (0.14)% (0.08)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.81% 0.86% 0.86% 0.95% 1.09% 1.12%
Portfolio turnover rate/4/ 46% 59% 50% 60% 31% 71%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and/or reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 117
SHORT-TERM HIGH YIELD BOND FUND
CLASS C SHARES - COMMENCED ON MARCH 31, 2008
For a share outstanding throughout each period
MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $8.31 $8.22
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.34 0.06
(loss)
Net realized and
unrealized gain
(loss) on investments (0.49) 0.09
----------- ------------
Total from investment
operations (0.15) 0.15
----------- ------------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.06)
Distributions from net
realized
gain 0.00 0.00
----------- ------------
Total distributions (0.34) (0.06)
----------- ------------
NET ASSET VALUE, END OF $7.82 $8.31
=========== ============
PERIOD
TOTAL RETURN/2/ (1.70)% 2.48%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $11,096 $18
(000s)
Ratio of net investment
income
(loss) to average net 4.50% 4.37%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.76% 1.97%
Waived fees and reimbursed
expenses/3/ (0.20)% (0.41)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.56% 1.56%
Portfolio turnover rate/4/ 46% 59%
|
1 For the period from March 31, 2008, (commencement of Class) to May 31, 2008. 2 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized. 3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and/or reimbursements. 4 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. Portfolio turnover rates presented for periods of less than one year are not annualized.
118 FINANCIAL HIGHLIGHTS
STABLE INCOME FUND
CLASS A SHARES-COMMENCED ON MAY 2, 1996
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $9.89 $10.27 $10.23 $10.38 $10.33
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32 0.42 0.43 0.40/1/ 0.16
(loss)
Net realized and
unrealized gain
(loss) on investments (0.64) (0.38) 0.05 (0.15) 0.03
------- -------- -------- --------- --------
Total from investment
operations (0.32) 0.04 0.48 0.25 0.19
------- -------- -------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.32) (0.42) (0.44) (0.40) (0.14)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of capital 0.00 0.00 0.00 0.00 0.00
------- -------- -------- --------- --------
Total distributions (0.32) (0.42) (0.44) (0.40) (0.14)
------- -------- -------- --------- --------
NET ASSET VALUE, END OF $9.25 $9.89 $10.27 $10.23 $10.38
======= ======== ======== ========= ========
PERIOD
TOTAL RETURN/2/ (3.24)% 0.35% 4.80% 2.47% 1.87%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $32,958 $43,897 $48,629 $64,827 $83,406
(000s)
Ratio of net investment
income
(loss) to average net 3.30% 4.14% 4.18% 3.83% 1.48%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 0.94% 0.96% 1.00% 1.06% 1.00%
Waived fees and reimbursed
expenses/3/ (0.09)% (0.11)% (0.15)% (0.19)% (0.10)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.85% 0.85% 0.85% 0.87% 0.90%
expenses/3,4/
Portfolio turnover 7% 22% 21% 23% 43%
rate/5,6/
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
period shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
FINANCIAL HIGHLIGHTS 119
STABLE INCOME FUND
CLASS B SHARES-COMMENCED ON MAY 17, 1996
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $9.88 $10.26 $10.22 $10.37 $10.32
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.25 0.34 0.34 0.32/1/ 0.08
(loss)
Net realized and
unrealized gain
(loss) on investments (0.63) (0.38) 0.06 (0.15) 0.03
------- -------- -------- --------- --------
Total from investment
operations (0.38) (0.04) 0.40 0.17 0.11
------- -------- -------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.25) (0.34) (0.36) (0.32) (0.06)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of capital 0.00 0.00 0.00 0.00 0.00
------- -------- -------- --------- --------
Total distributions (0.25) (0.34) (0.36) (0.32) (0.06)
------- -------- -------- --------- --------
NET ASSET VALUE, END OF $9.25 $9.88 $10.26 $10.22 $10.37
======= ======== ======== ========= ========
PERIOD
TOTAL RETURN/2/ (3.90)% (0.42)% 3.98% 1.69% 1.00%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,164 $2,222 $4,389 $11,519 $20,970
(000s)
Ratio of net investment
income
(loss) to average net 2.57% 3.40% 3.40% 3.06% 0.75%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 1.69% 1.71% 1.75% 1.81% 1.75%
Waived fees and reimbursed
expenses/3/ (0.09)% (0.11)% (0.15)% (0.19)% (0.10)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 1.60% 1.60% 1.60% 1.62% 1.65%
expenses/3,4/
Portfolio turnover 7% 22% 21% 23% 43%
rate/5,6/
|
1 Calculated based upon average shares outstanding. Portfolio turnover rates presented for periods of less than one year are not annualized.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
period shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
120 FINANCIAL HIGHLIGHTS
STABLE INCOME FUND
CLASS C SHARES-COMMENCED ON JUNE 30, 2003
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $9.85 $10.24 $10.20 $10.35 $10.30
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.23 0.34 0.36 0.32/2/ 0.07
(loss)
Net realized and
unrealized gain
(loss) on investments (0.61) (0.39) 0.05 (0.15) 0.04
------- -------- -------- --------- --------
Total from investment
operations (0.38) (0.05) 0.41 0.17 0.11
------- -------- -------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.25) (0.34) (0.37) (0.32) (0.06)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of capital 0.00 0.00 0.00 0.00 0.00
------- -------- -------- --------- --------
Total distributions (0.25) (0.34) (0.37) (0.32) (0.06)
------- -------- -------- --------- --------
NET ASSET VALUE, END OF $9.22 $9.85 $10.24 $10.20 $10.35
======= ======== ======== ========= ========
PERIOD
TOTAL RETURN/3/ (3.89)% (0.49)% 4.03% 1.70% 1.10%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $3,216 $4,049 $3,935 $4,355 $7,137
(000s)
Ratio of net investment
income
(loss) to average net 2.55% 3.37% 3.43% 3.07% 0.74%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4,5/ 1.68% 1.71% 1.75% 1.81% 1.75%
Waived fees and reimbursed
expenses/4/ (0.08)% (0.11)% (0.15)% (0.19)% (0.10)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 1.60% 1.60% 1.60% 1.62% 1.65%
expenses/4,5/
Portfolio turnover 7% 22% 21% 23% 43%
rate/6,7/
|
1 For the period from June 30, 2003 (commencement of Class) to May 31, 2004.
2 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
3 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
period shown. Returns for periods of less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
7 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
FINANCIAL HIGHLIGHTS 121
STRATEGIC INCOME FUND
CLASS A SHARES-COMMENCED ON NOVEMBER 30, 2000
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $9.46 $10.62 $10.18 $10.23 $10.41 $9.90
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.72 0.68 0.67 0.67 0.37 0.71
(loss)
Net realized and
unrealized gain (loss)
on investments (1.42) (1.00) 0.50 0.14 (0.18) 0.51
------ ------- ------- ------- ------- ------
Total from investment (0.70) (0.32) 1.17 0.81 0.19 1.22
------ ------- ------- ------- ------- ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.72) (0.68) (0.67) (0.67) (0.37) (0.71)
Distributions from net 0.00 (0.16) (0.06) (0.19) 0.00 0.00
realized gain
Return of Capital 0.00 0.00 0.00 0.00 0.00 0.00
------ ------- ------- ------- ------- ------
Total distributions (0.72) (0.84) (0.73) (0.86) (0.37) (0.71)
------ ------- ------- ------- ------- ------
NET ASSET VALUE, END OF $8.04 $9.46 $10.62 $10.18 $10.23 $10.41
====== ======= ======= ======= ======= =======
PERIOD
TOTAL RETURN/2/ (6.75)% (3.01)% 11.97% 8.18% 1.79% 12.70%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $15,519 $25,406 $33,921 $19,858 $13,254 $13,786
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 8.92% 6.93% 6.43% 6.53% 5.97% 6.95%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 1.49% 1.43% 1.39% 1.61% 1.57% 1.52%
Waived fees and reimbursed (0.39)% (0.33)% (0.29)% (0.51)% (0.48)% (0.40)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 1.10% 1.10% 1.10% 1.10% 1.09% 1.12%
Portfolio turnover rate/4/ 41% 63% 79% 89% 76% 141%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
122 FINANCIAL HIGHLIGHTS
STRATEGIC INCOME FUND
CLASS B SHARES-COMMENCED ON NOVEMBER 30, 2000
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $9.47 $10.63 $10.18 $10.23 $10.42 $9.90
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.66 0.61 0.59 0.59 0.30 0.59
(loss)
Net realized and
unrealized gain (loss)
on investments (1.43) (1.00) 0.51 0.14 (0.19) 0.52
------- -------- ------- -------- ------- ------
Total from investment (0.77) (0.39) 1.10 0.73 0.11 1.11
------- -------- ------- -------- ------- ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.66) (0.61) (0.59) (0.59) (0.30) (0.59)
Distributions from net 0.00 (0.16) (0.06) (0.19) 0.00 0.00
realized gain
Return of Capital 0.00 0.00 0.00 0.00 0.00 0.00
------- -------- ------- -------- ------- ------
Total distributions (0.66) (0.77) (0.65) (0.78) (0.30) (0.59)
------- -------- ------- -------- ------- ------
NET ASSET VALUE, END OF $8.04 $9.47 $10.63 $10.18 $10.23 $10.42
======= ======== ======= ======== ======= =======
PERIOD
TOTAL RETURN/2/ (7.54)% (3.71)% 11.25% 7.38% 1.05% 11.55%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $4,255 $7,174 $10,188 $9,554 $10,062 $10,076
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 8.23% 6.19% 5.73% 5.78% 4.90% 5.82%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 2.23% 2.18% 2.15% 2.36% 2.31% 2.30%
Waived fees and reimbursed (0.38)% (0.33)% (0.30)% (0.51)% (0.14)% (0.04)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 1.85% 1.85% 1.85% 1.85% 2.17% 2.26%
Portfolio turnover rate/4/ 41% 63% 79% 89% 76% 141%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
FINANCIAL HIGHLIGHTS 123
STRATEGIC INCOME FUND
CLASS C SHARES-COMMENCED ON NOVEMBER 30, 2000
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $9.45 $10.61 $10.17 $10.21 $10.40 $9.89
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.66 0.61 0.59 0.59 0.31 0.59
(loss)
Net realized and
unrealized gain (loss)
on investments (1.43) (1.00) 0.50 0.15 (0.19) 0.51
------- -------- -------- -------- -------- -------
Total from investment (0.77) (0.39) 1.09 0.74 0.12 1.10
------- -------- -------- -------- -------- -------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.66) (0.61) (0.59) (0.59) (0.31) (0.59)
Distributions from net 0.00 (0.16) (0.06) (0.19) 0.00 0.00
realized gain
Return of Capital 0.0 0.00 0.00 0.00 0.00 0.00
------- -------- -------- -------- -------- -------
Total distributions (0.66) (0.77) (0.65) (0.78) (0.31) (0.59)
------- -------- -------- -------- -------- -------
NET ASSET VALUE, END OF $8.02 $9.45 $10.61 $10.17 $10.21 $10.40
======= ======== ======== ======== ======== ========
PERIOD
TOTAL RETURN/2/ (7.58)% (3.73)% 11.15% 7.49% 1.11% 11.40%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $3,044 $3,745 $5,513 $3,356 $3,822 $4,834
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 8.25% 6.19% 5.69% 5.77% 4.99% 5.81%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 2.23% 2.17% 2.14% 2.36% 2.20% 2.34%
Waived fees and reimbursed (0.38)% (0.32)% (0.29)% (0.51)% (0.13)% (0.03)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 1.85% 1.85% 1.85% 1.85% 2.07% 2.31%
Portfolio turnover rate/4/ 41% 63% 79% 89% 76% 141%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
124 FINANCIAL HIGHLIGHTS
TOTAL RETURN BOND FUND
CLASS A SHARES-COMMENCED ON OCTOBER 31, 2001
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $12.37 $12.20 $12.02 $12.62 $12.32
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.56 0.56 0.56 0.49 0.42
(loss)
Net realized and
unrealized gain
(loss) on investments 0.17 0.18 0.18 (0.60) 0.34
-------- -------- -------- ---------- --------
Total from investment
operations 0.73 0.74 0.74 (0.11) 0.76
-------- -------- -------- ---------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.58) (0.57) (0.56) (0.49) (0.43)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 (0.03)
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- ---------- --------
Total distributions (0.58) (0.57) (0.56) (0.49) (0.46)
-------- -------- -------- ---------- --------
NET ASSET VALUE, END OF $12.52 $12.37 $12.20 $12.02 $12.62
======== ======== ======== ========== ========
PERIOD
TOTAL RETURN/1/ 6.16% 6.15% 6.20% (0.91)% 6.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $237,191 $65,825 $62,004 $69,066 $84,188
(000s)
Ratio of net investment
income
(loss) to average net 4.30% 4.49% 4.51% 3.88% 3.30%
assets/2/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/2,3/ 0.89% 0.99% 0.99% 1.03% 1.12%
Waived fees and reimbursed
expenses/2/ (0.04)% (0.09)% (0.09)% (0.13)% (0.22)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.85% 0.90% 0.90% 0.90% 0.90%
expenses/2,3/
Portfolio turnover 633%/6/ 572%/7/ 665%/8/ 704%/9/ 767%
rate/4,5/
|
1 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
2 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
3 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
5 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
6 Excluding TBA, the portfolio turnover ratio is 242%.
7 Excluding TBA, the portfolio turnover ratio is 316%. 8 Excluding TBA, the portfolio turnover ratio is 335%. 9 Excluding TBA, the portfolio turnover ratio is 431%.
FINANCIAL HIGHLIGHTS 125
TOTAL RETURN BOND FUND
CLASS B SHARES - COMMENCED ON OCTOBER 31, 2001
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $12.38 $12.21 $12.03 $12.63 $12.33
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.45 0.48 0.46 0.40 0.32
(loss)
Net realized and
unrealized gain
(loss) on investments 0.19 0.17 0.18 (0.60) 0.34
-------- -------- -------- ---------- --------
Total from investment
operations 0.64 0.65 0.64 (0.20) 0.66
-------- -------- -------- ---------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.49) (0.48) (0.46) (0.40) (0.33)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 (0.03)
-------- -------- ---------- --------
Return of Capital 0.00 0.00 0.00 0.00 0.00
--------
Total distributions (0.49) (0.48) (0.46) (0.40) (0.36)
-------- -------- -------- ---------- --------
NET ASSET VALUE, END OF $12.53 $12.38 $12.21 $12.03 $12.63
======== ======== ======== ========== ========
PERIOD
TOTAL RETURN/1/ 5.38% 5.36% 5.41% (1.65)% 5.39%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $10,082 $13,248 $16,827 $21,356 $27,681
(000s)
Ratio of net investment
income
(loss) to average net 3.77% 3.69% 3.77% 3.13% 2.57%
assets/2/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/2,3/ 1.65% 1.75% 1.74% 1.78% 1.86%
Waived fees and reimbursed
expenses/2/ (0.05)% (0.10)% (0.09)% (0.13)% (0.21)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 1.60% 1.65% 1.65% 1.65% 1.65%
expenses/2,3/
Portfolio turnover 633%/6/ 572%/7/ 665%/8/ 704%/9/ 767%
rate/4,5/
|
1 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
2 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
3 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
5 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
6 Excluding TBA, the portfolio turnover ratio is 242%.
7 Excluding TBA, the portfolio turnover ratio is 316%.
8 Excluding TBA, the portfolio turnover ratio is 335%.
9 Excluding TBA, the portfolio turnover ratio is 431%.
126 FINANCIAL HIGHLIGHTS
TOTAL RETURN BOND FUND
CLASS C SHARES -COMMENCED ON OCTOBER 31, 2001
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $12.31 $12.14 $11.96 $12.57 $12.26
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.46 0.47 0.46 0.39 0.32
(loss)
Net realized and
unrealized gain
(loss) on investments 0.18 0.17 0.18 (0.61) 0.35
-------- -------- -------- -------- --------
Total from investment
operations 0.64 0.64 0.64 (0.22) 0.67
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.49) (0.47) (0.46) (0.39) (0.33)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 (0.03)
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total distributions (0.49) (0.47) (0.46) (0.39) (0.36)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF $12.46 $12.31 $12.14 $11.96 $12.57
======== ======== ======== ======== ========
PERIOD
TOTAL RETURN/1/ 5.38% 5.37% 5.42% (1.75)% 5.52%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $12,410 $5,632 $6,313 $7,827 $9,823
(000s)
Ratio of net investment
income
(loss) to average net 3.67% 3.78% 3.77% 3.14% 2.57%
assets/2/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/2,3/ 1.64% 1.74% 1.74% 1.78% 1.87%
Waived fees and reimbursed
expenses/2/ (0.04)% (0.09)% (0.09)% (0.13)% (0.22)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 1.60% 1.65% 1.65% 1.65% 1.65%
expenses/2,3/
Portfolio turnover 633%/6/ 572%/7/ 665%/8/ 704%/9/ 767%
rate/4,5/
|
1 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
2 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
3 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
5 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
6 Excluding TBA, the portfolio turnover ratio is 242%.
7 Excluding TBA, the portfolio turnover ratio is 316%.
8 Excluding TBA, the portfolio turnover ratio is 335%.
9 Excluding TBA, the portfolio turnover ratio is 431%.
FINANCIAL HIGHLIGHTS 127
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.71 $9.09 $9.12 $9.17 $9.21 $9.33
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.31 0.43 0.47 0.39 0.16 0.20
(loss)
Net realized and
unrealized gain (loss)
on investments (0.68) (0.37) (0.02) (0.02) (0.02) (0.07)
------ ------ ------ ------ ------ ------
Total from investment (0.37) 0.06 0.45 0.37 0.14 0.13
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.31) (0.44) (0.48) (0.42) (0.18) (0.25)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.31) (0.44) (0.48) (0.42) (0.18) (0.25)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $8.03 $8.71 $9.09 $9.12 $9.17 $9.21
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (4.27)% 0.68% 5.06% 4.06% 1.55% 1.45%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $44,163 $42,615 $44,858 $50,913 $59,097 $87,760
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 3.70% 4.89% 5.13% 4.23% 2.98% 2.25%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 0.93% 1.08% 1.06% 1.06% 1.15% 1.17%
Waived fees and reimbursed (0.23)% (0.35)% (0.26)% (0.26)% (0.12)% (0.05)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.70% 0.73% 0.80% 0.80% 1.03% 1.12%
Portfolio turnover rate/4/ 32% 48% 28% 26% 17% 26%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
128 FINANCIAL HIGHLIGHTS
ULTRA SHORT-TERM INCOME FUND
CLASS C SHARES - COMMENCED ON JULY 18, 2008
For a share outstanding throughout each period
MAY 31,
FOR THE PERIOD ENDED: 2009/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $8.57
Net investment income 0.21
(loss)
Net realized and
unrealized gain
(loss) on investments (0.54)
------
Total from investment
operations (0.33)
------
Distributions from net
investment income (0.21)
Distributions from net
realized
gain 0.00
------
Total distributions (0.21)
------
NET ASSET VALUE, END OF $8.03
======
PERIOD
TOTAL RETURN/2/ (3.85)%
Net assets, end of period $4,775
(000s)
Ratio of net investment
income
(loss) to average net 2.77%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 1.64%
Waived fees and reimbursed
expenses/3/ (0.19)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 1.45%
Portfolio turnover rate/4/ 32%
|
1 For the period from July 18, 2008, (commencement of Class) to May 31, 2009.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 129
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
FOR MORE INFORMATION
More information on each Fund is available free upon request, including the following documents:
Statement of Additional Information (SAI) Supplements the disclosures made by this Prospectus. The SAI, which has been filed with the SEC, is incorporated by reference into this Prospectus and therefore is legally part of this Prospectus.
Annual/Semi-Annual Reports
Provide financial and other important information, including a discussion of
the market conditions and investment strategies that significantly affected
Fund performance over the reporting period.
To obtain copies of the above documents or for more information about WELLS FARGO ADVANTAGE FUNDS, contact us:
By telephone:
Individual Investors: 1-800-222-8222
Retail Investment Professionals: 1-888-877-9275
Institutional Investment Professionals: 1-866-765-0778
By e-mail: wfaf@wellsfargo.com
By mail:
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
On the Internet:
www.wellsfargo.com/advantagefunds
From the SEC:
Visit the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330
or 1-202-551-8090) or the SEC's Internet site at www.sec.gov.
To obtain information for a fee, write or email:
SEC's Public Reference Section
100 "F" Street, NE
Washington, DC 20549-0102
publicinfo@sec.gov
[GRAPHIC APPEARS HERE]
109IFR/P1001
ICA Reg. No. 811-09253
(Copyright) 2009 Wells Fargo Funds Management, LLC. All rights reserved.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
OCTOBER 1, 2009
Prospectus
Institutional Class
WELLS FARGO ADVANTAGE FUNDS (Reg. TM) - INCOME FUNDS
Government Securities Fund
High Income Fund
Income Plus Fund
Short Duration Government Bond Fund
Short-Term Bond Fund
Total Return Bond Fund
Ultra Short-Term Income Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (SEC), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, WELLS FARGO BANK, N.A., ITS AFFILIATES OR ANY OTHER DEPOSITORY INSTITUTION. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE FUNDS
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING, INCLUDING:
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENTS, PRINCIPAL INVESTMENT STRATEGIES, PRINCIPAL RISKS, PERFORMANCE HISTORY, FEES AND EXPENSES
Key Fund Information 3 Government Securities Fund 4 High Income Fund 8 Income Plus Fund 12 Short Duration Government 16 Bond Fund Short-Term Bond Fund 20 Total Return Bond Fund 24 Ultra Short-Term Income Fund 28 Description of Principal 32 Investment Risks Portfolio Holdings 36 Information |
ORGANIZATION AND MANAGEMENT OF
THE FUNDS
INFORMATION ABOUT THE FUNDS' ORGANIZATION AND THE COMPANIES MANAGING YOUR MONEY
Organization and Management 37 of the Funds About Wells Fargo Funds Trust 37 The Investment Adviser 37 The Sub-Adviser and 38 Portfolio Managers Dormant Investment Advisory 40 Arrangement Dormant Multi-Manager 40 Arrangement |
YOUR ACCOUNT
INFORMATION ABOUT HOW FUND SHARES ARE PRICED AND HOW TO BUY, SELL AND EXCHANGE
FUND SHARES
Compensation to Dealers and 41 Shareholder Servicing Agents Pricing Fund Shares 42 How to Buy Shares 43 How to Sell Shares 45 How to Exchange Shares 48 Account Policies 50 |
OTHER INFORMATION
INFORMATION ABOUT DISTRIBUTIONS, TAXES AND FINANCIAL HIGHLIGHTS
Distributions 52 Taxes 53 Master/Gateway (Reg. TM) 54 Structure Financial Highlights 55 For More Information Back Cover |
Please find WELLS FARGO ADVANTAGE FUNDS' PRIVACY POLICY inside the back cover of this Prospectus.
The information provided in this Prospectus is not intended for distribution to, or use by, any person or entity in any non-U.S. jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Fund shares to any registration requirement within such jurisdiction or country.
The Funds are distributed by Wells Fargo Funds Distributor, LLC, a member of FINRA/SIPC, and an affiliate of Wells Fargo & Company. Securities Investor Protection Corporation ("SIPC") information and brochure are available at www.SIPC.org or by calling SIPC at (202)371-8300.
This Prospectus contains information about certain Funds within the WELLS FARGO ADVANTAGE FUNDS (Reg. TM) family and is designed to provide you with important information to help you with your investment decisions. Please read it carefully and keep it for future reference.
In this Prospectus, "we" generally refers to Wells Fargo Funds Management, LLC (Funds Management), the sub-adviser, or the portfolio managers. "We" may also refer to the Funds' other service providers. "You" refers to the shareholder or potential investor.
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes the Fund different from the other Funds offered in this Prospectus.
This section also provides a summary of each Fund's principal investments and practices. Unless otherwise indicated, these investment policies and practices apply on an ongoing basis. Percentages of "the Fund's net assets" are measured as percentages of net assets plus borrowings for investment purposes. The investment policies of the Government Securities Fund, Short Duration Government Bond Fund, Short-Term Bond Fund and Total Return Bond Fund concerning "80% of the Fund's net assets" may be changed by the Board of Trustees without shareholder approval, but shareholders would be given at least 60 days notice.
PRINCIPAL RISK FACTORS
This section lists the principal risk factors for each Fund. A complete
description of these and other risks is found in the "Description of Principal
Investment Risks" section. It is possible to lose money by investing in a Fund.
KEY FUND INFORMATION 3
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
Jay N. Mueller, CFA
FUND INCEPTION:
10/29/1986
INSTITUTIONAL CLASS
Ticker: SGVIX
Fund Number: 3101
INVESTMENT OBJECTIVE
The Government Securities Fund seeks current income.
o at least 80% of the Fund's net assets in U.S. Government obligations and repurchase agreements collateralized by U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. These securities may have fixed, floating or
variable rates and also include mortgage-backed securities. As part of our
mortgage-backed securities investment strategy, we may enter into dollar rolls
or invest in stripped securities. We may also use futures, options or swap
agreements, as well as other derivatives, to manage risk or to enhance return.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. We may sell a security due to changes in our outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
4 GOVERNMENT SECURITIES FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
GOVERNMENT SECURITIES FUND 5
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INSTITUTIONAL CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.83% 11.82% 9.19% 10.96% 3.32% 3.74% 2.69% 4.07% 7.43% 8.02%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2002 5.75%
Worst Quarter: Q2 2004 -2.66%
|
The Fund's year-to-date performance through June 30, 2009, was 1.14%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes 8.02% 5.17% 5.97% Returns After Taxes on 6.05% 3.27% 3.77% Distributions/2/ Returns After Taxes on 5.15% 3.29% 3.76% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 10.43% 5.30% 5.74% INTERMEDIATE U.S. GOVERNMEN T BOND INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 7.86% 5.27% N/A AGGREGATE EXCLUDING CREDIT BOND INDEX/4/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on August 31, 1999. Performance shown prior to the inception of the Institutional Class shares reflects the performance of the Investor Class shares, and includes expenses that are not applicable to and are higher than those of the Institutional Class shares. 2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts.
3 The Barclays Capital Intermediate U.S. Government Bond Index is an unmanaged index composed of U.S. Government securities with maturities in the one- to ten-year range, including securities issued by the U.S. Treasury and U.S. Government agencies. You cannot invest directly in an index.
4 The Barclays Capital U.S. Aggregate Excluding Credit Bond Index is composed of the Barclays Capital U.S. Government Bond Index and the Barclays Capital U.S. Mortgage-Backed Securities Index and includes Treasury issues, agency issues, and mortgage-backed securities. The limited performance history of the Barclays Capital U.S. Aggregate Excluding Credit Bond Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of May 1, 2001. You cannot invest directly in an index.
6 GOVERNMENT SECURITIES FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.37% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.19% Acquired Fund Fees and 0.01% Expenses/3/ TOTAL ANNUAL FUND 0.57% OPERATING EXPENSES/4/ Fee Waivers 0.08% NET EXPENSES/4,5,6/ 0.49% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
5 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratio of
0.48%. The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 50 3 Years $176 5 Years $312 10 Years $710 |
GOVERNMENT SECURITIES FUND 7
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Kevin J. Maas, CFA
Thomas M. Price, CFA
Michael J. Schueller, CFA
FUND INCEPTION:
12/28/1995
INSTITUTIONAL CLASS
Ticker: SHYYX
Fund Number: 3110
INVESTMENT OBJECTIVE
The High Income Fund seeks total return, consisting of a high level of current
income and capital appreciation.
o at least 80% of the Fund's net assets in corporate debt securities that are below investment-grade;
o up to 30% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers;
o up to 20% of the Fund's total assets in equities and convertible debt securities; and
o up to 10% of the Fund's total assets in debt securities that are in default at the time of purchase.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in below investment-grade debt securities (often called "high-yield" securities or "junk bonds") of corporate issuers. These include traditional corporate bonds as well as bank loans. These securities may have fixed, floating or variable rates. As part of our below investment-grade debt securities investment strategy, we will generally invest in securities that are rated BB through CCC by Standard & Poor's, or an equivalent quality rating from another Nationally Recognized Statistical Ratings Organization, or are deemed by us to be of comparable quality. Below investment-grade debt securities offer the potential for higher returns, as they generally carry a higher yield to compensate for the higher risk associated with their investment. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Additionally, we may invest in stripped securities.
We start our investment process with a top-down, macroeconomic outlook to determine industry and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
8 HIGH INCOME FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Stripped Securities Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
HIGH INCOME FUND 9
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INSTITUTIONAL CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
7.81% -7.08% -0.49% -5.87% 25.24% 10.99% 3.97% 9.82% 3.72% -17.85%
|
BEST AND WORST QUARTER
Best Quarter: Q2 2003 7.94%
Worst Quarter: Q4 2008 -11.79%
|
The Fund's year-to-date performance through June 30, 2009, was 17.13%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes -17.85% 1.55% 2.41% Returns After Taxes on -20.09% -1.10% -0.92% Distributions/2/ Returns After Taxes on -11.41% -0.06% 0.10% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. -26.16% -0.82% 2.20% CORPORATE HIGH YIELD BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on July 31, 2001. Performance shown prior to the inception of the Institutional Class shares reflects the performance of the Investor Class shares, and includes expenses that are not applicable to and are higher than those of the Institutional Class shares. 2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts.
3 The Barclays Capital U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar-denominated, nonconvertible, non-investment grade debt index.The Index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million.You cannot invest directly in an index.
10 HIGH INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) Redemption Fee/1/ 2.00% |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/2/ 0.50% Distribution (12b-1) Fees 0.00% Other Expenses/3/ 0.20% Acquired Fund Fees and 0.02% Expenses/4/ TOTAL ANNUAL FUND 0.72% OPERATING EXPENSES/5/ Fee Waivers 0.20% NET EXPENSES/5,6,7/ 0.52% |
1 Deducted from the net proceeds if shares redeemed (or exchanged) within 30
days of purchase. This fee is retained by the Fund. Please see section
entitled "Redemption Fees" for further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.50% for the first $500 million;
0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for
the next $2 billion; and 0.40% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of any money
market fund or other fund held by the Fund. Shareholders indirectly bear
these underlying expenses because the NAV and/or distributions paid reflect
such underlying expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.50%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 53 3 Years $210 5 Years $381 10 Years $877 |
HIGH INCOME FUND 11
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
Janet S. Rilling, CFA, CPA
FUND INCEPTION:
7/13/1998
INSTITUTIONAL CLASS
Ticker: WIPIX
Fund Number: 3165
INVESTMENT OBJECTIVE
The Income Plus Fund seeks to maximize income while maintaining prospects for
capital appreciation.
o at least 80% of the Fund's net assets in income-producing securities;
o up to 35% of the Fund's total assets in debt securities that are below investment-grade; and
o up to 25% of the Fund's total assets in debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in debt securities, including corporate, mortgage- and
asset-backed securities, bank loans and U.S. Government obligations. These
securities may have fixed, floating or variable rates and may include debt
securities of both domestic and foreign issuers. We invest in both
investment-grade and below investment-grade debt securities. Below
investment-grade debt securities (often called "high yield" securities or "junk
bonds") offer the potential for higher returns, as they generally carry a
higher yield to compensate for the higher risk associated with their
investment. As part of our below investment-grade debt securities investment
strategy, we will generally invest in securities that are rated at least Caa by
Moody's or CCC by Standard & Poor's, or an equivalent quality rating from
another Nationally Recognized Statistical Ratings Organization, or are deemed
by us to be of comparable quality. We expect to maintain an average credit
quality for this portion of the Fund's portfolio equivalent to B or higher. We
may also use futures, options or swap agreements, as well as other derivatives,
to manage risk or to enhance return.
We start our investment process with a top-down, macroeconomic outlook to determine portfolio duration and yield curve positioning as well as industry, sector and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
12 INCOME PLUS FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
INCOME PLUS FUND 13
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR INSTITUTIONAL CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-3.47% 2.77% 7.76% 7.33% 8.41% 6.55% 1.41% 5.32% 6.24% 2.44%
|
BEST AND WORST QUARTERS
Best Quarter: Q2 2003 4.16%
Worst Quarter: Q2 2004 -1.96%
|
The Fund's year-to-date performance through June 30, 2009, was 4.98%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes 2.44% 4.37% 4.42% Returns After Taxes on 0.85% 2.49% 2.12% Distributions/2/ Returns After Taxes on 1.56% 2.62% 2.33% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 2.38% 4.30% 5.58% UNIVERSAL BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on July 18, 2008. For periods prior to the inception of the Institutional Class, Average Annual Total Returns reflect the performance of the Class A shares, and includes sales charges and expenses that are not applicable to the Institutional Class shares, and Calendar Year Total Returns in the bar chart reflect the performance of the Class A shares and do not reflect the sales charges applicable to Class A shares. The Class A shares annual returns are substantially similar to what the Institutional Class shares returns would be because the Institutional Class shares and Class A shares are invested in the same portfolio and their returns differ only to the extent that they do not have the same sales charges and expenses.
2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts.
3 The Barclays Capital U.S. Universal Bond Index is an unmanaged market value-weighted performance benchmark for the U.S. dollar denominated bond market, which includes investment-grade, high yield, and emerging market debt securities with maturities of one year or more. You cannot invest directly in an index.
14 INCOME PLUS FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.50% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.19% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 0.71% OPERATING EXPENSES/4/ Fee Waivers 0.08% NET EXPENSES/4,5,6/ 0.63% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.50% for the first $500 million; 0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for the next $2 billion; and 0.40% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
5 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.61%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 65 3 Years $221 5 Years $390 10 Years $881 |
INCOME PLUS FUND 15
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Thomas O'Connor, CFA
William Stevens
FUND INCEPTION:
12/18/1992
INSTITUTIONAL CLASS
Ticker: WSGIX
Fund Number: 3145
INVESTMENT OBJECTIVE
The Short Duration Government Bond Fund seeks to provide current income
consistent with capital preservation.
o at least 80% of the Fund's net assets in U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government mortgage- and asset-backed securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. We will purchase only securities that are rated,
at the time of purchase, within the two highest rating categories assigned by a
Nationally Recognized Statistical Ratings Organization, or are deemed by us to
be of comparable quality. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements. We may also use futures, options or swap agreements, as well as
other derivatives, to manage risk or to enhance return. Generally, the
portfolio's overall dollar-weighted average effective duration is less than
that of a 3-year U.S. Treasury note.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential, relative to other debt securities of similar credit quality and interest rate sensitivity. As part of our investment strategy, we invest in mortgage-backed securities guaranteed by U.S. Government agencies, and to a lesser extent, other securities rated AAA or Aaa, that we believe will sufficiently outperform U.S. Treasuries. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
16 SHORT DURATION GOVERNMENT BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
SHORT DURATION GOVERNMENT BOND FUND 17
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INSTITUTIONAL CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2.56% 8.11% 7.81% 6.28% 2.29% 1.45% 1.65% 4.41% 6.25% 4.39%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2001 3.50%
Worst Quarter: Q2 2004 -1.14%
|
The Fund's year-to-date performance through June 30, 2009, was 5.46%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes 4.39% 3.61% 4.49% Returns After Taxes on 2.80% 2.19% 2.73% Distributions/2/ Returns After Taxes on 2.83% 2.24% 2.76% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 1-3 6.66% 4.11% 4.81% YEAR GOVERNMENT BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on April 11, 2005. Performance shown
prior to the inception of the Institutional Class shares reflects the
performance of the Administrator Class shares, and includes expenses that
are not applicable to and are higher than those of the Institutional Class
shares.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. 1-3 Year Government Bond Index is the 1-3 Year component of the Barclays Capital U.S. Government Bond Index and is composed of all publicly issued, non-convertible domestic debt of the U.S. Government and its agencies. The Barclays Capital U.S. 1-3 Year Government Bond Index also includes corporate debt guaranteed by the U.S. Government. Only notes and bonds with a minimum maturity of one year up to a maximum maturity of 2.9 years are included. You cannot invest directly in an index.
18 SHORT DURATION GOVERNMENT BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.19% Acquired Fund Fees and 0.01% Expenses/3/ TOTAL ANNUAL FUND 0.60% OPERATING EXPENSES/4/ Fee Waivers 0.17% NET EXPENSES/4,5,6/ 0.43% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
5 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratio of
0.42%. The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 44 3 Years $175 5 Years $318 10 Years $734 |
SHORT DURATION GOVERNMENT BOND FUND 19
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
Janet S. Rilling, CFA, CPA
FUND INCEPTION:
8/31/1987
INSTITUTIONAL CLASS
Ticker: SSHIX
Fund Number: 3102
INVESTMENT OBJECTIVE
The Short-Term Bond Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in debt securities. We may invest in a variety of debt
securities, including corporate, mortgage- and asset-backed securities, bank
loans and U.S. Government obligations. These securities may have fixed,
floating or variable rates. We invest in both investment-grade and below
investment-grade debt securities (often called "high yield securities" or "junk
bonds") and may also invest in U.S. dollar-denominated debt securities of
foreign issuers. As part of our below investment-grade debt securities
investment strategy, we will generally invest in securities that are rated at
least BB by Standard & Poor's or Ba by Moody's, or an equivalent quality rating
from another Nationally Recognized Statistical Ratings Organization, or are
deemed by us to be of comparable quality. We may also use futures, options or
swap agreements, as well as other derivatives, to manage risk or to enhance
return. Additionally, we may invest in stripped securities. Under normal
circumstances, we expect the Fund's dollar-weighted average effective maturity
to be three years or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and industry allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to determine the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
20 SHORT-TERM BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
SHORT-TERM BOND FUND 21
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INSTITUTIONAL CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
4.50% 7.68% 4.95% 1.05% 4.22% 2.60% 2.37% 4.80% 4.92% -0.20%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 3.37%
Worst Quarter: Q1 2002 -1.92%
|
The Fund's year-to-date performance through June 30, 2009, was 4.32%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes -0.20% 2.88% 3.67% Returns After Taxes on -1.80% 1.22% 1.65% Distributions/2/ Returns After Taxes on -0.12% 1.49% 1.89% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on August 31, 1999. Performance shown prior to the inception of the Institutional Class shares reflects the performance of the Investor Class shares, and includes expenses that are not applicable to and are higher than those of the Institutional Class shares. 2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts.
3 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. You cannot invest directly in an index.
22 SHORT-TERM BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/ 2/ 0.19% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 0.61% OPERATING EXPENSES/4/ Fee Waivers 0.11% NET EXPENSES/4,5,6/ 0.50% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion. 2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
5 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.48%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 52 3 Years $186 5 Years $332 10 Years $757 |
SHORT-TERM BOND FUND 23
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Troy Ludgood
Thomas O'Connor, CFA
Lynne A. Royer
William Stevens
FUND INCEPTION:
6/30/1997
INSTITUTIONAL CLASS
Ticker: MBFIX
Fund Number: 944
INVESTMENT OBJECTIVE
The Total Return Bond Fund seeks total return, consisting of income and capital
appreciation.
o at least 80% of the Fund's net assets in bonds;
o at least 80% of the Fund's total assets in investment-grade debt securities;
o up to 25% of the Fund's total assets in asset-backed securities, other than mortgage-backed securities; and
o up to 20% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Total Return Bond Portfolio, a master portfolio with a substantially identical
investment objective and substantially similar investment strategies. We may
invest in additional master portfolios, in other WELLS FARGO ADVANTAGE FUNDS,
or directly in a portfolio of securities.
We invest principally in investment-grade debt securities, including U.S. Government obligations, corporate bonds and mortgage- and asset-backed securities. As part of our investment strategy, we may invest in stripped securities or enter into mortgage dollar rolls and reverse repurchase agreements, as well as invest in U.S. dollar-denominated debt securities of foreign issuers. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Under normal circumstances, we expect to maintain an overall dollar-weighted average effective duration range between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential relative to other debt securities of similar credit quality and interest rate sensitivity. From time to time, we may also invest in unrated bonds that we believe are comparable to investment-grade debt securities. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
24 TOTAL RETURN BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
TOTAL RETURN BOND FUND 25
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS
FOR THE
INSTITUTIONAL
CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.59% 12.06% 8.86% 10.46% 4.65% 4.58% 2.34% 4.38% 6.68% 3.14%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2002 4.98%
Worst Quarter: Q2 2004 -2.36%
|
The Fund's year-to-date performance through June 30, 2009, was 5.80%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes 3.14% 4.21% 5.59% Returns After Taxes on 1.27% 2.53% 3.45% Distributions/2/ Returns After Taxes on 2.02% 2.60% 3.47% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 5.24% 4.65% 5.63% AGGREGATE BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on October 31, 2001. Performance shown
prior to the inception of the Institutional Class shares reflects the
performance of the Administrator Class shares, and includes expenses that
are not applicable to and are higher than those of the Institutional Class
shares.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
26 TOTAL RETURN BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.37% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.16% TOTAL ANNUAL FUND 0.53% OPERATING EXPENSES/3,4/ Fee Waivers 0.11% NET EXPENSES/5/ 0.42% |
1 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Expenses have been adjusted as necessary from amounts incurred during the
Fund's most recent fiscal year to reflect current fees and expenses.
4 Includes gross expenses allocated from the master portfolio in which the Fund
invests.
5 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, including the underlying master portfolios' fees and
expenses, and excluding brokerage commissions, interest, taxes and
extraordinary expenses, do not exceed the net operating expense ratio shown.
The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 43 3 Years $159 5 Years $286 10 Years $655 |
TOTAL RETURN BOND FUND 27
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
FUND INCEPTION:
11/25/1988
INSTITUTIONAL CLASS
Ticker: SADIX
Fund Number: 3104
INVESTMENT OBJECTIVE
The Ultra Short-Term Income Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in income-producing debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in income-producing debt securities. Our portfolio
holdings may include U.S. Government obligations, corporate debt securities,
bank loans and mortgage- and asset-backed debt securities. We may invest in
investment-grade and below investment-grade debt securities (often called
"high-yield" securities or "junk bonds"), as well as in debt securities of both
domestic and foreign issuers. As part of our below investment-grade debt
securities investment strategy, we will generally invest in securities that are
rated at least BB by Standard & Poor's or Ba by Moody's, or an equivalent
quality rating from another Nationally Recognized Statistical Ratings
Organization, or are deemed by us to be of comparable quality. We may also use
futures, options or swap agreements, as well as other derivatives, to manage
risk or to enhance return. We may also invest in stripped securities. Under
normal circumstances, we expect the Fund's dollar-weighted average effective
maturity to be one year or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning, credit quality and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
28 ULTRA SHORT-TERM INCOME FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
ULTRA SHORT-TERM INCOME FUND 29
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INSTITUTIONAL CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
5.26% 7.23% 4.82% 1.22% 2.86% 2.34% 3.97% 5.38% 3.65% -6.52%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 2.29%
Worst Quarter: Q4 2008 -4.66%
|
The Fund's year-to-date performance through June 30, 2009, was 3.17%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INSTITUTIONAL CLASS/1/ Returns Before Taxes -6.52% 1.67% 2.96% Returns After Taxes on -8.02% -0.01% 1.02% Distributions/2/ Returns After Taxes on -4.19% 0.48% 1.37% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 9-12 4.67% 3.66% 4.03% MONTHS U.S. SHORT TREASURY INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/4/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL SHORT-TERM 3.67% N/A N/A U.S. GOVERNMENT/CREDIT BON D INDEX/5/ (reflects no deduction for expenses or taxes) |
1 Institutional Class shares incepted on August 31, 1999. Performance shown prior to the inception of the Institutional Class shares reflects the performance of the Investor Class shares, and includes expenses that are not applicable to and are higher than those of the Institutional Class shares. 2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts.
3 The Barclays Capital 9-12 Months U.S. Short Treasury Index includes aged U.S.
treasury bills, notes and bonds with a remaining maturity from 9 up to (but
not including) 12 months. It excludes zero coupon strips. The Barclays
Capital 9-12 Months U.S. Short Treasury Index provides an approximation of
the interest rate risk of the Fund's portfolio (as measured by duration),
but the credit risk of the Index is significantly different than that of the
Fund due to differences in portfolio composition. You cannot invest directly
in an index.
4 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The Barclays Capital 1-3 Year U.S. Government/Credit Bond Index provides an approximate comparison to the credit risk of the Fund's portfolio, however, its interest rate risk (as measured by duration) may be significantly greater than that of the Fund. You cannot invest directly in an index.
5 The Barclays Capital Short-Term U.S. Government/Credit Bond Index contains securities that have fallen out of the U.S. Government/Credit Index because of the standard minimum one-year to maturity constraint. Securities in the Short-Term U.S. Government/Credit Bond Index must have a maturity from 1 up to (but not including) 12 months. The Barclays Capital Short-Term U.S. Government/Credit Bond Index provides the most appropriate comparison to the Fund with respect to interest rate risk (as measured by duration) and credit risk (based on the composition of the Index and the Fund's portfolio). However, the limited performance history of the Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of August 1, 2004. You cannot invest directly in an index.
30 ULTRA SHORT-TERM INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.39% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.20% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 0.61% OPERATING EXPENSES/4/ Fee Waivers 0.24% NET EXPENSES/4,5,6/ 0.37% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion. 2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
5 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.35%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 37 3 Years $170 5 Years $314 10 Years $734 |
ULTRA SHORT-TERM INCOME FUND 31
Understanding the risks involved in mutual fund investing will help you make an informed decision that takes into account your risk tolerance and preferences. The factors that are most likely to have a material effect on a particular Fund as a whole are called "principal risks." The principal risks for each Fund have been previously identified and are described below. Additional information about the principal risks is included in the Statement of Additional Information.
ACTIVE TRADING RISK Frequent trading will result in a higher-than-average portfolio turnover ratio and increased
trading expenses, and may generate higher short-term capital gains.
COUNTER-PARTY RISK When a Fund enters into a repurchase agreement, an agreement where it buys a security
from a seller that agrees to repurchase the security at an agreed upon price and time, the
Fund is exposed to the risk that the other party will not fulfill its contractual obligation.
Similarly, the Fund is exposed to the same risk if it engages in a reverse repurchase
agreement where a broker-dealer agrees to buy securities and the Fund agrees to
repurchase them at a later date.
DEBT SECURITIES RISK Debt securities, such as notes and bonds, are subject to credit risk and interest rate risk.
Credit risk is the possibility that an issuer of an instrument will be unable to make interest
payments or repay principal when due. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate risk is the risk that
market interest rates may increase, which tends to reduce the resale value of certain debt
securities, including U.S. Government obligations. Debt securities with longer durations are
generally more sensitive to interest rate changes than those with shorter durations. Changes
in market interest rates do not affect the rate payable on an existing debt security, unless the
instrument has adjustable or variable rate features, which can reduce its exposure to interest
rate risk. Changes in market interest rates may also extend or shorten the duration of certain
types of instruments, such as asset-backed securities, thereby affecting their value and
returns. Debt securities may also have, or become subject to, liquidity constraints.
DERIVATIVES RISK The term "derivatives" covers a broad range of investments, including futures, options and
swap agreements. In general, a derivative refers to any financial instrument whose value is
derived, at least in part, from the price of another security or a specified index, asset or rate.
For example, a swap agreement is a commitment to make or receive payments based on
agreed upon terms, and whose value and payments are derived by changes in the value of
an underlying financial instrument. The use of derivatives presents risks different from, and
possibly greater than, the risks associated with investing directly in traditional securities. The
use of derivatives can lead to losses because of adverse movements in the price or value of
the underlying asset, index or rate, which may be magnified by certain features of the
derivatives. These risks are heightened when the portfolio manager uses derivatives to
enhance a Fund's return or as a substitute for a position or security, rather than solely to
hedge (or offset) the risk of a position or security held by the Fund. The success of
management's derivatives strategies will depend on its ability to assess and predict the
impact of market or economic developments on the underlying asset, index or rate and the
derivative itself, without the benefit of observing the performance of the derivative under all
possible market conditions.
|
32 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
FOREIGN INVESTMENT RISK Foreign investments are subject to more risks than U.S. domestic investments. These
additional risks may potentially include lower liquidity, greater price volatility and risks
related to adverse political, regulatory, market or economic developments. Foreign
companies also may be subject to significantly higher levels of taxation than U.S. companies,
including potentially confiscatory levels of taxation, thereby reducing the earnings potential
of such foreign companies. In addition, amounts realized on sales or distributions of foreign
securities may be subject to high and potentially confiscatory levels of foreign taxation and
withholding when compared to comparable transactions in U.S. securities. Investments in
foreign securities involve exposure to fluctuations in foreign currency exchange rates. Such
fluctuations may reduce the value of the investment. Foreign investments are also subject to
risks including potentially higher withholding and other taxes, trade settlement, custodial,
and other operational risks and less stringent investor protection and disclosure standards in
certain foreign markets. In addition, foreign markets can and often do perform differently
from U.S. markets.
HIGH YIELD SECURITIES RISK High yield securities (sometimes referred to as "junk bonds") are debt securities that are
rated below investment-grade, are unrated and deemed by us to be below investment-
grade, or are in default at the time of purchase. These securities have a much greater risk of
default (or in the case of bonds currently in default, of not returning principal) and may be
more volatile than higher-rated securities of similar maturity. The value of these securities
can be affected by overall economic conditions, interest rates, and the creditworthiness of
the individual issuers. Additionally, these securities may be less liquid and more difficult to
value than higher-rated securities.
ISSUER RISK The value of a security may decline for a number of reasons that directly relate to the issuer
or an entity providing credit support or liquidity support, such as management
performance, financial leverage, and reduced demand for the issuer's goods, services or
securities.
LEVERAGE RISK Certain transactions may give rise to a form of leverage. Such transactions may include,
among others, reverse repurchase agreements, loans of portfolio securities, and the use of
when-issued, delayed delivery or forward commitment transactions. The use of derivatives
may also create a leveraging risk. The use of leverage may cause a Fund to liquidate portfolio
positions when it may not be advantageous to do so. Leveraging, including borrowing, may
cause a Fund to be more volatile than if the Fund had not been leveraged. This is because
leverage tends to increase a Fund's exposure to market risk, interest rate risk or other risks
by, in effect, increasing assets available for investment.
LIQUIDITY RISK A security may not be sold at the time desired or without adversely affecting the price.
MANAGEMENT RISK We cannot guarantee that a Fund will meet its investment objective. We do not guarantee
the performance of a Fund, nor can we assure you that the market value of your investment
will not decline. We will not "make good" on any investment loss you may suffer, nor does
anyone we contract with to provide services, such as selling agents or investment advisers,
promise to make good on any such losses.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 33
MARKET RISK The market price of securities owned by a Fund may go up or down, sometimes rapidly or
unpredictably. Securities may decline in value or become illiquid due to factors affecting
securities markets generally or particular industries represented in the securities markets.
The value or liquidity of a security may decline or become illiquid due to general market
conditions which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates or adverse investor sentiment generally. They
may also decline or become illiquid due to factors that affect a particular industry or
industries, such as labor shortages or increased production costs and competitive conditions
within an industry. During a general downturn in the securities markets, multiple asset
classes may decline or become illiquid in value simultaneously.
MORTGAGE- AND ASSET-BACKED Mortgage- and asset-backed securities represent interests in "pools" of mortgages or other
SECURITIES RISK assets, including consumer loans or receivables held in trust. In addition, mortgage dollar
rolls are transactions in which a Fund sells mortgage-backed securities to a dealer and
simultaneously agrees to purchase similar securities in the future at a predetermined price.
Mortgage- and asset-backed securities, including mortgage dollar roll transactions, are
subject to certain additional risks. Rising interest rates tend to extend the duration of these
securities, making them more sensitive to changes in interest rates. As a result, in a period of
rising interest rates, these securities may exhibit additional volatility. This is known as
extension risk. In addition, these securities are subject to prepayment risk. When interest
rates decline, borrowers may pay off their debts sooner than expected. This can reduce the
returns of a Fund because the Fund will have to reinvest that money at the lower prevailing
interest rates. This is known as contraction risk. These securities also are subject to risk of
default on the underlying mortgage or assets, particularly during periods of economic
downturn.
REGULATORY RISK Changes in government regulations may adversely affect the value of a security. An
insufficiently regulated market might also permit inappropriate practices that adversely
affect an investment.
STRIPPED SECURITIES RISK Stripped securities are the separate income or principal components of debt securities.
These securities are particularly sensitive to changes in interest rates, and therefore subject
to greater fluctuations in price than typical interest bearing debt securities. For example,
stripped mortgage-backed securities have greater interest rate risk than mortgage-backed
securities with like maturities, and stripped treasury securities have greater interest rate risk
than traditional government securities with identical credit ratings.
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34 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
U.S. GOVERNMENT OBLIGATIONS U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government
RISK agencies or government-sponsored entities. While U.S. Treasury obligations are backed by
the "full faith and credit" of the U.S. Government, securities issued by U.S. Government
agencies or government-sponsored entities may not be backed by the full faith and credit of
the U.S. Government. The Government National Mortgage Association (GNMA), a wholly
owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit
of the U.S. Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of mortgages insured by the Federal
Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or
government-sponsored entities (i.e. not backed by the full faith and credit of the U.S.
Government) include the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of
interest and ultimate collection or scheduled payment of principal, but its participation
certificates are not backed by the full faith and credit of the U.S. Government. If a
government-sponsored entity is unable to meet its obligations, the performance of a Fund
that holds securities of the entity will be adversely impacted. U.S. Government obligations
are subject to low but varying degrees of credit risk, and are still subject to interest rate and
market risk.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 35
A description of the WELLS FARGO ADVANTAGE FUNDS' policies and procedures with respect to disclosure of the WELLS FARGO ADVANTAGE FUNDS' portfolio holdings is available in the Funds' Statement of Additional Information and on the WELLS FARGO ADVANTAGE FUNDS' Web site at www.wellsfargo.com/advantagefunds. In addition, Funds Management will, from time to time, include portfolio holdings information in quarterly commentaries for certain Funds. The substance of the information contained in such commentaries will also be posted to the Funds' Web site at www.wellsfargo.com/advantagefunds.
36 PORTFOLIO HOLDINGS INFORMATION
ABOUT WELLS FARGO FUNDS TRUST
The Trust was organized as a Delaware statutory trust on March 10, 1999. The
Board of Trustees of the Trust (Board) supervises each Fund's activities,
monitors its contractual arrangements with various service providers and
decides on matters of general policy.
The Board supervises the Funds and approves the selection of various companies hired to manage the Funds' operations. Except for the Funds' investment advisers, which generally may be changed only with shareholder approval, if the Board believes that it is in the best interests of the shareholders, it may change other service providers.
THE INVESTMENT ADVISER
Wells Fargo Funds Management, LLC, located at 525 Market Street, San Francisco,
CA 94105, serves as the investment adviser for the Funds. Funds Management, an
indirect, wholly owned subsidiary of Wells Fargo & Company, was created to
assume the mutual fund advisory responsibilities of Wells Fargo Bank and is an
affiliate of Wells Fargo Bank. Wells Fargo Bank, which was founded in 1852, is
the oldest bank in the western United States and is one of the largest banks in
the United States. As adviser, Funds Management is responsible for implementing
the investment policies and guidelines for the Funds and for supervising the
sub-adviser who is responsible for the day-to-day portfolio management of the
Funds. For providing these services, Funds Management is entitled to receive
fees as described in each Fund's table of Annual Fund Operating Expenses under
the caption "Management Fees." A discussion regarding the basis for the Board's
approval of the investment advisory and sub-advisory agreements for each Fund
is available in the Funds' annual report for the fiscal year ended May 31,
2008.
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services. The involvement of various subsidiaries of Wells Fargo & Company, including Funds Management, in the management and operation of the Funds and in providing other services or managing other accounts gives rise to certain actual and potential conflicts of interest.
For example, certain investments may be appropriate for a Fund and also for other clients advised by Funds Management and its affiliates, and there may be market or regulatory limits on the amount of investment, which may cause competition for limited positions. Also, various client and proprietary accounts may at times take positions that are adverse to a Fund. Funds Management applies various policies to address these situations, but a Fund may nonetheless incur losses or underperformance during periods when Wells Fargo & Company, its affiliates and their clients achieve profits or outperformance.
Wells Fargo & Company may have interests in or provide services to portfolio companies or Fund shareholders or intermediaries that may not be fully aligned with the interests of all investors. Funds Management and its affiliates serve in multiple roles, including as investment adviser and, for most WELLS FARGO ADVANTAGE FUNDS, sub-adviser, as well as administrator, principal underwriter and securities lending agent. Additionally, until October 26, 2009, Wells Fargo Bank will serve as custodian for the Total Return Bond Fund.
These are all considerations of which an investor should be aware and which may cause conflicts that could disadvantage a Fund. Funds Management has instituted business and compliance policies, procedures and disclosures that are designed to identify, monitor and mitigate conflicts of interest.
ORGANIZATION AND MANAGEMENT OF THE FUNDS 37
MICHAEL J. BRAY, CFA Mr. Bray is jointly responsible for managing the Government Securities Fund, which he
Government Securities Fund has managed since 2005. He is also jointly responsible for managing the Income Plus
Income Plus Fund Fund, which he has managed since 2008. Mr. Bray joined Wells Capital Management in
2005 as a portfolio manager on the Customized Fixed Income Team specializing in
government, agency and interest rate derivative instruments. Prior to joining Wells
Capital Management, Mr. Bray was a principal responsible for multi-currency yield
curve arbitrage business at Windward Capital, LLC from 2004 to 2005. From 1996 to
2004, he was the managing director at State Street Research and Management,
focusing on mutual fund and institutional account management. Education: B.S., Math
and Actuarial Science, University of Connecticut, Storrs; M.B.A., Pennsylvania State
University.
TROY LUDGOOD Mr. Ludgood is jointly responsible for managing the Total Return Bond Fund, which he
Total Return Bond Fund has managed since 2007. In 2008, Mr. Ludgood was named as co-head and senior
portfolio manager of the Montgomery Fixed Income Strategies Team at Wells Capital
Management, where he has also served as a portfolio manager since 2007, Director of
Credit Trading since 2006, and a senior credit trader since 2004. Prior to joining Wells
Capital Management, he was a trader at Lehman Brothers since 2000. Education: B.S.,
Industrial Engineering, Georgia Institute of Technology; M.B.A., Wharton School of the
University of Pennsylvania.
KEVIN J. MAAS, CFA Mr. Maas is jointly responsible for managing the High Income Fund, which he has
High Income Fund managed since 2007. Mr. Maas is a portfolio manager for the Wells Capital
Management Fixed Income Team and also serves as a senior research analyst. He
joined Wells Capital Management in 2005 as a senior research analyst specializing in
taxable high yield securities. Prior to joining Wells Capital Management, Mr. Maas was a
high-yield, fixed-income analyst with Strong Capital Management, Inc. since 1999.
Education: B.S., Finance, University of Minnesota.
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38 ORGANIZATION AND MANAGEMENT OF THE FUNDS
JAY N. MUELLER, CFA Mr. Mueller is jointly responsible for managing the Government Securities Fund, the
Government Securities Fund Short-Term Bond Fund and the Ultra Short-Term Income Fund, each of which he has
Short-Term Bond Fund managed since 2004. Mr. Mueller joined Wells Capital Management in 2005 as a
Ultra Short-Term Income Fund portfolio manager specializing in macroeconomic analysis. Prior to joining Wells
Capital Management, he served as a portfolio manager with Strong Capital
Management, Inc. (SCM) since 1991. Additional responsibilities at SCM included,
serving as director of fixed income from 2002 to 2004. Education: B.A., Economics,
University of Chicago.
D. JAMES NEWTON II, CFA, CPA Mr. Newton is jointly responsible for managing the Income Plus Fund and the Ultra
Income Plus Fund Short-Term Income Fund, both of which he has managed since 2008. Mr. Newton
Ultra Short-Term Income Fund joined Wells Capital Management in 2005 as a portfolio manager and head of
investment grade credit research. Prior to joining Wells Capital Management, Mr.
Newton served as a high-grade, fixed-income analyst with Strong Capital
Management, Inc. (SCM) since 2002. Prior to joining SCM, he was at Northwestern
Mutual Life Insurance Company from 1998 to 2002, first as an associate in the Private
Placement Department, and later as an investment grade credit analyst and
subsequent director in the Public Fixed Income Department. Education: B.A.,
Economics, Albion College; M.B.A., University of Michigan.
THOMAS O'CONNOR, CFA Mr. O'Connor is jointly responsible for managing the Short Duration Government Bond
Short Duration Government Fund and the Total Return Bond Fund, both of which he has managed since 2003. In
Bond Fund 2008, Mr. O'Connor was named as co-head of the Montgomery Fixed Income Strategies
Total Return Bond Fund Team at Wells Capital Management, where he has also served as a senior portfolio
manager since 2007 and portfolio manager since 2003. Mr. O'Connor is responsible for
identifying relative value in the mortgage and structured product sectors of the
market. Prior to joining Wells Capital Management, Mr. O'Connor was a portfolio
manager in the Fixed Income Division of Montgomery Asset Management from 2000
to 2003. Education: B.A., Business Administration, University of Vermont.
THOMAS M. PRICE, CFA Mr. Price is jointly responsible for managing the High Income Fund, which he has
High Income Fund managed since 1998 and the Income Plus Fund, which he has managed since 2005. He
Income Plus Fund is also jointly responsible for managing the Ultra Short-Term Income Fund, which he
Ultra Short-Term Income Fund has managed since 2002. Mr. Price joined Wells Capital Management in 2005 as a
portfolio manager specializing in taxable high yield securities. Prior to joining Wells
Capital Management, Mr. Price was with Strong Capital Management, Inc. (SCM) since
1996 as a fixed income research analyst and, since 1998, as a portfolio manager.
Education: B.B.A., Finance, University of Michigan; M.B.A., Finance, Kellogg Graduate
School of Management, Northwestern University.
JANET S. RILLING, CFA, CPA Ms. Rilling is jointly responsible for managing the Income Plus Fund, which she has
Income Plus Fund managed since 2008, and the Short-Term Bond Fund, which she has managed since
Short-Term Bond Fund 2005. Ms. Rilling joined Wells Capital Management in 2005 as a portfolio manager and
specializes in investment-grade corporate debt securities. Prior to joining Wells Capital
Management, she was a portfolio manager with Strong Capital Management, Inc.
(SCM) since 2000 and a research analyst at SCM since 1995. Education: B.A., Accounting
and Finance; M.S., Finance, University of Wisconsin.
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ORGANIZATION AND MANAGEMENT OF THE FUNDS 39
LYNNE A. ROYER Ms. Royer is jointly responsible for managing the Total Return Bond Fund, which she
Total Return Bond Fund has managed since 2007. In 2008, Ms. Royer was named as co-head of the Montgomery
Fixed Income Strategies Team at Wells Capital Management, where she has also served
as a senior portfolio manager since 2007, a portfolio manager since 2006, and as the
Director of Credit Research since 2005. Prior to joining Wells Capital Management as a
senior analyst in 2003, she was a senior analyst in the Fixed Income Division of
Montgomery Asset Management since 1997. Education: B.A., Gettysburg College;
M.B.A., Anderson Graduate School of Management, University of California, Los
Angeles.
MICHAEL J. SCHUELLER, CFA Mr. Schueller is jointly responsible for managing the High Income Fund, which he has
High Income Fund managed since 2007. Mr. Schueller joined Wells Capital Management in 2005 as a
senior research analyst specializing in high yield securities and, since 2007, as a
portfolio manager. Prior to joining Wells Capital Management, Mr. Schueller was with
Strong Capital Management, Inc. (SCM) since 2000 as a leveraged loan trader and, since
2002, a fixed income research analyst. Education: B.A., Economics, University of
Minnesota; J.D., University of Wisconsin.
WILLIAM STEVENS Mr. Stevens is jointly responsible for managing the Short Duration Government Bond
Short Duration Government Fund, which he has managed since 1992 and the Total Return Bond Fund, which he has
Bond Fund managed since 1997. Mr. Stevens joined Wells Capital Management in 2003 as chief
Total Return Bond Fund fixed income officer and senior managing director. He currently serves as senior
portfolio manager and co-head of the Montgomery Fixed Income Investment
Strategies Team. Prior to joining Wells Capital Management, Mr. Stevens was president
and chief investment officer of Montgomery Asset Management, with oversight
responsibility for all investment related activities, as well as co-head and founder of
Montgomery's Fixed Income Division since 1992. Education: B.A., Economics, Wesleyan
University; M.B.A., Harvard Business School.
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DORMANT INVESTMENT ADVISORY ARRANGEMENT
Under the investment advisory contract for the Total Return Bond Fund, a
gateway fund, Funds Management does not receive any compensation from the Fund
as long as the Fund continues to invest, as it does today, substantially all of
its assets in a single master portfolio. Under this structure, Funds Management
receives only an advisory fee from the master portfolio. If the Fund were to
change its investment structure so that it begins to invest substantially all
of its assets in two or more master portfolios, Funds Management would be
entitled to receive an annual fee of 0.25% of the Fund's average daily net
assets for providing investment advisory services to the Fund, including the
determination of the asset allocations of the Fund's investments in the various
master portfolios.
DORMANT MULTI-MANAGER ARRANGEMENT
The Board has adopted a "multi-manager" arrangement for each Fund, except the
Income Plus Fund. Under this arrangement, each Fund and Funds Management may
engage one or more sub-advisers to make day-to-day investment decisions for the
Fund's assets. Funds Management would retain ultimate responsibility (subject
to the oversight of the Board) for overseeing the sub-advisers and may, at
times, recommend to the Board that the Fund: (1) change, add or terminate one
or more sub-advisers; (2) continue to retain a sub-adviser even though the
sub-adviser's ownership or corporate structure has changed; or (3) materially
change a sub-advisory agreement with a sub-adviser.
Applicable law generally requires a Fund to obtain shareholder approval for most of these types of recommendations, even if the Board approves the proposed action. Under the "multi-manager" arrangement approved by the Board, the Fund will seek exemptive relief, if necessary, from the SEC to permit Funds Management (subject to the Board's oversight and approval) to make decisions about the Fund's sub-advisory arrangements without obtaining shareholder approval. The Fund will continue to submit matters to shareholders for their approval to the extent required by applicable law. Meanwhile, this multi-manager arrangement will remain dormant and will not be implemented until shareholders are further notified.
40 ORGANIZATION AND MANAGEMENT OF THE FUNDS
ADDITIONAL PAYMENTS TO DEALERS
In addition to dealer reallowances and payments made by each Fund for
distribution and shareholder servicing, the Fund's adviser, the distributor or
their affiliates make additional payments ("Additional Payments") to certain
selling or shareholder servicing agents for the Fund, which include
broker-dealers. These Additional Payments are made in connection with the sale
and distribution of shares of the Fund or for services to the Fund and its
shareholders. These Additional Payments, which may be significant, are paid by
the Fund's adviser, the distributor or their affiliates, out of their revenues,
which generally come directly or indirectly from fees paid by the entire Fund
complex.
In return for these Additional Payments, the Fund's adviser and distributor expect to receive certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments. Such advantages are expected to include, without limitation, placement of the Fund on a list of mutual funds offered as investment options to the selling agent's clients (sometimes referred to as "Shelf Space"); access to the selling agent's registered representatives; and/or ability to assist in training and educating the selling agent's registered representatives.
Certain selling or shareholder servicing agents receive these Additional Payments to supplement amounts payable by the Fund under the shareholder servicing plans. In exchange, these agents provide services including, but not limited to, establishing and maintaining accounts and records; answering inquiries regarding purchases, exchanges and redemptions; processing and verifying purchase, redemption and exchange transactions; furnishing account statements and confirmations of transactions; processing and mailing monthly statements, prospectuses, shareholder reports and other SEC-required communications; and providing the types of services that might typically be provided by each Fund's transfer agent (E.G., the maintenance of omnibus or omnibus-like accounts, the use of the National Securities Clearing Corporation for the transmission of transaction information and the transmission of shareholder mailings).
The Additional Payments may create potential conflicts of interests between an investor and a selling agent who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial consultant and review carefully any disclosure by the selling agent as to what monies they receive from mutual fund advisers and distributors, as well as how your financial consultant is compensated.
The Additional Payments are typically paid in fixed dollar amounts, or based on the number of customer accounts maintained by the selling or shareholder servicing agent, or based on a percentage of sales and/or assets under management, or a combination of the above. The Additional Payments are either up-front or ongoing or both. The Additional Payments differ among selling and shareholder servicing agents. Additional Payments to a selling agent that is compensated based on its customers' assets typically range between 0.05% and 0.30% in a given year of assets invested in the Fund by the selling agent's customers. Additional Payments to a selling agent that is compensated based on a percentage of sales typically range between 0.10% and 0.15% of the gross sales of the Fund attributable to the selling agent. In addition, representatives of the Fund's distributor visit selling agents on a regular basis to educate their registered representatives and to encourage the sale of Fund shares. The costs associated with such visits may be paid for by the Fund's adviser, distributor, or their affiliates, subject to applicable FINRA regulations.
More information on the FINRA member firms that have received the Additional Payments described in this section is available in the Statement of Additional Information, which is on file with the SEC and is also available on the WELLS FARGO ADVANTAGE FUNDS website at www.wellsfargo.com/advantagefunds.
COMPENSATION TO DEALERS AND SHAREHOLDER SERVICING AGENTS 41
The share price (net asset value per share or NAV) for the Fund is calculated each business day as of the close of trading on the New York Stock Exchange (NYSE) (generally 4 p.m. ET). To calculate the Fund's NAV, the Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The price at which a purchase or redemption of Fund shares is effected is based on the next calculation of NAV after the order is placed. Each Fund does not calculate its NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
With respect to any portion of the Fund's assets that may be invested in other mutual funds, the Fund's NAV is calculated based upon the net asset values of the other mutual funds in which the Fund invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
With respect to any portion of the Fund's assets invested directly in securities, the Fund's investments are generally valued at current market prices. Securities are generally valued based on the last sale price during the regular trading session if the security trades on an exchange (closing price). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price (NOCP), and if no NOCP is available, then at the last reported sales price.
We are required to depart from these general valuation methods and use fair value pricing methods to determine the values of certain investments if we believe that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Fund calculates its NAV. In addition, we use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before the Fund calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security.
In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate or that it reflects the price that the Fund could obtain for such security if it were to sell the security as of the time of fair value pricing. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. See the Statement of Additional Information for additional details regarding the pricing of Fund shares.
42 PRICING FUND SHARES
Institutional Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, employee benefit trusts, endowments, foundations and corporations. Institutional Class shares may also be offered through certain financial intermediaries that charge their customers transaction or other fees with respect to their customers' investments in the Funds. Specific eligibility requirements that apply to these entities include:
o Employee benefit plan programs that have at least $100 million in plan assets;
o Broker-dealer managed account or wrap programs that charge an asset-based fee and have program assets of at least $100 million;
o Registered investment adviser mutual fund wrap programs that charge an asset-based fee and have program assets of at least $100 million;
o Internal Revenue Code Section 529 college savings plan accounts;
o Fund of Funds including those advised by Funds Management (WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/);
o Investment Management and Trust Departments of Wells Fargo purchasing shares on behalf of their clients;
o Institutions who invest a minimum initial amount of $5 million in a Fund; and
o Under certain circumstances and for certain groups as detailed in the Funds' Statement of Additional Information.
INSTITUTIONS PURCHASING
SHARES DIRECTLY OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------- ----------------------------------------------- --------------------------------------
By Telephone or Internet A new account may not be opened by To buy additional shares or to buy
---------------------------
telephone or internet unless the institution shares in a new Fund:
has another Wells Fargo Advantage Fund o Call Investor Services at
account. If the institution does not currently 1-800-222-8222 or
have an account, contact your investment
o Call 1-800-368-7550 for the
representative.
-----------------------------------------------
automated phone system or
o visit our Web site at
www.wellsfargo.com/
advantagefunds
--------------------------------------
By Wire To buy additional shares, instruct
---------------------------
o Complete and sign the Institutional Class
your bank or financial institution to
account application
use the same wire instructions
o Call Investor Services at 1-800-222-8222 for
shown to the left.
--------------------------------------
faxing instructions
o Use the following wiring instructions:
State Street Bank & Trust
Boston, MA
Bank Routing Number: ABA 011000028
Wire Purchase Account: 9905-437-1
Attention: WELLS FARGO ADVANTAGE FUNDS
(Name of Fund, Account
Number )
Account Name: Provide your
name as registered on the
Fund account
-----------------------------------------------
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HOW TO BUY SHARES 43
INSTITUTIONS PURCHASING
SHARES DIRECTLY OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------- ---------------------------------------------- --------------------------------------
In Person Investors are welcome to visit the Investor See instructions shown to the left.
-------------------------- -------------------------------------
Center in person to ask questions or conduct
any Fund transaction. The Investor Center is
located at 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
----------------------------------------------
Through Your Investment Contact your investment representative. Contact your investment
Representative representative.
-------------------------- ---------------------------------------------- -------------------------------------
|
SPECIAL CONSIDERATIONS WHEN INVESTING THROUGH FINANCIAL INTERMEDIARIES:
If a financial intermediary purchases Institutional Class shares on your
behalf, you should understand the following:
o MINIMUM INVESTMENTS AND OTHER TERMS OF YOUR ACCOUNT. Share purchases are made through a customer account at your financial intermediary following that firm's terms. Financial intermediaries may require different minimum investment amounts. Please consult an account representative from your financial intermediary for specifics.
o RECORDS ARE HELD IN FINANCIAL INTERMEDIARY'S NAME. Financial intermediaries are usually the holders of record for Institutional Class shares held through their customer accounts. The financial intermediaries maintain records reflecting their customers' beneficial ownership of the shares.
o PURCHASE/REDEMPTION ORDERS. Financial intermediaries are responsible for transmitting their customers' purchase and redemption orders to the Funds and for delivering required payment on a timely basis.
o SHAREHOLDER COMMUNICATIONS. Financial intermediaries are responsible for delivering shareholder communications and voting information from the Funds, and for transmitting shareholder voting instructions to the Funds.
o U.S. DOLLARS ONLY. All payment must be made in U.S. dollars and all checks must be drawn on U.S. banks.
o RIGHT TO REFUSE AN ORDER. We reserve the right to refuse or cancel a purchase or exchange order for any reason, including if we believe that doing so would be in the best interests of a Fund and its shareholders.
o EARNINGS DISTRIBUTIONS. You are eligible to earn distributions beginning on the business day after the transfer agent receives your purchase in proper form.
44 HOW TO BUY SHARES
Institutional Class shares must be redeemed according to the terms of your customer account with your financial intermediary. You should contact your investment representative when you wish to sell Fund shares.
INSTITUTIONS SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
----------------------------- ---------------------------------------------------------------------
DIRECTLY
-----------------------------
By Telephone / o To speak with an investor services representative call
Electronic Funds Transfer 1-800-222-8222 or use the automated phone system at
-----------------------------
(EFT)
------------------------- --
1-800-368-7550.
o Redemptions processed by EFT to a linked Wells Fargo Bank
account occur same day for Wells Fargo Advantage money
market funds, and next day for all other WELLS FARGO ADVANTAGE
FUNDS.
o Transfers made to a Wells Fargo Bank account are made
available sooner than transfers to an unaffiliated institution.
o Redemptions to any other linked bank account may post in
two business days, please check with your financial institution
for funds posting and availability.
NOTE: Telephone transactions such as redemption requests
made over the phone generally require only one of the
account owners to call unless you have instructed us
otherwise.
--------------
By Wire o To arrange for a Federal Funds wire, call 1-800-222-8222.
-----------------------------
o Be prepared to provide information on the commercial bank
that is a member of the Federal Reserve wire system.
o Redemption proceeds are usually wired to the financial
intermediary the following business day.
---------------------------------------------------------------------
By Internet Visit our Web site at www.wellsfargo.com/advantagefunds.
----------------------------- ---------------------------------------------------------------------
In Person Investors are welcome to visit the Investor Center in person to ask
-----------------------------
questions or conduct any Fund transaction. The Investor Center is
located at 100 Heritage Reserve, Menomonee Falls, Wisconsin
53051.
--------------
Through Your Investment Contact your investment representative.
Representative
----------------------------- --------------
|
GENERAL NOTES FOR SELLING SHARES:
o PROPER FORM. We will process requests to sell shares at the first NAV calculated after a request in proper form is received by the transfer agent. Requests received before the cutoff time are processed on the same business day.
o EARNINGS DISTRIBUTIONS. Your shares are eligible to earn distributions through the date of redemption. If you redeem shares on a Friday or prior to a holiday, your shares will continue to be eligible to earn distributions until the next business day.
o REDEMPTION FEES. Your redemptions are net of any redemption fee.
o RIGHT TO DELAY PAYMENT. We normally will send out checks within one business day, and in any event no more than seven days, after we accept your request to redeem. If you redeem shares recently purchased by check or through EFT, you may be required to wait up to seven business days before we will send your redemption proceeds. Our ability
HOW TO SELL SHARES 45
to determine with reasonable certainty that investments have been finally collected is greater for investments coming from accounts with banks affiliated with Funds Management than it is for investments coming from accounts with unaffiliated banks. Redemption payments also may be delayed under extraordinary circumstances or as permitted by the SEC in order to protect remaining shareholders. Such extraordinary circumstances are discussed further in the Statement of Additional Information.
o REDEMPTION IN KIND. Although generally we pay redemption requests in cash, we reserve the right to determine in our sole discretion, whether to satisfy redemption requests by making payment in securities (known as a redemption in kind). In such case, we may pay all or part of the redemption in securities of equal value as permitted under the 1940 Act, and the rules thereunder. The redeeming shareholder should expect to incur transaction costs upon the disposition of the securities received.
o RETIREMENT PLANS AND OTHER PRODUCTS. If you purchased shares through a packaged investment product or retirement plan, read the directions for selling shares provided by the product or plan. There may be special requirements that supersede the directions in this Prospectus.
REDEMPTION FEES
For the High Income Fund, a 2.00% redemption fee will be assessed on the NAV of
shares redeemed or exchanged within 30 days after purchase and will be deducted
from the proceeds otherwise payable to the shareholder. The redemption fee for
a Fund is intended to compensate the Fund for the increased expenses to
longer-term shareholders and the disruptive effect on the Fund's portfolio
caused by short-term investments. This redemption fee is retained by the Fund.
To determine whether the redemption fee applies, the Fund will first redeem shares acquired by reinvestment of any distributions of net investment income and realized net capital gain, and then will redeem shares in the order in which they were purchased (such that shares held the longest are redeemed first).
Please note that in certain cases, your financial intermediary or the Investor Center will need to be notified in order to waive the redemption fee. The redemption fee will be waived on sales or exchanges of Fund shares made under the following circumstances.
o shares that were purchased with reinvested distributions;
o in order to meet scheduled (Internal Revenue Code Section 72(t) withdrawal schedule) or mandatory distributions (withdrawals generally made after age 701/2 according to IRS guidelines) from traditional IRAs and certain other retirement plans. (See your retirement plan information for details);
o in the event of the last surviving shareholder's death or for a disability suffered after purchasing shares. ("Disability" is defined in Internal Revenue Code Section 72(m)(7));
o redemptions initiated by a Fund;
o conversion of shares from one share class to another in the same Fund;
o redemptions in connection with a non-discretionary portfolio rebalancing associated with certain wrap accounts and certain retirement plans;
o taking out a distribution or loan from a defined contribution plan;
o to effect, through a redemption and subsequent purchase, an account registration change within the same Fund;
o due to participation in the Systematic Withdrawal Plan;
o Fund of Funds, including those advised by Funds Management (WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/), subject to review and approval by Funds Management;
o transactions by Section 529 college savings plan accounts; and
o if Funds Management determines in its discretion such a waiver is consistent with the best interests of a Fund's shareholders.
46 HOW TO SELL SHARES
In addition, certain brokers, retirement plan administrators and/or fee-based program sponsors who maintain underlying shareholder accounts do not have the systems capability to track and assess redemption fees.Though these intermediaries will be asked to assess redemption fees on shareholder and participant accounts and remit these fees to the Fund, there are no assurances that all intermediaries will properly assess redemption fees. Further, a financial intermediary may apply different methodologies than those described above in assessing redemption fees or may impose their own redemption fee that may differ from the Fund's redemption fee. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about whether and how redemption fees will be applied to your account.
HOW TO SELL SHARES 47
Exchanges between WELLS FARGO ADVANTAGE FUNDS involve two transactions: (1) a sale of shares of one Fund; and (2) the purchase of shares of another. In general, the same rules and procedures that apply to sales and purchases apply to exchanges. There are, however, additional factors you should keep in mind while making or considering an exchange:
o In general, exchanges may be made between like share classes of any Wells Fargo Advantage Fund offered to the general public for investment (I.E., a Fund not closed to new accounts).
o An exchange request will be processed on the same business day, provided that both Funds are open at the time the request is received. If one or both Funds are closed, the exchange will be processed on the following business day.
o You should carefully read the prospectus for the Wells Fargo Advantage Fund into which you wish to exchange.
o Every exchange involves selling Fund shares, which may produce a capital gain or loss for tax purposes.
o If you are making an initial investment into a Fund through an exchange, you must exchange at least the minimum initial purchase amount for the new Fund, unless your balance has fallen below that amount due to investment performance.
o Any exchange between two WELLS FARGO ADVANTAGE FUNDS must meet the minimum redemption and subsequent purchase amounts.
o The High Income Fund imposes a 2.00% redemption fee on shares that are exchanged within 30 days of purchase. See "Redemption Fees" under "How to Sell Shares" for additional information.
Generally, we will notify you at least 60 days in advance of any changes in our exchange policy.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Funds reserve the right to reject any purchase or exchange order for any reason. The Funds are not designed to serve as vehicles for frequent trading. Purchases or exchanges that a Fund determines could harm the Fund may be rejected.
Excessive trading by Fund shareholders can negatively impact a Fund and its long-term shareholders in several ways, including disrupting Fund investment strategies, increasing transaction costs, decreasing tax efficiency, and diluting the value of shares held by long-term shareholders. Excessive trading in Fund shares can negatively impact a Fund's long-term performance by requiring it to maintain more assets in cash or to liquidate portfolio holdings at a disadvantageous time. Certain Funds may be more susceptible than others to these negative effects. For example, Funds that have a greater percentage of their investments in non-U.S. securities may be more susceptible than other Funds to arbitrage opportunities resulting from pricing variations due to time zone differences across international financial markets. Similarly, Funds that have a greater percentage of their investments in small company securities may be more susceptible than other Funds to arbitrage opportunities due to the less liquid nature of small company securities. Both types of Funds also may incur higher transaction costs in liquidating portfolio holdings to meet excessive redemption levels. Fair value pricing may reduce these arbitrage opportunities, thereby reducing some of the negative effects of excessive trading.
The Funds actively discourage and take steps to prevent the portfolio disruption and negative effects on long-term shareholders that can result from excessive trading activity by Fund shareholders. The Board has approved the Funds' policies and procedures, which provide, among other things, that Funds Management may deem trading activity to be excessive if it determines that such trading activity would likely be disruptive to the Fund by increasing expenses or lowering returns. In this regard, the Funds take steps to avoid accommodating frequent purchases and redemptions of shares by Fund shareholders. Except as noted below for the Ultra Short-Term Income Fund, Funds Management monitors available shareholder trading information across all Funds on a daily basis. Funds Management will temporarily suspend the purchase and exchange privileges of an investor who completes a purchase and redemption in a Fund within 30 calendar days. Such investor will be precluded from investing in the Fund for a period of 30 calendar days.
Because the Ultra Short-Term Income Fund is often used for short-term investments, it is designed to accommodate more frequent purchases and redemptions than longer-term income funds. As a result, the Ultra Short-Term Income Fund does not
48 HOW TO EXCHANGE SHARES
anticipate that frequent purchases and redemptions, under normal circumstances, will have significant adverse consequences to the Ultra Short-Term Income Fund or its shareholders. Although the policies adopted by the Ultra Short-Term Income Fund do not prohibit frequent trading, Funds Management will seek to prevent an investor from utilizing the Fund to facilitate frequent purchases and redemptions of shares in long-term Funds in contravention of the policies and procedures adopted by the long-term Funds.
In addition, Funds Management reserves the right to accept purchases, redemptions and exchanges made in excess of applicable trading restrictions in designated accounts held by Funds Management or its affiliate that are used at all times exclusively for addressing operational matters related to shareholder accounts, such as testing of account functions, and are maintained at low balances that do not exceed specified dollar amount limitations.
A financial intermediary through whom you may purchase shares of the Fund may independently attempt to identify excessive trading and take steps to deter such activity. As a result, a financial intermediary may on its own limit or permit trading activity of its customers who invest in Fund shares using standards different from the standards used by Funds Management and described in this Prospectus. Funds Management may permit a financial intermediary to enforce its own internal policies and procedures concerning frequent trading in instances where Funds Management reasonably believes that the intermediary's policies and procedures effectively discourage disruptive trading activity. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about the restrictions or limitations on trading activity that will be applied to your account.
Certain purchases and redemptions made under the following circumstances will not be factored into Funds Management's analysis of frequent trading activity including, but not limited to: reinvestment of dividends; retirement plan contributions, loans and distributions (including hardship withdrawals); non-discretionary portfolio rebalancing associated with certain wrap accounts and retirement plans; and transactions in Section 529 Plans and registered funds of funds.
Effective March 1, 2010, the Funds' (except for the Ultra Short-Term Income Fund) short-term trading policy will be modified. Funds Management will continue to monitor available shareholder trading information across all Funds on a daily basis. If a shareholder redeems more than $5,000 (including redemptions that are part of an exchange transaction) from a Fund, that shareholder will be "blocked" from purchasing shares of that Fund (including purchases that are part of an exchange transaction) for 30 calendar days after the redemption. This modified policy will not apply to:
o Money market funds;
o Ultra-short funds;
o Purchases of shares through dividend reinvestments;
o Systematic purchases, redemptions or exchanges where a financial intermediary maintaining a shareholder account identifies the transaction as a systematic purchase, redemption or exchange at the time of the transaction;
o Rebalancing transactions within certain asset allocation or "wrap" programs where the financial intermediary maintaining a shareholder account is able to identify the transaction as part of an asset allocation program approved by Funds Management;
o Transactions initiated by a registered "fund of funds" or Section 529 Plan into an underlying fund investment;
o Certain transactions involving participants in employer-sponsored retirement plans, including: participant withdrawals due to mandatory distributions, rollovers and hardships, withdrawals of shares acquired by participants through payroll deductions, and shares purchased or redeemed by a participant in connection with plan loans; and
o Purchases below $5,000 (including purchases that are part of an exchange transaction).
HOW TO EXCHANGE SHARES 49
ADVANCE NOTICE OF LARGE TRANSACTIONS
We strongly urge you to begin all purchases and redemptions as early in the day
as possible and to notify us at least one day in advance of transactions in
excess of $5,000,000. This will allow us to manage the Funds most effectively.
When you give us this advance notice, you must provide us with your name and
account number.
HOUSEHOLDING
To help keep Fund expenses low, a single copy of a prospectus or shareholder
report may be sent to shareholders of the same household. If your household
currently receives a single copy of a prospectus or shareholder report and you
would prefer to receive multiple copies, please contact your financial
intermediary.
RETIREMENT ACCOUNTS
We offer prototype documents for a variety of retirement accounts for individuals and small businesses. Please call 1-800-222-8222 for information on:
o Individual Retirement Plans, including Traditional IRAs and Roth IRAs.
o Small Business Retirement Plans, including Simple IRAs and SEP IRAs.
There may be special distribution requirements for a retirement account, such as required distributions or mandatory Federal income tax withholdings. For more information, call the number listed above. You may be charged a $10 annual account maintenance fee for each retirement account up to a maximum of $30 annually and a $25 fee for transferring assets to another custodian or for closing a retirement account. Fees charged by institutions may vary.
SMALL ACCOUNT REDEMPTIONS
We reserve the right to redeem certain accounts that fall below the minimum
initial investment amount as the result of shareholder redemptions (as opposed
to market movement). Before doing so, we will give you approximately 60 days to
bring your account above the minimum investment amount. Please call Investor
Services at 1-800-222-8222 or contact your selling agent for further details.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed quarterly.
Confirmations are mailed following each purchase, sale, exchange, or transfer
of Fund shares, except generally for Automatic Investment Plan transactions,
Systematic Withdrawal Plan transactions using Electronic Funds Transfer, and
purchases of new shares through the automatic reinvestment of distributions.
Upon your request and for the applicable fee, you may obtain a reprint of an
account statement. Please call Investor Services at 1-800-222-8222 for more
information.
ELECTRONIC DELIVERY OF FUND DOCUMENTS
You may elect to receive your Fund prospectuses, shareholder reports and other Fund documents electronically in lieu of paper form by enrolling on the Funds' Web site at www.wellsfargo.com/advantagedelivery. If you make this election, you will be notified by e-mail when the most recent Fund documents are available for electronic viewing and downloading.
To receive Fund documents electronically, you must have an e-mail account and an internet browser that meets the requirements described in the Privacy & Security section of the Funds' Web site at www.wellsfargo.com/advantagefunds. You may change your electronic delivery preferences or revoke your election to receive Fund documents electronically at any time by visiting www.wellsfargo.com/advantagedelivery.
STATEMENT INQUIRIES
Contact us in writing regarding any errors or discrepancies noted on your
account statement within 60 days after the date of the statement confirming a
transaction. We may deny your ability to refute a transaction if we do not hear
from you within those 60 days.
50 ACCOUNT POLICIES
TRANSACTION AUTHORIZATIONS
Telephone, electronic, and clearing agency privileges allow us to accept
transaction instructions by anyone representing themselves as the shareholder
and who provides reasonable confirmation of their identity. Neither we nor
WELLS FARGO ADVANTAGE FUNDS will be liable for any losses incurred if we follow
such instructions we reasonably believe to be genuine. For transactions through
the automated phone system and our Web site, we will assign personal
identification numbers (PINs) and/or passwords to help protect your account
information. To safeguard your account, please keep your PINs and passwords
confidential. Contact us immediately if you believe there is a discrepancy on
your confirmation statement or if you believe someone has obtained unauthorized
access to your account, PIN or password.
USA PATRIOT ACT
In compliance with the USA PATRIOT Act, all financial institutions (including
mutual funds) at the time an account is opened, are required to obtain, verify
and record the following information for all registered owners or others who
may be authorized to act on the account: full name, date of birth, taxpayer
identification number (usually your Social Security Number), and permanent
street address. Corporate, trust and other entity accounts require additional
documentation. This information will be used to verify your identity. We will
return your application if any of this information is missing, and we may
request additional information from you for verification purposes. In the rare
event that we are unable to verify your identity, we reserve the right to
redeem your account at the current day's NAV. You will be responsible for any
losses, taxes, expenses, fees, or other results of such a redemption.
ACCOUNT POLICIES 51
The Funds generally make distributions of any net investment income at least monthly and any realized net capital gains at least annually. Please contact your institution for distribution options. Remember, distributions have the effect of reducing the NAV per share by the amount distributed.
52 DISTRIBUTIONS
The following discussion regarding federal income taxes is based on laws that were in effect as of the date of this Prospectus and summarizes only some of the important federal income tax considerations affecting the Funds and you as a shareholder. It does not apply to foreign or tax-exempt shareholders or those holding Fund shares through a tax-advantaged account, such as a 401(k) Plan or IRA. This discussion is not intended as a substitute for careful tax planning. You should consult your tax adviser about your specific tax situation. Please see the Statement of Additional Information for additional federal income tax information.
We will pass on to the Fund's shareholders substantially all of the Fund's net investment income and realized net capital gains, if any. Distributions from the Fund's ordinary income and net short-term capital gain, if any, generally will be taxable to you as ordinary income. Distributions from the Fund's net long-term capital gain, if any, generally will be taxable to you as long-term capital gain.
Corporate shareholders should not expect to deduct a portion of their distributions when determining their taxable income.
An individual's net long-term capital gain is subject to a reduced, maximum 15% rate of tax. These reduced rates of tax will expire after December 31, 2010. In general, reduced rates of taxation on qualified dividend income will not apply to Fund distributions.
Distributions from the Fund normally will be taxable to you when paid, whether you take distributions in cash or automatically reinvest them in additional Fund shares. Following the end of each year, we will notify you of the federal income tax status of your distributions for the year.
If you buy shares of the Fund shortly before it makes a taxable distribution, your distribution will, in effect, be a taxable return of part of your investment. Similarly, if you buy shares of the Fund when it holds appreciated securities, you will receive a taxable return of part of your investment if and when the Fund sells the appreciated securities and distributes the gain. The Funds have built up, or have the potential to build up, high levels of unrealized appreciation.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares ordinarily will result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Such capital gain or loss generally will be long-term capital gain or loss if you have held your redeemed or exchanged Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, losses realized on the redemption or exchange of Fund shares may be disallowed.
In certain circumstances, Fund shareholders may be subject to backup withholding taxes.
TAXES 53
The Total Return Bond Fund is a gateway fund in a MASTER/GATEWAY structure. This structure is more commonly known as a master/feeder structure. In this structure, a gateway or feeder fund invests substantially all of its assets in one or more master portfolios of Wells Fargo Master Trust or other stand-alone funds of WELLS FARGO ADVANTAGE FUNDS whose objectives and investment strategies are consistent with the gateway fund's investment objective and strategies. Through this structure, gateway funds can enhance their investment opportunities and reduce their expenses by sharing the costs and benefits of a larger pool of assets. Master portfolios offer their shares to multiple gateway funds and other master portfolios rather than directly to the public. Certain administrative and other fees and expenses are charged to both the gateway fund and the master portfolio(s). The services provided and fees charged to a gateway fund are in addition to and not duplicative of the services provided and fees charged to the master portfolios. Fees relating to investments in other stand-alone funds are waived to the extent that they are duplicative, or would exceed certain defined limits.
DESCRIPTION OF MASTER PORTFOLIO
The following table lists the master portfolio in which the Total Return Bond
Fund invests. The portfolio's investment objective is provided followed by a
description of the portfolio's investment strategies.
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
TOTAL RETURN BOND PORTFOLIO INVESTMENT OBJECTIVE: The Portfolio seeks total return, consisting of income and
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: We invest principally in investment-grade debt
securities, including U.S. Government obligations, corporate bonds and mortgage-
and asset-backed securities. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements, as well as invest in U.S. dollar-denominated debt securities of foreign
issuers. We may also use futures, options or swap agreements, as well as other
derivatives, to manage risk or to enhance return. Under normal circumstances, we
expect to maintain an overall dollar-weighted average effective duration range
between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are
undervalued, offering additional income and/or price appreciation potential,
relative to other debt securities of similar credit quality and interest rate sensitivity.
From time to time, we may also invest in unrated bonds that we believe are
comparable to investment-grade debt securities. We may sell a security that has
achieved its desired return or if we believe the security or its sector has become
overvalued. We may also sell a security if a more attractive opportunity becomes
available or if the security is no longer attractive due to its risk profile or as a result
of changes in the overall market environment. We may actively trade portfolio
securities.
|
54 MASTER/GATEWAY(Reg. TM) STRUCTURE
The following tables are intended to help you understand each Fund's financial performance for the past 5 years (or for the life of a Fund, if shorter). Certain information reflects financial results for a single Fund share. Total returns represent the rate you would have earned (or lost) on an investment in each Fund (assuming reinvestment of all distributions). An independent registered public accounting firm has audited the information for each period. The information, along with the report of an independent registered public accounting firm and each Fund's financial statements, is also contained in each Fund's annual report, a copy of which is available upon request.
GOVERNMENT SECURITIES FUND
INSTITUTIONAL CLASS SHARES-COMMENCED ON AUGUST 31, 1999
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $10.44 $10.21 $10.14 $10.77 $10.93 $11.05
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.44/2/ 0.52 0.54 0.49 0.23 0.32
(loss)
Net realized and
unrealized gain (loss)
on investments 0.34 0.25 0.08 (0.53) 0.00/3/ 0.21
-------- ------- ------- ------- -------- -------
Total from investment 0.78 0.77 0.62 (0.04) 0.23 0.53
-------- ------- ------- ------- -------- -------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.49) (0.54) (0.55) (0.53) (0.27) (0.42)
Distributions from net (0.03) 0.00 0.00 (0.06) (0.12) (0.23)
-------- ------- ------- ------- -------- -------
realized gain
Total distributions (0.52) (0.54) (0.55) (0.59) (0.39) (0.65)
-------- ------- ------- ------- -------- -------
NET ASSET VALUE, END OF $10.70 $10.44 $10.21 $10.14 $10.77 $10.93
======== ======= ======= ======= ======== =======
PERIOD
TOTAL RETURN/4/ 7.62% 7.66% 6.17% (0.37)% 2.17% 4.92%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $313,486 $326,015 $236,424 $85,056 $90,647 $84,366
(000s)
Ratio of net investment
income (loss) to
average net assets/5/ 4.14% 4.96% 5.08% 4.60% 3.87% 3.19%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/5/ 0.56% 0.59% 0.61% 0.60% 0.58% 0.53%
Waived fees and reimbursed (0.08)% (0.11)% (0.13)% (0.12)% (0.05)% (0.03)%
expenses/5/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/5/ 0.48% 0.48% 0.48% 0.48% 0.53% 0.50%
Portfolio turnover rate/6/ 368% 263% 159% 207% 139% 390%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Calculated based upon average shares outstanding.
3 Amount calculated is less than $0.005.
4 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
5 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 55
HIGH INCOME FUND
INSTITUTIONAL CLASS SHARES-COMMENCED ON JULY 31, 2001
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT.
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING
OF
PERIOD $7.31 $7.96 $7.70 $7.69 $7.88 $7.53
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.53 0.56 0.59 0.45 0.33 0.58
(loss)
Net realized and
unrealized gain
(loss) on investments (0.91) (0.65) 0.26 0.13 (0.19) 0.35
------- ------- ------- ------- ------- ------
Total from investment
operations (0.38) (0.09) 0.85 0.58 0.14 0.93
------- ------- ------- ------- ------- ------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.53) (0.56) (0.59) (0.58) (0.33) (0.58)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ------- ------
Total distributions (0.53) (0.56) (0.59) (0.58) (0.33) (0.58)
------- ------- ------- ------- ------- ------
NET ASSET VALUE, END OF $6.40 $7.31 $7.96 $7.70 $7.69 $7.88
======= ======= ======= ======= ======= ======
PERIOD
TOTAL RETURN/2/ (4.75)% (1.06)% 11.39% 7.96% 1.77% 12.85%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $119,004 $90,200 $242 $3,208 $3,108 $24,436
(000s)
Ratio of net investment
income
(loss) to average net 8.42% 8.15% 7.53% 5.83% 7.20% 7.58%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3/ 0.70% 0.80% 0.75% 0.77% 0.51% 0.47%
Waived fees and reimbursed
expenses/3/ (0.20)% (0.32)% (0.32)% (0.34)% (0.09)% (0.03)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/3/ 0.50% 0.48% 0.43% 0.43% 0.42% 0.44%
Portfolio turnover rate/4/ 52% 53% 82% 98% 52% 133%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
56 FINANCIAL HIGHLIGHTS
SHORT DURATION GOVERNMENT BOND FUND
INSTITUTIONAL CLASS/1/ SHARES-COMMENCED ON APRIL 11, 2005
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/2/
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.02 $9.86 $9.82 $10.03 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.41 0.44 0.44 0.38/3/ 0.05
(loss)
Net realized and
unrealized gain
(loss) on investments 0.33 0.18 0.06 (0.20) 0.03
-------- ------- ------- --------- --------
Total from investment
operations 0.74 0.62 0.50 0.18 0.08
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.44) (0.46) (0.46) (0.39) (0.05)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.44) (0.46) (0.46) (0.39) (0.05)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $10.32 $10.02 $9.86 $9.82 $10.03
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/4/ 7.61% 6.40% 5.13% 1.85% 0.91%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $248,124 $87,784 $55,973 $27,172 $10
(000s)
Ratio of net investment
income
(loss) to average net 4.02% 4.42% 4.48% 3.89% 3.35%
assets/5/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/5/ 0.59% 0.67% 0.65% 0.63% 0.76%
Waived fees and reimbursed
expenses/5/ (0.17)% (0.25)% (0.23)% (0.21)% (0.33)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/5/ 0.42% 0.42% 0.42% 0.42% 0.43%
Portfolio turnover rate/6/ 277% 210% 493% 316% 272%
|
1 Formerly named the Select Class.
2 For the period from April 11, 2005 (commencement of Class) to May 31, 2005.
3 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
4 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of
less than one year are not annualized.
5 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
FINANCIAL HIGHLIGHTS 57
SHORT-TERM BOND FUND
INSTITUTIONAL CLASS SHARES-COMMENCED ON AUGUST 31, 1999
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.39 $8.49 $8.48 $8.63 $8.78 $8.82
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.35 0.43 0.44 0.39 0.20 0.31
(loss)
Net realized and
unrealized gain (loss)
on investments (0.15) (0.10) 0.01 (0.14) (0.14) (0.01)
------ ------ ------ ------ ------ ------
Total from investment 0.20 0.33 0.45 0.25 0.06 0.30
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
Income (0.35) (0.43) (0.44) (0.40) (0.21) (0.34)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.35) (0.43) (0.44) (0.40) (0.21) (0.34)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $8.24 $8.39 $8.49 $8.48 $8.63 $8.78
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ 2.47% 3.97% 5.45% 2.98% 0.76% 3.50%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $77,900 $87,101 $80,153 $66,350 $51,426 $49,940
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 4.22% 5.08% 5.14% 4.54% 4.07% 3.56%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 0.59% 0.64% 0.65% 0.64% 0.60% 0.54%
Waived fees and reimbursed (0.11)% (0.16)% (0.17)% (0.16)% (0.07)% (0.03)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.48% 0.48% 0.48% 0.48% 0.53% 0.51%
Portfolio turnover rate/4/ 50% 47% 38% 28% 14% 37%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
58 FINANCIAL HIGHLIGHTS
TOTAL RETURN BOND FUND
INSTITUTIONAL CLASS/1/ SHARES-COMMENCED ON OCTOBER 31, 2001
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $12.15 $11.98 $11.81 $12.40 $12.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.59 0.61 0.59 0.54 0.48
(loss)
Net realized and
unrealized gain
(loss) on investments 0.18 0.18 0.18 (0.59) 0.33
-------- -------- -------- ---------- --------
Total from investment
operations 0.77 0.79 0.77 (0.05) 0.81
-------- -------- -------- ---------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.62) (0.62) (0.60) (0.54) (0.49)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 (0.03)
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- ---------- --------
Total distributions (0.62) (0.62) (0.60) (0.54) (0.52)
-------- -------- -------- ---------- --------
NET ASSET VALUE, END OF $12.30 $12.15 $11.98 $11.81 $12.40
======== ======== ======== ========== ========
PERIOD
TOTAL RETURN/2/ 6.65% 6.68% 6.65% (0.42)% 6.74%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $604,992 $493,165 $459,619 $341,620 $248,414
(000s)
Ratio of net investment
income
(loss) to average net 4.91% 4.97% 5.00% 4.43% 3.87%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 0.55% 0.55% 0.54% 0.58% 0.68%
Waived fees and reimbursed
expenses/3/ (0.13)% (0.13)% (0.12)% (0.16)% (0.26)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.42% 0.42% 0.42% 0.42% 0.42%
expenses/3,4/
Portfolio turnover 633%/7/ 572%/8/ 665%/9/ 704%/10/ 767%
rate/5,6/
|
1 Formerly named the Select Class.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
7 Excluding TBA, the portfolio turnover ratio is 242%.
8 Excluding the TBA, the portfolio turnover ratio is 316%. 9 Excluding the TBA, the portfolio turnover ratio is 335%. 10 Excluding the TBA, the portfolio turnover ratio is 431%.
FINANCIAL HIGHLIGHTS 59
ULTRA SHORT-TERM INCOME FUND
INSTITUTIONAL CLASS SHARES-COMMENCED ON AUGUST 31, 1999
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.71 $9.09 $9.12 $9.17 $9.21 $9.33
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.33 0.47 0.51 0.43 0.19 0.24
(loss)
Net realized and
unrealized gain (loss)
on investments (0.67) (0.37) (0.02) (0.02) (0.02) (0.04)
------ ------ ------ ------ ------ ------
Total from investment (0.34) 0.10 0.49 0.41 0.17 0.20
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.34) (0.48) (0.52) (0.46) (0.21) (0.32)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.34) (0.48) (0.52) (0.46) (0.21) (0.32)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $8.03 $8.71 $9.09 $9.12 $9.17 $9.21
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (3.93)% 1.07% 5.54% 4.53% 1.90% 2.19%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $27,680 $61,898 $42,757 $48,259 $56,560 $59,624
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 4.09% 5.24% 5.57% 4.65% 3.60% 2.99%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 0.59% 0.63% 0.61% 0.61% 0.51% 0.41%
Waived fees and reimbursed (0.24)% (0.28)% (0.26)% (0.26)% (0.09)% (0.03)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.35% 0.35% 0.35% 0.35% 0.42% 0.38%
Portfolio turnover rate/4/ 32% 48% 28% 26% 17% 26%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
60 FINANCIAL HIGHLIGHTS
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
FOR MORE INFORMATION
More information on each Fund is available free upon request, including the following documents:
Statement of Additional Information (SAI) Supplements the disclosures made by this Prospectus. The SAI, which has been filed with the SEC, is incorporated by reference into this Prospectus and therefore is legally part of this Prospectus.
Annual/Semi-Annual Reports
Provide financial and other important information, including a discussion of
the market conditions and investment strategies that significantly affected
Fund performance over the reporting period.
To obtain copies of the above documents or for more information about WELLS FARGO ADVANTAGE FUNDS, contact us:
By telephone:
Individual Investors: 1-800-222-8222
Retail Investment Professionals: 1-888-877-9275
Institutional Investment Professionals: 1-866-765-0778
By e-mail: wfaf@wellsfargo.com
By mail:
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
On the Internet:
www.wellsfargo.com/advantagefunds
From the SEC:
Visit the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330
or 1-202-551-8090) or the SEC's Internet site at www.sec.gov.
To obtain information for a fee, write or email:
SEC's Public Reference Section
100 "F" Street, NE
Washington, DC 20549-0102
publicinfo@sec.gov
[GRAPHIC APPEARS HERE]
109IFIT/P1004
ICA Reg. No. 811-09253
(Copyright) 2009 Wells Fargo Funds Management, LLC. All rights reserved.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
OCTOBER 1, 2009
Prospectus
Administrator Class
WELLS FARGO ADVANTAGE FUNDS (Reg. TM) - INCOME FUNDS
Diversified Bond Fund
Government Securities Fund
Inflation-Protected Bond Fund
Short Duration Government Bond Fund
Stable Income Fund
Total Return Bond Fund
Ultra Short-Term Income Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (SEC), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, WELLS FARGO BANK, N.A., ITS AFFILIATES OR ANY OTHER DEPOSITORY INSTITUTION. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE FUNDS
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING, INCLUDING:
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENTS, PRINCIPAL INVESTMENT STRATEGIES, PRINCIPAL RISKS, PERFORMANCE HISTORY, FEES AND EXPENSES
Key Fund Information 3 Diversified Bond Fund 4 Government Securities Fund 8 Inflation-Protected Bond Fund 12 Short Duration Government 16 Bond Fund Stable Income Fund 20 Total Return Bond Fund 25 Ultra Short-Term Income Fund 29 Description of Principal 34 Investment Risks Portfolio Holdings 38 Information |
ORGANIZATION AND MANAGEMENT OF
THE FUNDS
INFORMATION ABOUT THE FUNDS' ORGANIZATION AND THE COMPANIES MANAGING YOUR MONEY
Organization and Management 39 of the Funds About Wells Fargo Funds Trust 39 The Investment Adviser and 39 Portfolio Managers The Sub-Advisers and 40 Portfolio Managers Dormant Investment Advisory 43 Arrangement Dormant Multi-Manager 43 Arrangement |
YOUR ACCOUNT
INFORMATION ABOUT HOW FUND SHARES ARE PRICED AND HOW TO BUY, SELL AND EXCHANGE
FUND SHARES
Compensation to Dealers and 44 Shareholder Servicing Agents Pricing Fund Shares 45 How to Buy Shares 46 How to Sell Shares 48 How to Exchange Shares 50 Account Policies 52 |
OTHER INFORMATION
INFORMATION ABOUT DISTRIBUTIONS, TAXES AND FINANCIAL HIGHLIGHTS
Distributions 54 Taxes 55 Master/Gateway (Reg. TM)/ 56 /Structure Financial Highlights 59 For More Information Back Cover |
Please find WELLS FARGO ADVANTAGE FUNDS' PRIVACY POLICY inside the back cover of this Prospectus.
The information provided in this Prospectus is not intended for distribution to, or use by, any person or entity in any non-U.S. jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Fund shares to any registration requirement within such jurisdiction or country.
The Funds are distributed by Wells Fargo Funds Distributor, LLC, a member of FINRA/SIPC, and an affiliate of Wells Fargo & Company. Securities Investor Protection Corporation ("SIPC") information and brochure are available at www.SIPC.org or by calling SIPC at (202)371-8300.
This Prospectus contains information about certain Funds within the WELLS FARGO ADVANTAGE FUNDS (Reg. TM) family and is designed to provide you with important information to help you with your investment decisions. Please read it carefully and keep it for future reference.
In this Prospectus, "we" generally refers to Wells Fargo Funds Management, LLC (Funds Management), the sub-advisers, or the portfolio managers. "We" may also refer to the Funds' other service providers. "You" refers to the shareholder or potential investor.
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes the Fund different from the other Funds offered in this Prospectus.
This section also provides a summary of each Fund's principal investments and practices. Unless otherwise indicated, these investment policies and practices apply on an ongoing basis. Percentages of "the Fund's net assets" are measured as percentages of net assets plus borrowings for investment purposes. The investment policies of the Diversified Bond Fund, Government Securities Fund, Inflation-Protected Bond Fund, Short Duration Government Bond Fund and Total Return Bond Fund concerning "80% of the Fund's net assets" may be changed by the Board of Trustees without shareholder approval, but the shareholders would be given at least 60 days notice.
PRINCIPAL RISK FACTORS
This section lists the principal risk factors for each Fund. A complete
description of these and other risks is found in the "Description of Principal
Investment Risks" section. It is possible to lose money by investing in a Fund.
KEY FUND INFORMATION 3
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
PORTFOLIO MANAGERS
Thomas C. Biwer, CFA
Christian L. Chan, CFA
Andrew Owen, CFA
FUND INCEPTION:
12/31/1982
ADMINISTRATOR CLASS
Ticker: NVMFX
Fund Number: 68
INVESTMENT OBJECTIVE
The Diversified Bond Fund seeks total return, consisting of current income and
capital appreciation, by diversifying its investments among different fixed
income investment styles.
o at least 80% of the Fund's net assets in debt securities, which include U.S. Government obligations, corporate debt securities, mortgage- or asset-backed securities and U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that uses a "multi-style" fixed income investment
approach designed to reduce the price and return volatility of the Fund and to
provide more consistent returns. "Style" means either an approach to selecting
investments, or a type of investment that is selected for a portfolio.
Currently, the Fund's portfolio combines the different fixed income investment
styles of three master portfolios-Managed Fixed Income Portfolio, Total Return
Bond Portfolio and Inflation-Protected Bond Portfolio. We may invest in
additional or fewer master portfolios, in other WELLS FARGO ADVANTAGE FUNDS, or
directly in a portfolio of securities. More information about the investment
strategies of these master portfolios is located under "Master/Gateway
Structure".
We consider the Fund's absolute level of risk, as well as its risk relative to its benchmark, in determining the allocation between the different investment styles. We may make changes to the current allocations at any time in response to market and other conditions. The percentage of Fund assets that we invest in each master portfolio may temporarily deviate from the current allocations due to changes in market value. We may use cash flows or effect transactions to re-establish the allocations. We also may use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
4 DIVERSIFIED BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Inflation-Protected Debt Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
PORTFOLIO ALLOCATION AND MANAGEMENT
The following table provides current percentage breakdowns of Fund assets
across different master portfolios. Please see "Master/Gateway Structure" for
more information on these master portfolios.
INVESTMENT STYLE/PORTFOLIOS ALLOCATION SUB-ADVISERS TO THE MASTER PORTFOLIOS
DIVERSIFIED BOND STYLE
Managed Fixed Income 70% Galliard Capital Management, Inc.
Portfolio
Total Return Bond 20% Wells Capital Management Incorporated
Portfolio
Inflation-Protected 10% Wells Capital Management Incorporated
------
Bond Portfolio
TOTAL FUND ASSETS 100%
|
DIVERSIFIED BOND FUND 5
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE ADMINISTRATOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-1.19% 13.23% 5.10% 6.13% 3.93% 3.13% 2.41% 3.72% 6.42% -3.22%
|
BEST AND WORST QUARTER
Best Quarter: Q4 2000 5.06%
Worst Quarter Q2 2004 -2.23%
|
The Fund's year-to-date performance through June 30, 2009, was 4.35%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS ADMINISTRATOR CLASS/1/ Returns Before Taxes -3.22% 2.44% 3.88% Returns After Taxes on -5.28% 0.64% 1.91% Distributions/2/ Returns After Taxes on -1.91% 1.11% 2.17% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 5.24% 4.65% 5.63% AGGREGATE BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Administrator Class shares incepted on November 11, 1994.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
6 DIVERSIFIED BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.25% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.54% Acquired Fund Fees and 0.38% Expenses (Underlying Master Portfolios)/3/ TOTAL ANNUAL FUND 1.17% OPERATING EXPENSES/4/ Fee Waivers 0.47% NET EXPENSES/5/ 0.70% |
1 Reflects the fees charged by Funds Management for providing asset allocation services to the Fund in determining the portion of the Fund's assets to be invested in each underlying master portfolio.
2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of the underlying master portfolios in which the Fund invests. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratio shown. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 72 3 Years $ 325 5 Years $ 597 10 Years $1,376 |
DIVERSIFIED BOND FUND 7
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
Jay N. Mueller, CFA
FUND INCEPTION:
10/29/1986
ADMINISTRATOR CLASS
Ticker: WGSDX
Fund Number: 3708
INVESTMENT OBJECTIVE
The Government Securities Fund seeks current income.
o at least 80% of the Fund's net assets in U.S. Government obligations and repurchase agreements collateralized by U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. These securities may have fixed, floating or
variable rates and also include mortgage-backed securities. As part of our
mortgage-backed securities investment strategy, we may enter into dollar rolls
or invest in stripped securities. We may also use futures, options or swap
agreements, as well as other derivatives, to manage risk or to enhance return.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. We may sell a security due to changes in our outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
8 GOVERNMENT SECURITIES FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
GOVERNMENT SECURITIES FUND 9
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS
FOR THE
ADMINISTRATOR
CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.92% 11.53% 8.92% 10.67% 3.07% 3.53% 2.55% 3.74% 7.19% 7.88%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2002 5.68%
Worst Quarter: Q2 2004 -2.71%
|
The Fund's year-to-date performance through June 30, 2009, was 1.03%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS ADMINISTRATOR CLASS/1/ Returns Before Taxes 7.88% 4.96% 5.75% Returns After Taxes on 5.99% 3.13% 3.58% Distributions/2/ Returns After Taxes on 5.07% 3.15% 3.59% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 10.43% 5.30% 5.74% INTERMEDIATE U.S. GOVERNMEN T BOND INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 7.86% 5.27% N/A AGGREGATE EXCLUDING CREDIT BOND INDEX4 (reflects no deduction for fees, expenses or taxes) |
1 Administrator Class shares incepted on April 11, 2005. Performance shown
prior to the inception of the Administrator Class shares reflects the
performance of the Institutional Class shares, adjusted to reflect
Administrator Class expenses. Performance shown prior to August 31, 1999 for
the Administrator Class shares reflects the performance of the Investor
Class shares, and includes expenses that are not applicable to and are
higher than those of the Administrator Class shares.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital Intermediate U.S. Government Bond Index is an unmanaged index composed of U.S. Government securities with maturities in the one- to ten-year range, including securities issued by the U.S. Treasury and U.S. Government agencies. You cannot invest directly in an index.
4 The Barclays Capital U.S. Aggregate Excluding Credit Bond Index is composed of the Barclays Capital U.S. Government Bond Index and the Barclays Capital U.S. Mortgage-Backed Securities Index and includes Treasury issues, agency issues, and mortgage-backed securities. The limited performance history of the Barclays Capital U.S. Aggregate Excluding Credit Bond Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of May 1, 2001. You cannot invest directly in an index.
10 GOVERNMENT SECURITIES FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.37% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.46% Acquired Fund Fees and 0.01% Expenses/3/ TOTAL ANNUAL FUND 0.84% OPERATING EXPENSES/4,5/ Fee Waivers 0.13% NET EXPENSES/5,6,7/ 0.71% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company, and may include expenses of any money market or other fund held by the Fund.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.70%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 73 3 Years $ 255 5 Years $ 453 10 Years $1,024 |
GOVERNMENT SECURITIES FUND 11
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
Jay N. Mueller, CFA
FUND INCEPTION:
2/28/2003
ADMINISTRATOR CLASS
Ticker: IPBIX
Fund Number: 1756
INVESTMENT OBJECTIVE
The Inflation-Protected Bond Fund seeks total return, consisting of income and
capital appreciation, while providing protection against inflation.
o at least 80% of the Fund's net assets in inflation-protected debt securities issued or guaranteed by the U.S. Treasury, U.S. Government agencies or government-sponsored entities; and
o up to 20% of the Fund's net assets in adjustable or variable rate debt securities, including mortgage- and asset-backed securities.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Inflation-Protected Bond Portfolio, a master portfolio with a substantially
identical investment objective and substantially similar investment strategies.
We may invest in additional master portfolios, in other WELLS FARGO ADVANTAGE
FUNDS, or directly in a portfolio of securities.
We invest principally in inflation-protected debt securities issued or guaranteed by the U.S. Treasury, U.S. Government agencies or government-sponsored entities. We will purchase only securities that are rated, at the time of purchase, within the two highest rating categories assigned by a Nationally Recognized Statistical Ratings Organization, or are deemed by us to be of comparable quality. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return.
We generally will purchase securities that we believe have strong relative value based on an analysis of a security's characteristics (such as its principal value, coupon rate, maturity, duration and yield) in light of the current market environment. We may sell a security due to changes in our outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
12 INFLATION-PROTECTED BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Inflation-Protected Debt Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
INFLATION-PROTECTED BOND FUND 13
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE ADMINISTRATOR CLASS/1/
AS OF 12/31 EACH YEAR
2004 2005 2006 2007 2008
7.58% 2.30% 0.06% 11.27% -2.39%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2008 5.36%
Worst Quarter: Q3 2008 -3.52%
|
The Fund's year-to-date performance through June 30, 2009, was 4.43%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS LIFE OF FUND/1/ ADMINISTRATOR CLASS/1/ Returns Before Taxes -2.39% 3.65% 3.73% Returns After Taxes on -3.97% 1.95% 2.05% Distributions/2/ Returns After Taxes on -1.52% 2.15% 2.22% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. TIPS -2.35% 4.07% 4.13% INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Administrator Class shares incepted on February 28, 2003. Returns for the
Administrator Class and Index shown in the Life of Fund column are as of the
Fund inception date.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U. S. TIPS (Treasury Inflation-Protected Securities) Index is an index of inflation-indexed linked U.S. Treasury securities. You cannot invest directly in an index.
14 INFLATION-PROTECTED BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.50% TOTAL ANNUAL FUND 0.90% OPERATING EXPENSES/3,4/ Fee Waivers 0.30% NET EXPENSES/5/ 0.60% |
1 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Includes gross expenses allocated from the master portfolio in which the Fund invests.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratio shown. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 61 3 Years $ 257 5 Years $ 469 10 Years $1,079 |
INFLATION-PROTECTED BOND FUND 15
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Thomas O'Connor, CFA
William Stevens
FUND INCEPTION:
12/18/1992
ADMINISTRATOR CLASS
Ticker: MNSGX
Fund Number: 935
INVESTMENT OBJECTIVE
The Short Duration Government Bond Fund seeks to provide current income
consistent with capital preservation.
o at least 80% of the Fund's net assets in U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government mortgage- and asset-backed securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. We will purchase only securities that are rated,
at the time of purchase, within the two highest rating categories assigned by a
Nationally Recognized Statistical Ratings Organization, or are deemed by us to
be of comparable quality. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements. We may also use futures, options or swap agreements, as well as
other derivatives, to manage risk or to enhance return. Generally, the
portfolio's overall dollar-weighted average effective duration is less than
that of a 3-year U.S. Treasury note.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential, relative to other debt securities of similar credit quality and interest rate sensitivity. As part of our investment strategy, we invest in mortgage-backed securities guaranteed by U.S. Government agencies, and to a lesser extent, other securities rated AAA or Aaa, that we believe will sufficiently outperform U.S. Treasuries. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
16 SHORT DURATION GOVERNMENT BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
SHORT DURATION GOVERNMENT BOND FUND 17
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE ADMINISTRATOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
2.56% 8.11% 7.81% 6.28% 2.29% 1.45% 1.53% 4.22% 5.95% 4.31%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2001 3.50%
Worst Quarter: Q2 2004 -1.14%
|
The Fund's year-to-date performance through June 30, 2009, was 5.37%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS ADMINISTRATOR CLASS/1/ Returns Before Taxes 4.31% 3.48% 4.43% Returns After Taxes on 2.78% 2.10% 2.69% Distributions/2/ Returns After Taxes on 2.78% 2.15% 2.71% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 1-3 6.66% 4.11% 4.81% YEAR GOVERNMENT BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Administrator Class shares incepted on December 18, 1992.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. 1-3 Year Government Bond Index is the 1-3 Year component of the Barclays Capital U.S. Government Bond Index and is composed of all publicly issued, non-convertible domestic debt of the U.S. Government and its agencies. The Barclays Capital U.S. 1-3 Year Government Bond Index also includes corporate debt guaranteed by the U.S. Government. Only notes and bonds with a minimum maturity of one year up to a maximum maturity of 2.9 years are included. You cannot invest directly in an index.
18 SHORT DURATION GOVERNMENT BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.46% Acquired Fund Fees and 0.01% Expenses/3/ TOTAL ANNUAL FUND 0.87% OPERATING EXPENSES/4,5/ Fee Waivers 0.26% NET EXPENSES/5,6,7/ 0.61% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the
Fund's most recent fiscal year to reflect current fees and expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratio of
0.60%. The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 62 3 Years $ 251 5 Years $ 456 10 Years $1,046 |
SHORT DURATION GOVERNMENT BOND FUND 19
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Galliard Capital Management, Inc.
PORTFOLIO MANAGERS
Richard Merriam, CFA
Ajay Mirza, CFA
FUND INCEPTION:
11/11/1994
ADMINISTRATOR CLASS
Ticker: NVSIX
Fund Number: 79
INVESTMENT OBJECTIVE
The Stable Income Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in income-producing debt securities; and
o up to 20% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Stable Income Portfolio, a master portfolio with a substantially identical
investment objective and substantially similar investment strategies. We may
invest in additional master portfolios, in other WELLS FARGO ADVANTAGE FUNDS,
or directly in a portfolio of securities.
We invest principally in income-producing debt securities. We may invest in a variety of debt securities, including corporate, mortgage- and asset-backed securities, and U.S. Government obligations. These securities may have fixed, floating or variable rates and may include U.S. dollar-denominated debt securities of foreign issuers. We only purchase investment-grade securities, though we may continue to hold a security that falls below investment-grade. We may use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Under normal circumstances, we expect the Fund's dollar-weighted average effective duration to be between 0.7 to 1.2 years.
We emphasize investments in the debt securities market with higher yield and return expectations than U.S. Treasury securities. Our security selection process is based on a disciplined valuation process that considers cash flow, liquidity, quality and general economic sentiment. We then purchase those securities that we believe offer the best relative value. We tend to buy and hold these securities, which results in a relatively lower turnover strategy. We will sell securities based on deteriorating credit, overvaluation or to replace them with more attractively valued issues.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
20 STABLE INCOME FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
STABLE INCOME FUND 21
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE ADMINISTRATOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
3.57% 6.99% 5.88% 3.24% 1.68% 1.25% 2.49% 4.43% 4.02% -6.90%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 2.38%
Worst Quarter: Q4 2008 -4.13%
|
The Fund's year-to-date performance through June 30, 2009, was 3.36%.
22 STABLE INCOME FUND
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS ADMINISTRATOR CLASS/1/ Returns Before Taxes -6.90% 0.97% 2.60% Returns After Taxes on -8.13% -0.25% 1.16% Distributions/2/ Returns After Taxes on -4.45% 0.14% 1.36% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 9-12 4.67% 3.66% 4.03% MONTHS U.S. SHORT TREASURY INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/4/ (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL 9-12 4.45% N/A N/A MONTHS SHORT-TERM U.S. GOVERNMENT/CREDIT BOND INDEX/5/ (reflects no deduction for fees, expenses or taxes) |
1 Administrator Class shares incepted on November 11, 1994.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital 9-12 Months U.S. Short Treasury Index includes aged U.S.treasury bills, notes and bonds with a remaining maturity from 9 up to (but not including) 12 months. It excludes zero coupon strips. The Barclays Capital 9-12 Months U.S. Short Treasury Index provides an approximation of the interest rate risk of the Fund's portfolio (as measured by duration), but the credit risk of the Index is significantly different than that of the Fund due to differences in portfolio composition. You cannot invest directly in an index.
4 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The Barclays Capital 1-3 Year U.S. Government/Credit Bond Index provides an approximate comparison to the credit risk of the Fund's portfolio, however, its interest rate risk (as measured by duration) may be significantly greater than that of the Fund. You cannot invest directly in an index.
5 The Barclays Capital 9-12 Months Short-Term U.S. Government/Credit Bond Index is the 9-12 month component of the Short-Term U.S. Government/Credit Bond Index, which contains securities that have fallen out of the U.S. Government/Credit Index because of the standard minimum one-year to maturity constraint. Securities in the Short-Term U.S. Government/Credit Bond Index must have a maturity from 1 up to (but not including) 12 months. The Barclays Capital 9-12 Months Short-Term U.S. Government/Credit Bond Index provides the most appropriate comparison to the Fund with respect to interest rate risk (as measured by duration) and credit risk (based on the composition of the Index and the Fund's portfolio). However, the limited performance history of the Index does not allow for comparison to all periods of the Fund's performance. The Index has an inception date of August 1, 2004. You cannot invest directly in an index.
STABLE INCOME FUND 23
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.44% TOTAL ANNUAL FUND 0.84% OPERATING EXPENSES/3,4/ Fee Waivers 0.19% NET EXPENSES/5/ 0.65% |
1 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Includes gross expenses allocated from the master portfolio in which the Fund invests.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratio shown. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 66 3 Years $ 249 5 Years $ 447 10 Years $1,020 |
24 STABLE INCOME FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Troy Ludgood
Thomas O'Connor, CFA
Lynne A. Royer
William Stevens
FUND INCEPTION:
6/30/1997
ADMINISTRATOR CLASS
Ticker: MNTRX
Fund Number: 943
INVESTMENT OBJECTIVE
The Total Return Bond Fund seeks total return, consisting of income and capital
appreciation.
o at least 80% of the Fund's net assets in bonds;
o at least 80% of the Fund's total assets in investment-grade debt securities;
o up to 25% of the Fund's total assets in asset-backed securities, other than mortgage-backed securities; and
o up to 20% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Total Return Bond Portfolio, a master portfolio with a substantially identical
investment objective and substantially similar investment strategies. We may
invest in additional master portfolios, in other WELLS FARGO ADVANTAGE FUNDS,
or directly in a portfolio of securities.
We invest principally in investment-grade debt securities, including U.S. Government obligations, corporate bonds and mortgage- and asset-backed securities. As part of our investment strategy, we may invest in stripped securities or enter into mortgage dollar rolls and reverse repurchase agreements, as well as invest in U.S. dollar-denominated debt securities of foreign issuers. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Under normal circumstances, we expect to maintain an overall dollar-weighted average effective duration range between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential relative to other debt securities of similar credit quality and interest rate sensitivity. From time to time, we may also invest in unrated bonds that we believe are comparable to investment-grade debt securities. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
TOTAL RETURN BOND FUND 25
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
26 TOTAL RETURN BOND FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS
FOR THE
ADMINISTRATOR
CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.59% 12.06% 8.70% 10.20% 4.64% 4.28% 2.13% 4.09% 6.38% 2.86%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2002 4.91%
Worst Quarter: Q2 2004 -2.35%
|
The Fund's year-to-date performance through June 30, 2009, was 5.57%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS ADMINISTRATOR CLASS/1/ Returns Before Taxes 2.86% 3.94% 5.41% Returns After Taxes on 1.09% 2.36% 3.34% Distributions/2/ Returns After Taxes on 1.84% 2.43% 3.36% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 5.24% 4.65% 5.63% AGGREGATE BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Administrator Class shares incepted on June 30, 1997.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
TOTAL RETURN BOND FUND 27
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.37% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.42% TOTAL ANNUAL FUND 0.79% OPERATING EXPENSES/3,4/ Fee Waivers 0.09% NET EXPENSES/5/ 0.70% |
1 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Includes gross expenses allocated from the master portfolio in which the Fund invests.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratio shown. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 72 3 Years $244 5 Years $432 10 Years $974 |
28 TOTAL RETURN BOND FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
FUND INCEPTION:
11/25/1988
ADMINISTRATOR CLASS
Ticker: WUSDX
Fund Number: 3709
INVESTMENT OBJECTIVE
The Ultra Short-Term Income Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in income-producing debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in income-producing debt securities. Our portfolio
holdings may include U.S. Government obligations, corporate debt securities,
bank loans and mortgage- and asset-backed debt securities. We may invest in
investment-grade and below investment-grade debt securities (often called
"high-yield" securities or "junk bonds"), as well as in debt securities of both
domestic and foreign issuers. As part of our below investment-grade debt
securities investment strategy, we will generally invest in securities that are
rated at least BB by Standard & Poor's or Ba by Moody's, or an equivalent
quality rating from another Nationally Recognized Statistical Ratings
Organization, or are deemed by us to be of comparable quality. We may also use
futures, options or swap agreements, as well as other derivatives, to manage
risk or to enhance return. We may also invest in stripped securities. Under
normal circumstances, we expect the Fund's dollar-weighted average effective
maturity to be one year or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning, credit quality and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
ULTRA SHORT-TERM INCOME FUND 29
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
30 ULTRA SHORT-TERM INCOME FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE ADMINISTRATOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
5.17% 6.97% 4.56% 0.97% 2.61% 2.11% 3.30% 5.11% 3.40% -6.63%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 2.23%
Worst Quarter: Q4 2008 -4.61%
|
The Fund's year-to-date performance through June 30, 2009, was 2.94%.
ULTRA SHORT-TERM INCOME FUND 31
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS ADMINISTRATOR CLASS/1/ Returns Before Taxes -6.63% 1.37% 2.70% Returns After Taxes on -8.07% -0.24% 0.80% Distributions/2/ Returns After Taxes on -4.26% 0.27% 1.17% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 9-12 4.67% 3.66% 4.03% MONTHS U.S. SHORT TREASURY INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/4/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL SHORT-TERM 3.67% N/A N/A U.S. GOVERNMENT/CREDIT BON D INDEX/5/ (reflects no deduction for expenses or taxes) |
1 Administrator Class shares incepted on April 11, 2005. Performance shown
prior to the inception of the Administrator Class shares reflects the
performance of the Institutional Class shares, adjusted to reflect
Administrator Class expenses. Performance shown prior to August 31, 1999 for
the Administrator Class shares reflects the performance of the Investor
Class shares, and includes expenses that are not applicable to and are
higher than those of the Administrator Class shares.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital 9-12 Months U.S. Short Treasury Index includes aged U.S.
treasury bills, notes and bonds with a remaining maturity from 9 up to (but
not including) 12 months. It excludes zero coupon strips. The Barclays
Capital 9-12 Months U.S. Short Treasury Index provides an approximation of
the interest rate risk of the Fund's portfolio (as measured by duration),
but the credit risk of the Index is significantly different than that of the
Fund due to differences in portfolio composition. You cannot invest directly
in an index.
4 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The Barclays Capital 1-3 Year U.S. Government/Credit Bond Index provides an approximate comparison to the credit risk of the Fund's portfolio, however, its interest rate risk (as measured by duration) may be significantly greater than that of the Fund. You cannot invest directly in an index.
5 The Barclays Capital Short-Term U.S. Government/Credit Bond Index contains securities that have fallen out of the U.S. Government/Credit Index because of the standard minimum one-year to maturity constraint. Securities in the Short-Term U.S. Government/Credit Bond Index must have a maturity from 1 up to (but not including) 12 months. The Barclays Capital Short-Term U.S. Government/Credit Bond Index provides the most appropriate comparison to the Fund with respect to interest rate risk (as measured by duration) and credit risk (based on the composition of the Index and the Fund's portfolio). However, the limited performance history of the Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of August 1, 2004. You cannot invest directly in an index.
32 ULTRA SHORT-TERM INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.39% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.48% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 0.89% OPERATING EXPENSES/4,5/ Fee Waivers 0.32% NET EXPENSES/5,6,7/ 0.57% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratio of
0.55%. The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 58 3 Years $ 250 5 Years $ 458 10 Years $1,058 |
ULTRA SHORT-TERM INCOME FUND 33
Understanding the risks involved in mutual fund investing will help you make an informed decision that takes into account your risk tolerance and preferences. The factors that are most likely to have a material effect on a particular Fund as a whole are called "principal risks." The principal risks for each Fund have been previously identified and are described below. Additional information about the principal risks is included in the Statement of Additional Information.
ACTIVE TRADING RISK Frequent trading will result in a higher-than-average portfolio turnover ratio and increased
trading expenses, and may generate higher short-term capital gains.
COUNTER-PARTY RISK When a Fund enters into a repurchase agreement, an agreement where it buys a security
from a seller that agrees to repurchase the security at an agreed upon price and time, the
Fund is exposed to the risk that the other party will not fulfill its contractual obligation.
Similarly, the Fund is exposed to the same risk if it engages in a reverse repurchase
agreement where a broker-dealer agrees to buy securities and the Fund agrees to
repurchase them at a later date.
DEBT SECURITIES RISK Debt securities, such as notes and bonds, are subject to credit risk and interest rate risk.
Credit risk is the possibility that an issuer of an instrument will be unable to make interest
payments or repay principal when due. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate risk is the risk that
market interest rates may increase, which tends to reduce the resale value of certain debt
securities, including U.S. Government obligations. Debt securities with longer durations are
generally more sensitive to interest rate changes than those with shorter durations. Changes
in market interest rates do not affect the rate payable on an existing debt security, unless the
instrument has adjustable or variable rate features, which can reduce its exposure to interest
rate risk. Changes in market interest rates may also extend or shorten the duration of certain
types of instruments, such as asset-backed securities, thereby affecting their value and
returns. Debt securities may also have, or become subject to, liquidity constraints.
DERIVATIVES RISK The term "derivatives" covers a broad range of investments, including futures, options and
swap agreements. In general, a derivative refers to any financial instrument whose value is
derived, at least in part, from the price of another security or a specified index, asset or rate.
For example, a swap agreement is a commitment to make or receive payments based on
agreed upon terms, and whose value and payments are derived by changes in the value of
an underlying financial instrument. The use of derivatives presents risks different from, and
possibly greater than, the risks associated with investing directly in traditional securities. The
use of derivatives can lead to losses because of adverse movements in the price or value of
the underlying asset, index or rate, which may be magnified by certain features of the
derivatives. These risks are heightened when the portfolio manager uses derivatives to
enhance a Fund's return or as a substitute for a position or security, rather than solely to
hedge (or offset) the risk of a position or security held by the Fund. The success of
management's derivatives strategies will depend on its ability to assess and predict the
impact of market or economic developments on the underlying asset, index or rate and the
derivative itself, without the benefit of observing the performance of the derivative under all
possible market conditions.
|
34 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
FOREIGN INVESTMENT RISK Foreign investments are subject to more risks than U.S. domestic investments. These
additional risks may potentially include lower liquidity, greater price volatility and risks
related to adverse political, regulatory, market or economic developments. Foreign
companies also may be subject to significantly higher levels of taxation than U.S. companies,
including potentially confiscatory levels of taxation, thereby reducing the earnings potential
of such foreign companies. In addition, amounts realized on sales or distributions of foreign
securities may be subject to high and potentially confiscatory levels of foreign taxation and
withholding when compared to comparable transactions in U.S. securities. Investments in
foreign securities involve exposure to fluctuations in foreign currency exchange rates. Such
fluctuations may reduce the value of the investment. Foreign investments are also subject to
risks including potentially higher withholding and other taxes, trade settlement, custodial,
and other operational risks and less stringent investor protection and disclosure standards in
certain foreign markets. In addition, foreign markets can and often do perform differently
from U.S. markets.
HIGH YIELD SECURITIES RISK High yield securities (sometimes referred to as "junk bonds") are debt securities that are
rated below investment-grade, are unrated and deemed by us to be below investment-
grade, or are in default at the time of purchase. These securities have a much greater risk of
default (or in the case of bonds currently in default, of not returning principal) and may be
more volatile than higher-rated securities of similar maturity. The value of these securities
can be affected by overall economic conditions, interest rates, and the creditworthiness of
the individual issuers. Additionally, these securities may be less liquid and more difficult to
value than higher-rated securities.
INFLATION-PROTECTED DEBT Inflation-protected debt securities are structured to provide protection against the negative
SECURITIES RISK effects of inflation. Inflation is a general rise in the prices of goods and services which can
erode an investor's purchasing power. Unlike traditional debt securities whose return is
based on the payment of interest on a fixed principal amount, the principal value of
inflation-protected debt securities is periodically adjusted according to the rate of inflation
and as a result, interest payments will vary. For example, if the index measuring the rate of
inflation falls, the principal value of an inflation-protected debt security will fall and the
amount of interest payable on such security will consequently be reduced. Conversely, if the
index measuring the rate of inflation rises, the principal value on such securities will rise and
the amount of interest payable will also increase. The value of inflation-protected debt
securities is expected to change in response to changes in real interest rates. Generally, the
value of an inflation-protected debt security will fall when real interest rates rise and
inversely, rise when real interest rates fall.
ISSUER RISK The value of a security may decline for a number of reasons that directly relate to the issuer
or an entity providing credit support or liquidity support, such as management
performance, financial leverage, and reduced demand for the issuer's goods, services or
securities.
LEVERAGE RISK Certain transactions may give rise to a form of leverage. Such transactions may include,
among others, reverse repurchase agreements, loans of portfolio securities, and the use of
when-issued, delayed delivery or forward commitment transactions. The use of derivatives
may also create a leveraging risk. The use of leverage may cause a Fund to liquidate portfolio
positions when it may not be advantageous to do so. Leveraging, including borrowing, may
cause a Fund to be more volatile than if the Fund had not been leveraged. This is because
leverage tends to increase a Fund's exposure to market risk, interest rate risk or other risks
by, in effect, increasing assets available for investment.
LIQUIDITY RISK A security may not be sold at the time desired or without adversely affecting the price.
|
DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 35
MANAGEMENT RISK We cannot guarantee that a Fund will meet its investment objective. We do not guarantee
the performance of a Fund, nor can we assure you that the market value of your investment
will not decline. We will not "make good" on any investment loss you may suffer, nor does
anyone we contract with to provide services, such as selling agents or investment advisers,
promise to make good on any such losses.
MARKET RISK The market price of securities owned by a Fund may go up or down, sometimes rapidly or
unpredictably. Securities may decline in value or become illiquid due to factors affecting
securities markets generally or particular industries represented in the securities markets.
The value or liquidity of a security may decline or become illiquid due to general market
conditions which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates or adverse investor sentiment generally. They
may also decline or become illiquid due to factors that affect a particular industry or
industries, such as labor shortages or increased production costs and competitive conditions
within an industry. During a general downturn in the securities markets, multiple asset
classes may decline or become illiquid in value simultaneously.
MORTGAGE- AND ASSET-BACKED Mortgage- and asset-backed securities represent interests in "pools" of mortgages or other
SECURITIES RISK assets, including consumer loans or receivables held in trust. In addition, mortgage dollar
rolls are transactions in which a Fund sells mortgage-backed securities to a dealer and
simultaneously agrees to purchase similar securities in the future at a predetermined price.
Mortgage- and asset-backed securities, including mortgage dollar roll transactions, are
subject to certain additional risks. Rising interest rates tend to extend the duration of these
securities, making them more sensitive to changes in interest rates. As a result, in a period of
rising interest rates, these securities may exhibit additional volatility. This is known as
extension risk. In addition, these securities are subject to prepayment risk. When interest
rates decline, borrowers may pay off their debts sooner than expected. This can reduce the
returns of a Fund because the Fund will have to reinvest that money at the lower prevailing
interest rates. This is known as contraction risk. These securities also are subject to risk of
default on the underlying mortgage or assets, particularly during periods of economic
downturn.
REGULATORY RISK Changes in government regulations may adversely affect the value of a security. An
insufficiently regulated market might also permit inappropriate practices that adversely
affect an investment.
STRIPPED SECURITIES RISK Stripped securities are the separate income or principal components of debt securities.
These securities are particularly sensitive to changes in interest rates, and therefore subject
to greater fluctuations in price than typical interest bearing debt securities. For example,
stripped mortgage-backed securities have greater interest rate risk than mortgage-backed
securities with like maturities, and stripped treasury securities have greater interest rate risk
than traditional government securities with identical credit ratings.
|
36 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
U.S. GOVERNMENT OBLIGATIONS U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government
RISK agencies or government-sponsored entities. While U.S. Treasury obligations are backed by
the "full faith and credit" of the U.S. Government, securities issued by U.S. Government
agencies or government-sponsored entities may not be backed by the full faith and credit of
the U.S. Government. The Government National Mortgage Association (GNMA), a wholly
owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit
of the U.S. Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of mortgages insured by the Federal
Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or
government-sponsored entities (i.e. not backed by the full faith and credit of the U.S.
Government) include the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of
interest and ultimate collection or scheduled payment of principal, but its participation
certificates are not backed by the full faith and credit of the U.S. Government. If a
government-sponsored entity is unable to meet its obligations, the performance of a Fund
that holds securities of the entity will be adversely impacted. U.S. Government obligations
are subject to low but varying degrees of credit risk, and are still subject to interest rate and
market risk.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 37
A description of the WELLS FARGO ADVANTAGE FUNDS' policies and procedures with respect to disclosure of the WELLS FARGO ADVANTAGE FUNDS' portfolio holdings is available in the Funds' Statement of Additional Information and on the WELLS FARGO ADVANTAGE FUNDS' Web site at www.wellsfargo.com/advantagefunds. In addition, Funds Management will, from time to time, include portfolio holdings information in quarterly commentaries for certain Funds. The substance of the information contained in such commentaries will also be posted to the Funds' Web site at www.wellsfargo.com/advantagefunds.
38 PORTFOLIO HOLDINGS INFORMATION
ABOUT WELLS FARGO FUNDS TRUST
The Trust was organized as a Delaware statutory trust on March 10, 1999. The
Board of Trustees of the Trust (Board) supervises each Fund's activities,
monitors its contractual arrangements with various service providers and
decides on matters of general policy.
The Board supervises the Funds and approves the selection of various companies hired to manage the Funds' operations. Except for the Funds' investment advisers, which generally may be changed only with shareholder approval, if the Board believes that it is in the best interests of the shareholders, it may change other service providers.
THE INVESTMENT ADVISER AND PORTFOLIO MANAGERS
Wells Fargo Funds Management, LLC, located at 525 Market Street, San Francisco,
CA 94105, serves as the investment adviser for the Funds. Funds Management, an
indirect, wholly owned subsidiary of Wells Fargo & Company, was created to
assume the mutual fund advisory responsibilities of Wells Fargo Bank and is an
affiliate of Wells Fargo Bank. Wells Fargo Bank, which was founded in 1852, is
the oldest bank in the western United States and is one of the largest banks in
the United States. As adviser, Funds Management is responsible for implementing
the investment policies and guidelines for the Funds and for supervising the
sub-advisers who are responsible for the day-to-day portfolio management of the
Funds. For providing these services, Funds Management is entitled to receive
fees as described in each Fund's table of Annual Fund Operating Expenses under
the caption "Management Fees." A discussion regarding the basis for the Board's
approval of the investment advisory and sub-advisory agreements for each Fund
is available in the Funds' annual report for the fiscal year ended May 31,
2008.
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services. The involvement of various subsidiaries of Wells Fargo & Company, including Funds Management, in the management and operation of the Funds and in providing other services or managing other accounts gives rise to certain actual and potential conflicts of interest.
For example, certain investments may be appropriate for a Fund and also for other clients advised by Funds Management and its affiliates, and there may be market or regulatory limits on the amount of investment, which may cause competition for limited positions. Also, various client and proprietary accounts may at times take positions that are adverse to a Fund. Funds Management applies various policies to address these situations, but a Fund may nonetheless incur losses or underperformance during periods when Wells Fargo & Company, its affiliates and their clients achieve profits or outperformance.
Wells Fargo & Company may have interests in or provide services to portfolio companies or Fund shareholders or intermediaries that may not be fully aligned with the interests of all investors. Funds Management and its affiliates serve in multiple roles, including as investment adviser and, for most WELLS FARGO ADVANTAGE FUNDS, sub-adviser, as well as administrator, principal underwriter, and securities lending agent.
These are all considerations of which an investor should be aware and which may cause conflicts that could disadvantage a Fund. Funds Management has instituted business and compliance policies, procedures and disclosures that are designed to identify, monitor and mitigate conflicts of interest.
ORGANIZATION AND MANAGEMENT OF THE FUNDS 39
The following portfolio managers are responsible for determining the asset allocation of the Diversified Bond Fund's investments in various master portfolios.
THOMAS C. BIWER, CFA Mr. Biwer is jointly responsible for managing the Diversified Bond Fund, which he has
Diversified Bond Fund managed since 2005. Mr. Biwer joined Funds Management in 2005 as a portfolio
manager and a member of the Asset Allocation Team. He participates in determining
the asset allocations of the Funds' investments in various master portfolios or styles.
Prior to joining Funds Management, Mr. Biwer served as an investment manager and
portfolio strategist for the Strong Advisor service since 1999. Education: B.S. and M.B.A.,
University of Illinois.
CHRISTIAN L. CHAN, CFA Mr. Chan is jointly responsible for managing the Diversified Bond Fund, which he has
Diversified Bond Fund managed since 2005. Mr. Chan has served as a Portfolio Manager for Funds
Management since 2005, and as a member of the firm's asset allocation team and
investment team since 2002. Mr. Chan participates in determining the asset allocations
of the Funds' investments in various master portfolios. Education: B.A., American
Studies, University of California at Los Angeles.
ANDREW OWEN, CFA Mr. Owen is jointly responsible for managing the Diversified Bond Fund, which he has
Diversified Bond Fund managed since 2005. He has served as a Portfolio Manager for Funds Management
since 2005, and has been a member of the asset allocation team and head of
investments for Funds Management since 1996. Mr. Owen participates in determining
the asset allocations of the Funds' investments in various master portfolios. Education:
B.A., University of Pennsylvania; M.B.A., University of Michigan.
|
GALLIARD CAPITAL MANAGEMENT, INC. (Galliard), an affiliate of Funds Management, located at 800 LaSalle Avenue, Suite 1100, Minneapolis, MN 55479, is the investment sub-adviser for the Stable Income Fund. In this capacity, Galliard is responsible for the day-to-day investment management of the Stable Income Fund. Galliard is a registered investment adviser that provides investment advisory services to bank and thrift institutions, pension and profit sharing plans, trusts and charitable organizations and corporate and other business entities.
RICHARD MERRIAM, CFA Mr. Merriam is jointly responsible for managing the Stable Income Fund, which he has
Stable Income Fund managed since 2004. Mr. Merriam joined Galliard at the firm's inception in 1995 as a
managing partner and has since been responsible for investment process and strategy.
Education: B.A., Economics and English, University of Michigan; M.B.A., University of
Minnesota.
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40 ORGANIZATION AND MANAGEMENT OF THE FUNDS
AJAY MIRZA, CFA Mr. Mirza is jointly responsible for managing the Stable Income Fund, which he has
Stable Income Fund managed since 2004. Mr. Mirza joined Galliard at the firm's inception in 1995 and has
since been serving as a portfolio manager and mortgage specialist. Education: B.E.,
Instrumentation, Birla Institute of Technology (India), M.A., Economics, Tulane
University; M.B.A., University of Minnesota.
|
MICHAEL J. BRAY, CFA Mr. Bray is jointly responsible for managing the Government Securities Fund and the
Government Securities Fund Inflation-Protected Bond Fund, both of which he has managed since 2005. Mr. Bray
Inflation-Protected Bond joined Wells Capital Management in 2005 as a portfolio manager on the Customized
Fund Fixed Income Team specializing in government, agency and interest rate derivative
instruments. Prior to joining Wells Capital Management, Mr. Bray was a principal
responsible for multi-currency yield curve arbitrage business at Windward Capital, LLC
from 2004 to 2005. From 1996 to 2004, he was the managing director at State Street
Research and Management, focusing on mutual fund and institutional account
management. Education: B.S., Math and Actuarial Science, University of Connecticut,
Storrs; M.B.A., Pennsylvania State University.
TROY LUDGOOD Mr. Ludgood is jointly responsible for managing the Total Return Bond Fund, which he
Total Return Bond Fund has managed since 2007. In 2008, Mr. Ludgood was named as co-head and senior
portfolio manager of the Montgomery Fixed Income Strategies Team at Wells Capital
Management, where he has also served as a portfolio manager since 2007, Director of
Credit Trading since 2006, and a senior credit trader since 2004. Prior to joining Wells
Capital Management, he was a trader at Lehman Brothers since 2000. Education: B.S.,
Industrial Engineering, Georgia Institute of Technology; M.B.A., Wharton School of the
University of Pennsylvania.
JAY N. MUELLER, CFA Mr. Mueller is jointly responsible for managing the Government Securities Fund and
Government Securities Fund the Ultra Short-Term Income Fund, both of which he has managed since 2004. He is
Inflation-Protected Bond also jointly responsible for managing the Inflation-Protected Bond Fund, which he has
Fund managed since 2005. Mr. Mueller joined Wells Capital Management in 2005 as a
Ultra-Short Term Income Fund portfolio manager specializing in macroeconomic analysis. Prior to joining Wells
Capital Management, he served as a portfolio manager with Strong Capital
Management, Inc. (SCM) since 1991. Additional responsibilities at SCM included,
serving as director of fixed income from 2002 to 2004. Education: B.A., Economics,
University of Chicago.
D. JAMES NEWTON II, CFA, CPA Mr. Newton is jointly responsible for managing the Ultra Short-Term Income Fund,
Ultra Short-Term Income Fund which he has managed since 2008. Mr. Newton joined Wells Capital Management in
2005 as a portfolio manager and head of investment grade credit research. Prior to
joining Wells Capital Management, Mr. Newton served as a high-grade, fixed-income
analyst with Strong Capital Management, Inc. (SCM) since 2002. Prior to joining SCM, he
was at Northwestern Mutual Life Insurance Company from 1998 to 2002, first as an
associate in the Private Placement Department, and later as an investment grade credit
analyst and subsequent director in the Public Fixed Income Department. Education:
B.A., Economics, Albion College; M.B.A., University of Michigan.
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ORGANIZATION AND MANAGEMENT OF THE FUNDS 41
THOMAS O'CONNOR, CFA Mr. O'Connor is jointly responsible for managing the Short Duration Government Bond
Short Duration Government Fund and the Total Return Bond Fund, both of which he has managed since 2003. In
Bond Fund 2008, Mr. O'Connor was named as co-head of the Montgomery Fixed Income Strategies
Total Return Bond Fund Team at Wells Capital Management, where he has also served as a senior portfolio
manager since 2007 and portfolio manager since 2003. Mr. O'Connor is responsible for
identifying relative value in the mortgage and structured product sectors of the
market. Prior to joining Wells Capital Management, Mr. O'Connor was a portfolio
manager in the Fixed Income Division of Montgomery Asset Management from 2000
to 2003. Education: B.A., Business Administration, University of Vermont.
THOMAS M. PRICE, CFA Mr. Price is jointly responsible for managing the Ultra Short-Term Income Fund, which
Ultra Short-Term Income Fund he has managed since 2002. Mr. Price joined Wells Capital Management in 2005 as a
portfolio manager specializing in taxable high yield securities. Prior to joining Wells
Capital Management, Mr. Price was with Strong Capital Management, Inc. (SCM) since
1996 as a fixed income research analyst and, since 1998, as a portfolio manager.
Education: B.B.A., Finance, University of Michigan; M.B.A., Finance, Kellogg Graduate
School of Management, Northwestern University.
LYNNE A. ROYER Ms. Royer is jointly responsible for managing the Total Return Bond Fund, which she
Total Return Bond Fund has managed since 2007. In 2008, Ms. Royer was named as co-head of the Montgomery
Fixed Income Strategies Team at Wells Capital Management, where she has also served
as a senior portfolio manager since 2007, a portfolio manager since 2006, and as the
Director of Credit Research since 2005. Prior to joining Wells Capital Management as a
senior analyst in 2003, she was a senior analyst in the Fixed Income Division of
Montgomery Asset Management since 1997. Education: B.A., Gettysburg College;
M.B.A., Anderson Graduate School of Management, University of California, Los
Angeles.
WILLIAM STEVENS Mr. Stevens is jointly responsible for managing the Short Duration Government Bond
Short Duration Government Fund, which he has managed since 1992 and the Total Return Bond Fund, which he has
Bond Fund managed since 1997. Mr. Stevens joined Wells Capital Management in 2003 as chief
Total Return Bond Fund fixed income officer and senior managing director. He currently serves as senior
portfolio manager and co-head of the Montgomery Fixed Income Investment
Strategies Team. Prior to joining Wells Capital Management, Mr. Stevens was president
and chief investment officer of Montgomery Asset Management, with oversight
responsibility for all investment related activities, as well as co-head and founder of
Montgomery's Fixed Income Division since 1992. Education: B.A., Economics, Wesleyan
University; M.B.A., Harvard Business School.
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42 ORGANIZATION AND MANAGEMENT OF THE FUNDS
DORMANT INVESTMENT ADVISORY ARRANGEMENT
Under the investment advisory contract for the Inflation-Protected Bond Fund,
Stable Income Fund and Total Return Bond Fund, each a gateway fund, Funds
Management does not receive any compensation from a Fund as long as the Fund
continues to invest, as it does today, substantially all of its assets in a
single master portfolio. Under this structure, Funds Management receives only
an advisory fee from the master portfolio. If a Fund were to change its
investment structure so that it begins to invest substantially all of its
assets in two or more master portfolios, Funds Management would be entitled to
receive an annual fee of 0.25% of the Fund's average daily net assets for
providing investment advisory services to the Fund, including the determination
of the asset allocations of the Fund's investments in the various master
portfolios.
DORMANT MULTI-MANAGER ARRANGEMENT
The Board has adopted a "multi-manager" arrangement for the Government
Securities Fund, Inflation-Protected Bond Fund, Short Duration Government Bond
Fund, Total Return Bond Fund and Ultra Short-Term Income Fund. Under this
arrangement, each Fund and Funds Management may engage one or more sub-advisers
to make day-to-day investment decisions for the Fund's assets. Funds Management
would retain ultimate responsibility (subject to the oversight of the Board)
for overseeing the sub-advisers and may, at times, recommend to the Board that
the Fund: (1) change, add or terminate one or more sub-advisers; (2) continue
to retain a sub-adviser even though the sub-adviser's ownership or corporate
structure has changed; or (3) materially change a sub-advisory agreement with a
sub-adviser.
Applicable law generally requires a Fund to obtain shareholder approval for most of these types of recommendations, even if the Board approves the proposed action. Under the "multi-manager" arrangement approved by the Board, the Fund will seek exemptive relief, if necessary, from the SEC to permit Funds Management (subject to the Board's oversight and approval) to make decisions about the Fund's sub-advisory arrangements without obtaining shareholder approval. The Fund will continue to submit matters to shareholders for their approval to the extent required by applicable law. Meanwhile, this multi-manager arrangement will remain dormant and will not be implemented until shareholders are further notified.
ORGANIZATION AND MANAGEMENT OF THE FUNDS 43
SHAREHOLDER SERVICING PLAN
The Funds have a shareholder servicing plan. Under this plan, each Fund has
agreements with various shareholder servicing agents to process purchase and
redemption requests, to service shareholder accounts, and to provide other
related services. For these services, each Fund pays an annual fee of up to
0.25% of its average daily net assets. Selling or shareholder servicing agents,
in turn, may pay some or all of these amounts to their employees or registered
representatives who recommend or sell Fund shares or make investment decisions
on behalf of their clients.
ADDITIONAL PAYMENTS TO DEALERS
In addition to dealer reallowances and payments made by each Fund for
distribution and shareholder servicing, the Fund's adviser, the distributor or
their affiliates make additional payments ("Additional Payments") to certain
selling or shareholder servicing agents for the Fund, which include
broker-dealers. These Additional Payments are made in connection with the sale
and distribution of shares of the Fund or for services to the Fund and its
shareholders. These Additional Payments, which may be significant, are paid by
the Fund's adviser, the distributor or their affiliates, out of their revenues,
which generally come directly or indirectly from fees paid by the entire Fund
complex.
In return for these Additional Payments, the Fund's adviser and distributor expect to receive certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments. Such advantages are expected to include, without limitation, placement of the Fund on a list of mutual funds offered as investment options to the selling agent's clients (sometimes referred to as "Shelf Space"); access to the selling agent's registered representatives; and/or ability to assist in training and educating the selling agent's registered representatives.
Certain selling or shareholder servicing agents receive these Additional Payments to supplement amounts payable by the Fund under the shareholder servicing plans. In exchange, these agents provide services including, but not limited to, establishing and maintaining accounts and records; answering inquiries regarding purchases, exchanges and redemptions; processing and verifying purchase, redemption and exchange transactions; furnishing account statements and confirmations of transactions; processing and mailing monthly statements, prospectuses, shareholder reports and other SEC-required communications; and providing the types of services that might typically be provided by each Fund's transfer agent (E.G., the maintenance of omnibus or omnibus-like accounts, the use of the National Securities Clearing Corporation for the transmission of transaction information and the transmission of shareholder mailings).
The Additional Payments may create potential conflicts of interests between an investor and a selling agent who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial consultant and review carefully any disclosure by the selling agent as to what monies they receive from mutual fund advisers and distributors, as well as how your financial consultant is compensated.
The Additional Payments are typically paid in fixed dollar amounts, or based on the number of customer accounts maintained by the selling or shareholder servicing agent, or based on a percentage of sales and/or assets under management, or a combination of the above. The Additional Payments are either up-front or ongoing or both. The Additional Payments differ among selling and shareholder servicing agents. Additional Payments to a selling agent that is compensated based on its customers' assets typically range between 0.05% and 0.30% in a given year of assets invested in the Fund by the selling agent's customers. Additional Payments to a selling agent that is compensated based on a percentage of sales typically range between 0.10% and 0.15% of the gross sales of the Fund attributable to the selling agent. In addition, representatives of the Fund's distributor visit selling agents on a regular basis to educate their registered representatives and to encourage the sale of Fund shares. The costs associated with such visits may be paid for by the Fund's adviser, distributor, or their affiliates, subject to applicable FINRA regulations.
More information on the FINRA member firms that have received the Additional Payments described in this section is available in the Statement of Additional Information, which is on file with the SEC and is also available on the WELLS FARGO ADVANTAGE FUNDS website at www.wellsfargo.com/advantagefunds.
44 COMPENSATION TO DEALERS AND SHAREHOLDER SERVICING AGENTS
The share price (net asset value per share or NAV) for a Fund is calculated each business day as of the close of trading on the New York Stock Exchange (NYSE) (generally 4 p.m. ET). To calculate a Fund's NAV, the Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The price at which a purchase or redemption of Fund shares is effected is based on the next calculation of NAV after the order is placed. Each Fund does not calculate their NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
With respect to any portion of a Fund's assets that may be invested in other mutual funds, the Fund's NAV is calculated based upon the net asset values of the other mutual funds in which the Fund invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
With respect to any portion of a Fund's assets invested directly in securities, the Fund's investments are generally valued at current market prices. Securities are generally valued based on the last sale price during the regular trading session if the security trades on an exchange (closing price). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price (NOCP), and if no NOCP is available, then at the last reported sales price.
We are required to depart from these general valuation methods and use fair value pricing methods to determine the values of certain investments if we believe that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Fund calculates its NAV. In addition, we use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before a Fund calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security.
In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate or that it reflects the price that the Fund could obtain for such security if it were to sell the security as of the time of fair value pricing. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. See the Statement of Additional Information for additional details regarding the pricing of Fund shares.
PRICING FUND SHARES 45
Administrator Class shares are offered primarily for direct investment by institutions such as pension and profit sharing plans, employee benefit trusts, endowments, foundations and corporations. Administrator Class shares may also be offered through certain financial intermediaries that charge their customers transaction or other fees with respect to their customers' investments in the Funds. Specific eligibility requirements that apply to these entities include:
o Employee benefit plan programs that have at least $10 million in plan assets;
o Broker-dealer managed account or wrap programs that charge an asset-based fee;
o Registered investment adviser mutual fund wrap programs that charge an asset-based fee;
o Internal Revenue Code Section 529 college savings plan accounts;
o Fund of Funds including those advised by Funds Management (WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/);
o Investment Management and Trust Departments of Wells Fargo purchasing shares on behalf of their clients;
o Institutions who invest a minimum initial amount of $1 million in a Fund; and
o Under certain circumstances and for certain groups as detailed in the Funds' Statement of Additional Information.
INSTITUTIONS PURCHASING
SHARES DIRECTLY OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------- ---------------------------------------------- --------------------------------------
By Telephone or Internet A new account may not be opened by To buy additional shares or to buy
--------------------------
telephone or internet unless the institution shares in a new Fund:
has another Wells Fargo Advantage Fund o Call Investor Services at
account. If the institution does not currently 1-800-222-8222 or
have an account, contact your investment
o Call 1-800-368-7550 for the
representative.
----------------------------------------------
automated phone system or
o visit our Web site at
www.wellsfargo.com/
advantagefunds
--------------------------------------
By Wire To buy additional shares, instruct
--------------------------
o Complete and sign the Administrator Class
your bank or financial institution to
account application
use the same wire instructions
o Call Investor Services at 1-800-222-8222 for
shown to the left.
--------------------------------------
faxing instructions
o Use the following wiring instructions:
State Street Bank & Trust
Boston, MA
Bank Routing Number: ABA 011000028
Wire Purchase Account: 9905-437-1
Attention: WELLS FARGO ADVANTAGE FUNDS
(Name of Fund, Account
Number )
Account Name: Provide your
name as registered on the
Fund account
----------------------------------------------
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46 HOW TO BUY SHARES
INSTITUTIONS PURCHASING
SHARES DIRECTLY OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------- ---------------------------------------------- ------------------------------------
In Person Investors are welcome to visit the Investor See instructions shown to the left.
-------------------------- -----------------------------------
Center in person to ask questions or conduct
any Fund transaction. The Investor Center is
located at 100 Heritage Reserve, Menomonee
Falls, Wisconsin 53051.
----------------------------------------------
Through Your Investment Contact your investment representative. Contact your investment
Representative representative.
-------------------------- ---------------------------------------------- -----------------------------------
|
SPECIAL CONSIDERATIONS WHEN INVESTING THROUGH FINANCIAL INTERMEDIARIES:
If a financial intermediary purchases Administrator Class shares on your
behalf, you should understand the following:
o MINIMUM INVESTMENTS AND OTHER TERMS OF YOUR ACCOUNT. Share purchases are made through a customer account at your financial intermediary following that firm's terms. Financial intermediaries may require different minimum investment amounts. Please consult an account representative from your financial intermediary for specifics.
o RECORDS ARE HELD IN FINANCIAL INTERMEDIARY'S NAME. Financial intermediaries are usually the holders of record for Administrator Class shares held through their customer accounts. The financial intermediaries maintain records reflecting their customers' beneficial ownership of the shares.
o PURCHASE/REDEMPTION ORDERS. Financial intermediaries are responsible for transmitting their customers' purchase and redemption orders to the Funds and for delivering required payment on a timely basis.
o SHAREHOLDER COMMUNICATIONS. Financial intermediaries are responsible for delivering shareholder communications and voting information from the Funds, and for transmitting shareholder voting instructions to the Funds.
o U.S. DOLLARS ONLY. All payment must be made in U.S. dollars and all checks must be drawn on U.S. banks.
o RIGHT TO REFUSE AN ORDER. We reserve the right to refuse or cancel a purchase or exchange order for any reason, including if we believe that doing so would be in the best interests of a Fund and its shareholders.
o EARNINGS DISTRIBUTIONS. You are eligible to earn distributions beginning on the business day after the transfer agent receives your purchase in proper form.
HOW TO BUY SHARES 47
Administrator Class shares must be redeemed according to the terms of your customer account with your financial intermediary. You should contact your investment representative when you wish to sell Fund shares.
INSTITUTIONS SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
---------------------------- ---------------------------------------------------------------------
DIRECTLY
----------------------------
By Telephone / o To speak with an investor services representative call
Electronic Funds Transfer 1-800-222-8222 or use the automated phone system at
----------------------------
(EFT)
---------------------------
1-800-368-7550.
o Redemptions processed by EFT to a linked Wells Fargo Bank
account occur same day for Wells Fargo Advantage money
market funds, and next day for all other WELLS FARGO ADVANTAGE
FUNDS.
o Transfers made to a Wells Fargo Bank account are made
available sooner than transfers to an unaffiliated institution.
o Redemptions to any other linked bank account may post in
two business days, please check with your financial institution
for funds posting and availability.
NOTE: Telephone transactions such as redemption requests
made over the phone generally require only one of the
account owners to call unless you have instructed us
otherwise.
--------------
By Wire o To arrange for a Federal Funds wire, call 1-800-222-8222.
----------------------------
o Be prepared to provide information on the commercial bank
that is a member of the Federal Reserve wire system.
o Redemption proceeds are usually wired to the financial
intermediary the following business day.
---------------------------------------------------------------------
By Internet Visit our Web site at www.wellsfargo.com/advantagefunds.
---------------------------- ---------------------------------------------------------------------
In Person Investors are welcome to visit the Investor Center in person to ask
----------------------------
questions or conduct any Fund transaction. The Investor Center is
located at 100 Heritage Reserve, Menomonee Falls, Wisconsin
53051.
--------------
Through Your Investment Contact your investment representative.
Representative
---------------------------- --------------
|
GENERAL NOTES FOR SELLING SHARES:
o PROPER FORM. We will process requests to sell shares at the first NAV calculated after a request in proper form is received by the transfer agent. Requests received before the cutoff time are processed on the same business day.
o EARNINGS DISTRIBUTIONS. Your shares are eligible to earn distributions through the date of redemption. If you redeem shares on a Friday or prior to a holiday, your shares will continue to be eligible to earn distributions until the next business day.
o RIGHT TO DELAY PAYMENT. We normally will send out checks within one business day, and in any event no more than seven days, after we accept your request to redeem. If you redeem shares recently purchased by check or through EFT, you may be required to wait up to seven business days before we will send your redemption proceeds. Our ability to determine with reasonable certainty that investments have been finally collected is greater for investments coming from accounts with banks affiliated with Funds Management than it is for investments coming from accounts
48 HOW TO SELL SHARES
with unaffiliated banks. Redemption payments also may be delayed under extraordinary circumstances or as permitted by the SEC in order to protect remaining shareholders. Such extraordinary circumstances are discussed further in the Statement of Additional Information.
o REDEMPTION IN KIND. Although generally we pay redemption requests in cash, we reserve the right to determine in our sole discretion, whether to satisfy redemption requests by making payment in securities (known as a redemption in kind). In such case, we may pay all or part of the redemption in securities of equal value as permitted under the 1940 Act, and the rules thereunder. The redeeming shareholder should expect to incur transaction costs upon the disposition of the securities received.
o RETIREMENT PLANS AND OTHER PRODUCTS. If you purchased shares through a packaged investment product or retirement plan, read the directions for selling shares provided by the product or plan. There may be special requirements that supersede the directions in this Prospectus.
HOW TO SELL SHARES 49
Exchanges between WELLS FARGO ADVANTAGE FUNDS involve two transactions: (1) a sale of shares of one Fund; and (2) the purchase of shares of another. In general, the same rules and procedures that apply to sales and purchases apply to exchanges. There are, however, additional factors you should keep in mind while making or considering an exchange:
o In general, exchanges may be made between like share classes of any Wells Fargo Advantage Fund offered to the general public for investment (I.E., a Fund not closed to new accounts).
o An exchange request will be processed on the same business day, provided that both Funds are open at the time the request is received. If one or both Funds are closed, the exchange will be processed on the following business day.
o You should carefully read the prospectus for the Wells Fargo Advantage Fund into which you wish to exchange.
o Every exchange involves selling Fund shares, which may produce a capital gain or loss for tax purposes.
o If you are making an initial investment into a Fund through an exchange, you must exchange at least the minimum initial purchase amount for the new Fund, unless your balance has fallen below that amount due to investment performance.
o Any exchange between two WELLS FARGO ADVANTAGE FUNDS must meet the minimum redemption and subsequent purchase amounts.
Generally, we will notify you at least 60 days in advance of any changes in our exchange policy.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Funds reserve the right to reject any purchase or exchange order for any reason. The Funds are not designed to serve as vehicles for frequent trading. Purchases or exchanges that a Fund determines could harm the Fund may be rejected.
Excessive trading by Fund shareholders can negatively impact a Fund and its long-term shareholders in several ways, including disrupting Fund investment strategies, increasing transaction costs, decreasing tax efficiency, and diluting the value of shares held by long-term shareholders. Excessive trading in Fund shares can negatively impact a Fund's long-term performance by requiring it to maintain more assets in cash or to liquidate portfolio holdings at a disadvantageous time. Certain Funds may be more susceptible than others to these negative effects. For example, Funds that have a greater percentage of their investments in non-U.S. securities may be more susceptible than other Funds to arbitrage opportunities resulting from pricing variations due to time zone differences across international financial markets. Similarly, Funds that have a greater percentage of their investments in small company securities may be more susceptible than other Funds to arbitrage opportunities due to the less liquid nature of small company securities. Both types of Funds also may incur higher transaction costs in liquidating portfolio holdings to meet excessive redemption levels. Fair value pricing may reduce these arbitrage opportunities, thereby reducing some of the negative effects of excessive trading.
The Funds actively discourage and take steps to prevent the portfolio disruption and negative effects on long-term shareholders that can result from excessive trading activity by Fund shareholders. The Board has approved the Funds' policies and procedures, which provide, among other things, that Funds Management may deem trading activity to be excessive if it determines that such trading activity would likely be disruptive to a Fund by increasing expenses or lowering returns. In this regard, the Funds take steps to avoid accommodating frequent purchases and redemptions of shares by Fund shareholders. Except as noted below for the Ultra Short-Term Income Fund, Funds Management monitors available shareholder trading information across all Funds on a daily basis. Funds Management will temporarily suspend the purchase and exchange privileges of an investor who completes a purchase and redemption in a Fund within 30 calendar days. Such investor will be precluded from investing in the Fund for a period of 30 calendar days.
Because the Ultra Short-Term Income Fund is often used for short-term investments, it is designed to accommodate more frequent purchases and redemptions than longer-term income funds. As a result, the Ultra Short-Term Income Fund does not anticipate that frequent purchases and redemptions, under normal circumstances, will have significant adverse consequences to the Ultra Short-Term Income Fund or its shareholders. Although the policies adopted by the Ultra Short-Term Income Fund
50 HOW TO EXCHANGE SHARES
do not prohibit frequent trading, Funds Management will seek to prevent an investor from utilizing the Fund to facilitate frequent purchases and redemptions of shares in long-term Funds in contravention of the policies and procedures adopted by the long-term Funds.
In addition, Funds Management reserves the right to accept purchases, redemptions and exchanges made in excess of applicable trading restrictions in designated accounts held by Funds Management or its affiliate that are used at all times exclusively for addressing operational matters related to shareholder accounts, such as testing of account functions, and are maintained at low balances that do not exceed specified dollar amount limitations.
A financial intermediary through whom you may purchase shares of a Fund may independently attempt to identify excessive trading and take steps to deter such activity. As a result, a financial intermediary may on its own limit or permit trading activity of its customers who invest in Fund shares using standards different from the standards used by Funds Management and described in this Prospectus. Funds Management may permit a financial intermediary to enforce its own internal policies and procedures concerning frequent trading in instances where Funds Management reasonably believes that the intermediary's policies and procedures effectively discourage disruptive trading activity. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about the restrictions or limitations on trading activity that will be applied to your account.
Certain purchases and redemptions made under the following circumstances will not be factored into Funds Management's analysis of frequent trading activity including, but not limited to: reinvestment of dividends; retirement plan contributions, loans and distributions (including hardship withdrawals); non-discretionary portfolio rebalancing associated with certain wrap accounts and retirement plans; and transactions in Section 529 Plans and registered funds of funds.
Effective March 1, 2010, the Funds' (except for the Ultra Short-Term Income Fund) short-term trading policy will be modified. Funds Management will continue to monitor available shareholder trading information across all Funds on a daily basis. If a shareholder redeems more than $5,000 (including redemptions that are part of an exchange transaction) from a Fund, that shareholder will be "blocked" from purchasing shares of that Fund (including purchases that are part of an exchange transaction) for 30 calendar days after the redemption. This modified policy will not apply to:
o Money market funds;
o Ultra-short funds;
o Purchases of shares through dividend reinvestments;
o Systematic purchases, redemptions or exchanges where a financial intermediary maintaining a shareholder account identifies the transaction as a systematic purchase, redemption or exchange at the time of the transaction;
o Rebalancing transactions within certain asset allocation or "wrap" programs where the financial intermediary maintaining a shareholder account is able to identify the transaction as part of an asset allocation program approved by Funds Management;
o Transactions initiated by a registered "fund of funds" or Section 529 Plan into an underlying fund investment;
o Certain transactions involving participants in employer-sponsored retirement plans, including: participant withdrawals due to mandatory distributions, rollovers and hardships, withdrawals of shares acquired by participants through payroll deductions, and shares purchased or redeemed by a participant in connection with plan loans; and
o Purchases below $5,000 (including purchases that are part of an exchange transaction).
HOW TO EXCHANGE SHARES 51
ADVANCE NOTICE OF LARGE TRANSACTIONS
We strongly urge you to begin all purchases and redemptions as early in the day
as possible and to notify us at least one day in advance of transactions in
excess of $5,000,000. This will allow us to manage the Funds most effectively.
When you give us this advance notice, you must provide us with your name and
account number.
HOUSEHOLDING
To help keep Fund expenses low, a single copy of a prospectus or shareholder
report may be sent to shareholders of the same household. If your household
currently receives a single copy of a prospectus or shareholder report and you
would prefer to receive multiple copies, please contact your financial
intermediary.
RETIREMENT ACCOUNTS
We offer prototype documents for a variety of retirement accounts for individuals and small businesses. Please call 1-800-222-8222 for information on:
o Individual Retirement Plans, including Traditional IRAs and Roth IRAs.
o Small Business Retirement Plans, including Simple IRAs and SEP IRAs.
There may be special distribution requirements for a retirement account, such as required distributions or mandatory Federal income tax withholdings. For more information, call the number listed above. You may be charged a $10 annual account maintenance fee for each retirement account up to a maximum of $30 annually and a $25 fee for transferring assets to another custodian or for closing a retirement account. Fees charged by institutions may vary.
SMALL ACCOUNT REDEMPTIONS
We reserve the right to redeem certain accounts that fall below the minimum
initial investment amount as the result of shareholder redemptions (as opposed
to market movement). Before doing so, we will give you approximately 60 days to
bring your account above the minimum investment amount. Please call Investor
Services at 1-800-222-8222 or contact your selling agent for further details.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed quarterly.
Confirmations are mailed following each purchase, sale, exchange, or transfer
of Fund shares, except generally for Automatic Investment Plan transactions,
Systematic Withdrawal Plan transactions using Electronic Funds Transfer, and
purchases of new shares through the automatic reinvestment of distributions.
Upon your request and for the applicable fee, you may obtain a reprint of an
account statement. Please call Investor Services at 1-800-222-8222 for more
information.
ELECTRONIC DELIVERY OF FUND DOCUMENTS
You may elect to receive your Fund prospectuses, shareholder reports and other Fund documents electronically in lieu of paper form by enrolling on the Funds' Web site at www.wellsfargo.com/advantagedelivery. If you make this election, you will be notified by e-mail when the most recent Fund documents are available for electronic viewing and downloading.
To receive Fund documents electronically, you must have an e-mail account and an internet browser that meets the requirements described in the Privacy & Security section of the Funds' Web site at www.wellsfargo.com/advantagefunds. You may change your electronic delivery preferences or revoke your election to receive Fund documents electronically at any time by visiting www.wellsfargo.com/advantagedelivery.
STATEMENT INQUIRIES
Contact us in writing regarding any errors or discrepancies noted on your
account statement within 60 days after the date of the statement confirming a
transaction. We may deny your ability to refute a transaction if we do not hear
from you within those 60 days.
52 ACCOUNT POLICIES
TRANSACTION AUTHORIZATIONS
Telephone, electronic, and clearing agency privileges allow us to accept
transaction instructions by anyone representing themselves as the shareholder
and who provides reasonable confirmation of their identity. Neither we nor
WELLS FARGO ADVANTAGE FUNDS will be liable for any losses incurred if we follow
such instructions we reasonably believe to be genuine. For transactions through
the automated phone system and our Web site, we will assign personal
identification numbers (PINs) and/or passwords to help protect your account
information. To safeguard your account, please keep your PINs and passwords
confidential. Contact us immediately if you believe there is a discrepancy on
your confirmation statement or if you believe someone has obtained unauthorized
access to your account, PIN or password.
USA PATRIOT ACT
In compliance with the USA PATRIOT Act, all financial institutions (including
mutual funds) at the time an account is opened, are required to obtain, verify
and record the following information for all registered owners or others who
may be authorized to act on the account: full name, date of birth, taxpayer
identification number (usually your Social Security Number), and permanent
street address. Corporate, trust and other entity accounts require additional
documentation. This information will be used to verify your identity. We will
return your application if any of this information is missing, and we may
request additional information from you for verification purposes. In the rare
event that we are unable to verify your identity, we reserve the right to
redeem your account at the current day's NAV. You will be responsible for any
losses, taxes, expenses, fees, or other results of such a redemption.
ACCOUNT POLICIES 53
The Funds generally make distributions of any net investment income at least monthly and any realized net capital gains at least annually. Please contact your institution for distribution options. Remember, distributions have the effect of reducing the NAV per share by the amount distributed.
54 DISTRIBUTIONS
The following discussion regarding federal income taxes is based on laws that were in effect as of the date of this Prospectus and summarizes only some of the important federal income tax considerations affecting the Funds and you as a shareholder. It does not apply to foreign or tax-exempt shareholders or those holding Fund shares through a tax-advantaged account, such as a 401(k) Plan or IRA. This discussion is not intended as a substitute for careful tax planning. You should consult your tax adviser about your specific tax situation. Please see the Statement of Additional Information for additional federal income tax information.
We will pass on to a Fund's shareholders substantially all of the Fund's net investment income and realized net capital gains, if any. Distributions from a Fund's ordinary income and net short-term capital gain, if any, generally will be taxable to you as ordinary income. Distributions from a Fund's net long-term capital gain, if any, generally will be taxable to you as long-term capital gain.
Corporate shareholders should not expect to deduct a portion of their distributions when determining their taxable income.
An individual's net long-term capital gain is subject to a reduced, maximum 15% rate of tax. These reduced rates of tax will expire after December 31, 2010. In general, reduced rates of taxation on qualified dividend income will not apply to Fund distributions.
Distributions from a Fund normally will be taxable to you when paid, whether you take distributions in cash or automatically reinvest them in additional Fund shares. Following the end of each year, we will notify you of the federal income tax status of your distributions for the year.
If the principal value of an inflation-protected debt security is adjusted downward due to deflation, amounts previously distributed in the taxable year may be characterized in some circumstances as return of capital. Estimates of inflation may be used in the determination of monthly income distribution rates.
If you buy shares of a Fund shortly before it makes a taxable distribution, your distribution will, in effect, be a taxable return of part of your investment. Similarly, if you buy shares of a Fund when it holds appreciated securities, you will receive a taxable return of part of your investment if and when the Fund sells the appreciated securities and distributes the gain. The Funds have built up, or have the potential to build up, high levels of unrealized appreciation.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares ordinarily will result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Such capital gain or loss generally will be long-term capital gain or loss if you have held your redeemed or exchanged Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, losses realized on the redemption or exchange of Fund shares may be disallowed.
In certain circumstances, Fund shareholders may be subject to backup withholding taxes.
TAXES 55
Some of the Funds described in this Prospectus are gateway funds in a MASTER/GATEWAY structure. This structure is more commonly known as a master/feeder structure. In this structure, a gateway or feeder fund invests substantially all of its assets in one or more master portfolios of Wells Fargo Master Trust or other stand-alone funds of WELLS FARGO ADVANTAGE FUNDS whose objectives and investment strategies are consistent with the gateway fund's investment objective and strategies. Through this structure, gateway funds can enhance their investment opportunities and reduce their expenses by sharing the costs and benefits of a larger pool of assets. Master portfolios offer their shares to multiple gateway funds and other master portfolios rather than directly to the public. Certain administrative and other fees and expenses are charged to both the gateway fund and the master portfolio(s). The services provided and fees charged to a gateway fund are in addition to and not duplicative of the services provided and fees charged to the master portfolios. Fees relating to investments in other stand-alone funds are waived to the extent that they are duplicative, or would exceed certain defined limits.
DESCRIPTION OF MASTER PORTFOLIOS
The following table lists master portfolios in which certain Funds invest. Each
portfolio's investment objective is provided, followed by a brief description
of the portfolio's investment strategies.
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
INFLATION-PROTECTED BOND INVESTMENT OBJECTIVE: The Portfolio seeks total return, consisting of income and
PORTFOLIO capital appreciation, while providing protection against inflation.
PRINCIPAL INVESTMENT STRATEGIES: We invest in a portfolio consisting principally of
inflation-protected debt securities issued or guaranteed by the U.S. Treasury, U.S.
Government agencies or government-sponsored entities. We will purchase only
securities that are rated, at the time of purchase, within the two highest rating
categories assigned by a Nationally Recognized Statistical Ratings Organization, or
are deemed by us to be of comparable quality. We may also use futures, options or
swap agreements, as well as other derivatives, to manage risk or to enhance return.
We generally will purchase securities that we believe have strong relative value
based on an analysis of a security's characteristics (such as its principal value,
coupon rate, maturity, duration and yield) in light of the current market
environment. We may sell a security due to changes in its outlook, as well as
changes in portfolio strategy or cash flow needs. A security may also be sold and
replaced with one that presents a better value or risk/reward profile.
|
56 MASTER/GATEWAY(Reg. TM)/ /STRUCTURE
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
MANAGED FIXED INCOME INVESTMENT OBJECTIVE: The Portfolio seeks consistent fixed-income returns.
PORTFOLIO PRINCIPAL INVESTMENT STRATEGIES: We invest in a diversified portfolio of fixed- and
variable-rate U.S. dollar-denominated, fixed-income securities of a broad spectrum
of U.S. and foreign issuers including U.S. Government obligations, and the debt
securities of financial institutions, corporations and others.
We emphasize the use of intermediate maturity securities to lessen duration and
employ lower risk yield enhancement techniques to enhance return over a
complete economic or interest rate cycle. We consider intermediate-term securities
to be those with maturities of between 2 and 20 years.
We will limit the Portfolio's investment in mortgage-backed securities to not more
than 65% of total assets and its investment in other asset-backed securities to not
more than 25% of total assets. In addition, we may not invest more than 30% of total
assets in securities issued or guaranteed by any single agency or instrumentality of
the U.S. Government, except the U.S. Treasury. Under normal circumstances, we
expect the Portfolio's dollar-weighted average effective maturity to be between 3
and 12 years with a duration ranging between 2 to 6 years.
While not a principal strategy, we also may invest up to 10% of the Portfolio's total
assets in securities issued or guaranteed by foreign governments we deem stable,
or their subdivisions, agencies, or instrumentalities; in loan or security participations;
in securities of supranational organizations; and in municipal securities.
STABLE INCOME PORTFOLIO INVESTMENT OBJECTIVE: The Portfolio seeks current income consistent with capital
preservation.
PRINCIPAL INVESTMENT STRATEGIES: We invest principally in income-producing debt
securities. We may invest in a variety of debt securities, including corporate,
mortgage- and asset-backed securities, and U.S. Government obligations. These
securities may have fixed, floating or variable rates and may include U.S. dollar-
denominated debt securities of foreign issuers. We only purchase investment-grade
securities, though we may continue to hold a security that falls below investment-
grade. We may use futures, options or swap agreements, as well as other derivatives,
to manage risk or to enhance return. Under normal circumstances, we expect the
Portfolio's dollar-weighted average effective duration to be between 0.7 to 1.2
years.
We emphasize investments in the debt securities market with higher yield and
return expectations than U.S. Treasury securities. Our security selection process is
based on a disciplined valuation process that considers cash flow, liquidity, quality,
and general economic sentiment. We then purchase those securities that we believe
offer the best relative value. We tend to buy and hold these securities which results
in a relatively lower turnover strategy. We will sell securities based on deteriorating
credit, over-valuation or to replace them with more attractively valued issues.
|
MASTER/GATEWAY(Reg. TM)/ /STRUCTURE 57
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
TOTAL RETURN BOND PORTFOLIO INVESTMENT OBJECTIVE: The Portfolio seeks total return, consisting of income and
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: We invest principally in investment-grade debt
securities, including U.S. Government obligations, corporate bonds and mortgage-
and asset-backed securities. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements, as well as invest in U.S. dollar-denominated debt securities of foreign
issuers. We may also use futures, options or swap agreements, as well as other
derivatives, to manage risk or to enhance return. Under normal circumstances, we
expect to maintain an overall dollar-weighted average effective duration range
between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are
undervalued, offering additional income and/or price appreciation potential,
relative to other debt securities of similar credit quality and interest rate sensitivity.
From time to time, we may also invest in unrated bonds that we believe are
comparable to investment-grade debt securities. We may sell a security that has
achieved its desired return or if we believe the security or its sector has become
overvalued. We may also sell a security if a more attractive opportunity becomes
available or if the security is no longer attractive due to its risk profile or as a result
of changes in the overall market environment. We may actively trade portfolio
securities.
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THE SUB-ADVISERS FOR THE MASTER PORTFOLIOS
The sub-advisers for the master portfolios are compensated for their services
by Funds Management from the fees Funds Management receives for its services as
adviser to the master portfolios.
============================= GALLIARD CAPITAL MANAGEMENT, INC. (Galliard), an affiliate of Funds Management and indirect wholly owned subsidiary of Wells Fargo & Company, located at LaSalle Plaza, 800 LaSalle Avenue, Suite 2060, Minneapolis, Minnesota 55479, is the investment sub-adviser for the Stable Income Portfolio, in which the Stable Income Fund invests substantially all of its assets and the Managed Fixed Income Portfolio, in which the Diversified Bond Fund invests a portion of its assets. For additional information regarding Galliard, see "The Sub-Advisers and Portfolio Managers" sub-section. |
58 MASTER/GATEWAY(Reg. TM)/ /STRUCTURE
The following tables are intended to help you understand each Fund's financial performance for the past 5 years (or for the life of a Fund, if shorter). Certain information reflects financial results for a single Fund share. Total returns represent the rate you would have earned (or lost) on an investment in each Fund (assuming reinvestment of all distributions). An independent registered public accounting firm has audited the information for each period. The information, along with the report of an independent registered public accounting firm and each Fund's financial statements, is also contained in each Fund's annual report, a copy of which is available upon request.
FINANCIAL HIGHLIGHTS 59
DIVERSIFIED BOND FUND
ADMINISTRATOR CLASS/1/ SHARES-COMMENCED ON NOVEMBER 11, 1994
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $24.18 $24.51 $24.40 $25.82 $25.58
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 1.00 1.25 1.18 1.08 0.92
(loss)
Net realized and
unrealized gain
(loss) on investments (1.13) 0.00/2/ 0.29 (1.21) 0.39
---------- -------- -------- -------- --------
Total from investment
operations (0.13) 1.25 1.47 (0.13) 1.31
---------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (1.01) (1.23) (1.19) (1.08) (0.92)
Distributions from net
realized
gain (0.41) (0.35) (0.17) (0.21) (0.15)
Return of Capital 0.00 0.00 0.00 0.00 0.00
---------- -------- -------- -------- --------
Total distributions (1.42) (1.58) (1.36) (1.29) (1.07)
---------- -------- -------- -------- --------
NET ASSET VALUE, END OF $22.63 $24.18 $24.51 $24.40 $25.82
========== ======== ======== ======== ========
PERIOD
TOTAL RETURN/3/ (0.39)% 5.16% 6.09% (0.53%) 5.24%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $41,205 $48,447 $80,075 $98,574 $133,277
(000s)
Ratio of net investment
income
(loss) to average net 4.36% 4.93% 4.72% 4.24% 3.53%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4,5/ 1.15% 1.07% 0.99% 0.97% 0.91%
Waived fees and reimbursed
expenses/4/ (0.45)% (0.37)% (0.29)% (0.27)% (0.21)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.70% 0.70% 0.70% 0.70% 0.70%
expenses/4,5/
Portfolio turnover 224%/8/ 141%/9/ 158%/10/ 163%/11/ 56%
rate/6,7/
|
1 Formerly named the Institutional Class. 2 Amount is less than $0.005.
3 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
7 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
8 Excluding TBA, the portfolio turnover ratio is 59%.
9 Excluding TBA, the portfolio turnover ratio is 81%. 10 Excluding TBA, the portfolio turnover ratio is 92%. 11 Excluding TBA, the portfolio turnover ratio is 109%.
60 FINANCIAL HIGHLIGHTS
GOVERNMENT SECURITIES FUND
ADMINISTRATOR CLASS SHARES-COMMENCED APRIL 11, 2005
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.45 $10.22 $10.15 $10.77 $10.61
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.41/2/ 0.49 0.50 0.48 0.05
(loss)
Net realized and
unrealized gain
(loss) on investments 0.34 0.26 0.09 (0.53) 0.17
--------- -------- -------- -------- --------
Total from investment
operations 0.75 0.75 0.59 (0.05) 0.22
--------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.47) (0.52) (0.52) (0.51) (0.06)
Distributions from net
realized
gain (0.03) 0.00 0.00 (0.06) 0.00
--------- -------- -------- -------- --------
Total distributions (0.50) (0.52) (0.52) (0.57) (0.06)
--------- -------- -------- -------- --------
NET ASSET VALUE, END OF $10.70 $10.45 $10.22 $10.15 $10.77
========= ======== ======== ======== ========
PERIOD
TOTAL RETURN/3/ 7.28% 7.42% 5.94% (0.49)% 2.12%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $266,579 $123,993 $117,347 $102,434 $60
(000s)
Ratio of net investment
income
(loss) to average net 3.86% 4.72% 4.87% 4.50% 3.54%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4/ 0.81% 0.85% 0.88% 0.88% 0.83%
Waived fees and reimbursed
expenses/4/ (0.11)% (0.15)% (0.18)% (0.18)% (0.16)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/4/ 0.70% 0.70% 0.70% 0.70% 0.67%
Portfolio turnover rate/5/ 368% 263% 159% 207% 139%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31. For the period from April 11, 2005 (commencement of Class) to May 31, 2005.
2 Calculated based upon average shares outstanding.
3 Total return calculations would have been lower had certain expenses not been
waived or reimbursed during the periods shown. Returns for periods of
less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. Portfolio turnover rates presented for periods of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 61
INFLATION-PROTECTED BOND FUND
ADMINISTRATOR CLASS/1/ SHARES-COMMENCED ON FEBRUARY 28, 2003
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.21 $9.60 $9.58 $10.43 $10.03
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.12 0.59 0.44 0.44/2/ 0.39
(loss)
Net realized and
unrealized gain
(loss) on investments (0.28) 0.61 (0.06) (0.63) 0.43
-------- ------- ------- --------- --------
Total from investment
operations (0.16) 1.20 0.38 (0.19) 0.82
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.21) (0.59) (0.36) (0.48) (0.36)
Distributions from net
realized
gain 0.00 0.00 0.00 (0.18) (0.06)
Return of Capital (0.09) 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.30) (0.59) (0.36) (0.66) (0.42)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $9.75 $10.21 $9.60 $9.58 $10.43
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/3/ (1.53)% 12.74% 3.99% (1.88)% 8.30%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $27,428 $14,926 $16,527 $63,869 $53,237
(000s)
Ratio of net investment
income
(loss) to average net 0.70% 5.43% 3.76% 4.37% 4.11%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4,5/ 0.88% 1.06% 0.87% 1.04% 0.93%
Waived fees and reimbursed
expenses/4/ (0.28)% (0.46)% (0.27)% (0.44)% (0.33)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.60% 0.60% 0.60% 0.60% 0.60%
expenses/4,5/
Portfolio turnover 53% 40% 37% 47% 425%
rate/6,7/
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1 Formerly named the Institutional Class.
2 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
3 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of
less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
7 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
62 FINANCIAL HIGHLIGHTS
SHORT DURATION GOVERNMENT BOND FUND
ADMINISTRATOR CLASS/1/ SHARES-COMMENCED ON DECEMBER 18, 1992
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $10.02 $9.86 $9.82 $10.03 $10.14
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39 0.42 0.42 0.35/2/ 0.29
(loss)
Net realized and
unrealized gain
(loss) on investments 0.33 0.18 0.06 (0.19) (0.07)
-------- ------- ------- --------- --------
Total from investment
operations 0.72 0.60 0.48 0.16 0.22
-------- ------- ------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.42) (0.44) (0.44) (0.37) (0.33)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- ------- ------- --------- --------
Total distributions (0.42) (0.44) (0.44) (0.37) (0.33)
-------- ------- ------- --------- --------
NET ASSET VALUE, END OF $10.32 $10.02 $9.86 $9.82 $10.03
======== ======== ======= ========= ========
PERIOD
TOTAL RETURN/3/ 7.42% 6.21% 4.95% 1.67% 2.16%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $356,409 $246,592 $310,530 $401,837 $444,331
(000s)
Ratio of net investment
income
(loss) to average net 3.89% 4.26% 4.28% 3.55% 2.66%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4/ 0.84% 0.93% 0.92% 0.90% 0.98%
Waived fees and reimbursed
expenses/4/ (0.24)% (0.33)% (0.32)% (0.30)% (0.38)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/4/ 0.60% 0.60% 0.60% 0.60% 0.60%
Portfolio turnover rate/5/ 277% 210% 493% 316% 272%
|
1 Formerly named the Institutional Class.
2 Calculated based upon average shares outstanding. Portfolio turnover rates presented for periods of less than one year are not annualized.
3 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of
less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements.
5 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued.
FINANCIAL HIGHLIGHTS 63
STABLE INCOME FUND
ADMINISTRATOR CLASS/1/ SHARES-COMMENCED ON NOVEMBER 11, 1994
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $9.88 $10.27 $10.23 $10.38 $10.33
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.34 0.44 0.45 0.42/2/ 0.20
(loss)
Net realized and
unrealized gain
(loss) on investments (0.63) (0.39) 0.05 (0.15) 0.02
------- -------- -------- --------- --------
Total income from
investment
operations (0.29) 0.05 0.50 0.27 0.22
------- -------- -------- --------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.34) (0.44) (0.46) (0.42) (0.17)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of capital 0.00 0.00 0.00 0.00 0.00
------- -------- -------- --------- --------
Total distributions (0.34) (0.44) (0.46) (0.42) (0.17)
------- -------- -------- --------- --------
NET ASSET VALUE, END OF $9.25 $9.88 $10.27 $10.23 $10.38
======= ======== ======== ========= ========
PERIOD
TOTAL RETURN/3/ (2.95)% 0.45% 5.01% 2.70% 2.14%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $189,837 $257,752 $312,988 $366,798 $356,223
(000s)
Ratio of net investment
income
(loss) to average net 3.51% 4.34% 4.38% 4.08% 1.76%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4,5/ 0.86% 0.78% 0.81% 0.88% 0.68%
Waived fees and reimbursed
expenses/4/ (0.21)% (0.13)% (0.16)% (0.23)% (0.03)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.65% 0.65% 0.65% 0.65% 0.65%
expenses/4,5/
Portfolio turnover 7% 22% 21% 23% 43%
rate/6,7/
|
1 Formerly named the Institutional Class.
2 Calculated based upon average shares outstanding. Portfolio turnover rates
presented for periods of less than one year are not annualized.
3 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of
less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
7 Portfolio turnover rate represents the activity from the Fund's investments
in a Master portfolio.
64 FINANCIAL HIGHLIGHTS
TOTAL RETURN BOND FUND
ADMINISTRATOR CLASS/1/ SHARES-COMMENCED ON JUNE 30, 1997
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF
PERIOD $12.16 $11.99 $11.81 $12.41 $12.11
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.56 0.57 0.57 0.51 0.44
(loss)
Net realized and
unrealized gain
(loss) on investments 0.18 0.18 0.18 (0.60) 0.34
-------- -------- -------- ---------- --------
Total from investment
operations 0.74 0.75 0.75 (0.09) 0.78
-------- -------- -------- ---------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.59) (0.58) (0.57) (0.51) (0.45)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 (0.03)
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- ---------- --------
Total distributions (0.59) (0.58) (0.57) (0.51) (0.48)
-------- -------- -------- ---------- --------
NET ASSET VALUE, END OF $12.31 $12.16 $11.99 $11.81 $12.41
======== ======== ======== ========== ========
PERIOD
TOTAL RETURN/2/ 6.35% 6.38% 6.44% (0.78)% 6.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $816,927 $865,453 $925,385 $783,354 $720,935
(000s)
Ratio of net investment
income
(loss) to average net 4.65% 4.72% 4.71% 4.12% 3.58%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 0.82% 0.82% 0.81% 0.85% 0.94%
Waived fees and reimbursed
expenses/3/ (0.12)% (0.12)% (0.11)% (0.15)% (0.24)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.70% 0.70% 0.70% 0.70% 0.70%
expenses/3,4/
Portfolio turnover 633%/7/ 572%/8/ 665%/9/ 704%/10/ 767%
rate/5,6/
|
1 Formerly named the Institutional Class.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
7 Excluding TBA, the portfolio turnover ratio is 242%.
8 Excluding TBA, the portfolio turnover ratio is 316%. 9 Excluding TBA, the portfolio turnover ratio is 335%. 10 Excluding TBA, the portfolio turnover ratio is 431%.
FINANCIAL HIGHLIGHTS 65
ULTRA SHORT-TERM INCOME FUND
ADMINISTRATOR CLASS SHARES-COMMENCED ON APRIL 11, 2005
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $8.68 $9.06 $9.09 $9.16 $9.16
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32 0.46 0.49 0.41 0.05
(loss)
Net realized and
unrealized gain
(loss) on investments (0.68) (0.38) (0.02) (0.05) 0.00/2/
------- ------- ------- ------- ---------
Total from investment
operations (0.36) 0.08 0.47 0.36 0.05
------- ------- ------- ------- ---------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.32) (0.46) (0.50) (0.43) (0.05)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
------- ------- ------- ------- ---------
Total distributions (0.32) (0.46) (0.50) (0.43) (0.05)
------- ------- ------- ------- ---------
NET ASSET VALUE, END OF $8.00 $8.68 $9.06 $9.09 $9.16
======= ======= ======= ======= =========
PERIOD
TOTAL RETURN/3/ (4.15)% 0.84% 5.27% 4.03% 0.53%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $59,184 $28,254 17,003 $6,114 $161
(000s)
Ratio of net investment
income
(loss) to average net 3.77% 5.03% 5.36% 4.51% 3.35%
assets/4/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/4/ 0.81% 0.90% 0.88% 0.88% 0.83%
Waived fees and reimbursed
expenses/4/ (0.26)% (0.33)% (0.28)% (0.28)% (0.24)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed expenses/4/ 0.55% 0.57% 0.60% 0.60% 0.59%
Portfolio turnover rate/5/ 32% 48% 28% 26% 17%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31. For the period from April 11, 2005 (commencement of Class) to May 31, 2005. 2 Amount calculated is less than $0.005.
3 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of
less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
66 FINANCIAL HIGHLIGHTS
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
FOR MORE INFORMATION
More information on each Fund is available free upon request, including the following documents:
Statement of Additional Information (SAI) Supplements the disclosures made by this Prospectus. The SAI, which has been filed with the SEC, is incorporated by reference into this Prospectus and therefore is legally part of this Prospectus.
Annual/Semi-Annual Reports
Provide financial and other important information, including a discussion of
the market conditions and investment strategies that significantly affected
Fund performance over the reporting period.
To obtain copies of the above documents or for more information about WELLS FARGO ADVANTAGE FUNDS, contact us:
By telephone:
Individual Investors: 1-800-222-8222
Retail Investment Professionals: 1-888-877-9275
Institutional Investment Professionals: 1-866-765-0778
By e-mail: wfaf@wellsfargo.com
By mail:
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
On the Internet:
www.wellsfargo.com/advantagefunds
From the SEC:
Visit the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330
or 1-202-551-8090) or the SEC's Internet site at www.sec.gov.
To obtain information for a fee, write or email:
SEC's Public Reference Section
100 "F" Street, NE
Washington, DC 20549-0102
publicinfo@sec.gov
[GRAPHIC APPEARS HERE]
109IFAM/P1003
ICA Reg. No. 811-09253
(Copyright) 2009 Wells Fargo Funds Management, LLC. All rights reserved.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
OCTOBER 1, 2009
Prospectus
Investor Class
WELLS FARGO ADVANTAGE FUNDS (Reg. TM) - INCOME FUNDS
Government Securities Fund
High Income Fund
Income Plus Fund
Short-Term Bond Fund
Short-Term High Yield Bond Fund
Total Return Bond Fund
Ultra Short-Term Income Fund
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (SEC), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
FUND SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, WELLS FARGO BANK, N.A., ITS AFFILIATES OR ANY OTHER DEPOSITORY INSTITUTION. FUND SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE FUNDS
INFORMATION ABOUT EACH FUND YOU SHOULD KNOW BEFORE INVESTING, INCLUDING:
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENTS, PRINCIPAL INVESTMENT STRATEGIES, PRINCIPAL RISKS, PERFORMANCE HISTORY, FEES AND EXPENSES
Key Fund Information 3 Government Securities Fund 4 High Income Fund 8 Income Plus Fund 13 Short-Term Bond Fund 17 Short-Term High Yield Bond 21 Fund Total Return Bond Fund 26 Ultra Short-Term Income Fund 30 Description of Principal 34 Investment Risks Portfolio Holdings 38 Information |
ORGANIZATION AND MANAGEMENT OF
THE FUNDS
INFORMATION ABOUT THE FUNDS' ORGANIZATION AND THE COMPANIES MANAGING YOUR MONEY
Organization and Management 39 of the Funds About Wells Fargo Funds Trust 39 The Investment Adviser 39 The Sub-Adviser and 39 Portfolio Managers Dormant Investment Advisory 42 Arrangement Dormant Multi-Manager 42 Arrangement |
YOUR ACCOUNT
INFORMATION ABOUT HOW FUND SHARES ARE PRICED AND HOW TO OPEN AN ACCOUNT, AND BUY, SELL AND EXCHANGE FUND SHARES
Compensation to Dealers and 43 Shareholder Servicing Agents Pricing Fund Shares 44 How to Open an Account 45 How to Buy Shares 46 How to Sell Shares 48 How to Exchange Shares 51 Account Policies 53 |
OTHER INFORMATION
INFORMATION ABOUT DISTRIBUTIONS, TAXES AND FINANCIAL HIGHLIGHTS
Distributions 55 Taxes 56 Master/Gateway (Reg. TM) 57 Structure Financial Highlights 58 For More Information Back Cover |
Please find WELLS FARGO ADVANTAGE FUNDS' PRIVACY POLICY inside the back cover of this Prospectus.
The information provided in this Prospectus is not intended for distribution to, or use by, any person or entity in any non-U.S. jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Fund shares to any registration requirement within such jurisdiction or country.
The Funds are distributed by Wells Fargo Funds Distributor, LLC, a member of FINRA/SIPC, and an affiliate of Wells Fargo & Company. Securities Investor Protection Corporation ("SIPC") information and brochure are available at www.SIPC.org or by calling SIPC at (202)371-8300.
This Prospectus contains information about certain Funds within the WELLS FARGO ADVANTAGE FUNDS (Reg. TM) family and is designed to provide you with important information to help you with your investment decisions. Please read it carefully and keep it for future reference.
In this Prospectus, "we" generally refers to Wells Fargo Funds Management, LLC (Funds Management), the sub-adviser, or the portfolio managers. "We" may also refer to the Funds' other service providers. "You" refers to the shareholder or potential investor.
o what the Fund is trying to achieve;
o how we intend to invest your money; and
o what makes the Fund different from the other Funds offered in this Prospectus.
This section also provides a summary of each Fund's principal investments and practices. Unless otherwise indicated, these investment policies and practices apply on an ongoing basis. Percentages of "the Fund's net assets" are measured as percentages of net assets plus borrowings for investment purposes. The investment policies of the Government Securities Fund, Short-Term Bond Fund, Short-Term High Yield Bond Fund, and Total Return Bond Fund concerning "80% of the Fund's net assets" may be changed by the Board of Trustees without shareholder approval, but shareholders would be given at least 60 days notice.
PRINCIPAL RISK FACTORS
This section lists the principal risk factors for each Fund. A complete
description of these and other risks is found in the "Description of Principal
Investment Risks" section. It is possible to lose money by investing in a Fund.
KEY FUND INFORMATION 3
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
Jay N. Mueller, CFA
FUND INCEPTION:
10/29/1986
INVESTOR CLASS
Ticker: STVSX
Fund number: 3213
INVESTMENT OBJECTIVE
The Government Securities Fund seeks current income.
o at least 80% of the Fund's net assets in U.S. Government obligations and repurchase agreements collateralized by U.S. Government obligations; and
o up to 20% of the Fund's net assets in non-government investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in U.S. Government obligations, including debt securities
issued or guaranteed by the U.S. Treasury, U.S. Government agencies or
government-sponsored entities. These securities may have fixed, floating or
variable rates and also include mortgage-backed securities. As part of our
mortgage-backed securities investment strategy, we may enter into dollar rolls
or invest in stripped securities. We may also use futures, options or swap
agreements, as well as other derivatives, to manage risk or to enhance return.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. We may sell a security due to changes in our outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
4 GOVERNMENT SECURITIES FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
GOVERNMENT SECURITIES FUND 5
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-1.09% 11.32% 8.75% 10.46% 2.80% 3.30% 2.16% 3.54% 6.92% 7.60%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2002 5.63%
Worst Quarter: Q2 2004 -2.78%
|
The Fund's year-to-date performance through June 30, 2009, was 0.83%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INVESTOR CLASS/1/ Returns Before Taxes 7.60% 4.68% 5.51% Returns After Taxes on 5.81% 2.98% 3.49% Distributions/2/ Returns After Taxes on 4.89% 2.99% 3.48% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 10.43% 5.30% 5.74% INTERMEDIATE U.S. GOVERNMEN T BOND INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 7.86% 5.27% N/A AGGREGATE EXCLUDING CREDIT BOND INDEX/4/ (reflects no deduction for expenses or taxes) |
1 Investor Class shares incepted on October 29, 1986.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital Intermediate U.S. Government Bond Index is an unmanaged index composed of U.S. Government securities with maturities in the one- to ten-year range, including securities issued by the U.S. Treasury and U.S. Government agencies. You cannot invest directly in an index.
4 The Barclays Capital U.S. Aggregate Excluding Credit Bond Index is composed of the Barclays Capital U.S. Government Bond Index and the Barclays Capital U.S. Mortgage-Backed Securities Index and includes Treasury issues, agency issues, and mortgage-backed securities. The limited performance history of the Barclays Capital U.S. Aggregate Excluding Credit Bond Index does not allow for comparison to all periods of the Fund's performance. This Index has an inception date of May 1, 2001. You cannot invest directly in an index.
6 GOVERNMENT SECURITIES FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.37% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.59% Acquired Fund Fees and 0.01% Expenses/3/ TOTAL ANNUAL FUND 0.97% OPERATING EXPENSES/4,5/ Fee Waivers 0.01% NET EXPENSES/5,6,7/ 0.96% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratio of
0.95%. The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 98 3 Years $ 309 5 Years $ 537 10 Years $1,193 |
GOVERNMENT SECURITIES FUND 7
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Kevin J. Maas, CFA
Thomas M. Price, CFA
Michael J. Schueller, CFA
FUND INCEPTION:
12/28/1995
INVESTOR CLASS
Ticker: STHYX
Fund Number: 3233
INVESTMENT OBJECTIVE
The High Income Fund seeks total return, consisting of a high level of current
income and capital appreciation.
o at least 80% of the Fund's net assets in corporate debt securities that are below investment-grade;
o up to 30% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers;
o up to 20% of the Fund's total assets in equities and convertible debt securities; and
o up to 10% of the Fund's total assets in debt securities that are in default at the time of purchase.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in below investment-grade debt securities (often called "high-yield" securities or "junk bonds") of corporate issuers. These include traditional corporate bonds as well as bank loans. These securities may have fixed, floating or variable rates. As part of our below investment-grade debt securities investment strategy, we will generally invest in securities that are rated BB through CCC by Standard & Poor's, or an equivalent quality rating from another Nationally Recognized Statistical Ratings Organization, or are deemed by us to be of comparable quality. Below investment-grade debt securities offer the potential for higher returns, as they generally carry a higher yield to compensate for the higher risk associated with their investment. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Additionally, we may invest in stripped securities.
We start our investment process with a top-down, macroeconomic outlook to determine industry and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
8 HIGH INCOME FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Stripped Securities Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
HIGH INCOME FUND 9
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
7.81% -7.08% -0.71% -6.65% 24.76% 10.22% 3.36% 9.52% 3.28% -18.27%
|
BEST AND WORST QUARTER
Best Quarter: Q2 2003 7.86%
Worst Quarter: Q4 2008 -11.95%
|
The Fund's year-to-date performance through June 30, 2009, was 17.12%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INVESTOR CLASS/1/ Returns Before Taxes -18.27% 1.04% 2.01% Returns After Taxes on -20.39% -1.43% -1.19% Distributions/2/ Returns After Taxes on -11.69% -0.40% -0.15% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. -26.16% -0.82% 2.20% CORPORATE HIGH YIELD BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Investor Class shares incepted on December 28, 1995.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar-denominated, nonconvertible, non-investment grade debt index.The Index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million.You cannot invest directly in an index.
10 HIGH INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) Redemption Fee/1/ 2.00% |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/2/ 0.50% Distribution (12b-1) Fees 0.00% Other Expenses/3/ 0.60% Acquired Fund Fees and 0.02% Expenses/4/ TOTAL ANNUAL FUND 1.12% OPERATING EXPENSES/5/ Fee Waivers 0.15% NET EXPENSES/5,6,7/ 0.97% |
1 Deducted from the net proceeds if shares redeemed (or exchanged) within 30
days of purchase. This fee is retained by the Fund. Please see section
entitled "Redemption Fees" for further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.50% for the first $500 million;
0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for
the next $2 billion; and 0.40% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of any money
market fund or other fund held by the Fund. Shareholders indirectly bear
these underlying expenses because the NAV and/or distributions paid reflect
such underlying expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.95%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
HIGH INCOME FUND 11
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 99 3 Years $ 342 5 Years $ 603 10 Years $1,352 |
12 HIGH INCOME FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Michael J. Bray, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
Janet S. Rilling, CFA, CPA
FUND INCEPTION:
7/13/1998
INVESTOR CLASS
Ticker: WIPNX
Fund Number: 3296
INVESTMENT OBJECTIVE
The Income Plus Fund seeks to maximize income while maintaining prospects for
capital appreciation.
o at least 80% of the Fund's net assets in income-producing securities;
o up to 35% of the Fund's total assets in debt securities that are below investment-grade; and
o up to 25% of the Fund's total assets in debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in debt securities, including corporate, mortgage- and
asset-backed securities, bank loans and U.S. Government obligations. These
securities may have fixed, floating or variable rates and may include debt
securities of both domestic and foreign issuers. We invest in both
investment-grade and below investment-grade debt securities. Below
investment-grade debt securities (often called "high yield" securities or "junk
bonds") offer the potential for higher returns, as they generally carry a
higher yield to compensate for the higher risk associated with their
investment. As part of our below investment-grade debt securities investment
strategy, we will generally invest in securities that are rated at least Caa by
Moody's or CCC by Standard & Poor's, or an equivalent quality rating from
another Nationally Recognized Statistical Ratings Organization, or are deemed
by us to be of comparable quality. We expect to maintain an average credit
quality for this portion of the Fund's portfolio equivalent to B or higher. We
may also use futures, options or swap agreements, as well as other derivatives,
to manage risk or to enhance return.
We start our investment process with a top-down, macroeconomic outlook to determine portfolio duration and yield curve positioning as well as industry, sector and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
INCOME PLUS FUND 13
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
14 INCOME PLUS FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-3.47% 2.77% 7.76% 7.33% 8.41% 6.55% 1.41% 5.32% 6.24% 2.29%
|
BEST AND WORST QUARTERS
Best Quarter: Q2 2003 4.16%
Worst Quarter: Q2 2004 -1.96%
|
The Fund's year-to-date performance through June 30, 2009, was 4.82%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INVESTOR CLASS/1/ Returns Before Taxes 2.29% 4.34% 4.40% Returns After Taxes on 0.76% 2.47% 2.11% Distributions/2/ Returns After Taxes on 1.47% 2.60% 2.32% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 2.38% 4.30% 5.58% UNIVERSAL BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Investor Class shares incepted on July 18, 2008. For periods prior to the inception of the Investor Class, Average Annual Total Returns reflect the performance of the Class A shares and includes expenses that are not applicable to the Investor Class shares, and Calendar Year Total Returns in the bar chart do not reflect the sales charges applicable to Class A shares. The Class A shares annual returns are substantially similar to what the Investor Class shares returns would be because the Investor Class shares and Class A shares are invested in the same portfolio and their returns differ only to the extent that they do not have the same sales charges and expenses.
2 After-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of state, local or foreign taxes. Actual after-tax returns depend on an investor's tax situation and may differ from those shown, and after-tax returns shown are not relevant to tax-exempt investors or investors who hold their Fund shares through tax-deferred arrangements, such as 401(k) Plans or Individual Retirement Accounts.
3 The Barclays Capital U.S. Universal Bond Index is an unmanaged market value-weighted performance benchmark for the U.S. dollar denominated bond market, which includes investment-grade, high yield, and emerging market debt securities with maturities of one year or more. You cannot invest directly in an index.
INCOME PLUS FUND 15
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investment) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.50% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.59% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 1.11% OPERATING EXPENSES/4,5/ Fee Waivers 0.15% NET EXPENSES/5,6,7/ 0.96% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.50% for the first $500 million; 0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for the next $2 billion; and 0.40% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
6 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Fund's net
operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Fund, do not exceed the net operating expense ratio of
0.94%. The committed net operating expense ratio may be increased only with
approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 98 3 Years $ 339 5 Years $ 599 10 Years $1,343 |
16 INCOME PLUS FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
Janet S. Rilling, CFA, CPA
FUND INCEPTION:
8/31/1987
INVESTOR CLASS
Ticker: SSTBX
Fund Number: 3216
INVESTMENT OBJECTIVE
The Short-Term Bond Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in debt securities. We may invest in a variety of debt
securities, including corporate, mortgage- and asset-backed securities, bank
loans and U.S. Government obligations. These securities may have fixed,
floating or variable rates. We invest in both investment-grade and below
investment-grade debt securities (often called "high yield securities" or "junk
bonds") and may also invest in U.S. dollar-denominated debt securities of
foreign issuers. As part of our below investment-grade debt securities
investment strategy, we will generally invest in securities that are rated at
least BB by Standard & Poor's or Ba by Moody's, or an equivalent quality rating
from another Nationally Recognized Statistical Ratings Organization, or are
deemed by us to be of comparable quality. We may also use futures, options or
swap agreements, as well as other derivatives, to manage risk or to enhance
return. Additionally, we may invest in stripped securities. Under normal
circumstances, we expect the Fund's dollar-weighted average effective maturity
to be three years or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning and industry allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to determine the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
SHORT-TERM BOND FUND 17
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
18 SHORT-TERM BOND FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
4.25% 7.22% 4.50% 0.62% 3.77% 2.15% 1.98% 4.36% 4.49% -0.57%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 3.37%
Worst Quarter: Q1 2002 - 1.92%
|
The Fund's year-to-date performance through June 30, 2009, was 4.14%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INVESTOR CLASS/1/ Returns Before Taxes -0.57% 2.47% 3.25% Returns After Taxes on -2.04% 0.95% 1.39% Distributions/2/ Returns After Taxes on -0.36% 1.23% 1.64% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Investor Class shares incepted on August 31, 1987.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3 year component of the Barclays Capital Government/Credit Bond Index which includes securities in the Government and Credit Indices. The Government Index includes treasuries (I.E., public obligations of the U.S. Treasury that have remaining maturities of more than one year) and agencies (I.E., publicly issued debt of U.S. Government agencies, quasi-federal corporations, and corporate or foreign debt guaranteed by the U.S. Government). The Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. You cannot invest directly in an index.
SHORT-TERM BOND FUND 19
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.60% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 1.02% OPERATING EXPENSES/4,5/ Fee Waivers 0.15% NET EXPENSES/5,6,7/ 0.87% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion. 2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
5 The expense ratio shown does not correlate to the corresponding expense ratio shown in the Financial Highlights, which reflects only the operating expenses of the Fund and also does not include expenses of any Acquired fund.
6 The net operating expense ratio shown here includes the expenses of any money market fund or other fund held by the Fund.
7 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.85%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 89 3 Years $ 311 5 Years $ 551 10 Years $1,239 |
20 SHORT-TERM BOND FUND
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Kevin J. Maas, CFA
Thomas M. Price, CFA
Michael J. Schueller, CFA
FUND INCEPTION:
6/30/1997
INVESTOR CLASS
Ticker: STHBX
Fund Number: 3242
INVESTMENT OBJECTIVE
The Short-Term High Yield Bond Fund seeks total return, consisting of a high
level of current income and capital appreciation.
o at least 80% of the Fund's net assets in below investment-grade corporate debt securities; and
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in below investment-grade debt securities (often called
"high-yield" securities or "junk bonds") of corporate issuers. These include
traditional corporate bonds as well as bank loans. These securities may have
fixed, floating or variable rates. As part of our below investment-grade debt
securities investment strategy, we will generally invest in securities that are
rated BB through CCC by Standard & Poor's, or an equivalent quality rating from
another Nationally Recognized Statistical Ratings Organization, or are deemed
by us to be of comparable quality. Below investment-grade debt securities offer
the potential for higher returns, as they generally carry a higher-yield to
compensate for the higher risk associated with the investment. We may use
futures, options or swap agreements, as well as other derivatives, to manage
risk or to enhance return. We may also invest in stripped securities. Under
normal circumstances, we expect the Fund's dollar-weighted average effective
maturity to be three years or less.
We start our investment process with a top-down, macroeconomic outlook to determine portfolio duration and yield curve positioning as well as industry, sector and credit quality allocations. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. Within these parameters, we then apply rigorous credit research to select individual securities that we believe can add value from income and/or the potential for capital appreciation. Our credit research may include an assessment of an issuer's general financial condition, its competitive positioning and management strength, as well as industry characteristics, liquidity and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
SHORT-TERM HIGH YIELD BOND FUND 21
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Stripped Securities Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
22 SHORT-TERM HIGH YIELD BOND FUND
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
5.32% 5.03% -0.42% -0.13% 9.52% 4.46% 2.95% 5.97% 3.24% -5.82%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 3.77%
Worst Quarter: Q4 2008 -5.68%
|
The Fund's year-to-date performance through June 30, 2009, was 8.34%.
AVERAGE ANNUAL TOTAL RETURNS
as of 12/31/08 1 YEAR 5 YEARS 10 YEARS
INVESTOR CLASS/1/
Returns Before Taxes -5.82% 2.07% 2.93%
Investor Class Returns -7.51% 0.25% 0.59%
After Taxes on
Distributions/2/
Investor Class Returns -3.73% 0.74% 1.08%
After Taxes on Distribution s
and Sale of Fund
Shares/2/
MERRILL LYNCH HIGH YIELD -16.20% 0.68% 3.17%
U.S. CORPORATES, CASH PAY,
BB RATED 1-5 YEARS
INDEX/3/
(reflects no deduction for
expenses or taxes)
SHORT-TERM HIGH YIELD BOND -18.02% 0.61% 3.43%
INDEX III/4/
(reflects no deduction for
expenses or taxes)
|
1 Investor Class shares incepted on June 30, 1997.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Merrill Lynch High Yield U.S. Corporates, Cash Pay, BB Rated, 1-5 Years
Index is an unmanaged index that generally tracks the performance of BB
rated U.S. dollar-denominated corporate bonds publicly issued in the U.S.
domestic market with maturities of 1 to 5 years. You cannot invest directly
in an index.
4 The Short-Term High Yield Bond Index III is comprised of 70% Merrill Lynch
High Yield U.S. Corporates, Cash Pay, BB Rated, 1-5 Years Index and 30%
Merrill Lynch High Yield U.S. Corporates, Cash Pay, B Rated, 1-5 Years
Index. The Merrill Lynch High Yield U.S. Corporates, Cash Pay, BB Rated, 1-5
Years Index is an unmanaged index that generally tracks the performance of
BB Rated U.S. dollar-denominated corporate bonds publicly issued in the U.S.
domestic market with maturities of 1 to 5 years. The Merrill Lynch High
Yield U.S. Corporates, Cash Pay, B Rated, 1-5 Years Index is an unmanaged
index that generally tracks the performance of B rated U.S.
dollar-denominated corporate bonds publicly issued in the U.S. domestic
market with maturities of 1 to 5 years. You cannot invest directly in an
index.
SHORT-TERM HIGH YIELD BOND FUND 23
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) Redemption Fee/1/ 2.00% |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/2/ 0.50% Distribution (12b-1) Fees 0.00% Other Expenses/3/ 0.65% Acquired Fund Fees and 0.04% Expenses/4/ TOTAL ANNUAL FUND 1.19% OPERATING EXPENSES/5,6/ Fee Waivers 0.29% NET EXPENSES/6,7,8/ 0.90% |
1 Deducted from the net proceeds if shares redeemed (or exchanged) within 30
days of purchase. This fee is retained by the Fund. Please see section
entitled "Redemption Fees" for further information.
2 The following advisory fee schedule is charged to the Fund as a percentage of
the Fund's average daily net assets: 0.50% for the first $500 million;
0.475% for the next $500 million; 0.45% for the next $2 billion; 0.425% for
the next $2 billion; and 0.40% for assets over $5 billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of any money
market fund or other fund held by the Fund. Shareholders indirectly bear
these underlying expenses because the NAV and/or distributions paid reflect
such underlying expenses.
5 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses. 6 The expense ratio shown does not correlate to the corresponding expense ratio shown in the Financial Highlights, which reflects only the operating expenses of the Fund and also does not include expenses of any Acquired fund.
7 The net operating expense ratio shown here includes the expenses of any money market fund or other fund held by the Fund.
8 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.86%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
24 SHORT-TERM HIGH YIELD BOND FUND
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 92 3 Years $ 349 5 Years $ 627 10 Years $1,418 |
SHORT-TERM HIGH YIELD BOND FUND 25
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Troy Ludgood
Thomas O'Connor, CFA
Lynne A. Royer
William Stevens
FUND INCEPTION:
6/30/1997
INVESTOR CLASS
Ticker: WTRZX
Fund Number: 3286
INVESTMENT OBJECTIVE
The Total Return Bond Fund seeks total return, consisting of income and capital
appreciation.
o at least 80% of the Fund's net assets in bonds;
o at least 80% of the Fund's total assets in investment-grade debt securities;
o up to 25% of the Fund's total assets in asset-backed securities, other than mortgage-backed securities; and
o up to 20% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers.
PRINCIPAL INVESTMENT STRATEGIES
The Fund is a gateway fund that invests substantially all of its assets in the
Total Return Bond Portfolio, a master portfolio with a substantially identical
investment objective and substantially similar investment strategies. We may
invest in additional master portfolios, in other WELLS FARGO ADVANTAGE FUNDS,
or directly in a portfolio of securities.
We invest principally in investment-grade debt securities, including U.S. Government obligations, corporate bonds and mortgage- and asset-backed securities. As part of our investment strategy, we may invest in stripped securities or enter into mortgage dollar rolls and reverse repurchase agreements, as well as invest in U.S. dollar-denominated debt securities of foreign issuers. We may also use futures, options or swap agreements, as well as other derivatives, to manage risk or to enhance return. Under normal circumstances, we expect to maintain an overall dollar-weighted average effective duration range between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are undervalued, offering additional income and/or price appreciation potential relative to other debt securities of similar credit quality and interest rate sensitivity. From time to time, we may also invest in unrated bonds that we believe are comparable to investment-grade debt securities. We may sell a security that has achieved its desired return or if we believe the security or its sector has become overvalued. We may also sell a security if a more attractive opportunity becomes available or if the security is no longer attractive due to its risk profile or as a result of changes in the overall market environment. We may actively trade portfolio securities.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
26 TOTAL RETURN BOND FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Active Trading Risk
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
TOTAL RETURN BOND FUND 27
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-0.84% 11.78% 8.43% 9.93% 4.38% 4.02% 1.85% 3.83% 6.03% 2.63%
|
BEST AND WORST QUARTER
Best Quarter: Q3 2002 4.84%
Worst Quarter: Q2 2004 - 2.41%
|
The Fund's year-to-date performance through June 30, 2009, was 5.56%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INVESTOR CLASS/1/ Returns Before Taxes 2.63% 3.66% 5.14% Returns After Taxes on 0.94% 2.15% 3.11% Distributions/2/ Returns After Taxes on 1.69% 2.24% 3.15% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL U.S. 5.24% 4.65% 5.63% AGGREGATE BOND INDEX/3/ (reflects no deduction for expenses or taxes) |
1 Investor Class shares incepted on April 11, 2005. Effective June 20, 2008,
Class Z was renamed Investor Class and modified to assume the features and
attributes of the Investor Class. Performance shown prior to the inception
of the Investor Class shares reflects the performance of the Administrator
Class shares, adjusted to reflect Class Z expenses.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
28 TOTAL RETURN BOND FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL FUND OPERATING EXPENSES (expenses that are deducted from Fund assets) Management Fees/1/ 0.37% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.56% TOTAL ANNUAL FUND 0.93% OPERATING EXPENSES/3,4/ Fee Waivers 0.03% NET EXPENSES/5/ 0.90% |
1 Reflects the fees charged by Funds Management for providing investment advisory services to the master portfolio in which the Fund invests substantially all of its assets. The following advisory fee schedule is charged to the master portfolio as a percentage of the master portfolio's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion.
2 Includes expenses payable to affiliates of Wells Fargo & Company.
3 Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses.
4 Includes gross expenses allocated from the master portfolio in which the Fund invests.
5 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, including the underlying master portfolios' fees and expenses, and excluding brokerage commissions, interest, taxes and extraordinary expenses, do not exceed the net operating expense ratio shown. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 92 3 Years $ 294 5 Years $ 512 10 Years $1,141 |
TOTAL RETURN BOND FUND 29
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Jay N. Mueller, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
FUND INCEPTION:
11/25/1988
INVESTOR CLASS
Ticker: STADX
Fund Number: 3218
INVESTMENT OBJECTIVE
The Ultra Short-Term Income Fund seeks current income consistent with capital
preservation.
o at least 80% of the Fund's net assets in income-producing debt securities;
o up to 25% of the Fund's total assets in U.S. dollar-denominated debt securities of foreign issuers; and
o up to 25% of the Fund's total assets in below investment-grade debt securities.
PRINCIPAL INVESTMENT STRATEGIES
We invest principally in income-producing debt securities. Our portfolio
holdings may include U.S. Government obligations, corporate debt securities,
bank loans and mortgage- and asset-backed debt securities. We may invest in
investment-grade and below investment-grade debt securities (often called
"high-yield" securities or "junk bonds"), as well as in debt securities of both
domestic and foreign issuers. As part of our below investment-grade debt
securities investment strategy, we will generally invest in securities that are
rated at least BB by Standard & Poor's or Ba by Moody's, or an equivalent
quality rating from another Nationally Recognized Statistical Ratings
Organization, or are deemed by us to be of comparable quality. We may also use
futures, options or swap agreements, as well as other derivatives, to manage
risk or to enhance return. We may also invest in stripped securities. Under
normal circumstances, we expect the Fund's dollar-weighted average effective
maturity to be one year or less.
We employ a top-down, macroeconomic outlook to determine the portfolio's duration, yield curve positioning, credit quality and sector allocation. Macroeconomic factors considered may include, among others, the pace of economic growth, employment conditions, corporate profits, inflation, monetary and fiscal policy, as well as the influence of international economic and financial conditions. In combination with our top-down, macroeconomic approach, we employ a bottom-up process of fundamental securities analysis to select the specific securities for investment. Elements of this evaluation may include credit research, duration measurements, historical yield spread relationships, volatility trends, mortgage refinance rates, as well as other factors. Our credit analysis may consider an issuer's general financial condition, its competitive position and its management strategies, as well as industry characteristics and other factors. We may sell a security due to changes in credit characteristics or outlook, as well as changes in portfolio strategy or cash flow needs. A security may also be sold and replaced with one that presents a better value or risk/reward profile.
The Fund may hold some of its assets in cash or in money market instruments, including U.S. Government obligations, shares of other mutual funds and repurchase agreements, or make other short-term investments to either maintain liquidity or for short-term defensive purposes when we believe it is in the best interests of the shareholders to do so. During these periods, the Fund may not achieve its objective.
30 ULTRA SHORT-TERM INCOME FUND
PRINCIPAL RISK FACTORS
The Fund is primarily subject to the risks mentioned below.
o Counter-Party Risk
o Debt Securities Risk
o Derivatives Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Stripped Securities Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Fund and could adversely affect the Fund's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
ULTRA SHORT-TERM INCOME FUND 31
PERFORMANCE
The following information shows you how the Fund has performed and illustrates
the variability of the Fund's returns over time. The Fund's average annual
total returns are compared to the performance of an appropriate broad-based
index. Please remember that past performance before and after taxes is no
guarantee of future results.
[GRAPHIC APPEARS HERE]
CALENDAR YEAR TOTAL RETURNS FOR THE INVESTOR CLASS/1/
AS OF 12/31 EACH YEAR
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
5.27% 6.77% 4.26% 0.83% 2.26% 1.96% 3.49% 4.75% 3.17% -6.78%
|
BEST AND WORST QUARTER
Best Quarter: Q1 2001 2.08%
Worst Quarter: Q4 2008 -4.64%
|
The Fund's year-to-date performance through June 30, 2009, was 2.96%.
AVERAGE ANNUAL TOTAL RETURNS as of 12/31/08 1 YEAR 5 YEARS 10 YEARS INVESTOR CLASS/1/ Returns Before Taxes -6.78% 1.23% 2.54% Returns After Taxes on -8.15% -0.28% 0.76% Distributions/2/ Returns After Taxes on -4.36% 0.21% 1.11% Distributions and Sale of Fund Shares/2/ BARCLAYS CAPITAL 9-12 4.67% 3.66% 4.03% MONTHS U.S. SHORT TREASURY INDEX/3/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL U.S. 1-3 4.97% 3.81% 4.79% YEAR GOVERNMENT/CREDIT BON D INDEX/4/ (reflects no deduction for expenses or taxes) BARCLAYS CAPITAL SHORT-TERM 3.67% N/A N/A U.S. GOVERNMENT/CREDIT BON D INDEX/5/ (reflects no deduction for expenses or taxes) |
1 Investor Class shares incepted on November 25, 1988.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Fund shares
through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 The Barclays Capital 9-12 Months U.S. Short Treasury Index includes aged U.S.
treasury bills, notes and bonds with a remaining maturity from 9 up to (but
not including) 12 months. It excludes zero coupon strips. The Barclays
Capital 9-12 Months U.S. Short Treasury Index provides an approximation of
the interest rate risk of the Fund's portfolio (as measured by duration),
but the credit risk of the Index is significantly different than that of the
Fund due to differences in portfolio composition. You cannot invest directly
in an index.
4 The Barclays Capital U.S. 1-3 Year Government/Credit Bond Index is the 1-3
year component of the Barclays Capital Government/Credit Bond Index which
includes securities in the Government and Credit Indices. The Government
Index includes treasuries (I.E., public obligations of the U.S. Treasury
that have remaining maturities of more than one year) and agencies (I.E.,
publicly issued debt of U.S. Government agencies, quasi-federal
corporations, and corporate or foreign debt guaranteed by the U.S.
Government). The Credit Index includes publicly issued U.S. corporate and
foreign debentures and secured notes that meet specified maturity,
liquidity, and quality requirements. The Barclays Capital 1-3 Year U.S.
Government/Credit Bond Index provides an approximate comparison to the
credit risk of the Fund's portfolio, however, its interest rate risk (as
measured by duration) may be significantly greater than that of the Fund.
You cannot invest directly in an index.
5 The Barclays Capital Short-Term U.S. Government/Credit Bond Index contains
securities that have fallen out of the U.S. Government/Credit Index because
of the standard minimum one-year to maturity constraint. Securities in the
Short-Term U.S. Government/Credit Bond Index must have a maturity from 1 up
to (but not including) 12 months. The Barclays Capital Short-Term U.S.
Government/Credit Bond Index provides the most appropriate comparison to the
Fund with respect to interest rate risk (as measured by duration) and credit
risk (based on the composition of the Index and the Fund's portfolio).
However, the limited performance history of the Index does not allow for
comparison to all periods of the Fund's performance. This Index has an
inception date of August 1, 2004. You cannot invest directly in an index.
32 ULTRA SHORT-TERM INCOME FUND
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses
you will pay as a shareholder in the Fund. These tables do not reflect the
charges that may be imposed in connection with an account through which you
hold Fund shares. A broker-dealer or financial institution maintaining an
account through which you hold Fund shares may charge separate account, service
or transaction fees on the purchase or sale of Fund shares that would be in
addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge None (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
Annual Fund Operating Expenses (expenses that are deducted from Fund assets) Management Fees/1/ 0.40% Distribution (12b-1) Fees 0.00% Other Expenses/2/ 0.59% Acquired Fund Fees and 0.02% Expenses/3/ TOTAL ANNUAL FUND 1.01% OPERATING EXPENSES/4/ Fee Waivers 0.24% NET EXPENSES/4,5,6/ 0.77% |
1 The following advisory fee schedule is charged to the Fund as a percentage of the Fund's average daily net assets: 0.40% for the first $500 million; 0.375% for the next $500 million; 0.35% for the next $2 billion; 0.325% for the next $2 billion; and 0.30% for assets over $5 billion. 2 Includes expenses payable to affiliates of Wells Fargo & Company. 3 Reflects the pro-rata portion of the net operating expenses of any money market fund or other fund held by the Fund. Shareholders indirectly bear these underlying expenses because the NAV and/or distributions paid reflect such underlying expenses.
4 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Fund and also does not include expenses of any Acquired
fund.
5 The net operating expense ratio shown here includes the expenses of any money
market fund or other fund held by the Fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's net operating expenses, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed the net operating expense ratio of 0.75%. The committed net operating expense ratio may be increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the Fund
with the cost of investing in other mutual funds. It assumes:
o You invest $10,000 in the Fund for the time periods indicated below and
then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions; and
o The Fund's operating expenses remain the same.
The fee waivers shown in the Annual Fund Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
1 Year $ 78 3 Years $ 296 5 Years $ 532 10 Years $1,210 |
ULTRA SHORT-TERM INCOME FUND 33
Understanding the risks involved in mutual fund investing will help you make an informed decision that takes into account your risk tolerance and preferences. The factors that are most likely to have a material effect on a particular Fund as a whole are called "principal risks." The principal risks for each Fund have been previously identified and are described below. Additional information about the principal risks is included in the Statement of Additional Information.
ACTIVE TRADING RISK Frequent trading will result in a higher-than-average portfolio turnover ratio and increased
trading expenses, and may generate higher short-term capital gains.
COUNTER-PARTY RISK When a Fund enters into a repurchase agreement, an agreement where it buys a security
from a seller that agrees to repurchase the security at an agreed upon price and time, the
Fund is exposed to the risk that the other party will not fulfill its contractual obligation.
Similarly, the Fund is exposed to the same risk if it engages in a reverse repurchase
agreement where a broker-dealer agrees to buy securities and the Fund agrees to
repurchase them at a later date.
DEBT SECURITIES RISK Debt securities, such as notes and bonds, are subject to credit risk and interest rate risk.
Credit risk is the possibility that an issuer of an instrument will be unable to make interest
payments or repay principal when due. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate risk is the risk that
market interest rates may increase, which tends to reduce the resale value of certain debt
securities, including U.S. Government obligations. Debt securities with longer durations are
generally more sensitive to interest rate changes than those with shorter durations. Changes
in market interest rates do not affect the rate payable on an existing debt security, unless the
instrument has adjustable or variable rate features, which can reduce its exposure to interest
rate risk. Changes in market interest rates may also extend or shorten the duration of certain
types of instruments, such as asset-backed securities, thereby affecting their value and
returns. Debt securities may also have, or become subject to, liquidity constraints.
DERIVATIVES RISK The term "derivatives" covers a broad range of investments, including futures, options and
swap agreements. In general, a derivative refers to any financial instrument whose value is
derived, at least in part, from the price of another security or a specified index, asset or rate.
For example, a swap agreement is a commitment to make or receive payments based on
agreed upon terms, and whose value and payments are derived by changes in the value of
an underlying financial instrument. The use of derivatives presents risks different from, and
possibly greater than, the risks associated with investing directly in traditional securities. The
use of derivatives can lead to losses because of adverse movements in the price or value of
the underlying asset, index or rate, which may be magnified by certain features of the
derivatives. These risks are heightened when the portfolio manager uses derivatives to
enhance a Fund's return or as a substitute for a position or security, rather than solely to
hedge (or offset) the risk of a position or security held by the Fund. The success of
management's derivatives strategies will depend on its ability to assess and predict the
impact of market or economic developments on the underlying asset, index or rate and the
derivative itself, without the benefit of observing the performance of the derivative under all
possible market conditions.
|
34 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
FOREIGN INVESTMENT RISK Foreign investments are subject to more risks than U.S. domestic investments. These
additional risks may potentially include lower liquidity, greater price volatility and risks
related to adverse political, regulatory, market or economic developments. Foreign
companies also may be subject to significantly higher levels of taxation than U.S. companies,
including potentially confiscatory levels of taxation, thereby reducing the earnings potential
of such foreign companies. In addition, amounts realized on sales or distributions of foreign
securities may be subject to high and potentially confiscatory levels of foreign taxation and
withholding when compared to comparable transactions in U.S. securities. Investments in
foreign securities involve exposure to fluctuations in foreign currency exchange rates. Such
fluctuations may reduce the value of the investment. Foreign investments are also subject to
risks including potentially higher withholding and other taxes, trade settlement, custodial,
and other operational risks and less stringent investor protection and disclosure standards in
certain foreign markets. In addition, foreign markets can and often do perform differently
from U.S. markets.
HIGH YIELD SECURITIES RISK High yield securities (sometimes referred to as "junk bonds") are debt securities that are
rated below investment-grade, are unrated and deemed by us to be below investment-
grade, or are in default at the time of purchase. These securities have a much greater risk of
default (or in the case of bonds currently in default, of not returning principal) and may be
more volatile than higher-rated securities of similar maturity. The value of these securities
can be affected by overall economic conditions, interest rates, and the creditworthiness of
the individual issuers. Additionally, these securities may be less liquid and more difficult to
value than higher-rated securities.
ISSUER RISK The value of a security may decline for a number of reasons that directly relate to the issuer
or an entity providing credit support or liquidity support, such as management
performance, financial leverage, and reduced demand for the issuer's goods, services or
securities.
LEVERAGE RISK Certain transactions may give rise to a form of leverage. Such transactions may include,
among others, reverse repurchase agreements, loans of portfolio securities, and the use of
when-issued, delayed delivery or forward commitment transactions. The use of derivatives
may also create a leveraging risk. The use of leverage may cause a Fund to liquidate portfolio
positions when it may not be advantageous to do so. Leveraging, including borrowing, may
cause a Fund to be more volatile than if the Fund had not been leveraged. This is because
leverage tends to increase a Fund's exposure to market risk, interest rate risk or other risks
by, in effect, increasing assets available for investment.
LIQUIDITY RISK A security may not be sold at the time desired or without adversely affecting the price.
MANAGEMENT RISK We cannot guarantee that a Fund will meet its investment objective. We do not guarantee
the performance of a Fund, nor can we assure you that the market value of your investment
will not decline. We will not "make good" on any investment loss you may suffer, nor does
anyone we contract with to provide services, such as selling agents or investment advisers,
promise to make good on any such losses.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 35
MARKET RISK The market price of securities owned by a Fund may go up or down, sometimes rapidly or
unpredictably. Securities may decline in value or become illiquid due to factors affecting
securities markets generally or particular industries represented in the securities markets.
The value or liquidity of a security may decline or become illiquid due to general market
conditions which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates or adverse investor sentiment generally. They
may also decline or become illiquid due to factors that affect a particular industry or
industries, such as labor shortages or increased production costs and competitive conditions
within an industry. During a general downturn in the securities markets, multiple asset
classes may decline or become illiquid in value simultaneously.
MORTGAGE- AND ASSET-BACKED Mortgage- and asset-backed securities represent interests in "pools" of mortgages or other
SECURITIES RISK assets, including consumer loans or receivables held in trust. In addition, mortgage dollar
rolls are transactions in which a Fund sells mortgage-backed securities to a dealer and
simultaneously agrees to purchase similar securities in the future at a predetermined price.
Mortgage- and asset-backed securities, including mortgage dollar roll transactions, are
subject to certain additional risks. Rising interest rates tend to extend the duration of these
securities, making them more sensitive to changes in interest rates. As a result, in a period of
rising interest rates, these securities may exhibit additional volatility. This is known as
extension risk. In addition, these securities are subject to prepayment risk. When interest
rates decline, borrowers may pay off their debts sooner than expected. This can reduce the
returns of a Fund because the Fund will have to reinvest that money at the lower prevailing
interest rates. This is known as contraction risk. These securities also are subject to risk of
default on the underlying mortgage or assets, particularly during periods of economic
downturn.
REGULATORY RISK Changes in government regulations may adversely affect the value of a security. An
insufficiently regulated market might also permit inappropriate practices that adversely
affect an investment.
STRIPPED SECURITIES RISK Stripped securities are the separate income or principal components of debt securities.
These securities are particularly sensitive to changes in interest rates, and therefore subject
to greater fluctuations in price than typical interest bearing debt securities. For example,
stripped mortgage-backed securities have greater interest rate risk than mortgage-backed
securities with like maturities, and stripped treasury securities have greater interest rate risk
than traditional government securities with identical credit ratings.
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36 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
U.S. GOVERNMENT OBLIGATIONS U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government
RISK agencies or government-sponsored entities. While U.S. Treasury obligations are backed by
the "full faith and credit" of the U.S. Government, securities issued by U.S. Government
agencies or government-sponsored entities may not be backed by the full faith and credit of
the U.S. Government. The Government National Mortgage Association (GNMA), a wholly
owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit
of the U.S. Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of mortgages insured by the Federal
Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or
government-sponsored entities (i.e. not backed by the full faith and credit of the U.S.
Government) include the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of
interest and ultimate collection or scheduled payment of principal, but its participation
certificates are not backed by the full faith and credit of the U.S. Government. If a
government-sponsored entity is unable to meet its obligations, the performance of a Fund
that holds securities of the entity will be adversely impacted. U.S. Government obligations
are subject to low but varying degrees of credit risk, and are still subject to interest rate and
market risk.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 37
A description of the WELLS FARGO ADVANTAGE FUNDS' policies and procedures with respect to disclosure of the WELLS FARGO ADVANTAGE FUNDS' portfolio holdings is available in the Funds' Statement of Additional Information and on the WELLS FARGO ADVANTAGE FUNDS' Web site at www.wellsfargo.com/advantagefunds. In addition, Funds Management will, from time to time, include portfolio holdings information in quarterly commentaries for certain Funds. The substance of the information contained in such commentaries will also be posted to the Funds' Web site at www.wellsfargo.com/advantagefunds.
38 PORTFOLIO HOLDINGS INFORMATION
ABOUT WELLS FARGO FUNDS TRUST
The Trust was organized as a Delaware statutory trust on March 10, 1999. The
Board of Trustees of the Trust (Board) supervises each Fund's activities,
monitors its contractual arrangements with various service providers and
decides on matters of general policy.
The Board supervises the Funds and approves the selection of various companies hired to manage the Funds' operations. Except for the Funds' investment advisers, which generally may be changed only with shareholder approval, if the Board believes that it is in the best interests of the shareholders, it may change other service providers.
THE INVESTMENT ADVISER
Wells Fargo Funds Management, LLC, located at 525 Market Street, San Francisco, CA 94105, serves as the investment adviser for the Funds. Funds Management, an indirect, wholly owned subsidiary of Wells Fargo & Company, was created to assume the mutual fund advisory responsibilities of Wells Fargo Bank and is an affiliate of Wells Fargo Bank. Wells Fargo Bank, which was founded in 1852, is the oldest bank in the western United States and is one of the largest banks in the United States. As adviser, Funds Management is responsible for implementing the investment policies and guidelines for the Funds and for supervising the sub-adviser who are responsible for the day-to-day portfolio management of the Funds. For providing these services, Funds Management is entitled to receive fees as described in each Fund's table of Annual Fund Operating Expenses under the caption "Management Fees." A discussion regarding the basis for the Board's approval of the investment advisory and sub-advisory agreements for each Fund is available in the Funds' annual report for the fiscal year ended May 31, 2008.
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services. The involvement of various subsidiaries of Wells Fargo & Company, including Funds Management, in the management and operation of the Funds and in providing other services or managing other accounts gives rise to certain actual and potential conflicts of interest.
For example, certain investments may be appropriate for a Fund and also for other clients advised by Funds Management and its affiliates, and there may be market or regulatory limits on the amount of investment, which may cause competition for limited positions. Also, various client and proprietary accounts may at times take positions that are adverse to a Fund. Funds Management applies various policies to address these situations, but a Fund may nonetheless incur losses or underperformance during periods when Wells Fargo & Company, its affiliates and their clients achieve profits or outperformance.
Wells Fargo & Company may have interests in or provide services to portfolio companies or Fund shareholders or intermediaries that may not be fully aligned with the interests of all investors. Funds Management and its affiliates serve in multiple roles, including as investment adviser and, for most WELLS FARGO ADVANTAGE FUNDS, sub-adviser, as well as administrator, principal underwriter and securities lending agent. Additionally, until October 26, 2009, Wells Fargo Bank will serve as custodian for the Total Return Bond Fund.
These are all considerations of which an investor should be aware and which may cause conflicts that could disadvantage a Fund. Funds Management has instituted business and compliance policies, procedures and disclosures that are designed to identify, monitor and mitigate conflicts of interest.
THE SUB-ADVISER AND PORTFOLIO MANAGERS
The following sub-adviser and portfolio managers perform day-to-day investment
management activities for the Funds. The sub-adviser is compensated for its
services by Funds Management from the fees Funds Management receives for its
services as adviser to the Funds. The Statement of Additional Information
provides additional information about the portfolio managers' compensation,
other accounts managed by the portfolio managers and the portfolio managers'
ownership of securities in the Funds. For information regarding the sub-adviser
that performs day-to-day investment management activities for the master
portfolio in which the Total Return Bond Fund invests, see "The Sub-Adviser for
the Master Portfolio" under the "Master/Gateway (Reg. TM)Structure" section.
ORGANIZATION AND MANAGEMENT OF THE FUNDS 39
MICHAEL J. BRAY, CFA Mr. Bray is jointly responsible for managing the Government Securities Fund, which he
Government Securities Fund has managed since 2005. He is also jointly responsible for managing the Income Plus
Income Plus Fund Fund, which he has managed since 2008. Mr. Bray joined Wells Capital Management in
2005 as a portfolio manager on the Customized Fixed Income Team specializing in
government, agency and interest rate derivative instruments. Prior to joining Wells
Capital Management, Mr. Bray was a principal responsible for multi-currency yield
curve arbitrage business at Windward Capital, LLC from 2004 to 2005. From 1996 to
2004, he was the managing director at State Street Research and Management,
focusing on mutual fund and institutional account management. Education: B.S., Math
and Actuarial Science, University of Connecticut, Storrs; M.B.A., Pennsylvania State
University.
TROY LUDGOOD Mr. Ludgood is jointly responsible for managing the Total Return Bond Fund, which he
Total Return Bond Fund has managed since 2007. In 2008, Mr. Ludgood was named as co-head and senior
portfolio manager of the Montgomery Fixed Income Strategies Team at Wells Capital
Management, where he has also served as a portfolio manager since 2007, Director of
Credit Trading since 2006, and a senior credit trader since 2004. Prior to joining Wells
Capital Management, he was a trader at Lehman Brothers since 2000. Education: B.S.,
Industrial Engineering, Georgia Institute of Technology; M.B.A., Wharton School of the
University of Pennsylvania.
KEVIN J. MAAS, CFA Mr. Maas is jointly responsible for managing the High Income Fund and the Short-Term
High Income Fund High Yield Bond Fund, both of which he has managed since 2007. Mr. Maas is a
Short-Term High Yield Bond portfolio manager for the Wells Capital Management Fixed Income Team and also
Fund serves as a senior research analyst. He joined Wells Capital Management in 2005 as a
senior research analyst specializing in taxable high yield securities. Prior to joining
Wells Capital Management, Mr. Maas was a high-yield, fixed-income analyst with
Strong Capital Management, Inc. since 1999. Education: B.S., Finance, University of
Minnesota.
JAY N. MUELLER, CFA Mr. Mueller is jointly responsible for managing the Government Securities Fund, the
Government Securities Fund Short-Term Bond Fund and the Ultra Short-Term Income Fund, each of which he has
Short-Term Bond Fund managed since 2004. Mr. Mueller joined Wells Capital Management in 2005 as a
Ultra Short-Term Income Fund portfolio manager specializing in macroeconomic analysis. Prior to joining Wells
Capital Management, he served as a portfolio manager with Strong Capital
Management, Inc. (SCM) since 1991. Additional responsibilities at SCM included,
serving as director of fixed income from 2002 to 2004. Education: B.A., Economics,
University of Chicago.
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40 ORGANIZATION AND MANAGEMENT OF THE FUNDS
D. JAMES NEWTON II, CFA, CPA Mr. Newton is jointly responsible for managing the Income Plus Fund and the Ultra
Income Plus Fund Short-Term Income Fund, both of which he has managed since 2008. Mr. Newton
Ultra Short-Term Income Fund joined Wells Capital Management in 2005 as a portfolio manager and head of
investment grade credit research. Prior to joining Wells Capital Management, Mr.
Newton served as a high-grade, fixed-income analyst with Strong Capital
Management, Inc. (SCM) since 2002. Prior to joining SCM, he was at Northwestern
Mutual Life Insurance Company from 1998 to 2002, first as an associate in the Private
Placement Department, and later as an investment grade credit analyst and
subsequent director in the Public Fixed Income Department. Education: B.A.,
Economics, Albion College; M.B.A., University of Michigan.
THOMAS O'CONNOR, CFA Mr. O'Connor is jointly responsible for managing the Total Return Bond Fund, which he
Total Return Bond Fund has managed since 2003. In 2008, Mr. O'Connor was named as co-head of the
Montgomery Fixed Income Strategies Team at Wells Capital Management, where he
has also served as a senior portfolio manager since 2007 and portfolio manager since
2003. Mr. O'Connor is responsible for identifying relative value in the mortgage and
structured product sectors of the market. Prior to joining Wells Capital Management,
Mr. O'Connor was a portfolio manager in the Fixed Income Division of Montgomery
Asset Management from 2000 to 2003. Education: B.A., Business Administration,
University of Vermont.
THOMAS M. PRICE, CFA Mr. Price is jointly responsible for managing the High Income Fund and the Short-Term
High Income Fund High Yield Bond Fund, both of which he has managed since 1998. He is also jointly
Income Plus Fund responsible for managing the Income Plus Fund, which he has managed since 2005,
Short-Term High Yield Bond and the Ultra Short-Term Income Fund, which he has managed since 2002. Mr. Price
Fund joined Wells Capital Management in 2005 as a portfolio manager specializing in
Ultra Short-Term Income Fund taxable high yield securities. Prior to joining Wells Capital Management, Mr. Price was
with Strong Capital Management, Inc. (SCM) since 1996 as a fixed income research
analyst and, since 1998, as a portfolio manager. Education: B.B.A., Finance, University of
Michigan; M.B.A., Finance, Kellogg Graduate School of Management, Northwestern
University.
JANET S. RILLING, CFA, CPA Ms. Rilling is jointly responsible for managing the Income Plus Fund, which she has
Income Plus Fund managed since 2008, and the Short-Term Bond Fund, which she has managed since
Short-Term Bond Fund 2005. Ms. Rilling joined Wells Capital Management in 2005 as a portfolio manager and
specializes in investment-grade corporate debt securities. Prior to joining Wells Capital
Management, she was a portfolio manager with Strong Capital Management, Inc.
(SCM) since 2000 and a research analyst at SCM since 1995. Education: B.A., Accounting
and Finance; M.S., Finance, University of Wisconsin.
LYNNE A. ROYER Ms. Royer is jointly responsible for managing the Total Return Bond Fund, which she
Total Return Bond Fund has managed since 2007. In 2008, Ms. Royer was named as co-head of the Montgomery
Fixed Income Strategies Team at Wells Capital Management, where she has also served
as a senior portfolio manager since 2007, a portfolio manager since 2006, and as the
Director of Credit Research since 2005. Prior to joining Wells Capital Management as a
senior analyst in 2003, she was a senior analyst in the Fixed Income Division of
Montgomery Asset Management since 1997. Education: B.A., Gettysburg College;
M.B.A., Anderson Graduate School of Management, University of California, Los
Angeles.
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ORGANIZATION AND MANAGEMENT OF THE FUNDS 41
MICHAEL J. SCHUELLER, CFA Mr. Schueller is jointly responsible for managing the High Income Fund and the
High Income Fund Short-Term High Yield Bond Fund, both of which he has managed since 2007. Mr.
Short-Term High Yield Bond Schueller joined Wells Capital Management in 2005 as a senior research analyst
Fund specializing in high yield securities and, since 2007, as a portfolio manager. Prior to
joining Wells Capital Management, Mr. Schueller was with Strong Capital Management,
Inc. (SCM) since 2000 as a leveraged loan trader and, since 2002, a fixed income
research analyst. Education: B.A., Economics, University of Minnesota; J.D., University of
Wisconsin.
WILLIAM STEVENS Mr. Stevens is jointly responsible for managing the Total Return Bond Fund, which he
Total Return Bond Fund has managed since 1997. Mr. Stevens joined Wells Capital Management in 2003 as chief
fixed income officer and senior managing director. He currently serves as senior
portfolio manager and co-head of the Montgomery Fixed Income Investment
Strategies Team. Prior to joining Wells Capital Management, Mr. Stevens was president
and chief investment officer of Montgomery Asset Management, with oversight
responsibility for all investment related activities, as well as co-head and founder of
Montgomery's Fixed Income Division since 1992. Education: B.A., Economics, Wesleyan
University; M.B.A., Harvard Business School.
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DORMANT INVESTMENT ADVISORY ARRANGEMENT
Under the investment advisory contract for the Total Return Bond Fund, a
gateway fund, Funds Management does not receive any compensation from the Fund
as long as the Fund continues to invest, as it does today, substantially all of
its assets in a single master portfolio. Under this structure, Funds Management
receives only an advisory fee from the master portfolio. If the Fund were to
change its investment structure so that it begins to invest substantially all
of its assets in two or more master portfolios, Funds Management would be
entitled to receive an annual fee of 0.25% of the Fund's average daily net
assets for providing investment advisory services to the Fund, including the
determination of the asset allocations of the Fund's investments in the various
master portfolios.
DORMANT MULTI-MANAGER ARRANGEMENT
The Board has adopted a "multi-manager" arrangement for each Fund, except the
Income Plus Fund. Under this arrangement, each Fund and Funds Management may
engage one or more sub-advisers to make day-to-day investment decisions for the
Fund's assets. Funds Management would retain ultimate responsibility (subject
to the oversight of the Board) for overseeing the sub-advisers and may, at
times, recommend to the Board that the Fund: (1) change, add or terminate one
or more sub-advisers; (2) continue to retain a sub-adviser even though the
sub-adviser's ownership or corporate structure has changed; or (3) materially
change a sub-advisory agreement with a sub-adviser.
Applicable law generally requires a Fund to obtain shareholder approval for most of these types of recommendations, even if the Board approves the proposed action. Under the "multi-manager" arrangement approved by the Board, the Fund will seek exemptive relief, if necessary, from the SEC to permit Funds Management (subject to the Board's oversight and approval) to make decisions about the Fund's sub-advisory arrangements without obtaining shareholder approval. The Fund will continue to submit matters to shareholders for their approval to the extent required by applicable law. Meanwhile, this multi-manager arrangement will remain dormant and will not be implemented until shareholders are further notified.
42 ORGANIZATION AND MANAGEMENT OF THE FUNDS
SHAREHOLDER SERVICING PLAN
The Funds have a shareholder servicing plan. Under this plan, each Fund has
agreements with various shareholder servicing agents to process purchase and
redemption requests, to service shareholder accounts, and to provide other
related services. For these services, each Fund pays an annual fee of up to
0.25% of its average daily net assets. Selling or shareholder servicing agents,
in turn, may pay some or all of these amounts to their employees or registered
representatives who recommend or sell Fund shares or make investment decisions
on behalf of their clients.
ADDITIONAL PAYMENTS TO DEALERS
In addition to dealer reallowances and payments made by each Fund for
distribution and shareholder servicing, the Fund's adviser, the distributor or
their affiliates make additional payments ("Additional Payments") to certain
selling or shareholder servicing agents for the Fund, which include
broker-dealers. These Additional Payments are made in connection with the sale
and distribution of shares of the Fund or for services to the Fund and its
shareholders. These Additional Payments, which may be significant, are paid by
the Fund's adviser, the distributor or their affiliates, out of their revenues,
which generally come directly or indirectly from fees paid by the entire Fund
complex.
In return for these Additional Payments, the Fund's adviser and distributor expect to receive certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments. Such advantages are expected to include, without limitation, placement of the Fund on a list of mutual funds offered as investment options to the selling agent's clients (sometimes referred to as "Shelf Space"); access to the selling agent's registered representatives; and/or ability to assist in training and educating the selling agent's registered representatives.
Certain selling or shareholder servicing agents receive these Additional Payments to supplement amounts payable by the Fund under the shareholder servicing plans. In exchange, these agents provide services including, but not limited to, establishing and maintaining accounts and records; answering inquiries regarding purchases, exchanges and redemptions; processing and verifying purchase, redemption and exchange transactions; furnishing account statements and confirmations of transactions; processing and mailing monthly statements, prospectuses, shareholder reports and other SEC-required communications; and providing the types of services that might typically be provided by each Fund's transfer agent (E.G., the maintenance of omnibus or omnibus-like accounts, the use of the National Securities Clearing Corporation for the transmission of transaction information and the transmission of shareholder mailings).
The Additional Payments may create potential conflicts of interests between an investor and a selling agent who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial consultant and review carefully any disclosure by the selling agent as to what monies they receive from mutual fund advisers and distributors, as well as how your financial consultant is compensated.
The Additional Payments are typically paid in fixed dollar amounts, or based on the number of customer accounts maintained by the selling or shareholder servicing agent, or based on a percentage of sales and/or assets under management, or a combination of the above. The Additional Payments are either up-front or ongoing or both. The Additional Payments differ among selling and shareholder servicing agents. Additional Payments to a selling agent that is compensated based on its customers' assets typically range between 0.05% and 0.30% in a given year of assets invested in the Fund by the selling agent's customers. Additional Payments to a selling agent that is compensated based on a percentage of sales typically range between 0.10% and 0.15% of the gross sales of the Fund attributable to the selling agent. In addition, representatives of the Fund's distributor visit selling agents on a regular basis to educate their registered representatives and to encourage the sale of Fund shares. The costs associated with such visits may be paid for by the Fund's adviser, distributor, or their affiliates, subject to applicable FINRA regulations.
More information on the FINRA member firms that have received the Additional Payments described in this section is available in the Statement of Additional Information, which is on file with the SEC and is also available on the WELLS FARGO ADVANTAGE FUNDS website at www.wellsfargo.com/advantagefunds.
COMPENSATION TO DEALERS AND SHAREHOLDER SERVICING AGENTS 43
The share price (net asset value per share or NAV) for the Fund is calculated each business day as of the close of trading on the New York Stock Exchange (NYSE) (generally 4 p.m. ET). To calculate the Fund's NAV, the Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The price at which a purchase or redemption of Fund shares is effected is based on the next calculation of NAV after the order is placed. Each Fund does not calculate its NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
With respect to any portion of the Fund's assets that may be invested in other mutual funds, the Fund's NAV is calculated based upon the net asset values of the other mutual funds in which the Fund invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
With respect to any portion of the Fund's assets invested directly in securities, the Fund's investments are generally valued at current market prices. Securities are generally valued based on the last sale price during the regular trading session if the security trades on an exchange (closing price). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price (NOCP), and if no NOCP is available, then at the last reported sales price.
We are required to depart from these general valuation methods and use fair value pricing methods to determine the values of certain investments if we believe that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Fund calculates its NAV. In addition, we use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before the Fund calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security.
In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate or that it reflects the price that the Fund could obtain for such security if it were to sell the security as of the time of fair value pricing. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. See the Statement of Additional Information for additional details regarding the pricing of Fund shares.
44 PRICING FUND SHARES
You can open a WELLS FARGO ADVANTAGE FUNDS account through any of the following
means:
o directly with the Fund. Complete a WELLS FARGO ADVANTAGE FUNDS
application, which you may obtain by visiting our Web site at
www.wellsfargo.com/advantagefunds or by calling Investor Services at
1-800-222-8222. Be sure to indicate the Fund name and the share class into
which you intend to invest when completing the application;
o through a brokerage account with an approved selling agent; or
o through certain retirement, benefit and pension plans or certain packaged investment products. (Please contact the providers of the plan or product for instructions.)
HOW TO OPEN AN ACCOUNT 45
This section explains how you can buy shares directly from WELLS FARGO ADVANTAGE FUNDS. If you're opening a new account, an account application is available on-line at www.wellsfargo.com/advantagefunds or by calling Investor Services at 1-800-222-8222. For Fund shares held through brokerage and other types of accounts, please consult your selling agent.
MINIMUM INVESTMENTS INITIAL PURCHASE SUBSEQUENT PURCHASES
--------------------------- -------------------------------------------------- -------------------------------------
Regular accounts $2,500 $100
IRAs, IRA rollovers, Roth $1,000 $100
IRAs
UGMA/UTMA accounts $1,000 $50
Employer Sponsored no minimum no minimum
Retirement Plans
BUYING SHARES OPENING AN ACCOUNT ADDING TO AN ACCOUNT
--------------------------- -------------------------------------------------- -------------------------------------
By Internet You may open an account online and fund o To buy additional shares or buy
---------------------------
your account with an Electronic Funds shares of a new Fund, visit
Transfer from your bank account, by Federal www.wellsfargo.com/
Wire, or by sending us a check. Visit advantagefunds.
www.wellsfargo.com/advantagefunds. o Subsequent online purchases
-------
have a minimum of $100 and a
maximum of $100,000. You may
be eligible for an exception to
this maximum. Please call
Investor Services at
1-800-222-8222 for more
information.
-----
By Mail o Complete and sign your account o Enclose a voided check (for
---------------------------
application. checking accounts) or a deposit
o Mail the application with your check made slip (savings accounts).
payable to the Fund to Investor Services at: Alternatively, include a note
with your name, the Fund name,
REGULAR MAIL
--------------------------------------------------
and your account number.
WELLS FARGO ADVANTAGE FUNDS
o Mail the deposit slip or note
P.O. Box 8266
with your check made payable
Boston, MA 02266-8266
to the Fund to the address on
OVERNIGHT ONLY the left.
-------------------------------------------------- -------------------------------------
WELLS FARGO ADVANTAGE FUNDS
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
--------------------------------------------------
By Telephone A new account may not be opened by To buy additional shares or to buy
---------------------------
telephone unless you have another Wells shares of a new Fund call:
Fargo Advantage Fund account with your o Investor Services at
bank information on file. If you do not 1-800-222-8222 or
currently have an account, refer to the section o 1-800-368-7550 for the
on buying shares by mail or wire. automated phone system.
-------------------------------------------------- -------------------------------------
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46 HOW TO BUY SHARES
BUYING SHARES
-------------------------- ---------------------------------------------- ---------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
---------------------------------------------- ---------------------------------------
In Person Investors are welcome to visit the Investor See instructions shown to the left.
-------------------------- --------------------------------------
Center in person to ask questions or conduct
any Fund transaction. The Investor Center is
located at 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
----------------------------------------------
By Wire o Complete, sign and mail your account To buy additional shares, instruct
--------------------------
application (refer to the section on buying your bank or financial institution to
shares by mail) use the same wire instructions
o Provide the following instructions to your shown to the left.
--------------------------------------
financial institution:
State Street Bank & Trust
Boston, MA
Bank Routing Number: ABA 011000028
Wire Purchase Account: 9905-437-1
Attention: WELLS FARGO ADVANTAGE FUNDS
(Name of Fund, Account
Number and any applicable
share class)
Account Name: Provide your
name as registered on the
Fund account
----------------------------------------------
Through Your Investment Contact your investment representative. Contact your investment
Representative representative.
-------------------------- ---------------------------------------------- --------------------------------------
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GENERAL NOTES FOR BUYING SHARES
o PROPER FORM. If the transfer agent receives your application in proper order before the close of the NYSE, your transactions will be priced at that day's NAV. If your application is received after the close of trading on the NYSE, it will be priced at the next business day's NAV. Failure to complete an account application properly may result in a delay in processing your request. You are eligible to earn distributions beginning on the business day after the transfer agent receives your application in proper form.
o U.S. DOLLARS ONLY. All payments must be in U.S. dollars, and all checks must be drawn on U.S. banks.
o INSUFFICIENT FUNDS. You will be charged a $25.00 fee for every check or Electronic Funds Transfer that is returned to us as unpaid.
o NO FUND NAMED. When all or a portion of a payment is received for investment without a clear Fund designation, we may direct the undesignated portion or the entire amount, as applicable, into the Wells Fargo Advantage Money Market Fund. We will treat your inaction as approval of this purchase until you later direct us to sell or exchange these shares of the Money Market Fund, at the next NAV calculated after we receive your order in proper form.
o RIGHT TO REFUSE AN ORDER. We reserve the right to refuse or cancel a purchase or exchange order for any reason, including if we believe that doing so would be in the best interests of a Fund and its shareholders.
o MINIMUM INITIAL AND SUBSEQUENT INVESTMENT WAIVERS. We allow a reduced minimum initial investment of $100 if you sign up for at least a $100 monthly automatic investment purchase plan. If you opened your account with the set minimum amount shown in the above chart, we allow reduced subsequent purchases for a minimum of $50 a month if you purchase through an automatic investment plan. We may also waive or reduce the minimum initial and subsequent investment amounts for purchases made through certain retirement, benefit and pension plans, certain packaged investment products, or for certain classes of shareholders as permitted by the SEC. Check specific disclosure statements and applications for the program through which you intend to invest.
HOW TO BUY SHARES 47
The following section explains how you can sell shares held directly through an account with WELLS FARGO ADVANTAGE FUNDS. For Fund shares held through brokerage or other types of accounts, please consult your selling agent.
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
-------------------- ----------------------------------------------------------------------
Minimum Redemption $100 (or remainder of account balance)
-------------------- ----------------------------------------------------------------------
By Internet Visit our Web site at www.wellsfargo.com/advantagefunds.
--------------------
Redemptions requested online are limited to a minimum of $100
and a maximum of $100,000. You may be eligible for an exception
to this maximum. Please call Investor Services at 1-800-222-8222
for more information.
----------------------------------------------------------------------
By Mail o Send a Letter of Instruction providing your name, account
number, the Fund from which you wish to redeem and the
dollar amount you wish to receive (or write "Full Redemption"
to redeem your remaining account balance) to the address
below.
o Make sure all account owners sign the request exactly as their
names appear on the account application.
o A medallion guarantee may be required under certain
circumstances (see "General Notes for Selling Shares").
REGULAR MAIL
-------------------- ----------------------------------------------------------------------
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
OVERNIGHT ONLY
----------------------------------------------------------------------
WELLS FARGO ADVANTAGE FUNDS
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
----------------------------------------------------------------------
By Wire o To arrange for a Federal Funds wire, call 1-800-222-8222.
--------------------
o Be prepared to provide information on the commercial bank
that is a member of the Federal Reserve wire system.
o Wire requests are sent to your bank account next business day
if your request to redeem is received before the NYSE close.
o There is a $10 fee for each request.
----------------------------------------------------------------------
In Person Investors are welcome to visit the Investor Center in person to ask
--------------------
questions or conduct any Fund transaction. The Investor Center is
located at 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051.
----------------------------------------------------------------------
|
48 HOW TO SELL SHARES
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
--------------------------- ------------------------------------------------------------------
By Telephone / o Call an Investor Services representative at 1-800-222-8222 or
Electronic Funds Transfer use the automated phone system 1-800-368-7550.
---------------------------
(EFT)
---------------------------
o Telephone privileges are automatically made available to you
unless you specifically decline them on your account
application or subsequently in writing.
o Redemption requests may not be made by phone if the
address on your account was changed in the last 15 days. In
this event, you must request your redemption by mail (refer to
the section on selling shares by mail).
o A check will be mailed to the address on record (if there have
been no changes communicated to us within the last 15 days)
or transferred to a linked bank account.
o Transfers made to a Wells Fargo Bank account are made
available sooner than transfers to an unaffiliated institution.
o Redemptions processed by EFT to a linked Wells Fargo Bank
account occur same day for Wells Fargo Advantage money
market funds, and next day for all other WELLS FARGO ADVANTAGE
FUNDS.
o Redemptions to any other linked bank account may post in
two business days. Please check with your financial institution
for timing of posting and availability of funds.
NOTE: Telephone transactions such as redemption requests
made over the phone generally require only one of the
account owners to call unless you have instructed us
otherwise.
-----------------------------------------------------------------
Through Your Investment Contact your investment representative.
Representative
--------------------------- -----------------------------------------------------------------
|
GENERAL NOTES FOR SELLING SHARES
o PROPER FORM. We will process requests to sell shares at the first NAV calculated after a request in proper form is received by the transfer agent. If your request is not in proper form, you may have to provide us with additional documentation to redeem your shares. Requests received before the cutoff time are processed on the same business day.
o REDEMPTION FEES. Your redemption proceeds are net of any applicable redemption fees.
o FORM OF REDEMPTION PROCEEDS. You may request that your redemption proceeds be sent to you by check, by Electronic Funds Transfer into a bank account, or by wire. Please call Investor Services regarding requirements for linking bank accounts or for wiring funds. Although generally we pay redemption requests in cash, we reserve the right to determine in our sole discretion, whether to satisfy redemption requests by making payment in securities (known as a redemption in kind). In such case, we may pay all or part of the redemption in securities of equal value as permitted under the 1940 Act, and the rules thereunder. The redeeming shareholder should expect to incur transaction costs upon the disposition of the securities received.
o WIRE FEES. Typically, there is a $10 fee for wiring funds, however we reserve the right to waive any such fee for shareholders with account balances in excess of $100,000. Please contact your bank to find out about any charges they may assess for an incoming wire transfer.
o TELEPHONE/INTERNET REDEMPTIONS. We will take reasonable steps to confirm that telephone and internet instructions are genuine. For example, we require proof of your identification, such as a Taxpayer Identification Number or username and password, before we will act on instructions received by telephone or the internet. We will not be liable for any losses incurred if we follow telephone or internet instructions we reasonably believe to be genuine. Your call may be recorded.
HOW TO SELL SHARES 49
o RIGHT TO DELAY PAYMENT. We normally will send out checks within one business day, and in any event no more than seven days, after we accept your request to redeem. If you redeem shares recently purchased by check or through EFT or the Automatic Investment Plan, you may be required to wait up to seven business days before we will send your redemption proceeds. Our ability to determine with reasonable certainty that investments have been finally collected is greater for investments coming from accounts with banks affiliated with Funds Management than it is for investments coming from accounts with unaffiliated banks. Redemption payments also may be delayed under extraordinary circumstances or as permitted by the SEC in order to protect remaining shareholders. Such extraordinary circumstances are discussed further in the Statement of Additional Information.
o RETIREMENT PLANS AND OTHER PRODUCTS. If you purchased shares through a packaged investment product or retirement plan, read the directions for selling shares provided by the product or plan. There may be special requirements that supercede the directions in this Prospectus.
o MEDALLION GUARANTEES. Medallion guarantees are required for mailed redemption requests under the following circumstances: (1) if the request is for over $100,000; (2) if the address on your account was changed within the last 15 days; or (3) if the redemption is made payable to a third party. You can get a Medallion guarantee at a financial institution such as a bank or brokerage house. We do not accept notarized signatures.
REDEMPTION FEES
For the High Income Fund and Short-Term High Yield Bond Fund, a 2.00%
redemption fee will be assessed on the NAV of shares redeemed or exchanged
within 30 days after purchase and will be deducted from the proceeds otherwise
payable to the shareholder. The redemption fee for a Fund is intended to
compensate the Fund for the increased expenses to longer-term shareholders and
the disruptive effect on the Fund's portfolio caused by short-term investments.
This redemption fee is retained by the Fund.
To determine whether the redemption fee applies, the Fund will first redeem shares acquired by reinvestment of any distributions of net investment income and realized net capital gain, and then will redeem shares in the order in which they were purchased (such that shares held the longest are redeemed first).
Please note that in certain cases, your financial intermediary or the Investor Center will need to be notified in order to waive the redemption fee. The redemption fee will be waived on sales or exchanges of Fund shares made under the following circumstances.
o shares that were purchased with reinvested distributions;
o in order to meet scheduled (Internal Revenue Code Section 72(t) withdrawal schedule) or mandatory distributions (withdrawals generally made after age 701/2 according to IRS guidelines) from traditional IRAs and certain other retirement plans. (See your retirement plan information for details);
o in the event of the last surviving shareholder's death or for a disability suffered after purchasing shares. ("Disability" is defined in Internal Revenue Code Section 72(m)(7));
o redemptions initiated by a Fund;
o conversion of shares from one share class to another in the same Fund;
o redemptions in connection with a non-discretionary portfolio rebalancing associated with certain wrap accounts and certain retirement plans;
o taking out a distribution or loan from a defined contribution plan;
o to effect, through a redemption and subsequent purchase, an account registration change within the same Fund;
o due to participation in the Systematic Withdrawal Plan;
o Fund of Funds, including those advised by Funds Management (WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/), subject to review and approval by Funds Management;
o transactions by Section 529 college savings plan accounts; and
o if Funds Management determines in its discretion such a waiver is consistent with the best interests of a Fund's shareholders.
In addition, certain brokers, retirement plan administrators and/or fee-based program sponsors who maintain underlying shareholder accounts do not have the systems capability to track and assess redemption fees.Though these intermediaries will be asked to assess redemption fees on shareholder and participant accounts and remit these fees to the Fund, there are no assurances that all intermediaries will properly assess redemption fees. Further, a financial intermediary may apply different methodologies than those described above in assessing redemption fees or may impose their own redemption fee that may differ from the Fund's redemption fee. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about whether and how redemption fees will be applied to your account.
50 HOW TO SELL SHARES
Exchanges between WELLS FARGO ADVANTAGE FUNDS involve two transactions: (1) a
sale of shares of one Fund; and (2) the purchase of shares of another. In
general, the same rules and procedures that apply to sales and purchases apply
to exchanges. There are, however, additional factors you should keep in mind
while making or considering an exchange:
o In general, exchanges may be made between like share classes of any Wells
Fargo Advantage Fund offered to the general public for investment (I.E., a
Fund not closed to new accounts).
o An exchange request will be processed on the same business day, provided that both Funds are open at the time the request is received. If one or both Funds are closed, the exchange will be processed on the following business day.
o You should carefully read the prospectus for the Wells Fargo Advantage Fund
into which you wish to exchange.
o Every exchange involves selling Fund shares, which may produce a capital
gain or loss for tax purposes.
o If you are making an initial investment into a Fund through an exchange, you must exchange at least the minimum initial purchase amount for the new Fund, unless your balance has fallen below that amount due to investment performance.
o Any exchange between two WELLS FARGO ADVANTAGE FUNDS must meet the minimum
redemption and subsequent purchase amounts.
o The High Income Fund and Short-Term High Yield Bond Fund each impose a 2.00%
redemption fee on shares that are exchanged within 30 days of purchase. See
"Redemption Fees" under "How to Sell Shares" for additional information.
Generally, we will notify you at least 60 days in advance of any changes in our exchange policy.
FREQUENT PURCHASES AND REDEMPTIONS OF FUND SHARES
The Funds reserve the right to reject any purchase or exchange order for any reason. The Funds are not designed to serve as vehicles for frequent trading. Purchases or exchanges that a Fund determines could harm the Fund may be rejected.
Excessive trading by Fund shareholders can negatively impact a Fund and its long-term shareholders in several ways, including disrupting Fund investment strategies, increasing transaction costs, decreasing tax efficiency, and diluting the value of shares held by long-term shareholders. Excessive trading in Fund shares can negatively impact a Fund's long-term performance by requiring it to maintain more assets in cash or to liquidate portfolio holdings at a disadvantageous time. Certain Funds may be more susceptible than others to these negative effects. For example, Funds that have a greater percentage of their investments in non-U.S. securities may be more susceptible than other Funds to arbitrage opportunities resulting from pricing variations due to time zone differences across international financial markets. Similarly, Funds that have a greater percentage of their investments in small company securities may be more susceptible than other Funds to arbitrage opportunities due to the less liquid nature of small company securities. Both types of Funds also may incur higher transaction costs in liquidating portfolio holdings to meet excessive redemption levels. Fair value pricing may reduce these arbitrage opportunities, thereby reducing some of the negative effects of excessive trading.
The Funds actively discourage and take steps to prevent the portfolio disruption and negative effects on long-term shareholders that can result from excessive trading activity by Fund shareholders. The Board has approved the Funds' policies and procedures, which provide, among other things, that Funds Management may deem trading activity to be excessive if it determines that such trading activity would likely be disruptive to the Fund by increasing expenses or lowering returns. In this regard, the Funds take steps to avoid accommodating frequent purchases and redemptions of shares by Fund shareholders. Except as noted below for the Ultra Short-Term Income Fund, Funds Management monitors available shareholder trading information across all Funds on a daily basis. Funds Management will temporarily suspend the purchase and exchange privileges of an investor who completes a purchase and redemption in a Fund within 30 calendar days. Such investor will be precluded from investing in the Fund for a period of 30 calendar days.
Because the Ultra Short-Term Income Fund is often used for short-term investments, it is designed to accommodate more frequent purchases and redemptions than longer-term income funds. As a result, the Ultra Short-Term Income Fund does not anticipate that frequent purchases and redemptions, under normal circumstances, will have significant adverse consequences to the Ultra Short-Term Income Fund or its shareholders. Although the policies adopted by the Ultra Short-Term Income Fund do not prohibit frequent trading, Funds Management will seek to prevent an investor from utilizing the Fund to facilitate frequent purchases and redemptions of shares in long-term Funds in contravention of the policies and procedures adopted by the long-term Funds.
In addition, Funds Management reserves the right to accept purchases, redemptions and exchanges made in excess of applicable trading restrictions in designated accounts held by Funds Management or its affiliate that are used at all times exclusively for addressing operational matters related to shareholder accounts, such as testing of account functions, and are maintained at low balances that do not exceed specified dollar amount limitations.
A financial intermediary through whom you may purchase shares of the Fund may independently attempt to identify excessive trading and take steps to deter such activity. As a result, a financial intermediary may on its own limit or permit trading activity of its customers who invest in Fund shares using standards different from the standards used by Funds Management and described in this Prospectus. Funds Management may permit a financial intermediary to enforce its own
HOW TO EXCHANGE SHARES 51
internal policies and procedures concerning frequent trading in instances where Funds Management reasonably believes that the intermediary's policies and procedures effectively discourage disruptive trading activity. If you purchase Fund shares through a financial intermediary, you should contact the intermediary for more information about the restrictions or limitations on trading activity that will be applied to your account.
Certain purchases and redemptions made under the following circumstances will not be factored into Funds Management's analysis of frequent trading activity including, but not limited to: reinvestment of dividends; retirement plan contributions, loans and distributions (including hardship withdrawals); non-discretionary portfolio rebalancing associated with certain wrap accounts and retirement plans; and transactions in Section 529 Plans and registered funds of funds.
Effective March 1, 2010, the Funds' (except for the Ultra Short-Term Income Fund) short-term trading policy will be modified. Funds Management will continue to monitor available shareholder trading information across all Funds on a daily basis. If a shareholder redeems more than $5,000 (including redemptions that are part of an exchange transaction) from a Fund, that shareholder will be "blocked" from purchasing shares of that Fund (including purchases that are part of an exchange transaction) for 30 calendar days after the redemption. This modified policy will not apply to:
o Money market funds;
o Ultra-short funds;
o Purchases of shares through dividend reinvestments;
o Systematic purchases, redemptions or exchanges where a financial
intermediary maintaining a shareholder account identifies the transaction
as a systematic purchase, redemption or exchange at the time of the
transaction;
o Rebalancing transactions within certain asset allocation or "wrap" programs
where the financial intermediary maintaining a shareholder account is able
to identify the transaction as part of an asset allocation program approved
by Funds Management;
o Transactions initiated by a registered "fund of funds" or Section 529 Plan
into an underlying fund investment;
o Certain transactions involving participants in employer-sponsored retirement
plans, including: participant withdrawals due to mandatory distributions,
rollovers and hardships, withdrawals of shares acquired by participants
through payroll deductions, and shares purchased or redeemed by a
participant in connection with plan loans; and
o Purchases below $5,000 (including purchases that are part of an exchange
transaction).
52 HOW TO EXCHANGE SHARES
AUTOMATIC PLANS
These plans help you conveniently purchase and/or redeem shares each month.
Once you select a plan, tell us the day of the month you would like the
transaction to occur. If you do not specify a date, we will process the
transaction on or about the 25th day of the month. Call Investor Services at
1-800-222-8222 for more information.
o AUTOMATIC INVESTMENT PLAN - With this plan, you can regularly purchase
shares of a Wells Fargo Advantage Fund with money automatically transferred
from a linked bank account.
o AUTOMATIC EXCHANGE PLAN - With this plan, you can regularly exchange shares
of a Wells Fargo Advantage Fund you own for shares of another Wells Fargo
Advantage Fund. See the "How to Exchange Shares" section of this Prospectus
for the conditions that apply to your shares. This feature may not be
available for certain types of accounts.
o SYSTEMATIC WITHDRAWAL PLAN - With this plan, you can regularly redeem shares
and receive the proceeds by check or by transfer to a linked bank account.
To participate in this plan, you:
o must have a Fund account valued at $10,000 or more;
o must have your distributions reinvested; and
o may not simultaneously participate in the Automatic Investment Plan.
o PAYROLL DIRECT DEPOSIT - With this plan, you may transfer all or a portion of your paycheck, social security check, military allotment, or annuity payment for investment into the Fund of your choice.
It generally takes about ten business days to establish a plan once we have received your instructions. It generally takes about five business days to change or cancel participation in a plan. We may automatically cancel your plan if the linked bank account you specified is closed, or for other reasons.
CHECK WRITING
Check writing is offered on the Investor Class shares of the Short-Term Bond
Fund and Ultra Short-Term Income Fund. Checks written on your account are
subject to the terms and conditions found in the front of the book of checks.
Sign up for free check writing when you open your account or call
1-800-222-8222 to add it to an existing account. Check redemptions must be for
a minimum of $500. Checks will only be honored if written against purchases
made more than ten days before the check is presented for payment. Checks may
not be written to close an account.
HOUSEHOLDING
To help keep Fund expenses low, a single copy of a prospectus or shareholder
report may be sent to shareholders of the same household. If your household
currently receives a single copy of a prospectus or shareholder report and you
would prefer to receive multiple copies, please contact your financial
intermediary.
RETIREMENT ACCOUNTS
We offer prototype documents for a variety of retirement accounts for individuals and small businesses. Please call 1-800-222-8222 for information on:
o Individual Retirement Plans, including Traditional IRAs and Roth IRAs.
o Small Business Retirement Plans, including Simple IRAs and SEP IRAs.
There may be special distribution requirements for a retirement account, such as required distributions or mandatory Federal income tax withholdings. For more information, call the number listed above. You may be charged a $10 annual account maintenance fee for each retirement account up to a maximum of $30 annually and a $25 fee for transferring assets to another custodian or for closing a retirement account. Fees charged by institutions may vary.
SMALL ACCOUNT REDEMPTIONS
We reserve the right to redeem certain accounts that fall below the minimum
initial investment amount as the result of shareholder redemptions (as opposed
to market movement). Before doing so, we will give you approximately 60 days to
bring your account above the minimum investment amount. Please call Investor
Services at 1-800-222-8222 or contact your selling agent for further details.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed quarterly.
Confirmations are mailed following each purchase, sale, exchange, or transfer
of Fund shares, except generally for Automatic Investment Plan transactions,
Systematic Withdrawal Plan transactions using Electronic Funds Transfer, and
purchases of new shares through the automatic reinvestment of distributions.
Upon your request and for the applicable fee, you may obtain a reprint of an
account statement. Please call Investor Services at 1-800-222-8222 for more
information.
ACCOUNT POLICIES 53
ELECTRONIC DELIVERY OF FUND DOCUMENTS
You may elect to receive your Fund prospectuses, shareholder reports and other Fund documents electronically in lieu of paper form by enrolling on the Funds' Web site at www.wellsfargo.com/advantagedelivery. If you make this election, you will be notified by e-mail when the most recent Fund documents are available for electronic viewing and downloading.
To receive Fund documents electronically, you must have an e-mail account and an internet browser that meets the requirements described in the Privacy & Security section of the Funds' Web site at www.wellsfargo.com/advantagefunds. You may change your electronic delivery preferences or revoke your election to receive Fund documents electronically at any time by visiting www.wellsfargo.com/advantagedelivery.
STATEMENT INQUIRIES
Contact us in writing regarding any errors or discrepancies noted on your
account statement within 60 days after the date of the statement confirming a
transaction. We may deny your ability to refute a transaction if we do not hear
from you within those 60 days.
TRANSACTION AUTHORIZATIONS
Telephone, electronic, and clearing agency privileges allow us to accept
transaction instructions by anyone representing themselves as the shareholder
and who provides reasonable confirmation of their identity. Neither we nor
WELLS FARGO ADVANTAGE FUNDS will be liable for any losses incurred if we follow
such instructions we reasonably believe to be genuine. For transactions through
the automated phone system and our Web site, we will assign personal
identification numbers (PINs) and/or passwords to help protect your account
information. To safeguard your account, please keep your PINs and passwords
confidential. Contact us immediately if you believe there is a discrepancy on
your confirmation statement or if you believe someone has obtained unauthorized
access to your account, PIN or password.
USA PATRIOT ACT
In compliance with the USA PATRIOT Act, all financial institutions (including
mutual funds) at the time an account is opened, are required to obtain, verify
and record the following information for all registered owners or others who
may be authorized to act on the account: full name, date of birth, taxpayer
identification number (usually your Social Security Number), and permanent
street address. Corporate, trust and other entity accounts require additional
documentation. This information will be used to verify your identity. We will
return your application if any of this information is missing, and we may
request additional information from you for verification purposes. In the rare
event that we are unable to verify your identity, we reserve the right to
redeem your account at the current day's NAV. You will be responsible for any
losses, taxes, expenses, fees, or other results of such a redemption.
54 ACCOUNT POLICIES
The Funds generally make distributions of any net investment income monthly and any realized net capital gains at least annually. Please note, distributions have the effect of reducing the NAV per share by the amount distributed.
We offer the following distribution options. To change your current option for payment of distributions, please call 1-800-222-8222.
o AUTOMATIC REINVESTMENT OPTION - Allows you to buy new shares of the same class of the Fund that generated the distributions. The new shares are purchased at NAV generally on the day the distribution is paid. This option is automatically assigned to your account unless you specify another option.
o CHECK PAYMENT OPTION - Allows you to have checks for distributions mailed to your address of record or to another name and address which you have specified in written, medallion guaranteed instructions. If checks remain uncashed for six months or are undeliverable by the Post Office, we will reinvest the distributions at the earliest date possible, and future distributions will be automatically reinvested.
o BANK ACCOUNT PAYMENT OPTION - Allows you to receive distributions directly in a checking or savings account through Electronic Funds Transfer. The bank account must be linked to your Wells Fargo Advantage Fund account. In order to establish a new linked bank account, you must send a written, medallion guaranteed instruction along with a copy of a voided check or deposit slip. Any distribution returned to us due to an invalid banking instruction will be sent to your address of record by check at the earliest date possible, and future distributions will be automatically reinvested.
o DIRECTED DISTRIBUTION PURCHASE OPTION - Allows you to buy shares of a different Wells Fargo Advantage Fund of the same share class. The new shares are purchased at NAV generally on the day the distribution is paid. In order to establish this option, you need to identify the Fund and account the distributions are coming from, and the Fund and account to which the distributions are being directed. You must meet any required minimum purchases in both Funds prior to establishing this option.
DISTRIBUTIONS 55
The following discussion regarding federal income taxes is based on laws that were in effect as of the date of this Prospectus and summarizes only some of the important federal income tax considerations affecting the Funds and you as a shareholder. It does not apply to foreign or tax-exempt shareholders or those holding Fund shares through a tax-advantaged account, such as a 401(k) Plan or IRA. This discussion is not intended as a substitute for careful tax planning. You should consult your tax adviser about your specific tax situation. Please see the Statement of Additional Information for additional federal income tax information.
We will pass on to the Fund's shareholders substantially all of the Fund's net investment income and realized net capital gains, if any. Distributions from the Fund's ordinary income and net short-term capital gain, if any, generally will be taxable to you as ordinary income. Distributions from the Fund's net long-term capital gain, if any, generally will be taxable to you as long-term capital gain.
Corporate shareholders should not expect to deduct a portion of their distributions when determining their taxable income.
An individual's net long-term capital gain is subject to a reduced, maximum 15% rate of tax. These reduced rates of tax will expire after December 31, 2010. In general, reduced rates of taxation on qualified dividend income will not apply to Fund distributions.
Distributions from the Fund normally will be taxable to you when paid, whether you take distributions in cash or automatically reinvest them in additional Fund shares. Following the end of each year, we will notify you of the federal income tax status of your distributions for the year.
If you buy shares of the Fund shortly before it makes a taxable distribution, your distribution will, in effect, be a taxable return of part of your investment. Similarly, if you buy shares of the Fund when it holds appreciated securities, you will receive a taxable return of part of your investment if and when the Fund sells the appreciated securities and distributes the gain. The Funds have built up, or have the potential to build up, high levels of unrealized appreciation.
Your redemptions (including redemptions in-kind) and exchanges of Fund shares ordinarily will result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Such capital gain or loss generally will be long-term capital gain or loss if you have held your redeemed or exchanged Fund shares for more than one year at the time of redemption or exchange. In certain circumstances, losses realized on the redemption or exchange of Fund shares may be disallowed.
In certain circumstances, Fund shareholders may be subject to backup withholding taxes.
56 TAXES
The Total Return Bond Fund is a gateway fund in a MASTER/GATEWAY structure. This structure is more commonly known as a master/feeder structure. In this structure, a gateway or feeder fund invests substantially all of its assets in one or more master portfolios of Wells Fargo Master Trust or other stand-alone funds of WELLS FARGO ADVANTAGE FUNDS whose objectives and investment strategies are consistent with the gateway fund's investment objective and strategies. Through this structure, gateway funds can enhance their investment opportunities and reduce their expenses by sharing the costs and benefits of a larger pool of assets. Master portfolios offer their shares to multiple gateway funds and other master portfolios rather than directly to the public. Certain administrative and other fees and expenses are charged to both the gateway fund and the master portfolio(s). The services provided and fees charged to a gateway fund are in addition to and not duplicative of the services provided and fees charged to the master portfolios. Fees relating to investments in other stand-alone funds are waived to the extent that they are duplicative, or would exceed certain defined limits.
DESCRIPTION OF MASTER PORTFOLIO
The following table lists the. The portfolio's investment objective is provided
followed by a description of the portfolio's investment strategies.
MASTER PORTFOLIO INVESTMENT OBJECTIVE AND PRINCIPAL INVESTMENT STRATEGIES
TOTAL RETURN BOND PORTFOLIO INVESTMENT OBJECTIVE: The Portfolio seeks total return, consisting of income and
capital appreciation.
PRINCIPAL INVESTMENT STRATEGIES: We invest principally in investment-grade debt
securities, including U.S. Government obligations, corporate bonds and mortgage-
and asset-backed securities. As part of our investment strategy, we may invest in
stripped securities or enter into mortgage dollar rolls and reverse repurchase
agreements, as well as invest in U.S. dollar-denominated debt securities of foreign
issuers. We may also use futures, options or swap agreements, as well as other
derivatives, to manage risk or to enhance return. Under normal circumstances, we
expect to maintain an overall dollar-weighted average effective duration range
between 4 and 51/2 years.
We invest in debt securities that we believe offer competitive returns and are
undervalued, offering additional income and/or price appreciation potential,
relative to other debt securities of similar credit quality and interest rate sensitivity.
From time to time, we may also invest in unrated bonds that we believe are
comparable to investment-grade debt securities. We may sell a security that has
achieved its desired return or if we believe the security or its sector has become
overvalued. We may also sell a security if a more attractive opportunity becomes
available or if the security is no longer attractive due to its risk profile or as a result
of changes in the overall market environment. We may actively trade portfolio
securities.
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MASTER/GATEWAY(Reg. TM) STRUCTURE 57
The following tables are intended to help you understand each Fund's financial performance for the past 5 years (or for the life of a Fund, if shorter). Certain information reflects financial results for a single Fund share. Total returns represent the rate you would have earned (or lost) on an investment in each Fund (assuming reinvestment of all distributions). An independent registered public accounting firm has audited the information for each period. The information, along with the report of an independent registered public accounting firm and each Fund's financial statements, is also contained in each Fund's annual report, a copy of which is available upon request.
GOVERNMENT SECURITIES FUND
INVESTOR CLASS SHARES-COMMENCED ON OCTOBER 29, 1986
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $10.46 $10.22 $10.16 $10.77 $10.93 $11.05
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.39/2/ 0.47 0.47 0.42 0.20 0.26
(loss)
Net realized and
unrealized gain (loss)
on investments 0.33 0.26 0.09 (0.49) 0.00/3/ 0.21
-------- ------- ------- ------- -------- -------
Total from investment 0.72 0.73 0.56 (0.07) 0.20 0.47
-------- ------- ------- ------- -------- -------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.44) (0.49) (0.50) (0.48) (0.24) (0.36)
Distributions from net (0.03) 0.00 0.00 (0.06) (0.12) (0.23)
-------- ------- ------- ------- -------- -------
realized gain
Total distributions (0.47) (0.49) (0.50) (0.54) (0.36) (0.59)
-------- ------- ------- ------- -------- -------
NET ASSET VALUE, END OF $10.71 $10.46 $10.22 $10.16 $10.77 $10.93
======== ======= ======= ======= ======== =======
PERIOD
TOTAL RETURN/4/ 7.02% 7.26% 5.55% (0.71)% 1.87% 4.38%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $1,134,770 $869,009 $733,191 $836,567 $1,162,518 $1,230,428
(000s)
Ratio of net investment
income (loss) to
average net assets/5/ 3.65% 4.48% 4.59% 4.06% 3.37% 2.66%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/5/ 0.94% 1.16% 1.23% 1.22% 1.08% 1.06%
Waived fees and reimbursed 0.00% (0.21)% (0.26)% (0.20)% (0.06)% (0.03)%
expenses/5/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/5/ 0.94% 0.95% 0.97% 1.02% 1.02% 1.03%
Portfolio turnover rate/6/ 368% 263% 159% 207% 139% 390%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Calculated based upon average shares outstanding.
3 Amount calculated is less than $0.005.
4 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
5 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
6 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
58 FINANCIAL HIGHLIGHTS
HIGH INCOME FUND
INVESTOR CLASS SHARES-COMMENCED ON DECEMBER 28, 1995
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $7.28 $7.92 $7.66 $7.66 $7.86 $7.51
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.50 0.53 0.55 0.41 0.31 0.54
(loss)
Net realized and
unrealized gain (loss)
on investments (0.91) (0.64) 0.26 0.14 (0.20) 0.35
------ ------ ------ ------ ------ ------
Total from investment (0.41) (0.11) 0.81 0.55 0.11 0.89
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.50) (0.53) (0.55) (0.55) (0.31) (0.54)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.50) (0.53) (0.55) (0.55) (0.31) (0.54)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $6.37 $7.28 $7.92 $7.66 $7.66 $7.86
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (5.20)% (1.35)% 10.95% 7.36% 1.35% 12.26%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $231,308 $179,909 $230,287 $208,482 $246,538 $300,358
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 7.95% 7.08% 7.07% 5.41% 6.71% 7.06%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 1.10% 1.33% 1.33% 1.34% 1.08% 1.00%
Waived fees and reimbursed (0.18)% (0.47)% (0.47)% (0.48)% (0.13)% (0.04)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.92% 0.86% 0.86% 0.86% 0.95% 0.96%
Portfolio turnover rate/4/ 52% 53% 82% 98% 52% 133%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 59
SHORT-TERM BOND FUND
INVESTOR CLASS SHARES-COMMENCED ON AUGUST 31, 1987
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.38 $8.48 $8.47 $8.62 $8.77 $8.81
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.32 0.40 0.40 0.35 0.19 0.27
(loss)
Net realized and
unrealized gain (loss)
on investments (0.15) (0.10) 0.02 (0.13) (0.14) (0.01)
------ ------ ------ ------ ------ ------
Total from investment 0.17 0.30 0.42 0.22 0.05 0.26
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.32) (0.40) (0.41) (0.37) (0.20) (0.30)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.32) (0.40) (0.41) (0.37) (0.20) (0.30)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $8.23 $8.38 $8.48 $8.47 $8.62 $8.77
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ 2.09% 3.57% 5.01% 2.55% 0.53% 3.05%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $250,572 $268,790 $299,346 $396,633 $505,613 $516,105
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 3.87% 4.70% 4.71% 4.10% 3.70% 3.11%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 0.99% 1.23% 1.27% 1.26% 1.01% 0.99%
Waived fees and reimbursed (0.14)% (0.36)% (0.37)% (0.36)% (0.12)% (0.03)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.85% 0.87% 0.90% 0.90% 0.89% 0.96%
Portfolio turnover rate/4/ 50% 47% 38% 28% 14% 37%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued. Portfolio turnover rates presented for periods
of less than one year are not annualized.
60 FINANCIAL HIGHLIGHTS
SHORT-TERM HIGH YIELD BOND FUND
INVESTOR CLASS SHARES-COMMENCED ON JUNE 30, 1997
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.31 $8.54 $8.49 $8.52 $8.69 $8.66
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.40 0.47 0.49 0.44 0.22 0.40
(loss)
Net realized and
unrealized gain (loss)
on investments (0.49) (0.23) 0.05 (0.03) (0.17) 0.03
------ ------ ------ ------ ------ ------
Total from investment (0.09) 0.24 0.54 0.41 0.05 0.43
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.40) (0.47) (0.49) (0.44) (0.22) (0.40)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.40) (0.47) (0.49) (0.44) (0.22) (0.40)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $7.82 $8.31 $8.54 $8.49 $8.52 $8.69
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (0.91)% 2.98% 6.48% 4.90% 0.63% 5.08%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $128,789 $70,420 $96,071 $100,379 $127,171 $164,928
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 5.20% 5.69% 5.70% 5.15% 4.41% 4.68%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 1.13% 1.34% 1.39% 1.37% 1.15% 1.03%
Waived fees and reimbursed (0.29)% (0.48)% (0.53)% (0.51)% (0.14)% (0.04)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.84% 0.86% 0.86% 0.86% 1.01% 0.99%
Portfolio turnover rate/4/ 46% 59% 50% 60% 31% 71%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and/or reimbursements. 4 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issues. Portfolio turnover rates presented for periods of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 61
TOTAL RETURN BOND FUND
INVESTOR CLASS SHARES (EFFECTIVE JUNE 20, 2008, CLASS Z WAS RENAMED INVESTOR
CLASS) -
COMMENCED ON APRIL 11, 2005
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/
NET ASSET VALUE, BEGINNING
OF
PERIOD $12.15 $11.99 $11.81 $12.41 $12.19
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.55 0.55 0.54 0.46 0.06
(loss)
Net realized and
unrealized gain
(loss) on investments 0.17 0.16 0.18 (0.59) 0.22
-------- -------- -------- -------- --------
Total income from
investment
operations 0.72 0.71 0.72 (0.13) 0.28
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.57) (0.55) (0.54) (0.47) (0.06)
Distributions from net
realized
gain 0.00 0.00 0.00 0.00 0.00
Return of Capital 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total distributions (0.57) (0.55) (0.54) (0.47) (0.06)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF $12.30 $12.15 $11.99 $11.81 $12.41
======== ======== ======== ======== ========
PERIOD
TOTAL RETURN/2/ 6.15% 6.04% 6.17% (1.03)% 2.31%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $18,005 $3,254 $4,289 $6,578 $29,204
(000s)
Ratio of net investment
income
(loss) to average net 4.36% 4.29% 4.44% 3.74% 3.42%
assets/3/
Ratio of expenses to
average
net assets prior to waived
fees and reimbursed
expenses/3,4/ 0.95% 1.15% 1.15% 1.19% 1.23%
Waived fees and reimbursed
expenses/3/ (0.05)% (0.20)% (0.20)% (0.24)% (0.28)%
Ratio of expenses to
average
net assets after waived
fees
and reimbursed 0.90% 0.95% 0.95% 0.95% 0.95%
expenses/3,4/
Portfolio turnover 633%/7/ 572%/8/ 665%/9/ 704%/10/ 767%
rate/5,6/
|
1 For the period from April 11, 2005 (commencement of Class) to May 31, 2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 Includes expenses allocated from the Portfolio(s) in which the Fund invests.
5 Calculated on the basis of the Fund as a whole without distinguishing between
the classes of shares issued.
6 Portfolio turnover rate represents the activity from the Fund's investment in
a Master portfolio.
7 Excluding TBA, the portfolio turnover ratio is 242%.
8 Excluding TBA, the portfolio turnover ratio is 316%.
9 Excluding TBA, the portfolio turnover ratio is 335%.
10 Excluding TBA, the portfolio turnover ratio is 431%.
62 FINANCIAL HIGHLIGHTS
ULTRA SHORT-TERM INCOME FUND
INVESTOR CLASS SHARES-COMMENCED ON NOVEMBER 25, 1988
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31, OCT. 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/ 2004
NET ASSET VALUE, BEGINNING $8.71 $9.09 $9.12 $9.17 $9.22 $9.34
OF PERIOD
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income 0.31 0.43 0.47 0.38 0.17 0.22
(loss)
Net realized and
unrealized gain (loss)
on investments (0.68) (0.37) (0.02) (0.02) (0.03) (0.06)
------ ------ ------ ------ ------ ------
Total from investment (0.37) 0.06 0.45 0.36 0.14 0.16
------ ------ ------ ------ ------ ------
operations
LESS DISTRIBUTIONS:
Distributions from net
investment
income (0.31) (0.44) (0.48) (0.41) (0.19) (0.28)
Distributions from net 0.00 0.00 0.00 0.00 0.00 0.00
------ ------ ------ ------ ------ ------
realized gain
Total distributions (0.31) (0.44) (0.48) (0.41) (0.19) (0.28)
------ ------ ------ ------ ------ ------
NET ASSET VALUE, END OF $8.03 $8.71 $9.09 $9.12 $9.17 $9.22
====== ====== ====== ====== ====== ======
PERIOD
TOTAL RETURN/2/ (4.32)% 0.64% 5.02% 4.02% 1.51% 1.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period $423,039 $594,246 $718,019 $810,961 $1,006,961 $1,277,777
(000s)
Ratio of net investment
income (loss) to
average net assets/3/ 3.69% 4.86% 5.10% 4.17% 3.14% 2.49%
Ratio of expenses to
average net assets
prior to waived fees and
reimbursed
expenses/3/ 0.99% 1.21% 1.23% 1.23% 0.99% 0.89%
Waived fees and reimbursed (0.24)% (0.43)% (0.39)% (0.39)% (0.12)% (0.03)%
expenses/3/
Ratio of expenses to
average net assets
after waived fees and
reimbursed
expenses/3/ 0.75% 0.78% 0.84% 0.84% 0.87% 0.86%
Portfolio turnover rate/4/ 32% 48% 28% 26% 17% 26%
|
1 In 2005, the Fund changed its fiscal year end from October 31 to May 31.
Information is shown for a 7-month period from November 1, 2004 to May 31,
2005.
2 Total return calculations would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods of less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed, as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and/or reimbursements. 4 Calculated on the basis of the Fund as a whole without distinguishing between the classes of shares issued. Portfolio turnover rates presented for periods of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 63
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
FOR MORE INFORMATION
More information on each Fund is available free upon request, including the following documents:
Statement of Additional Information (SAI) Supplements the disclosures made by this Prospectus. The SAI, which has been filed with the SEC, is incorporated by reference into this Prospectus and therefore is legally part of this Prospectus.
Annual/Semi-Annual Reports
Provide financial and other important information, including a discussion of
the market conditions and investment strategies that significantly affected
Fund performance over the reporting period.
To obtain copies of the above documents or for more information about WELLS FARGO ADVANTAGE FUNDS, contact us:
By telephone:
Individual Investors: 1-800-222-8222
Retail Investment Professionals: 1-888-877-9275
Institutional Investment Professionals: 1-866-765-0778
By e-mail: wfaf@wellsfargo.com
By mail:
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
On the Internet:
www.wellsfargo.com/advantagefunds
From the SEC:
Visit the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330
or 1-202-551-8090) or the SEC's Internet site at www.sec.gov.
To obtain information for a fee, write or email:
SEC's Public Reference Section
100 "F" Street, NE
Washington, DC 20549-0102
publicinfo@sec.gov
[GRAPHIC APPEARS HERE]
109IFIV/P1006
ICA Reg. No. 811-09253
(Copyright) 2009 Wells Fargo Funds Management, LLC. All rights reserved.
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
OCTOBER 1, 2009
Prospectus
WELLS FARGO ADVANTAGE FUNDS (Reg. TM) - WEALTHBUILDER PORTFOLIOS
Conservative Allocation Portfolio
Moderate Balanced Portfolio
Growth Balanced Portfolio
Growth Allocation Portfolio
Equity Portfolio
Tactical Equity Portfolio
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE U.S. SECURITIES AND EXCHANGE COMMISSION (SEC), NOR HAS THE SEC PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
PORTFOLIO SHARES ARE NOT DEPOSITS OR OTHER OBLIGATIONS OF, OR GUARANTEED BY, WELLS FARGO BANK, N.A., ITS AFFILIATES OR ANY OTHER DEPOSITORY INSTITUTION. PORTFOLIO SHARES ARE NOT INSURED OR GUARANTEED BY THE U.S. GOVERNMENT, THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT AGENCY.
THE PORTFOLIOS
INFORMATION ABOUT EACH PORTFOLIO YOU SHOULD KNOW BEFORE INVESTING, INCLUDING:
INVESTMENT OBJECTIVE, PRINCIPAL INVESTMENTS, PRINCIPAL INVESTMENT STRATEGIES, PRINCIPAL RISKS, PERFORMANCE HISTORY, FEES AND EXPENSES
Key Portfolio Information 3 Conservative Allocation 4 Portfolio Moderate Balanced Portfolio 8 Growth Balanced Portfolio 12 Growth Allocation Portfolio 16 Equity Portfolio 20 Tactical Equity Portfolio 24 The Underlying Funds 28 Description of Principal 29 Investment Risks Portfolio Holdings 34 Information |
ORGANIZATION AND MANAGEMENT OF
THE PORTFOLIOS
INFORMATION ABOUT THE PORTFOLIOS' ORGANIZATION AND THE COMPANIES MANAGING YOUR MONEY
Organization and Management 35 of the Portfolios About Wells Fargo Funds Trust 35 The Investment Adviser 35 The Sub-Adviser and 35 Portfolio Managers Dormant Multi-Manager 38 Arrangement |
YOUR ACCOUNT
INFORMATION ABOUT HOW PORTFOLIO SHARES ARE PRICED AND HOW TO OPEN AN ACCOUNT, AND BUY, SELL AND EXCHANGE PORTFOLIO SHARES
Compensation to Dealers and 39 Shareholder Servicing Agents Pricing Portfolio Shares 40 How to Open an Account 41 How to Buy Shares 44 How to Sell Shares 46 How to Exchange Shares 49 Account Policies 51 |
OTHER INFORMATION
INFORMATION ABOUT DISTRIBUTIONS, TAXES AND FINANCIAL HIGHLIGHTS
Distributions 53 Taxes 54 Financial Highlights 55 For More Information Back Cover |
Please find WELLS FARGO ADVANTAGE FUNDS' PRIVACY POLICY inside the back cover of this Prospectus.
Throughout this prospectus, the WELLS FARGO ADVANTAGE WEALTHBUILDER
CONSERVATIVE ALLOCATION PORTFOLIO/SM/ is referred to as the Conservative
Allocation Portfolio; the WELLS FARGO ADVANTAGE WEALTHBUILDER MODERATE BALANCED
PORTFOLIO/SM/ is referred to as the Moderate Balanced Portfolio; the WELLS
FARGO ADVANTAGE WEALTHBUILDER GROWTH BALANCED PORTFOLIO/SM/ is referred to as
the Growth Balanced Portfolio; the WELLS FARGO ADVANTAGE WEALTHBUILDER GROWTH
ALLOCATION PORTFOLIO/SM/ is referred to as the Growth Allocation Portfolio; the
WELLS FARGO ADVANTAGE WEALTHBUILDER EQUITY PORTFOLIO/SM/ is referred to as the
Equity Portfolio; and the WELLS FARGO ADVANTAGE WEALTHBUILDER TACTICAL EQUITY
PORTFOLIO/SM/ is referred to as the Tactical Equity Portfolio.
The information provided in this Prospectus is not intended for distribution to, or use by, any person or entity in any non-U.S. jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Portfolio shares to any registration requirement within such jurisdiction or country.
The Portfolios are distributed by Wells Fargo Funds Distributor, LLC, a member of FINRA/SIPC, and an affiliate of Wells Fargo & Company. Securities Investor Protection Corporation ("SIPC") information and brochure are available at www.SIPC.org or by calling SIPC at (202)371-8300.
This Prospectus contains information about certain Portfolios within the WELLS FARGO ADVANTAGE FUNDS (Reg. TM) family and is designed to provide you with important information to help you with your investment decisions. Please read it carefully and keep it for future reference.
In this Prospectus, "we" generally refers to Wells Fargo Funds Management, LLC (Funds Management), the sub-adviser, or the portfolio managers. "We" may also refer to the Portfolios' other service providers. "You" refers to the shareholder or potential investor.
ABOUT WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS/SM/
The WealthBuilder Portfolios are funds-of-funds that invest in various
affiliated and unaffiliated mutual funds (Underlying Funds) to pursue their
investment objectives. The Portfolios are designed to offer you access to
professionally managed mutual funds from well-known fund families. Each
Portfolio allocates its assets across either various stock investment styles or
across both stock and bond investment styles through investment in Underlying
Funds. In turn, each Underlying Fund invests its assets according to its own
investment objective and investment style.
o what the Portfolio is trying to achieve;
o how we intend to invest your money; and
o what makes the Portfolio different from the other Portfolios offered in this
Prospectus.
KEY PORTFOLIO INFORMATION 3
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Doug Beath
Galen G. Blomster, CFA
(until 2/1/10)
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
PORTFOLIO INCEPTION:
9/30/2004
Ticker: WBCAX
Portfolio Number: 1876
PRINCIPAL INVESTMENT STRATEGIES
We seek to achieve the Portfolio's investment objective by allocating up to 25% of its assets to stock funds, up to 85% of its assets to bond funds and up to 10% of its assets to alternative investment strategy funds.
As of July 31, 2009, the Portfolio's neutral allocation was 19% to stock funds, 76% to bond funds and 5% to alternative investment strategy funds. We may change the Portfolio's neutral allocation throughout the year. The Portfolio's broad diversification helps to reduce the overall impact of any one asset class underperforming, but may also limit upside potential.
The Portfolio is a highly diversified investment, consisting of bond, stock and alternative investment strategy funds, with an emphasis on bonds. Bond holdings are diversified across a wide range of bond fund styles that consist of short- to long-term income-producing securities, including U.S. Government obligations, corporate bonds, below investment-grade bonds and foreign issues. Stock holdings are diversified across a wide range of stock fund styles including large company growth, large company value, small company and international. Alternative investment holdings are allocated across funds that use alternative investment strategies, which may include, but are not limited to, investing in real estate, commodities, foreign currency, natural resources, precious metals, and other non-traditional investments, or following long-short, market neutral, or other tactical investment strategies.
PRINCIPAL RISK FACTORS
The Portfolio is primarily subject to the risks mentioned below.
o Alternative Investment Risk
o Counter-Party Risk
o Currency Hedging Risk
o Debt Securities Risk
o Derivatives Risk
o Emerging Markets Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Small Company Investment Risk
o Underlying Funds Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Portfolio and could adversely affect the Portfolio's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
4 CONSERVATIVE ALLOCATION PORTFOLIO
PORTFOLIO ASSET ALLOCATION
The following table provides a percentage breakdown of the Portfolio's asset allocations, including the Portfolio's neutral asset allocation, target asset allocation range and effective asset allocations using the TAA futures overlay as of July 31, 2009.
INVESTMENT
POTENTIAL ASSET ALLOCATION NEUTRAL TARGET RANGE
RANGES POSITION USING TAA MODEL
STOCK FUNDS 19% 13 - 25%
BONDS FUNDS 76% 67 - 85%
ALTERNATIVE INVESTMENT FUNDS 5% 0 - 10%
|
UNDERLYING STYLE TARGET ALLOCATIONS
STOCK FUND STYLES:
LARGE COMPANY GROWTH 4.75%
STYLE
LARGE COMPANY VALUE STYLE 4.75%
SMALL COMPANY STYLE 3.80%
INTERNATIONAL STYLE 5.70%
-----------
TOTAL 19.00%
-----------
BOND FUND STYLES:
SHORT TERM U.S.
TREASURY, GOVERNMENT
OBLIGATIONS, AND
MORTGAGE-RELATED
SECURITIES 28.50%
INTERMEDIATE AND LONG
TERM U.S. TREASURY,
GOVERNMENT OBLIGATIONS,
AND
MORTGAGE-RELATED 19.00%
SECURITIES
INVESTMENT GRADE 19.00%
CORPORATE BONDS
HIGH-YIELD CORPORATE 4.75%
BONDS
INTERNATIONAL OBLIGATIONS 4.75%
-----------
TOTAL 76.00%
-----------
ALTERNATIVE INVESTMENT FUND
STYLES:
REAL ESTATE 2.00%
COMMODITIES 3.00%
-----------
TOTAL 5.00%
-----------
Total Portfolio Assets 100.00%
|
EFFECTIVE ALLOCATION USING FUTURES AS OF JULY 31,
2009
STOCK FUND STYLES: 24%
BOND FUND STYLES: 71%
ALTERNATIVE INVESTMENT FUND 5%
----------
STYLES:
TOTAL 100%
----------
|
CONSERVATIVE ALLOCATION PORTFOLIO 5
PERFORMANCE
The following information shows you how the Portfolio has performed and illustrates the variability of the Portfolio's returns over time. The Portfolio's average annual total returns are compared to the performance of an appropriate broad-based index. Please remember that past performance before and after taxes is no guarantee of future results.
[GRAPHIC APPEARS HERE]
Calendar Year Total Returns/1/
as of 12/31 each year
2005 2006 2007 2008
2.10% 5.96% 6.03% -13.79%
|
BEST AND WORST QUARTER
Best Quarter: Q4 2006 2.71%
Worst Quarter: Q4 2008 -7.55%
|
The Portfolio's year-to-date performance through June 30, 2009, was 6.68%.
AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2008 1 YEAR LIFE OF PORTFOLIO/1/ CONSERVATIVE ALLOCATION PORTFOLIO/1/ Returns Before Taxes -15.08% 0.08% Returns After Taxes on -16.19% -0.95% Distributions/2/ Returns After Taxes on -9.72% -0.44% Distributions and Sale of Portfolio Shares/2/ S&P 500 INDEX/3/ -37.00% -2.91% (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 5.24% 4.68% AGGREGATE BOND INDEX/4/ (reflects no deduction for fees, expenses or taxes) WEALTHBUILDER CONSERVATIVE -4.56% 3.28% ALLOCATION COMPOSITE INDEX/5/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges. The Portfolio incepted on September 30, 2004.
Returns for the Portfolio and Indexes in the Life of Portfolio column are
shown as of the Portfolio inception date.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Portfolio
shares through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 S&P 500 is a registered trademark of Standard and Poor's. The S&P 500 Index
is an unmanaged index of 500 widely held common stocks representing, among
others, industrial, financial, utility and transportation companies listed
or traded on national exchanges or over-the-counter markets. You cannot
invest directly in an index.
4 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
5 The WealthBuilder Conservative Allocation Composite Index is comprised of 20% of the S&P 500 Index's and 80% of the Barclays Capital U.S. Aggregate Bond Index's holdings. You cannot invest directly in an index.
6 CONSERVATIVE ALLOCATION PORTFOLIO
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses you will pay as a shareholder in the Portfolio. These tables do not reflect the charges that may be imposed in connection with an account through which you hold Portfolio shares. A broker-dealer or financial institution maintaining an account through which you hold Portfolio shares may charge separate account, service or transaction fees on the purchase or sale of Portfolio shares that would be in addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge 1.50% (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees/2/ 0.20%
Distribution (12b-1) Fees 0.75%
Other Expenses/3/ 0.61%
Acquired Fund Fees and 0.55%
Expenses/4/
TOTAL ANNUAL PORTFOLIO 2.11%
OPERATING EXPENSES/5/
Fee Waivers 0.06%
NET EXPENSES/5,6/ 2.05%
|
1 Portfolio shares that are purchased at NAV in amounts of $1,000,000 or more
may be assessed a 1.00% CDSC if they are redeemed within one year from the
date of purchase. See "Reductions and Waivers of Sales Charges" for further
information.
2 The following advisory fee schedule is charged to the Portfolio as a
percentage of the Portfolio's average daily net assets: 0.20% for the first
$1 billion; 0.175% for the next $4 billion ; and 0.15% for assets over $5
billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of the Underlying
Funds in which the Portfolio invests. Shareholders indirectly bear these
underlying expenses because the NAV and/or distributions paid reflect such
underlying expenses. Several factors may affect the Acquired Fund Fees and
Expenses, including the following: 1) changes in the Underlying Funds'
expense ratios, 2) changes in the Underlying Funds, and 3) changes in the
target allocations of the Underlying Funds.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Portfolio and does not include expenses of any Acquired
fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Portfolio's
net operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Portfolio, do not exceed net operating expense ratio of
1.50% for the Portfolio. The committed net operating expense ratios may be
increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds and includes
expenses from the Underlying Funds in which the Portfolio invests. It assumes:
o You invest $10,000 in the Portfolio for the time periods indicated below
and then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Portfolio's operating expenses remain the same.
The fee waivers shown in the Annual Portfolio Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
If you sell your shares at the end of the period: 1 Year $ 354 3 Years $ 794 5 Years $1,259 10 Years $2,545 |
CONSERVATIVE ALLOCATION PORTFOLIO 7
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Doug Beath
Galen G. Blomster, CFA
(until 2/1/10)
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
PORTFOLIO INCEPTION:
9/30/2004
Ticker: WBBBX
Portfolio Number: 1874
PRINCIPAL INVESTMENT STRATEGIES
We seek to achieve the Portfolio's investment objective by allocating up to 50% of its assets to stock funds, up to 70% of its assets to bond funds and up to 10% of its assets to alternative investment strategy funds.
As of July 31, 2009, the Portfolio's neutral allocation was 38% to stock funds, 57% to bond funds and 5% to alternative investment strategy funds. We may change the Portfolio's neutral allocation throughout the year. The Portfolio's broad diversification helps to reduce the overall impact of any one asset class underperforming, but may also limit upside potential.
The Portfolio is a highly diversified investment, consisting of bond, stock and alternative investment strategy funds, with an emphasis on bonds. Bond holdings are diversified across a wide range of bond fund styles that consist of short- to long-term income-producing securities, including U.S. Government obligations, corporate bonds, below investment-grade bonds and foreign issues. Stock holdings are diversified across a wide range of stock fund styles including large company growth, large company value, small company and international. Alternative investment holdings are allocated across funds that use alternative investment strategies, which may include, but are not limited to, investing in real estate, commodities, foreign currency, natural resources, precious metals, and other non-traditional investments, or following long-short, market neutral, or other tactical investment strategies.
PRINCIPAL RISK FACTORS
The Portfolio is primarily subject to the risks mentioned below.
o Alternative Investment Risk
o Counter-Party Risk
o Currency Hedging Risk
o Debt Securities Risk
o Derivatives Risk
o Emerging Markets Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Small Company Investment Risk
o Underlying Funds Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Portfolio and could adversely affect the Portfolio's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
8 MODERATE BALANCED PORTFOLIO
PORTFOLIO ASSET ALLOCATION
The following table provides a percentage breakdown of the Portfolio's asset allocations, including the Portfolio's neutral asset allocation, target asset allocation range and effective asset allocations using the TAA futures overlay as of July 31, 2009.
INVESTMENT
POTENTIAL ASSET ALLOCATION NEUTRAL TARGET RANGE
RANGES POSITION USING TAA MODEL
STOCK FUNDS 38% 26 - 50%
BONDS FUNDS 57% 44 - 70%
ALTERNATIVE INVESTMENT FUNDS 5% 0 - 10%
|
UNDERLYING STYLE TARGET ALLOCATIONS
STOCK FUND STYLES:
LARGE COMPANY GROWTH 9.50%
STYLE
LARGE COMPANY VALUE STYLE 9.50%
SMALL COMPANY STYLE 7.60%
INTERNATIONAL STYLE 11.40%
-----------
TOTAL 38.00%
-----------
BOND FUND STYLES:
SHORT TERM U.S.
TREASURY, GOVERNMENT
OBLIGATIONS, AND
MORTGAGE-RELATED
SECURITIES 19.00%
INTERMEDIATE AND LONG
TERM U.S. TREASURY,
GOVERNMENT OBLIGATIONS,
AND
MORTGAGE-RELATED 14.25%
SECURITIES
INVESTMENT GRADE 14.25%
CORPORATE BONDS
HIGH-YIELD CORPORATE 4.75%
BONDS
INTERNATIONAL OBLIGATION S 4.75%
-----------
TOTAL 57.00%
-----------
ALTERNATIVE INVESTMENT FUND
STYLES:
REAL ESTATE 2.00%
COMMODITIES 3.00%
-----------
TOTAL 5.00%
-----------
Total Portfolio Assets 100.00%
|
EFFECTIVE ALLOCATION USING FUTURES AS OF JULY 31,
2009
STOCK FUND STYLES: 48%
BOND FUND STYLES: 47%
ALTERNATIVE INVESTMENT FUND 5%
----------
STYLES:
TOTAL 100%
----------
|
MODERATE BALANCED PORTFOLIO 9
PERFORMANCE
The following information shows you how the Portfolio has performed and illustrates the variability of the Portfolio's returns over time. The Portfolio's average annual total returns are compared to the performance of an appropriate broad-based index. Please remember that past performance before and after taxes is no guarantee of future results.
[GRAPHIC APPEARS HERE]
Calendar Year Total Returns/1/
as of 12/31 each year
2005 2006 2007 2008
3.70% 8.71% 6.34% -25.25%
|
BEST AND WORST QUARTER
Best Quarter: Q4 2006 4.18%
Worst Quarter: Q4 2008 -14.27%
|
The Portfolio's year-to-date performance through June 30, 2009, was 8.24%.
AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2008 1 YEAR LIFE OF PORTFOLIO/1/ MODERATE BALANCED PORTFOLIO/1/ Returns Before Taxes -26.37% -1.66% Returns After Taxes on -27.14% -2.52% Distributions/2/ Returns After Taxes on -17.09% -1.75% Distributions and Sale of Portfolio Shares/2/ S&P 500 INDEX/3/ -37.00% -2.91% (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 5.24% 4.68% AGGREGATE BOND INDEX/4/ (reflects no deduction for fees, expenses or taxes) WEALTHBUILDER MODERATE -13.65% 1.82% BALANCED COMPOSITE INDEX/5/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges.The Portfolio incepted on September 30, 2004.
Returns for the Portfolio and Indexes in the Life of Portfolio column are
shown as of the Portfolio inception date.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Portfolio
shares through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 S&P 500 is a registered trademark of Standard and Poor's. The S&P 500 Index
is an unmanaged index of 500 widely held common stocks representing, among
others, industrial, financial, utility and transportation companies listed
or traded on national exchanges or over-the-counter markets. You cannot
invest directly in an index.
4 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
5 The WealthBuilder Moderate Balanced Composite Index is comprised of 40% of the S&P 500 Index's and 60% of the Barclays Capital U.S. Aggregate Bond Index's holdings. You cannot invest directly in an index.
10 MODERATE BALANCED PORTFOLIO
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses you will pay as a shareholder in the Portfolio. These tables do not reflect the charges that may be imposed in connection with an account through which you hold Portfolio shares. A broker-dealer or financial institution maintaining an account through which you hold Portfolio shares may charge separate account, service or transaction fees on the purchase or sale of Portfolio shares that would be in addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge 1.50% (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees/2/ 0.20%
Distribution (12b-1) Fees 0.75%
Other Expenses/3/ 0.62%
Acquired Fund Fees and 0.62%
Expenses/4/
TOTAL ANNUAL PORTFOLIO 2.19%
OPERATING EXPENSES/5/
Fee Waivers 0.07%
NET EXPENSES/5,6/ 2.12%
|
1 Portfolio shares that are purchased at NAV in amounts of $1,000,000 or more
may be assessed a 1.00% CDSC if they are redeemed within one year from the
date of purchase. See "Reductions and Waivers of Sales Charges" for further
information.
2 The following advisory fee schedule is charged to the Portfolio as a
percentage of the Portfolio's average daily net assets: 0.20% for the first
$1 billion; 0.175% for the next $4 billion ; and 0.15% for assets over $5
billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of the Underlying
Funds in which the Portfolio invests. Shareholders indirectly bear these
underlying expenses because the NAV and/or distributions paid reflect such
underlying expenses. Several factors may affect the Acquired Fund Fees and
Expenses, including the following: 1) changes in the Underlying Funds'
expense ratios, 2) changes in the Underlying Funds, and 3) changes in the
target allocations of the Underlying Funds.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Portfolio and does not include expenses of any Acquired
fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Portfolio's
net operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Portfolio, do not exceed net operating expense ratio of
1.50% for the Portfolio. The committed net operating expense ratios may be
increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds and includes
expenses from the Underlying Funds in which the Portfolio invests. It assumes:
o You invest $10,000 in the Portfolio for the time periods indicated below
and then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Portfolio's operating expenses remain the same.
The fee waivers shown in the Annual Portfolio Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
If you sell your shares at the end of the period: 1 Year $ 362 3 Years $ 819 5 Years $1,302 10 Years $2,632 |
MODERATE BALANCED PORTFOLIO 11
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Doug Beath
Galen G. Blomster, CFA
(until 2/1/10)
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
PORTFOLIO INCEPTION:
10/1/1997
Ticker: WBGBX
Portfolio Number: 116
PRINCIPAL INVESTMENT STRATEGIES
We seek to achieve the Portfolio's investment objective by allocating up to 80% of its assets to stock funds, up to 50% of its assets to bond funds and up to 10% of its assets to alternative investment strategy funds.
As of July 31, 2009, the Portfolio's neutral allocation was 62% to stock funds, 33% to bond funds and 5% to alternative investment strategy funds. We may change the Portfolio's neutral allocation throughout the year. The Portfolio's broad diversification helps to reduce the overall impact of any one asset class underperforming, but may also limit upside potential.
The Portfolio is a highly diversified investment, consisting of stock, bond and alternative investment strategy funds, with an emphasis on stocks. Stock holdings are diversified across a wide range of stock fund styles including large company growth, large company value, small company and international. Bond holdings are diversified across a wide range of bond fund styles that consist of short- to long-term income-producing securities, including U.S. Government obligations, corporate bonds, below investment-grade bonds and foreign issues. Alternative investment holdings are allocated across funds that use alternative investment strategies, which may include, but are not limited to, investing in real estate, commodities, foreign currency, natural resources, precious metals, and other non-traditional investments, or following long-short, market neutral, or other tactical investment strategies.
PRINCIPAL RISK FACTORS
The Portfolio is primarily subject to the risks mentioned below.
o Alternative Investment Risk
o Counter-Party Risk
o Currency Hedging Risk
o Debt Securities Risk
o Derivatives Risk
o Emerging Markets Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Small Company Investment Risk
o Underlying Funds Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Portfolio and could adversely affect the Portfolio's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
12 GROWTH BALANCED PORTFOLIO
PORTFOLIO ASSET ALLOCATION
The following table provides a percentage breakdown of the Portfolio's asset allocations, including the Portfolio's neutral asset allocation, target asset allocation range and effective asset allocations using the TAA futures overlay as of July 31, 2009.
INVESTMENT
POTENTIAL ASSET ALLOCATION NEUTRAL TARGET RANGE
RANGES POSITION USING TAA MODEL
STOCK FUNDS 62% 44 - 80%
BONDS FUNDS 33% 16 - 50%
ALTERNATIVE INVESTMENT FUNDS 5% 0 - 10%
|
UNDERLYING STYLE TARGET ALLOCATIONS
STOCK FUND STYLES:
LARGE COMPANY GROWTH 15.50%
STYLE
LARGE COMPANY VALUE STYL E 15.50%
SMALL COMPANY STYLE 12.40%
INTERNATIONAL STYLE 18.60%
-----------
TOTAL 62.00%
-----------
BOND FUND STYLES:
SHORT TERM U.S.
TREASURY, GOVERNMENT
OBLIGATIONS, AND
MORTGAGE-RELATED
SECURITIES 0.00%
INTERMEDIATE AND LONG
TERM U.S. TREASURY,
GOVERNMENT OBLIGATIONS,
AND
MORTGAGE-RELATED 12.24%
SECURITIES
INVESTMENT GRADE 11.32%
CORPORATE BONDS
HIGH-YIELD CORPORATE 4.72%
BONDS
INTERNATIONAL OBLIGATION S 4.72%
-----------
TOTAL 33.00%
-----------
ALTERNATIVE INVESTMENT FUND
STYLES:
REAL ESTATE 2.00%
COMMODITIES 3.00%
-----------
TOTAL 5.00%
-----------
Total Portfolio Assets 100.00%
|
EFFECTIVE ALLOCATION USING FUTURES AS OF JULY 31,
2009
STOCK FUND STYLES: 77%
BOND FUND STYLES: 18%
ALTERNATIVE INVESTMENT FUND 5%
----------
STYLES:
TOTAL 100%
----------
|
GROWTH BALANCED PORTFOLIO 13
PERFORMANCE
The following information shows you how the Portfolio has performed and illustrates the variability of the Portfolio's returns over time. The Portfolio's average annual total returns are compared to the performance of an appropriate broad-based index. Please remember that past performance before and after taxes is no guarantee of future results.
[GRAPHIC APPEARS HERE]
Calendar Year Total Returns/1/
as of 12/31 each year
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
14.45% 2.11% -7.09% -17.48% 24.26% 9.68% 4.73% 12.36% 6.67% -37.83%
|
BEST AND WORST QUARTER
Best Quarter: Q2 2003 13.03%
Worst Quarter: Q4 2008 -22.37%
|
The Portfolio's year-to-date performance through June 30, 2009, was 9.67%.
AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2008 1 YEAR 5 YEARS 10 YEARS/1/ GROWTH BALANCED PORTFOLIO/1/ Returns Before Taxes -38.76% -3.35% -0.63% Returns After Taxes on -39.42% -4.42% -1.64% Distributions/2/ Returns After Taxes on -25.07% -3.03% -0.86% Distributions and Sale of Portfolio Shares/2/ S&P 500 INDEX/3/ -37.00% -2.19% -1.38% (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 5.24% 4.65% 5.63% AGGREGATE BOND INDEX/4/ (reflects no deduction for fees, expenses or taxes) WEALTHBUILDER GROWTH -24.07% 0.36% 1.32% BALANCED COMPOSITE INDEX/5/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect sales
charges.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Portfolio
shares through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 S&P 500 is a registered trademark of Standard and Poor's. The S&P 500 Index
is an unmanaged index of 500 widely held common stocks representing, among
others, industrial, financial, utility and transportation companies listed
or traded on national exchanges or over-the-counter markets. You cannot
invest directly in an index.
4 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
5 The WealthBuilder Growth Balanced Composite Index is comprised 65% of the S&P 500 Index's and 35% of the Barclays Capital U.S. Aggregate Bond Index's holdings.You cannot invest directly in an index.
14 GROWTH BALANCED PORTFOLIO
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses you will pay as a shareholder in the Portfolio. These tables do not reflect the charges that may be imposed in connection with an account through which you hold Portfolio shares. A broker-dealer or financial institution maintaining an account through which you hold Portfolio shares may charge separate account, service or transaction fees on the purchase or sale of Portfolio shares that would be in addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge 1.50% (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees/2/ 0.20%
Distribution (12b-1) Fees 0.75%
Other Expenses/3/ 0.61%
Acquired Fund Fees and 0.72%
Expenses/4/
TOTAL ANNUAL PORTFOLIO 2.28%
OPERATING EXPENSES/5/
Fee Waivers 0.06%
NET EXPENSES/5,6/ 2.22%
|
1 Portfolio shares that are purchased at NAV in amounts of $1,000,000 or more
may be assessed a 1.00% CDSC if they are redeemed within one year from the
date of purchase. See "Reductions and Waivers of Sales Charges" for further
information.
2 The following advisory fee schedule is charged to the Portfolio as a
percentage of the Portfolio's average daily net assets: 0.20% for the first
$1 billion; 0.175% for the next $4 billion ; and 0.15% for assets over $5
billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of the Underlying
Funds in which the Portfolio invests. Shareholders indirectly bear these
underlying expenses because the NAV and/or distributions paid reflect such
underlying expenses. Several factors may affect the Acquired Fund Fees and
Expenses, including the following: 1) changes in the Underlying Funds'
expense ratios, 2) changes in the Underlying Funds, and 3) changes in the
target allocations of the Underlying Funds.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Portfolio and does not include expenses of any Acquired
fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Portfolio's
net operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Portfolio, do not exceed net operating expense ratio of
1.50% for the Portfolio. The committed net operating expense ratios may be
increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds and includes
expenses from the Underlying Funds in which the Portfolio invests. It assumes:
o You invest $10,000 in the Portfolio for the time periods indicated below
and then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Portfolio's operating expenses remain the same.
The fee waivers shown in the Annual Portfolio Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
If you sell your shares at the end of the period: 1 Year $ 372 3 Years $ 847 5 Years $1,347 10 Years $2,723 |
GROWTH BALANCED PORTFOLIO 15
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Doug Beath
Galen G. Blomster, CFA
(until 2/1/10)
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
PORTFOLIO INCEPTION:
9/30/2004
Ticker: WBGGX
Portfolio Number: 1875
PRINCIPAL INVESTMENT STRATEGIES
We seek to achieve the Portfolio's investment objective by allocating up to 95% of its assets to stock funds, up to 35% of its assets to bond funds and up to 10% of its assets to alternative investment strategy funds.
As of July 31, 2009, the Portfolio's neutral allocation was 76% to stock funds, 19% to bond funds and 5% to alternative investment strategy funds. We may change the Portfolio's neutral allocation throughout the year. The Portfolio's broad diversification helps to reduce the overall impact of any one asset class underperforming, but may also limit upside potential.
The Portfolio is a highly diversified investment, consisting of stock, bond and alternative investment strategy funds, with an emphasis on stocks. Stock holdings are diversified across a wide range of stock fund styles including large company growth, large company value, small company and international. Bond holdings are diversified across a wide range of bond fund styles that consist of short- to long-term income-producing securities, including U.S. Government obligations, corporate bonds, below investment-grade bonds and foreign issues. Alternative investment holdings are allocated across funds that use alternative investment strategies, which may include, but are not limited to, investing in real estate, commodities, foreign currency, natural resources, precious metals, and other non-traditional investments, or following long-short, market neutral, or other tactical investment strategies.
PRINCIPAL RISK FACTORS
The Portfolio is primarily subject to the risks mentioned below.
o Alternative Investment Risk
o Counter-Party Risk
o Currency Hedging Risk
o Debt Securities Risk
o Derivatives Risk
o Emerging Markets Risk
o Foreign Investment Risk
o High Yield Securities Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Mortgage- and Asset-Backed Securities Risk
o Regulatory Risk
o Small Company Investment Risk
o Underlying Funds Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Portfolio and could adversely affect the Portfolio's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
16 GROWTH ALLOCATION PORTFOLIO
PORTFOLIO ASSET ALLOCATION
The following table provides a percentage breakdown of the Portfolio's asset allocations, including the Portfolio's neutral asset allocation, target asset allocation range and effective asset allocations using the TAA futures overlay as of July 31, 2009.
INVESTMENT
TARGET RANGE
POTENTIAL ASSET ALLOCATION NEUTRAL USING
RANGES POSITION TAA MODEL
STOCK FUNDS 76% 57- 95%
BONDS FUNDS 19% 3- 35%
ALTERNATIVE INVESTMENT FUNDS 5% 0-10%
|
UNDERLYING STYLE TARGET ALLOCATIONS
STOCK FUND STYLES:
LARGE COMPANY GROWTH 15.50%
STYLE
LARGE COMPANY VALUE STYL E 15.50%
SMALL COMPANY STYLE 12.40%
INTERNATIONAL STYLE 18.60%
-----------
TOTAL 76.00%
-----------
BOND FUND STYLES:
SHORT TERM U.S.
TREASURY, GOVERNMENT
OBLIGATIONS, AND
MORTGAGE-RELATED
SECURITIES 0.00%
Intermediate and Long
Term U.S.
Treasury,
GOVERNMENT OBLIGATIONS,
AND
MORTGAGE-RELATED 6.65%
SECURITIES
INVESTMENT GRADE 6.65%
CORPORATE BONDS
HIGH-YIELD CORPORATE 2.85%
BONDS
INTERNATIONAL OBLIGATION S 2.85%
-----------
TOTAL 19.00%
-----------
ALTERNATIVE INVESTMENT FUND
STYLES:
REAL ESTATE 2.00%
COMMODITIES 3.00%
-----------
TOTAL 5.00%
-----------
Total Portfolio Assets 100.00%
|
EFFECTIVE ALLOCATION USING FUTURES AS OF JULY 31,
2009
STOCK FUND STYLES: 91%
BOND FUND STYLES: 4%
ALTERNATIVE INVESTMENT FUND 5%
---------
STYLES:
TOTAL 100%
---------
|
GROWTH ALLOCATION PORTFOLIO 17
PERFORMANCE
The following information shows you how the Portfolio has performed and illustrates the variability of the Portfolio's returns over time. The Portfolio's average annual total returns are compared to the performance of an appropriate broad-based index. Please remember that past performance before and after taxes is no guarantee of future results.
[GRAPHIC APPEARS HERE]
Calendar Year Total Returns/1/
as of 12/31 each year
2005 2006 2007 2008
6.88% 12.84% 6.71% -42.49%
|
BEST AND WORST QUARTER
Best Quarter: Q4 2006 6.83%
Worst Quarter: Q4 2008 -25.50%
|
The Portfolio's year-to-date performance through June 30, 2009, was 9.82%.
AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2008 1 YEAR LIFE OF PORTFOLIO/1/ GROWTH ALLOCATION PORTFOLIO/1/ Returns Before Taxes -43.35% -5.21% Returns After Taxes on -43.82% -5.86% Distributions/2/ Returns After Taxes on -28.09% -4.50% Distributions and Sale of Portfolio Shares/2/ S&P 500 INDEX/3/ -37.00% -2.91% (reflects no deduction for fees, expenses or taxes) BARCLAYS CAPITAL U.S. 5.24% 4.68% AGGREGATE BOND INDEX/4/ (reflects no deduction for fees, expenses or taxes) WEALTHBUILDER GROWTH -29.83% -1.28% ALLOCATION COMPOSITE INDEX/5/ (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges. The Portfolio incepted on September 30, 2004.
Returns for the Portfolio and Indexes in the Life of Portfolio column are
shown as of the Portfolio inception date.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Portfolio
shares through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 S&P 500 is a registered trademark of Standard and Poor's. The S&P 500 Index
is an unmanaged index of 500 widely held common stocks representing, among
others, industrial, financial, utility and transportation companies listed
or traded on national exchanges or over-the-counter markets. You cannot
invest directly in an index.
4 The Barclays Capital U.S. Aggregate Bond Index is composed of the Barclays Capital U.S. Government/Credit Index and the Barclays Capital U.S. Mortgage- Backed Securities Index, and includes Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.
5 The WealthBuilder Growth Allocation Composite Index is comprised 80% of the S&P 500 Index's and 20% of the Barclays Capital U.S. Aggregate Bond Index's holdings. You cannot invest directly in an index.
18 GROWTH ALLOCATION PORTFOLIO
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses you will pay as a shareholder in the Portfolio. These tables do not reflect the charges that may be imposed in connection with an account through which you hold Portfolio shares. A broker-dealer or financial institution maintaining an account through which you hold Portfolio shares may charge separate account, service or transaction fees on the purchase or sale of Portfolio shares that would be in addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge 1.50% (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) Management Fees/2/ 0.20% Distribution (12b-1) Fees 0.75% Other Expenses/3/ 0.64% Acquired Fund Fees and 0.79% Expenses/4/ TOTAL ANNUAL PORTFOLIO 2.38% OPERATING EXPENSES/5/ Fee Waivers 0.09% NET EXPENSES/5,6/ 2.29% |
1 Portfolio shares that are purchased at NAV in amounts of $1,000,000 or more
may be assessed a 1.00% CDSC if they are redeemed within one year from the
date of purchase. See "Reductions and Waivers of Sales Charges" for further
information.
2 The following advisory fee schedule is charged to the Portfolio as a
percentage of the Portfolio's average daily net assets: 0.20% for the first
$1 billion; 0.175% for the next $4 billion ; and 0.15% for assets over $5
billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of the Underlying
Funds in which the Portfolio invests. Shareholders indirectly bear these
underlying expenses because the NAV and/or distributions paid reflect such
underlying expenses. Several factors may affect the Acquired Fund Fees and
Expenses, including the following: 1) changes in the Underlying Funds'
expense ratios, 2) changes in the Underlying Funds, and 3) changes in the
target allocations of the Underlying Funds.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Portfolio and does not include expenses of any Acquired
fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Portfolio's
net operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Portfolio, do not exceed net operating expense ratio of
1.50% for the Portfolio. The committed net operating expense ratios may be
increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds and includes
expenses from the Underlying Funds in which the Portfolio invests. It assumes:
o You invest $10,000 in the Portfolio for the time periods indicated below
and then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Portfolio's operating expenses remain the same.
The fee waivers shown in the Annual Portfolio Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
If you sell your shares at the end of the period: 1 Year $ 378 3 Years $ 872 5 Years $1,391 10 Years $2,815 |
GROWTH ALLOCATION PORTFOLIO 19
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Doug Beath
Galen G. Blomster, CFA
(until 2/1/10)
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
PORTFOLIO INCEPTION:
10/1/1997
Ticker: WBGIX
Portfolio Number: 115
PRINCIPAL INVESTMENT STRATEGIES
We seek to achieve the Portfolio's investment objective by investing at least 80% of the Portfolio's net assets in equity securities (through investments in Underlying Funds). The Portfolio is a diversified equity investment that consists of mutual funds that employ different and complementary investment styles to provide potential for growth. These equity styles include large company growth, large company value, small company and international. The Portfolio's allocation across equity styles is not model-driven and remains constant.
Depending on market conditions, some equity asset classes will perform better than others. The Portfolio's broad diversification across equity styles helps to reduce the overall impact of poor performance in any one equity asset class.
PRINCIPAL RISK FACTORS
The Portfolio is primarily subject to the risks mentioned below.
o Currency Hedging Risk
o Emerging Markets Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Small Company Investment Risk
o Underlying Funds Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Portfolio and could adversely affect the Portfolio's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
20 EQUITY PORTFOLIO
PORTFOLIO ASSET ALLOCATION
The following table provides a percentage breakdown of the Portfolio's asset allocations as of July 31, 2009.
UNDERLYING STYLE TARGET ALLOCATIONS
LARGE COMPANY GROWTH 25%
STYLE
LARGE COMPANY VALUE STYLE 25%
SMALL COMPANY STYLE 20%
INTERNATIONAL STYLE 30%
--------
TOTAL PORTFOLIO ASSETS 100%
--------
|
EQUITY PORTFOLIO 21
PERFORMANCE
The following information shows you how the Portfolio has performed and illustrates the variability of the Portfolio's returns over time. The Portfolio's average annual total returns are compared to the performance of an appropriate broad-based index. Please remember that past performance before and after taxes is no guarantee of future results.
[GRAPHIC APPEARS HERE]
Calendar Year Total Returns/1/
as of 12/31 each year
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
27.28% -2.99% -16.52% -25.28% 29.37% 12.64% 6.97% 13.60% 5.47% -42.97%
|
BEST AND WORST QUARTER
Best Quarter: Q4 1999 19.47%
Worst Quarter: Q4 2008 -24.40%
|
The Portfolio's year-to-date performance through June 30, 2009, was 8.17%.
AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2008 1 YEAR 5 YEARS 10 YEARS/1/ EQUITY PORTFOLIO/1/ Returns Before Taxes -43.83% -4.10% -2.11% Returns After Taxes on -44.33% -4.72% -2.67% Distributions/2/ Returns After Taxes on -27.88% -3.32% -1.80% Distributions and Sale of Portfolio Shares/2/ S&P 500 INDEX/3/ 37.00% -2.19% -1.38% (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Portfolio
shares through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 S&P 500 is a registered trademark of Standard and Poor's. The S&P 500 Index
is an unmanaged index of 500 widely held common stocks representing, among
others, industrial, financial, utility and transportation companies listed
or traded on national exchanges or over-the-counter markets. You cannot
invest directly in an index.
22 EQUITY PORTFOLIO
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses you will pay as a shareholder in the Portfolio. These tables do not reflect the charges that may be imposed in connection with an account through which you hold Portfolio shares. A broker-dealer or financial institution maintaining an account through which you hold Portfolio shares may charge separate account, service or transaction fees on the purchase or sale of Portfolio shares that would be in addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge 1.50% (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL PORTFOLIO OPERATING EXPENSES
(expenses that are deducted from Portfolio assets)
Management Fees/2/ 0.20%
Distribution (12b-1) Fees 0.75%
Other Expenses/3/ 0.66%
Acquired Fund Fees and 0.88%
Expenses (Underlying
Funds)/4/
TOTAL ANNUAL PORTFOLIO 2.49%
OPERATING EXPENSES/5/
Fee Waivers 0.11%
NET EXPENSES/5,6/ 2.38%
|
1 Portfolio shares that are purchased at NAV in amounts of $1,000,000 or more
may be assessed a 1.00% CDSC if they are redeemed within one year from the
date of purchase. See "Reductions and Waivers of Sales Charges" for further
information.
2 The following advisory fee schedule is charged to the Portfolio as a
percentage of the Portfolio's average daily net assets: 0.20% for the first
$1 billion; 0.175% for the next $4 billion ; and 0.15% for assets over $5
billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of the Underlying
Funds in which the Portfolio invests. Shareholders indirectly bear these
underlying expenses because the NAV and/or distributions paid reflect such
underlying expenses. Several factors may affect the Acquired Fund Fees and
Expenses, including the following: 1) changes in the Underlying Funds'
expense ratios, 2) changes in the Underlying Funds, and 3) changes in the
target allocations of the Underlying Funds.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Portfolio and does not include expenses of any Acquired
fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Portfolio's
net operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Portfolio, do not exceed net operating expense ratio of
1.50% for the Portfolio. The committed net operating expense ratios may be
increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds and includes
expenses from the Underlying Funds in which the Portfolio invests. It assumes:
o You invest $10,000 in the Portfolio for the time periods indicated below
and then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Portfolio's operating expenses remain the same.
The fee waivers shown in the Annual Portfolio Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
If you sell your shares at the end of the period: 1 Year $ 387 3 Years $ 903 5 Years $1,445 10 Years $2,923 |
EQUITY PORTFOLIO 23
INVESTMENT ADVISER
Wells Fargo Funds Management, LLC
SUB-ADVISER
Wells Capital Management Incorporated
PORTFOLIO MANAGERS
Doug Beath
Galen G. Blomster, CFA
(until 2/1/10)
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
PORTFOLIO INCEPTION:
10/1/1997
Ticker: WBGAX
Portfolio Number: 114
PRINCIPAL INVESTMENT STRATEGIES
We seek to achieve the Portfolio's investment objective by investing at least 80% of the Portfolio's net assets in equity securities (through investment in Underlying Funds).The Portfolio is a diversified equity investment that consists of mutual funds that employ different and complementary investment styles to provide potential for growth. These equity styles include large company growth, large company value, small company, and international.
The effective allocation across the four equity styles is determined by the TEA Model. Changes to the effective allocation across the styles are implemented both with futures contracts and buying and selling the underlying funds. The TEA Model is previously described under "Asset Allocation Strategy" in the "Key Portfolio Information" section.
Depending on market conditions, some equity asset classes will perform better than others. The Portfolio's broad diversification across equity styles and the use of the TEA model helps to reduce the overall impact of poor performance in any one equity asset class.
PRINCIPAL RISK FACTORS
The Portfolio is primarily subject to the risks mentioned below.
o Currency Hedging Risk
o Derivatives Risk
o Emerging Markets Risk
o Foreign Investment Risk
o Issuer Risk
o Leverage Risk
o Liquidity Risk
o Management Risk
o Market Risk
o Regulatory Risk
o Small Company Investment Risk
o Underlying Funds Risk
o U.S. Government Obligations Risk
These and other risks could cause you to lose money in your investment in the Portfolio and could adversely affect the Portfolio's net asset value, yield and total return. These risks are described in the "Description of Principal Investment Risks" section.
24 TACTICAL EQUITY PORTFOLIO
PORTFOLIO ASSET ALLOCATION
The following table provides a percentage breakdown of the Portfolio's asset allocations, including the Portfolio's target asset allocation range.
POTENTIAL ASSET ALLOCATION INVESTMENT RANGES TARGET RANGE LARGE COMPANY VALUE STOCKS 15-35% LARGE COMPANY GROWTH STOCKS 15-35% SMALL COMPANY STOCKS 5-35% INTERNATIONAL STOCKS 10-50% |
TACTICAL EQUITY PORTFOLIO 25
PERFORMANCE
The following information shows you how the Portfolio has performed and illustrates the variability of the Portfolio's returns over time. The Portfolio's average annual total returns are compared to the performance of an appropriate broad-based index. Please remember that past performance before and after taxes is no guarantee of future results.
[GRAPHIC APPEARS HERE]
Calendar Year Total Returns/1/
as of 12/31 each year
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
26.74% -6.34% -15.85% -25.42% 31.36% 17.51% 8.54% 18.82% 7.89% -45.15%
|
BEST AND WORST QUARTER
Best Quarter: Q4 1999 20.54%
Worst Quarter: Q4 2008 -25.88%
|
The Portfolio's year-to-date performance through June 30, 2009, was 8.15%.
AVERAGE ANNUAL TOTAL RETURNS as of December 31, 2008 1 YEAR 5 YEARS 10 YEARS/1/ TACTICAL EQUITY PORTFOLIO/1/ Returns Before Taxes -45.97% -2.45% -1.45% Returns After Taxes on -46.61% -3.15% -1.85% Distributions/2/ Returns After Taxes on -29.13% -2.00% -1.20% Distributions and Sale of Portfolio Shares/2/ S&P 500 INDEX/3/ -37.00% -2.19% -1.38% (reflects no deduction for fees, expenses or taxes) |
1 Calendar Year Total Returns in the bar chart do not reflect sales charges. If
they did, returns would be lower. Average Annual Total Returns reflect
applicable sales charges.
2 After-tax returns are calculated using the historical highest individual
federal marginal income tax rates and do not reflect the impact of state,
local or foreign taxes. Actual after-tax returns depend on an investor's tax
situation and may differ from those shown, and after-tax returns shown are
not relevant to tax-exempt investors or investors who hold their Portfolio
shares through tax-deferred arrangements, such as 401(k) Plans or Individual
Retirement Accounts.
3 S&P 500 is a registered trademark of Standard and Poor's. The S&P 500 Index
is an unmanaged index of 500 widely held common stocks representing, among
others, industrial, financial, utility and transportation companies listed
or traded on national exchanges or over-the-counter markets. You cannot
invest directly in an index.
26 TACTICAL EQUITY PORTFOLIO
FEES AND EXPENSES
These tables are intended to help you understand the various costs and expenses you will pay as a shareholder in the Portfolio. These tables do not reflect the charges that may be imposed in connection with an account through which you hold Portfolio shares. A broker-dealer or financial institution maintaining an account through which you hold Portfolio shares may charge separate account, service or transaction fees on the purchase or sale of Portfolio shares that would be in addition to the fees and expenses shown here.
SHAREHOLDER FEES (fees paid directly from your investments) Maximum sales charge 1.50% (load) imposed on purchases (AS A PERCENTAGE OF THE OFFERING PRICE) Maximum deferred sales None/1/ charge (load) (AS A PERCENTAGE OF THE NET ASSET VALUE AT PURCHASE) |
ANNUAL PORTFOLIO OPERATING EXPENSES (expenses that are deducted from Portfolio assets) Management Fees/2/ 0.20% Distribution (12b-1) Fees 0.75% Other Expenses/3/ 0.62% Acquired Fund Fees and 0.87% Expenses/4/ TOTAL ANNUAL PORTFOLIO 2.44% OPERATING EXPENSES/5/ Fee Waivers 0.07% NET EXPENSES/5,6/ 2.37% |
1 Portfolio shares that are purchased at NAV in amounts of $1,000,000 or more
may be assessed a 1.00% CDSC if they are redeemed within one year from the
date of purchase. See "Reductions and Waivers of Sales Charges" for further
information.
2 The following advisory fee schedule is charged to the Portfolio as a
percentage of the Portfolio's average daily net assets: 0.20% for the first
$1 billion; 0.175% for the next $4 billion ; and 0.15% for assets over $5
billion.
3 Includes expenses payable to affiliates of Wells Fargo & Company.
4 Reflects the pro-rata portion of the net operating expenses of the Underlying
Funds in which the Portfolio invests. Shareholders indirectly bear these
underlying expenses because the NAV and/or distributions paid reflect such
underlying expenses. Several factors may affect the Acquired Fund Fees and
Expenses, including the following: 1) changes in the Underlying Funds'
expense ratios, 2) changes in the Underlying Funds, and 3) changes in the
target allocations of the Underlying Funds.
5 The expense ratio shown does not correlate to the corresponding expense ratio
shown in the Financial Highlights, which reflects only the operating
expenses of the Portfolio and does not include expenses of any Acquired
fund.
6 The adviser has committed through September 30, 2010, to waive fees and/or
reimburse expenses to the extent necessary to ensure that the Portfolio's
net operating expenses, excluding brokerage commissions, interest, taxes,
extraordinary expenses, and the expenses of any money market fund or other
fund held by the Portfolio, do not exceed net operating expense ratio of
1.50% for the Portfolio. The committed net operating expense ratios may be
increased only with approval of the Board of Trustees.
EXAMPLE OF EXPENSES
This example is intended to help you compare the cost of investing in the
Portfolio with the cost of investing in other mutual funds and includes
expenses from the Underlying Funds in which the Portfolio invests. It assumes:
o You invest $10,000 in the Portfolio for the time periods indicated below
and then redeem all of your shares at the end of these periods;
o Your investment has a 5% return each year;
o You reinvest all distributions (to which sales charges do not apply); and
o The Portfolio's operating expenses remain the same.
The fee waivers shown in the Annual Portfolio Operating Expenses are only reflected in the first year of each of the following time periods. Although your actual costs may be higher or lower than those shown below, based on these assumptions your costs would be:
If you sell your shares at the end of the period: 1 Year $ 387 3 Years $ 893 5 Years $1,426 10 Years $2,881 |
TACTICAL EQUITY PORTFOLIO 27
The Portfolios normally invest in affiliated and unaffiliated open-end management investment companies or series thereof with the investment styles listed below. The Portfolios may also invest in closed-end management investment companies and/or unit investment trusts. All of these investments are referred to as the Underlying Funds. Each Portfolio may also hold certain securities directly. The types of Underlying Funds in which the Portfolios invest generally fall into three categories:
(1) STOCK FUNDS. Stock funds invest primarily in domestic or foreign common stocks or securities convertible into or exchangeable for common stock. The Underlying Funds may include stock funds holding large company stocks, small company stocks, and international stocks.
(2) BOND FUNDS. Bond funds invest primarily in debt securities issued by companies, governments, or government agencies. The issuer of a bond is required to pay the bond holder the amount of the loan (or par value) at a specified maturity and to make scheduled interest payments. Under normal circumstances, only the Conservative Allocation, Moderate Balanced, Growth Balanced and Growth Allocation Portfolios invest in bond funds.
(3) ALTERNATIVE INVESTMENT FUNDS. Funds that utilize alternative investment strategies include, but are not limited to, investing in real estate, commodities, foreign currency, natural resources, precious metals, and other non-traditional investments, or following long-short, market neutral, or other tactical investment strategies. Only the Growth Allocation, Growth Balanced, Moderate Balanced and Conservative Allocation Portfolios invest in funds that utilize alternative investment strategies.
FEES AND EXPENSES OF THE UNDERLYING FUNDS
The Portfolios' shareholders will bear indirectly a pro-rata portion of the
expenses of the Underlying Funds. In addition, Funds Management, Wells Capital
Management and their affiliates, including the Portfolios' distributor, may
receive fees from the Underlying Funds for providing various services to the
Underlying Funds. For example, Funds Management may receive advisory fees and
Wells Capital Management may receive sub-advisory fees from the Underlying
Funds and Wells Fargo Bank, N.A., may receive fees for providing custody
services to certain Underlying Funds. These fees are separate from and in
addition to fees received by Funds Management and its affiliates for providing
services to the Portfolios. These fees may differ among the Underlying Funds.
Investments in a Portfolio may result in your incurring greater expenses than
if you were to invest directly in the Underlying Funds.
28 THE UNDERLYING FUNDS
Understanding the risks involved in mutual fund investing will help you make an informed decision that takes into account your risk tolerance and preferences. The factors that are most likely to have a material effect on a particular Portfolio as a whole are called "principal risks." The principal risks for each Portfolio and indirectly, the principal risk factors for the Underlying Funds in which each Portfolio invests, have been previously identified and are described below. Additional information about the principal risks is included in the Statement of Additional Information.
ALTERNATIVE INVESTMENT RISK Alternative investment strategies, such as investments in real estate, commodities, foreign
currency, natural resources, precious metals, and other non-traditional investments, or
following a long-short, market neutral, or other tactical investment strategies involve
additional risks. For example, investments in issuers that are principally engaged in real
estate, including REITs, may subject a Portfolio to risks similar to those associated with direct
ownership of real estate. These issuers are sensitive to factors such as changes in real estate
values, property taxes, interest rates, adequacy of available financing and market conditions.
Because REITs are typically invested in a limited number of projects or in a particular market
segment, they are more susceptible to adverse developments affecting a single project or
market segment than more broadly diversified investments. In addition, prices of
commodities, which include precious metals, may be significantly affected by various
environmental, economic, financial and political factors, all of which may be unpredictable.
Finally, following a long-short position typically involves an Underlying Fund's sale of a
security that it does not own. If the price of the security sold short increases, the Fund would
incur a loss; conversely, if the price declines, the Fund will realize a gain. Although the gain is
limited by the price at which the security was sold short, a loss is potentially unlimited.
COUNTER-PARTY RISK When a Portfolio enters into a repurchase agreement, an agreement where it buys a security
in which the seller agrees to repurchase the security at an agreed upon price and time, the
Portfolio is exposed to the risk that the other party will not fulfill its contractual obligation.
Similarly, the Portfolio is exposed to the same risk if it engages in a reverse repurchase
agreement where a broker-dealer agrees to buy securities and the Portfolio agrees to
repurchase them at a later date.
CURRENCY HEDGING RISK An investment transacted in a foreign currency may lose value due to fluctuations in the rate
of exchange. To manage currency exposure, a Portfolio may purchase currency futures or
enter into forward currency contracts to "lock in" the U.S. dollar price of the security. A
forward currency contract involves an agreement to purchase or sell a specified currency at
a specified future price set at the time of the contract. Similar to a forward currency contract,
currency futures contracts are standardized for the convenience of market participants and
quoted on an exchange. To reduce the risk of one party to the contract defaulting, the
accrued profit or loss from a futures contract is calculated and paid on a daily basis rather
than on the maturity of the contract.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 29
DEBT SECURITIES RISK Debt securities, such as notes and bonds, are subject to credit risk and interest rate risk.
Credit risk is the possibility that an issuer of an instrument will be unable to make interest
payments or repay principal when due. Changes in the financial strength of an issuer or
changes in the credit rating of a security may affect its value. Interest rate risk is the risk that
market interest rates may increase, which tends to reduce the resale value of certain debt
securities, including U.S. Government obligations. Debt securities with longer durations are
generally more sensitive to interest rate changes than those with shorter durations. Changes
in market interest rates do not affect the rate payable on an existing debt security, unless the
instrument has adjustable or variable rate features, which can reduce its exposure to interest
rate risk. Changes in market interest rates may also extend or shorten the duration of certain
types of instruments, such as asset-backed securities, thereby affecting their value and
returns. Debt securities may also have, or become subject to, liquidity constraints.
DERIVATIVES RISK The term "derivatives" covers a broad range of investments, including futures, options and
swap agreements. In general, a derivative refers to any financial instrument whose value is
derived, at least in part, from the price of another security or a specified index, asset or rate.
For example, a swap agreement is a commitment to make or receive payments based on
agreed upon terms, and whose value and payments are derived by changes in the value of
an underlying financial instrument. The use of derivatives presents risks different from, and
possibly greater than, the risks associated with investing directly in traditional securities. The
use of derivatives can lead to losses because of adverse movements in the price or value of
the underlying asset, index or rate, which may be magnified by certain features of the
derivatives. These risks are heightened when the portfolio manager uses derivatives to
enhance a Portfolio's return or as a substitute for a position or security, rather than solely to
hedge (or offset) the risk of a position or security held by the Portfolio. The success of
management's derivatives strategies will depend on its ability to assess and predict the
impact of market or economic developments on the underlying asset, index or rate and the
derivative itself, without the benefit of observing the performance of the derivative under all
possible market conditions.
EMERGING MARKETS RISK Emerging markets are markets associated with a country that is considered by international
financial organizations, such as the International Finance Corporation and the International
Bank for Reconstruction and Development, and the international financial community to
have an "emerging" stock market. Such markets may be under-capitalized, have less-
developed legal and financial systems or may have less stable currencies than markets in the
developed world. Emerging market securities are securities: (1) issued by companies with
their principal place of business or principal office in an emerging market country; or (2)
issued by companies for which the principal securities trading market is an emerging market
country.
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30 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
FOREIGN INVESTMENT RISK Foreign investments, including American Depositary Receipts (ADRs) and similar
investments, are subject to more risks than U.S. domestic investments. These additional risks
may potentially include lower liquidity, greater price volatility and risks related to adverse
political, regulatory, market or economic developments. Foreign companies also may be
subject to significantly higher levels of taxation than U.S. companies, including potentially
confiscatory levels of taxation, thereby reducing the earnings potential of such foreign
companies. In addition, amounts realized on sales or distributions of foreign securities may
be subject to high and potentially confiscatory levels of foreign taxation and withholding
when compared to comparable transactions in U.S. securities. Investments in foreign
securities involve exposure to fluctuations in foreign currency exchange rates. Such
fluctuations may reduce the value of the investment. Foreign investments are also subject to
risks including potentially higher withholding and other taxes, trade settlement, custodial,
and other operational risks and less stringent investor protection and disclosure standards in
certain foreign markets. In addition, foreign markets can and often do perform differently
from U.S. markets.
HIGH YIELD SECURITIES RISK High yield securities (sometimes referred to as "junk bonds") are debt securities that are
rated below investment-grade, are unrated and deemed by us to be below investment-
grade, or are in default at the time of purchase. These securities have a much greater risk of
default (or in the case of bonds currently in default, of not returning principal) and may be
more volatile than higher-rated securities of similar maturity. The value of these securities
can be affected by overall economic conditions, interest rates, and the creditworthiness of
the individual issuers. Additionally, these securities may be less liquid and more difficult to
value than higher-rated securities.
ISSUER RISK The value of a security may decline for a number of reasons that directly relate to the issuer
or an entity providing credit support or liquidity support, such as management
performance, financial leverage, and reduced demand for the issuer's goods, services or
securities.
LEVERAGE RISK Certain transactions may give rise to a form of leverage. Such transactions may include,
among others, reverse repurchase agreements, loans of portfolio securities, and the use of
when-issued, delayed delivery or forward commitment transactions. The use of derivatives
may also create a leveraging risk. The use of leverage may cause a Portfolio to liquidate
portfolio positions when it may not be advantageous to do so. Leveraging, including
borrowing, may cause a Portfolio to be more volatile than if the Portfolio had not been
leveraged. This is because leverage tends to increase a Portfolio's exposure to market risk,
interest rate risk or other risks by, in effect, increasing assets available for investment.
LIQUIDITY RISK A security may not be sold at the time desired or without adversely affecting the price.
MANAGEMENT RISK We cannot guarantee that a Portfolio or Underlying Fund will meet its investment objective.
We do not guarantee the performance of a Portfolio or Underlying Fund, nor can we assure
you that the market value of your investment will not decline. We will not "make good" on
any investment loss you may suffer, nor does anyone we contract with to provide services,
such as selling agents or investment advisers, promise to make good on any such losses.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 31
MARKET RISK The market price of securities owned by a Portfolio may go up or down, sometimes rapidly
or unpredictably. Securities may decline in value or become illiquid due to factors affecting
securities markets generally or particular industries represented in the securities markets.
The value or liquidity of a security may decline or become illiquid due to general market
conditions which are not specifically related to a particular company, such as real or
perceived adverse economic conditions, changes in the general outlook for corporate
earnings, changes in interest or currency rates or adverse investor sentiment generally. They
may also decline or become illiquid due to factors that affect a particular industry or
industries, such as labor shortages or increased production costs and competitive conditions
within an industry. During a general downturn in the securities markets, multiple asset
classes may decline or become illiquid in value simultaneously.
MORTGAGE- AND ASSET-BACKED Mortgage- and asset-backed securities represent interests in "pools" of mortgages or other
SECURITIES RISK assets, including consumer loans or receivables held in trust. In addition, mortgage dollar
rolls are transactions in which a Portfolio sells mortgage-backed securities to a dealer and
simultaneously agrees to purchase similar securities in the future at a predetermined price.
Mortgage- and asset-backed securities, including mortgage dollar roll transactions, are
subject to certain additional risks. Rising interest rates tend to extend the duration of these
securities, making them more sensitive to changes in interest rates. As a result, in a period of
rising interest rates, these securities may exhibit additional volatility. This is known as
extension risk. In addition, these securities are subject to prepayment risk. When interest
rates decline, borrowers may pay off their debts sooner than expected. This can reduce the
returns of a Portfolio because the Portfolio will have to reinvest that money at the lower
prevailing interest rates. This is known as contraction risk. These securities also are subject to
risk of default on the underlying mortgage or assets, particularly during periods of economic
downturn.
REGULATORY RISK Changes in government regulations may adversely affect the value of a security. An
insufficiently regulated market might also permit inappropriate practices that adversely
affect an investment.
SMALLER COMPANY SECURITIES Securities of companies with smaller market capitalizations tend to be more volatile and less
RISK liquid than larger company stocks. Smaller companies may have no or relatively short
operating histories, or be newly public companies. Some of these companies have
aggressive capital structures, including high debt levels, or are involved in rapidly growing or
changing industries and/or new technologies, which pose additional risks.
UNDERLYING FUNDS RISK The risks associated with each Portfolio include the risks related to each Underlying Fund in
which the Portfolio invests. We seek to reduce the risk of your investment by diversifying
among mutual funds that invest in stocks and, in some cases, bonds and among different
fund managers. You still have, however, the risks of investing in various asset classes, such as
market risks related to stocks and, in some cases, bonds, as well as the risks of investing in a
particular Underlying Fund, such as risks related to the particular investment management
style and that the Underlying Fund may underperform other similarly managed funds. To the
extent that an Underlying Fund actively trades its securities, a Portfolio will experience a
higher-than-average portfolio turnover ratio and increased trading expenses, and may
generate higher short-term capital gains. Investments in a Portfolio result in your incurring
greater expenses than if you were to invest directly in the Underlying Funds in which the
Portfolio invests. There can be no assurance that any mutual fund, including an Underlying
Fund, will achieve its investment objective.
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32 DESCRIPTION OF PRINCIPAL INVESTMENT RISKS
U.S. GOVERNMENT OBLIGATIONS U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government
RISK agencies or government-sponsored entities. While U.S. Treasury obligations are backed by
the "full faith and credit" of the U.S. Government, securities issued by U.S. Government
agencies or government-sponsored entities may not be backed by the full faith and credit of
the U.S. Government. The Government National Mortgage Association (GNMA), a wholly
owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit
of the U.S. Government, the timely payment of principal and interest on securities issued by
institutions approved by GNMA and backed by pools of mortgages insured by the Federal
Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or
government-sponsored entities (i.e. not backed by the full faith and credit of the U.S.
Government) include the Federal National Mortgage Association (FNMA) and the Federal
Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are
guaranteed as to timely payment of principal and interest by FNMA but are not backed by
the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of
interest and ultimate collection or scheduled payment of principal, but its participation
certificates are not backed by the full faith and credit of the U.S. Government. If a
government-sponsored entity is unable to meet its obligations, the performance of a
Portfolio that holds securities of the entity will be adversely impacted. U.S. Government
obligations are subject to low but varying degrees of credit risk, and are still subject to
interest rate and market risk.
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DESCRIPTION OF PRINCIPAL INVESTMENT RISKS 33
A description of the WELLS FARGO ADVANTAGE FUNDS' policies and procedures with respect to disclosure of the WELLS FARGO ADVANTAGE FUNDS' portfolio holdings is available in the Portfolios' Statement of Additional Information and on the WELLS FARGO ADVANTAGE FUNDS' Web site at www.wellsfargo.com/advantagefunds. In addition, Funds Management will, from time to time, include portfolio holdings information in quarterly commentaries for certain Portfolios. The substance of the information contained in such commentaries will also be posted to the Funds' Web site at www.wellsfargo.com/advantagefunds.
34 PORTFOLIO HOLDINGS INFORMATION
ABOUT WELLS FARGO FUNDS TRUST
The Trust was organized as a Delaware statutory trust on March 10, 1999. The
Board of Trustees of the Trust (Board) supervises each Portfolio's activities,
monitors its contractual arrangements with various service providers and
decides on matters of general policy.
The Board supervises the Portfolios and approves the selection of various companies hired to manage the Portfolios' operations. Except for the Portfolios' investment advisers, which generally may be changed only with shareholder approval, if the Board believes that it is in the best interests of the shareholders, it may change other service providers.
THE INVESTMENT ADVISER
Wells Fargo Funds Management, LLC, located at 525 Market Street, San Francisco,
CA 94105, serves as the investment adviser for the Portfolios. Funds
Management, an indirect, wholly owned subsidiary of Wells Fargo & Company, was
created to assume the mutual fund advisory responsibilities of Wells Fargo Bank
and is an affiliate of Wells Fargo Bank. Wells Fargo Bank, which was founded in
1852, is the oldest bank in the western United States and is one of the largest
banks in the United States. As adviser, Funds Management is responsible for
implementing the investment policies and guidelines for the Portfolios and for
supervising the sub-adviser who is responsible for the day-to-day portfolio
management of the Portfolios. For providing these services, Funds Management is
entitled to receive fees as described in each Portfolio's table of Annual
Portfolio Operating Expenses under the caption "Management Fees." A discussion
regarding the basis for the Board's approval of the investment advisory and
sub-advisory agreements for each Portfolio is available in the Portfolios'
annual report for the fiscal year ended May 31, 2008.
Wells Fargo & Company is a diversified financial services company providing banking, insurance, investments, mortgage and consumer finance services. The involvement of various subsidiaries of Wells Fargo & Company, including Funds Management, in the management and operation of the Portfolios and in providing other services or managing other accounts gives rise to certain actual and potential conflicts of interest.
For example, certain investments may be appropriate for a Portfolio and also for other clients advised by Funds Management and its affiliates, and there may be market or regulatory limits on the amount of investment, which may cause competition for limited positions. Also, various client and proprietary accounts may at times take positions that are adverse to a Portfolio. Funds Management applies various policies to address these situations, but a Portfolio may nonetheless incur losses or underperformance during periods when Wells Fargo & Company, its affiliates and their clients achieve profits or outperformance.
Wells Fargo & Company may have interests in or provide services to portfolio companies or Portfolio shareholders or intermediaries that may not be fully aligned with the interests of all investors. Funds Management and its affiliates serve in multiple roles, including as investment adviser and, for most WELLS FARGO ADVANTAGE FUNDS, sub-adviser, as well as administrator, principal underwriter and securities lending agent.
These are all considerations of which an investor should be aware and which may cause conflicts that could disadvantage a Portfolio. Funds Management has instituted business and compliance policies, procedures and disclosures that are designed to identify, monitor and mitigate conflicts of interest.
THE SUB-ADVISER AND PORTFOLIO MANAGERS
The following sub-adviser and portfolio managers perform day-to-day investment
management activities for the Portfolios. The sub-adviser is compensated for
its services by Funds Management from the fees Funds Management receives for
its services as adviser to the Portfolios. The Statement of Additional
Information provides additional information about the portfolio managers'
compensation, other accounts managed by the portfolio managers and the
portfolio managers' ownership of securities in the Portfolios.
ORGANIZATION AND MANAGEMENT OF THE PORTFOLIOS 35
DOUG BEATH Mr. Beath is jointly responsible for managing all of the Portfolios, which he has
All Portfolios managed since 2006. Mr. Beath joined Wells Capital Management in July 2006 as a
portfolio manager with the Quantitative Asset Management Team. From 2005 to 2006,
Mr. Beath was a senior vice president for SMH Research where he represented several
independent investment research firms. Prior to that, from 2000 to 2005, Mr. Beath was
with H.C. Wainwright Economics where he was a senior vice president of research and
provided consultation services to investment management firms and plan sponsors on
macroeconomic issues and asset allocation. Education: B.A., Liberal Arts, University of
Michigan; M.B.A., Fordham University.
GALEN G. BLOMSTER, CFA Effective February 1, 2010, Mr. Blomster will be stepping down in his capacity as a
All Portfolios Portfolio Advisor. Although removed from daily Portfolio management responsibilities,
Mr. Blomster will continue working for the Wells Capital Management Quantitative
Strategies team in a research capacity. In this role Mr. Blomster will focus on research
and analysis of the various quantitative models run by the team and used to help
manage the Portfolios. Mr. Blomster has been serving as a Portfolio Advisor serving in
an advisory capacity on the quantitative strategies team since his return from
retirement in September 2007. Prior to his April 2007 retirement date, Mr. Blomster was
jointly responsible for managing the Conservative Allocation Portfolio, the Moderate
Balanced Portfolio and the Growth Allocation Portfolio, which he managed since 2004.
He was also jointly responsible for managing the Growth Balanced Portfolio, the Equity
Portfolio and the Tactical Equity Portfolio, which he managed since 1997. Mr. Blomster
originally joined Wells Capital Management in 1998 as Vice President and Director of
Research and simultaneously held his position as portfolio manager at Norwest
Investment Management until WCM and Norwest Investment Management combined
investment advisory services under the Wells Capital Management name in 1999.
Education: B.S. degree in Dairy/Food Science and Economics, University of Minnesota;
M.S. and Ph.D. degrees, Purdue University.
PETROS BOCRAY, CFA Mr. Bocray is a portfolio manager on the Quantitative Strategies team at Wells Capital
All Portfolios Management. In this role, Mr. Bocray serves as co-manager on several of the team's
portfolios and conducts research supporting the quantitative models and investment
strategies. Prior to joining the team in March 2006, Mr. Bocray worked as a portfolio
manager for the Wells Fargo Wealth Management Group, where he managed private
client accounts with a focus on portfolio construction and asset allocation. Education:
Bachelor of Economics, College of Charleston, Charleston, South Carolina.
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36 ORGANIZATION AND MANAGEMENT OF THE PORTFOLIOS
JEFFREY P. MELLAS, CAIA Mr. Mellas joined Wells Capital Management in 2003 as Managing Director of
All Portfolios Quantitative Asset Management and Portfolio Manager. In this role, Mr. Mellas oversees
quantitative investment management efforts on behalf of institutional separate
accounts, mutual funds and collective investment funds. Prior to joining Wells Capital
Management, Mr. Mellas was with Alliance Capital Management since 1995, as Vice
President and Global Portfolio Strategist. Education: B.A., Economics, University of
Minnesota; M.B.A., Finance and International Business, New York University. Additional
studies: International Management Program at Haute Etudes Commerciales, Paris,
France, and Universite de Valery, Montpellier, France. He has earned the right to use the
CAIA designation and is a member of the Chartered Alternative Investment Analyst
Association.
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ORGANIZATION AND MANAGEMENT OF THE PORTFOLIOS 37
DORMANT MULTI-MANAGER ARRANGEMENT
The Board has adopted a "multi-manager" arrangement for Conservative Allocation
Portfolio, Growth Allocation Portfolio and Moderate Balanced Portfolio. Under
this arrangement, each Portfolio and Funds Management may engage one or more
sub-advisers to make day-to-day investment decisions for the Portfolio's
assets. Funds Management would retain ultimate responsibility (subject to the
oversight of the Board) for overseeing the sub-advisers and may, at times,
recommend to the Board that the Portfolio: (1) change, add or terminate one or
more sub-advisers; (2) continue to retain a sub-adviser even though the
sub-adviser's ownership or corporate structure has changed; or (3) materially
change a sub-advisory agreement with a sub-adviser.
Applicable law generally requires a Portfolio to obtain shareholder approval for most of these types of recommendations, even if the Board approves the proposed action. Under the "multi-manager" arrangement approved by the Board, the Portfolio will seek exemptive relief, if necessary, from the SEC to permit Funds Management (subject to the Board's oversight and approval) to make decisions about the Portfolio's sub-advisory arrangements without obtaining shareholder approval. The Portfolio will continue to submit matters to shareholders for their approval to the extent required by applicable law. Meanwhile, this multi-manager arrangement will remain dormant and will not be implemented until shareholders are further notified.
38 ORGANIZATION AND MANAGEMENT OF THE PORTFOLIOS
DISTRIBUTION PLAN
Each Portfolio has adopted a Distribution Plan pursuant to Rule 12b-1 under the
1940 Act. The Plan authorizes the payment of all or part of the cost of
preparing and distributing prospectuses and distribution-related services
including ongoing compensation to selling agents. The Plan also provides that,
if and to the extent any shareholder servicing payments are recharacterized as
payments for distribution-related services, they are approved and payable under
the Plan. Under this Plan, each Portfolio may pay an annual fee not to exceed
0.75% of its average daily net assets and not to exceed regulatory limitations
on asset-backed sales charges. These fees are paid out of the Portfolio's
assets on an ongoing basis. Over time, these fees will increase the cost of
your investment and may cost you more than paying other types of sales charges.
SHAREHOLDER SERVICING PLAN
The Portfolios have a shareholder servicing plan. Under this plan, each
Portfolio has agreements with various shareholder servicing agents to process
purchase and redemption requests, to service shareholder accounts, and to
provide other related services. For these services, each Portfolio pays an
annual fee of up to 0.25% of its average daily net assets. Each Portfolio may
waive a portion of this fee in order to ensure that the Portfolio does not
exceed regulatory limitations on service fees. Selling or shareholder servicing
agents, in turn, may pay some or all of these amounts to their employees or
registered representatives who recommend or sell Portfolio shares or make
investment decisions on behalf of their clients.
ADDITIONAL PAYMENTS TO DEALERS
In addition to dealer reallowances and payments made by each Portfolio for
distribution and shareholder servicing, the Portfolio's adviser, the
distributor or their affiliates make additional payments ("Additional
Payments") to certain selling or shareholder servicing agents for the
Portfolio, which include broker-dealers. These Additional Payments are made in
connection with the sale and distribution of shares of the Portfolio or for
services to the Portfolio and its shareholders. These Additional Payments,
which may be significant, are paid by the Portfolio's adviser, the distributor
or their affiliates, out of their revenues, which generally come directly or
indirectly from fees paid by the entire Fund complex.
In return for these Additional Payments, the Portfolio's adviser and distributor expect to receive certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments. Such advantages are expected to include, without limitation, placement of the Portfolio on a list of mutual funds offered as investment options to the selling agent's clients (sometimes referred to as "Shelf Space"); access to the selling agent's registered representatives; and/or ability to assist in training and educating the selling agent's registered representatives.
Certain selling or shareholder servicing agents receive these Additional Payments to supplement amounts payable by the Portfolio under the shareholder servicing plans. In exchange, these agents provide services including, but not limited to, establishing and maintaining accounts and records; answering inquiries regarding purchases, exchanges and redemptions; processing and verifying purchase, redemption and exchange transactions; furnishing account statements and confirmations of transactions; processing and mailing monthly statements, prospectuses, shareholder reports and other SEC-required communications; and providing the types of services that might typically be provided by each Portfolio's transfer agent (E.G., the maintenance of omnibus or omnibus-like accounts, the use of the National Securities Clearing Corporation for the transmission of transaction information and the transmission of shareholder mailings).
The Additional Payments may create potential conflicts of interests between an investor and a selling agent who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial consultant and review carefully any disclosure by the selling agent as to what monies they receive from mutual fund advisers and distributors, as well as how your financial consultant is compensated.
The Additional Payments are typically paid in fixed dollar amounts, or based on the number of customer accounts maintained by the selling or shareholder servicing agent, or based on a percentage of sales and/or assets under management, or a combination of the above. The Additional Payments are either up-front or ongoing or both. The Additional Payments differ among selling and shareholder servicing agents. Additional Payments to a selling agent that is compensated based on its customers' assets typically range between 0.05% and 0.30% in a given year of assets invested in the Portfolio by the selling agent's customers. Additional Payments to a selling agent that is compensated based on a percentage of sales typically range between 0.10% and 0.15% of the gross sales of the Portfolio attributable to the selling agent. In addition, representatives of the Portfolio's distributor visit selling agents on a regular basis to educate their registered representatives and to encourage the sale of Portfolio shares. The costs associated with such visits may be paid for by the Portfolio's adviser, distributor, or their affiliates, subject to applicable FINRA regulations.
More information on the FINRA member firms that have received the Additional Payments described in this section is available in the Statement of Additional Information, which is on file with the SEC and is also available on the WELLS FARGO ADVANTAGE FUNDS website at www.wellsfargo.com/advantagefunds.
COMPENSATION TO DEALERS AND SHAREHOLDER SERVICING AGENTS 39
The share price (net asset value per share or NAV) for a Portfolio is calculated each business day as of the close of trading on the New York Stock Exchange (NYSE) (generally 4 p.m. ET). To calculate a Portfolio's NAV, the Portfolio's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The price at which a purchase or redemption of Portfolio shares is effected is based on the next calculation of NAV after the order is placed. The Portfolio does not calculate its NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
With respect to any portion of a Portfolio's assets that may be invested in other mutual funds, the Portfolio's NAV is calculated based upon the net asset values of the other mutual funds in which the Portfolio invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
With respect to any portion of a Portfolio's assets invested directly in securities, the Portfolio's investments are generally valued at current market prices. Securities are generally valued based on the last sale price during the regular trading session if the security trades on an exchange (closing price). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price (NOCP), and if no NOCP is available, then at the last reported sales price.
We are required to depart from these general valuation methods and use fair value pricing methods to determine the values of certain investments if we believe that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Portfolio calculates its NAV. In addition, we use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before a Portfolio calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security.
In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate or that it reflects the price that the Portfolio could obtain for such security if it were to sell the security as of the time of fair value pricing. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. See the Statement of Additional Information for additional details regarding the pricing of Portfolio shares.
40 PRICING PORTFOLIO SHARES
You can open a WELLS FARGO ADVANTAGE FUNDS account through any of the following
means:
o directly with the Portfolio. Complete a WELLS FARGO ADVANTAGE FUNDS
application, which you may obtain by visiting our Web site at
www.wellsfargo.com/advantagefunds or by calling Investor Services at
1-800-222-8222. Be sure to indicate the Portfolio name when completing the
application;
o through a brokerage account with an approved selling agent; or
o through certain retirement, benefit and pension plans or certain packaged
investment products. (Please contact the providers of the plan or product
for instructions.)
REDUCTIONS AND WAIVERS OF SALES CHARGES
If you choose to buy Portfolio shares, you will pay the public offering price
(POP) which is the net asset value (NAV) plus the applicable sales charge.
Since sales charges are reduced for Portfolio share purchases above certain
dollar amounts, known as "breakpoint levels," the POP is lower for these
purchases. The dollar amount of the sales charge is the difference between the
POP of the shares purchased (based on the applicable sales charge in the table
below) and the NAV of those shares. Because of rounding in the calculation of
the POP, the actual sales charge you pay may be more or less than that
calculated using the percentages shown below.
SALES CHARGE SCHEDULE
FRONT-END SALES CHARGE FRONT-END SALES CHARGE
AS A % OF AS A % OF
AMOUNT OF PURCHASE PUBLIC OFFERING PRICE NET AMOUNT INVESTED
Less than $250,000 1.50% 1.52%
$250,000 to $499,999 1.25% 1.27%
$500,000 to $999,999 1.00% 1.01%
$1,000,000 and over/1/ 0.00% 0.00%
|
1 We will assess a 1.00% CDSC on share purchases of $1,000,000 or more if they are redeemed within one year from the date of purchase, unless the dealer of record waived its commission with a Portfolio's approval. Certain exceptions may apply. The CDSC percentage you pay is applied to the NAV of the shares on the date of original purchase.
WHEN REDUCTIONS AND WAIVERS APPLY
You can pay a lower or no sales charge for the following types of purchases. If
you believe you are eligible for any of the following reductions or waivers, it
is up to you to ask the selling agent for the reduction or waiver and to
provide appropriate proof of eligibility.
o You pay no sales charge on Portfolio shares you buy with reinvested
distributions.
o You pay a lower sales charge if you are investing an amount over a
breakpoint level according to the above schedule.
o You pay no sales charges on Portfolio shares you purchase with the proceeds
of a redemption from a Portfolio or with the proceeds of a redemption of
Class A, Class B or Class C shares of another Wells Fargo Advantage Fund
within 120 days of the date of the redemption.
o You also may buy Portfolio shares at NAV if they are to be included in
certain retirement, benefit, or pension plans with whom the Portfolios'
distributor has reached an agreement, or through an omnibus account
maintained with a Portfolio by a broker/dealer.
o By signing a LETTER OF INTENT (LOI) prior to purchase, you pay a lower sales
charge now in exchange for promising to invest an amount over a specified
breakpoint within the next 13 months. Reinvested dividends and capital
gains do not count as purchases made during this period. We will hold in
escrow shares equal to approximately 5% of the amount you intend to buy. If
you do not invest the amount specified in the LOI before the expiration
date, we will redeem enough escrowed shares to pay the difference between
the reduced sales load you paid and the sales load you should have paid.
Otherwise, we will release the escrowed shares when you have invested the
agreed amount.
o RIGHTS OF ACCUMULATION (ROA) allow you to combine Class A, Class B, Class C
and WealthBuilder Portfolio shares of any Wells Fargo Advantage Fund
already owned (excluding Wells Fargo Advantage money market fund shares,
unless you notify us that you previously paid a sales load on these assets)
in order to reach breakpoint levels and to qualify for sales load discounts
on subsequent purchases of Class A or WealthBuilder Portfolio shares. The
purchase amount used in determining the sales charge on your purchase will
be calculated by multiplying the maximum public offering price by the
number of Class A, Class B, Class C and WealthBuilder Portfolio shares of
any Wells Fargo Advantage Fund already owned and adding the dollar amount
of your current purchase.
HOW TO OPEN AN ACCOUNT 41
o You, or your fiduciary or trustee, also may tell us to apply volume discounts, including the reductions offered for rights of accumulation and letters of intent.
HOW A LETTER OF INTENT CAN SAVE YOU MONEY!
If you plan to invest, for example, $500,000 in a Wells Fargo Advantage WealthBuilder Portfolio in installments over the next year, by signing a letter of intent you would pay only 1.00% sales load on the entire purchase. Otherwise, you might pay 1.50% on the first $249,999, then 1.25% on the next $250,000!
42 HOW TO OPEN AN ACCOUNT
ACCOUNTS THAT CAN BE AGGREGATED
You may aggregate the following types of accounts indicated below to qualify
for a volume discount:
CAN THIS TYPE OF ACCOUNT BE AGGREGATED? YES NO Individual accounts X Joint accounts X UGMA/UTMA accounts X Trust accounts over which X the shareholder has individual or shared authority Solely owned business X accounts RETIREMENT PLANS Traditional and Roth IRAs X SEP IRAs X SIMPLE IRAs that do not use X the WELLS FARGO ADVANTAGE FUNDS prototype agreement 403(b) Plan accounts X 401(k) Plan accounts X OTHER ACCOUNTS 529 Plan accounts* X Accounts held through other X brokerage firms |
* These accounts may be aggregated at the plan level for purposes of
establishing eligibility for volume discounts. When plan assets in Fund
Class A, Class B, Class C and WealthBuilder Portfolio shares (excluding
Wells Fargo Advantage money market fund shares) reach a breakpoint, all plan
participants benefit from the reduced sales charge. Participant accounts
will not be aggregated with personal accounts.
WAIVERS FOR CERTAIN PARTIES
We reserve the right to enter into agreements that reduce or eliminate sales
charges for groups or classes of shareholders. If you own Portfolio shares as
part of another account or package such as an IRA or a sweep account, you
should read the terms and conditions for that account. Those terms and
conditions may supersede the terms and conditions discussed here. The following
individuals can buy Portfolio shares at NAV:
Current and retired employees, directors/trustees and officers of:
o WELLS FARGO ADVANTAGE FUNDS (including any predecessor funds);
o Wells Fargo & Company and its affiliates; and
o family members (spouse, domestic partner, parents, grandparents,
children, grandchildren and siblings (including step and in-law)) of any
of the above.
Current employees of:
o the Portfolios' transfer agent;
o broker/dealers who act as selling agents;
o family members (spouse, domestic partner, parents, grandparents,
children, grandchildren and siblings (including step and in-law)) of any
of the above; and
o each Portfolios' sub-adviser, but only for the Portfolio(s) in which such
sub-adviser provides investment advisory services.
HOW TO OPEN AN ACCOUNT 43
This section explains how you can buy shares directly from WELLS FARGO ADVANTAGE FUNDS. If you're opening a new account, an account application is available on-line at www.wellsfargo.com/advantagefunds or by calling Investor Services at 1-800-222-8222. For Portfolio shares held through brokerage and other types of accounts, please consult your selling agent.
MINIMUM INVESTMENTS INITIAL PURCHASE SUBSEQUENT PURCHASES
-------------------------- -------------------------------------------------- -------------------------------------
Regular accounts $1,000 $100
IRAs, IRA rollovers, Roth $250 $100
IRAs
UGMA/UTMA accounts $1,000 $50
Employer Sponsored no minimum no minimum
Retirement Plans
BUYING SHARES OPENING AN ACCOUNT ADDING TO AN ACCOUNT
-------------------------- -------------------------------------------------- -------------------------------------
By Internet A new account may not be opened by o To buy additional shares or buy
--------------------------
Internet unless you have another Wells Fargo shares of a new Portfolio, visit
Advantage Fund account with your bank www.wellsfargo.com/
information on file. If you do not currently advantagefunds.
have an account, refer to the section on o Subsequent online purchases
buying shares by mail or wire. have a minimum of $100 and a
--------------------------------------------------
maximum of $100,000. You may
be eligible for an exception to
this maximum. Please call
Investor Services at
1-800-222-8222 for more
information.
-----
By Mail o Complete and sign your account o Enclose a voided check (for
--------------------------
application. checking accounts) or a deposit
o Mail the application with your check made slip (savings accounts).
payable to the Portfolio to Investor Alternatively, include a note
Services at: with your name, the Portfolio
name, and your account
REGULAR MAIL
--------------------------------------------------
number.
WELLS FARGO ADVANTAGE FUNDS
o Mail the deposit slip or note
P.O. Box 8266
with your check made payable
Boston, MA 02266-8266
to the Portfolio to the address
OVERNIGHT ONLY on the left.
-------------------------------------------------- -------------------------------------
WELLS FARGO ADVANTAGE FUNDS
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
--------------------------------------------------
By Telephone A new account may not be opened by To buy additional shares or to buy
--------------------------
telephone unless you have another Wells shares of a new Portfolio call:
Fargo Advantage Fund account with your o Investor Services at
bank information on file. If you do not 1-800-222-8222 or
currently have an account, refer to the section o 1-800-368-7550 for the
on buying shares by mail or wire. automated phone system.
-------------------------------------------------- -------------------------------------
|
44 HOW TO BUY SHARES
BUYING SHARES
-------------------------- ---------------------------------------------------------------------------------------
OPENING AN ACCOUNT ADDING TO AN ACCOUNT
----------------------------------------------- ---------------------------------------
In Person Investors are welcome to visit the Investor See instructions shown to the left.
-------------------------- --------------------------------------
Center in person to ask questions or conduct
any Portfolio transaction. The Investor Center
is located at 100 Heritage Reserve,
Menomonee Falls, Wisconsin 53051.
-----------------------------------------------
By Wire o Complete, sign and mail your account To buy additional shares, instruct
--------------------------
application (refer to the section on buying your bank or financial institution to
shares by mail) use the same wire instructions
o Provide the following instructions to your shown to the left.
--------------------------------------
financial institution:
State Street Bank & Trust
Boston, MA
Bank Routing Number: ABA 011000028
Wire Purchase Account: 9905-437-1
Attention: WELLS FARGO ADVANTAGE FUNDS
(Name of Portfolio, Account
Number)
Account Name: Provide your
name as registered on the
Portfolio account
-----------------------------------------------
Through Your Investment Contact your investment representative. Contact your investment
Representative representative.
-------------------------- ----------------------------------------------- --------------------------------------
|
GENERAL NOTES FOR BUYING SHARES
o PROPER FORM. If the transfer agent receives your application in proper
order before the close of the NYSE, your transactions will be priced at
that day's NAV. If your application is received after the close of trading
on the NYSE, it will be priced at the next business day's NAV. Failure to
complete an account application properly may result in a delay in
processing your request. You are eligible to earn distributions beginning
on the business day after the transfer agent receives your application in
proper form.
o U.S. DOLLARS ONLY. All payments must be in U.S. dollars, and all checks
must be drawn on U.S. banks.
o INSUFFICIENT FUNDS. You will be charged a $25.00 fee for every check or
Electronic Funds Transfer that is returned to us as unpaid.
o NO PORTFOLIO NAMED. When all or a portion of a payment is received for
investment without a clear Portfolio designation, we may direct the
undesignated portion or the entire amount, as applicable, into the Wells
Fargo Advantage Money Market Fund. We will treat your inaction as approval
of this purchase until you later direct us to sell or exchange these
shares of the Money Market Fund, at the next NAV calculated after we
receive your order in proper form.
o RIGHT TO REFUSE AN ORDER. We reserve the right to refuse or cancel a
purchase or exchange order for any reason, including if we believe that
doing so would be in the best interests of a Portfolio and its
shareholders.
o MINIMUM INITIAL AND SUBSEQUENT INVESTMENT WAIVERS. If you opened your
account with the set minimum amount shown in the above chart, you may make
reduced subsequent purchases for a minimum of $50 a month through an
automatic investment plan. We may also waive or reduce the minimum initial
and subsequent investment amounts for purchases made through certain
retirement, benefit and pension plans, certain packaged investment
products, or for certain classes of shareholders as permitted by the SEC.
Check specific disclosure statements and applications for the program
through which you intend to invest.
HOW TO BUY SHARES 45
The following section explains how you can sell shares held directly through an account with WELLS FARGO ADVANTAGE FUNDS. For Portfolio shares held through brokerage or other types of accounts, please consult your selling agent.
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
-------------------- ----------------------------------------------------------------------
Minimum Redemption $100 (or remainder of account balance)
-------------------- ----------------------------------------------------------------------
By Internet Visit our Web site at www.wellsfargo.com/advantagefunds.
--------------------
Redemptions requested online are limited to a minimum of $100
and a maximum of $100,000. You may be eligible for an exception
to this maximum. Please call Investor Services at 1-800-222-8222
for more information.
----------------------------------------------------------------------
By Mail o Send a Letter of Instruction providing your name, account
number, the Portfolio from which you wish to redeem and the
dollar amount you wish to receive (or write "Full Redemption"
to redeem your remaining account balance) to the address
below.
o Make sure all account owners sign the request exactly as their
names appear on the account application.
o A medallion guarantee may be required under certain
circumstances (see "General Notes for Selling Shares").
REGULAR MAIL
-------------------- ----------------------------------------------------------------------
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
OVERNIGHT ONLY
----------------------------------------------------------------------
WELLS FARGO ADVANTAGE FUNDS
c/o Boston Financial Data Services
30 Dan Road
Canton, MA 02021-2809
----------------------------------------------------------------------
By Wire o To arrange for a Federal Funds wire, call 1-800-222-8222.
--------------------
o Be prepared to provide information on the commercial bank
that is a member of the Federal Reserve wire system.
o Wire requests are sent to your bank account next business day
if your request to redeem is received before the NYSE close.
o There is a $10 fee for each request.
----------------------------------------------------------------------
In Person Investors are welcome to visit the Investor Center in person to ask
--------------------
questions or conduct any Portfolio transaction. The Investor
Center is located at 100 Heritage Reserve, Menomonee Falls,
Wisconsin 53051.
----------------------------------------------------------------------
|
46 HOW TO SELL SHARES
SELLING SHARES TO SELL SOME OR ALL OF YOUR SHARES
--------------------------- ------------------------------------------------------------------
By Telephone / o Call an Investor Services representative at 1-800-222-8222 or
Electronic Funds Transfer use the automated phone system 1-800-368-7550.
---------------------------
(EFT)
---------------------------
o Telephone privileges are automatically made available to you
unless you specifically decline them on your account
application or subsequently in writing.
o Redemption requests may not be made by phone if the
address on your account was changed in the last 15 days. In
this event, you must request your redemption by mail (refer to
the section on selling shares by mail).
o A check will be mailed to the address on record (if there have
been no changes communicated to us within the last 15 days)
or transferred to a linked bank account.
o Transfers made to a Wells Fargo Bank account are made
available sooner than transfers to an unaffiliated institution.
o Redemptions processed by EFT to a linked Wells Fargo Bank
account occur same day for Wells Fargo Advantage money
market funds, and next day for all other WELLS FARGO ADVANTAGE
FUNDS.
o Redemptions to any other linked bank account may post in
two business days. Please check with your financial institution
for timing of posting and availability of funds.
NOTE: Telephone transactions such as redemption requests
made over the phone generally require only one of the
account owners to call unless you have instructed us
otherwise.
-----------------------------------------------------------------
Through Your Investment Contact your investment representative.
Representative
--------------------------- -----------------------------------------------------------------
|
GENERAL NOTES FOR SELLING SHARES
o PROPER FORM. We will process requests to sell shares at the first NAV
calculated after a request in proper form is received by the transfer
agent. If your request is not in proper form, you may have to provide us
with additional documentation to redeem your shares. Requests received
before the cutoff time are processed on the same business day.
o CDSC FEES. Your redemption proceeds are net of any applicable CDSC fees.
o FORM OF REDEMPTION PROCEEDS. You may request that your redemption
proceeds be sent to you by check, by Electronic Funds Transfer into a bank
account, or by wire. Please call Investor Services regarding requirements
for linking bank accounts or for wiring funds. Although generally we pay
redemption requests in cash, we reserve the right to determine in our sole
discretion, whether to satisfy redemption requests by making payment in
securities (known as a redemption in kind). In such case, we may pay all
or part of the redemption in securities of equal value as permitted under
the 1940 Act, and the rules thereunder. The redeeming shareholder should
expect to incur transaction costs upon the disposition of the securities
received.
o WIRE FEES. Typically, there is a $10 fee for wiring funds, however we
reserve the right to waive any such fee for shareholders with account
balances in excess of $100,000. Please contact your bank to find out about
any charges they may assess for an incoming wire transfer.
o TELEPHONE/INTERNET REDEMPTIONS. We will take reasonable steps to confirm
that telephone and internet instructions are genuine. For example, we
require proof of your identification, such as a Taxpayer Identification
Number or username and password, before we will act on instructions
received by telephone or the internet. We will not be liable for any
losses incurred if we follow telephone or internet instructions we
reasonably believe to be genuine. Your call may be recorded.
HOW TO SELL SHARES 47
o RIGHT TO DELAY PAYMENT. We normally will send out checks within one
business day, and in any event no more than seven days, after we accept
your request to redeem. If you redeem shares recently purchased by check
or through EFT or the Automatic Investment Plan, you may be required to
wait up to seven business days before we will send your redemption
proceeds. Our ability to determine with reasonable certainty that
investments have been finally collected is greater for investments coming
from accounts with banks affiliated with Funds Management than it is for
investments coming from accounts with unaffiliated banks. Redemption
payments also may be delayed under extraordinary circumstances or as
permitted by the SEC in order to protect remaining shareholders. Such
extraordinary circumstances are discussed further in the Statement of
Additional Information.
o RETIREMENT PLANS AND OTHER PRODUCTS. If you purchased shares through a
packaged investment product or retirement plan, read the directions for
selling shares provided by the product or plan. There may be special
requirements that supercede the directions in this Prospectus.
o MEDALLION GUARANTEES. Medallion guarantees are required for mailed
redemption requests under the following circumstances: (1) if the request
is for over $100,000; (2) if the address on your account was changed
within the last 15 days; or (3) if the redemption is made payable to a
third party. You can get a Medallion guarantee at a financial institution
such as a bank or brokerage house. We do not accept notarized signatures.
48 HOW TO SELL SHARES
Exchanges between WELLS FARGO ADVANTAGE FUNDS involve two transactions: (1) a
sale of shares of one Portfolio; and (2) the purchase of shares of another. In
general, the same rules and procedures that apply to sales and purchases apply
to exchanges. There are, however, additional factors you should keep in mind
while making or considering an exchange:
o In general, exchanges may be made between like share classes of any Wells
Fargo Advantage Fund offered to the general public for investment (I.E., a
Fund not closed to new accounts), with the following exceptions:
o You may exchange Portfolio shares for shares of any other Portfolio or
for the Wells Fargo Advantage Money Market Fund Class A shares.
o An exchange request will be processed on the same business day, provided that both Funds are open at the time the request is received. If one or both Funds are closed, the exchange will be processed on the following business day.
o You should carefully read the prospectus for the Wells Fargo Advantage Fund
into which you wish to exchange.
o Every exchange involves selling Fund shares, which may produce a capital
gain or loss for tax purposes.
o If you are making an initial investment into a Portfolio through an exchange, you must exchange at least the minimum initial purchase amount for the new Portfolio, unless your balance has fallen below that amount due to investment performance.
o Any exchange between two WELLS FARGO ADVANTAGE FUNDS must meet the minimum redemption and subsequent purchase amounts.
Generally, we will notify you at least 60 days in advance of any changes in our exchange policy.
FREQUENT PURCHASES AND REDEMPTIONS OF PORTFOLIO SHARES
The Portfolios reserve the right to reject any purchase or exchange order for any reason. The Portfolios are not designed to serve as vehicles for frequent trading. Purchases or exchanges that a Portfolio determines could harm the Portfolio may be rejected.
Excessive trading by Portfolio shareholders can negatively impact a Portfolio and its long-term shareholders in several ways, including disrupting Portfolio investment strategies, increasing transaction costs, decreasing tax efficiency, and diluting the value of shares held by long-term shareholders. Excessive trading in Portfolio shares can negatively impact a Portfolio's long-term performance by requiring it to maintain more assets in cash or to liquidate portfolio holdings at a disadvantageous time. Certain Portfolios may be more susceptible than others to these negative effects. For example, Portfolios that have a greater percentage of their investments in non-U.S. securities may be more susceptible than other Portfolios to arbitrage opportunities resulting from pricing variations due to time zone differences across international financial markets. Similarly, Portfolios that have a greater percentage of their investments in small company securities may be more susceptible than other Portfolios to arbitrage opportunities due to the less liquid nature of small company securities. Both types of Portfolios also may incur higher transaction costs in liquidating portfolio holdings to meet excessive redemption levels. Fair value pricing may reduce these arbitrage opportunities, thereby reducing some of the negative effects of excessive trading.
The Portfolios actively discourage and take steps to prevent the portfolio disruption and negative effects on long-term shareholders that can result from excessive trading activity by Portfolio shareholders. The Board has approved the Portfolios' policies and procedures, which provide, among other things, that Funds Management may deem trading activity to be excessive if it determines that such trading activity would likely be disruptive to a Portfolio by increasing expenses or lowering returns. In this regard, the Portfolios take steps to avoid accommodating frequent purchases and redemptions of shares by Portfolio shareholders. Funds Management monitors available shareholder trading information across all Portfolios on a daily basis. Funds Management will temporarily suspend the purchase and exchange privileges of an investor who completes a purchase and redemption in a Portfolio within 30 calendar days. Such investor will be precluded from investing in the Portfolio for a period of 30 calendar days.
In addition, Funds Management reserves the right to accept purchases, redemptions and exchanges made in excess of applicable trading restrictions in designated accounts held by Funds Management or its affiliate that are used at all times exclusively for addressing operational matters related to shareholder accounts, such as testing of account functions, and are maintained at low balances that do not exceed specified dollar amount limitations.
A financial intermediary through whom you may purchase shares of a Portfolio may independently attempt to identify excessive trading and take steps to deter such activity. As a result, a financial intermediary may on its own limit or permit trading activity of its customers who invest in Portfolio shares using standards different from the standards used by Funds Management and described in this Prospectus. Funds Management may permit a financial intermediary to enforce its own internal policies and procedures concerning frequent trading in instances where Funds Management reasonably believes that the intermediary's policies and procedures effectively discourage disruptive trading activity. If you purchase Portfolio shares through a financial intermediary, you should contact the intermediary for more information about the restrictions or limitations on trading activity that will be applied to your account.
Certain purchases and redemptions made under the following circumstances will not be factored into Funds Management's analysis of frequent trading activity including, but not limited to: reinvestment of dividends; retirement plan contributions,
HOW TO EXCHANGE SHARES 49
loans and distributions (including hardship withdrawals); non-discretionary portfolio rebalancing associated with certain wrap accounts and retirement plans; and transactions in Section 529 Plans and registered funds of funds.
Effective March 1, 2010, the Portfolios' short-term trading policy will be modified. Funds Management will continue to monitor available shareholder trading information across all Portfolios on a daily basis. If a shareholder redeems more than $5,000 (including redemptions that are part of an exchange transaction) from a Portfolio, that shareholder will be "blocked" from purchasing shares of that Portfolio (including purchases that are part of an exchange transaction) for 30 calendar days after the redemption. This modified policy will not apply to:
o Money market funds;
o Ultra-short funds;
o Purchases of shares through dividend reinvestments;
o Systematic purchases, redemptions or exchanges where a financial
intermediary maintaining a shareholder account identifies the transaction
as a systematic purchase, redemption or exchange at the time of the
transaction;
o Rebalancing transactions within certain asset allocation or "wrap" programs
where the financial intermediary maintaining a shareholder account is able
to identify the transaction as part of an asset allocation program approved
by Funds Management;
o Transactions initiated by a registered "fund of funds" or Section 529 Plan
into an underlying fund investment;
o Certain transactions involving participants in employer-sponsored retirement
plans, including: participant withdrawals due to mandatory distributions,
rollovers and hardships, withdrawals of shares acquired by participants
through payroll deductions, and shares purchased or redeemed by a
participant in connection with plan loans; and
o Purchases below $5,000 (including purchases that are part of an exchange
transaction).
50 HOW TO EXCHANGE SHARES
AUTOMATIC PLANS
These plans help you conveniently purchase and/or redeem shares each month.
Once you select a plan, tell us the day of the month you would like the
transaction to occur. If you do not specify a date, we will process the
transaction on or about the 25th day of the month. Call Investor Services at
1-800-222-8222 for more information.
o AUTOMATIC INVESTMENT PLAN - With this plan, you can regularly purchase
shares of a Wells Fargo Advantage Fund with money automatically transferred
from a linked bank account.
o AUTOMATIC EXCHANGE PLAN - With this plan, you can regularly exchange shares
of a Wells Fargo Advantage Fund you own for shares of another Wells Fargo
Advantage Fund. See the "How to Exchange Shares" section of this Prospectus
for the conditions that apply to your shares. This feature may not be
available for certain types of accounts.
o SYSTEMATIC WITHDRAWAL PLAN - With this plan, you can regularly redeem shares
and receive the proceeds by check or by transfer to a linked bank account.
To participate in this plan, you:
o must have a Portfolio account valued at $10,000 or more;
o must have your distributions reinvested; and
o may not simultaneously participate in the Automatic Investment Plan.
o PAYROLL DIRECT DEPOSIT - With this plan, you may transfer all or a portion of your paycheck, social security check, military allotment, or annuity payment for investment into the Portfolio of your choice.
It generally takes about ten business days to establish a plan once we have received your instructions. It generally takes about five business days to change or cancel participation in a plan. We may automatically cancel your plan if the linked bank account you specified is closed, or for other reasons.
HOUSEHOLDING
To help keep Portfolio expenses low, a single copy of a prospectus or
shareholder report may be sent to shareholders of the same household. If your
household currently receives a single copy of a prospectus or shareholder
report and you would prefer to receive multiple copies, please contact your
financial intermediary.
RETIREMENT ACCOUNTS
We offer prototype documents for a variety of retirement accounts for individuals and small businesses. Please call 1-800-222-8222 for information on:
o Individual Retirement Plans, including Traditional IRAs and Roth IRAs.
o Small Business Retirement Plans, including Simple IRAs and SEP IRAs.
There may be special distribution requirements for a retirement account, such as required distributions or mandatory Federal income tax withholdings. For more information, call the number listed above. You may be charged a $10 annual account maintenance fee for each retirement account up to a maximum of $30 annually and a $25 fee for transferring assets to another custodian or for closing a retirement account. Fees charged by institutions may vary.
SMALL ACCOUNT REDEMPTIONS
We reserve the right to redeem certain accounts that fall below the minimum
initial investment amount as the result of shareholder redemptions (as opposed
to market movement). Before doing so, we will give you approximately 60 days to
bring your account above the minimum investment amount. Please call Investor
Services at 1-800-222-8222 or contact your selling agent for further details.
STATEMENTS AND CONFIRMATIONS
Statements summarizing activity in your account are mailed quarterly.
Confirmations are mailed following each purchase, sale, exchange, or transfer
of Portfolio shares, except generally for Automatic Investment Plan
transactions, Systematic Withdrawal Plan transactions using Electronic Funds
Transfer, and purchases of new shares through the automatic reinvestment of
distributions. Upon your request and for the applicable fee, you may obtain a
reprint of an account statement. Please call Investor Services at
1-800-222-8222 for more information.
ELECTRONIC DELIVERY OF PORTFOLIO DOCUMENTS
You may elect to receive your Portfolio prospectuses, shareholder reports and other Portfolio documents electronically in lieu of paper form by enrolling on the Portfolios' Web site at www.wellsfargo.com/advantagedelivery. If you make this election, you will be notified by e-mail when the most recent Portfolio documents are available for electronic viewing and downloading.
To receive Portfolio documents electronically, you must have an e-mail account and an internet browser that meets the requirements described in the Privacy & Security section of the Portfolios' Web site at www.wellsfargo.com/advantagefunds.
ACCOUNT POLICIES 51
You may change your electronic delivery preferences or revoke your election to receive Portfolio documents electronically at any time by visiting www.wellsfargo.com/advantagedelivery.
STATEMENT INQUIRIES
Contact us in writing regarding any errors or discrepancies noted on your
account statement within 60 days after the date of the statement confirming a
transaction. We may deny your ability to refute a transaction if we do not hear
from you within those 60 days.
TRANSACTION AUTHORIZATIONS
Telephone, electronic, and clearing agency privileges allow us to accept
transaction instructions by anyone representing themselves as the shareholder
and who provides reasonable confirmation of their identity. Neither we nor
WELLS FARGO ADVANTAGE FUNDS will be liable for any losses incurred if we follow
such instructions we reasonably believe to be genuine. For transactions through
the automated phone system and our Web site, we will assign personal
identification numbers (PINs) and/or passwords to help protect your account
information. To safeguard your account, please keep your PINs and passwords
confidential. Contact us immediately if you believe there is a discrepancy on
your confirmation statement or if you believe someone has obtained unauthorized
access to your account, PIN or password.
USA PATRIOT ACT
In compliance with the USA PATRIOT Act, all financial institutions (including
mutual funds) at the time an account is opened, are required to obtain, verify
and record the following information for all registered owners or others who
may be authorized to act on the account: full name, date of birth, taxpayer
identification number (usually your Social Security Number), and permanent
street address. Corporate, trust and other entity accounts require additional
documentation. This information will be used to verify your identity. We will
return your application if any of this information is missing, and we may
request additional information from you for verification purposes. In the rare
event that we are unable to verify your identity, we reserve the right to
redeem your account at the current day's NAV. You will be responsible for any
losses, taxes, expenses, fees, or other results of such a redemption.
52 ACCOUNT POLICIES
The Portfolios, except the Conservative Allocation Portfolio and Moderate Balanced Portfolio, generally make distributions of any net investment income and any realized net capital gains annually. The Conservative Allocation Portfolio and Moderate Balanced Portfolio generally make distributions of any net investment income monthly and quarterly, respectively. Each Portfolio generally makes distributions of any realized net capital gains at least annually. Please note, distributions have the effect of reducing the NAV per share by the amount distributed. Please note, distributions have the effect of reducing the NAV per share by the amount distributed.
We offer the following distribution options. To change your current option for payment of distributions, please call 1-800-222-8222.
o AUTOMATIC REINVESTMENT OPTION - Allows you to buy new shares of the Portfolio that generated the distributions. The new shares are purchased at NAV generally on the day the distribution is paid. This option is automatically assigned to your account unless you specify another option.
o CHECK PAYMENT OPTION - Allows you to have checks for distributions mailed to your address of record or to another name and address which you have specified in written, medallion guaranteed instructions. If checks remain uncashed for six months or are undeliverable by the Post Office, we will reinvest the distributions at the earliest date possible, and future distributions will be automatically reinvested.
o BANK ACCOUNT PAYMENT OPTION - Allows you to receive distributions directly in a checking or savings account through Electronic Funds Transfer. The bank account must be linked to your Wells Fargo Advantage Fund account. In order to establish a new linked bank account, you must send a written, medallion guaranteed instruction along with a copy of a voided check or deposit slip. Any distribution returned to us due to an invalid banking instruction will be sent to your address of record by check at the earliest date possible, and future distributions will be automatically reinvested.
o DIRECTED DISTRIBUTION PURCHASE OPTION - Allows you to buy shares of a different Wells Fargo Advantage Fund of the same share class. The new shares are purchased at NAV generally on the day the distribution is paid. In order to establish this option, you need to identify the Portfolio and account the distributions are coming from, and the Portfolio and account to which the distributions are being directed. You must meet any required minimum purchases in both Portfolios prior to establishing this option.
DISTRIBUTIONS 53
The following discussion regarding federal income taxes is based on laws that
were in effect as of the date of this Prospectus and summarizes only some of
the important federal income tax considerations affecting the Portfolios and
you as a shareholder. It does not apply to foreign or tax-exempt shareholders
or those holding Portfolio shares through a tax-advantaged account, such as a
401(k) Plan or IRA. This discussion is not intended as a substitute for careful
tax planning. You should consult your tax adviser about your specific tax
situation. Please see the Statement of Additional Information for additional
federal income tax information.
We will pass on to a Portfolio's shareholders substantially all of the Portfolio's net investment income and realized net capital gains, if any. Distributions from a Portfolio's ordinary income and net short-term capital gain, if any, generally will be taxable to you as ordinary income. Distributions from a Portfolio's net long-term capital gain, if any, generally will be taxable to you as long-term capital gain.
Corporate shareholders should not expect to deduct a portion of their distributions when determining their taxable income.
An individual's net long-term capital gain is subject to a reduced, maximum 15% rate of tax. Also, if you are an individual Portfolio shareholder, the portion of your distributions attributable to dividends received by a Portfolio from its investments in certain U.S. and foreign corporations generally will be taxed at a maximum 15% rate of tax, as long as certain holding period requirements are met. These reduced rates of tax will expire after December 31, 2010. In general, reduced rates of taxation on qualified dividend income will not apply to Portfolio distributions.
Distributions from a Portfolio normally will be taxable to you when paid, whether you take distributions in cash or automatically reinvest them in additional Portfolio shares. Following the end of each year, we will notify you of the federal income tax status of your distributions for the year.
If you buy shares of a Portfolio shortly before it makes a taxable distribution, your distribution will, in effect, be a taxable return of part of your investment. Similarly, if you buy shares of a Portfolio when it holds appreciated securities, you will receive a taxable return of part of your investment if and when the Portfolio sells the appreciated securities and distributes the gain. The Portfolios have built up, or have the potential to build up, high levels of unrealized appreciation.
Your redemptions (including redemptions in-kind) and exchanges of Portfolio shares ordinarily will result in a taxable capital gain or loss, depending on the amount you receive for your shares (or are deemed to receive in the case of exchanges) and the amount you paid (or are deemed to have paid) for them. Such capital gain or loss generally will be long-term capital gain or loss if you have held your redeemed or exchanged Portfolio shares for more than one year at the time of redemption or exchange. In certain circumstances, losses realized on the redemption or exchange of Portfolio shares may be disallowed.
In certain circumstances, Portfolio shareholders may be subject to backup withholding taxes.
54 TAXES
The following tables are intended to help you understand each Portfolio's financial performance for the past 5 years. Certain information reflects financial results for a single Portfolio share. Total returns represent the rate you would have earned (or lost) on an investment in each Portfolio (assuming reinvestment of all distributions). The information, along with the report of an independent registered public accounting firm and each Portfolio's financial statements, is also contained in each Portfolio's annual report, a copy of which is available upon request.
CONSERVATIVE ALLOCATION PORTFOLIO
COMMENCED ON SEPTEMBER 30, 2004
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/
NET ASSET VALUE, BEGINNING
OF PERIOD $10.64 $10.84 $10.31 $10.21 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss) 0.31 0.33 0.27 0.21 0.07
Net realized and
unrealized gain (loss)
on investments (1.23) (0.01) 0.60 0.11 0.20
-------- -------- -------- -------- --------
Total from investment
operations (0.92) 0.32 0.87 0.32 0.27
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.32) (0.32) (0.28) (0.21) (0.06)
Distributions from net
realized gain (0.02) (0.20) (0.06) (0.01) 0.00
Distributions in excess of
net investment income 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total distributions (0.34) (0.52) (0.34) (0.22) (0.06)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $9.38 $10.64 $10.84 $10.31 $10.21
======== ======== ======== ======== ========
TOTAL RETURN/2/ (8.47)% 3.04% 8.58% 3.29% 2.71%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $206,683 $134,804 $70,051 $40,290 $15,162
Ratio of net investment
income (loss) to
average net assets/3/ 3.43% 3.06% 2.67% 2.30% 1.64%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses/3,4/ 1.56% 1.59% 1.60% 1.62% 2.79%
Waived fees and
reimbursed expenses/3,4/ (0.06)% (0.09)% (0.10)% (0.12)% (1.29)%
Ratio of expenses to
average net assets/3,4/ 1.50% 1.50% 1.50% 1.50% 1.50%
Portfolio turnover rate/5/ 153% 135% 190% 163% 9%
|
1 For the period from September 30, 2004 (commencement of operations) to May
31, 2005.
2 Total return calculations do not include any sales charges, and would have
been lower had certain expenses not been waived or reimbursed during the
periods shown. Returns for periods less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 These ratios do not include expenses from the Underlying Funds.
5 Portfolio Turnover rates presented for periods of less than one year are not
annualized.
FINANCIAL HIGHLIGHTS 55
MODERATE BALANCED PORTFOLIO
COMMENCED ON SEPTEMBER 30, 2004
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/
NET ASSET VALUE, BEGINNING
OF PERIOD $11.35 $12.00 $10.95 $10.42 $10.00
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss) 0.24 0.29 0.21 0.14 0.04
Net realized and
unrealized gain (loss)
on investments (2.32) (0.30) 1.15 0.54 0.40
-------- -------- -------- -------- --------
Total from investment
operations (2.08) (0.01) 1.36 0.68 0.44
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.26) (0.29) (0.20) (0.13) (0.02)
Distributions from net
realized gain 0.00/2/ (0.35) (0.11) (0.02) 0.00
Distributions in excess of
net investment income 0.00 0.00 0.00 0.00 0.00
--------- -------- -------- -------- --------
Total distributions (0.26) (0.64) (0.31) (0.15) (0.02)
--------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $9.01 $11.35 $12.00 $10.95 $10.42
========= ======== ======== ======== ========
TOTAL RETURN/3/ (18.25)% (0.14)% 12.66% 6.62% 4.41%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $249,607 $245,104 $145,930 $69,826 $19,919
Ratio of net investment
income (loss) to
average net assets/4/ 2.76% 2.61% 2.00% 1.60% 0.85%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses/4,5/ 1.57% 1.57% 1.56% 1.60% 2.48%
Waived fees and
reimbursed expenses/4,5/ (0.07)% (0.07)% (0.06)% (0.10)% (0.98)%
Ratio of expenses to
average net assets/4,5/ 1.50% 1.50% 1.50% 1.50% 1.50%
Portfolio turnover rate/6/ 134% 109% 149% 152% 16%
|
1 For the period from September 30, 2004 (commencement of operations) to May
31, 2005.
2 Amount calculated is less than $0.005.
3 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods less than one year are not annualized.
4 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
5 These ratios do not include expenses from the Underlying Funds.
6 Portfolio Turnover rates presented for periods of less than one year are not
annualized.
56 FINANCIAL HIGHLIGHTS
GROWTH BALANCED PORTFOLIO
COMMENCED ON OCTOBER 1, 1997
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF PERIOD $12.27 $13.85 $12.45 $11.76 $11.15
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss) 0.17 0.27 0.14 0.15 0.10
Net realized and
unrealized gain (loss)
on investments (3.86) (0.79) 1.99 1.12 0.61
-------- -------- -------- -------- --------
Total from investment
operations (3.69) (0.52) 2.13 1.27 0.71
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.20) (0.25) (0.13) (0.14) (0.10)
Distributions from net
realized gain (0.08) (0.81) (0.60) (0.44) 0.00
Distributions in excess of
net investment income 0.00 0.00 0.00 0.00 0.00
-------- -------- -------- -------- --------
Total distributions (0.28) (1.06) (0.73) (0.58) (0.10)
-------- -------- -------- -------- --------
NET ASSET VALUE, END OF
PERIOD $8.30 $12.27 $13.85 $12.45 $11.76
======== ======== ======== ======== ========
TOTAL RETURN/1/ (29.76)% (4.00)% 17.58% 10.88% 6.37%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $447,000 $693,612 $620,020 $449,306 $355,582
Ratio of net investment
income (loss) to
average net assets/2/ 1.95% 2.07% 1.18% 1.13% 0.90%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses/2,3/ 1.56% 1.57% 1.53% 1.53% 1.45%
Waived fees and
reimbursed expenses/2,3/ (0.06)% (0.07)% (0.03)% (0.03)% (0.04)%
Ratio of expenses to
average net assets/2,3/ 1.50% 1.50% 1.50% 1.50% 1.41%
Portfolio turnover rate/4/ 142% 104% 143% 139% 98%
|
1 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods less than one year are not annualized.
2 During the period, various fees and expenses were waived and reimbursed as indicated. The ratio of Gross Expenses to Average Net Assets reflects the expense ratio in the absence of any waivers and reimbursements. 3 These ratios do not include expenses of any Underlying Fund.
4 Portfolio Turnover rates presented for periods of less than one year are not annualized.
FINANCIAL HIGHLIGHTS 57
GROWTH ALLOCATION PORTFOLIO
COMMENCED ON SEPTEMBER 30, 2004
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005/1/
NET ASSET VALUE, BEGINNING
OF PERIOD $12.47 $13.99 $11.93 $10.70 $10.00
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) 0.12 0.20 0.08 0.02 0.00
Net realized and
unrealized gain (loss)
on investments (4.41) (0.99) 2.23 1.30 0.73
-------- ------------- -------- -------- --------
Total from investment
operations (4.29) (0.79) 2.31 1.32 0.73
-------- ------------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.12) (0.19) (0.07) (0.03) (0.03)
Distributions from net
realized gain (0.08) (0.54) (0.18) (0.06) 0.00
Distributions in excess of
net investment income 0.00 0.00 0.00 0.00 0.00
-------- ------------- ----------- -------- --------
Total distributions (0.20) (0.73) (0.25) (0.09) (0.03)
-------- ------------- ----------- -------- --------
NET ASSET VALUE, END OF
PERIOD $7.98 $12.47 $13.99 $11.93 $10.70
============= =========== ======== ========
TOTAL RETURN/2/ (34.13)% (5.84)% 19.51% 12.27% 7.25%
========
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $147,691 $207,241 $148,309 $68,042 $15,255
Ratio of net investment
income (loss) to
average net assets/3/ 1.42% 1.59% 0.64% 0.08% (0.80)%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses/3,4/ 1.59% 1.58% 1.58% 1.63% 2.91%
Waived fees and
reimbursed expenses/3,4/ (0.09)% (0.08)% (0.08)% (0.13)% (1.41)%
Ratio of expenses to
average net assets/3,4/ 1.50% 1.50% 1.50% 1.50% 1.50%
Portfolio turnover rate/5/ 119% 76% 95% 108% 28%
|
1 For the period from September 30, 2004 (commencement of operations) to May 31, 2005.
2 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 These ratios do not include expenses from the Underlying Funds.
5 Portfolio Turnover rates presented for periods of less than one year are not
annualized.
58 FINANCIAL HIGHLIGHTS
EQUITY PORTFOLIO
COMMENCED ON OCTOBER 1, 1997
For a share outstanding throughout each period
MAY 31 MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF PERIOD $12.55 $15.11 $13.00 $11.44 $10.56
INCOME FROM INVESTMENT
OPERATIONS:
Net investment income
(loss) (0.01) 0.11 (0.02) (0.04) (0.06)
Net realized and
unrealized gain (loss)
on investments (4.39) (1.36) 2.64 1.60 0.94
-------- -------- ----------- -------- --------
Total from investment
operations (4.40) (1.25) 2.62 1.56 0.88
-------- -------- ----------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.01) (0.10) 0.00 0.00 0.00
Distributions from net
realized gain (0.42) (1.21) (0.51) 0.00 0.00
Distributions in excess of
net investment income 0.00 0.00 0.00 0.00 0.00
-------- -------- ----------- -------- --------
Total distributions (0.43) (1.31) (0.51) 0.00 0.00
-------- -------- ----------- -------- --------
NET ASSET VALUE, END OF
PERIOD $7.72 $12.55 $15.11 $13.00 $11.44
======== ======== =========== ======== ========
TOTAL RETURN/1/ (34.63)% (8.75)% 20.54% 13.64% 8.33%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $104,334 $187,597 $207,401 $154,909 $118,581
Ratio of net investment
income (loss) to
average net assets/2/ (0.08)% 0.73% (0.14) (0.34)% (0.64)%
Ratio of expenses to
average net assets prior
to waived fees and
reimbursed expenses/2,3/ 1.61% 1.59% 1.58% 1.59% 1.48%
Waived fees and
reimbursed expenses/2,3/ (0.11)% (0.09)% (0.08)% (0.09)% (0.06)%
Ratio of expenses to
average net assets/2,3/ 1.50% 1.50% 1.50% 1.50% 1.42%
Portfolio turnover rate/4/ 62% 37% 43% 70% 92%
|
1 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods less than one year are not annualized.
2 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
3 These ratios do not include expenses from the Underlying Funds.
4 Portfolio Turnover rates presented for periods of less than one year are not
annualized.
FINANCIAL HIGHLIGHTS 59
TACTICAL EQUITY PORTFOLIO
COMMENCED ON OCTOBER 1, 1997
For a share outstanding throughout each period
MAY 31, MAY 31, MAY 31, MAY 31, MAY 31,
FOR THE PERIOD ENDED: 2009 2008 2007 2006 2005
NET ASSET VALUE, BEGINNING
OF PERIOD $15.79 $18.72 $15.48 $13.01 $11.84
INCOME FROM INVESTMENT OPERATIONS:
Net investment income
(loss) (0.01) 0.22 0.02 (0.04) (0.03)
Net realized and
unrealized gain (loss)
on investments (5.98) (1.49) 3.54 2.51 1.32
-------- -------- -------- -------- --------
Total from investment
operations (5.99) (1.27) 3.56 2.47 1.29
-------- -------- -------- -------- --------
LESS DISTRIBUTIONS:
Distributions from net
investment income (0.01) (0.21) 0.00/1/ 0.00 0.00
Distributions from net
realized gain (0.66) (1.45) (0.32) 0.00 0.00
Distributions in excess of
net investment income 0.00 0.00 0.00 0.00 (0.12)
-------- -------- --------- -------- --------
Total distributions (0.67) (1.66) (0.32) 0.00 (0.12)
-------- -------- --------- -------- --------
NET ASSET VALUE, END OF
PERIOD $9.13 $15.79 $18.72 $15.48 $13.01
======== ======== ========= ======== ========
TOTAL RETURN/2/ (37.36)% (7.31)% 23.20% 18.99% 10.89%
RATIOS/SUPPLEMENTAL DATA:
Net assets, end of period
(000s) $304,770 $582,572 $513,947 $269,225 $165,325
Ratio of net investment
income (loss) to
average net assets/3/ (0.01)% 1.28% 0.08% (0.30)% (0.50)%
Ratio of expenses to
average net assets prior
to Waived fees and
reimbursed expenses/3,4/ 1.57% 1.57% 1.56% 1.55% 1.47%
Waived fees and
reimbursed expenses/3,4/ (0.07)% (0.07)% (0.06)% (0.05)% (0.05)%
Ratio of expenses to
average net assets/3,4/ 1.50% 1.50% 1.50% 1.50% 1.42%
Portfolio turnover rate/5/ 123% 47% 50% 76% 110%
|
1 Amount calculated is less than $0.005.
2 Total return calculations do not include any sales charges, and would have been lower had certain expenses not been waived or reimbursed during the periods shown. Returns for periods less than one year are not annualized.
3 During each period, various fees and expenses were waived and reimbursed as
indicated. The ratio of Gross Expenses to Average Net Assets reflects the
expense ratio in the absence of any waivers and reimbursements.
4 These ratios do not include expenses from the Underlying Funds.
5 Portfolio Turnover rates presented for periods of less than one year are not
annualized.
60 FINANCIAL HIGHLIGHTS
[GRAPHIC APPEARS HERE]
[GRAPHIC APPEARS HERE]
FOR MORE INFORMATION
More information on each Portfolio is available free upon request, including the following documents:
Statement of Additional Information (SAI) Supplements the disclosures made by this Prospectus. The SAI, which has been filed with the SEC, is incorporated by reference into this Prospectus and therefore is legally part of this Prospectus.
Annual/Semi-Annual Reports
Provide financial and other important information, including a discussion of
the market conditions and investment strategies that significantly affected
Portfolio performance over the reporting period.
To obtain copies of the above documents or for more information about WELLS FARGO ADVANTAGE FUNDS, contact us:
By telephone:
Individual Investors: 1-800-222-8222
Retail Investment Professionals: 1-888-877-9275
Institutional Investment Professionals: 1-866-765-0778
By e-mail: wfaf@wellsfargo.com
By mail:
WELLS FARGO ADVANTAGE FUNDS
P.O. Box 8266
Boston, MA 02266-8266
On the Internet:
www.wellsfargo.com/advantagefunds
From the SEC:
Visit the SEC's Public Reference Room in Washington, DC (phone 1-800-SEC-0330
or 1-202-551-8090) or the SEC's Internet site at www.sec.gov.
To obtain information for a fee, write or email:
SEC's Public Reference Section
100 "F" Street, NE
Washington, DC 20549-0102
publicinfo@sec.gov
[GRAPHIC APPEARS HERE]
109WBP/P810
ICA Reg. No. 811-09253
(Copyright) 2009 Wells Fargo Funds Management, LLC. All rights reserved.
STATEMENT OF ADDITIONAL INFORMATION
October 1, 2009
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
WELLS FARGO ADVANTAGE DIVERSIFIED BOND FUND
WELLS FARGO ADVANTAGE GOVERNMENT SECURITIES FUND
WELLS FARGO ADVANTAGE HIGH INCOME FUND
WELLS FARGO ADVANTAGE INCOME PLUS FUND
WELLS FARGO ADVANTAGE INFLATION-PROTECTED BOND FUND
WELLS FARGO ADVANTAGE SHORT DURATION GOVERNMENT BOND FUND
WELLS FARGO ADVANTAGE SHORT-TERM BOND FUND
WELLS FARGO ADVANTAGE SHORT-TERM HIGH YIELD BOND FUND
WELLS FARGO ADVANTAGE STABLE INCOME FUND
WELLS FARGO ADVANTAGE STRATEGIC INCOME FUND WELLS FARGO ADVANTAGE TOTAL RETURN BOND FUND WELLS FARGO ADVANTAGE ULTRA SHORT-TERM INCOME FUND
CLASS A, CLASS B, CLASS C,
ADMINISTRATOR CLASS, INSTITUTIONAL CLASS AND INVESTOR CLASS
Wells Fargo Funds Trust (the "Trust") is an open-end, management investment company. This Statement of Additional Information ("SAI") contains additional information about twelve series of the Trust in the Wells Fargo Advantage family of funds - the above referenced Funds (each, a "Fund" and collectively, the "Funds"). Each Fund is considered diversified under the Investment Company Act of 1940, as amended (the "1940 Act").
This SAI is not a prospectus and should be read in conjunction with the
Funds' Prospectuses (each, a "Prospectus" and collectively, the "Prospectuses")
dated October 1, 2009. The audited financial statements for the Funds, which
include the portfolios of investments and report of the independent registered
public accounting firm for the fiscal year ended May 31, 2009, and the
unaudited financial statements for the Funds for the semi-annual period ended
November 30, 2008, are hereby incorporated by reference to the Funds' Annual
Reports and Semi-Annual Reports. The Prospectuses, Annual Reports and Semi-
Annual Reports may be obtained free of charge by visiting our Web site at
www.wellsfargo.com/advantagefunds, calling 1-800-222-8222 or writing to WELLS
FARGO ADVANTAGE FUNDS (Reg. TM), P.O. Box 8266, Boston, MA 02266-8266.
The Funds offer certain classes of shares as indicated in the chart which follows. This SAI relates to all such classes of shares. Class B shares are closed to new investors and additional investments from existing shareholders, except in connection with reinvestment of any distributions and permitted exchanges of Class B shares for Class B shares of other WELLS FARGO ADVANTAGE FUNDS, subject to the limitations described in each Fund's prospectus.
CLASSES ADMINISTRATOR INSTITUTIONAL INVESTOR
FUND A, B, C CLASS CLASS CLASS
Diversified Bond o
Government Securities o o o o
High Income o o o
Income Plus o o o
Inflation-Protected Bond o o
Short Duration Government Bond o o o
Short-Term Bond o/1/ o o
Short-Term High Yield Bond o/1/ o
Stable Income o o
Strategic Income o
Total Return Bond o o o o
Ultra Short-Term Income o/1/ o o o
|
INCMS/FASAI04 (10/09)
TABLE OF CONTENTS
PAGE
-----
HISTORICAL FUND INFORMATION 1
INVESTMENT POLICIES 2
Fundamental Investment Policies 2
Non-Fundamental Investment Policies 3
PERMITTED INVESTMENT ACTIVITIES AND CERTAIN ASSOCIATED RISKS 3
MANAGEMENT 25
Trustees and Officers 25
Investment Adviser 31
Investment Sub-Advisers 34
Investment Sub-Advisers - Master Portfolios 35
Portfolio Managers 36
Administrator 41
Distributor 44
Shareholder Servicing Agent 46
Custodian and Fund Accountant 46
Transfer and Distribution Disbursing Agent 47
Underwriting Commissions 47
Code of Ethics 47
DETERMINATION OF NET ASSET VALUE 47
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 48
PORTFOLIO TRANSACTIONS 52
FUND EXPENSES 56
FEDERAL INCOME TAXES 57
PROXY VOTING POLICIES AND PROCEDURES 66
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND PORTFOLIO HOLDINGS 67
CAPITAL STOCK 69
OTHER INFORMATION 84
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 84
FINANCIAL INFORMATION 84
APPENDIX A-1
|
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach")
and the Board of Trustees of the Trust (each, a "Trustee" and collectively, the
"Board" or "Trustees") approved an Agreement and Plan of Reorganization
providing for, among other things, the transfer of the assets and stated
liabilities of various predecessor Norwest and Stagecoach portfolios to certain
Funds of the Trust (the "Reorganization"). Prior to November 5, 1999, the
effective date of the Reorganization, the Funds had only nominal assets.
On December 16, 2002, the Boards of Trustees of The Montgomery Funds and The Montgomery Funds II ("Montgomery") approved an Agreement and Plan of Reorganization providing for, among other things, the transfer of the assets and stated liabilities of various predecessor Montgomery portfolios into various Funds of the Trust. The effective date of the reorganization was June 9, 2003.
In August and September 2004, the Boards of Directors of the Strong family of funds ("Strong") and the Board of the Trust approved an Agreement and Plan of Reorganization providing for, among other things, the transfer of the assets and stated liabilities of various predecessor Strong mutual funds into various Funds of the Trust. The effective date of the reorganization was April 8, 2005.
The Funds, except the Inflation-Protected Bond Fund, were created as part of either the reorganization of the Stagecoach family of funds advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank") and the Norwest Advantage family of funds advised by Norwest Investment Management, Inc. ("NIM"), into a single mutual fund complex, the reorganization of certain of the funds of the Montgomery family of funds into certain of the WELLS FARGO ADVANTAGE FUNDS, or the reorganization of Strong, advised by Strong Capital Management, Inc. ("SCM"), and the WELLS FARGO ADVANTAGE FUNDS, advised by Wells Fargo Funds Management, LLC ("Funds Management" or the "Adviser") into a single mutual fund complex. The reorganization between Stagecoach and Norwest followed the merger of the advisers' parent companies. The reorganization between Montgomery and the Trust followed the Funds' adviser's parent company purchasing certain parts of the institutional and retail investment management business of the Montgomery funds' adviser, Montgomery Asset Management, LLC ("MAM"). The reorganization between Strong and the WELLS FARGO ADVANTAGE FUNDS followed the acquisition of certain asset management arrangements of SCM by Wells Fargo & Company.
The chart below indicates the predecessor Stagecoach, Norwest, Montgomery and Strong funds, as applicable, that are the accounting survivors of the respective Funds.
WELLS FARGO ADVANTAGE FUND PREDECESSOR FUND ----------------------------------------------------------- ----------------------------------------------- Wells Fargo Advantage Diversified Bond Fund Norwest Diversified Bond Fund Wells Fargo Advantage Government Securities Fund Strong Government Securities Fund Wells Fargo Advantage High Income Fund Strong High-Yield Bond Fund Wells Fargo Advantage Income Plus Fund Stagecoach Strategic Income Fund Wells Fargo Advantage Inflation-Protected Bond Fund N/A Wells Fargo Advantage Short Duration Government Bond Fund Montgomery Short Duration Government Bond Fund Wells Fargo Advantage Short-Term Bond Fund Strong Short-Term Bond Fund Wells Fargo Advantage Short-Term High Yield Bond Fund Strong Short-Term High Yield Bond Fund Wells Fargo Advantage Stable Income Fund Norwest Stable Income Fund Wells Fargo Advantage Strategic Income Fund Strong Advisor Strategic Income Fund Wells Fargo Advantage Total Return Bond Fund Montgomery Total Return Bond Fund Wells Fargo Advantage Ultra Short-Term Income Fund Strong Ultra Short-Term Income Fund |
The DIVERSIFIED BOND FUND commenced operations on November 8, 1999, as successor to the Norwest Diversified Bond Fund. The predecessor Norwest Diversified Bond Fund commenced operations on November 11, 1994.
The GOVERNMENT SECURITIES FUND commenced operations on April 11, 2005, as successor to the Strong Government Securities Fund. The predecessor Strong Government Securities Fund commenced operations on October 29, 1986.
The HIGH INCOME FUND commenced operations on April 11, 2005, as the successor to the Strong High-Yield Bond Fund. The predecessor Strong High-Yield Bond Fund commenced operations on December 28, 1995.
The INCOME PLUS FUND commenced operations on November 8, 1999, as successor to the Stagecoach Strategic Income Fund. The predecessor Stagecoach Strategic Income Fund commenced operations on July 13, 1998.
The INFLATION-PROTECTED BOND FUND commenced operations on February 28, 2003.
The SHORT DURATION GOVERNMENT BOND FUND commenced operations on June 9, 2003, as successor to the Montgomery Short Duration Government Bond Fund. The predecessor fund commenced operations on December 18, 1992. The performance history and financial highlights shown for periods prior to June 9, 2003 are the performance history and financial highlights of the
predecessor fund. The Fund changed its name from the Montgomery Short Duration Government Bond Fund to the Short Duration Government Bond Fund effective April 11, 2005.
The SHORT-TERM BOND FUND commenced operations on April 11, 2005, as successor to the Strong Short-Term Bond Fund and the Strong Short-Term Income Fund. The predecessor Strong Short-Term Bond Fund commenced operations on August 31, 1987 and the predecessor Strong Short-Term Income Fund commenced operations on October 31, 2002.
The SHORT-TERM HIGH YIELD BOND FUND commenced operations on April 11, 2005, as successor to the Strong Short-Term High Yield Bond Fund. The predecessor Strong Short-Term High Yield Bond Fund commenced operations on June 30, 1997.
The STABLE INCOME FUND commenced operations on November 8, 1999, as successor to the Norwest Stable Income Fund. The predecessor Norwest Stable Income Fund commenced operations on November 11, 1994.
The STRATEGIC INCOME FUND commenced operations on April 11, 2005, as successor to the Strong Advisor Strategic Income Fund. The predecessor Strong Advisor Strategic Income Fund commenced operations on November 30, 2000. Prior to March 1, 2002, the Fund's name was Strong Advisor Aggressive High-Yield Bond Fund.
The TOTAL RETURN BOND FUND commenced operations on June 9, 2003, as successor to the Montgomery Total Return Bond Fund. The predecessor fund commenced operations on June 30, 1997. The performance history and financial highlights shown for periods prior to June 9, 2003 are the performance history and financial highlights of the predecessor fund. The Fund changed its name from the Montgomery Total Return Bond Fund to the Total Return Bond Fund effective April 11, 2005.
The ULTRA SHORT-TERM INCOME FUND commenced operations on April 11, 2005, as successor to the Strong Ultra Short-Term Income Fund. The predecessor Strong Ultra Short-Term Income Fund commenced operations on November 25, 1988.
INVESTMENT POLICIES
Each Fund has adopted the following fundamental investment policies; that is, they may not be changed without approval by the holders of a majority (as defined under the 1940 Act) of the outstanding voting securities of each Fund.
THE FUNDS MAY NOT:
(1) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of a Fund's investments in that industry would equal or exceed 25% of the current value of the Fund's total assets, provided that this restriction does not limit a Fund's investments in securities issued or guaranteed by the U.S. Government, its agencies or instrumentalities, investments in securities of other investment companies or investments in repurchase agreements;
(2) purchase securities of any issuer if, as a result, with respect to 75% of a Fund's total assets, more than 5% of the value of its total assets would be invested in the securities of any one issuer or the Fund's ownership would be more than 10% of the outstanding voting securities of such issuer, provided that this restriction does not limit a Fund's investments in securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder;
(4) issue senior securities, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder;
(5) make loans to other parties if, as a result, the aggregate value of such loans would exceed one-third of a Fund's total assets. For the purposes of this limitation, entering into repurchase agreements, lending securities and acquiring any debt securities are not deemed to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the purchase of permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with a Fund's investment program may be deemed to be an underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business);
(8) purchase or sell commodities, provided that (i) currency will not be deemed to be a commodity for purposes of this restriction, (ii) this restriction does not limit the purchase or sale of futures contracts, forward contracts or options, and (iii) this
restriction does not limit the purchase or sale of securities or other instruments backed by commodities or the purchase or sale of commodities acquired as a result of ownership of securities or other instruments.
Each Fund has adopted the following non-fundamental policies; that is, they may be changed by the Trustees at any time without approval of such Fund's shareholders.
(1) Each Fund may invest in shares of other investment companies to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder, provided however, that no Fund that has knowledge that its shares are purchased by another investment company investor pursuant to Section 12(d)(1)(G) of the 1940 Act will acquire any securities of registered open-end management investment companies or registered unit investment trusts in reliance on Section 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
(2) Each Fund may not invest or hold more than 15% of the Fund's net assets in illiquid securities. For this purpose, illiquid securities include, among others, (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale, (b) fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days, and (c) repurchase agreements not terminable within seven days.
(3) Each Fund may invest in futures or options contracts consistent with its investment policies and the 1940 Act, including the rules, regulations and interpretations of the Securities and Exchange Commission (the "SEC") thereunder or any exemptive orders obtained thereunder, and consistent with investment in futures or options contracts that would allow the Fund to claim an exclusion from being a "commodity pool operator" as defined by the Commodity Exchange Act.
(4) Each Fund may lend securities from its portfolio to approved brokers, dealers and financial institutions, to the extent permitted under the 1940 Act, including the rules, regulations and exemptions thereunder, which currently limit such activities to one-third of the value of a Fund's total assets (including the value of the collateral received). Any such loans of portfolio securities will be fully collateralized based on values that are marked-to-market daily.
(5) Each Fund may not make investments for the purpose of exercising control or management, provided that this restriction does not limit a Fund's investments in securities of other investment companies or investments in entities created under the laws of foreign countries to facilitate investment in securities of that country.
(6) Each Fund may not purchase securities on margin (except for short-term credits necessary for the clearance of transactions).
(7) Each Fund may not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (short sales "against the box"), and provided that transactions in futures contracts and options are not deemed to constitute selling securities short.
(8) Each Fund that is subject to Rule 35d-1 (the "Names Rule") under the 1940 Act, and that has a non-fundamental policy or policies in place to comply with the Names Rule, has adopted the following policy:
Shareholders will receive at least 60 days notice of any change to a Fund's non-fundamental policy complying with the Names Rule. The notice will be provided in Plain English in a separate written document, and will contain the following prominent statement or similar statement in boldface type: "Important Notice Regarding Change in Investment Policy." This statement will appear on both the notice and the envelope in which it is delivered, unless it is delivered separately from other communications to investors, in which case the statement will appear either on the notice or the envelope in which the notice is delivered.
Notwithstanding the foregoing policies, any other investment companies in which the Funds may invest have adopted their own investment policies, which may be more or less restrictive than those listed above, thereby allowing a Fund to participate in certain investment strategies indirectly that are prohibited under the fundamental and non-fundamental investment policies listed above.
PERMITTED INVESTMENT ACTIVITIES AND CERTAIN ASSOCIATED RISKS
Set forth below are descriptions of permitted investment activities for the Funds and certain of their associated risks. The activities are organized into various categories. To the extent that an activity overlaps two or more categories, the activity is referenced only once in this section. Some of the Funds described in this SAI are either gateway feeder funds that invest in a single corresponding master portfolio of Wells Fargo Master Trust ("Master Trust") or gateway blended funds that invest in two or more master portfolios. References to the activities of a gateway fund should be understood to include references to the
investments of the master portfolio(s) in which the gateway fund invests. The Funds are subject to the limitations as described in this section and elsewhere in this SAI and/or the Prospectus(es). Not all of the Funds participate in all of the investment activities described below. For purposes of monitoring the investment policies and restrictions of the Funds (with the exception of the loans of portfolio securities policy described below), the amount of any securities lending collateral held by a Fund will be excluded in calculating total assets. Unless otherwise noted or required by applicable law, the percentage limitations and qualitative investment policies included in this SAI or the Prospectus apply at the time of purchase of a security. To the extent a security type is described in this SAI that is not referenced in its Prospectus(es), a Fund under normal circumstances will not invest more than 15% of its assets in the security type unless otherwise specified.
The Prospectus(es) identify and summarize the types of securities and assets in which the Funds may invest as part of their principal investment strategies, and the principal risks associated with such investments. This SAI identifies and summarizes other types of securities and assets in which the Funds may invest, each of which is subject to the same kinds of risks as are described in the Prospectus(es). Certain additional risks associated with each type of investment are identified and described below.
Asset-backed securities are securities that are secured or "backed" by pools of various types of assets on which cash payments are due at fixed intervals over set periods of time. Asset-backed securities are created in a process called securitization. In a securitization transaction, an originator of loans or an owner of accounts receivable of a certain type of asset class sells such underlying assets in a "true sale" to a special purpose entity, so that there is no recourse to such originator or owner. Payments of principal and interest on asset-backed securities typically are tied to payments made on the pool of underlying assets in the related securitization. Such payments on the underlying assets are effectively "passed through" to the asset-backed security holders on a monthly or other regular, periodic basis. The level of seniority of a particular asset-backed security will determine the priority in which the holder of such asset-backed security is paid, relative to other security holders and parties in such securitization. Examples of underlying assets include consumer loans or receivables, home equity loans, automobile loans or leases, and timeshares, although other types of receivables or assets also may be used as underlying assets.
While asset-backed securities typically have a fixed, stated maturity date, low prevailing interest rates may lead to an increase in the prepayments made on the underlying assets. This may cause the outstanding balances due on the underlying assets to be paid down more rapidly. As a result, a decrease in the originally anticipated interest from such underlying securities may occur, causing the asset-backed securities to pay-down in whole or in part prior to their original stated maturity date. Prepayment proceeds would then have to be reinvested at the lower prevailing interest rates. Conversely, prepayments on the underlying assets may be less than anticipated, causing an extension in the duration of the asset-backed securities.
Delinquencies or losses that exceed the anticipated amounts for a given securitization could adversely impact the payments made on the related asset-backed securities. This is a reason why, as part of a securitization, asset-backed securities are often accompanied by some form of credit enhancement, such as a guaranty, insurance policy, or subordination. Credit protection in the form of derivative contracts may also be purchased. In certain securitization transactions, insurance, credit protection, or both may be purchased with respect to only the most senior classes of asset-backed securities, on the underlying collateral pool, or both. The extent and type of credit enhancement varies across securitization transactions.
In addition to the normal risks associated with debt securities discussed elsewhere in this SAI and the Prospectus(es), asset-backed securities carry additional risks including, but not limited to, the possibility that (i) the pace of payments on underlying assets may be faster or slower than anticipated or payments may be in default; (ii) the creditworthiness of the credit support provider may deteriorate; and (iii) such securities may become less liquid or harder to value as a result of market conditions or other circumstances.
Bank obligations include certificates of deposit, time deposits, bankers' acceptances and other short-term obligations of domestic banks, foreign subsidiaries of domestic banks, foreign branches of domestic banks, domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such obligations issued by foreign branches of domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign branches of foreign banks, a Fund may be subject to additional investment risks that are different in some respects from those incurred by a Fund that invests only in debt obligations of domestic issuers. Such risks include possible future political, regulatory or economic developments, the possible imposition of foreign withholding and other taxes (at potentially confiscatory levels) on amounts realized on such obligations, the possible establishment of exchange controls or the adoption of other foreign governmental restrictions that might adversely affect the payment of principal and interest on these obligations and the possible seizure or nationalization of foreign
deposits. In addition, foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements and to different regulatory, accounting, auditing, reporting and recordkeeping standards than those applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Time deposits that may be held by a Fund will not benefit from insurance from the Bank Insurance Fund or the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. The other short-term obligations may include uninsured, direct obligations, bearing fixed, floating or variable interest rates.
Collateralized debt obligations ("CDOs") are composed of two main categories: cash and synthetic. Cash CDOs are further sub-divided into the following two types: cash flow and market value. The two structures differ from each other in the manner by which cash flow is generated to pay the security holders, the manner in which the structure is credit-enhanced, and how the pool of underlying collateral is managed. Cash flow CDOs are backed, or "collateralized," by a pool of high-yield bonds or loans, which pay principal and interest on a regular basis. Credit enhancement is achieved by having multiple classes of securities. The most senior/highest-rated class will be the last to be affected by any interruption of cash flow from the underlying assets. In a cash flow CDO, the collateral manager endeavors to maintain a minimum level of diversification and weighted average rating among the underlying assets in an effort to keep severity of loss low. In a market value CDO, classes of securities receive payments based on the mark-to-market returns on the underlying collateral. Credit enhancement is achieved by specific overcollateralization levels in the form of advance rates assigned to each underlying collateral asset. Because principal and interest payments on the securities come from collateral cash flows and sales of collateral, which the collateral manager monitors, returns on a market value CDO are substantially related to the collateral manager's performance.
Certain products that are similar in structure to CDOs include collateralized loan obligations ("CLOs") and collateralized bond obligations ("CBOs"). Similar to CDOs, CLOs are structured such that each CDO and CLO typically has a foreign issuer, which is generally a special purpose vehicle, and a domestic co-issuer. Certain securities, such as notes, issued in a particular CDO or CLO are generally co-issued by the foreign issuer and the co-issuer, and are rated by one or more Nationally Recognized Statistical Ratings Organization (each, a "NRSRO"). Other securities, such as preference shares, preferred shares, or subordinated notes, issued in a particular CDO or CLO are generally issued only by the foreign issuer and are not rated by any NRSROs. Securities issued in CBOs, too, are issued by foreign issuers or other separate legal entities.
CDOs, CLOs, and CBOs are typically collateralized by a pool of loans. These underlying loans may include pools of other securities. Generally, CDOs and CLOs have collateral quality tests and eligibility criteria that must be satisfied before a security may be selected as collateral for the CDO or CLO. The collateral selected for a particular CDO depends on both the sector of securities the CDO's collateral manager wants to manage, as well as the objectives of the CDO itself. For example, a trust preferred CDO is generally collateralized by combination of some or all of the following types of securities: trust preferred securities issued by trust subsidiaries of bank holding companies or of insurance holding companies; subordinated notes issued by banks, thrifts, or other depository institutions, or by holding companies of insurance companies; surplus notes issued by insurance companies; or senior securities issued by holding companies of one or more insurance companies or insurance intermediaries. In contrast, an ABS CDO has as its collateral various concentrations of different types of asset-backed securities. Securities issued in CLOs generally are backed by portfolios of primarily leveraged loans and high yield bonds. Typically, securities issued in CBOs are backed by a diversified pool of high risk, below investment grade fixed income securities. In addition to the foregoing, a particular CDO, CLO, or CBO may have as its collateral, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or may be the unrated equivalent of such loans.
Similar to asset-backed securities, payments are made on CDO, CLO, and CBO securities in order of their seniority among other classes of securities issued from the same issuing entity. Also, similar to securitization transactions, fees, including administrative expenses, are generally paid to various parties in the CDO prior to payments being made on the CDO securities. Generally, CDOs and CLOs will pay certain management fees to the collateral manager. Unlike securitizations, securities issued in CDOs, CLOs, and CBOs generally have quarterly, rather than monthly, payment dates.
CDOs, CLOs and CBOs are privately offered and sold, and are not publicly registered with the SEC. As a result, CDO, CLO, and CBO securities may be characterized as being illiquid. However, an active dealer market may exist for such securities, thereby allowing such securities to qualify for an exemption from registration under Rule 144A of the Securities Act of 1933, as amended (the "1933 Act").
Classes, or "tranches," of CDO, CLO and CBO securities vary in level of risk and yield. The most junior tranche is generally the tranche that bears the highest level of risk, but also generally bears the highest rate of return. This is because tranches bear losses in the reverse order of their seniority with respect to one another. For this reason, the most junior tranche is the tranche that bears losses first from the defaults on the underlying collateral. Because the more junior tranches absorb losses prior to the more senior tranches, the most subordinate tranches serve to protect the more senior tranches from default in all but the most severe circumstances. Due to this type of protection from losses, a senior CDO, CLO, or CBO tranche generally bears the lowest risk, and has a smaller coupon, corresponding lower yield, and higher rating from nationally recognized statistical ratings organizations than tranches of more junior securities. Despite the protection the most subordinated tranches provide, CDO, CLO, or CBO tranches can experience substantial losses due to the rate of actual defaults on the underlying collateral. The type of collateral used as underlying securities in a particular CDO, CLO, or CBO therefore may substantially impact the risk associated with purchasing the securities such CDO, CLO, or CBO issues. Other factors that may influence the value or yield or return on a CDO, CLO, or CBO security include the disappearance of tranches from a particular issuance in reverse order of seniority, as such tranches would otherwise have protected the more senior tranches from losses, market anticipation of defaults, and loss of investor appetite for CDO, CLO and CBO securities generally.
In addition to the risks generally associated with debt securities, including asset-backed securities and derivatives, discussed elsewhere in this SAI and the Prospectus(es), CDOs, CLOs, and CBOs each carry additional risks including, but not limited to the possibility that (i) distributions from the underlying collateral securities will be inadequate to make interest or principal payments on the related CDO, CLO, or CBO securities; (ii) for collateral that has NRSRO ratings, such ratings may be downgraded; and (iii) the CDOs, CLOs, or CBOs may themselves purchase as underlying collateral securities issued by other CDOs.
Commercial paper (including variable amount master demand notes, see "Floating and Variable Rate Obligations" below), refers to short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and typically has a maturity at the time of issuance not exceeding nine months. Variable amount master demand notes are demand obligations which permit the investment of fluctuating amounts at varying market rates of interest pursuant to arrangements between the issuer and a commercial bank acting as agent for the payee of such notes whereby both parties have the right to vary the amount of the outstanding indebtedness on the notes. The Funds may only purchase commercial paper (including variable rate demand notes and variable rate master demand notes issued by domestic and foreign bank holding companies, corporations and financial institutions, as well as similar instruments issued by government agencies and instrumentalities) of issuers that are rated in one of the two highest rating categories by a Nationally Recognized Statistical Ratings Organization ("NRSRO"), except that the Funds may purchase unrated commercial paper if, in the opinion of the adviser, such obligations are of comparable quality to other rated investments that are permitted to be purchased by the Funds.
ASSET-BACKED COMMERCIAL PAPER. Securities that are issued from commercial paper conduits are called asset-backed commercial paper securities. Credit support for such securities falls into two categories: liquidity protection and protection against ultimate default under the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the securities or underlying pool are made in a timely fashion. Protection against ultimate default ensures payment on at least a portion of the assets in the pool. This protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction, such as by issuing senior and subordinated instruments or through a combination of these approaches. The degree of credit support provided on each issue is based generally on historical information relating to the level of credit risk associated with the payments. Delinquency or loss that exceeds the anticipated amount or a downgrade or loss of credit support could adversely impact the value of or return on an investment in an asset-backed commercial paper security.
Commercial paper is also subject to the risks generally associated with debt securities discussed elsewhere in this SAI and the Prospectus(es).
A convertible security is generally a debt obligation or preferred stock that may be converted within a specified period of time into a certain amount of common stock of the same or a different issuer. A convertible security provides a fixed-income stream and the opportunity, through its conversion feature, to participate in the capital appreciation resulting from a market price advance in its underlying common stock. As with a straight fixed-income security, a convertible security tends to increase in market value when interest rates decline and decrease in value when interest rates rise. Like a common stock, the value of a convertible security also tends to increase as the market value of the underlying stock rises, and it tends to decrease as the market value of the underlying stock declines. Because its value can be influenced by both interest-rate and market movements, a convertible security tends not to be as sensitive to interest rates as a similar fixed-income security, and tends not to be as sensitive to changes in share price as its underlying stock.
Investing in convertible securities is subject to certain risks in addition to those generally associated with debt securities discussed elsewhere in this SAI and the Prospectus(es). Certain convertible securities, particularly securities that are convertible into securities of an issuer other than the issuer of the convertible security, may be or become illiquid and, therefore, may be more difficult to resell in a timely fashion or for a fair price, which could result in investment losses.
The creditworthiness of the issuer of a convertible security is important because the holder of a convertible security will have recourse only to the issuer. In addition, a convertible security may be subject to conversion or redemption by the issuer, but only after a specified date and under circumstances established at the time the security is issued. This feature may require a holder to convert the security into the underlying common stock, even if the value of the underlying common stock has declined substantially. In addition, companies that issue convertible securities frequently are small- and mid-capitalization companies and, accordingly, carry the risks associated with investments in such companies.
While the Funds use the same criteria to evaluate the credit quality of a convertible debt security that they would use for a more conventional debt security, a convertible preferred stock is treated like a preferred stock for a Fund's credit evaluation, as well as financial reporting and investment limitation purposes. Preferred stock is subordinated to all debt obligations in the event of insolvency, and an issuer's failure to make a dividend payment is generally not an event of default entitling the preferred shareholders to take action. Preferred stock generally has no maturity date, so its market value is dependent on the issuer's business prospects for an indefinite period of time. In addition, distributions on preferred stock generally are taxable as dividend income, rather than interest payments, for federal income tax purposes.
Certain of the debt instruments purchased by the Funds may be interest-bearing securities issued by a company, called corporate debt securities. The issuer of a corporate debt security has a contractual obligation to pay interest at a stated rate on specific dates and to repay principal periodically or on a specified maturity date. An issuer may have the right to redeem or "call" a corporate debt security before maturity, in which case the investor may have to reinvest the proceeds at lower market rates. The value of fixed-rate corporate debt securities will tend to fall when interest rates rise and rise when interest rates fall. The value of "floating-rate" or "variable-rate" corporate debt securities, on the other hand, fluctuate much less in response to market interest rate movements than the value of fixed-rate securities. Corporate debt securities may be senior or subordinated obligations. Senior obligations generally have the first claim on a corporation's earnings and assets and, in the event of liquidation, are paid before subordinated debt. Corporate debt securities may be unsecured (backed only by the issuer's general creditworthiness) or secured (also backed by specified collateral).
Investors should be aware that even though interest-bearing securities are investments which promise a stable stream of income, the prices of such securities are inversely affected by changes in interest rates and, therefore, are subject to the risk of market price fluctuations. Longer-term securities are affected to a greater extent by interest rates than shorter-term securities. The values of fixed-income corporate debt securities also may be affected by changes in the credit rating or financial condition of the issuing entities. Certain corporate debt securities that may be purchased by the Fund, such as those rated "Baa" or lower by Moody's Investors Service, Inc. ("Moody's") and "BBB" or lower by Standard & Poor's Rating Group ("S&P") tend to be subject to greater issuer credit risk, to greater market fluctuations and pricing uncertainty, and to less liquidity than lower yielding, higher-rated fixed-income securities. If a security held by a Fund is downgraded, such Fund may continue to hold the security until such time as the adviser determines it to be advantageous for the Fund to sell the security. The ratings of S&P, Fitch and Moody's are more fully described in the Appendix. Investing in corporate debt securities is subject to certain risks including, among others, credit and interest rate risk, as more fully described in the Prospectus(es).
Dollar roll transactions are transactions wherein a Fund sells fixed-income securities, typically mortgage-backed securities, and makes a commitment to purchase similar, but not identical, securities at a later date from the same party. Like a forward commitment, during the roll period no payment is made for the securities purchased and no interest or principal payments on the security accrue to the purchaser, but the Fund assumes the risk of ownership. A Fund is compensated for entering into dollar roll transactions by the difference between the current sales price and the forward price for the future purchase, as well as by the interest earned on the cash proceeds of the initial sale. Like other when-issued securities or firm commitment agreements, dollar roll transactions involve the risk that the market value of the securities sold by a Fund may decline below the price at which the Fund is committed to purchase similar securities. In the event the buyer of securities from a Fund under a dollar roll transaction becomes insolvent, the Fund's use of the proceeds of the transaction may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Fund's obligation to repurchase the securities. A Fund will engage in dollar roll transactions for the purpose of acquiring securities for its portfolio and not for investment leverage.
Floating- and variable-rate obligations include obligations such as demand notes and bonds. Variable-rate demand notes include master demand notes that are obligations that permit a Fund to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the Fund, as lender, and the borrower. The interest rate on a floating-rate demand obligation is based on a referenced lending rate, such as a bank's prime rate, and is adjusted automatically each time such rate is adjusted. The interest rate on a variable-rate demand obligation is adjusted automatically at specified intervals. The issuer of such obligations ordinarily has a right, after a given period, to prepay at its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days notice to the holders of such obligations. Frequently, such obligations are secured by letters of credit or other credit support arrangements provided by banks.
There generally is no established secondary market for these obligations because they are direct lending arrangements between the lender and borrower. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, a Fund is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and a Fund may invest in obligations which are not so rated only if the adviser determines that at the time of investment the obligations are of comparable quality to the other obligations in which such Fund may invest. The adviser, on behalf of a Fund, monitors the creditworthiness of the issuers of the floating- and variable-rate demand obligations in such Fund's portfolio. Floating- and variable-rate instruments are subject to interest-rate and credit risks and other risks generally associated with debt securities.
The floating- and variable-rate instruments that the Funds may purchase include certificates of participation in such instruments.
A Fund may invest in funding agreements issued by domestic insurance companies. Funding agreements are short-term, privately placed, debt obligations of insurance companies that offer a fixed- or floating-rate of interest. These investments are not readily marketable and therefore are considered to be illiquid securities. (See the section entitled "Illiquid Securities").
The Funds may invest in guaranteed investment contracts ("GICs") issued by insurance companies. Pursuant to such contracts, a Fund makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the deposit fund on a monthly basis guaranteed interest at a rate based on an index. The GICs provide that this guaranteed interest will not be less than a certain minimum rate. The insurance company may assess periodic charges against a GIC for expense and service costs allocable to it, and these charges will be deducted from the value of the deposit fund. A Fund will purchase a GIC only when the adviser has determined that the GIC presents minimal credit risks to the Fund and is of comparable quality to instruments in which the Fund may otherwise invest. Because a Fund may not receive the principal amount of a GIC from the insurance company on seven days' notice or less, a GIC may be considered an illiquid investment. The term of a GIC will be one year or less.
The Government Securities Fund, Inflation-Protected Bond Fund, Short Duration Government Bond Fund and Stable Income Fund are not permitted to purchase high yield securities. The Total Return Bond Fund may not invest more than 5% of its net assets in high yield securities. High yield securities (also known as "junk bonds") are debt securities that are rated below investment-grade, are unrated and deemed by the adviser to be below investment-grade, or in default at the time of purchase. These securities have a much greater risk of default (or in the case of bonds currently in default, of not returning principal) and tend to be more volatile than higher-rated securities of similar maturity. The value of these debt securities can be affected by overall economic conditions, interest rates, and the creditworthiness of the individual issuers. These securities tend to be less liquid and more difficult to value than higher-rated securities.
The market values of certain high yield and comparable unrated securities tend to be more sensitive to individual corporate developments and changes in economic conditions than investment-grade securities. In addition, issuers of high yield and comparable unrated securities often are highly leveraged and may not have more traditional methods of financing available to them. Their ability to service their debt obligations, especially during an economic downturn or during sustained periods of high interest rates, may be impaired.
The risk of loss due to default by such issuers is significantly greater because high yield and comparable unrated securities generally are unsecured and frequently are subordinated to senior indebtedness. A Fund may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings. The existence of limited markets for high yield and comparable unrated securities may diminish the Fund's ability to: (i) obtain
accurate market quotations for purposes of valuing such securities and calculating its net asset value; and (ii) sell the securities either to meet redemption requests or to respond to changes in the economy or in financial markets.
The Inflation-Protected Bond Fund invests primarily in, and the other Funds may invest in inflation-protected debt securities, including Treasury Inflation-Protected Securities ("TIPS"). Inflation-protected debt securities are instruments whose principal is indexed to a measure of inflation such as, for example, the Consumer Price Index.
A Fund's yield and return will reflect both any inflation adjustment to interest income and the inflation adjustment to principal.
Inflation-protected debt securities are subject to greater risk than traditional debt securities if interest rates rise in a low inflation environment. Generally, the value of an inflation-protected debt security will fall when real interest rates rise and will rise when real interest rates fall.
While these securities are expected to be protected from long term inflationary trends, short term increases in inflation may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be protected to the extent that the increase is not reflected in the debt securities' inflationary measure. Income fluctuations associated with changes in market interest rates are expected to be low; however, income fluctuations associated with changes in inflation are expected to be high. The value of inflation-indexed bonds is expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed bonds. Inflation-indexed bonds, including TIPS, decline in value when real interest rates rise. In certain interest rate environments, such as when real interest rates are rising faster than nominal interest rates, inflation indexed bonds may experience greater losses than other fixed income securities with similar durations.
For federal income tax purposes, both interest payments and the difference between original principal and the inflation-adjusted principal of inflation-protected debt securities will be treated as interest income subject to taxation. Interest payments are taxable when received or accrued. The inflation adjustment to principal is subject to tax in the year the adjustment is made, not at maturity of the security when the cash from the repayment of principal is received.
Certain of the debt obligations (including certificates of participation, commercial paper and other short-term obligations) which a Fund may purchase may be backed by an unconditional and irrevocable letter of credit of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks, savings banks and insurance companies which, in the opinion of the adviser, are of comparable quality to issuers of other permitted investments of the Fund, may be used for letter of credit-backed investments.
A loan participation gives a Fund an undivided proportionate interest in a loan or instrument originated by a bank or other institution. Loan participations may carry a demand feature permitting the holder to tender the interests back to the bank or other institution. Loan participations, however, typically do not provide the Fund with any right to enforce compliance by the borrower, nor any rights of set-off against the borrower, and the Fund may not directly benefit from any collateral supporting the loan in which it purchased a loan participation. As a result, the Fund assumes the credit risk of both the borrower and the lender that is selling the loan participation.
Investments in the following types of high-quality money market
instruments are permitted: (i) U.S. Government obligations; (ii) negotiable
certificates of deposit, bankers' acceptances and fixed time deposits and other
obligations of domestic banks (including foreign branches) that have more than
$1 billion in total assets at the time of investment and are members of the
Federal Reserve System or are examined by the Comptroller of the Currency or
whose deposits are insured by the FDIC; (iii) commercial paper rated at date of
purchase "Prime-1" by Moody's or "A-1" by S&P, or, if unrated, of comparable
quality as determined by the adviser; and (iv) repurchase agreements. A Fund
also may invest in short-term U.S. dollar-denominated obligations of foreign
banks (including U.S. branches) that at the time of investment: (i) have more
than $10 billion, or the equivalent in other currencies, in total assets; and
(ii) in the opinion of the adviser, are of comparable quality to obligations of
U.S. banks which may be purchased by the Funds.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities, also called mortgage pass-through securities, are issued in securitizations (see "Asset-Backed Securities" section) and represent interests in "pools" of underlying residential mortgage loans that serve as collateral for such securities. Similar to asset-backed securities, the monthly payments made by the individual borrowers on the underlying residential mortgage loans are effectively "passed through" to the mortgage-backed securities (net of administrative and other fees paid to various parties) as monthly principal and interest payments.
The stated maturities of mortgage-backed securities may be shortened by unscheduled prepayments of principal on the underlying mortgage loans, and the expected maturities may be extended in rising interest-rate environments. Therefore, it is not possible to predict accurately the maturity of a particular mortgage-backed security. Variations in the maturities of mortgage- backed securities will affect the yield of each such security and the portfolio as a whole. Rates of prepayment of principal on the underlying mortgage loans in mortgage-backed securitizations that are faster than expected may expose the mortgage-backed securities issued in such securitizations to a lower rate of return and require reinvestment of proceeds at lower prevailing interest rates. Also, if a mortgage-backed security has been purchased at a premium, but is backed by underlying mortgage loans that are subject to prepayment, if prepayments are made on such underlying collateral, then the value of the premium effectively would be lost or reduced.
Like other fixed-income securities, when interest rates rise, the value of mortgage-backed securities generally will decline and may decline more than other fixed-income securities as the expected maturity extends. Conversely, when interest rates decline, the value of mortgage-backed securities having underlying collateral with prepayment features may not increase as quickly as other fixed-income securities as the expected maturity shortens. Payment of principal and interest on some mortgage-backed securities issued or guaranteed by a government agency (but not the market value of the securities themselves) is guaranteed by a government association, such as the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), or by a government-sponsored entity, such as the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") or Federal National Mortgage Association ("FNMA" or "Fannie Mae"). Unlike FHLMC and FNMA, which act as both issuers and guarantors of mortgage-backed securities, GNMA only provides guarantees of mortgage-backed securities. Only GNMA guarantees are backed by the full faith and credit of the U.S. Government. Mortgage-backed securities issued or guaranteed by FHLMC or FNMA are not backed by the full faith and credit of the U.S. Government. FHLMC and FNMA are authorized to borrow money from the U.S. Treasury or the capital markets, but there can be no assurance that they will be able to raise funds as needed or that their existing capital will be sufficient to satisfy their guarantee obligations. Mortgage-backed securities created by private issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers) may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. Collateralized mortgage obligations, commercial mortgage-backed securities, adjustable rate mortgage securities and mortgage participation certificates are the primary types of mortgage-backed securities utilized by the Funds.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are debt obligations that may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA. Each CMO is structured so that multiple classes of securities are issued from such CMO, with each class bearing a different stated maturity. Payments of principal on the underlying securities, including prepayments, are first "passed through" to investors holding the class of securities with the shortest maturity; investors holding classes of securities with longer maturities receive payments on their securities only after the more senior classes have been retired. A longer duration or greater sensitivity to interest rate fluctuations generally increases the risk level of the CMO.
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS"). CMBS are securities that are secured by mortgage loans on commercial real property. Many of the risks of investing in CMBS reflect the risks of investing in the real estate securing the underlying mortgage loans, such as office buildings, hotels, and shopping malls. These risks include the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a commercial property to attract and retain tenants. While CMBS are sold both in public transactions registered with the SEC and in private placement transactions, CMBS may be less liquid and exhibit greater price volatility than other types of mortgage-backed or asset-backed securities.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are securities that are secured by mortgage loans with adjustable interest rates and may be issued or guaranteed by a government agency such as GNMA, by government-sponsored entities such as FNMA or FHLMC, or by a private issuer. The mortgage loans underlying ARMS guaranteed by GNMA are typically federally insured by the Federal Housing Administration ("FHA") or guaranteed by the Department of Veterans Affairs ("VA"), whereas the mortgage loans underlying ARMS issued by FNMA or FHLMC are typically conventional residential mortgages which are not so insured or guaranteed, but which conform to specific underwriting, size and maturity standards.
ARMS are also offered by private issuers. These securities generally offer a higher rate of return in the form of interest payments, but because they offer no direct or indirect governmental guarantees, they also involve greater credit and interest rate risk. However, many private issuers or servicers of ARMS guarantee or provide private insurance for timely payment of interest
and principal. In addition, the Funds may purchase some mortgage-related securities through private placements that are restricted as to further sale. The value of these securities may fluctuate more than that of other mortgage-related securities.
MORTGAGE PARTICIPATION CERTIFICATES ("PCS"). Mortgage PCs and guaranteed mortgage certificates ("GMCs") are both issued by the FHLMC. PCs resemble GNMA certificates in that each PC represents a pro rata share of all interest and principal payments made and owed on an underlying pool of mortgages. GMCs also represent a pro rata interest in a pool of mortgages, but pay interest semi-annually and return principal once a year in guaranteed minimum payments. PCs and GMCs differ from bonds in that principal is paid back by the borrower over the length of the loan rather than returned in a lump sum at maturity.
OTHER MORTGAGE-BACKED SECURITIES. As new types of mortgage-backed securities are developed and offered to investors, the adviser will, consistent with each Fund's investment objective, policies, restrictions and quality standards, consider making investments in such new types of mortgage-backed securities.
CREDIT RISK. Credit risk reflects the risk that a holder of mortgage-backed securities may not receive all or part of its principal because the issuer, or any credit enhancer and/or the underlying mortgage borrowers have defaulted on their obligations. Credit risk is increased for mortgage-backed securities that are subordinated to another security (I.E., if the holder of a mortgage-backed security is entitled to receive payments only after payment obligations to holders of the other security are satisfied). The more deeply subordinated the security, the greater the credit risk associated with the security will be. Mortgage-backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, typically entail greater credit risk than mortgage-backed securities guaranteed by a government association or government-sponsored enterprise. The performance of mortgage-backed securities issued by private issuers generally depends on the financial health of those institutions and the performance of the mortgage pool backing such securities. An unexpectedly high rate of defaults on mortgages held by a mortgage pool may limit substantially the pool's ability to make payments of principal or interest to the holder of such mortgage-backed securities, particularly if such securities are subordinated, thereby reducing the value of such securities and in some cases rendering them worthless. The risk of such defaults is generally higher in the case of mortgage pools that include so-called "subprime" mortgages.
INTEREST RATE RISK. The interest rates on mortgage loans underlying ARMS generally are readjusted at periodic intervals ranging from one year or less to several years in response to changes in a predetermined, commonly recognized interest rate index. The adjustable rate feature should reduce, but will not eliminate, price fluctuations in such securities resulting from actual or anticipated fluctuations in market interest rates. The value of each Fund's ARMS may fluctuate to the extent interest rates on underlying mortgages differ from prevailing market interest rates during periods between interest rate reset dates. Accordingly, investors could experience some loss if they redeem their shares of the Funds or if the Funds sell these portfolio securities before the interest rates on the underlying mortgages are adjusted to reflect prevailing market interest rates. The interest rates on mortgages underlying other types of mortgage-backed securities generally do not reset at periodic intervals. Accordingly, non-ARMS have greater exposure to interest rate risk than ARMS.
Municipal bonds are debt obligations issued to obtain funds for various public purposes. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are supported by the municipality's general taxing authority, while revenue bonds are supported by the revenues from one or more particular project or activity. Industrial development bonds are a specific type of revenue bond backed by the credit and security of a private user. Certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to finance privately operated facilities.
Certain of the municipal obligations held by the Funds may be insured as to the timely payment of principal and interest. The insurance policies usually are obtained by the issuer of the municipal obligation at the time of its original issuance. In the event that the issuer defaults on interest or principal payment, the insurer will be notified and will be required to make payment to the bondholders. Although the insurance feature is designed to reduce certain financial risks, the premiums for insurance and the higher market price sometimes paid for insured obligations may reduce a Fund's current yield. Insurance generally will be obtained from insurers with a claims-paying ability rated Aaa by Moody's or AAA by S&P or Fitch or otherwise rated investment grade. To the extent that securities held by a Fund are insured as to principal and interest payments by insurers whose claims-paying ability rating is downgraded by Moody's, S&P or Fitch, the value of such securities may be affected. There is, however, no guarantee that the insurer will meet its obligations. Moreover, the insurance does not guarantee the market value of the insured obligation or the net asset value of the Fund's shares. In addition, such insurance does not protect against market fluctuations caused by changes in interest rates and other factors. A Fund also may purchase municipal obligations that are additionally secured by bank credit agreements or escrow accounts. The credit quality of companies which provide such credit enhancements will affect the value of those securities.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on municipal obligations. For example, under federal tax legislation enacted in 1986, interest on
certain private activity bonds must be included in a shareholder's federal alternative minimum taxable income. Moreover, a Fund cannot predict what legislation, if any, may be proposed in the state legislature regarding the state income tax status of interest on such obligations, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of municipal obligations generally for investment by the Fund and the liquidity and value of the Fund's portfolio. In such an event, the Fund would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
A Fund invests in municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable from gross income for federal income tax purposes. Such opinion may have been issued as of a date prior to the date that the Fund acquires the municipal security. Subsequent to a Fund's acquisition of such a municipal security, however, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by a Fund as "exempt-interest dividends" could be adversely affected, subjecting the Fund's shareholders to increased federal income tax liabilities. Under highly unusual circumstances, the Internal Revenue Service may determine that a municipal bond issued as tax-exempt should in fact be taxable. If any Fund held such a bond, it might have to distribute taxable income or reclassify as taxable, ordinary income that was previously distributed as exempt-interest dividends.
TAXABLE MUNICIPAL OBLIGATIONS. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non-qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan.
Municipal notes include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes ("RANs")
and construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANS. An uncertainty in a municipal issuer's capacity to raise taxes as a result of such events as a decline in its tax base or a rise in delinquencies could adversely affect the issuer's ability to meet its obligations on outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds into a general fund that is used to meet obligations other than those of the outstanding TANs. Use of such a general fund to meet various obligations could affect the likelihood of making payments on TANs.
BANS. The ability of a municipal issuer to meet its obligations on its BANs is primarily dependent on the issuer's adequate access to the longer term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal of, and interest on, BANs.
RANS. A decline in the receipt of certain revenues, such as anticipated revenues from another level of government, could adversely affect an issuer's ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal of, and interest on, RANs.
RAWS. Revenue anticipation warrants, or reimbursement warrants, are issued to meet the cash flow needs of state governments at the end of a fiscal year and in the early weeks of the following fiscal year. These warrants are payable from unapplied money in a state's general fund, including the proceeds of RANs issued following enactment of a state budget or the proceeds of refunding warrants issued by the state, and are typically subordinated in right of payment to RANs.
The values of outstanding municipal securities will vary as a result of changing market evaluations of the ability of their issuers to meet the interest and principal payments (I.E., credit risk). Such values also will change in response to changes in the interest rates payable on new issues of municipal securities (I.E., market risk).
The Funds may invest in securities that are known as "preferred securities" or "hybrid securities". Certain of these securities are deemed to be debt obligations although they may have one or more characteristics found in equity securities (E.G., no stated maturity date). The Funds will treat a preferred security as a corporate debt obligation so long as it has some combination of the following characteristics: the security pays interest; the security is priced relative to a U.S. Treasury security; the security is rated by one or more of the Nationally Recognized Statistical Rating Organizations; the security is callable; the security is issued by a corporation or similar for-profit entity; and/or other factors.
The following Funds are limited to investing up to 10% of their total assets in stripped mortgage-backed securities ("SMBS"): Government Securities Fund, High Income Fund, Short-Term Bond Fund, Short-Term High Yield Bond Fund, Strategic Income Fund, Total Return Bond Fund, and Ultra Short-Term Income Fund. The Short Duration Government Bond Fund is limited to investing up to 10% of its total assets in stripped treasury and SMBS, including zero coupon bonds. Securities issued by the U.S. Treasury and certain securities issued by government authorities and government-sponsored enterprises are eligible to be stripped into interest components and principal components. Stripped securities are purchased by the Funds at a discount to their face value. These securities generally are structured to make a lump-sum payment at maturity and do not make periodic payments of principal or interest. Hence, the duration of these securities tends to be longer and they are therefore more sensitive to interest-rate fluctuations than similar securities that offer periodic payments over time. SMBS are often structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. SMBS that are structured to receive interest only are extremely sensitive to changes in the prevailing interest rates as well as the rate of principal payments (including prepayments) on the related underlying mortgage assets, and are therefore much more volatile than SMBS that receive principal only.
Stripped securities may also include participations in trusts that hold U.S. Treasury securities where the trust participations evidence ownership in either the future interest payments or the future principal payments on the obligations. These participations are normally issued at a discount to their "face value," and can exhibit greater price volatility than ordinary debt securities.
Debt security investments may include the debt securities of "supranational" entities if the adviser believes that the securities do not present risks inconsistent with a Fund's investment objective. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (an agency of the World Bank), the Asian Development Bank and the InterAmerican Development Bank.
U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government agencies or U.S. Government-sponsored entities. While U.S. Treasury obligations are backed by the "full faith and credit" of the U.S. Government, securities issued by U.S. Government agencies or government-sponsored entities may not be backed by the full faith and credit of the U.S. Government. The Government National Mortgage Association (GNMA), a wholly owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or government-sponsored entities (I.E. not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection or scheduled payment of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government. If a government-sponsored entity is unable to meet its obligations, the performance of a Fund that holds securities of the entity will be adversely impacted. U.S. Government obligations are subject to low but varying degrees of credit risk, and are still subject to interest rate and market risk.
In addition to the securities discussed above, a Fund may also purchase debt guaranteed by the Federal Deposit Insurance Corporation (FDIC), an independent agency of the U.S. Government, through the FDIC's Temporary Liquidity Guarantee Program (TLGP). Under the TLGP, the FDIC guarantees newly issued senior unsecured debt issued on or before June 30, 2009 by FDIC-insured depository institutions, U.S. bank holding companies and financial holding companies and certain U.S. savings and loan holding companies (FDIC-backed debt). The expiration date of the FDIC's guarantee is the earlier of the maturity date of the FDIC-backed debt or June 30, 2012. FDIC-backed debt is backed by the full faith and credit of the U.S. Government, but is still subject to interest rate and market risk.
These securities are debt securities that do not make regular cash interest payments. Zero-coupon securities are securities that make no periodic interest payments, but are instead sold at discounts from face value. Step-up coupon bonds are debt securities that may not pay interest for a specified period of time and then, after the initial period, may pay interest at a series of different rates. Pay-in-kind securities pay bondholders in more bonds instead of cash interest. If these securities do not pay current cash income, the market prices of these securities would generally be more volatile and likely to respond to a greater degree to changes in interest rates than the market prices of securities that pay cash interest periodically having similar maturities and credit qualities.
Derivative securities are securities that derive their value, at least in part, from the price of another security or asset, or the level of an index, such as the S&P 500 Index, or a rate, such as the London Interbank Offered Rate ("LIBOR"), including structured notes, bonds or other instruments with interest rates that are determined by reference to changes in the value of other interest rates, indices or financial indicators ("References") or the relative change in two or more References. Some forms of derivatives, such as exchange-traded futures and options on securities, commodities, or indices, are traded on regulated exchanges. These types of derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. Non-standardized derivatives, on the other hand, tend to be more specialized or complex, and may be harder to value. Futures contracts and options are also considered types of derivative securities, and are described more fully under the heading "Futures and Options Contracts" below. Other common types of derivatives include forward foreign currency exchange contracts, forward contracts on securities and securities indices, linked securities and structured products, collateralized mortgage obligations, stripped securities, warrants, swap agreements, and swaptions.
An investment is often made in derivative securities as a "hedge" against fluctuations in the market value of the other securities in a Fund's portfolio due to currency exchange rate fluctuations or other factors in the securities markets, although a Fund may also invest in certain derivative securities for investment purposes only. Other reasons why a Fund may use derivative securities include protecting its unrealized gains reflected in the value of its portfolio of securities, facilitating the sale of such securities for investment purposes, reducing transaction costs, and/or managing the effective maturity or duration of its portfolio.
While derivative securities are useful for hedging and investment, they also carry additional risks. A hedging policy may fail if the correlation between the value of the derivative securities and the other investments in a Fund's portfolio does not follow the adviser's expectations. If the adviser's expectations are not met, it is possible that the hedging strategy will not only fail to protect the value of a Fund's investments, but the Fund may also lose money on the derivative security itself. In addition, some derivative securities represent relatively recent innovations in the bond markets. The trading market for these instruments is less developed than the markets for traditional types of debt instruments. It is uncertain how these derivative securities will perform under different economic interest-rate scenarios. Because certain of these instruments are leveraged, their market values may be more volatile than other types of securities and may present greater potential for capital gain or loss. Derivative securities and their underlying instruments may experience periods of illiquidity, which could cause a Fund to hold a security it might otherwise sell or a Fund could be forced to sell a security at inopportune times or for prices that do not reflect current market value. The possibility of default by the issuer or the issuer's credit provider may be greater for structured and derivative instruments than for other types of instruments. As new types of derivative securities are developed and offered to investors, the adviser will, consistent with a Fund's investment objective, policies, restrictions and quality standards, consider making investments in such new types of derivative securities.
Additional risks of derivative securities include, but are not limited to:
the risk of disruption of a Fund's ability to trade in derivative securities
because of regulatory compliance problems or regulatory changes; credit risk of
counterparties to derivative contracts, and market risk (I.E., exposure to
adverse price changes).
The adviser uses a variety of internal risk management procedures to ensure that derivatives are closely monitored and that their use is consistent with a particular Fund's investment objective, policies, restrictions and quality standards, and does not expose such Fund to undue risk.
A Fund's use of derivatives also is subject to broadly applicable investment policies. For example, a Fund may not invest more than a specified percentage of its assets in "illiquid securities," including those derivatives that do not have active secondary markets. A Fund also may not use certain derivatives without establishing adequate "cover" in compliance with the SEC rules limiting the use of leverage.
Derivatives, both equity and credit, include options, futures and options on futures, which may be used to hedge a Fund's portfolio, increase returns or maintain exposure to a market without buying individual securities. These investments may pose risks in addition to those associated with investing directly in securities or other investments. Such risks may include illiquidity of the derivative and imperfect correlation of the derivative with underlying investments for which it is being substituted or the Fund's other portfolio holdings. Accordingly, there is the risk that such practices may fail to serve their intended purposes, and may reduce returns or increase volatility. These practices also entail transactional expenses.
Additionally, the use of derivatives can lead to losses because of adverse movements in the price or value of the underlying security, asset, index or reference rate, which may be magnified by certain features of the derivatives. These risks are heightened when a Fund uses derivatives to enhance its return or as a substitute for a position or security, rather than solely to hedge or offset the risk of a position or security held by a Fund. A Fund's use of derivatives to leverage risk also may exaggerate a loss, potentially causing a Fund to lose more money than if it had invested in the underlying security, or limit a potential gain.
The success of management's derivative strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying security, asset, index or reference rate and the derivative itself, without necessarily the benefit of observing the performance of the derivative under all possible market conditions. Other risks arise from a Fund's potential inability to terminate or sell its derivative positions as a liquid secondary market for such positions may not exist at times when a Fund may wish to terminate or sell them. Over-the-counter instruments (investments not traded on an exchange) may be illiquid. Derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. Also, with some derivative strategies, there is the risk that a Fund may not be able to find a suitable counterparty for the derivative transaction, and therefore may be unable to invest in derivatives altogether. The use of derivatives may also increase the amount and accelerate the timing of taxes payable by shareholders.
A Fund that is authorized to invest in derivatives may use any or all of the above investment techniques and may purchase different types of derivative instruments at any time and in any combination. There is no particular strategy that dictates the use of one technique over another, as the use of derivatives is a function of numerous variables, including market conditions.
CREDIT DERIVATIVES. A credit derivative is a form of derivative that is divided into two categories: credit default swaps and total return swaps. Both such categories of credit derivatives are usually governed by the standard terms and conditions of an ISDA Master Agreement.
A credit default swap involves a protection buyer and a protection seller. A Fund may be either a protection buyer or seller. The protection buyer makes periodic premium payments to the protection seller during the swap term in exchange for the protection seller agreeing to make certain defined payments to the protection buyer in the event certain defined credit events occur with respect to a particular security, issuer or basket of securities. A total return swap involves a total return receiver and a total return payor. A Fund may either be a total return receiver or payor. Generally, the total return payor sells to the total return receiver an amount equal to all cash flows and price appreciation on a defined security or asset payable at periodic times during the swap term (I.E., credit risk) in return for a periodic payment from the total return receiver based on designated index (E.G., LIBOR) and spread plus the amount of any price depreciation on the reference security or asset. The total return payor does not need to own the underlying security or asset to enter into a total return swap. The final payment at the end of the swap term includes final settlement of the current market price of the underlying reference security or asset, and payment by the applicable party for any appreciation or depreciation in value. Usually, collateral must be posted by the total return receiver to secure the periodic interest-based and market price depreciation payments depending on the credit quality of the underlying reference security and creditworthiness of the total return receiver, and the collateral amount is marked-to-market daily equal to the market price of the underlying reference security or asset between periodic payment dates.
Other types of credit derivatives include credit-linked notes and other forms of debt obligations having an embedded credit default swap component. In such type of credit derivative, payments of principal and interest are tied to the performance of one or more reference obligations or assets.
In all of the above-referenced credit derivative transactions, the same general risks inherent to derivative transactions are present. However, credit derivative transactions also carry with them greater risks of imperfect correlation between the performance and price of the underlying reference security or asset, and the general performance of the designated interest rate or index which is the basis for the periodic payment. If a Fund writes a credit default swap, it receives an up-front premium. A Fund's exposure under a credit default swap, though, is a form of leverage and will be subject to the restrictions on leveraged derivatives.
In General. A futures transaction involves a firm agreement to buy or sell a commodity or financial instrument at a particular price on a specified future date, while an option transaction generally involves a right, which may or may not be exercised, to buy or sell a commodity or financial instrument at a particular price on a specified future date. Futures contracts and options are standardized and exchange-traded, where the exchange serves as the ultimate counterparty for all contracts. Consequently, the primary credit risk on futures contracts is the creditworthiness of the exchange. Futures contracts, however, are subject to market risk (I.E., exposure to adverse price changes).
Initially, when purchasing or selling futures contracts, a Fund will be required to deposit with the Fund's custodian in the broker's name an amount of cash or cash equivalents up to approximately 10% of the contract amount. This amount is subject to change by the exchange or board of trade on which the contract is traded, and members of such exchange or board of trade may impose their own higher requirements. This amount is known as "initial margin" and is in the nature of a performance bond or good faith deposit on the contract that is returned to the Fund upon termination of the futures position, assuming all contractual obligations have been satisfied. Subsequent payments, known as "variation margin," to and from the broker will be made daily as the price of the index or securities underlying the futures contract fluctuates, making the long and short positions in the futures contract more or less valuable. At any time prior to the expiration of a futures contract, a Fund may elect to close the position by taking an opposite position, at the then prevailing price, thereby terminating its existing position in the contract.
Although a Fund intends to purchase or sell futures contracts only if there is an active market for such contracts, no assurance can be given that a liquid market will exist for any particular contract at any particular time. Many futures exchanges and boards of trade limit the amount of fluctuation permitted in futures contract prices during a single trading day. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit or trading may be suspended for specified periods during the trading day. Futures contract prices could move to the limit for several consecutive trading days with little or no trading, thereby preventing prompt liquidation of futures positions and potentially subjecting a Fund to substantial losses. If it is not possible, or a Fund determines not to close a futures position in anticipation of adverse price movements, the Fund will be required to make daily cash payments of variation margin.
An option on a futures contract gives the purchaser the right, in return for the premium paid, to assume a position in a futures contract (a long position if the option is a call and a short position if the option is a put) at a specified exercise price at any time during the option exercise period. The writer (I.E., seller) of the option is required upon exercise to assume an offsetting futures position (a short position if the option is a call and a long position if the option is a put). Upon exercise of the option, the assumption of offsetting futures positions by both the writer and the holder of the option will be accompanied by delivery of the accumulated cash balance in the writer's futures margin account in the amount by which the market price of the futures contract, at exercise, exceeds (in the case of a call) or is less than (in the case of a put) the exercise price of the option on the futures contract. The potential loss related to the purchase of options on futures contracts is limited to the premium paid for the option (plus transaction costs). Because the value of the option is fixed at the time of sale, there are no daily cash payments to reflect changes in the value of the underlying contract; however, the value of the option may change daily, and that change would be reflected in the net asset value ("NAV") of the Fund.
A Fund may trade futures contracts and options on futures contracts in U.S. domestic markets, such as the Chicago Board of Trade and the International Monetary Market of the Chicago Mercantile Exchange. Pursuant to regulations and/or published positions of the SEC, a Fund may be required to segregate cash or high-quality money-market instruments in connection with its futures transactions in an amount generally equal to the entire value of the underlying security.
Pursuant to a notice of eligibility claiming exclusion from the definition of Commodity Pool Operator filed with the National Futures Association on behalf of the Funds, neither the Trust nor any of the individual Funds is deemed to be a "commodity pool operator" under the Commodity Exchange Act ("CEA"), and, accordingly, they are not subject to registration or regulation as such under the CEA.
A Fund may engage in futures contracts sales to maintain the income advantage from continued holding of a long-term security while endeavoring to avoid part or all of the loss in market value that would otherwise accompany a decline in long-term security prices. If, however, securities prices rise, a Fund would realize a loss in closing out its futures contract sales that would offset any increases in prices of the long-term securities they hold.
Another risk in employing futures contracts and options thereon to protect against cash market price volatility is the possibility that futures prices will correlate imperfectly with the behavior of the prices of the securities in such portfolio (the portfolio securities will not be identical to the debt instruments underlying the futures contracts).
OPTIONS TRADING. Options on individual securities or options on indices of securities may be purchased or sold. The purchaser of an option risks a total loss of the premium paid for the option if the price of the underlying security does not increase or decrease sufficiently to justify the exercise of such option. The seller of an option, on the other hand, will recognize the premium as income if the option expires unrecognized but foregoes any capital appreciation in excess of the exercise price in the case of a call option and may be required to pay a price in excess of current market value in the case of a put option.
A call option for a particular security gives the purchaser of the option the right to buy, and a writer the obligation to sell, the underlying security at the stated exercise price at any time prior to the expiration of the option, regardless of the market price of the security. The premium paid to the writer is in consideration for undertaking the obligation under the option contract. A put option for a particular security gives the purchaser the right to sell, and the writer the option to buy, the security at the stated exercise price at any time prior to the expiration date of the option, regardless of the market price of the security.
A Fund will write call options only if they are "covered." In the case of a call option on a security or currency, the option is "covered" if a Fund owns the instrument underlying the call or has an absolute and immediate right to acquire that instrument without additional cash consideration (or, if additional cash consideration is required, cash, U.S. Government securities or other liquid high-grade debt obligations, in such amount are held in a segregated account by such Fund's custodian) upon conversion or exchange of other securities held by it. For a call option on an index, the option is covered if a Fund maintains with its custodian a diversified portfolio of securities comprising the index or liquid assets equal to the contract value. A call option is also covered if a Fund holds an offsetting call on the same instrument or index as the call written. A Fund will write put options only if they are "secured" by liquid assets maintained in a segregated account by the Fund's custodian in an amount not less than the exercise price of the option at all times during the option period.
A Fund may buy put and call options and write covered call and secured put options. Options trading is a highly specialized activity which entails greater than ordinary investment risk. Options may be more volatile than the underlying instruments, and therefore, on a percentage basis, an investment in options may be subject to greater fluctuation than an investment in the underlying instruments themselves. Purchasing options is a specialized investment technique that entails a substantial risk of a complete loss of the amounts paid as premiums to the writer of the option. If the adviser is incorrect in its forecast of market value or other factors when writing options, the Fund would be in a worse position than it would have been had if it had not written the option. If a Fund wishes to sell an underlying instrument (in the case of a covered call option) or liquidate assets in a segregated account (in the case of a secured put option), the Fund must purchase an offsetting option if available, thereby incurring additional transactions costs.
Below is a description of some of the types of futures and options in which the Funds may invest.
STOCK INDEX OPTIONS. A Fund may purchase and write (I.E., sell) put and call options on stock indices only as a substitute for comparable market positions in the underlying securities. A stock index fluctuates with changes of the market values of the stocks included in the index. The effectiveness of purchasing or writing stock index options will depend upon the extent to which price movements of the securities in a Fund's portfolio correlate with price movements of the stock index selected. Because the value of an index option depends upon movements in the level of the index rather than the price of a particular stock, whether a Fund will realize a gain or loss from purchasing or writing stock index options depends upon movements in the level of stock prices in the stock market generally or, in the case of certain indices, in an industry or market segment, rather than movements in the price of particular stock. When a Fund writes an option on a stock index, such Funds will place in a segregated account with the Fund's custodian cash or liquid securities in an amount at least equal to the market value of the underlying stock index and will maintain the account while the option is open or otherwise will cover the transaction.
STOCK INDEX FUTURES AND OPTIONS ON STOCK INDEX FUTURES. A Fund may invest in stock index futures and options on stock index futures only as a substitute for a comparable market position in the underlying securities. A stock index future obligates the seller to deliver (and the purchaser to take), effectively, an amount of cash equal to a specific dollar amount times the difference between the value of a specific stock index at the close of the last trading day of the contract and the price at which the agreement is made. No physical delivery of the underlying stocks in the index is made. With respect to stock indices that are permitted investments, each Fund intends to purchase and sell futures contracts on the stock index for which it can obtain the best price with consideration also given to liquidity.
FOREIGN CURRENCY FUTURES CONTRACTS. A Fund may invest in foreign currency futures contracts which entail the same risks as other futures contracts as described above, but have the additional risks associated with international investing (see "Foreign Obligations and Securities" below). Similar to other futures contracts, a foreign currency futures contract is an agreement for the future delivery of a specified currency at a specified time and at a specified price that will be secured by margin deposits, is regulated by the CFTC and is traded on designated exchanges. A Fund will incur brokerage fees when it purchases and sells futures contracts.
To the extent that a Fund may invest in securities denominated in currencies other than the U.S. dollar and may temporarily hold funds in bank deposits or other money market investments denominated in foreign currencies, it may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rate between such currencies and the dollar. The rate of exchange between the U.S. dollar and other currencies is determined by the forces of supply and demand in the foreign exchange markets. The international balance of payments and other economic and financial conditions, government intervention, speculation and other factors affect these forces.
If a fall in exchange rates for a particular currency is anticipated, a Fund may sell a foreign currency futures contract as a hedge. If it is anticipated that exchange rates will rise, a Fund may purchase a foreign currency futures contract to protect against an increase in the price of securities denominated in a particular currency the Fund intends to purchase. These foreign currency futures contracts will be used only as a hedge against anticipated currency rate changes. Although such contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result should the value of such currency increase.
The use of foreign currency futures contracts involves the risk of imperfect correlation between movements in futures prices and movements in the price of currencies which are the subject of the hedge. The successful use of foreign currency futures contracts also depends on the ability of the adviser to correctly forecast interest rate movements, currency rate movements and general stock market price movements. There can be no assurance that the adviser's judgment will be accurate. The use of foreign currency futures contracts also exposes a Fund to the general risks of investing in futures contracts, including: the risk of an illiquid market for the foreign currency futures contracts and the risk of adverse regulatory actions. Any of these events may cause a Fund to be unable to hedge its currency risks, and may cause a Fund to lose money on its investments in foreign currency futures contracts.
INTEREST RATE FUTURES CONTRACTS AND OPTIONS ON INTEREST RATE FUTURES CONTRACTS. A Fund may invest in interest rate futures contracts and options on interest rate futures contracts as a substitute for a comparable market position in the underlying securities. The Fund may also sell options on interest rate futures contracts as part of closing purchase transactions to terminate its options positions. No assurance can be given that such closing transactions can be effected or as to the degree of correlation between price movements in the options on interest rate futures and price movements in the Fund's portfolio securities which are the subject of the transaction.
FUTURE DEVELOPMENTS. A Fund may take advantage of opportunities in the areas of options and futures contracts and options on futures contracts and any other derivative investments which are not presently contemplated for use by the Fund or which are not currently available but which may be developed, to the extent such opportunities are both consistent with a Fund's investment objective and legally permissible for the Fund.
Swap agreements are derivative instruments that can be individually negotiated and structured to address exposure to a variety of different types of investments or market factors. Depending on their structure, swap agreements may increase or decrease a Fund's exposure to long- or short-term interest rates, foreign currency values, mortgage securities, corporate borrowing rates, or other factors such as security prices or inflation rates. A Fund may enter into a variety of swap agreements, including interest rate, index, commodity, equity, credit default and currency exchange rate swap agreements, and other types of swap agreements such as caps, collars and floors. A Fund also may enter into swaptions, which are options to enter into a swap agreement. In a swaption, in exchange for an option premium, the purchaser of the swaption acquires the right, but not the obligation, to enter into a specified swap agreement with a counterparty on a specified future date. If there is a default by the other party to a swap agreement or swaption, the Fund will have contractual remedies pursuant to the agreements related to the transaction.
The use of swaps and swaptions is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. These transactions generally do not involve the delivery of securities or other underlying assets or principal. Accordingly, the risk of loss with respect to swap agreements and swaptions generally is limited to the net amount of payments that the Fund is contractually obligated to make. There is also a risk of a default by the other party to a swap agreement or swaption, in which case a Fund may not receive the net amount of payments that such Fund contractually is entitled to receive.
INTEREST RATE SWAP AGREEMENTS. In a typical interest rate swap, one party agrees to make regular payments equal to a floating interest rate times a "notional principal amount," in return for payments equal to a fixed rate times the same amount, for a specified period of time. The exchange commitment can involve payments to be made in the same currency or in different currencies. A Fund will usually enter into swap agreements on a net basis. In so doing, the two payment streams under the swap agreement are netted out, with the Fund receiving or paying, as the case may be, only the net amount of the two payments. If the Fund enters into a swap agreement, it will maintain a segregated account on a gross basis, unless the contract provides for a segregated account on a net basis. If a swap agreement provides for payments in different currencies, the parties might agree to exchange notional principal amount as well. In a total return swap agreement, the non-floating rate side of the swap is based on the total return of an individual security, a basket of securities, an index or another reference asset. Swaps may also depend on other prices or rates, such as the value of an index or mortgage prepayment rates.
In a typical cap or floor agreement, one party agrees to make payments only under specified circumstances, usually in return for payment of a fee by the other party. For example, the buyer of an interest rate cap obtains the right to receive payments to the extent that a specified interest rate exceeds an agreed-upon level, while the seller of an interest rate floor is obligated to make payments to the extent that a specified interest rate falls below an agreed-upon level. Caps and floors have an effect similar to buying or writing options. A collar combines elements of buying a cap and selling a floor.
Swap agreements will tend to shift a Fund's investment exposure from one type of investment to another. For example, if a Fund agreed to pay fixed rates in exchange for floating rates while holding fixed-rate bonds, the swap would tend to decrease a Fund's exposure to long-term interest rates. Another example is if a Fund agreed to exchange payments in dollars for payments in foreign currency, the swap agreement would tend to decrease a Fund's exposure to U.S. interest rates and increase its exposure to foreign currency and interest rates.
Swap agreements are sophisticated hedging instruments that typically involve a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can be highly volatile and may have a considerable impact on a Fund's performance. Depending on how they are used, swap agreements may increase or decrease the overall volatility of a Fund's investments and its share price and yield. Additionally, whether a Fund's use of swap agreements will be successful in furthering its investment objective will depend on the adviser's ability correctly to predict whether certain types of investments likely are to produce greater returns than other investments. Because they are two party contracts and because they may have terms of greater than seven days, swap agreements may be considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap agreement counterparty. The
most significant factor in the performance of swap agreements is the change in the specific interest rate, currency, or other factor that determines the amounts of payments due to and from a Fund. If a swap agreement calls for payments by a Fund, a Fund must be prepared to make such payments when due. In addition, if the counterparty's creditworthiness declines, the value of a swap agreement likely would decline, potentially resulting in losses for a Fund. A Fund will closely monitor the credit of a swap agreement counterparty in order to attempt to minimize this risk. A Fund may also suffer losses if it is unable to terminate outstanding swap agreements (either by assignment or other disposition) or reduce its exposure through offsetting transactions (I.E., by entering into an offsetting swap agreement with the same party or a similarly creditworthy party).
CREDIT DEFAULT SWAP AGREEMENTS. A Fund may enter into credit default swap agreements, which may have as reference obligations one or more securities or a basket of securities that are or are not currently held by a Fund. The protection "buyer" in a credit default contract is generally obligated to pay the protection "seller" an upfront or a periodic stream of payments over the term of the contract provided that no credit event, such as a default, on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the "par value" (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. A Fund may be either the buyer or seller in the transaction. If a Fund is a buyer and no credit event occurs, a Fund may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, a Fund generally receives an upfront payment or a fixed rate of income throughout the term of the swap provided that there is no credit event. As the seller, a Fund would effectively add leverage to its portfolio because, in addition to its total net assets, a Fund would be subject to investment exposure on the notional amount of the swap.
Credit default swap agreements may involve greater risks than if a Fund had invested in the reference obligation directly since, in addition to risks relating to the reference obligation, credit default swaps are subject to illiquidity risk, counterparty risk and credit risk. A Fund will enter into credit default swap agreements generally with counterparties that meet certain standards of creditworthiness. A buyer generally also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the seller.
EQUITY SWAPS. A Fund may engage in equity swaps. Equity swaps allow the parties to the swap agreement to exchange components of return on one equity investment (E.G., a basket of equity securities or an index) for a component of return on another non-equity or equity investment, including an exchange of differential rates of return. Equity swaps may be used to invest in a market without owning or taking physical custody of securities in circumstances where direct investment may be restricted for legal reasons or is otherwise impractical. Equity swaps also may be used for other purposes, such as hedging or seeking to increase total return.
The values of equity swaps can be very volatile. To the extent that the adviser does not accurately analyze and predict the potential relative fluctuation on the components swapped with the other party, a Fund may suffer a loss. The value of some components of an equity swap (such as the dividend on a common stock) may also be sensitive to changes in interest rates. Furthermore, during the period a swap is outstanding, a Fund may suffer a loss if the counterparty defaults.
TOTAL RETURN SWAP AGREEMENTS. Total return swap agreements are contracts in which one party agrees to make periodic payments to another party based on the change in market value of the assets underlying the contract, which may include a specified security, basket of securities or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking physical custody of such security or investing directly in such market. Total return swap agreements may effectively add leverage to a Fund's portfolio because, in addition to its total net assets, a Fund would be subject to investment exposure on the notional amount of the swap.
Total return swap agreements are subject to the risk that a counterparty will default on its payment obligations to a Fund thereunder, and conversely, that a Fund will not be able to meet its obligation to the counterparty. Generally, a Fund will enter into total return swaps on a net basis (I.E., the two payment streams are netted against one another with a Fund receiving or paying, as the case may be, only the net amount of the two payments). The net amount of the excess, if any, of a Fund's obligations over its entitlements with respect to each total return swap will be accrued on a daily basis, and an amount of liquid assets having an aggregate net asset value at least equal to the accrued excess will be segregated by a Fund. If the total return swap transaction is entered into on other than a net basis, the full amount of a Fund's obligations will be accrued on a daily basis, and the full amount of a Fund's obligations will be segregated by a Fund in an amount equal to or greater than the market value of the liabilities under the total return swap agreement or the amount it would have cost a Fund initially to make an equivalent direct investment, plus or minus any amount a Fund is obligated to pay or is to receive under the total return swap agreement.
VARIANCE, VOLATILITY AND CORRELATION SWAP AGREEMENTS. Variance and volatility swaps are contracts that provide exposure to increases or decreases in the volatility of certain referenced assets. Correlation swaps are contracts that provide exposure to increases or decreases in the correlation between the prices of different assets or different market rates.
The following equity securities may be purchased by a Fund to the extent such purchase is consistent with the Fund's investment objective and strategies.
Common stocks represent an equity (ownership) interest in a company. This ownership interest generally gives a Fund the right to vote on issues affecting the company's organization and operations. Preferred stock, unlike common stock, offers a stated dividend rate payable from a corporation's earnings. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. The rights of preferred stocks on the distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt securities. Common and preferred stock are subject to equity market risk. This is the risk that stock prices will fluctuate and can decline and reduce the value of a Fund's investment.
Although the Funds will not invest directly in real estate, the Funds may invest in equity securities of issuers primarily engaged in or related to the real estate industry. Therefore, an investment in real estate investment trusts ("REITs") is subject to certain risks associated with the direct ownership of real estate and with the real estate industry in general. These risks include, among others: possible declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; increases in competition, property taxes and operating expenses; changes in zoning laws; costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental problems; casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters; limitations on and variations in rents; changes in interest rates; and acts of terrorism, war or other acts of violence. To the extent that assets underlying the REITs' investments are concentrated geographically, by property type or in certain other respects, the REITs may be subject to certain of the foregoing risks to a greater extent. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the U.S. Internal Revenue Code and failing to maintain their exemptions from registration under the 1940 Act. REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REIT's investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT's investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable rate mortgage loans are reset periodically, yields on a REIT's investment in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger company securities.
Investments in mortgage-related securities involve certain risks, which are described under Mortgage-Related Securities, above, and in the Prospectus(es).
Investments in foreign obligations and securities include debt obligations of foreign issuers, including foreign branches of U.S. banks, U.S. branches of foreign banks, foreign governmental agencies and foreign companies that are denominated in and pay interest in U.S. dollars. Investments in foreign obligations involve certain considerations that are not typically associated with investing in domestic obligations. There may be less publicly available information about a foreign issuer than about a domestic issuer and the available information may be less reliable. Foreign issuers also are not generally subject to the same accounting, auditing and financial reporting standards or governmental supervision as domestic issuers. In addition, with respect to certain foreign countries, taxes may be withheld at the source under foreign tax laws, and there is a possibility of expropriation or potentially confiscatory levels of taxation, political or social instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, obligations of issuers located in
those countries. Amounts realized on certain foreign securities in which a Fund may invest may be subject to foreign withholding or other taxes that could reduce the return on these securities. Tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Fund would otherwise be subject.
Foreign securities include, among others, American Depositary Receipts (ADRs) and similar investments, including Canadian Depositary Receipts (CDRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary Receipts (IDRs). ADRs, CDRs, EDRs, GDRs, and IDRs are depositary receipts for foreign company stocks issued by a bank and held in trust at that bank, and which entitle the owner of such depositary receipts to any capital gains or dividends from the foreign company stocks underlying the depositary receipts. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs (sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are receipts typically issued by a Canadian bank or trust company that evidence ownership of underlying foreign securities. Issuers of unsponsored ADRs are not contractually obligated to disclose material information in the U.S. and, therefore, such information may not correlate to the market value of the unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S. banking institution, that evidence ownership of the underlying foreign securities. Generally, ADRs in registered form are designed for use in U.S. securities markets and EDRs and IDRs in bearer form are designed primarily for use in Europe.
Foreign securities also include securities denominated in currencies other than the U.S. dollar and may temporarily hold funds in bank deposits or other money market investments denominated in foreign currencies. Therefore, the Funds may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rate between such currencies and the dollar.
The risks of foreign investing may be magnified for investments in emerging markets, which may have relatively unstable governments, economies based on only a few industries, and securities markets that trade a small number of securities.
Because a Fund may invest in securities denominated in currencies other than the U.S. dollar and may temporarily hold funds in bank deposits or other money market investments denominated in foreign currencies, it may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rate between such currencies and the dollar. Changes in foreign currency exchange rates influence values within the Fund from the perspective of U.S. investors. The rate of exchange between the U.S. dollar and other currencies is determined by a wide range of political and economic factors, including the forces of supply and demand in the foreign exchange markets. The international balance of payments and other economic and financial conditions, government intervention and stability, speculation and other factors also affect exchange rates.
A Fund may engage in foreign currency transactions in order to hedge its portfolio and to protect it against possible variations in foreign exchange rates pending the settlement of securities transactions. If a fall in exchange rates for a particular currency is anticipated, a Fund may enter into a forward contract to protect against a decrease in the price of securities denominated in a particular currency a Fund intends to purchase. If it is anticipated that exchange rates will rise, a Fund may enter into a forward contract to protect against an increase in the price of securities denominated in a particular currency the Fund intends to purchase. These forward contracts will be used only as a hedge against anticipated currency rate changes. Although such contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result should the value of such currency increase.
Foreign currency transactions, such as forward foreign currency exchange contracts, are contracts for the future delivery of a specified currency at a specified time and at a specified price. These transactions differ from futures contracts in that they are usually conducted on a principal basis instead of through an exchange, and therefore there are no brokerage fees, margin deposits are negotiated between the parties, and the contracts are settled through different procedures. The Adviser considers on an ongoing basis the creditworthiness of the institutions with which the Fund enters into foreign currency transactions.
The use of foreign currency transactions involves the risk of imperfect correlation between movements in futures prices and movements in the price of currencies which are the subject of the hedge. The successful use of foreign currency transactions strategies also depends on the ability of the adviser to correctly forecast interest rate movements, currency rate movements and general stock market price movements. There can be no assurance that the adviser's judgment will be accurate. The use of foreign currency transactions also exposes a Fund to the general risks of investing in futures contracts, including: the risk of an illiquid market for the foreign currency transactions and the risk of adverse regulatory actions. Any of these events may cause a Fund to be unable to hedge its securities, and may cause a Fund to lose money on its investments in foreign currency transactions. The Funds will either cover a position in such a transaction or maintain, in a segregated account with their custodian bank, cash or high-grade marketable money market securities having an aggregate value equal to the amount of any such commitment until payment is made.
The Funds may purchase participation notes, also known as participation certificates. Participation notes are issued by banks or broker-dealers and are designed to replicate the performance of foreign companies or foreign securities markets and can be used by a Fund as an alternative means to access the securities market of a country. The performance results of participation notes will not replicate exactly the performance of the foreign companies or foreign securities markets that they seek to replicate due to transaction and other expenses. Investments in participation notes involve the same risks associated with a direct investment in the underlying foreign companies or foreign securities markets that they seek to replicate. There can be no assurance that the trading price of participation notes will equal the underlying value of the foreign companies or foreign securities markets that they seek to replicate. Participation notes are generally traded over-the-counter. Participation notes are subject to counterparty risk, which is the risk that the broker-dealer or bank that issues them will not fulfill its contractual obligation to complete the transaction with the Fund. Participation notes constitute general unsecured contractual obligations of the banks or broker-dealers that issue them, the counterparty, and the Fund is relying on the creditworthiness of such counterparty and has no rights under a participation note against the issuer of the underlying security. Participation notes involve transaction cost. Participation notes may be illiquid and therefore subject to the Fund's percentage limitation for investments in illiquid securities. Participation notes offer a return linked to a particular underlying equity, debt or currency.
Money may be borrowed for temporary or emergency purposes, including the meeting of redemption requests. Borrowing involves special risk considerations. Interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds (or on the assets that were retained rather than sold to meet the needs for which funds were borrowed). Under adverse market conditions, a Fund might have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales. Reverse repurchase agreements, dollar roll transactions and other similar investments that involve a form of leverage have characteristics similar to borrowings, but are not considered borrowings if the Fund maintains a segregated account.
Securities may be purchased or sold on a when-issued or delayed-delivery basis and contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time may also be made. Delivery and payment on such transactions normally take place within 120 days after the date of the commitment to purchase. Securities purchased or sold on a when-issued, delayed-delivery or forward commitment basis involve a risk of loss if the value of the security to be purchased declines, or the value of the security to be sold increases, before the settlement date.
The Funds have a segregated account in which they may maintain cash, U.S. Government obligations or other high-quality debt instruments in an amount at least equal in value to each Fund's commitments to purchase when-issued securities. If the value of these assets declines, a Fund will place additional liquid assets in the account on a daily basis so that the value of the assets in the account is at least equal to the amount of such commitments.
Securities not registered under the 1933 Act, and other securities subject to legal or other restrictions on resale may be less liquid than other investments and may be difficult to sell promptly at an acceptable price. Delay or difficulty in selling securities may result in a loss or be costly to a Fund. No Fund may invest or hold more than 15% of its net assets in illiquid securities.
Portfolio securities may be loaned pursuant to guidelines approved by the
Board to brokers, dealers and financial institutions, provided: (i) the loan is
secured continuously by collateral consisting of cash, securities of the U.S.
Government, its agencies or instrumentalities, or an irrevocable letter of
credit issued by a bank organized under the laws of the United States,
organized under the laws of a state, or a foreign bank that has filed an
agreement with the Federal Reserve Board to comply with the same rules and
regulations applicable to U.S. banks in securities credit transactions, and
such collateral being maintained on a daily marked-to-market basis in an amount
at least equal to the current market value of the securities loaned plus any
accrued interest or dividends; (ii) the Fund may at any time call the loan and
obtain the return of the securities loaned upon sufficient prior notification;
(iii) the Fund will receive any interest or distributions paid on the loaned
securities; and (iv) the aggregate market value of securities loaned will not
at any time exceed the limits established by the 1940 Act.
For lending its securities, a Fund will earn either a fee payable by the borrower on loans that are collateralized by U.S. Government securities or a letter of credit, or income on instruments purchased with cash collateral (after payment of a "broker rebate fee" to the borrower). Cash collateral is invested on behalf of the Fund by the Securities Lending Agent in high-quality,
U.S. dollar-denominated short-term money market instruments that have been evaluated and approved by the Funds' investment adviser and are permissible investments for a Fund. Cash collateral is invested on behalf of a Fund in a manner similar to the Funds' investment of its cash reserves and the Fund bears the gains and losses on such investments. The net asset value of a 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 instruments in which cash collateral is invested. Loans of securities also involve a risk that the borrower may fail to return the securities or may fail to provide additional collateral. In either case, a Fund could experience delays in recovering securities or collateral or could lose all or part of the value of the loaned securities. Although voting rights, or rights to consent, attendant to securities on loan pass to the borrower, loans may be called at any time and generally will be called if a material event affecting the investment is to occur so that securities may be voted by the Fund.
Each lending Fund pays a portion of the net interest or fees earned from securities lending to a securities lending agent. Wells Fargo Bank acts as Securities Lending Agent for the Funds, subject to the overall supervision of the Funds' investment adviser. Pursuant to an exemptive order granted by the SEC, Wells Fargo Bank receives a portion of the revenues generated by securities lending activities as compensation for its services in this regard. The Securities Lending Agent may make payments to borrowers and placing brokers. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, the adviser or the distributor.
A Fund may invest in shares of other open-end and closed-end management investment companies up to the limits prescribed in Section 12(d) under the 1940 Act, subject to the fund's non-fundamental investment policies. Currently, under the 1940 Act, a fund that invests directly in a portfolio of securities is limited to, subject to certain exceptions: (i) 3% of the total voting stock of any one investment company; (ii) 5% of such fund's total assets with respect to any one investment company; and (iii) 10% of such fund's total assets. Gateway funds, whose policies are to invest some or all of their assets in the securities of one or more open-end management investment companies, are excepted from these limitations. Other investment companies in which the Fund invests can be expected to charge fees for operating expenses, such as investment advisory and administration fees, that would be in addition to those charged by the Fund.
Other investment companies may include exchange-traded funds ("ETFs"), which are shares of publicly traded unit investment trusts, open-end funds or depositary receipts that seek to track the performance of specific indexes or companies in related industries. ETFs generally are subject to the same risks as the underlying securities the ETFs are designed to track and to the risks of the specific sector or industry tracked by the ETF. ETFs also are subject to the risk that their prices may not totally correlate to the prices of the underlying securities the ETFs are designed to track and the risk of possible trading halts due to market conditions or for other reasons. Although ETFs that track broad market indexes are typically large and their shares are fairly liquid, ETFs that track more specific indexes tend to be newer and smaller, and all ETFs have limited redemption features. Pursuant to certain exemptive relief granted by the SEC, the Fund's investments in certain ETFs may exceed certain of the limits described above.
Under the 1940 Act and rules and regulations thereunder, a Fund may purchase shares of other affiliated Funds, including the money market Funds, subject to certain conditions. Investing in affiliated Funds may present certain actual or potential conflicts of interest.
Private placement securities are not registered under the 1933 Act. Private placements often may offer attractive opportunities for investment not otherwise available on the open market. However, private placement and other "restricted" securities typically cannot be resold without registration under the 1933 Act or the availability of an exemption from registration (such as Rules 144 or 144A (a "Rule 144A Security")), and may not be readily marketable.
Private placement and other restricted securities typically may be resold only to qualified institutional buyers, or in a privately negotiated transaction, or to a limited number of purchasers, or in limited quantities after they have been held for a specified period of time and other conditions are met for an exemption from registration. Investing in private placement and other restricted securities is subject to certain additional risks. They may be considered illiquid securities as they typically are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such securities, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Fund could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities only at prices lower than if such securities were more widely held and traded. At times, it also may be more difficult to determine the fair value of such securities for purposes of computing a Fund's net asset value due to the absence of an active trading market. Delay or difficulty in selling such securities may result in a loss to a Fund. Restricted securities, including Rule 144A Securities, that are "illiquid" are subject to a Fund's policy of not investing or holding more than 15% of its net assets in illiquid securities. The adviser will evaluate the liquidity characteristics of each Rule 144A Security proposed for purchase by a Fund on a case-by-case basis and will consider the following factors, among others, in its evaluation:
(i) the frequency of trades and quotes for the Rule 144A Security; (ii) the number of dealers willing to purchase or sell the Rule 144A Security and the number of other potential purchasers; (iii) dealer undertakings to make a market in the Rule 144A Security; and (iv) the nature of the Rule 144A Security and the nature of the marketplace trades (E.G., the time needed to dispose of the Rule 144A Security, the method of soliciting offers and the mechanics of transfer). The adviser will apply a similar process to evaluating the liquidity characteristics of other restricted securities. There can be no assurance that a restricted security that is deemed to be liquid when purchased will continue to be liquid for as long as it is held by a Fund.
Repurchase agreements are agreements wherein the seller of a security to a Fund agrees to repurchase that security from a Fund at a mutually agreed upon time and price. All repurchase agreements will be fully "collateralized," as defined under the 1940 Act. A Fund may enter into repurchase agreements only with respect to securities that could otherwise be purchased by such Fund. The maturities of the underlying securities in a repurchase agreement transaction may be greater than twelve months, although the maximum term of a repurchase agreement will always be less than twelve months. Repurchase agreements generally are subject to counterparty risk. If the seller defaults and the value of the underlying securities has declined, a Fund may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, a Fund's disposition of the underlying securities may be delayed or limited.
A Fund may not enter into a repurchase agreement with a maturity of more than seven days, if, as a result, more than 15% of the market value of such Fund's net assets would be invested in repurchase agreements with maturities of more than seven days, and other illiquid securities. A Fund will only enter into repurchase agreements with broker-dealers and commercial banks that meet guidelines established by the Board and that are not affiliated with the Fund's adviser. The Funds may participate in pooled repurchase agreement transactions with other funds advised by the adviser.
A reverse repurchase agreement is an agreement under which a Fund sells a portfolio security and agrees to repurchase it at an agreed-upon date and price. At the time a Fund enters into a reverse repurchase agreement, it will place in a segregated custodial account liquid assets such as U.S. Government securities or other liquid high-grade debt securities having a value equal to or greater than the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Fund may decline below the price at which a Fund is obligated to repurchase the securities. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Fund's use of proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce a Fund's obligation to repurchase the securities. Reverse repurchase agreements may be viewed as a form of borrowing.
A short sale is a transaction in which a Fund sells a security it does not own in anticipation of a decline in market price. When a Fund makes a short sale, the proceeds it receives are retained by the broker until a Fund replaces the borrowed security. In order to deliver the security to the buyer, a Fund must arrange through a broker to borrow the security and, in so doing, a Fund becomes obligated to replace the security borrowed at its market price at the time of replacement, whatever that price may be. Short sales "against the box" means that a Fund owns the securities, which are placed in a segregated account until the transaction is closed out, or has the right to obtain securities equivalent in kind and amount to the securities sold short. A Fund's ability to enter into short sales transactions is limited by the requirements of the 1940 Act.
Short sales by a Fund that are not made "against the box" are limited to transactions in futures and options. Such transactions create opportunities to increase a Fund's return but, at the same time, involve special risk considerations and may be considered a speculative technique. Since a Fund in effect profits from a decline in the price of the futures or options sold short without the need to invest the full purchase price of the futures or options on the date of the short sale, a Fund's NAV per share will tend to increase more when the futures or options it has sold short decrease in value, and to decrease more when the futures or options it has sold short increase in value, than would otherwise be the case if it had not engaged in such short sales. Short sales theoretically involve unlimited loss potential, as the market price of futures or options sold short may continuously increase, although a Fund may mitigate such losses by replacing the futures or options sold short before the market price has increased significantly. Under adverse market conditions, a Fund might have difficulty purchasing futures or options to meet its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.
If a Fund makes a short sale "against the box," a Fund would not immediately deliver the securities sold and would not receive the proceeds from the sale. The seller is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. A Fund's decision to make a short sale "against the box" may be a technique to hedge against market risks when the investment manager believes that the price of a security may decline, causing a
decline in the value of a security owned by the Fund or a security convertible into or exchangeable for such security. In such case, any future losses in the Fund's long position would be reduced by a gain in the short position. Short sale transactions may have adverse tax consequences to the Fund and its shareholders.
In the view of the SEC, a short sale involves the creation of a "senior security" as such term is defined under the 1940 Act, unless the sale is "against the box" and the securities sold are placed in a segregated account (not with the broker), or unless the Fund's obligation to deliver the securities sold short is "covered" by segregating (not with the broker) cash, U.S. Government securities or other liquid debt or equity securities in an amount equal to the difference between the market value of the securities sold short at the time of the short sale and any cash or securities required to be deposited as collateral with a broker in connection with the sale (not including the proceeds from the short sale), which difference is adjusted daily for changes in the value of the securities sold short. The total value of the cash and securities deposited with the broker and otherwise segregated may not at any time be less than the market value of the securities sold short at the time of the short sale.
To avoid limitations under the 1940 Act on borrowing by investment companies, all short sales by a Fund will be "against the box," or the Fund's obligation to deliver the futures or options sold short not "against the box" will be "covered" by segregating cash, U.S. Government securities or other liquid debt or equity securities in an amount equal to the market value of its delivery obligation. A Fund will not make short sales of futures or options not "against the box" or maintain a short position if doing so could create liabilities or require collateral deposits and segregation of assets aggregating more than 25% of the value of the Fund's total assets.
A Fund may purchase instruments that are not rated if, in the opinion of the adviser, such obligations are of investment quality comparable to other rated investments that are permitted to be purchased by such Fund. After purchase by a Fund, a security may cease to be rated or its rating may be reduced below the minimum required for purchase by such Funds. Neither event will require a sale of such security by the Fund. To the extent the ratings given by Moody's, Fitch, or S&P may change as a result of changes in such organizations or their rating systems, a Fund will attempt to use comparable ratings as standards for investments in accordance with the investment policies contained in its Prospectus and in this SAI. The ratings of Moody's, Fitch, and S&P are more fully described in the Appendix to this SAI.
Warrants are instruments, typically issued with preferred stock or bonds, that give the holder the right to purchase a given number of shares of common stock at a specified price, usually during a specified period of time. The price usually represents a premium over the applicable market value of the common stock at the time of the warrant's issuance. Warrants have no voting rights with respect to the common stock, receive no dividends and have no rights with respect to the assets of the issuer. Warrants do not pay a fixed dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for the resale of the warrants, potential price fluctuations as a result of speculation or other factors and failure of the price of the common stock to rise. A warrant becomes worthless if it is not exercised within the specified time period.
MANAGEMENT
The following information supplements, and should be read in conjunction with, the section in each Prospectus entitled "Organization and Management of the Funds."
The Board supervises each Fund's activities, monitors its contractual arrangements with various service providers, and decides upon matters of general policy.
GENERAL. The following table provides basic information about the Trustees and Officers of the Trust. Each of the Trustees and Officers listed below acts in identical capacities for the Wells Fargo Advantage family of funds which consists of, as of October 1, 2009, 133 series comprising the Trust, Wells Fargo Variable Trust and Wells Fargo Master Trust (collectively the "Fund Complex" or the "Trusts"), except that the person occupying the office of Treasurer varies for specified Funds. The business address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, with the Trustees subject to retirement from service as required pursuant to the Trust's retirement policy at the end of the calendar year in which a Trustee turns 74.
Information for Trustees who are not "interested" persons of the Trust, as that term is defined under the 1940 Act ("Independent Trustees"), appears below. In addition to the Officers listed below, the Funds have appointed an Anti-Money Laundering Compliance Officer.
POSITION HELD OTHER PUBLIC
WITH COMPANY OR
REGISTRANT/ INVESTMENT
LENGTH OF PRINCIPAL OCCUPATION(S) COMPANY
NAME AND AGE SERVICE/1/ DURING PAST 5 YEARS DIRECTORSHIPS
------------------------ ------------------ -------------------------------------------------------------- -------------------
INDEPENDENT TRUSTEES
Peter G. Gordon, 67 Trustee, since Co-Founder, Chairman, President and CEO of Crystal N/A
1998, Chairman, Geyser Water Company.
since 2005
(Lead Trustee
since 2001)
Isaiah Harris, Jr., 56 Trustee, since Retired. Prior thereto, President and CEO of BellSouth CIGNA Corporation
2009, Advisory Advertising and Publishing Corp from 2005 to 2007, Deluxe Corporation
Board Member, President and CEO of BellSouth Enterprises from 2004 to
from 2008 to 2005 and President of BellSouth Consumer Services from
2009 2000 to 2003. Currently a member of the Iowa State
University Foundation Board of Governors and a member of
the Advisory Board of Iowa State University School of
Business.
Judith M. Johnson, 60 Trustee, since Retired. Prior thereto, Chief Executive Officer and Chief N/A
2008 Investment Officer of Minneapolis Employees Retirement
Fund from 1996 to 2008. Ms. Johnson is a certified public
accountant and a certified managerial accountant.
David F. Larcker, 58 Trustee, since James Irvin Miller Professor of Accounting at the Graduate N/A
2009, Advisory School of Business, Stanford University, Director of
Board Member, Corporate Governance Research Program and Co-Director of
from 2008 to The Rock Center for Corporate Governance since 2006.
2009 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.
Olivia S. Mitchell, 56 Trustee, since Professor of Insurance and Risk Management, Wharton N/A
2006 School, University of Pennsylvania. Director of the Boettner
Center on Pensions and Retirement Research. Research
associate and board member, Penn Aging Research Center.
Research associate, National Bureau of Economic Research.
Timothy J. Penny, 57 Trustee, since President and CEO of Southern Minnesota Initiative N/A
1996 Foundation, a non-profit organization, since 2007 and Senior
Fellow at the Humphrey Institute Policy Forum at the
University of Minnesota since 1995. Member of the Board
of Trustees of NorthStar Education Finance, Inc., a
non-profit organization, since 2007.
Donald C. Willeke, 69 Trustee, since Principal of the law firm of Willeke & Daniels. General N/A
1996 Counsel of the Minneapolis Employees Retirement Fund
from 1984 to present.
OFFICERS
Karla M. Rabusch, 50 President, since Executive Vice President of Wells Fargo Bank, N.A. and N/A
2003 President of Wells Fargo Funds Management, LLC since
2003. Senior Vice President and Chief Administrative
Officer of Wells Fargo Funds Management, LLC from 2001
to 2003.
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POSITION HELD OTHER PUBLIC
WITH COMPANY OR
REGISTRANT/ INVESTMENT
LENGTH OF PRINCIPAL OCCUPATION(S) COMPANY
NAME AND AGE SERVICE/1/ DURING PAST 5 YEARS DIRECTORSHIPS
---------------------- ------------------ ------------------------------------------------------------ --------------
David Berardi, 34 Assistant Vice President of Evergreen Investment Management N/A
Treasurer, since Company, LLC since 2008. Assistant Vice President of
2009 Evergreen Investment Services, Inc. from 2004 to 2008.
Manager of Fund Reporting and Control for Evergreen
Investment Management Company, LLC since 2004.
Jeremy DePalma, 35 Treasurer, since Senior Vice President of Evergreen Investment Management N/A
2009 Company, LLC since 2008. Vice President, Evergreen
Investment Services, Inc. from 2004 to 2007. Assistant Vice
President, Evergreen Investment Services, Inc. from 2000 to
2004 and the head of the Fund Reporting and Control Team
within Fund Administration since 2005.
C. David Messman, 49 Secretary, since Senior Vice President and Secretary of Wells Fargo Funds N/A
2000; Chief Management, LLC since 2001. Vice President and Managing
Legal Officer, Senior Counsel of Wells Fargo Bank, N.A. since 1996.
since 2003
Debra Ann Early, 45 Chief Chief Compliance Officer of Wells Fargo Funds N/A
Compliance Management, LLC since 2007. Chief Compliance Officer of
Officer, since Parnassus Investments from 2005 to 2007. Chief Financial
2007 Officer of Parnassus Investments from 2004 to 2007 and
Senior Audit Manager of PricewaterhouseCoopers LLP from
1998 to 2004.
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1 Length of service dates reflect the Trustee's commencement of service with the Trust's predecessor entities, where applicable.
(1) GOVERNANCE COMMITTEE. Whenever a vacancy occurs on the Board, the Governance Committee is responsible for recommending to the Board persons to be appointed as Trustees by the Board, and persons to be nominated for election as Trustees in circumstances where a shareholder vote is required by or under the 1940 Act. Generally, the Governance Committee selects the candidates for consideration to fill Trustee vacancies, or considers candidates recommended by the other Trustees or by the Trust's management. Pursuant to the Trust's charter document, only Independent Trustees may nominate and select persons to become Independent Trustees for the Trust, so long as the Trust has in effect one or more plans pursuant to Rule 12b-1 under the 1940 Act. The Governance Committee meets only as necessary and met once during the Funds' most recently completed fiscal year. Peter Gordon serves as the chairman of the Governance Committee.
The Governance Committee has adopted procedures by which a shareholder may
properly submit a nominee recommendation for the Committee's consideration,
which are set forth in the Trusts' Governance Committee Charter. The
shareholder must submit any such recommendation (a "Shareholder
Recommendation") in writing to the Trust, to the attention of the Trust's
Secretary, at the address of the principal executive offices of the Trust. The
Shareholder Recommendation must be delivered to, or mailed and received at, the
principal executive offices of the Trust not less than forty-five (45) calendar
days nor more than seventy-five (75) calendar days prior to the date of the
Governance Committee meeting at which the nominee would be considered. The
Shareholder Recommendation must include: (i) a statement in writing setting
forth (A) the name, age, date of birth, business address, residence address,
and nationality of the person recommended by the shareholder (the "candidate"),
(B) the series (and, if applicable, class) and number of all shares of the
Trust owned of record or beneficially by the candidate, as reported to such
shareholder by the candidate; (C) any other information regarding the candidate
called for with respect to director nominees by paragraphs (a), (d), (e), and
(f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101
(Schedule 14A) under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), adopted by the SEC (or the corresponding provisions of any
regulation or rule subsequently adopted by the SEC or any successor agency
applicable to the Trust); (D) any other information regarding the candidate
that would be required to be disclosed if the candidate were a nominee in a
proxy statement or other filing required to be made in connection with
solicitation of proxies for election of directors pursuant to Section 14 of the
Exchange Act and the rules and regulations promulgated thereunder; and (E)
whether the recommending shareholder believes that the candidate is or will be
an "interested person" of the Trust (as defined in the 1940 Act) and, if not an
"interested person," information regarding the candidate that will be
sufficient for the Trust to make such determination; (ii) the written and
signed consent of the candidate to be named as a nominee and to serve as a
Trustee if elected; (iii) the recommending shareholder's name as it appears on
the Trust's books; (iv) the series (and, if applicable, class) and number of
all shares of the Trust owned beneficially and of record by the recommending
shareholder; and (v) a description of all arrangements or understandings
between the recommending shareholder and the candidate and any other person or
persons (including their names) pursuant to which the recommendation is being
made by the recommending shareholder. In addition, the Governance Committee may
require the candidate to interview in person or furnish such other information
as it may reasonably require or deem necessary to determine the eligibility of
such candidate to serve as a Trustee of the Trust. The Governance Committee has
full discretion to reject nominees recommended by shareholders, and there is no
assurance that any such person properly recommended and considered by the
Committee will be nominated for election to the Board.
The Governance Committee may from time-to-time propose nominations of one or more individuals to serve as members of an "advisory board," as such term is defined in Section 2(a)(1) of the 1940 Act ("Advisory Trustees"). An individual may be eligible to serve as an Advisory Trustee only if that individual meets the requirements to be a "non-interested" Trustee under the 1940 Act and does not otherwise serve the Trust in any other capacity. Any Advisory Trustee shall serve at the pleasure of the Board and may be removed, at any time, with or without cause, by the Board. An Advisory Trustee may be nominated and elected as a Trustee, at which time he or she shall cease to be an Advisory Trustee. Advisory Trustees shall perform solely advisory functions. Unless otherwise specified by the Committee or the Board, Advisory Trustees are invited to attend meetings of the Board and all committees of the Board. Advisory Trustees shall participate in meeting discussions but do not have a vote upon any matter presented to the Board or any committee of the Board, nor do they have any power or authority to act on behalf of or to bind the Board, any committee of the Board or the Trust. Advisory Trustees shall not have any responsibilities or be subject to any liabilities imposed upon Trustees by law or otherwise. Advisory Trustees shall be entitled, to the maximum extent permitted by law, to be indemnified by the Trust and shall be covered by any liability insurance coverage that extends to Trustees and officers of the Trust. Advisory Trustees shall be paid the same meeting fees payable to Trustees and shall have their expenses reimbursed in accordance with existing Board expense reimbursement policies. Advisory Trustees shall not receive any retainer fees.
(2) AUDIT COMMITTEE. The Audit Committee oversees the Funds' accounting and financial reporting policies and practices, reviews the results of the annual audits of the Funds' financial statements, and interacts with the Funds' independent registered public accounting firm on behalf of the full Board. The Audit Committee operates pursuant to a separate charter, and met four times during the Funds' most recently completed fiscal year. Judith M. Johnson serves as the chairperson of the Audit Committee.
COMPENSATION. For the calendar year ended December 31, 2008, each Trustee received an annual retainer (payable quarterly) of $160,000 from the Fund Complex. Each Trustee and Advisory Board Member also received a combined fee of $7,500 for
attendance at in-person Fund Complex Board meetings, and a combined fee of $1,500 for attendance at the first telephonic Fund Complex Board meeting and each telephonic Board meeting beyond five. In addition, the Chairperson of the Fund Complex Board received an additional $40,000 annual retainer and the Chairperson of the Audit Committee received an additional $20,000 annual retainer, for the additional work and time devoted by the Chairpersons. Prior to January 1, 2008, each Trustee received an annual retainer (payable quarterly) of $140,000 from the Fund Complex. Each Trustee also received a combined fee of $7,500 for attendance at in-person Fund Complex Board meetings, and a combined fee of $1,500 for attendance at telephonic Fund Complex Board meetings. In addition, the Chairperson of the Fund Complex Board received an additional $40,000 annual retainer and the Chairperson of the Audit Committee received an additional $16,000 annual retainer, for the additional work and time devoted by the Chairpersons.
Effective January 1, 2009, each Trustee receives an annual retainer (payable quarterly) of $160,000 from the Fund Complex. Each Trustee and Advisory Board Member receives a combined fee of $7,500 for attendance at in-person Fund Complex Board meetings, and a combined fee of $1,500 for attendance at telephonic Fund Complex Board meetings. In addition, the Chairperson of the Fund Complex Board receives an additional $40,000 annual retainer and the Chairperson of the Audit Committee receives an additional $20,000 annual retainer, for the additional work and time devoted by the Chairpersons.
The Trustees do not receive any retirement benefits or deferred compensation from the Trust or any other entity of the Fund Complex. The Officers are not compensated by the Trust for their services. For the fiscal year ended May 31, 2009, the Trustees received the following compensation:
COMPENSATION TABLE
FISCAL YEAR ENDED MAY 31, 2009
INDEPENDENT TRUSTEES
PETER G. ISAIAH JUDITH M. DAVID F. OLIVIA TIMOTHY J. DONALD C.
FUND GORDON HARRIS, JR./2/ JOHNSON/3/ LARCKER/2/ MITCHELL PENNY WILLEKE
Diversified Bond $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Government
Securities $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
High Income $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Income Plus $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Inflation-Protected
Bond $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Short Duration
Government Bond $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Short-Term Bond $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Short-Term High
Yield Bond $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Stable Income $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Strategic Income $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Total Return Bond $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Ultra Short-Term
Income $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
TOTAL COMPENSATION
FROM THE FUND
COMPLEX/1/ $266,000 $68,967 $156,164 $65,217 $226,000 $226,000 $226,000
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/1/ Includes Trustee compensation received by other funds within the entire
Fund Complex (consisting of 134 funds).
/2/ Isaiah Harris, Jr. and David F. Larker became Independent Trustees
effective April 17, 2009. From November 1, 2008, to April 17, 2009,
Messrs. Harris and Larcker served as Advisory Board Members. The
compensation reflected in the table above for Messrs. Harris and Larcker
is for the period November 1, 2008 to May 31, 2009.
/3/ Judith Johnson was appointed to the Board as an Independent Trustee
effective August 1, 2008. The compensation reflected in the table above
for Ms. Johnson is for the period August 1, 2008, to May 31, 2009.
BENEFICIAL EQUITY OWNERSHIP INFORMATION. As of the calendar year ended December 31, 2008, the Trustees, the Advisory Board Members and Officers of the Trust, as a group, beneficially owned less than 1% of the outstanding shares of the Trust. The table below shows for each Trustee, the dollar value of Fund equity securities beneficially owned by the Trustee, and the aggregate value of all investments in equity securities of the Fund Complex, stated as one of the following ranges: $0; $1-$10,000; $10,001-$50,000; $50,001-$100,000; and over $100,000.
BENEFICIAL EQUITY OWNERSHIP IN THE FUNDS AND FUND COMPLEX
CALENDAR YEAR ENDED DECEMBER 31, 2008
INDEPENDENT TRUSTEES
PETER G. ISAIAH JUDITH M.
FUND GORDON HARRIS JR./2/ JOHNSON
Diversified Bond $ 0 $ 0 $0
Government
Securities $ 0 $ 0 $0
High Income $ 0 $ 0 $0
Income Plus $ 0 $ 0 $0
Inflation-Protected $50,001-
Bond $ 0 $100,000 $0
Short Duration $10,001- $50,001-
Government Bond $ 50,000 $100,000 $0
Short-Term Bond $ 0 $ 0 $0
Short-Term High
Yield Bond $ 0 $ 0 $0
Stable Income $ 0 $ 0 $0
Strategic Income $ 0 $ 0 $0
$10,001-
Total Return Bond $ 50,000 $ 0 $0
Ultra Short-Term
Income $ 0 $ 0 $0
Aggregate Dollar
Range of
Equity Securities Of
Fund
Complex/1/ over $100,000 over $100,000 $0
INDEPENDENT TRUSTEES
DAVID F. OLIVIA.S. TIMOTHY J. DONALD C.
FUND LARCKER/2/ MITCHELL PENNY WILLEKE
Diversified Bond $0 $0 $0 $0
Government
Securities $0 $0 $0 $0
High Income $0 $0 $0 $0
Income Plus $0 $0 $0 $0
Inflation-Protected
Bond $0 over $100,000 $0 $0
Short Duration
Government Bond $0 $0 $0 $0
Short-Term Bond $0 $0 $0 $0
Short-Term High
Yield Bond $0 $0 $0 $0
Stable Income $0 $0 $0 $0
Strategic Income $0 $0 $0 $0
Total Return Bond $0 $0 $0 $0
Ultra Short-Term
Income $0 $0 $0 $0
Aggregate Dollar
Range of
Equity Securities Of
Fund
Complex/1/ $0 over $100,000 over $100,000 over $100,000
|
/1/ Includes Trustee ownership in shares of other funds within the entire
Fund Complex (consisting of 134 funds) as of the calendar year end.
2 Messrs. Harris and Larcker were elected to the Board as Independent
Trustees effective April 17, 2009.
OWNERSHIP OF SECURITIES OF CERTAIN ENTITIES. As of the calendar year ended December 31, 2008, none of the Independent Trustees and/or their immediate family members own securities of the adviser, any sub-advisers, or the distributor, or any entity directly or indirectly controlling, controlled by, or under common control with the adviser, any sub-advisers, or the distributor.
Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company and an affiliate of Wells Fargo Bank, is the investment adviser for the Funds. Funds Management is responsible for implementing the investment policies and guidelines for the Funds, and for supervising the sub-advisers who are responsible for the day-to-day portfolio management of the Funds.
The Funds operate under three types of advisory arrangements: (i) stand-alone Funds with an investment adviser and sub-adviser; (ii) gateway feeder Funds that invest in a single corresponding master portfolio of Master Trust ("Master Portfolio") and have "dormant" advisory arrangements at the gateway level; and (iii) gateway blended Funds that invest in two or more Master Portfolios and have active advisory arrangements at the gateway level.
As compensation for its advisory services for the following stand-alone Funds, Funds Management is entitled to receive a monthly fee at the annual rates indicated below, as a percentage of each Fund's average daily net assets:
FEE
EFFECTIVE FROM 8/1/04 TO
FUND PRIOR TO 8/1/04 6/2/08 EFFECTIVE 6/2/08
Income Plus 0.60% First $500M 0.55% First $500M 0.50%
Next $500M 0.50% Next $500M 0.475%
Next $2B 0.45% Next $2B 0.45%
Next $2B 0.425% Next $2B 0.425%
Over $5B 0.40% Over $5B 0.40%
Short Duration Government 0.50% First $500M 0.45% First $500M 0.40%
Bond
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
|
FEE EFFECTIVE FROM
FUND 4/11/05 TO 6/2/08 FEE EFFECTIVE 6/2/08
Government Securities First $500M 0.45% First $500M 0.40%
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
High Income First $500M 0.55% First $500M 0.50%
Next $500M 0.50% Next $500M 0.475%
Next $2B 0.45% Next $2B 0.45%
Next $2B 0.425% Next $2B 0.425%
Over $5B 0.40% Over $5B 0.40%
Short-Term Bond First $500M 0.45% First $500M 0.40%
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
Short-Term High Yield Bond First $500M 0.55% First $500M 0.50%
Next $500M 0.50% Next $500M 0.475%
Next $2B 0.45% Next $2B 0.45%
Next $2B 0.425% Next $2B 0.425%
Over $5B 0.40% Over $5B 0.40%
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FEE EFFECTIVE FROM
FUND 4/11/05 TO 6/2/08 FEE EFFECTIVE 6/2/08
Strategic Income First $500M 0.55% First $500M 0.50%
Next $500M 0.50% Next $500M 0.475%
Next $2B 0.45% Next $2B 0.45%
Next $2B 0.425% Next $2B 0.425%
Over $5B 0.40% Over $5B 0.40%
Ultra Short-Term Income First $500M 0.45% First $500M 0.40%
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
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As described in the second category above, the Inflation-Protected Bond Fund, Stable Income Fund and Total Return Bond Fund each invests 100% of its assets in a single respective Master Portfolio. Because each Fund invests all of its assets in a single portfolio, no investment advisory services are currently provided at the gateway feeder fund level. However, in order to preserve flexibility to allow the Fund to invest in more than one Master Portfolio, the Fund has a "dormant" advisory arrangement with Funds Management. Under the dormant advisory arrangement, Funds Management will receive no advisory fees as long as the gateway feeder Fund invests all (or substantially all) of its assets in one Master Portfolio. In the event that the Fund converts into a gateway blended Fund as described above, Funds Management as adviser would be entitled to receive a fee of 0.25% for asset allocation services. The dormant advisory rate is listed below, as well as the advisory fee charged by Funds Management to a Master Portfolio of Master Trust in which each gateway feeder Fund invests.
DORMANT
ACTIVE ASSET ADVISORY FEED PAID BY MASTER PORTFOLIO IN WHICH GATEWAY FEEDER FUND
GATEWAY ADVISORY ALLOCATION INVESTS
FEEDER FUND FEES FEES* ANNUAL RATE** (AS A PERCENTAGE OF NET ASSETS)
EFFECTIVE FROM
PRIOR TO 8/1/04 8/1/04 TO 6/2/08 EFFECTIVE 6/2/08
Inflation-Protected 0.00% 0.25% 0.50% First $500M 0.45% First $500M 0.40%
Bond***
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
Stable Income 0.00% 0.25% 0.50% First $500M 0.45% First $500M 0.40%
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
Total Return Bond*** 0.00% 0.25% 0.50% First $500M 0.45% First $500M 0.40%
Next $500M 0.40% Next $500M 0.375%
Next $2B 0.35% Next $2B 0.35%
Next $2B 0.325% Next $2B 0.325%
Over $5B 0.30% Over $5B 0.30%
|
* Represents the proposed advisory fee payable to Funds Management as adviser if a Fund converts into a gateway blended Fund. ** Represents the advisory fee payable to Funds Management as adviser to the Master Portfolio. This would be the proposed advisory fee payable to Funds Management as adviser if a Fund converts into a stand-alone fund. *** Funds Management received the advisory fees reflected in the table for the periods prior to August 1, 2004, and from August 1, 2004, to July 26, 2005, as adviser to each stand-alone Fund. Effective July 27, 2005, the Inflation-Protected Bond Fund and Total Return Bond Fund converted from stand-alone funds to gateway feeder funds.
As described in the third category above, the Diversified Bond Fund invests its assets in two or more Master Portfolios. Funds Management determines the Master Portfolios in which the gateway blended Fund invests and the percentage allocation that such Fund would make to each Master Portfolio. For these asset allocation services, Funds Management is entitled to receive an annual fee of 0.25% of the Fund's average daily net assets as indicated in the chart below.
ADVISORY FEES
GATEWAY BLENDED FUND (MAXIMUM ASSET ALLOCATION FEES)
Diversified Bond 0.25%
|
Advisory Fees Paid. For the fiscal year ends shown in the table below, the following Funds paid the following advisory fees and the investment adviser waived the indicated amounts:
05/31/09 05/31/08
FEES FEES FEES PAID FEES FEES FEES PAID
FUND INCURRED WAIVED AFTER WAIVER INCURRED WAIVED AFTER WAIVER
Diversified Bond $ 107,241 $ 107,241 $ 0 $ 161,083 $ 161,083 $ 0
Government $6,649,756 $ 537,997 $6,111,759 $5,325,410 $2,354,160 $2,971,250
Securities
High Income $1,649,263 $ 607,669 $1,041,594 $1,658,611 $1,269,225 $ 389,386
Income Plus $1,595,552 $ 398,564 $1,196,988 $ 299,722 $ 189,334 $ 110,388
Inflation- $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Protected Bond
Short Duration $2,153,062 $1,086,489 $1,066,573 $1,885,130 $1,279,092 $ 606,038
Government
Bond
Short-Term Bond $1,363,075 $ 470,543 $ 892,532 $1,697,387 $1,195,602 $ 501,785
Short-Term High $ 614,597 $ 345,232 $ 269,365 $ 505,810 $ 415,807 $ 90,003
Yield Bond
Stable Income $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Strategic Income $ 121,639 $ 92,266 $ 29,373 $ 244,096 $ 141,911 $ 102,185
Total Return $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
Bond/1/
Ultra Short-Term $2,461,581 $1,520,751 $ 940,830 $3,387,584 $3,238,097 $ 149,487
Income
05/31/07
FEES FEES FEES PAID
FUND INCURRED WAIVED AFTER WAIVER
Diversified Bond $ 225,337 $ 225,337 $ 0
Government $4,492,108 $2,459,203 $2,032,905
Securities
High Income $1,869,434 $1,390,793 $ 478,641
Income Plus $ 302,399 $ 186,837 $ 115,562
Inflation- $ 0 $ 0 $ 0
Protected Bond
Short Duration $2,265,486 $1,510,949 $ 754,537
Government
Bond
Short-Term Bond $1,987,662 $1,459,824 $ 527,838
Short-Term High $ 644,683 $ 575,094 $ 69,589
Yield Bond
Stable Income $ 0 $ 0 $ 0
Strategic Income $ 218,325 $ 114,303 $ 104,022
Total Return $ 0 $ 0 $ 0
Bond/1/
Ultra Short-Term $3,756,100 $3,257,156 $ 498,944
Income
|
Funds Management has engaged Wells Capital Management Incorporated ("Wells Capital Management"), an affiliate of Funds Management, to serve as investment sub-adviser to the stand-alone Funds. Subject to the direction of the Trust's Board and the overall supervision and control of Funds Management and the Trust, the Sub-Adviser makes recommendations regarding the investment and reinvestment of the Funds' assets. The Sub-Adviser furnishes to Funds Management periodic reports on the investment activity and performance of the Funds. The Sub-Adviser also furnishes such additional reports and information as Funds Management and the Trust's Board and Officers may reasonably request. Funds Management may, from time to time and in its sole discretion, allocate and reallocate services provided by and fees paid to Wells Capital Management.
For providing investment sub-advisory services to the following stand-alone Funds, Wells Capital Management is entitled to receive monthly fees at the annual rates indicated below of each Fund's average daily net assets. These fees may be paid by Funds Management or directly by the Funds. If a sub-advisory fee is paid directly by a Fund, the compensation paid to Funds Management for advisory fees will be reduced accordingly.
FUND SUB-ADVISER SUB-ADVISORY FEES
Government Securities Wells Capital First $100M 0.20%
Management Next $200M 0.175%
Next $200M 0.15%
Over $500M 0.10%
High Income Wells Capital First $100M 0.35%
Management Next $200M 0.30%
Next $200M 0.25%
Over $500M 0.20%
Income Plus Wells Capital First $100M 0.20%
Management Next $200M 0.175%
Next $200M 0.15%
Over $500M 0.10%
Short Duration Government Bond Wells Capital First $100M 0.15%
Management Next $200M 0.10%
Over $300M 0.05%
Short-Term Bond Wells Capital First $100M 0.15%
Management Next $200M 0.10%
Over $300M 0.05%
Short-Term High Yield Bond Wells Capital First $100M 0.35%
Management Next $200M 0.30%
Next $200M 0.25%
Over $500M 0.20%
Strategic Income Wells Capital First $100M 0.35%
Management Next $200M 0.30%
Next $200M 0.25%
Over $500M 0.20%
Ultra Short-Term Income Wells Capital First $100M 0.15%
Management Next $200M 0.10%
Over $300M 0.05%
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Funds Management has engaged Galliard Capital Management, Inc. ("Galliard") and Wells Capital Management, affiliates of Funds Management, to serve as investment sub-advisers to the Master Portfolios in which the gateway funds invest, as listed in the chart below (each a "Sub-Adviser" and collectively, the "Sub-Advisers"). Subject to the direction of the Master Trust's Board, and the overall supervision and control of Funds Management and Master Trust, the Sub-Advisers make recommendations regarding the investment and reinvestment of the master portfolios' assets. The Sub-Advisers furnish to Funds Management periodic reports on the investment activity and performance of the master portfolios. The Sub-Advisers also furnish such additional reports and information as Funds Management and the Master Trust's Board and officers may reasonably request. Funds Management may, from time to time and in its sole discretion, allocate and reallocate services provided by and fees paid to an affiliated Sub-Adviser.
The sub-advisory fees currently charged to the master portfolios in which each gateway Fund invests, are listed in the chart below.
FUND MASTER PORTFOLIO SUB-ADVISER SUB-ADVISORY FEES
Diversified Bond Inflation-Protected Wells Capital Management First $100M 0.20%
Bond Portfolio Next $200M 0.175%
Next $200M 0.15%
Over $500M 0.10%
Managed Fixed Galliard First $500M 0.10%
Income Portfolio/1/ Next $1B 0.05%
Over $1.5B 0.03%
Total Return Wells Capital Management First $100M 0.20%
Bond Portfolio Next $200M 0.175%
Next $200M 0.15%
Over $500M 0.10%
Stable Income Stable Income Galliard First $500M 0.10%
Portfolio/1/ Next $1B 0.05%
Over $1.5B 0.03%
|
The following information supplements, and should be read in conjunction with, the section in each Prospectus entitled "Portfolio Managers." The information in this section is provided as of May 31, 2009, the most recent fiscal year end for the Funds managed by the portfolio managers listed below (each, a "Portfolio Manager" and together, the "Portfolio Managers"). The Portfolio Managers manage the investment activities of the Funds on a day-to-day basis as follows.
FUND SUB-ADVISER PORTFOLIO MANAGERS
-------------------------------- -------------------------- -----------------------------
Diversified Bond Funds Management Thomas C. Biwer, CFA
Christian L. Chan, CFA
Andrew Owen, CFA
Government Securities Wells Capital Management Michael J. Bray, CFA
Jay N. Mueller, CFA
Income Plus Wells Capital Management Michael J. Bray, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
Janet S. Rilling, CFA, CPA
High Income Wells Capital Management Kevin J. Maas, CFA
Short-Term High Yield Bond Thomas M. Price, CFA
Strategic Income Michael J. Schueller, CFA
Inflation-Protected Bond Wells Capital Management Michael J. Bray, CFA
Jay N. Mueller, CFA
Short Duration Government Bond Wells Capital Management Thomas M. O'Connor, CFA
William C. Stevens
Short-Term Bond Wells Capital Management Jay N. Mueller, CFA
Janet S. Rilling, CFA, CPA
Total Return Bond Wells Capital Management Troy Ludgood
Thomas M. O'Connor, CFA
Lynne A. Royer
William C. Stevens
Ultra Short-Term Income Wells Capital Management Jay N. Mueller, CFA
D. James Newton II, CFA, CPA
Thomas M. Price, CFA
Stable Income Galliard Richard Merriam, CFA
Ajay Mirza, CFA
|
MANAGEMENT OF OTHER ACCOUNTS. The following table indicates the type of, number of, and total assets in accounts managed by the Portfolio Managers, not including the Funds. The accounts described include accounts that a Portfolio Manager manages in a professional capacity as well as accounts that a Portfolio Manager may manage in a personal capacity, if any, which are included under "Other Accounts."
REGISTERED OTHER POOLED
INVESTMENT INVESTMENT
COMPANIES VEHICLES OTHER ACCOUNTS
NUMBER TOTAL NUMBER TOTAL NUMBER TOTAL
OF ASSETS OF ASSETS OF ASSETS
PORTFOLIO MANAGER/1/ ACCOUNTS MANAGED ACCOUNTS MANAGED ACCOUNTS MANAGED
FUNDS MANAGEMENT
Thomas C. Biwer, CFA 8 $ 2.8257B 0 $ 0 4 $ 2.034M
Christian L. Chan, CFA 8 $ 2.8257B 0 $ 0 2 $ 220K
Andrew Owen, CFA 8 $ 2.8257B 0 $ 0 2 $ 140K
GALLIARD
Richard Merriam, CFA 0 $ 0 0 $ 0 27 $ 2.1367B
Ajay Mirza, CFA 0 $ 0 5 $ 11.6169B 6 $ 5.2352B
WELLS CAPITAL MANAGEMENT
Michael J. Bray, CFA 1 $ 17M 1 $ 84M 11 $ 1.273 M
Troy Ludgood 6 $ 2.8 B 2 $ 1.1 B 33 $ 10.8 B
Kevin J. Maas, CFA 0 $ 0 0 $ 0 7 $ 1M
Jay N. Mueller, CFA 0 $ 0 0 $ 0 6 $ 76M
D. James Newton II, CFA, CPA 0 $ 0 0 $ 0 11 $ 256M
Thomas M. O'Connor, CFA 6 $ 2.8 B 2 $ 1.1 B 35 $ 11.3 B
Thomas M. Price, CFA 0 $ 0 0 $ 0 19 $ 8M
Janet S. Rilling, CFA, CPA 0 $ 0 0 $ 0 47 $ 2.6 B
Lynne A. Royer 6 $ 2.8 B 2 $ 1.1 B 35 $ 10.8 B
Michael J. Schueller, CFA 0 $ 0 0 $ 0 5 $ 1M
William C. Stevens 6 $ 2.8 B 2 $ 1.1 B 39 $ 11.3 B
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The following table indicates the number and total assets managed of the above accounts for which the advisory fee is based on the performance of such accounts.
REGISTERED OTHER POOLED
INVESTMENT INVESTMENT OTHER
COMPANIES VEHICLES ACCOUNTS
NUMBER TOTAL NUMBER TOTAL NUMBER TOTAL
OF ASSETS OF ASSETS OF ASSETS
PORTFOLIO MANAGER* ACCOUNTS MANAGED ACCOUNTS MANAGED ACCOUNTS MANAGED
FUNDS MANAGEMENT
Thomas C. Biwer, CFA 0 $0 0 $0 0 $ 0
Christian L. Chan, CFA 0 $0 0 $0 0 $ 0
Andrew Owen, CFA 0 $0 0 $0 0 $ 0
GALLIARD
Richard Merriam, CFA 0 $0 0 $0 2 $ 105.7M
Ajay Mirza, CFA 0 $0 0 $0 0 $ 0
WELLS CAPITAL MANAGEMENT
Michael J. Bray, CFA 0 $0 0 $0 0 $ 0
Troy Ludgood 0 $0 0 $0 2 $ 2.7B
Kevin J. Maas, CFA 0 $0 0 $0 0 $ 0
Jay N. Mueller, CFA 0 $0 0 $0 0 $ 0
D. James Newton II, CFA, CPA 0 $0 0 $0 0 $ 0
Thomas M. O'Connor, CFA 0 $0 0 $0 2 $ 11.3B
Thomas M. Price, CFA 0 $0 0 $0 0 $ 0
Janet S. Rilling, CFA, CPA 0 $0 0 $0 0 $ 0
Lynne A. Royer 0 $0 0 $0 2 $ 2.7B
Michael J. Schueller, CFA 0 $0 0 $0 0 $ 0
William C. Stevens 0 $0 0 $0 2 $ 2.7B
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To minimize the effects of these inherent conflicts of interest, the Sub-Advisers have adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, that they believe address the potential conflicts associated with managing portfolios for multiple clients and ensure that all clients are treated fairly and equitably. Additionally, the Sub-Advisers minimize inherent conflicts of interest by assigning the Portfolio Managers to accounts having similar objectives. Accordingly, security block purchases are allocated to all accounts with similar objectives in proportionate weightings. Furthermore, the Sub-Advisers have adopted a Code of Ethics under Rule 17j-1 of the 1940 Act and Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act") to address potential conflicts associated with managing the Funds and any personal accounts the Portfolio Managers may maintain.
FUNDS MANAGEMENT. In the case of Funds Management, the Portfolio Managers allocate interests in mutual funds between different funds, however, they may still be subject to the potential conflicts of interests described above.
GALLIARD. In the case of Galliard, the Portfolio Managers may be subject to the potential conflicts of interests described above.
WELLS CAPITAL MANAGEMENT. Wells Capital Management's Portfolio Managers often provide investment management for separate accounts advised in the same or similar investment style as that provided to mutual funds. While management of multiple accounts could potentially lead to conflicts of interest over various issues such as trade allocation, fee disparities and research acquisition, Wells Capital Management has implemented policies and procedures for the express purpose of ensuring that clients are treated fairly and that potential conflicts of interest are minimized.
FUNDS MANAGEMENT COMPENSATION. The Portfolio Managers are compensated using a fixed cash salary, an annual bonus based in part on pre-tax performance of the mutual funds managed, deferred compensation, options, as well as a pension and retirement plan. Funds Management measures fund performance against a Lipper peer group average composite benchmark over a three-year rolling period. Bonus allocations depend on fund performance, market share goals, individual job objective and overall profitability of the business.
GALLIARD COMPENSATION. The Portfolio Managers at Galliard are compensated using a fixed base salary, pension and retirement plan. The partners and principals of Galliard also participate in a profit sharing pool which is funded based on the firm's financial performance. The allocation of profit sharing to principals is based on their overall job performance and contribution to the firm. These payments are in addition to traditional bonus payments the principals receive based on investment performance of client accounts. Partners are allocated the balance of profits after the principals receive their payments on a fixed percentage basis based on their individual profit shares.
WELLS CAPITAL MANAGEMENT COMPENSATION. The compensation structure for Wells Capital Management's Portfolio Managers includes a competitive fixed base salary plus variable incentives (Wells Capital Management utilizes investment management compensation surveys as confirmation). Incentive bonuses are typically tied to pre-tax relative investment performance of all accounts under his or her management within acceptable risk parameters. Relative investment performance is generally evaluated for 1- and 3- year performance results versus the relevant benchmarks and/or peer groups consistent with the investment style. This evaluation takes into account relative performance of the accounts to each account's individual benchmark and/or the relative composite performance of all accounts to one or more relevant benchmarks consistent with the overall investment style. In the case of each Fund, the benchmark(s) against which the performance of the Fund's portfolio may be compared for these purposes generally are indicated in the "Performance" sections of the Prospectuses.
$0;
$1 - $10,000;
$10,001 - $50,000;
$50,001 - $100,000;
$100,001 - $500,000;
$500,001 - $1,000,000; and
over $1,000,000.
PORTFOLIO MANAGER FUND BENEFICIAL OWNERSHIP
FUNDS MANAGEMENT
Thomas C. Biwer, CFA Diversified Bond $ 0
Christian L. Chan, CFA Diversified Bond $ 0
Andrew Owen, CFA Diversified Bond $ 0
GALLIARD
Richard Merriam, CFA Stable Income Fund $ 0
Ajay Mirza, CFA Stable Income Fund $ 0
WELLS CAPITAL MANAGEMENT
Michael J. Bray, CFA Government Securities Fund $ 0
Income Plus Fund $ 0
Inflation-Protected Bond Fund $ 0
Troy Ludgood Total Return Bond Fund $ 0
Kevin J. Maas, CFA High Income Fund $10,001-$50,000
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PORTFOLIO MANAGER FUND BENEFICIAL OWNERSHIP
Short-Term High Yield Bond Fund $ 0
Strategic Income Fund $ 0
Jay N. Mueller, CFA Government Securities Fund $ 0
Inflation-Protected Bond Fund $ 0
Short-Term Bond Fund $50,001-$100,000
Ultra Short-Term Income Fund $50,001-$100,000
D. James Newton II, CFA, CPA Income Plus Fund $ 1-$10,000
Ultra Short-Term Income Fund $ 0
Thomas M. O'Connor, CFA Short Duration Government Bond $ 0
Fund
Total Return Bond Fund $ 0
Thomas M. Price, CFA High Income Fund $50,001-$100,000
Income Plus Fund $ 0
Short-Term High Yield Bond Fund $ 10,001-$50,000
Strategic Income Fund $ 10,001-$50,000
Ultra Short-Term Income Fund $ 10,001-$50,000
Janet S. Rilling, CFA, CPA Income Plus Fund $ 0
Short-Term Bond Fund $ 10,001-$50,000
Lynne A. Royer Total Return Bond Fund $ 0
Michael J. Schueller, CFA High Income Fund $ 10,001-$50,000
Short-Term High Yield Bond Fund $ 0
Strategic Income Fund $ 10,001-$50,000
William C. Stevens Short Duration Government Bond $50,001-$100,000
Fund
Total Return Bond Fund $ 0
|
The Trust has retained Funds Management (the "Administrator"), the investment adviser for the Funds, located at 525 Market Street, 12th Floor, San Francisco, CA 94105, as administrator on behalf of the Funds pursuant to an Administration Agreement. Under the Administration Agreement with the Trust, Funds Management provides, among other things: (i) general supervision of the Funds' operations, including communication, coordination, and supervision services with regard to the Funds' transfer agent, custodian, fund accountant and other service organizations that render record-keeping or shareholder communication services; (ii) coordination of the preparation and filing of reports and other information materials regarding the Funds, including prospectuses, proxies and other shareholder communications; (iii) development and implementation of procedures for monitoring compliance with regulatory requirements and compliance with the Funds' investment objectives, policies and restrictions; and (iv) any other administrative services reasonably necessary for the operation of the Funds other than those services that are provided by the Funds' transfer agent, custodian, and fund accountant. Funds Management also furnishes office space and certain facilities required for conducting the Funds' business together with ordinary clerical and bookkeeping services.
In addition, Funds Management has agreed to pay all of the Funds' fees and expenses for services provided by the Funds' transfer agent and various sub-transfer agents and omnibus account servicers and record-keepers out of the fees it receives as Administrator. Because the administrative services provided by Funds Management vary by class, the fees payable to Funds Management also vary by class. For providing administrative services, including paying the Funds' fees and expenses for services provided by the Funds' transfer agent and various sub-transfer agents and omnibus account servicers and record-keepers, Funds Management is entitled to receive an annual fee at the rates indicated below, as a percentage of each Fund's average daily net assets:
FUND-LEVEL CLASS-LEVEL
SHARE CLASS ADMIN. FEE/1/ ADMIN. FEE TOTAL ADMIN. FEE
(% OF (% OF (% OF
AVERAGE DAILY NET AVERAGE DAILY AVERAGE DAILY AVERAGE DAILY AVERAGE DAILY
ASSETS NET ASSETS) NET ASSETS) NET ASSETS NET ASSETS)
Class A, Class B, First $5 billion 0.05% 0.18% First $5 billion 0.23%
and Class C/2/ Next $5 billion 0.04% Next $5 billion 0.22%
Over $10 billion 0.03% Over $10 billion 0.21%
Administrator First $5 billion 0.05% 0.10% First $5 billion 0.15%
Class Next $5 billion 0.04% Next $5 billion 0.14%
Over $10 billion 0.03% Over $10 billion 0.13%
Institutional First $5 billion 0.05% 0.08% First $5 billion 0.13%
Class Next $5 billion 0.04% Next $5 billion 0.12%
Over $10 billion 0.03% Over $10 billion 0.11%
Investor Class/3/ First $5 billion 0.05% 0.23% First $5 billion 0.28%
Next $5 billion 0.04% Next $5 billion 0.27%
Over $10 billion 0.03% Over $10 billion 0.26%
|
/1/ Effective August 2, 2004. Prior to August 2, 2004, Funds Management was
entitled to be paid a fund level administration fee of 0.05% of average
daily net assets.
/2/ Prior to June 20, 2008, the class-level fee was 0.28%.
/3/ Effective June 20, 2008. Effective from October 1, 2007, to June 20, 2008, the class-level administration fee for Investor Class was 0.40%. Prior to October 1, 2007, the class-level fee was 0.45%.
FISCAL YEAR ENDED 5/31/09 FISCAL YEAR ENDED 5/31/08
FEES PAID FEES PAID
FUND FEES INCURRED WAIVER AFTER WAIVER FEES INCURRED WAIVER AFTER WAIVER
DIVERSIFIED BOND
Fund Level $ 21,448 $21,448 $ 0 $ 32,217 $32,217 $ 0
Administrator $ 42,896 $42,896 $ 0 $ 64,433 $44,549 $ 19,884
Class
GOVERNMENT
SECURITIES FUND
Fund Level $896,541 $ 0 $896,541 $653,336 $ 0 $653,336
FISCAL YEAR ENDED 5/31/07
FEES PAID
FUND FEES INCURRED WAIVER AFTER WAIVER
DIVERSIFIED BOND
Fund Level $ 45,067 $38,449 $ 6,618
Administrator $ 90,135 $ 0 $ 90,135
Class
GOVERNMENT
SECURITIES FUND
Fund Level $534,587 $ 0 $534,587
|
FISCAL YEAR ENDED 5/31/09 FISCAL YEAR ENDED 5/31/08
FEES PAID FEES PAID
FUND FEES INCURRED WAIVER AFTER WAIVER FEES INCURRED WAIVER AFTER WAIVER
Class A/1/ $ 307,421 $ 0 $ 307,421 $ 179,872 $ 0 $ 179,872
Class B $ 10,823 $ 0 $ 10,823 N/A N/A N/A
Class C $ 22,993 $ 0 $ $ 5,022 $ 0 $ 5,022
Administrator $ 279,930 $ 0 $ 279,930$ $ 138,752 $ 0 $ 138,752
Class
Institutional $ 236,272 $ 0 $ 236,272 $ 211,069 $ 0 $ 211,069
Class
Investor Class $2,364,944 $ 0 $2,364,944$ $3,475,099 $ 0 $3,475,099
HIGH INCOME
FUND
Fund Level $ 164,926 $ 0 $ 164,926 $ 150,783 $ 0 $ 150,783
Class A/1/ $ 100,622 $ 0 $ 100,622 $ 257,954 $ 0 $ 257,954
Class B $ 13,278 $ 0 $ 13,278 N/A N/A N/A
Class C $ 11,635 $ 0 $ 11,635 N/A N/A N/A
Institutional $ 74,879 $ 0 $ 74,879 $ 3,483 $ 0 $ 3,483
Class
Investor Class $ 382,978 $ 0 $ 382,978 $ 794,121 $ 0 $ 794,121
INCOME PLUS
Fund Level $ 159,555 $ 0 $ 159,555 $ 27,248 $ 0 $ 27,248
Class A $ 121,153 $ 0 $ 121,153 $ 114,111 $ 0 $ 114,111
Class B $ 9,227 $ 0 $ 9,227 $ 24,978 $ 0 $ 24,978
Class C $ 9,747 $ 0 $ 9,747 $ 13,497 $ 0 $ 13,497
Institutional $ 68,250 $ 0 $ 68,250 N/A N/A N/A
Class
Investor Class $ 358,682 $ 0 $ 358,682 N/A N/A N/A
INFLATION-
PROTECTED BOND
Fund Level $ 31,643 $31,643 $ 0 $ 23,516 $23,516 $ 0
Class A $ 51,360 $32,652 $ 18,708 $ 53,723 $53,723 $ 0
Class B $ 11,448 $ 7,284 $ 4,164 $ 20,461 $20,461 $ 0
Class C $ 18,134 $11,532 $ 6,602 $ 21,424 $21,424 $ 0
Administrator $ 18,319 $18,319 $ 0 $ 12,886 $12,886 $ 0
Class
SHORT DURATION
GOVERNMENT
BOND
Fund Level $ 270,713 $ 0 $ 270,713 $ 209,459 $ 0 $ 209,459
Class A $ 135,863 $ 0 $ 135,863 $ 205,532 $ 0 $ 205,532
Class B $ 10,665 $ 0 $ 10,665 $ 26,743 $ 0 $ 26,743
Class C $ 17,332 $ 0 $ 17,332 $ 21,493 $ 0 $ 21,493
Administrator $ 322,708 $ 0 $ 322,708 $ 261,237 $ 0 $ 261,237
Class
Institutional $ 102,148 $ 0 $ 102,148 $ 53,639 $ 0 $ 53,639
Class
SHORT-TERM
BOND FUND
Fund Level $ 170,384 $ 0 $ 170,384 $ 188,599 $ 0 $ 188,599
Class A/1/ $ 22,709 $ 0 $ 22,709 $ 25,297 $ 0 $ 25,297
FISCAL YEAR ENDED 5/31/07
FEES PAID
FUND FEES INCURRED WAIVER AFTER WAIVER
Class A/1/ $ 168,350 $ 0 $ 168,350
Class B N/A N/A N/A
Class C $ 3,900 $ 0 $ 3,900
Administrator $ 109,014 $ 0 $ 109,014
Class
Institutional $ 86,205 $ 0 $ 86,205
Class
Investor Class $3,558,986 $ 0 $3,558,986
HIGH INCOME
FUND
Fund Level $ 169,949 $ 0 $ 169,949
Class A/1/ $ 279,842 $ 0 $ 279,842
Class B N/A N/A N/A
Class C N/A N/A N/A
Institutional $ 1,326 $ 0 $ 1,326
Class
Investor Class $ 866,280 $ 0 $ 866,280
INCOME PLUS
Fund Level $ 27,491 $ 0 $ 27,491
Class A $ 102,926 $ 0 $ 102,926
Class B $ 36,439 $ 0 $ 36,439
Class C $ 14,583 $ 0 $ 14,583
Institutional N/A N/A N/A
Class
Investor Class N/A N/A N/A
INFLATION-
PROTECTED BOND
Fund Level $ 45,280 $45,280 $ 0
Class A $ 74,359 $49,840 $ 24,519
Class B $ 25,157 $16,862 $ 8,295
Class C $ 25,209 $16,897 $ 8,312
Administrator $ 46,016 $46,016 $ 0
Class
SHORT DURATION
GOVERNMENT
BOND
Fund Level $ 252,268 $ 0 $ 252,268
Class A $ 215,023 $ 0 $ 215,023
Class B $ 43,058 $ 0 $ 43,058
Class C $ 27,527 $ 0 $ 27,527
Administrator $ 362,536 $ 0 $ 362,536
Class
Institutional $ 31,997 $ 0 $ 31,997
Class
SHORT-TERM
BOND FUND
Fund Level $ 220,851 $ 0 $ 220,851
Class A/1/ $ 18,418 $ 0 $ 18,418
|
FISCAL YEAR ENDED 5/31/09 FISCAL YEAR ENDED 5/31/08
FEES PAID FEES PAID
FUND FEES INCURRED WAIVER AFTER WAIVER FEES INCURRED WAIVER AFTER WAIVER
Class C $ 541 $ 0 $ 541 $ 5 $ 0 $ 5
Institutional $ 62,055 $ 0 $ 62,055 $ 68,408 $ 0 $ 68,408
Class
Investor Class $ 575,653 $ 0 $ 575,653 $1,179,159 $ 0 $1,179,159
SHORT-TERM
HIGH YIELD BOND
FUND
Fund Level $ 61,460 $ 0 $ 61,460 $ 45,983 $ 0 $ 45,983
Class A/1/ $ 95,729 $ 0 $ 95,729 $ 47,564 $ 0 $ 47,564
Class C $ 3,626 $ 0 $ 3,626 $ 6 $ 0 $ 6
Investor Class $ 155,762 $ 0 $ 155,762 $ 294,901 $ 0 $ 294,901
STABLE INCOME
Fund Level $ 134,849 $134,849 $ 0 $ 176,303 $176,303 $ 0
Class A $ 64,064 $ 49,341 $ 14,723 $ 128,046 $ 72,894 $ 55,153
Class B $ 2,756 $ 2,124 $ 632 $ 8,551 $ 4,868 $ 3,684
Class C $ 6,189 $ 4,766 $ 1,423 $ 11,133 $ 6,338 $ 4,795
Administrator $ 229,137 $229,137 $ 0 $ 299,846 $170,695 $ 129,151
Class
STRATEGIC INCOME
FUND
Fund Level $ 12,164 $ 0 $ 12,164 $ 22,191 $ 0 $ 22,191
Class A $ 29,885 $ 0 $ 29,885 $ 86,657 $ 0 $ 86,657
Class B $ 9,003 $ 0 $ 9,003 $ 25,167 $ 0 $ 25,167
Class C $ 4,901 $ 0 $ 4,901 $ 2,243 $ 0 $ 2,243
TOTAL RETURN
BOND
Fund Level $ 704,628 $704,628 $ 0 $ 746,829 $746,829 $ 0
Class A $ 162,008 $ 57,829 $ 104,179 $ 175,834 $128,558 $ 47,726
Class B $ 20470 $ 7,315 $ 13,155 $ 42,564 $ 31,120 $ 11,444
Class C $ 11,558 $ 4,127 $ 7,431 $ 16,652 $ 12,175 $ 4,477
Investor Class/2/ $ 15,913 $ 4,442 $ 11,471 $ 922,453 $674,433 $ 248,020
Administrator $ 812,393 $522,452 $ 289,941 $ 386,848 $282,836 $ 104,012
Class
Institutional $ 385,717 $310,031 $ 75,686 $ 15,460 $ 11,303 $ 4,157
Class
ULTRA
SHORT-TERM
INCOME FUND
Fund Level $ 311,590 $ 0 $ 311,590 $ 392,112 $ 0 $ 392,112
Administrator $ 80,915 $ 0 $ 80,915 $ 132,725 $ 0 $ 132,725
Class
Class A/1/ $ 3,892 $ 0 $ 3,892 $ 18,328 $ 0 $ 18,328
Class C $ 46,602 $ 0 $ 46,602 N/A N/A N/A
Institutional $ 30,117 $ 0 $ 30,117 $ 48,760 $ 0 $ 48,760
Class
Investor Class $1,131,176 $ 0 $1,131,176 $2,747,260 $ 0 $2,747,260
FISCAL YEAR ENDED 5/31/07
FEES PAID
FUND FEES INCURRED WAIVER AFTER WAIVER
Class C N/A N/A N/A
Institutional $ 57,690 $ 0 $ 57,690
Class
Investor Class $1,633,555 $ 0 $1,633,555
SHORT-TERM
HIGH YIELD BOND
FUND
Fund Level $ 58,608 $ 0 $ 58,608
Class A/1/ $ 61,261 $ 0 $ 61,261
Class C N/A N/A N/A
Investor Class $ 362,319 $ 0 $ 362,319
STABLE INCOME
Fund Level $ 209,976 $209,976 $ 0
Class A $ 158,676 $ 63,403 $ 95,273
Class B $ 22,212 $ 8,875 $ 13,337
Class C $ 11,952 $ 4,776 $ 7,176
Administrator $ 351,081 $351,081 $ 0
Class
STRATEGIC INCOME
FUND
Fund Level $ 19,848 $ 0 $ 19,848
Class A $ 72,230 $ 0 $ 72,230
Class B $ 27,291 $ 0 $ 27,291
Class C $ 11,627 $ 0 $ 11,627
TOTAL RETURN
BOND
Fund Level $ 653,708 $653,708 $ 0
Class A $ 186,511 $ 41,858 $ 144,653
Class B $ 54,040 $ 12,128 $ 41,912
Class C $ 19,147 $ 4,297 $ 14,850
Investor Class/2/ $ 23,862 $ 3,332 $ 20,530
Administrator $ 821,672 $516,338 $ 305,334
Class
Institutional $ 310,153 $243,625 $ 66,528
Class
ULTRA
SHORT-TERM
INCOME FUND
Fund Level $ 438,263 $ 0 $ 438,263
Administrator $ 7,471 $ 0 $ 7,471
Class
Class A/1/ $ 138,216 $ 0 $ 138,216
Class C N/A N/A N/A
Institutional $ 37,824 $ 0 $ 37,824
Class
Investor Class $3,475,853 $ 0 $3,475,853
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Wells Fargo Funds Distributor, LLC ("Funds Distributor"), an affiliate of Funds Management located at 525 Market Street, San Francisco, California 94105, serves as the distributor to the Funds.
The Funds that offer Class B and Class C shares have adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") for their Class B and Class C shares. The Plan was adopted by the Board, including a majority of the Trustees who were not "interested persons" (as defined under the 1940 Act) of the Funds and who had no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Non-Interested Trustees").
Under the Plan and pursuant to the related Distribution Agreement, the Class B and Class C shares of these Funds pay the Distributor, on a monthly basis, an annual fee of 0.75% of the average daily net assets attributable to each class as compensation for distribution-related services or as reimbursement for distribution-related expenses. Class B shares are closed to new investors and additional investments (except in connection with reinvestment of any distributions and permitted exchanges). The Distributor may use the fees payable under the Plan to make payments to selling or servicing agents for past sales and distribution efforts, as well as for the provision of ongoing services to shareholders.
The actual fee payable to the Distributor by these Funds and classes is determined, within such limits, from time to time by mutual agreement between the Trust and the Distributor and will not exceed the maximum sales charges payable by mutual funds sold by members of the Financial Industry Regulatory Authority ("FINRA") under the Conduct Rules. The Distributor's distribution-related revenues from the Plan may be more or less than distribution-related expenses incurred during the period. The Distributor may enter into selling agreements with one or more selling agents (which may include Wells Fargo Bank, Funds Management and their affiliates) under which such agents may receive compensation for distribution-related services from the Distributor, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of Fund shares attributable to their customers. The Trustees believe that these relationships and distribution channels provide potential for increased Fund assets and ultimately corresponding economic efficiencies (I.E., lower per-share transaction costs and fixed expenses) that are generated by increased assets under management. In addition to payments received from the Fund, selling or servicing agents may receive significant additional payments directly from the Adviser, Distributor, or their affiliates in connection with the sale of Fund shares. The Distributor may retain any portion of the total distribution fee payable thereunder to compensate it for distribution-related services provided by it or to reimburse it for other distribution-related expenses.
For the fiscal year ended May 31, 2009, the Funds paid Funds Distributor the following fees for distribution-related services.
DISTRIBUTION FEES
PRINTING, COMPENSATION COMPENSATION
MAILING & TO TO
FUND/CLASS TOTAL ADVERTISING PROSPECTUS UNDERWRITERS BROKER/DLRS OTHER*
GOVERNMENT SECURITIES
FUND
Class B $45,094 $0 $0 $ 0 $ 0 $45,094
Class C $98,804 $0 $0 $51,613 $44,191 $ 0
HIGH INCOME FUND
Class B $55,327 $0 $0 $ 0 $ 0 $55,327
Class C $48,481 $0 $0 $19,976 $28,505 $ 0
INCOME PLUS FUND
Class B $38,447 $0 $0 $ 0 $ 0 $38,447
Class C $40,615 $0 $0 $13,485 $27,130 $ 0
INFLATION-PROTECTED BOND FUND
Class B $47,700 $0 $0 $ 0 $ 0 $47,700
Class C $75,559 $0 $0 $31,641 $43,918 $ 0
SHORT DURATION GOVERNMENT BOND FUND
Class B $44,436 $0 $0 $ 0 $ 0 $44,436
Class C $72,217 $0 $0 $28,551 $43,666 $ 0
SHORT-TERM BOND FUND
Class C $ 2,254 $0 $0 $ 1,943 $ 311 $ 0
SHORT-TERM HIGH YIELD BOND FUND
Class C $15,107 $0 $0 $15,033 $ 74 $ 0
STABLE INCOME FUND
Class B $11,484 $0 $0 $ 0 $ 0 $11,484
Class C $25,788 $0 $0 $ 4,419 $21,369 $ 0
STRATEGIC INCOME FUND
Class B $37,514 $0 $0 $ 0 $ 0 $37,514
Class C $20,422 $0 $0 $ 3,396 $17,026 $ 0
TOTAL RETURN BOND FUND
Class B $85,291 $0 $0 $ 0 $ 0 $85,291
Class C $48,157 $0 $0 $13,092 $35,065 $ 0
ULTRA SHORT-TERM INCOME FUND
Class C $16,215 $0 $0 $10,062 $ 6,153 $ 0
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* The Distributor entered into an arrangement whereby sales commissions payable to broker-dealers with respect to sales of Class B shares of the Funds are financed by an unaffiliated third party lender. Under this financing arrangement, the Distributor may assign certain amounts, including 12b-1 fees, that it is entitled to receive pursuant to the Plan to the third party lender, as reimbursement and consideration for these payments. Under the arrangement, compensation to broker/dealers is made by the unaffiliated third party lender from the amounts assigned.
be amended to increase materially the amounts payable thereunder without the approval of a majority of the outstanding voting securities of a Fund, and no material amendment to the Plan may be made except by a majority of both the Trustees and the Non-Interested Trustees.
The Plan provides that the Treasurer of the Trust shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under the Plan. The Rule also requires that the selection and nomination of Trustees who are not "interested persons" of the Trust be made by such Non-Interested Trustees.
Wells Fargo Bank and Funds Management, interested persons (as that term is defined under Section 2(a)(19) under the 1940 Act) of the Trust, act as selling agents for the Funds' shares pursuant to selling agreements with the Distributor authorized under the Plan. As selling agents, Wells Fargo Bank and Funds Management have an indirect financial interest in the operation of the Plan. The Board has concluded that the Plan is reasonably likely to benefit the Funds and their shareholders because the Plan authorizes the relationships with selling agents, including Wells Fargo Bank and Funds Management, that have previously developed distribution channels and relationships with the retail customers that the Funds are designed to serve. The Trustees believe that these relationships and distribution channels provide potential for increased Fund assets and ultimately corresponding economic efficiencies (I.E., lower per-share transaction costs and fixed expenses) that are generated by increased assets under management. In addition to payments received from the Funds, selling or servicing agents may receive significant additional payments directly from the Adviser, the Distributor, or their affiliates in connection with the sale of Fund shares.
The Funds have approved a Shareholder Servicing Plan and have entered into related Shareholder Servicing Agreements with financial institutions, including Wells Fargo Bank and Funds Management. Under the agreements, Shareholder Servicing Agents (including Wells Fargo Bank and Funds Management) agree to perform, as agents for their customers, administrative services, with respect to Fund shares, which include aggregating and transmitting shareholder orders for purchases, exchanges and redemptions; maintaining shareholder accounts and records; and providing such other related services as the Trust or a shareholder may reasonably request. For providing these services, a Shareholder Servicing Agent is entitled to an annual fee from the applicable Fund of up to 0.25% of the average daily net assets of the Class A, Class B, Class C, Administrator Class, and Investor Class shares owned of record or beneficially by the customers of the Shareholder Servicing Agent during the period for which payment is being made. The Shareholder Servicing Plan and related Shareholder Servicing Agreements were approved by the Trustees and provide that a Fund shall not be obligated to make any payments under such plans or related agreements that exceed the maximum amounts payable under the Conduct Rules enforced by FINRA.
The Shareholder Servicing Plan requires that the Administrator of the Trust shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefore) under the Shareholder Servicing Plan.
Effective on September 21, 2009, State Street Bank and Trust Company ("State Street"), located at State Street Financial Center, One Lincoln Street Boston, Massachusetts 02111, replaced Wells Fargo Bank, N.A. and PNC Global Investing Service (U.S.), Inc. ("PNC") as the Custodian and fund accountant, respectively, for the Government Securities, High Income, Income Plus, Short Duration Government Bond, Short-Term Bond, Short-Term High Yield Bond, Strategic Income and Ultra Short-Term Income Funds ("non-gateway Funds").
Effective on or about October 26, 2009, State Street Bank and Trust Company ("State Street"), located at State Street Financial Center, One Lincoln Street Boston, Massachusetts 02111, will replace Wells Fargo Bank, N.A. and PNC Global Investing Service (U.S.), Inc. ("PNC") as the Custodian and fund accountant, respectively, for the Diversified Bond, Inflation-Protected Bond, Stable Income and Total Return Bond Funds ("gateway Funds").
As Custodian, State Street, among other things, maintains a custody account or accounts in the name of each Fund, handles the receipt and delivery of securities, selects and monitors foreign sub custodians as the Funds' global custody manager, determines income and collects interest on each Fund's investments and maintains certain books and records. As fund accountant,
State Street is responsible for calculating each Fund's daily net asset value per share and for maintaining its portfolio and general accounting records. For its services, State Street is entitled to receive certain transaction fees, asset-based fees and out-of-pocket costs.
Wells Fargo Bank, N.A., located at Wells Fargo Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as Custodian for the gateway Funds until the effective date of its replacement. Prior to September 21, 2009, Wells Fargo Bank, N.A. acted as Custodian for the non-gateway Funds. For its services as Custodian for the gateway Funds, Wells Fargo Bank does not charge a custody fee at the gateway level. For its services as Custodian for the non-gateway Funds, Wells Fargo Bank was entitled to receive an annual fee at the rate of 0.02% of the average daily net assets of each non-gateway Fund.
PNC, located at 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as the fund accountant for the gateway Funds until the effective date of its replacement. Prior to September 21, 2009, PNC acted as fund accountant for the non-gateway Funds. For its services as fund accountant for the gateway Funds, PNC is, and for its services as fund accountant for the non-gateway Funds PNC was, entitled to receive certain out-of-pocket costs and an annual asset-based Fund Complex fee based on each applicable Fund's proportionate share of the aggregate average net assets of all the applicable funds in the Fund Complex, excluding the Master Trust portfolios.
Boston Financial Data Services, Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts as transfer and distribution disbursing agent for the Funds. For providing such services, BFDS is entitled to receive fees from the Administrator.
The Distributor serves as the principal underwriter distributing
securities of the Funds on a continuous basis.
For the periods listed below, the aggregate dollar amount of underwriting
commissions paid to and retained by the Distributor was as follows:
FISCAL YEAR ENDED FISCAL YEAR ENDED FISCAL YEAR ENDED
MAY 31, 2009 MAY 31, 2008 MAY 31, 2007
AMOUNT RECEIVED AMOUNT RECEIVED
IN CONNECTION IN CONNECTION
AMOUNT AMOUNT WITH REDEMPTIONS AMOUNT AMOUNT WITH REDEMPTIONS AMOUNT AMOUNT
PAID RETAINED AND REPURCHASES PAID RETAINED AND REPURCHASES PAID RETAINED
$ 200,535 $152,373 $62,983 $130,648 $24,226 $2,696 $316,463 $345
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The Fund Complex, the Adviser, the Distributor and the Sub-Advisers each has adopted a code of ethics which contains policies on personal securities transactions by "access persons" as defined in each of the codes. These policies comply with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, as applicable. Each code of ethics, among other things, permits access persons to invest in certain securities, subject to various restrictions and requirements. More specifically, each code of ethics either prohibits its access persons from purchasing or selling securities that may be purchased or held by a Fund or permits such access persons to purchase or sell such securities, subject to certain restrictions. Such restrictions do not apply to purchases or sales of certain types of securities, including shares of open-end investment companies that are unaffiliated with the WELLS FARGO ADVANTAGE FUNDS family, money market instruments and certain U.S. Government securities. To facilitate enforcement, the codes of ethics generally require that an access person, other than "disinterested" directors or trustees, submit reports to a designated compliance person regarding transactions involving securities which are eligible for purchase by a Fund. The codes of ethics for the Fund Complex, the Adviser, the Distributor and the Sub-Advisers are on public file with, and are available from, the SEC.
DETERMINATION OF NET ASSET VALUE
The NAV per share for each Fund is determined as of the close of regular trading (currently 4:00 p.m. (Eastern time)) on each day the New York Stock Exchange ("NYSE") is open for business, with the exception of Columbus Day and Veterans Day. Expenses and fees, including advisory fees, are accrued daily and are taken into account for the purpose of determining the NAV of each Fund's shares.
Each Fund's investments are generally valued at current market prices. Securities are generally valued based on the last sales price during the regular trading session if the security trades on an exchange ("closing price"). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price ("NOCP"), and if no NOCP is
available, then at the last reported sales price. A Fund is required to depart from these general valuation methods and use fair value pricing methods to determine the value of certain investments if it is determined that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Fund calculates its NAV. In addition, we also use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before a Fund calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security. With respect to any portion of a Fund's assets that are invested in other mutual funds, the Fund's NAV is calculated based upon the net asset values of the other mutual funds in which the Fund invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing. In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price.
Money market instruments and debt instruments maturing in 60 days or less generally are valued at amortized cost. Futures contracts will be marked to market daily at their respective settlement prices determined by the relevant exchange. Prices may be furnished by a reputable independent pricing service. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Funds may be purchased on any day a Fund is open for business. Generally, each Fund is open for business each day the New York Stock Exchange is open for trading (a "Business Day"). The New York Stock Exchange is currently closed in observance of New Year's Day, Martin Luther King Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day (each a "Holiday"). When any Holiday falls on a weekend, the NYSE typically is closed on the weekday immediately before or after such Holiday.
Purchase orders for a Fund received before such Fund's NAV calculation time, generally are processed at such time on that Business Day. Purchase orders received after a Fund's NAV calculation time generally are processed at such Fund's NAV calculation time on the next Business Day. Selling Agents may establish earlier cut-off times for processing your order. Requests received by a Selling Agent after the applicable cut-off time will be processed on the next Business Day. On any day the NYSE closes early, the Funds will close early. On these days, the NAV calculation time and the distribution, purchase and redemption cut-off times for the Funds may be earlier than their stated NAV calculation time described above.
Payment for shares may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for the Fund. For further information about this form of payment, please contact the Distributor. In connection with an in-kind securities payment, the Funds will require, among other things, that the securities be valued on the day of purchase in accordance with the pricing methods used by a Fund and that such Fund receives satisfactory assurances that (i) it will have good and marketable title to the securities received by it; (ii) that the securities are in proper form for transfer to the Fund; and (iii) adequate information will be provided concerning the basis and other matters relating to the securities.
Each Fund reserves the right to reject any purchase orders, and under the 1940 Act, may suspend the right of redemption or postpone the date of payment upon redemption for any period during which the NYSE is closed (other than customary weekend and holiday closings), or during which trading is restricted, or during which, as determined by SEC rule, regulation or order, an emergency exists as a result of which disposal or valuation of portfolio securities is not reasonably practicable, or for such periods as the SEC may permit. The Fund may also redeem shares involuntarily or make payment for redemption in securities or other property if it appears appropriate to do so in light of the Fund's responsibilities under the 1940 Act. In addition, the Fund may redeem shares involuntarily to reimburse a Fund for any losses sustained by reason of the failure of a shareholder to make full payment for shares purchased or to collect any charge relating to a transaction effected for the benefit of a shareholder which is applicable to shares of a Fund as provided from time to time in the Prospectuses.
The dealer reallowance for purchases of Class A shares of each applicable Fund, except the Short Duration Government Bond Fund, Short-Term Bond Fund, Short-Term High Yield Bond Fund, and Stable Income Fund, is as follows:
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % REALLOWANCE AS %
OF PUBLIC OF NET AMOUNT OF PUBLIC
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
Less than $50,000 4.50% 4.71% 4.00%
$50,000 to $99,999 4.00% 4.17% 3.50%
$100,000 to $249,999 3.50% 3.63% 3.00%
$250,000 to $499,999 2.50% 2.56% 2.25%
$500,000 to $999,999 2.00% 2.04% 1.75%
$1,000,000 and over/1/ 0.00% 0.00% 1.00%
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The dealer reallowance for purchases of Class A shares of the Ultra Short-Term Income Fund is as follows:
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % REALLOWANCE AS %
OF PUBLIC OF NET AMOUNT OF PUBLIC
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
Less than $50,000 2.00% 2.04% 1.75%
$50,000 to $99,999 1.50% 1.52% 1.25%
$100,000 to $249,999 1.00% 1.01% 0.85%
$250,000 to $499,999 0.50% 0.50% 0.40%
$500,000 and over 0.00% 0.00% 0.00%
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The dealer reallowance for purchases of Class A shares of the Stable Income Fund is as follows:
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % REALLOWANCE AS %
OF PUBLIC OF NET AMOUNT OF PUBLIC
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
Less than $50,000 2.00% 2.04% 1.75%
$50,000 to $99,999 1.50% 1.52% 1.25%
$100,000 to $249,999 1.00% 1.01% 0.85%
$250,000 to $499,999 0.75% 0.76% 0.70%
$500,000 to $999,999 0.50% 0.50% 0.50%
$1,000,000 and over/1/ 0.00% 0.00% 0.50%
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The dealer reallowance for purchases of Class A shares of the Short Duration Government Bond Fund, Short-Term Bond Fund, and Short-Term High Yield Bond Fund is as follows:
FRONT-END SALES FRONT-END SALES DEALER
CHARGE AS % CHARGE AS % REALLOWANCE AS %
OF PUBLIC OF NET AMOUNT OF PUBLIC
AMOUNT OF PURCHASE OFFERING PRICE INVESTED OFFERING PRICE
Less than $50,000 3.00% 3.09% 2.50%
$50,000 to $99,999 2.50% 2.56% 2.00%
$100,000 to $249,999 2.00% 2.04% 1.75%
$250,000 to $499,999 1.50% 1.52% 1.25%
$500,000 to $999,999 1.00% 1.01% 0.75%
$1,000,000 and over/1/ 0.00% 0.00% 0.50%
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o Current and retired employees, directors/trustees and officers of: (i) WELLS FARGO ADVANTAGE FUNDS (including any predecessor funds) and (ii) Wells Fargo & Company and its affiliates; and
o Family members, as defined in the prospectus, of any of the above.
o Clients of sub-advisers to those Funds which offer an Institutional Class who are clients of such sub-advisers at the time of their intended purchase of such Institutional Class shares;
o Clients of Wells Capital Management who are clients of Wells Capital Management at the time of their intended purchase of Institutional Class shares; and
o Clients of Wells Fargo Institutional Trust Services (ITS) who are clients of ITS at the time of their intended purchase of Institutional Class shares.
Related shareholders or shareholder accounts may be aggregated in order to meet the minimum initial investment requirement for Institutional Class shares. The following are examples of relationships that may qualify for aggregation:
o Related business entities, including;
o Corporations and their subsidiaries;
o General and limited partners; and
o Other business entities under common ownership or control.
o Shareholder accounts that share a common tax-id number.
o Accounts over which the shareholder has individual or shared authority to buy or sell shares on behalf of the account (I.E., a trust account or a solely owned business account).
All of the minimum initial investment waivers listed above may be modified or discontinued at any time.
o 401(k) Investment Services, Inc.
o ADP Broker-Dealer, Inc.
o A.G. Edwards & Sons, Inc.
o AIG Retirement Services Company
o Ameriprise Financial Services, Inc.
o Charles Schwab & Co., Inc.
o Citigroup Global Markets, Inc.
o CitiStreet Advisors LLC
o DWS Investments Distributors, Inc.
o Fidelity Brokerage Services LLC
o Goldman, Sachs & Co.
o GPC Securities, Inc.
o GWFS Equities, Inc.
o GunnAllen Financial, Inc.
o H.D. Vest Financial Services
o Hewitt Financial Services, LLC
o J. P. Morgan Securities Inc.
o LPL Financial Corp.
o Mellon Financial Markets, LLC
o Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Merriman Curhan Ford & Co. Inc.
o Mid Atlantic Capital Corporation
o Morgan Stanley DW Inc.
o MSCS Financial Services, LLC
o Nationwide Investment Services Corp.
o Pershing LLC
o Prudential Investment Management Services, LLC
o Prudential Retirement Brokerage Services, Inc.
o Raymond James & Associates, Inc.
o RBC Dain Rauscher, Inc.
o Robert W. Baird & Co.
o Ross, Sinclaire & Associates, LLC
o Security Distributors, Inc.
o State Street Global Markets, LLC
o TD Ameritrade Trust Company
o UBS Financial Services, Inc.
o VALIC Financial Advisors, Inc.
o Wachovia Securities, LLC
o Wells Fargo Investments
In addition to member firms of FINRA, Additional Payments are also made to other selling and shareholder servicing agents, and to affiliates of selling and shareholder servicing agents that sell shares of or provide services to the Funds and their shareholders, such as banks, insurance companies and plan administrators. These firms are not included on the list above, although they may be affiliated with companies on the above list.
Also not included on the list above are other subsidiaries of Wells Fargo & Company who may receive revenue from the Adviser, the Funds' Distributor or their affiliates through intra-company compensation arrangements and for financial, distribution, administrative and operational services.
PORTFOLIO TRANSACTIONS
The Trust has no obligation to deal with any broker-dealer or group of broker-dealers in the execution of transactions in portfolio securities. Subject to the supervision of the Trust's Board and the supervision of the Adviser, the Sub-Advisers are responsible for the Funds' portfolio decisions and the placing of portfolio transactions. In placing orders, it is the policy of the Sub-Advisers to obtain the best overall results taking into account various factors, including, but not limited to, the size and type of transaction involved; the broker-dealer's risk in positioning the securities involved; the nature and character of the market for the security; the confidentiality, speed and certainty of effective execution required for the transaction, the general execution and operational capabilities of the broker-dealer; the reputation, reliability, experience and financial condition of the firm, the value and quality of the services rendered by the firm in this and other transactions; and the reasonableness of the spread or commission.
While the Sub-Advisers generally seek reasonably competitive spreads or commissions, the Funds will not necessarily be paying the lowest spread or commission available.
Purchases and sales of non-equity securities usually will be principal transactions. Portfolio securities normally will be purchased or sold from or to broker-dealers serving as market makers for the securities at a net price. The Funds also will purchase portfolio securities in underwritten offerings and may purchase securities directly from the issuer. Generally, municipal obligations and taxable money market securities are traded on a net basis and do not involve brokerage commissions. The cost of executing a Fund's portfolio securities transactions will consist primarily of broker-dealer spreads and underwriting commissions. Under the 1940 Act, persons affiliated with the Trust are prohibited from dealing with the Trust as a principal in the purchase and sale of securities unless an exemptive order allowing such transactions is obtained from the SEC or an exemption is otherwise available. The Fund may purchase securities from underwriting syndicates of which the Distributor or Funds Management is a member under certain conditions in accordance with the provisions of a rule adopted under the 1940 Act and in compliance with procedures adopted by the Trustees. However, the Funds and Funds Management have adopted a policy pursuant to Rule 12b-1(h) under the 1940 Act that prohibits the Funds from directing portfolio brokerage to brokers who sell Fund shares as compensation for such selling efforts.
In placing orders for portfolio securities of a Fund, a Fund's Sub-Adviser is required to give primary consideration to obtaining the most favorable price and efficient execution. This means that a Sub-Adviser will seek to execute each transaction at a price and commission, if any, that provide the most favorable total cost or proceeds reasonably attainable in the circumstances. Commission rates are established pursuant to negotiations with the broker-dealer based, in part, on the quality and quantity of execution services provided by the broker-dealer and in the light of generally prevailing rates. Furthermore, the Adviser oversees the trade execution procedures of a Sub-Adviser to ensure that such procedures are in place, that they are adhered to, and that adjustments are made to the procedures to address ongoing changes in the marketplace.
A Sub-Adviser may, in circumstances in which two or more broker-dealers are in a position to offer comparable results for a portfolio transaction, give preference to a broker-dealer that has provided statistical or other research services to the Sub-Adviser. In selecting a broker-dealer under these circumstances, a Sub-Adviser will consider, in addition to the factors listed above, the quality of the research provided by the broker-dealer.
A Sub-Adviser may pay higher commissions than those obtainable from other broker-dealers in exchange for such research services. The research services generally include: (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the advisability of securities or purchasers or sellers of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto. By allocating transactions in this manner, a Sub-Adviser is able to supplement its research and analysis with the views and information of securities firms. Information so received will be in addition to, and not in lieu of, the services required to be performed by the Sub-Adviser under the advisory contracts, and the expenses of the Sub-Adviser will not necessarily be reduced as a result of the receipt of this supplemental research information. Furthermore, research services furnished by broker-dealers through which a sub-adviser places securities transactions for a Fund may be used by the Sub-Adviser in servicing its other accounts, and not all of these services may be used by the Sub-Adviser in connection with advising the Funds.
The table below shows the Fund's portfolio turnover rates for the two most recent fiscal years:
MAY 31, MAY 31,
FUND 2009 2008
Diversified Bond Fund/1/ 224% 141%
Government Securities Fund/2/ 368% 263%
High Income Fund 52% 53%
Income Plus Fund/3/ 455% 245%
Inflation-Protected Bond Fund 53% 40%
Short Duration Government Bond Fund 277% 210%
Short-Term Bond Fund 50% 47%
Short-Term High Yield Bond Fund 46% 59%
Stable Income Fund 7% 22%
Strategic Income Fund 41% 63%
Total Return Bond Fund 633% 572%
Ultra Short-Term Income Fund 32% 48%
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1 The primary reason for the increase in the portfolio turnover is that the return to normalcy and liquidity in many sectors of the bond market has created opportunities for the portfolio managers to generate alpha through relative value trading and finding dislocations in the bond market.
2 The increase in the portfolio turnover for the Government Securities was due to the increase in transaction volume during the financial crisis. The unusual volatility stemming from the financial crisis created numerous opportunities in the market. Many of these opportunities were in the U.S. Treasury and U.S. Government Agency sectors which are very liquid and are sectors where we operate in block size.
3 The increase in portfolio turnover rate for the Income Plus Fund was due to restructuring. As the Wells Fargo Advantage Corporate Bond Fund merged into the Income Plus Fund in July 2008, the combined fund needed restructuring to remain consistent with the strategy.
TOTAL BROKERAGE COMMISSIONS PAID1
YEAR ENDED YEAR ENDED YEAR ENDED
FUND 05/31/09 05/31/08 05/31/07
Diversified Bond Fund $ 0 $ 0 $ 0
Government Securities Fund $ 43,873 $ 61,370 $ 54,888
High Income Fund $1,533/3/ $ 182/3/ $ 184
Income Plus Fund $9,227/4/ $ 0/4/ $ 0
Inflation-Protected Bond Fund $1,816/5/ $6,324/2,5/ $15,288/2/
Short Duration Government Bond Fund $ 0 $ 0 $ 0
Short-Term Bond Fund $ 4,945 $ 8,012 $ 7,242
Short-Term High Yield Bond Fund $ 0 $ 0 $ 0
Stable Income Fund $ 0 $ 0 $ 0
Strategic Income Fund $ 789 $ 899 $ 925
Total Return Bond Fund $ 0 $ 0 $ 0
Ultra Short-Term Income Fund $ 613/6/ $ 4,415/6/ $ 6,599
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3 The increase of total commission for the High Income Fund was due to the
increase in futures trading.
4 The increase of total commission for the Income Plus Fund was due to to the
increase in futures trading.
5 The decrease of total commission for the Inflation-Protected Bond Fund was
due to the decrease in futures trading.
6 The decrease of total commission for the Ultra Short-Term Income Fund was
due to the decrease in futures trading.
FUND BROKER/DEALER SHARE VALUE
Diversified Bond Fund N/A N/A
Government Securities JP Morgan Chase & Co. $13,156
Fund
Bank of America $33,675
Goldman Sachs & Co. $ 3,661
Deutsche Bank Alex Brown $37,516
Morgan Stanley & Co. Inc. $ 4,114
High Income Fund JP Morgan Chase & Co. $ 497
Bank of America $ 1,811
Goldman Sachs & Co. $ 197
Deutsche Bank Alex Brown $ 2,131
Income Plus Fund JP Morgan Chase & Co. $ 1,289
Credit Suisse First Boston Corp $ 286
Bank of America $ 7,835
Goldman Sachs & Co. $ 598
Deutsche Bank Alex Brown $ 6,123
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Morgan Stanley & Co. Inc. $1,798
CitiGroup $ 862
Inflation-Protected Bond N/A N/A
Fund
Short Duration Government JP Morgan Chase & Co. $ 1,171
Bond Fund
Bank of America $14,172
Goldman Sachs & Co. $16,135
Deutsche Bank Alex Brown $ 6,188
Morgan Stanley & Co. Inc. $13,411
CitiGroup $12,028
Short-Term Bond Fund JP Morgan Chase & Co. $ 8,443
Bank of America $ 2,756
Goldman Sachs & Co. $ 224
Deutsche Bank Alex Brown $ 3,300
Morgan Stanley & Co. Inc. $ 281
CitiGroup $ 144
Short-Term High Yield JP Morgan Chase & Co. $ 73
Bond Fund
Bank of America $ 267
Goldman Sachs & Co. $ 29
Deutsche Bank Alex Brown $ 314
Stable Income Fund N/A N/A
Strategic Income Fund JP Morgan Chase & Co. $ 54
Bank of America $ 258
Goldman Sachs & Co. $ 28
Deutsche Bank Alex Brown $ 288
Total Return Bond Fund N/A N/A
Ultra Short-Term Income JP Morgan Chase & Co. $14,865
Fund
Credit Suisse First Boston Corp $ 3,074
Bank of America $ 1,595
Goldman Sachs & Co. $ 108
Deutsche Bank Alex Brown $ 1,111
Morgan Stanley & Co. Inc. $ 5,049
CitiGroup $ 275
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FUND EXPENSES
From time to time, Funds Management may waive fees from a Fund in whole or in part. Any such waiver will reduce expenses and, accordingly, have a favorable impact on a Fund's performance.
Except for the expenses borne by Funds Management, the Trust bears all costs of its operations, including the compensation of its Trustees who are not affiliated with Funds Management or any of its affiliates; advisory, shareholder servicing and administration fees; payments pursuant to any Plan; interest charges; taxes; fees and expenses of its independent auditors, legal counsel, transfer agent and distribution disbursing agent; expenses of redeeming shares; expenses of preparing and printing
prospectuses (except the expense of printing and mailing prospectuses used for promotional purposes, unless otherwise payable pursuant to a Plan), shareholders' reports, notices, proxy statements and reports to regulatory agencies; insurance premiums and certain expenses relating to insurance coverage; trade association membership dues (including membership dues in the Investment Company Institute allocable to a Fund); brokerage and other expenses connected with the execution of portfolio transactions; fees and expenses of its custodian, including those for keeping books and accounts and calculating the NAV per share of a Fund; expenses of shareholders' meetings; expenses relating to the issuance, registration and qualification of a Fund's shares; pricing services, organizational expenses and any extraordinary expenses. Expenses attributable to a Fund are charged against Fund assets. General expenses of the Trust are allocated among all of the series of the Trust, including the Funds, in a manner proportionate to the net assets of each Fund, on a transactional basis, or on such other basis as the Trust's Board deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction with the section in each Prospectus entitled "Taxes." Each Prospectus generally describes the federal income tax treatment of distributions by the Funds. This section of the SAI provides additional information concerning federal income taxes. It is based on the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations, judicial authority, and administrative rulings and practice, all as of the date of this SAI and all of which are subject to change, including changes with retroactive effect. Except as specifically set forth below, the following discussion does not address any state, local or foreign tax matters.
A shareholder's tax treatment may vary depending upon the shareholder's
particular situation. This discussion applies only to shareholders holding Fund
shares as capital assets within the meaning of the Code. Except as otherwise
noted, it may not apply to certain types of shareholders who may be subject to
special rules, such as insurance companies, tax-exempt organizations,
shareholders holding Fund shares through tax-advantaged accounts (such as
401(k) Plan Accounts or IRAs), financial institutions, broker-dealers, entities
that are not organized under the laws of the United States or a political
subdivision thereof, persons who are neither citizens nor residents of the
United States, shareholders holding Fund shares as part of a hedge, straddle or
conversion transaction, and shareholders who are subject to the federal
alternative minimum tax.
The Trust has not requested and will not request an advance ruling from the Internal Revenue Service (the "IRS") as to the federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. In addition, the following discussion and the discussions in each Prospectus applicable to each shareholder address only some of the federal income tax considerations generally affecting investments in the Funds. Prospective shareholders are urged to consult their own tax advisers and financial planners regarding the federal tax consequences of an investment in a Fund, the application of state, local or foreign laws, and the effect of any possible changes in applicable tax laws on their investment in the Funds.
In order to qualify as a RIC under the Code, each Fund must, among other things, derive at least 90% of its gross income each taxable year generally from (i) dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, and other income attributable to its business of investing in such stock, securities or foreign currencies (including, but not limited to, gains from options, futures or forward contracts) and (ii) net income derived from an interest in a qualified publicly traded partnership, as defined in the Code. Future Treasury Regulations may (possibly retroactively) exclude from qualifying income foreign currency gains that are not directly related to a Fund's principal business of investing in stock, securities or options and futures with respect to stock or securities. In general, for purposes of this 90% gross income requirement, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the RIC. However, 100% of the net income derived from an interest in a qualified publicly traded partnership will be treated as qualifying income.
Each Fund must also diversify its holdings so that, at the end of each quarter of the Fund's taxable year: (i) at least 50% of the fair market value of its assets consists of (A) cash and cash items (including receivables), U.S. government securities and securities of other RICs, and (B) securities of any one issuer (other than those described in clause (A)) to the extent such securities do not exceed 5% of the value of the Fund's total assets and do not exceed 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Fund's total assets consists of the securities of any one issuer (other than those described in clause (i)(A)), the securities of two or more issuers the Fund controls and which are engaged in the same, similar or related trades or businesses, or the securities of one or more qualified publicly traded partnerships. In addition, for purposes of meeting this diversification requirement, the term "outstanding voting securities of such issuer" includes the equity securities of a qualified publicly traded partnership. The qualifying income and diversification requirements applicable to a Fund may limit the extent to which it can engage in transactions in options, futures contracts, forward contracts and swap agreements.
In addition, each Fund generally must distribute to its shareholders at least 90% of its investment company taxable income for the taxable year, which generally includes its ordinary income and the excess of any net short-term capital gain over net long-term capital loss, and at least 90% of its net
tax-exempt interest income earned for the taxable year, if any. If a Fund meets all of the RIC requirements, it generally will not be subject to federal income tax on any of the investment company taxable income and net capital gain (I.E., the excess of net long-term capital gain over net short-term capital loss) it distributes to its shareholders. For this purpose, a Fund generally must make the distributions in the same year that it realizes the income and gain, although in certain circumstances, a Fund may make the distributions in the following taxable year. Shareholders generally are taxed on any distributions from a Fund in the year they are actually distributed. If a Fund declares a distribution to shareholders of record in October, November or December of one year and pays the distribution by January 31 of the following year, however, the Fund and its shareholders will be treated as if the Fund paid the distribution by December 31 of the first taxable year. Each Fund intends to distribute, or be deemed to have distributed, a sufficient amount of its investment company taxable income (as described above) and net tax-exempt interest income, if any, in a timely manner to maintain its status as a RIC and eliminate fund-level federal income taxation of such distributed income. However, no assurance can be given that a Fund will not be subject to federal income tax.
Each Fund intends to distribute substantially all its net capital gain. If a Fund retains any net capital gain, it will be subject to a tax at corporate rates on the amount of net capital gain retained, but may designate the retained amount as undistributed capital gain in a notice to its shareholders, who (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Fund on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of shares owned by a shareholder of the Fund will be increased by an amount equal to the difference between the amount of undistributed capital gain included in the shareholder's gross income and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence.
If, for any taxable year, a Fund fails to qualify as a RIC under the Code or fails to meet the distribution requirements, it will be taxed in the same manner as an ordinary corporation without any deduction for its distributions to shareholders, and all distributions from the Fund's current and accumulated earnings and profits (including any distributions of its net tax-exempt income and net long-term capital gain) to its shareholders will be taxable to shareholders as dividend income. To re-qualify to be taxed as a RIC in a subsequent year, the Fund may be required to distribute to its shareholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Fund to the IRS. In addition, if a Fund which had previously qualified as a RIC were to fail to qualify as a RIC for a period greater than two taxable years, the Fund generally would be required to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Fund had been liquidated) or, alternatively, to be subject to tax on such built-in gain recognized for a period of ten years, in order to re-qualify as a RIC in a subsequent year.
As of May 31, 2009, the following Funds had capital loss carry-forwards approximating the amount indicated for federal income tax purposes, expiring in the year indicated:
CAPITAL LOSS
FUND YEAR EXPIRES CARRYFORWARDS
Government Securities Fund 2012 $ 599,009
2013 $8,423,067
2014 $5,950,495
2015 $3,154,334
2016 $3,078,336
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CAPITAL LOSS
FUND YEAR EXPIRES CARRYFORWARDS
High Income Fund 2010 $279,017,279
2011 $ 28,016,734
2013 $ 869,486
2014 $ 266,573
2015 $ 7,773,739
2016 $ 3,607,384
2017 $ 16,489,349
Income Plus Fund 2010 $ 1,602,869
2011 $ 484,626
2013 $ 210,712
2014 $ 1,422,930
2015 $ 836,942
2016 $ 3,941,771
Inflation-Protected Bond Fund 2015 $ 2,705,798
2016 $ 1,003,933
2017 $ 605,645
Short Duration Government Bond Fund 2015 $ 3,454,237
2016 $ 6,050,378
Short-Term Bond Fund 2010 $106,132,641
2011 $ 2,145,251
2012 $ 263,758
2013 $ 417,163
2014 $ 764,108
2015 $ 1,524,727
Short-Term High Yield Bond Fund 2010 $ 65,207,341
2015 $ 78,433
2016 $ 1,091,400
2017 $ 1,089,609
Stable Income Fund 2012 $ 640,535
2013 $ 327,692
2014 $ 1,232,465
2015 $ 394,153
Strategic Income Fund 2016 $ 95,150
2017 $ 3,285,888
Ultra Short-Term Income Fund 2010 $173,012,605
2011 $ 21,833,596
2012 $ 11,899,310
2013 $ 73,332
2014 $ 83,461
2015 $ 25,866,042
2016 $ 2,154,408
2017 $ 8,848,032
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If a Fund engages in a reorganization, either as an acquiring fund or acquired fund, its capital loss carry-forwards (if any), its unrealized losses (if any), and any such losses of other funds participating in the reorganization may be subject to severe limitations that could make such losses substantially unusable. The Funds have engaged in reorganizations in the past and/or may engage in reorganizations in the future.
the 12-month period ending on October 31 of that year, and any of its ordinary income and capital gain net income from previous years that were not distributed during such years, the Fund will be subject to a nondeductible 4% excise tax on the undistributed amounts (other than to the extent of its tax-exempt interest income, if any). Each Fund generally intends to actually distribute or be deemed to have distributed substantially all of its ordinary income and capital gain net income, if any, by the end of each calendar year and thus expects not to be subject to the excise tax. However, no assurance can be given that a Fund will not be subject to the excise tax. Moreover, each Fund reserves the right to pay an excise tax rather than make an additional distribution when circumstances warrant (for example, the amount of excise tax to be paid is deemed de minimis by a Fund).
If a Fund purchases a debt obligation with original issue discount ("OID") (generally, a debt obligation with a purchase price less than its principal amount, such as a zero-coupon bond), the Fund may be required to annually include in its taxable income a portion of the OID as ordinary income, even though the Fund will not receive cash payments for such discount until maturity or disposition of the obligation. Inflation-protected bonds generally can be expected to produce OID income as their principal amounts are adjusted upward for inflation. A portion of the OID includible in income with respect to certain high-yield corporate discount obligations may be treated as a dividend for federal income tax purposes. In general, gains recognized on the disposition of a debt obligation (including a municipal obligation) purchased by a Fund at a market discount, generally at a price less than its principal amount, will be treated as ordinary income to the extent of the portion of market discount which accrued, but was not previously recognized pursuant to an available election, during the term that the Fund held the debt obligation. For income accrued on debt instruments after May 31, 2005, the Short Duration Government Bond Fund has revoked its election to amortize bond premium currently for federal income tax purposes. Losses on the retirement or sale of bonds purchased at a premium will likely result in capital losses for the Short Duration Government Bond Fund. A Fund generally will be required to make distributions to shareholders representing the OID income on debt obligations that is currently includible in income, even though the cash representing such income may not have been received by a Fund. Cash to pay such distributions may be obtained from borrowing or from sales proceeds of securities held by the Fund which a Fund otherwise might have continued to hold; obtaining such cash might be disadvantageous for the Fund.
In addition, payment-in-kind securities similarly will give rise to income which is required to be distributed and is taxable even though a Fund holding such a security receives no interest payment in cash on the security during the year.
If a Fund invests in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers not currently paying interest or who are in default, special tax issues may exist for the Fund. Tax rules are not entirely clear about issues such as when a Fund may cease to accrue interest, OID, or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, and how payments received on obligations in default should be allocated between principal and income. These and other related issues will be addressed by a Fund when, as, and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and does not become subject to U.S. federal income or excise tax.
If an option granted by a Fund is sold, lapses or is otherwise terminated through a closing transaction, such as a repurchase by the Fund of the option from its holder, the Fund will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Fund in the closing transaction. Some capital losses realized by a Fund in the sale, exchange, exercise, or other disposition of an option may be deferred if they result from a position that is part of a "straddle," discussed below. If securities are sold by a Fund pursuant to the exercise of a covered call option granted by it, the Fund generally will add the premium received to the sale price of the securities delivered in determining the amount of gain or
loss on the sale. If securities are purchased by a Fund pursuant to the exercise of a put option written by it, the Fund generally will subtract the premium received from its cost basis in the securities purchased.
Some regulated futures contracts, certain foreign currency contracts, and non-equity, listed options used by a Fund will be deemed "Section 1256 contracts." A Fund will be required to "mark-to-market" any such contracts held at the end of the taxable year by treating them as if they had been sold on the last day of that year at market value. Sixty percent of any net gain or loss realized on all dispositions of Section 1256 contracts, including deemed dispositions under the "mark-to-market" rule, generally will be treated as long-term capital gain or loss, and the remaining 40% will be treated as short-term capital gain or loss, although certain foreign currency gains and losses from such contracts may be treated as ordinary income or loss (as described below). These provisions may require a Fund to recognize income or gains without a concurrent receipt of cash. Transactions that qualify as designated hedges are exempt from the mark-to-market rule and the "60%/40%" rule and may require the Fund to defer the recognition of losses on certain futures contracts, foreign currency contracts and non-equity options.
Foreign currency gains and losses realized by a Fund in connection with certain transactions involving foreign currency-denominated debt obligations, certain options, futures contracts, forward contracts, and similar instruments relating to foreign currency, foreign currencies, or payables or receivables denominated in a foreign currency are subject to Section 988 of the Code, which generally causes such gains and losses to be treated as ordinary income or loss and may affect the amount and timing of recognition of the Fund's income. Under future Treasury Regulations, any such transactions that are not directly related to a Fund's investments in stock or securities (or its options contracts or futures contracts with respect to stock or securities) may have to be limited in order to enable the Fund to satisfy the 90% income test described above. If the net foreign currency loss exceeds a Fund's net investment company taxable income (computed without regard to such loss) for a taxable year, the resulting ordinary loss for such year will not be deductible by the Fund or its shareholders in future years.
Offsetting positions held by a Fund involving certain derivative instruments, such as financial forward, futures, and options contracts, may be considered, for federal income tax purposes, to constitute "straddles." "Straddles" are defined to include "offsetting positions" in actively traded personal property. The tax treatment of "straddles" is governed by Section 1092 of the Code which, in certain circumstances, overrides or modifies the provisions of Section 1256. If a Fund is treated as entering into a "straddle" and at least one (but not all) of the Fund's positions in derivative contracts comprising a part of such straddle is governed by Section 1256 of the Code, described above, then such straddle could be characterized as a "mixed straddle." A Fund may make one or more elections with respect to "mixed straddles." Depending upon which election is made, if any, the results with respect to a Fund may differ. Generally, to the extent the straddle rules apply to positions established by a Fund, losses realized by the Fund may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle rules, short-term capital loss on straddle positions may be recharacterized as long-term capital loss, and long-term capital gain may be characterized as short-term capital gain. In addition, the existence of a straddle may affect the holding period of the offsetting positions. As a result, the straddle rules could cause distributions that would otherwise constitute qualified dividend income to fail to satisfy the applicable holding period requirements and therefore to be taxed as ordinary income. Furthermore, the Fund may be required to capitalize, rather than deduct currently, any interest expense and carrying charges applicable to a position that is part of a straddle, including any interest expense on indebtedness incurred or continued to purchase or carry any positions that are part of a straddle. Because the application of the straddle rules may affect the character and timing of gains and losses from affected straddle positions, the amount which must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to the situation where a Fund had not engaged in such transactions.
If a Fund enters into a "constructive sale" of any appreciated financial
position in stock, a partnership interest, or certain debt instruments, the
Fund will be treated as if it had sold and immediately repurchased the property
and must recognize gain (but not loss) with respect to that position. A
constructive sale of an appreciated financial position occurs when a Fund
enters into certain offsetting transactions with respect to the same or
substantially identical property, including: (i) a short sale; (ii) an
offsetting notional principal contract; (iii) a futures or forward contract; or
(iv) other transactions identified in future Treasury Regulations. The
character of the gain from constructive sales will depend upon a Fund's holding
period in the appreciated financial position. Losses realized from a sale of a
position that was previously the subject of a constructive sale will be
recognized when the position is subsequently disposed of. The character of such
losses will depend upon a Fund's holding period in the position and the
application of various loss deferral provisions in the Code. Constructive sale
treatment does not apply to certain closed transactions, including if such a
transaction is closed on or before the 30th day after the close of the Fund's
taxable year and the Fund holds the appreciated financial position unhedged
throughout the 60-day period beginning with the day such transaction was
closed.
The amount of long-term capital gain a Fund may recognize from certain derivative transactions with respect to interests in certain pass-through entities is limited under the Code's constructive ownership rules. The amount of long-term capital gain is limited to the amount of such gain a Fund would have had if the Fund directly invested in the pass-through entity during the term of the derivative contract. Any gain in excess of this amount is treated as ordinary income. An interest charge is imposed on the amount of gain that is treated as ordinary income.
In addition, a Fund's transactions in securities and certain types of derivatives (E.G., options, futures contracts, forward contracts, and swap agreements) may be subject to other special tax rules, such as the wash sale rules or the short sale rules, the effect of which may be to accelerate income to the Fund, defer losses to the Fund, cause adjustments to the holding periods of the Fund's securities, convert long-term capital gains into short-term capital gains, and/or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing, and character of distributions to shareholders.
Certain of a Fund's hedging activities (including its transactions, if any, in foreign currencies or foreign currency-denominated instruments) are likely to produce a difference between its book income and its taxable income. If a Fund's book income exceeds its taxable income, the distribution (if any) of such excess generally will be treated as (i) a dividend to the extent of the Fund's remaining earnings and profits (including earnings and profits arising from tax-exempt income), (ii) thereafter, as a return of capital up to the amount of a shareholder's tax basis in the shareholder's Fund shares, and (iii) thereafter, as capital gain. If a Fund's book income is less than taxable income, the Fund could be required to make distributions exceeding book income in order to qualify as a RIC.
Rules governing the federal income tax aspects of derivatives, including swap agreements, are in a developing stage and are not entirely clear in certain respects, particularly in light of a 2006 IRS revenue ruling that held that income from a derivative contract with respect to a commodity index is not qualifying income for a RIC. Accordingly, while each Fund intends to account for such transactions in a manner it deems appropriate, the IRS might not accept such treatment. If it did not, the status of a Fund as a RIC might be jeopardized. Certain requirements that must be met under the Code in order for each Fund to qualify as a RIC may limit the extent to which a Fund will be able to engage in derivatives transactions.
A Fund may invest in REITs. Investments in REIT equity securities may require a Fund to accrue and distribute income not yet received. To generate sufficient cash to make the requisite distributions, the Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. A Fund's investments in REIT equity securities may at other times result in the Fund's receipt of cash in excess of the REIT's earnings if the Fund distributes these amounts, these distributions could constitute a return of capital to Fund shareholders for federal income tax purposes. Dividends received by the Fund from a REIT generally will not constitute qualified dividend income and will not qualify for the dividends-received deduction.
A Fund may invest directly or indirectly (e.g., through a REIT) in residual interests in real estate mortgage investment conduits ("REMICs") or in REITs or qualified REIT subsidiaries that are taxable mortgage pools ("REIT TMPs"). Under recent IRS guidance, a Fund must allocate "excess inclusion income" received directly or indirectly from REMIC residual interests or REIT TMPs to its shareholders in proportion to dividends paid to such shareholders, with the same consequences as if the shareholders had invested in the REMIC residual interests or REIT TMPs directly.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) constitutes unrelated business taxable income ("UBTI") to Keogh, 401(k) and qualified pension plans, as well as IRAs and certain other tax exempt entities, thereby potentially requiring such an entity, which otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, does not qualify for any reduction, by treaty or otherwise, in the 30% federal withholding tax. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in a Fund, then the Fund will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal corporate income tax rate. To the extent permitted under the Investment Act of 1940, a Fund may elect to specially allocate any such tax to the applicable disqualified organization, and thus reduce such shareholder's distributions for the year by the amount of the tax that relates to such shareholder's interest in the Fund. The Funds have not yet determined whether such an election will be made.
"Passive foreign investment companies" ("PFICs") are generally defined as foreign corporations with respect to which at least 75% of their gross income for their taxable year is income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or at least 50% of their assets on average produce such passive income. If a Fund acquires any equity interest in a PFIC, the Fund could be subject to federal income tax and interest charges on "excess distributions" received from the PFIC or on gain from the sale of such equity interest in the PFIC, even if all income or gain actually received by the Fund is timely distributed to its shareholders. Excess distributions will be characterized as ordinary income even though, absent the application of PFIC rules, some excess distributions may have been classified as capital gain.
A Fund will not be permitted to pass through to its shareholders any credit or deduction for taxes and interest charges incurred with respect to PFICs. Elections may be available that would ameliorate these adverse tax consequences, but such elections could require a Fund to recognize taxable income or gain without the concurrent receipt of cash. Investments in PFICs could also result in the treatment of associated capital gains as ordinary income. The Funds may attempt to limit and/or manage their holdings in PFICs to minimize their tax liability or maximize their returns from these investments but there can be no assurance that they will be able to do so. Moreover, because it is not always possible to identify a foreign corporation as a PFIC
in advance of acquiring shares in the corporation, a Fund may incur the tax and interest charges described above in some instances. Dividends paid by PFICs will not be eligible to be treated as qualified dividend income.
In addition to the investments described above, prospective shareholders should be aware that other investments made by the Funds may involve complex tax rules that may result in income or gain recognition by the Funds without corresponding current cash receipts. Although the Funds seek to avoid significant non-cash income, such non-cash income could be recognized by the Funds, in which case the Funds may distribute cash derived from other sources in order to meet the minimum distribution requirements described above. In this regard, the Funds could be required at times to liquidate investments prematurely in order to satisfy their minimum distribution requirements.
For federal income tax purposes, distributions of investment income are generally taxable as ordinary income, and distributions of gains from the sale of investments that a Fund owned for one year or less will be taxable as ordinary income. Distributions properly designated by a Fund as capital gain dividends will be taxable to shareholders as long-term capital gain (to the extent such distributions do not exceed the Fund's actual net long-term capital gain for the taxable year), regardless of how long a shareholder has held Fund shares, and do not qualify as dividends for purposes of the dividends-received deduction or as qualified dividend income. Each Fund will designate capital gain dividends, if any, in a written notice mailed by the Fund to its shareholders not later than 60 days after the close of the Fund's taxable year.
Some states will not tax distributions made to individual shareholders that are attributable to interest a Fund earned on direct obligations of the U.S. government if the Fund meets the state's minimum investment or reporting requirements, if any. Investments in GNMA or FNMA securities, bankers' acceptances, commercial paper and repurchase agreements collateralized by U.S. government securities generally do not qualify for tax-free treatment. This exemption may not apply to corporate shareholders.
If a shareholder sells or exchanges Fund shares within 90 days of having acquired such shares and if, as a result of having initially acquired those shares, the shareholder subsequently pays a reduced sales charge on a new purchase of shares of the Fund or a different RIC, the sales charge previously incurred in acquiring the Fund's shares generally shall not be taken into account (to the extent the previously incurred charges do not exceed the reduction in sales charges on the new purchase) for the purpose of determining the amount of gain or loss on the disposition, but generally will be treated as having been incurred in the new purchase. Also, if a shareholder realizes a loss on a disposition of Fund shares, the loss will be disallowed under the "wash sale" rules to the extent the shareholder purchases substantially identical shares within the 61-day period beginning 30 days before and ending 30 days after the disposition. Any disallowed loss generally will be reflected in an adjustment to the tax basis of the purchased shares.
If a shareholder receives, or is deemed to receive, a capital gain dividend with respect to any Fund share and such Fund share is held for six months or less, then (unless otherwise disallowed) any loss on the sale or exchange of that Fund share will be
treated as a long-term capital loss to the extent of the capital gain dividend. If such loss is incurred from the redemption of shares pursuant to a periodic redemption plan then Treasury Regulations may permit an exception to this six-month rule. No such regulations have been issued as of the date of this SAI.
Current federal income tax law also provides for a maximum individual federal income tax rate applicable to "qualified dividend income" equal to the highest net long-term capital gains rate, which generally is 15%. In general, "qualified dividend income" is income attributable to dividends received by a Fund in taxable years beginning on or before December 31, 2010, from certain domestic and foreign corporations, as long as certain holding period and other requirements are met by the Fund with respect to the dividend-paying corporation's stock and by the shareholders with respect to the Fund's shares. If 95% or more of a Fund's gross income (excluding net long-term capital gain over net short-term capital loss) constitutes qualified dividend income, all of its distributions (other than capital gain dividends) will be generally treated as qualified dividend income in the hands of individual shareholders, as long as they have owned their Fund shares for at least 61 days during the 121-day period beginning 60 days before the Fund's ex-dividend date (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date). In general, if less than 95% of a Fund's income is attributable to qualified dividend income, then only the portion of the Fund's distributions that is attributable to qualified dividend income and designated as such in a timely manner will be so treated in the hands of individual shareholders. Payments received by a Fund from securities lending, repurchase, and other derivative transactions ordinarily will not qualify. Distributions from the Funds generally will not constitute "qualified dividend income" eligible for reductions in individual federal income tax rates applicable to certain dividend income, although some distributions from the Strategic Income Fund may constitute qualified dividend income. The rules attributable to the qualification of Fund distributions as qualified dividend income are complex, including the holding period requirements. Individual Fund shareholders therefore are urged to consult their own tax advisers and financial planners. Income and bond funds typically do not distribute significant amounts of "qualified debt income."
The maximum stated corporate federal income tax rate applicable to ordinary income and net capital gain is 35%. Distributions from the Funds generally will not qualify for the "dividends-received deduction" applicable to corporate shareholders with respect to certain dividends, although some distributions from the Strategic Income Fund may so qualify. Actual marginal tax rates may be higher for some shareholders, for example, through reductions in deductions. Naturally, the amount of tax payable by any taxpayer will be affected by a combination of tax laws covering, for example, deductions, credits, deferrals, exemptions, sources of income and other matters. Federal income tax rates are set to increase in future years under various "sunset" provisions of federal income tax laws.
A portion of the interest paid or accrued on certain high-yield discount obligations that the Fund owns may not be deductible to the issuer. If a portion of the interest paid or accrued on certain high-yield discount obligations is not deductible, that portion will be treated as a dividend for purposes of the corporate dividends-received deduction if certain requirements are met. In such cases, if the issuer of the high-yield discount obligations is a domestic corporation, dividend payments by a Fund may be eligible for the dividends-received deduction to the extent of the dividend portion of such interest.
administration of that trust and one or more U.S. persons have authority to control substantial decisions of that trust), (iii) foreign estates (i.e., the income of which is not subject to U.S. tax regardless of source), and (iv) foreign corporations. "Exempt foreign shareholders" are foreign shareholders from whom the Fund obtains a properly completed and signed certificate of foreign status.
Generally, subject to certain exceptions described below, distributions made to foreign shareholders will be subject to non-refundable federal income tax withholding at a 30% rate (or such lower rate provided under an applicable income tax treaty, except in the case of excess inclusion income, which does not qualify for any treaty exemption or reduction) even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, for taxable years of a Fund beginning before January 1, 2008, distributions made to exempt foreign shareholders and properly designated by a Fund as "interest-related dividends" will be exempt from federal income tax withholding. Interest-related dividends are generally attributable to the Fund's net interest income earned on certain debt obligations and paid to foreign shareholders. In order to qualify as an interest-related dividend, the Fund must designate a distribution as such in a written notice mailed to its shareholders not later than 60 days after the close of the Fund's taxable year. Notwithstanding the foregoing, if any distribution described above is "effectively connected" with a U.S. trade or business (or, if an applicable income tax treaty so requires, is attributable to a permanent establishment) of the recipient foreign shareholder, neither federal income tax withholding nor the exemption for interest-related dividends will apply, the distribution will be subject to the tax, withholding, and reporting requirements generally applicable to U.S. shareholders and an additional branch profits tax may apply if the foreign shareholder is a foreign corporation.
In general, a foreign shareholder's capital gains realized on the disposition of Fund shares, capital gain dividends and, with respect to taxable years of a Fund beginning before January 1, 2010, "short-term capital gain dividends" (defined below) are not subject to federal income or withholding tax, provided that the Fund obtains a properly completed and signed certificate of foreign status, unless: (i) such gains or distributions are effectively connected with a U.S. trade or business (or, if an applicable income tax treaty so requires, are attributable to a permanent establishment) of the foreign shareholder; (ii) in the case of an individual foreign shareholder, the shareholder is present in the U.S. for a period or periods aggregating 183 days or more during the year of the disposition of Fund shares or the receipt of capital gain dividends and certain other conditions are met; or (iii) the Fund shares on which the foreign shareholder realized gain constitute U.S. real property interests ("USRPIs," defined below) or, in certain cases, distributions are attributable to gain from the sale or exchange of a USRPI. If the requirements of clause (i) are met, the tax, withholding, and reporting requirements applicable to U.S. shareholders generally will apply to the foreign shareholder, and an additional branch profits tax may apply if the foreign shareholder is a foreign corporation. If the requirements of clause (i) are not met but the requirements of clause (ii) are met, such gains and distributions will be subject to federal income tax at a 30% rate (or such lower rate provided under an applicable income tax treaty). If the requirements of clause (iii) are met, the foreign shareholder may be subject to certain tax, withholding, and/or reporting requirements, depending in part on whether the foreign shareholder holds (or has held in the prior 12 months) more than a 5% interest in the Fund. "Short-term capital gain dividends" are distributions attributable to a Funds' net short-term capital gain in excess of its net long-term capital loss and designated as such by the Fund in a written notice mailed by the Fund to its shareholders not later than 60 days after the close of the Fund's taxable year.
Subject to certain exceptions, a "USRPI" is generally defined as (i) an interest in real property located in the United States or the Virgin Islands, or (ii) any interest (other than solely as a creditor) in a domestic corporation that was a U.S. real property holding corporation (as defined in the Code) at any time during the shorter of the five-year period ending on the testing date or the period during which the interest was held.
In order to qualify for any exemptions from withholding described above or for lower withholding tax rates under income tax treaties, a foreign shareholder must comply with applicable certification requirements relating to its foreign status (including, in general, furnishing an IRS Form W-8BEN or substitute form). Foreign shareholders should consult their tax advisers in this regard.
In the case of shares held through an intermediary, even if a Fund makes a designation with respect to a payment, no assurance can be made that the intermediary will respect such a designation. Foreign shareholders should contact their intermediaries regarding the application of these rules to their accounts.
Even if permitted to do so, the Funds provide no assurance that they will designate any dividends as interest-related dividends or short-term capital gain dividends.
Special tax rules apply to distributions that a qualified investment entity ("QIE") makes to foreign shareholders that are attributable to gain from the QIE's sale or exchange of a USRPI. Special tax rules also apply to the sale of shares in a U.S. real property holding corporation ("USRPHC"). However, the Funds do not expect such special tax rules to apply because the Funds do not expect to be QIEs or USRPHCs.
Special rules apply to foreign partnerships and those holding Fund shares through foreign partnerships.
As discussed above, distributions and redemption proceeds paid or credited to a foreign shareholder are generally exempt from backup withholding. However, a foreign shareholder may be required to establish that exemption by providing certification of foreign status on an appropriate IRS Form W-8.
Any investment in residual interests of a collateralized mortgage obligation that has elected to be treated as a REMIC can create complex tax consequences, especially if a Fund has state or local governments or other tax-exempt organizations as shareholders.
Special tax consequences apply to charitable remainder trusts ("CRTs") (as defined in Section 664 of the Code) that invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in REIT TMPs. CRTs are urged to consult their own tax advisers and financial planners concerning these special tax consequences.
PROXY VOTING POLICIES AND PROCEDURES
The Trusts and Funds Management have adopted policies and procedures ("Procedures") that are used to vote proxies relating to portfolio securities held by the Funds of the Trusts. The Procedures are designed to ensure that proxies are voted in the best interests of Fund shareholders, without regard to any relationship that any affiliated person of the Fund (or an affiliated person of such affiliated person) may have with the issuer of the security.
The responsibility for voting proxies relating to the Funds' portfolio securities has been delegated to Funds Management. In accordance with the Procedures, Funds Management exercises its voting responsibility with the goal of maximizing value to shareholders consistent with governing laws and the investment policies of each Fund. While each Fund does not purchase securities to exercise control or to seek to effect corporate change through share ownership, it supports sound corporate governance practices within companies in which it invests and reflects that support through its proxy voting process.
Funds Management has established a Proxy Voting Committee (the "Proxy Committee") that is responsible for overseeing the proxy voting process and ensuring that the voting process is implemented in conformance with the Procedures. Funds Management has retained an independent, unaffiliated nationally recognized proxy voting company, as proxy voting agent. The Proxy Committee monitors the proxy voting agent and the voting process and, in certain situations, votes proxies or directs the proxy voting agent how to vote.
The Procedures set out guidelines regarding how Funds Management and the proxy voting agent will vote proxies. Where the guidelines specify a particular vote on a particular matter, the proxy voting agent handles the proxy, generally without further involvement by the Proxy Committee. Where the guidelines specify a case-by-case determination, or where a particular issue is not addressed in the guidelines, the proxy voting agent forwards the proxy to the Proxy Committee for a vote determination by the Proxy Committee. In addition, even where the guidelines specify a particular vote, the Proxy Committee may exercise a discretionary vote if it determines that a case-by-case review of a particular matter is warranted. As a general matter, proxies are voted consistently in the same matter when securities of an issuer are held by multiple Funds of the Trusts. However, proxies for securities held by the Social Sustainability Fund related to social and environmental proposals will be voted pursuant to RiskMetrics Group's ("RMG") then current SRI Proxy Voting Guidelines. Accordingly, the Social Sustainability Fund may vote its proxies related to social and environmental proposals differently than the other Funds.
The Procedures set forth Funds Management's general position on various proposals, such as:
In all cases where the Proxy Committee makes the decision regarding how a particular proxy should be voted, the Proxy Committee exercises its voting discretion in accordance with the voting philosophy of the Funds and in the best interests of Fund shareholders. In deciding how to vote, the Proxy Committee may rely on independent research, input and recommendations from third parties including independent proxy services, other independent sources, investment sub-advisers, company managements and shareholder groups as part of its decision-making process.
In most cases, any potential conflicts of interest involving Funds Management or any affiliate regarding a proxy are avoided through the strict and objective application of the Fund's voting guidelines. However, when the Proxy Committee is aware of a material conflict of interest regarding a matter that would otherwise be considered on a case-by-case basis by the Proxy Committee, the Proxy Committee shall address the material conflict by using any of the following methods: (i) instructing the proxy voting agent to vote in accordance with the recommendation it makes to its clients; (ii) disclosing the conflict to the Board and obtaining their consent before voting; (iii) submitting the matter to the Board to exercise its authority to vote on such matter; (iv) engaging an independent fiduciary who will direct the Proxy Committee on voting instructions for the proxy; (v) consulting with outside legal counsel for guidance on resolution of the conflict of interest; (vi) erecting information barriers around the person or persons making voting decisions; (vii) voting in proportion to other shareholders; or (viii) voting in other ways that are consistent with each Fund's obligation to vote in the best interests of its shareholders. Additionally, the Proxy Committee does not permit its votes to be influenced by any conflict of interest that exists for any other affiliated person of the Funds (such as a sub-adviser or principal underwriter) and the Proxy Committee votes all such matters without regard to the conflict. The Procedures may reflect voting positions that differ from practices followed by other companies or subsidiaries of Wells Fargo & Company.
While Funds Management uses its best efforts to vote proxies, in certain circumstances it may be impractical or impossible for Funds Management to vote proxies (E.G., limited value or unjustifiable costs). For example, in accordance with local law or business practices, many foreign companies prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting ("share blocking"). Due to these restrictions, Funds Management must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. As a result, Funds Management will generally not vote those proxies in the absence of an unusual, significant vote or compelling economic importance. Additionally, Funds Management may not be able to vote proxies for certain foreign securities if Funds Management does not receive the proxy statement in time to vote the proxies due to custodial processing delays.
As a general matter, securities on loan will not be recalled to facilitate proxy voting (in which case the borrower of the security shall be entitled to vote the proxy). However, if the Proxy Committee is aware of an item in time to recall the security and has determined in good faith that the importance of the matter to be voted upon outweighs the loss in lending revenue that would result from recalling the security (I.E., if there is a controversial upcoming merger or acquisition, or some other significant matter), the security will be recalled for voting.
Information regarding how the Funds voted proxies relating to portfolio securities held during the most recent 12-month period ended June 30 may be obtained on the Funds' Web site at www.wellsfargo.com/advantagefunds or by accessing the SEC's Web site at www.sec.gov.
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND PORTFOLIO HOLDINGS
the cash investments held by the Fund. For money market funds, the term "portfolio holdings" includes cash investments, such as investments in repurchase agreements.
Under no circumstances shall Funds Management or the Funds receive any compensation in return for the disclosure of information about a Fund's portfolio securities or for any ongoing arrangements to make available information about a Fund's portfolio securities.
Furthermore, as required by the SEC, each Fund (except money market funds) shall file its complete portfolio holdings schedule in public filings made with the SEC on a quarterly basis. Each Fund, (including money market funds) is required to file its complete portfolio schedules for the second and fourth fiscal quarter on Form N-CSR, and each Fund (except money market funds) is required to file its complete portfolio schedules for the first and third fiscal quarters on From N-Q, in each instance within 60 days of the end of the Fund's fiscal quarter. Through Form N-CSR and Form N-Q filings made with the SEC, the Funds' full portfolio holdings will be publicly available to shareholders on a quarterly basis. Such filings shall be made on or shortly before the 60th day following the end of a fiscal quarter.
Each Fund's complete portfolio schedules for the second and fourth fiscal quarter, required to be filed on Form N-CSR, shall be delivered to shareholders in the Fund's semi-annual and annual reports. Each Fund's complete portfolio schedule for the first and third fiscal quarters, required to be filed on Form N-Q, will not be delivered to shareholders. Each Fund, however, shall include appropriate disclosure in its semi-annual and annual reports as to how a shareholder may obtain holdings information for the Fund's first and third fiscal quarters.
2. Funds Management personnel that deal directly with investment review
and analysis of the Funds shall have full daily access to Fund portfolio
holdings through Factset, a program that is used to, among other things,
evaluate portfolio characteristics against available benchmarks.
3. Funds Management and Funds Distributor personnel may be given advance
disclosure of any changes to the underlying funds in a fund of funds
structure or changes in a Fund's target allocations that result in a shift
between or among its fixed-income and/or equity investments.
Certain of the information described above will be included in quarterly fund commentaries and will contain information that includes, among other things, top contributors/detractors from fund performance and significant portfolio changes during the calendar quarter. This information will be posted contemporaneously with their distribution on the Funds' website.
No person shall receive any of the information described above if, in the sole judgment of Funds Management, the information could be used in a manner that would be harmful to the Funds.
CAPITAL STOCK
The Funds are twelve series of the Trust in the Wells Fargo Advantage family of funds. The Trust was organized as a Delaware statutory trust on March 10, 1999.
Most of the Trust's series are authorized to issue multiple classes of shares, one class generally subject to a front-end sales charge and, in some cases, classes subject to a CDSC, that are offered to retail investors. Certain of the Trust's series also are authorized to issue other classes of shares, which are sold primarily to institutional investors. Each share in a series represents an equal, proportionate interest in the series with all other shares. Shareholders bear their pro rata portion of a series' operating expenses, except for certain class-specific expenses (E.G., any state securities registration fees, shareholder servicing fees or distribution fees that may be paid under Rule 12b-1) that are allocated to a particular class. Please contact Investor Services at 1-800-222-8222 if you would like additional information about other series or classes of shares offered.
With respect to matters affecting one class but not another, shareholders vote as a class; for example, the approval of a Plan. Subject to the foregoing, all shares of a Fund have equal voting rights and will be voted in the aggregate, and not by series, except where voting by a series is required by law or where the matter involved only affects one series. For example, a change in
a Fund's fundamental investment policy affects only one series and would be voted upon only by shareholders of the Fund involved. Additionally, approval of an advisory agreement, since it affects only one Fund, is a matter to be determined separately by each series. Approval by the shareholders of one series is effective as to that series whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to those series.
As used in the Prospectus(es) and in this SAI, the term "majority," when referring to approvals to be obtained from shareholders of a class of shares of a Fund means the vote of the lesser of (i) 67% of the shares of the class represented at a meeting if the holders of more than 50% of the outstanding shares of the class are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the class of the Fund. The term "majority," when referring to approvals to be obtained from shareholders of the Fund, means the vote of the lesser of (i) 67% of the shares of the Fund represented at a meeting if the holders of more than 50% of the outstanding shares of the Fund are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the Fund. The term "majority," when referring to the approvals to be obtained from shareholders of the Trust as a whole, means the vote of the lesser of (i) 67% of the Trust's shares represented at a meeting if the holders of more than 50% of the Trust's outstanding shares are present in person or by proxy, or (ii) more than 50% of the Trust's outstanding shares.
Gateway blended Funds and gateway feeder Funds are interestholders of the Master Trust master portfolios in which they invest and may be asked to approve certain matters by vote or by written consent pursuant to the Master Trust's Declaration of Trust. Gateway blended Funds, Funds that invest substantially all of their assets in two or more master portfolios of Master Trust, are not required to pass through their voting rights to their shareholders. Gateway feeder Funds, Funds that invest substantially all of their assets in one master portfolio of Master Trust, are not required to, but may, pass through their voting rights to their shareholders. Specifically, a gateway feeder Fund must either (i) seek instructions from its shareholders with regard to the voting of all proxies with respect to a security and vote such proxies only in accordance with such instructions, or (ii) vote the shares held by it in the same proportion as the vote of all other holders of such security.
Shareholders are not entitled to any preemptive rights. All shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by the Trust. The Trust may dispense with an annual meeting of shareholders in any year in which it is not required to elect Trustees under the 1940 Act.
Each share of a class of a Fund represents an equal proportional interest in the Fund with each other share of the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Fund as are declared in the discretion of the Trustees. In the event of the liquidation or dissolution of the Trust, shareholders of a Fund are entitled to receive the assets attributable to that Fund that are available for distribution, and a distribution of any general assets not attributable to a particular Fund that are available for distribution in such manner and on such basis as the Trustees in their sole discretion may determine.
Set forth below as of September 2, 2009, is the name, address and share ownership of each person with record ownership of 5% or more of a class of a Fund and each person known by the Trust to have beneficial ownership of 25% or more of the voting securities of the Fund as a whole. Except as identified below, no person with record ownership of 5% or more of a class of a Fund is known by the Trust to have beneficial ownership of such shares.
5% OWNERSHIP AS OF SEPTEMBER 2, 2009
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------------- ----------------------------------- -------------
DIVERSIFIED BOND FUND
Fund Level WELLS FARGO BANK NA FBO 57.5 %/1/
WF-RPS-OMN
REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
Administrator Class WELLS FARGO BANK NA FBO 57.50%
WF-RPS-OMN
REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA, FBO 19.77%
DIVERSIFIED BOND FUND I
ATTN: MUTUAL FUND OPS
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA, FBO 16.69 %
ATTN: MUTUAL FUND OPS
PO BOX 1533
MINNEAPOLIS MN 55480-1533
GOVERNMENT SECURITIES FUND
Class A CHARLES SCHWAB & CO INC 18.63%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
NFS LLC FEBO 6.66%
STATE STREET BANK TRUST CO
TTEE VARIOUS RETIREMENT PLANS
4 MANHATTANVILLE RD
PURCHASE NY 10577-2139
Class B AMERICAN ENTERPRISE INVESTMENT 12.01%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C MERRILL LYNCH PIERCE FENNER & 49.50%
SMITH INC
MERRILL LYNCH FIN DATA SERVICES
ATTENTION SERVICE TEAM
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------- ------------------------------------ -----------
CHARLES SCHWAB & CO INC 6.60%
SPECIAL CUSTODY ACCT FBO CUSTOMERS
ATTN MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
Administrator Class WELLS FARGO BANK NA FBO 37.65%
OMNUBUS CASH/CASH
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO FUNDS MANAGEMENT LLC 17.90%
EXCLUSIVE BENEFIT OF ITS CUSTOMERS
WELLS FARGO ADVISOR PROGRAM
100 HERITAGE RESERVE
MENOMONEE FLS WI 53051-4400
WELLS FARGO BANK NA FBO 15.73%
WF-RPS-OM
REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
CHARLES SCHWAB & CO INC 7.86%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
WELLS FARGO BANK NA FBO 7.02%
OMNUBUS REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
Institutional Class WELLS FARGO BANK NA FBO 16.24%
WF ADV WEAKTHBUILDER GROWTH BALANCE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 13.44%
WF ADV WEAKTHBUILDER CONSER ALLOC F
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 11.86%
WF ADV WEAKTHBUILDER MODERATE BALAN
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 10.46%
RETIREMENT PLAN SVCS
PO BOX 1533
MINNEAPOLIS MN 55480-1533
NATIONAL FINANCIAL SERVICES CORP 9.38%
FOR EXCLUSIVE BENEFIT OF OUR CUSTOM
ATTN MUTUAL FUNDS DEPT 5TH FL
ONE WORLD FINANCIAL CENTER
200 LIBERTY ST
NEW YORK NY 10281-1003
HEALTH MANAGEMENT ASSOCIATES INC 8.26%
ATTN JOSEPH MEEK
5811 PELICAN BAY BLVD STE 500
NAPLES FL 34108-2711
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
------------------ ----------------------------------- -----------
WELLS FARGO BANK NA FBO 7.35%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST WELLS FARGO AGGRESSIVE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 5.70%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST CONSERVATIVE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
Investor Class MERRILL LYNCH PIERCE FENNER & 24.83%
SMITH INC
MERRILL LYNCH FIN DATA SERVICES
ATTENTION SERVICE TEAM
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
CHARLES SCHWAB & CO INC 14.85%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
CITIGROUP GLOBAL MARKETS INC. 8.41%
333 WEST 34TH STREET - 3RD FLOOR
NEW YORK NEW NY 10001-2402
NATIONWIDE TRUST COMPANY FSB 6.75%
C/O IPO PORTFOLIO ACCOUNTING
PO BOX 182029
COLUMBUS OH 43218-2029
NFS LLC FEBO 6.20%
FIIOC AS AGENT FOR
QUALIFIED EMPLOYEE BENEFIT
PLANS (401K) FINOPS-IC FUNDS
100 MAGELLAN WAY KW1C
COVINGTON KY 41015-1987
HIGH INCOME FUND
Class A CHARLES SCHWAB & CO INC 29.30%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
WELLS FARGO & COMPANY 18.62%
MAC #A0101-10B
ATTN SUZANNA CHOW
420 MONTGOMERY ST FL 10
SAN FRANCISCO CA 94104-1207
LPL FINANCIAL 5.76%
FBO CUSTOMER ACCOUNTS
ATTN MUTUAL FUND OPERATIONS
PO BOX 509046
SAN DIEGO CA 92150-9046
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------- ------------------------------------ -----------
Class B AMERICAN ENTERPRISE INVESTMENT 18.53%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C AMERICAN ENTERPRISE INVESTMENT 10.18%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Institutional Class CHARLES SCHWAB & CO INC 17.51%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
NATIONAL FINANCIAL SERVICES CORP 9.80%
FOR EXCLUSIVE BENEFIT OF OUR CUSTOM
ATTN MUTUAL FUNDS DEPT 5TH FL
ONE WORLD FINANCIAL CENTER
200 LIBERTY ST
NEW YORK NY 10281-1003
Investor Class SALOMON SMITH BARNEY INC 17.22%
333 W 34TH STREET
NEW YORK NY 10001-2402
CHARLES SCHWAB & CO INC 10.12%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
AMERITRADE INC FOR THE 5.17%
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
PO BOX 2226
OMAHA NE 68103-2226
INCOME PLUS FUND
Class A CHARLES SCHWAB & CO INC 66.66%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
Class B AMERICAN ENTERPRISE INVESTMENT 27.49%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C MLPF&S FOR THE SOLE BENEFIT 5.39%
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
AMERICAN ENTERPRISE INVESTMENT 5.29%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
-------------------------- ----------------------------------- -----------
Institutional Class WELLS FARGO BANK NA 28.11%
WISCONSIN COLLEGE SAVINGS PROGRAM
TS BALANCED
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 18.72%
WISCONSIN COLLEGE SAVINGS PROGRAM
TS MODERATE GROWTH
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 18.17%
WISCONSIN COLLEGE SAVINGS PROGRAM
TS INCOME
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 15.73%
WISCONSIN COLLEGE SAVINGS PROGRAM
TS CONSERVATIVE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 15.08%
WISCONSIN COLLEGE SAVINGS PROGRAM
TS GROWTH
PO BOX 1533
MINNEAPOLIS MN 55480-1533
Investor Class CHARLES SCHWAB & CO INC 16.50%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
INFLATION-PROTECTED BOND
FUND
Class A CHARLES SCHWAB & CO INC 30.66%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
MLPF&S FOR THE SOLE BENEFIT 9.51%
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
WELLS FARGO INVESTMENTS LLC 8.15%
625 MARQUETTE AVE S 13TH FLOOR
MINNEAPOLIS MN 55402-2323
AMERICAN ENTERPRISE INVESTMENT 6.36%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
--------------------------- --------------------------------- -----------
Class B AMERICAN ENTERPRISE INVESTMENT 18.97%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
MLPF&S FOR THE SOLE BENEFIT 5.85%
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
Class C MLPF&S FOR THE SOLE BENEFIT 18.93%
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
AMERICAN ENTERPRISE INVESTMENT 11.25%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Administrator Class NEW YORK LIFE TRUST COMPANY 24.99%
169 LACKAWANNA AVE FL 2
PARSIPPANY NJ 07054-1007
WELLS FARGO BANK NA FBO 10.09%
WF-RPS-OMN
REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA, FBO 9.25%
DIVERSIFIED EQUITY I
ATTN: MUTUAL FUND OPS
PO BOX 1533
MINNEAPOLIS MN 55480-1533
SHORT DURATION GOVERNMENT
BOND FUND
Class A CHARLES SCHWAB & CO INC 14.57%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
CITIGROUP GLOBAL MARKETS INC. 10.92%
333 WEST 34TH STREET - 3RD FLOOR
NEW YORK NEW NY 10001-2402
MLPF&S FOR THE SOLE BENEFIT 5.40%
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
Class B AMERICAN ENTERPRISE INVESTMENT 20.95%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C NONE NONE
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------- ----------------------------------- -----------
Administrator Class PRUDENTIAL INVESTMENT MGMT SERV 52.25%
FBO MUTUAL FUND CLIENTS
100 MULBERRY ST
3 GATEWAY CENTER FL 11
MAIL STOP NJ 05-11-20
NEWARK NJ 07102-4000
CHARLES SCHWAB & CO INC 15.77%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
WELLS FARGO BANK NA, FBO 7.52%
FBO OMNIBUS ACCOUNT (CASH/CASH)
PO BOX 1533
MINNEAPOLIS MN 55480-1533
ATTN TREASURY OPERATIONS 5.80%
NFS LLC FEBO
BLUE CROSS & BLUE SHIELD ASSOC
225 NORTH MICHIGAN AVENUE
CHICAGO IL 60601-7757
Institutional Class WELLS FARGO BANK NA FBO 23.11%
WEALTHBUILDER CONSERVATIVE ALLOCAT
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 18.11%
WEALTHBUILDER MODERATE BALANCED
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 15.37%
LLS OPERATING WELLS CAP
PO BOX 1533
MINNEAPOLIS MN 55480-1533
HEALTH MANAGEMENT ASSOCIATES INC 9.43%
ATTN JOSEPH MEEK
5811 PELICAN BAY BLVD STE 500
NAPLES FL 34108-2711
CITY OF PHOENIX 8.70%
LONG TERM DISABILITY PROGRAM TRUST
ATTN: JON SUPER
251 W WASHINGTON ST FL 9
PHOENIX AZ 85003-2245
WELLS FARGO BANK NA FBO 7.42%
BLUE HEALTHCARE BANK
PO BOX 1533
MINNEAPOLIS MN 55480-1533
SHORT-TERM BOND FUND
Class A CHARLES SCHWAB & CO INC 58.03%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------- ----------------------------------- -----------
Class C FIRST CLEARING LLC 8.34%
LOCAL 1804-1 GENERAL ACCOUNT
MICHAEL J VIGNERON SECY-TREAS
5000 W SIDE AVE
NORTH BERGEN NJ 07047-6439
MLPF&S FOR THE SOLE BENEFIT 8.19%
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
FIRST CLEARING LLC 7.53%
MARGARET E NOTO R/O IRA
FCC AS CUSTODIAN
44 MATTISON RD
BRANCHVILLE NJ 07826-4000
Institutional Class WELLS FARGO BANK NA FBO 23.84%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST WELLS FARGO BALANCED
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 21.94%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST WELLS FARGO MODERATE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO %15.06%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST CONSERVATIVE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
STATE STREET BANK & TRUST CO 7.07%
CUST FOR THE ROLLOVER IRA OF
CRAIG W BYERS
608 W RUSSET LN # 96N
MEQUON WI 53092-6028
WELLS FARGO BANK NA FBO 6.97%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST WELLS FARGO BOND
PO BOX 1533
MINNEAPOLIS MN 55480-1533
MUHLENBERG COLLEGE 5.88%
2400 W CHEW ST
ALLENTOWN PA 18104-5586
Investor Class CHARLES SCHWAB & CO INC 11.78%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------------- ----------------------------------- ---------------
SHORT-TERM HIGH YIELD BOND
FUND
Class A CHARLES SCHWAB & CO INC 35.22 %
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
WELLS FARGO FUNDS MANAGEMENT LLC 11.63 %
EXCLUSIVE BENEFIT OF ITS CUSTOMERS
WELLS FARGO ADVISOR PROGRAM
100 HERITAGE RESERVE
MENOMONEE FLS WI 53051-4400
Class C MLPF&S FOR THE SOLE BENEFIT 14.57 %
OF ITS CUSTOMERS
ATTN MUTUAL FUND ADMINISTRATION
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
AMERICAN ENTERPRISE INVESTMENT 14.13 %
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Investor Class CHARLES SCHWAB & CO INC 25.17 %
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
MERRILL LYNCH PIERCE FENNER & 13.10 %
SMITH INC
MERRILL LYNCH FIN DATA SERVICES
ATTENTION SERVICE TEAM
4800 DEER LAKE DR E FL 3
JACKSONVILLE FL 32246-6484
STABLE INCOME FUND
Fund Level WELLS FARGO BANK NA, FBO 27.3%/1/
STABLE INCOME FUND I
C/O MUTUAL FUND PROCESSING
PO BOX 1450
MINNEAPOLIS MN 55485-1450
WELLS FARGO BANK NA, FBO 35.8 %
STABLE INCOME FUND I
C/O MUTAL FUNDS
PO BOX 1533
MINNEAPOLIS MN 55485-0001
Class A NFS LLC FEBO 11.50 %
THE WALMAN OPTICAL COMPANY
INTERMEDIATE CASH
801 12TH AVE N
MINNEAPOLIS MN 55411-4320
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------- -------------------------------- -----------
CHARLES SCHWAB & CO INC 11.00%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
WELLS FARGO INVESTMENTS LLC 9.10%
625 MARQUETTE AVE S 13TH FLOOR
MINNEAPOLIS MN 55402-2323
Class B AMERICAN ENTERPRISE INVESTMENT 22.76%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
WELLS FARGO INVESTMENTS LLC 7.87%
608 SECOND AVENUE SOUTH 8TH FL
MINNEAPOLIS MN 55402-1927
WELLS FARGO INVESTMENTS LLC 5.66%
625 MARQUETTE AVE S 13TH FLOOR
MINNEAPOLIS MN 55402-2323
Class C WELLS FARGO INVESTMENTS LLC 7.84%
608 SECOND AVENUE SOUTH 8TH FL
MINNEAPOLIS MN 55402-1927
WELLS FARGO INVESTMENTS LLC 6.87%
608 SECOND AVENUE SOUTH 8TH FL
MINNEAPOLIS MN 55402-1927
STATE STREET BANK & TRUST CO 5.86%
CUST FOR THE ROLLOVER IRA OF
LEONARD L POLING
211 DAVIS LN
NEW MARKET VA 22844-2224
AMERICAN ENTERPRISE INVESTMENT 5.79%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Administrator Class WELLS FARGO BANK NA, FBO 42.60%
STABLE INCOME FUND I
C/O MUTAL FUNDS
PO BOX 1533
MINNEAPOLIS MN 55485-0001
WELLS FARGO BANK NA, FBO 32.50%
STABLE INCOME FUND I
C/O MUTUAL FUND PROCESSING
PO BOX 1450
MINNEAPOLIS MN 55485-1450
WELLS FARGO BANK NA FBO 15.02%
WF-RPS-OMN
REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WACHOVIA BANK FBO 5.01%
UHG 401 K
NC 1076
1525 WEST WT HARRIS BLVD
CHARLOTTE NC 28288
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
------------------------ ------------------------------------- -----------
STRATEGIC INCOME FUND
Class A CHARLES SCHWAB & CO INC 49.96%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
AMERICAN ENTERPRISE INVESTMENT 9.72%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class B AMERICAN ENTERPRISE INVESTMENT 72.84%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C AMERICAN ENTERPRISE INVESTMENT 22.95%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
TOTAL RETURN BOND FUND
Class A AMERICAN ENTERPRISE INVESTMENT 71.60%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
CHARLES SCHWAB & CO INC 12.49%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
Class B AMERICAN ENTERPRISE INVESTMENT 45.09%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C AMERICAN ENTERPRISE INVESTMENT 11.56%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
MERRILL LYNCH PIERCE FENNER & SMITH 7.25%
FOR THE SOLE BENEFIT OF ITS
CUSTOMERS
4800 DEER LAKE DR EAST FL 2
JACKSONVILLE FL 32246-6484
Administrator Class WELLS FARGO BANK NA FBO 44.87%
OMNIBUS REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
------------------------- ------------------------------------ -----------
WELLS FARGO BANK NA FBO 27.55%
WF-RPS-OMN
REINVEST/REINVEST
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA, FBO 8.29%
FBO OMNIBUS ACCOUNT (CASH/CASH)
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK WEST TTEE FBO 5.60%
VARIOUS FASCORE LLC RECORD KEPT PLA
8515 E ORCHARD RD 2T2
GREENWOOD VLG CO 80111-5002
Institutional Class CHARLES SCHWAB & CO INC 15.40%
SPECIAL CUSTODY ACCOUNT
EXCLUSIVELY FBO THE CUSTOMERS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
WELLS FARGO BANK NA FBO 7.44%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST WELLS FARGO BALANCED
PO BOX 1533
MINNEAPOLIS MN 55480-1533
WELLS FARGO BANK NA FBO 5.98%
WISCONSIN COLLEGE SAVINGS PROGRAM
EDVEST WELLS FARGO MODERATE
PO BOX 1533
MINNEAPOLIS MN 55480-1533
Investor Class CHARLES SCHWAB & CO INC 5.83%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
ULTRA SHORT-TERM INCOME
FUND
Class A CHARLES SCHWAB & CO INC 46.22%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
AMERICAN ENTERPRISE INVESTMENT 10.91%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
Class C AMERICAN ENTERPRISE INVESTMENT 14.02%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
|
PERCENTAGE
FUND NAME AND ADDRESS OF CLASS
---------------------- ------------------------------------- -----------
Administrator Class PRUDENTIAL INVESTMENT MGMNT SERVICE 71.33%
FBO MUTUAL FUND CLIENTS
ATTN: PRUCHOICE UNIT
MAIL STOP NJ-05-11-20
100 MULBERRY STREET 10TH FLOOR
NEWARK NJ 07102-4056
WELLS FARGO FUNDS MANAGEMENT LLC 14.90%
EXCLUSIVE BENEFIT OF ITS CUSTOMERS
WELLS FARGO ADVISOR PROGRAM
100 HERITAGE RESERVE
MENOMONEE FLS WI 53051-4400
WELLS FARGO BANK NA FBO 10.41%
OMNIBUS CASH/CASH
PO BOX 1533
MINNEAPOLIS MN 55480-1533
Institutional Class WELLS FARGO BANK NA FBO 24.85%
WILLIS DEF COMP-WF ADV ULTRA
PO BOX 1533
MINNEAPOLIS MN 55480-1533
PRUDENTIAL INVESTMENT MGMNT SERVICE 18.68%
FBO MUTUAL FUND CLIENTS
100 MULBERRY ST
3 GATEWAY CENTER FL 11
MAIL STOP NJ 05-11-20
NEWARK NJ 07102-4000
WELLS FARGO BANK NA FBO 14.86%
SHOSHONE BANNOCK TRIBES-ECS
P.O. BOX 1533
MINNEAPOLIS MN 55480-1533
AMERITRADE INC FOR THE 14.59%
EXCLUSIVE BENEFIT OF OUR CUSTOMERS
PO BOX 2226
OMAHA NE 68103-2226
NATIONAL FINANCIAL SERVICES CORP 11.09%
FOR EXCLUSIVE BENEFIT OF OUR CUSTOM
ATTN MUTUAL FUNDS DEPT 5TH FL
ONE WORLD FINANCIAL CENTER
200 LIBERTY ST
NEW YORK NY 10281-1003
CHARLES SCHWAB & CO INC 7.68%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
Investor Class CHARLES SCHWAB & CO INC 13.83%
SPECIAL CUSTODY ACCOUNT
FOR EXCLUSIVE BENEFIT OF CUSTOMERS
ATTN: MUTUAL FUNDS
101 MONTGOMERY ST
SAN FRANCISCO CA 94104-4151
|
For purposes of the 1940 Act, any person who owns directly or through one or more controlled companies more than 25% of the voting securities of a company is presumed to "control" such company. Accordingly, to the extent that a person identified in the foregoing table is identified as the beneficial owner of more than 25% of a Fund, or is identified as the record owner of more than 25% of a Fund and has voting and/or investment powers, it may be presumed to control such Fund. A controlling person's vote could have a more significant effect on matters presented to shareholders for approval than the vote of other Fund shareholders.
OTHER INFORMATION
The Trust's Registration Statement, including the Prospectus(es) and SAI for the Funds and the exhibits filed therewith, may be examined at the office of the SEC, located at 100 "F" Street NE, in Washington, D.C., 20549-0102. Statements contained in the Prospectus(es) or the SAI as to the contents of any contract or other document referred to herein or in the Prospectus(es) are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP has been selected as the independent registered public accounting firm for the Trust. KPMG LLP provides audit services, tax return preparation and assistance and consultation in connection with review of certain SEC filings. KPMG LLP's address is 1601 Market Street, Philadelphia, PA 19103.
FINANCIAL INFORMATION
The audited financial statements for the Funds for the fiscal year ended May 31, 2009, are hereby incorporated by reference to the Funds' Annual Reports.
APPENDIX
The ratings of Standard & Poor's ("S&P"), Moody's Investors Services ("Moody's"), Fitch Investor Services ("Fitch"), represent their opinion as to the quality of debt securities. It should be emphasized, however, that ratings are general and not absolute standards of quality, and debt securities with the same maturity, interest rate and rating may have different yields while debt securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to purchase by the Funds, an issue of debt securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Funds. The adviser will consider such an event in determining whether the Fund involved should continue to hold the obligation.
The following is a description of the ratings given by S&P, Fitch, and Moody's to corporate and municipal bonds and corporate and municipal commercial paper and variable rate demand obligations.
S&P rates the long-term debt obligations issued by various entities in categories ranging from "AAA" to "D," according to quality, as described below. The first four ratings denote investment-grade securities. Plus (+) or minus(-) The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
AAA - This is the highest rating assigned by S&P to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to pay interest and repay principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for those in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal.
CCC - Debt CCC is currently vulnerable and is dependent upon favorable business, financial, and economic conditions to meet timely interest and principal payments.
CC - Debt rated CC is currently highly vulnerable to nonpayment. Debt rated CC is subordinate to senior debt rated CCC.
C - Debt rated C is currently highly vulnerable to nonpayment. Debt rated C is subordinate to senior debt rated CCC-. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. Debt rated C also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
D - Debt rated D is currently in default, where payment of interest and/or repayment of principal is in arrears.
Moody's rates the long-term debt obligations issued by various entities in categories ranging from "Aaa" to "C," according to quality, as described below. The first four denote investment-grade securities.
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk, and interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group, such bonds comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be considered upper to medium investment-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade (and still investment-grade) obligations, I.E., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not as well safeguarded during both good times and bad times over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca are speculative in a high degree. Such bonds are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds. Such bonds can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers (1, 2 and 3) to rating categories. The modifier 1 indicates that the bond being rated ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower end of its generic rating category. With regard to municipal bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aal, A1 or Baal, respectively.
National Long-Term Credit Ratings. A special identifier for the country concerned will be added at the end of all national ratings. For illustrative purposes, (xxx) has been used, below.
AAA(xxx) - 'AAA' national ratings denote the highest rating assigned in its national rating scale for that country. This rating is assigned to the "best" credit risk relative to all other issuers or issues in the same country and will normally be assigned to all financial commitments issued or guaranteed by the sovereign state.
AA(xxx) - 'AA' national ratings denote a very strong credit risk relative to other issuers or issues in the same country. The credit risk inherent in these financial commitments differs only slightly from the country's highest rated issuers or issues.
A(xxx) - 'A' national ratings denote a strong credit risk relative to other issuers or issues in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment of these financial commitments to a greater degree than for financial commitments denoted by a higher rated category.
BBB(xxx) - 'BBB' national ratings denote an adequate credit risk relative to other issuers or issues in the same country. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment.
BB(xxx) - 'BB' national ratings denote a fairly weak credit risk relative to other issuers or issues in the same country. Within the context of the country, payment of these financial commitments is uncertain to dome degree and capacity for timely repayment remains more vulnerable to adverse economic change over time.
B(xxx) - 'B' national ratings denote a significantly weak credit risk relative to other issuers or issues in the same country. Financial commitments are currently being met but a limited margin of safety remains and capacity for continued timely payment is contingent upon a sustained, favorable business and economic environment.
CCC(xxx), CC(xxx), C(xxx) - These categories of national ratings denote an extremely weak credit risk relative to other issuers or issues in the same country. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments.
DDD(xxx), DD(xxx), D(xxx) - These categories of national ratings are assigned to entities or financial commitments which are currently in default.
A-1 - Debt rated A-1 is rated in the highest category by S&P. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2 - Debt rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3 - Debt rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B - Debt rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C - Debt rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D - Debt rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Prime-1: Issuers rated Prime-1 have a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuers rated Prime-2 have a strong ability to repay senior short-term debt obligations, but earnings trends, while sound, will be subject to more variation.
Prime-3: Issuers rated Prime-3 have acceptable credit quality and an adequate capacity for timely payment of short-term deposit obligations.
Not Prime: Issuers rated Not Prime have questionable to poor credit quality and an uncertain capacity for timely payment of short-term deposit obligations.
National Long-Term Credit Ratings. A special identifier for the country concerned will be added at the end of all national ratings. For illustrative purposes, (xxx) has been used, below.
F1(xxx) - Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Under their national rating scale, this rating is assigned to the"best" credit risk relative to all others in the same country and is normally assigned to all financial commitments issued or guaranteed by the sovereign state. Where the credit risk is particularly strong , a "+" is added to the assigned rating.
F2(xxx) - Indicates a satisfactory capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, the margin of safety is not as great as in the case of the higher ratings.
F3(xxx) - Indicates an adequate capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, such capacity is more susceptible to near-term adverse changes than for financial commitments in higher rated categories.
B(xxx) - Indicates an uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Such capacity is highly susceptible to near-term adverse changes in financial and economic conditions.
C(xxx) - Indicates a highly uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Capacity or meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.
D(xxx) - Indicates actual or imminent payment default.
Note to National Short-Term ratings: In certain countries, regulators have established credit rating scales, to be used within their domestic markets, using specific nomenclature. In these countries, our National Short-Term Ratings definitions for F1+(xxx), F1(xxx), F2(xxx) and F3(xxx) may be substituted by those regulatory scales, E.G. A1+, A1, A2 and A3.
S&P:
SP-1 - Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3 - Speculative capacity to pay principal and interest.
MOODY'S:
VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 2: This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 3: This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
SG: This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
STATEMENT OF ADDITIONAL INFORMATION
October 1, 2009
WELLS FARGO FUNDS TRUST
Telephone: 1-800-222-8222
Wells Fargo Advantage WealthBuilder Conservative Allocation Portfolio/SM/ Wells Fargo Advantage WealthBuilder Equity Portfolio/SM/ Wells Fargo Advantage WealthBuilder Growth Allocation Portfolio/SM/ Wells Fargo Advantage WealthBuilder Growth Balanced Portfolio/SM/ Wells Fargo Advantage WealthBuilder Moderate Balanced Portfolio/SM/ Wells Fargo Advantage WealthBuilder Tactical Equity Portfolio/SM/
Wells Fargo Funds Trust (the "Trust") is an open-end, management investment company. This Statement of Additional Information ("SAI") contains additional information about six series of the Trust in the Wells Fargo Advantage family of funds - the above referenced Portfolios (each, a "Portfolio" and collectively, the "Portfolios"). Each Portfolio is considered diversified under the Investment Company Act of 1940, as amended (the "1940 Act"). The Portfolios offer a single class of shares.
This SAI is not a prospectus and should be read in conjunction with the Portfolios' Prospectus (the "Prospectus") dated October 1, 2009. The audited financial statements for the Portfolios, which include the portfolios of investments and report of the independent registered public accounting firm for the fiscal year ended May 31, 2009, are hereby incorporated by reference to the Portfolios' Annual Report. The Prospectus and Annual Report may be obtained free of charge by visiting our Web site at www.wellsfargo.com/advantagefunds, calling 1-800-222-8222 or writing to WELLS FARGO ADVANTAGE FUNDS (Reg. TM), P.O. Box 8266, Boston, MA 02266-8266.
WBFS/FASAI09 (10/09)
TABLE OF CONTENTS
PAGE
-----
HISTORICAL FUND INFORMATION 1
INVESTMENT POLICIES 1
Fundamental Investment Policies 1
Non-Fundamental Investment Policies 2
PERMITTED INVESTMENT ACTIVITIES AND CERTAIN ASSOCIATED RISKS 3
MANAGEMENT 22
Trustees and Officers 22
Investment Adviser 26
Investment Sub-Adviser 26
Portfolio Managers 26
Administrator 30
Distributor 31
DISTRIBUTION FEES 31
Shareholder Servicing Agent 32
Custodian 32
Fund Accountant 32
Transfer and Distribution Disbursing Agent 33
Underwriting Commissions 33
Code of Ethics 33
DETERMINATION OF NET ASSET VALUE 33
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION 34
PORTFOLIO EXPENSES 37
FEDERAL INCOME TAXES 38
PROXY VOTING POLICIES AND PROCEDURES 46
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND PORTFOLIO HOLDINGS 47
CAPITAL STOCK 49
OTHER INFORMATION 51
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 51
FINANCIAL INFORMATION 51
APPENDIX A-1
|
HISTORICAL FUND INFORMATION
On March 25, 1999, the Board of Trustees of Norwest Advantage Funds
("Norwest"), the Board of Directors of Stagecoach Funds, Inc. ("Stagecoach")
and the Board of Trustees of the Trust (the "Trustees") approved an Agreement
and Plan of Reorganization providing for, among other things, the transfer of
the assets and stated liabilities of various predecessor Norwest portfolios to
certain of the Portfolios (the "Reorganization"). Prior to November 5, 1999,
the effective date of the Reorganization, the Portfolios had only nominal
assets.
The Portfolios, except for the Conservative Allocation, Growth Allocation and Moderate Balanced Portfolios, were created as part of the reorganization of the Stagecoach family of funds, advised by Wells Fargo Bank, N.A. ("Wells Fargo Bank"), and the Norwest Advantage family of funds, advised by Norwest Investment Management, Inc. ("NIM"), into a single mutual fund complex. The Reorganization followed the merger of the advisers' parent companies.
The chart below indicates the predecessor Norwest portfolios that are the accounting survivors of the respective Portfolios.
WELLS FARGO ADVANTAGE WEALTHBUILDER PORTFOLIOS PREDECESSOR PORTFOLIOS --------------------------------------------------------------- ----------------------------------------------------- Wells Fargo Advantage WealthBuilder Equity Portfolio Norwest WealthBuilder II Growth and Income Portfolio Wells Fargo Advantage WealthBuilder Growth Balanced Norwest WealthBuilder II Growth Balanced Portfolio Portfolio Wells Fargo Advantage WealthBuilder Tactical Equity Portfolio Norwest WealthBuilder II Growth Portfolio |
The CONSERVATIVE ALLOCATION PORTFOLIO commenced operations on September 30, 2004.
The EQUITY PORTFOLIO commenced operations on November 8, 1999, as successor to the Norwest WealthBuilder II Growth and Income Portfolio. The predecessor Norwest WealthBuilder II Growth and Income Portfolio commenced operations on October 1, 1997. On October 1, 2004, the Growth and Income Portfolio changed its name to the Wells Fargo WealthBuilder Equity Portfolio.
The GROWTH ALLOCATION PORTFOLIO commenced operations on September 30, 2004.
The GROWTH BALANCED PORTFOLIO commenced operations on November 8, 1999, as successor to the Norwest WealthBuilder II Growth Balanced Portfolio. The predecessor Norwest WealthBuilder II Growth Balanced Portfolio commenced operations on October 1, 1997.
The MODERATE BALANCED PORTFOLIO commenced operations on September 30, 2004.
The TACTICAL EQUITY PORTFOLIO commenced operations on November 8, 1999, as successor to the Norwest WealthBuilder II Growth Portfolio. The predecessor Norwest WealthBuilder II Growth Portfolio commenced operations on October 1, 1997. On October 1, 2004, the Growth Portfolio changed its name to the Tactical Equity Portfolio.
INVESTMENT POLICIES
Each Portfolio seeks to achieve its investment objective by investing substantially all of its investable assets in the securities of affiliated and unaffiliated open-ended management investment companies or series (the "Underlying Funds"). Accordingly, the investment experience of each Portfolio will correspond directly with the investment experience of its respective Underlying Funds. Information concerning each Portfolio's investment objective is set forth in the Prospectus for the Portfolios. There can be no assurance that the Portfolios will achieve their objectives. The principal features of the Portfolios' investment programs and the primary risks associated with those investment programs are discussed in the Prospectus. The principal features and certain risks of the Underlying Funds also are discussed in the Prospectus. However, since certain Underlying Funds are not advised by the adviser and are not affiliated with the Portfolios, there can be no assurance that the Underlying Funds will follow their stated policies.
Each Portfolio has adopted the following fundamental investment policies; that is, they may not be changed without approval by the holders of a majority (as defined under the 1940 Act) of the outstanding voting securities of each Portfolio.
THE PORTFOLIOS MAY NOT:
(1) purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of a Portfolio's investments in that industry would equal or exceed 25% of the current value of the Portfolio's total assets, provided that this restriction does not limit a Portfolio's investments in (i) U.S. Government securities; (ii) repurchase agreements; or (iii) securities of other investment companies;
(2) purchase securities of any issuer if, as a result, with respect to 75% of a Portfolio's total assets, more than 5% of the value of its total assets would be invested in the securities of any one issuer or the Portfolio's ownership would be more than 10% of the outstanding voting securities of such issuer, provided that this restriction does not limit a Portfolio's investments in securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or investments in securities of other investment companies;
(3) borrow money, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder;
(4) issue senior securities, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder;
(5) make loans to other parties if, as a result, the aggregate value of such loans would exceed one-third of a Portfolio's total assets. For the purposes of this limitation, entering into repurchase agreements, lending securities and acquiring any debt securities are not deemed to be the making of loans;
(6) underwrite securities of other issuers, except to the extent that the purchase of permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with a Portfolio's investment program may be deemed to be an underwriting;
(7) purchase or sell real estate unless acquired as a result of ownership of securities or other instruments (but this shall not prevent a Portfolio from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business);
(8) purchase or sell commodities, provided that (i) currency will not be deemed to be a commodity for purposes of this restriction, (ii) this restriction does not limit the purchase or sale of futures contracts, forward contracts or options, and (iii) this restriction does not limit the purchase or sale of securities or other instruments backed by commodities or the purchase or sale of commodities acquired as a result of ownership of securities or other instruments.
Each Portfolio has adopted the following non-fundamental policies; that is, they may be changed by the Trustees at any time without approval of such Portfolio's shareholders.
(1) Each Portfolio may invest in shares of other investment companies to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder, provided however, that no Portfolio that has knowledge that its shares are purchased by another investment company investor pursuant to Section 12(d)(1)(G) of the 1940 Act will acquire any securities of registered open-end management investment companies or registered unit investment trusts in reliance on Section 12(d)(1)(F) or 12(d)(1)(G) of the 1940 Act.
(2) Each Portfolio may not invest or hold more than 15% of the Portfolio's net assets in illiquid securities. For this purpose, illiquid securities include, among others, (a) securities that are illiquid by virtue of the absence of a readily available market or legal or contractual restrictions on resale, (b) fixed time deposits that are subject to withdrawal penalties and that have maturities of more than seven days, and (c) repurchase agreements not terminable within seven days.
(3) Each Portfolio may invest in futures or options contracts consistent with its investment policies and the 1940 Act, including the rules, regulations and interpretations of the Securities and Exchange Commission (the "SEC") thereunder or any exemptive orders obtained thereunder, and consistent with investment in futures or options contracts that would allow the Portfolio to claim an exclusion from being a "commodity pool operator" as defined by the Commodity Exchange Act.
(4) Each Portfolio may lend securities from its portfolio to approved brokers, dealers and financial institutions, to the extent permitted under the 1940 Act, including the rules, regulations and exemptions thereunder, which currently limit such activities to one-third of the value of a Portfolio's total assets (including the value of the collateral received). Any such loans of portfolio securities will be fully collateralized based on values that are marked-to-market daily.
(5) Each Portfolio may not make investments for the purpose of exercising control or management, provided that this restriction does not limit a Portfolio's investments in securities of other investment companies or investments in entities created under the laws of foreign countries to facilitate investment in securities of that country.
(6) Each Portfolio may not purchase securities on margin (except for short-term credits necessary for the clearance of transactions).
(7) Each Portfolio may not sell securities short, unless it owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (short sales "against the box"), and provided that transactions in futures contracts and options are not deemed to constitute selling securities short.
(8) Each Portfolio that is subject to Rule 35d-1 (the "Names Rule") under the 1940 Act, and that has a non-fundamental policy or policies in place to comply with the Names Rule, has adopted the following policy:
Shareholders will receive at least 60 days notice of any change to a Portfolio's non-fundamental policy complying with the Names Rule. The notice will be provided in Plain English in a separate written document, and will contain the following prominent statement or similar statement in bold-face type: "Important Notice Regarding Change in Investment Policy." This statement will appear on both the notice and the envelope in which it is delivered, unless it is delivered separately from other communications to investors, in which case the statement will appear either on the notice or the envelope in which the notice is delivered.
Notwithstanding the foregoing policies, any other investment companies in which the Portfolios may invest have adopted their own investment policies, which may be more or less restrictive than those listed above, thereby allowing a Portfolio to participate in certain investment strategies indirectly that are prohibited under the fundamental and non-fundamental investment policies listed above.
PERMITTED INVESTMENT ACTIVITIES AND CERTAIN ASSOCIATED RISKS
Set forth below are descriptions of permitted investment activities for the Portfolios and certain of their associated risks. The activities are organized into various categories. To the extent that an activity overlaps two or more categories, the activity is referenced only once in this section. The Portfolios are subject to the limitations as described in this section and elsewhere in this SAI and/or the Prospectus. Not all of the Portfolios participate in all of the investment activities described below. For purposes of monitoring the investment policies and restrictions of the Portfolios (with the exception of the loans of portfolio securities policy described below), the amount of any securities lending collateral held by a Portfolio will be excluded in calculating total assets. Unless otherwise noted or required by applicable law, the percentage limitations and qualitative investment policies included in this SAI or the Prospectus apply at the time of purchase of a security. To the extent a security type is described in this SAI that is not referenced in its Prospectus, a Portfolio under normal circumstances will not invest more than 15% of its assets in the security type unless otherwise specified.
The Prospectus(es) identify and summarize the types of securities and assets in which the Portfolios may invest as part of their principal investment strategies, and the principal risks associated with such investments. This SAI identifies and summarizes other types of securities and assets in which the Portfolios may invest, each of which is subject to the same kinds of risks as are described in the Prospectus(es). Certain additional risks associated with each type of investment are identified and described below.
Each Portfolio seeks to achieve its investment objective by investing substantially all of its assets in the securities of the Underlying Funds. Therefore, although the following discusses the additional permitted investment activities and associated risks of the Portfolios, it applies equally to the Underlying Funds, which may invest in the types of investments described. Thus, as used herein, the term "Portfolios" shall refer equally to both the Portfolios of the Trust as well as the Underlying Funds in each Portfolio. However, since certain Underlying Funds are not affiliated with the adviser or the Portfolios, there can be no assurance that the Underlying Funds will continue to invest in these permitted investment activities.Although each Portfolio intends to invest substantially all of its assets in the Underlying Funds, each Portfolio reserves the right to invest assets not so invested in other instruments as outlined in the Prospectus.
Asset-backed securities are securities that are secured or "backed" by pools of various types of assets on which cash payments are due at fixed intervals over set periods of time. Asset-backed securities are created in a process called securitization. In a securitization transaction, an originator of loans or an owner of accounts receivable of a certain type of asset class sells such underlying assets in a "true sale" to a special purpose entity, so that there is no recourse to such originator or owner. Payments of principal and interest on asset-backed securities typically are tied to payments made on the pool of underlying assets in the related securitization. Such payments on the underlying assets are effectively "passed through" to the asset-backed security holders on a monthly or other regular, periodic basis. The level of seniority of a particular asset-backed security will determine the priority in which the holder of such asset-backed security is paid, relative to other security holders and parties in such securitization. Examples of underlying assets include consumer loans or receivables, home equity loans, automobile loans or leases, and timeshares, although other types of receivables or assets also may be used as underlying assets.
While asset-backed securities typically have a fixed, stated maturity date, low prevailing interest rates may lead to an increase in the prepayments made on the underlying assets. This may cause the outstanding balances due on the underlying assets to be paid down more rapidly. As a result, a decrease in the originally anticipated interest from such underlying securities may occur, causing the asset-backed securities to pay-down in whole or in part prior to their original stated maturity date. Prepayment proceeds would then have to be reinvested at the lower prevailing interest rates. Conversely, prepayments on the underlying assets may be less than anticipated, causing an extension in the duration of the asset-backed securities.
Delinquencies or losses that exceed the anticipated amounts for a given securitization could adversely impact the payments made on the related asset-backed securities. This is a reason why, as part of a securitization, asset-backed securities are often accompanied by some form of credit enhancement, such as a guaranty, insurance policy, or subordination. Credit protection in the form of derivative contracts may also be purchased. In certain securitization transactions, insurance, credit protection, or both may be purchased with respect to only the most senior classes of asset-backed securities, on the underlying collateral pool, or both. The extent and type of credit enhancement varies across securitization transactions.
In addition to the normal risks associated with debt securities discussed elsewhere in this SAI and the Prospectus, asset-backed securities carry additional risks including, but not limited to, the possibility that (i) the pace of payments on underlying assets may be faster or slower than anticipated or payments may be in default; (ii) the creditworthiness of the credit support provider may deteriorate; and (iii) such securities may become less liquid or harder to value as a result of market conditions or other circumstances.
Bank obligations include certificates of deposit, time deposits, bankers' acceptances and other short-term obligations of domestic banks, foreign subsidiaries of domestic banks, foreign branches of domestic banks, domestic and foreign branches of foreign banks, domestic savings and loan associations and other banking institutions. With respect to such obligations issued by foreign branches of domestic banks, foreign subsidiaries of domestic banks, and domestic and foreign branches of foreign banks, a Portfolio may be subject to additional investment risks that are different in some respects from those incurred by a Portfolio that invests only in debt obligations of domestic issuers. Such risks include possible future political, regulatory or economic developments, the possible imposition of foreign withholding and other taxes (at potentially confiscatory levels) on amounts realized on such obligations, the possible establishment of exchange controls or the adoption of other foreign governmental restrictions that might adversely affect the payment of principal and interest on these obligations and the possible seizure or nationalization of foreign deposits. In addition, foreign branches of U.S. banks and foreign banks may be subject to less stringent reserve requirements and to different regulatory, accounting, auditing, reporting and recordkeeping standards than those applicable to domestic branches of U.S. banks.
Certificates of deposit are negotiable certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time.
Time deposits are non-negotiable deposits maintained in a banking institution for a specified period of time at a stated interest rate. Time deposits that may be held by a Portfolio will not benefit from insurance from the Bank Insurance Fund or the Savings Association Insurance Fund administered by the Federal Deposit Insurance Corporation ("FDIC"). Bankers' acceptances are credit instruments evidencing the obligation of a bank to pay a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay the face amount of the instrument upon maturity. The other short-term obligations may include uninsured, direct obligations, bearing fixed, floating or variable interest rates.
Collateralized debt obligations ("CDOs") are composed of two main categories: cash and synthetic. Cash CDOs are further sub-divided into the following two types: cash flow and market value. The two structures differ from each other in the manner by which cash flow is generated to pay the security holders, the manner in which the structure is credit-enhanced, and how the pool of underlying collateral is managed. Cash flow CDOs are backed, or "collateralized," by a pool of high-yield bonds or loans, which pay principal and interest on a regular basis. Credit enhancement is achieved by having multiple classes of securities. The most senior/highest-rated class will be the last to be affected by any interruption of cash flow from the underlying assets. In a cash flow CDO, the collateral manager endeavors to maintain a minimum level of diversification and weighted average rating among the underlying assets in an effort to keep severity of loss low. In a market value CDO, classes of securities receive payments based on the mark-to-market returns on the underlying collateral. Credit enhancement is achieved by specific overcollateralization levels in the form of advance rates assigned to each underlying collateral asset. Because principal and interest payments on the securities come from collateral cash flows and sales of collateral, which the collateral manager monitors, returns on a market value CDO are substantially related to the collateral manager's performance.
Certain products that are similar in structure to CDOs include collateralized loan obligations ("CLOs") and collateralized bond obligations ("CBOs"). Similar to CDOs, CLOs are structured such that each CDO and CLO typically has a foreign issuer,
which is generally a special purpose vehicle, and a domestic co-issuer. Certain securities, such as notes, issued in a particular CDO or CLO are generally co-issued by the foreign issuer and the co-issuer, and are rated by one or more Nationally Recognized Statistical Ratings Organization (each, a "NRSRO"). Other securities, such as preference shares, preferred shares, or subordinated notes, issued in a particular CDO or CLO are generally issued only by the foreign issuer and are not rated by any NRSROs. Securities issued in CBOs, too, are issued by foreign issuers or other separate legal entities.
CDOs, CLOs, and CBOs are typically collateralized by a pool of loans. These underlying loans may include pools of other securities. Generally, CDOs and CLOs have collateral quality tests and eligibility criteria that must be satisfied before a security may be selected as collateral for the CDO or CLO. The collateral selected for a particular CDO depends on both the sector of securities the CDO's collateral manager wants to manage, as well as the objectives of the CDO itself. For example, a trust preferred CDO is generally collateralized by combination of some or all of the following types of securities: trust preferred securities issued by trust subsidiaries of bank holding companies or of insurance holding companies; subordinated notes issued by banks, thrifts, or other depository institutions, or by holding companies of insurance companies; surplus notes issued by insurance companies; or senior securities issued by holding companies of one or more insurance companies or insurance intermediaries. In contrast, an ABS CDO has as its collateral various concentrations of different types of asset-backed securities. Securities issued in CLOs generally are backed by portfolios of primarily leveraged loans and high yield bonds. Typically, securities issued in CBOs are backed by a diversified pool of high risk, below investment grade fixed income securities. In addition to the foregoing, a particular CDO, CLO, or CBO may have as its collateral, among others, domestic and foreign senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that may be rated below investment grade or may be the unrated equivalent of such loans.
Similar to asset-backed securities, payments are made on CDO, CLO, and CBO securities in order of their seniority among other classes of securities issued from the same issuing entity. Also, similar to securitization transactions, fees, including administrative expenses, are generally paid to various parties in the CDO prior to payments being made on the CDO securities. Generally, CDOs and CLOs will pay certain management fees to the collateral manager. Unlike securitizations, securities issued in CDOs, CLOs, and CBOs generally have quarterly, rather than monthly, payment dates.
CDOs, CLOs and CBOs are privately offered and sold, and are not publicly registered with the SEC. As a result, CDO, CLO, and CBO securities may be characterized as being illiquid. However, an active dealer market may exist for such securities, thereby allowing such securities to qualify for an exemption from registration under Rule 144A of the Securities Act of 1933, as amended (the "1933 Act").
Classes, or "tranches," of CDO, CLO and CBO securities vary in level of risk and yield. The most junior tranche is generally the tranche that bears the highest level of risk, but also generally bears the highest rate of return. This is because tranches bear losses in the reverse order of their seniority with respect to one another. For this reason, the most junior tranche is the tranche that bears losses first from the defaults on the underlying collateral. Because the more junior tranches absorb losses prior to the more senior tranches, the most subordinate tranches serve to protect the more senior tranches from default in all but the most severe circumstances. Due to this type of protection from losses, a senior CDO, CLO, or CBO tranche generally bears the lowest risk, and has a smaller coupon, corresponding lower yield, and higher rating from nationally recognized statistical ratings organizations than tranches of more junior securities. Despite the protection the most subordinated tranches provide, CDO, CLO, or CBO tranches can experience substantial losses due to the rate of actual defaults on the underlying collateral. The type of collateral used as underlying securities in a particular CDO, CLO, or CBO therefore may substantially impact the risk associated with purchasing the securities such CDO, CLO, or CBO issues. Other factors that may influence the value or yield or return on a CDO, CLO, or CBO security include the disappearance of tranches from a particular issuance in reverse order of seniority, as such tranches would otherwise have protected the more senior tranches from losses, market anticipation of defaults, and loss of investor appetite for CDO, CLO and CBO securities generally.
In addition to the risks generally associated with debt securities, including asset-backed securities and derivatives, discussed elsewhere in this SAI and the Prospectus, CDOs, CLOs, and CBOs each carry additional risks including, but not limited to the possibility that (i) distributions from the underlying collateral securities will be inadequate to make interest or principal payments on the related CDO, CLO, or CBO securities; (ii) for collateral that has NRSRO ratings, such ratings may be downgraded; and (iii) the CDOs, CLOs, or CBOs may themselves purchase as underlying collateral securities issued by other CDOs.
Commercial paper (including variable amount master demand notes, see "Floating and Variable Rate Obligations" below), refers to short-term, unsecured promissory notes issued by corporations to finance short-term credit needs. Commercial paper is usually sold on a discount basis and typically has a maturity at the time of issuance not exceeding nine months. Variable amount master demand notes are demand obligations which permit the investment of fluctuating amounts at varying market rates of interest pursuant to arrangements between the issuer and a commercial bank acting as agent for the payee of such notes whereby both parties have the right to vary the amount of the outstanding indebtedness on the notes. The Portfolios may only purchase commercial paper (including variable rate demand notes and variable rate master demand notes issued by domestic and foreign
bank holding companies, corporations and financial institutions, as well as similar instruments issued by government agencies and instrumentalities) of issuers that are rated in one of the two highest rating categories by a Nationally Recognized Statistical Ratings Organization ("NRSRO"), except that the Portfolios may purchase unrated commercial paper if, in the opinion of the adviser, such obligations are of comparable quality to other rated investments that are permitted to be purchased by the Portfolios.
ASSET-BACKED COMMERCIAL PAPER. Securities that are issued from commercial paper conduits are called asset-backed commercial paper securities. Credit support for such securities falls into two categories: liquidity protection and protection against ultimate default under the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering the pool of assets, to ensure that scheduled payments on the securities or underlying pool are made in a timely fashion. Protection against ultimate default ensures payment on at least a portion of the assets in the pool. This protection may be provided through guarantees, insurance policies or letters of credit obtained from third parties, through various means of structuring the transaction, such as by issuing senior and subordinated instruments or through a combination of these approaches. The degree of credit support provided on each issue is based generally on historical information relating to the level of credit risk associated with the payments. Delinquency or loss that exceeds the anticipated amount or a downgrade or loss of credit support could adversely impact the value of or return on an investment in an asset-backed commercial paper security.
Commercial paper is also subject to the risks generally associated with debt securities discussed elsewhere in this SAI and the Prospectus.
A convertible security is generally a debt obligation or preferred stock that may be converted within a specified period of time into a certain amount of common stock of the same or a different issuer. A convertible security provides a fixed-income stream and the opportunity, through its conversion feature, to participate in the capital appreciation resulting from a market price advance in its underlying common stock. As with a straight fixed-income security, a convertible security tends to increase in market value when interest rates decline and decrease in value when interest rates rise. Like a common stock, the value of a convertible security also tends to increase as the market value of the underlying stock rises, and it tends to decrease as the market value of the underlying stock declines. Because its value can be influenced by both interest-rate and market movements, a convertible security tends not to be as sensitive to interest rates as a similar fixed-income security, and tends not to be as sensitive to changes in share price as its underlying stock.
Investing in convertible securities is subject to certain risks in addition to those generally associated with debt securities discussed elsewhere in this SAI and the Prospectus. Certain convertible securities, particularly securities that are convertible into securities of an issuer other than the issuer of the convertible security, may be or become illiquid and, therefore, may be more difficult to resell in a timely fashion or for a fair price, which could result in investment losses.
The creditworthiness of the issuer of a convertible security is important because the holder of a convertible security will have recourse only to the issuer. In addition, a convertible security may be subject to conversion or redemption by the issuer, but only after a specified date and under circumstances established at the time the security is issued. This feature may require a holder to convert the security into the underlying common stock, even if the value of the underlying common stock has declined substantially. In addition, companies that issue convertible securities frequently are small- and mid-capitalization companies and, accordingly, carry the risks associated with investments in such companies.
While the Portfolios use the same criteria to evaluate the credit quality of a convertible debt security that they would use for a more conventional debt security, a convertible preferred stock is treated like a preferred stock for a Portfolio's credit evaluation, as well as financial reporting and investment limitation purposes. Preferred stock is subordinated to all debt obligations in the event of insolvency, and an issuer's failure to make a dividend payment is generally not an event of default entitling the preferred shareholders to take action. Preferred stock generally has no maturity date, so its market value is dependent on the issuer's business prospects for an indefinite period of time. In addition, distributions on preferred stock generally are taxable as dividend income, rather than interest payments, for federal income tax purposes.
Certain of the debt instruments purchased by the Portfolios may be interest-bearing securities issued by a company, called corporate debt securities. The issuer of a corporate debt security has a contractual obligation to pay interest at a stated rate on specific dates and to repay principal periodically or on a specified maturity date. An issuer may have the right to redeem or "call" a corporate debt security before maturity, in which case the investor may have to reinvest the proceeds at lower market rates. The value of fixed-rate corporate debt securities will tend to fall when interest rates rise and rise when interest rates fall. The value of "floating-rate" or "variable-rate" corporate debt securities, on the other hand, fluctuate much less in response to market interest rate movements than the value of fixed-rate securities. Corporate debt securities may be senior or subordinated obligations. Senior obligations generally have the first claim on a corporation's earnings and assets and, in the event of liquidation, are paid before
subordinated debt. Corporate debt securities may be unsecured (backed only by the issuer's general creditworthiness) or secured (also backed by specified collateral).
Investors should be aware that even though interest-bearing securities are investments which promise a stable stream of income, the prices of such securities are inversely affected by changes in interest rates and, therefore, are subject to the risk of market price fluctuations. Longer-term securities are affected to a greater extent by interest rates than shorter-term securities. The values of fixed-income corporate debt securities also may be affected by changes in the credit rating or financial condition of the issuing entities. Certain corporate debt securities that may be purchased by the Portfolio, such as those rated "Baa" or lower by Moody's Investors Service, Inc. ("Moody's") and "BBB" or lower by Standard & Poor's Rating Group ("S&P") tend to be subject to greater issuer credit risk, to greater market fluctuations and pricing uncertainty, and to less liquidity than lower yielding, higher-rated fixed-income securities. If a security held by a Portfolio is downgraded, such Portfolio may continue to hold the security until such time as the adviser determines it to be advantageous for the Portfolio to sell the security. The ratings of S&P, Fitch and Moody's are more fully described in the Appendix. Investing in corporate debt securities is subject to certain risks including, among others, credit and interest rate risk, as more fully described in the Prospectus.
These securities are typically represented by participations in trusts that hold U.S. Treasury securities, such as Treasury Investors Growth Receipts ("TIGRs") and Certificates of Accrual on Treasury Securities ("CATS"), or other obligations where the trust participations evidence ownership in either the future interest payments or the future principal payments on the obligations. These participations are normally issued at a discount to their "face value," and can exhibit greater price volatility than ordinary debt securities because of the way in which their principal and interest are returned to investors.
Dollar roll transactions are transactions wherein a Portfolio sells fixed-income securities, typically mortgage-backed securities, and makes a commitment to purchase similar, but not identical, securities at a later date from the same party. Like a forward commitment, during the roll period no payment is made for the securities purchased and no interest or principal payments on the security accrue to the purchaser, but the Portfolio assumes the risk of ownership. A Portfolio is compensated for entering into dollar roll transactions by the difference between the current sales price and the forward price for the future purchase, as well as by the interest earned on the cash proceeds of the initial sale. Like other when-issued securities or firm commitment agreements, dollar roll transactions involve the risk that the market value of the securities sold by a Portfolio may decline below the price at which the Portfolio is committed to purchase similar securities. In the event the buyer of securities from a Portfolio under a dollar roll transaction becomes insolvent, the Portfolio's use of the proceeds of the transaction may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the Portfolio's obligation to repurchase the securities. A Portfolio will engage in dollar roll transactions for the purpose of acquiring securities for its portfolio and not for investment leverage.
Floating- and variable-rate obligations include obligations such as demand notes and bonds. Variable-rate demand notes include master demand notes that are obligations that permit a Portfolio to invest fluctuating amounts, which may change daily without penalty, pursuant to direct arrangements between the Portfolio, as lender, and the borrower. The interest rate on a floating-rate demand obligation is based on a referenced lending rate, such as a bank's prime rate, and is adjusted automatically each time such rate is adjusted. The interest rate on a variable-rate demand obligation is adjusted automatically at specified intervals. The issuer of such obligations ordinarily has a right, after a given period, to prepay at its discretion the outstanding principal amount of the obligations plus accrued interest upon a specified number of days notice to the holders of such obligations. Frequently, such obligations are secured by letters of credit or other credit support arrangements provided by banks.
There generally is no established secondary market for these obligations because they are direct lending arrangements between the lender and borrower. Accordingly, where these obligations are not secured by letters of credit or other credit support arrangements, a Portfolio is dependent on the ability of the borrower to pay principal and interest on demand. Such obligations frequently are not rated by credit rating agencies and a Portfolio may invest in obligations which are not so rated only if the adviser determines that at the time of investment the obligations are of comparable quality to the other obligations in which such Portfolio may invest. The adviser, on behalf of a Portfolio, monitors the creditworthiness of the issuers of the floating- and variable-rate demand obligations in such Portfolio's portfolio. Floating- and variable-rate instruments are subject to interest-rate and credit risks and other risks generally associated with debt securities.
The floating- and variable-rate instruments that the Portfolios may purchase include certificates of participation in such instruments.
The Portfolios may invest in guaranteed investment contracts ("GICs") issued by insurance companies. Pursuant to such contracts, a Portfolio makes cash contributions to a deposit fund of the insurance company's general account. The insurance company then credits to the deposit fund on a monthly basis guaranteed interest at a rate based on an index. The GICs provide that this guaranteed interest will not be less than a certain minimum rate. The insurance company may assess periodic charges against a GIC for expense and service costs allocable to it, and these charges will be deducted from the value of the deposit fund. A Portfolio will purchase a GIC only when the adviser has determined that the GIC presents minimal credit risks to the Portfolio and is of comparable quality to instruments in which the Portfolio may otherwise invest. Because a Portfolio may not receive the principal amount of a GIC from the insurance company on seven days' notice or less, a GIC may be considered an illiquid investment. The term of a GIC will be one year or less. The interest rate on a GIC may be tied to a specified market index and is guaranteed not to be less than a certain minimum rate.
High yield securities (also known as "junk bonds") are debt securities that are rated below investment-grade, are unrated and deemed by the adviser to be below investment-grade, or in default at the time of purchase. These securities have a much greater risk of default (or in the case of bonds currently in default, of not returning principal) and tend to be more volatile than higher-rated securities of similar maturity. The value of these debt securities can be affected by overall economic conditions, interest rates, and the creditworthiness of the individual issuers. These securities tend to be less liquid and more difficult to value than higher-rated securities.
The market values of certain high yield and comparable unrated securities tend to be more sensitive to individual corporate developments and changes in economic conditions than investment-grade securities. In addition, issuers of high yield and comparable unrated securities often are highly leveraged and may not have more traditional methods of financing available to them. Their ability to service their debt obligations, especially during an economic downturn or during sustained periods of high interest rates, may be impaired.
The risk of loss due to default by such issuers is significantly greater because high yield and comparable unrated securities generally are unsecured and frequently are subordinated to senior indebtedness. A Portfolio may incur additional expenses to the extent that it is required to seek recovery upon a default in the payment of principal or interest on its portfolio holdings. The existence of limited markets for high yield and comparable unrated securities may diminish the Portfolio's ability to: (i) obtain accurate market quotations for purposes of valuing such securities and calculating its net asset value; and (ii) sell the securities either to meet redemption requests or to respond to changes in the economy or in financial markets.
Certain of the debt obligations (including certificates of participation, commercial paper and other short-term obligations) which a Portfolio may purchase may be backed by an unconditional and irrevocable letter of credit of a bank, savings and loan association or insurance company which assumes the obligation for payment of principal and interest in the event of default by the issuer. Only banks, savings banks and insurance companies which, in the opinion of the adviser, are of comparable quality to issuers of other permitted investments of the Portfolio, may be used for letter of credit-backed investments.
Investments in the following types of high-quality money market instruments are permitted: (i) U.S. Government obligations; (ii) negotiable certificates of deposit, bankers' acceptances and fixed time deposits and other obligations of domestic banks (including foreign branches) that have more than $1 billion in total assets at the time of investment and are members of the Federal Reserve System or are examined by the Comptroller of the Currency or whose deposits are insured by the FDIC; (iii) commercial paper rated at date of purchase "Prime-1" by Moody's or "A-1" by S&P, or, if unrated, of comparable quality as determined by the adviser; and (iv) repurchase agreements. A Portfolio also may invest in short-term U.S. dollar-denominated obligations of foreign banks (including U.S. branches) that at the time of investment: (i) have more than $10 billion, or the equivalent in other currencies, in total assets; and (ii) in the opinion of the adviser, are of comparable quality to obligations of U.S. banks which may be purchased by the Portfolios.
MORTGAGE-BACKED SECURITIES. Mortgage-backed securities, also called mortgage pass-through securities, are issued in securitizations (see "Asset-Backed Securities" section) and represent interests in "pools" of underlying residential mortgage loans that serve as collateral for such securities. Similar to asset-backed securities, the monthly payments made by the individual borrowers on the underlying residential mortgage loans are effectively "passed through" to the mortgage-backed securities (net of administrative and other fees paid to various parties) as monthly principal and interest payments.
The stated maturities of mortgage-backed securities may be shortened by unscheduled prepayments of principal on the underlying mortgage loans, and the expected maturities may be extended in rising interest-rate environments. Therefore, it is not possible to predict accurately the maturity of a particular mortgage-backed security. Variations in the maturities of mortgage- backed securities will affect the yield of each such security and the portfolio as a whole. Rates of prepayment of principal on the underlying mortgage loans in mortgage-backed securitizations that are faster than expected may expose the mortgage-backed securities issued in such securitizations to a lower rate of return and require reinvestment of proceeds at lower prevailing interest rates. Also, if a mortgage-backed security has been purchased at a premium, but is backed by underlying mortgage loans that are subject to prepayment, if prepayments are made on such underlying collateral, then the value of the premium effectively would be lost or reduced.
Like other fixed-income securities, when interest rates rise, the value of mortgage-backed securities generally will decline and may decline more than other fixed-income securities as the expected maturity extends. Conversely, when interest rates decline, the value of mortgage-backed securities having underlying collateral with prepayment features may not increase as quickly as other fixed-income securities as the expected maturity shortens. Payment of principal and interest on some mortgage-backed securities issued or guaranteed by a government agency (but not the market value of the securities themselves) is guaranteed by a government association, such as the Government National Mortgage Association ("GNMA" or "Ginnie Mae"), or by a government-sponsored entity, such as the Federal Home Loan Mortgage Corporation ("FHLMC" or "Freddie Mac") or Federal National Mortgage Association ("FNMA" or "Fannie Mae"). Unlike FHLMC and FNMA, which act as both issuers and guarantors of mortgage-backed securities, GNMA only provides guarantees of mortgage-backed securities. Only GNMA guarantees are backed by the full faith and credit of the U.S. Government. Mortgage-backed securities issued or guaranteed by FHLMC or FNMA are not backed by the full faith and credit of the U.S. Government. FHLMC and FNMA are authorized to borrow money from the U.S. Treasury or the capital markets, but there can be no assurance that they will be able to raise funds as needed or that their existing capital will be sufficient to satisfy their guarantee obligations. Mortgage-backed securities created by private issuers (such as commercial banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary market issuers) may be supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance. Collateralized mortgage obligations, commercial mortgage-backed securities, adjustable rate mortgage securities and mortgage participation certificates are the primary types of mortgage-backed securities utilized by the Portfolios.
COLLATERALIZED MORTGAGE OBLIGATIONS ("CMOS"). CMOs are debt obligations that may be collateralized by whole mortgage loans but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed by GNMA, FHLMC, or FNMA. Each CMO is structured so that multiple classes of securities are issued from such CMO, with each class bearing a different stated maturity. Payments of principal on the underlying securities, including prepayments, are first "passed through" to investors holding the class of securities with the shortest maturity; investors holding classes of securities with longer maturities receive payments on their securities only after the more senior classes have been retired. A longer duration or greater sensitivity to interest rate fluctuations generally increases the risk level of the CMO.
COMMERCIAL MORTGAGE-BACKED SECURITIES ("CMBS"). CMBS are securities that are secured by mortgage loans on commercial real property. Many of the risks of investing in CMBS reflect the risks of investing in the real estate securing the underlying mortgage loans, such as office buildings, hotels, and shopping malls. These risks include the effects of local and other economic conditions on real estate markets, the ability of tenants to make loan payments, and the ability of a commercial property to attract and retain tenants. While CMBS are sold both in public transactions registered with the SEC and in private placement transactions, CMBS may be less liquid and exhibit greater price volatility than other types of mortgage-backed or asset-backed securities.
ADJUSTABLE RATE MORTGAGE SECURITIES ("ARMS"). ARMS are securities that are secured by mortgage loans with adjustable interest rates and may be issued or guaranteed by a government agency such as GNMA, by government-sponsored entities such as FNMA or FHLMC, or by a private issuer. The mortgage loans underlying ARMS guaranteed by GNMA are typically federally insured by the Federal Housing Administration ("FHA") or guaranteed by the Department of Veterans Affairs ("VA"), whereas the mortgage loans underlying ARMS issued by FNMA or FHLMC are typically conventional residential mortgages which are not so insured or guaranteed, but which conform to specific underwriting, size and maturity standards.
ARMS are also offered by private issuers. These securities generally offer a higher rate of return in the form of interest payments, but because they offer no direct or indirect governmental guarantees, they also involve greater credit and interest rate risk. However, many private issuers or servicers of ARMS guarantee or provide private insurance for timely payment of interest and principal.
MORTGAGE PARTICIPATION CERTIFICATES ("PCS"). Mortgage PCs and guaranteed mortgage certificates ("GMCs") are both issued by the FHLMC. PCs resemble GNMA certificates in that each PC represents a pro rata share of all interest and principal payments made and owed on an underlying pool of mortgages. GMCs also represent a pro rata interest in a pool of mortgages, but pay interest semi-annually and return principal once a year in guaranteed minimum payments. PCs and GMCs differ from bonds in that principal is paid back by the borrower over the length of the loan rather than returned in a lump sum at maturity.
OTHER MORTGAGE-BACKED SECURITIES. As new types of mortgage-backed securities are developed and offered to investors, the adviser will, consistent with each Portfolio's investment objective, policies, restrictions and quality standards, consider making investments in such new types of mortgage-backed securities.
CREDIT RISK. Credit risk reflects the risk that a holder of mortgage-backed securities may not receive all or part of its principal because the issuer, or any credit enhancer and/or the underlying mortgage borrowers have defaulted on their obligations. Credit risk is increased for mortgage-backed securities that are subordinated to another security (I.E., if the holder of a mortgage-backed security is entitled to receive payments only after payment obligations to holders of the other security are satisfied). The more deeply subordinated the security, the greater the credit risk associated with the security will be. Mortgage-backed securities issued by private issuers, whether or not such obligations are subject to guarantees by the private issuer, typically entail greater credit risk than mortgage-backed securities guaranteed by a government association or government-sponsored enterprise. The performance of mortgage-backed securities issued by private issuers generally depends on the financial health of those institutions and the performance of the mortgage pool backing such securities. An unexpectedly high rate of defaults on mortgages held by a mortgage pool may limit substantially the pool's ability to make payments of principal or interest to the holder of such mortgage-backed securities, particularly if such securities are subordinated, thereby reducing the value of such securities and in some cases rendering them worthless. The risk of such defaults is generally higher in the case of mortgage pools that include so-called "subprime" mortgages.
INTEREST RATE RISK. The interest rates on mortgage loans underlying ARMS generally are readjusted at periodic intervals ranging from one year or less to several years in response to changes in a predetermined, commonly recognized interest rate index. The adjustable rate feature should reduce, but will not eliminate, price fluctuations in such securities resulting from actual or anticipated fluctuations in market interest rates. The value of each Portfolio's ARMS may fluctuate to the extent interest rates on underlying mortgages differ from prevailing market interest rates during periods between interest rate reset dates. Accordingly, investors could experience some loss if they redeem their shares of the Portfolios or if the Portfolios sell these portfolio securities before the interest rates on the underlying mortgages are adjusted to reflect prevailing market interest rates. The interest rates on mortgages underlying other types of mortgage-backed securities generally do not reset at periodic intervals. Accordingly, non-ARMS have greater exposure to interest rate risk than ARMS.
Municipal bonds are debt obligations issued to obtain funds for various public purposes. The two principal classifications of municipal bonds are "general obligation" and "revenue" bonds. General obligation bonds are supported by the municipality's general taxing authority, while revenue bonds are supported by the revenues from one or more particular project or activity. Industrial development bonds are a specific type of revenue bond backed by the credit and security of a private user. Certain types of industrial development bonds are issued by or on behalf of public authorities to obtain funds to finance privately operated facilities.
Certain of the municipal obligations held by the Portfolios may be insured as to the timely payment of principal and interest. The insurance policies usually are obtained by the issuer of the municipal obligation at the time of its original issuance. In the event that the issuer defaults on interest or principal payment, the insurer will be notified and will be required to make payment to the bondholders. Although the insurance feature is designed to reduce certain financial risks, the premiums for insurance and the higher market price sometimes paid for insured obligations may reduce a Portfolio's current yield. Insurance generally will be obtained from insurers with a claims-paying ability rated Aaa by Moody's or AAA by S&P or Fitch or otherwise rated investment grade. To the extent that securities held by a Portfolio are insured as to principal and interest payments by insurers whose claims-paying ability rating is downgraded by Moody's, S&P or Fitch, the value of such securities may be affected. There is, however, no guarantee that the insurer will meet its obligations. Moreover, the insurance does not guarantee the market value of the insured obligation or the net asset value of the Portfolio's shares. In addition, such insurance does not protect against market fluctuations caused by changes in interest rates and other factors. A Portfolio also may purchase municipal obligations that are additionally secured by bank credit agreements or escrow accounts. The credit quality of companies which provide such credit enhancements will affect the value of those securities.
From time to time, proposals have been introduced before Congress for the purpose of restricting or eliminating the federal income tax exemption for interest on municipal obligations. For example, under federal tax legislation enacted in 1986, interest on certain private activity bonds must be included in an shareholder's federal alternative minimum taxable income. Moreover, a Portfolio cannot predict what legislation, if any, may be proposed in the state legislature regarding the state income tax status of interest on such obligations, or which proposals, if any, might be enacted. Such proposals, while pending or if enacted, might materially and adversely affect the availability of municipal obligations generally for investment by the Portfolio and the liquidity and value of the Portfolio's portfolio. In such an event, the Portfolio would re-evaluate its investment objective and policies and consider possible changes in its structure or possible dissolution.
A Portfolio invests in municipal securities in reliance at the time of purchase on an opinion of bond counsel to the issuer that the interest paid on those securities will be excludable from gross income for federal income tax purposes. Such opinion may have
been issued as of a date prior to the date that the Portfolio acquires the municipal security. Subsequent to a Portfolio's acquisition of such a municipal security, however, the security may be determined to pay, or to have paid, taxable income. As a result, the treatment of dividends previously paid or to be paid by a Portfolio as "exempt-interest dividends" could be adversely affected, subjecting the Portfolio's shareholders to increased federal income tax liabilities. Under highly unusual circumstances, the Internal Revenue Service may determine that a municipal bond issued as tax-exempt should in fact be taxable. If any Portfolio held such a bond, it might have to distribute taxable income or reclassify as taxable, ordinary income that was previously distributed as exempt-interest dividends.
TAXABLE MUNICIPAL OBLIGATIONS. There is another type of municipal obligation that is subject to federal income tax for a variety of reasons. These municipal obligations do not qualify for the federal income exemption because (a) they did not receive necessary authorization for tax-exempt treatment from state or local government authorities, (b) they exceed certain regulatory limitations on the cost of issuance for tax-exempt financing or (c) they finance public or private activities that do not qualify for the federal income tax exemption. These non-qualifying activities might include, for example, certain types of multi-family housing, certain professional and local sports facilities, refinancing of certain municipal debt, and borrowing to replenish a municipality's underfunded pension plan.
Municipal notes include, but are not limited to, tax anticipation notes
("TANs"), bond anticipation notes ("BANs"), revenue anticipation notes ("RANs")
and construction loan notes. Notes sold as interim financing in anticipation of
collection of taxes, a bond sale or receipt of other revenues are usually
general obligations of the issuer.
TANS. An uncertainty in a municipal issuer's capacity to raise taxes as a result of such events as a decline in its tax base or a rise in delinquencies could adversely affect the issuer's ability to meet its obligations on outstanding TANs. Furthermore, some municipal issuers mix various tax proceeds into a general fund that is used to meet obligations other than those of the outstanding TANs. Use of such a general fund to meet various obligations could affect the likelihood of making payments on TANs.
BANS. The ability of a municipal issuer to meet its obligations on its BANs is primarily dependent on the issuer's adequate access to the longer term municipal bond market and the likelihood that the proceeds of such bond sales will be used to pay the principal of, and interest on, BANs.
RANS. A decline in the receipt of certain revenues, such as anticipated revenues from another level of government, could adversely affect an issuer's ability to meet its obligations on outstanding RANs. In addition, the possibility that the revenues would, when received, be used to meet other obligations could affect the ability of the issuer to pay the principal of, and interest on, RANs.
RAWS. Revenue anticipation warrants, or reimbursement warrants, are issued to meet the cash flow needs of state governments at the end of a fiscal year and in the early weeks of the following fiscal year. These warrants are payable from unapplied money in a state's general fund, including the proceeds of RANs issued following enactment of a state budget or the proceeds of refunding warrants issued by the state, and are typically subordinated in right of payment to RANs.
The values of outstanding municipal securities will vary as a result of changing market evaluations of the ability of their issuers to meet the interest and principal payments (I.E., credit risk). Such values also will change in response to changes in the interest rates payable on new issues of municipal securities (I.E., market risk).
A loan participation gives a Portfolio an undivided proportionate interest in a loan or instrument originated by a bank or other institution. Loan participations may carry a demand feature permitting the holder to tender the interests back to the bank or other institution. Loan participations, however, typically do not provide the Portfolio with any right to enforce compliance by the borrower, nor any rights of set-off against the borrower, and the Portfolio may not directly benefit from any collateral supporting the loan in which it purchased a loan participation. As a result, the Portfolio assumes the credit risk of both the borrower and the lender that is selling the loan participation.
Securities issued by the U.S. Treasury and certain securities issued by government authorities and government-sponsored enterprises are eligible to be stripped into interest components and principal components. Stripped securities are purchased by the Portfolios at a discount to their face value. These securities generally are structured to make a lump-sum payment at maturity and do not make periodic payments of principal or interest. Hence, the duration of these securities tends to be longer and they are therefore more sensitive to interest-rate fluctuations than similar securities that offer periodic payments over time. SMBS are often structured with two classes that receive different proportions of the interest and principal distributions on a pool of mortgage assets. SMBS that are structured to receive interest only are extremely sensitive to changes in the prevailing interest rates as well
as the rate of principal payments (including prepayments) on the related underlying mortgage assets, and are therefore much more volatile than SMBS that receive principal only. The Portfolios may only purchase principal-only SMBS.
Stripped securities may also include participations in trusts that hold U.S. Treasury securities where the trust participations evidence ownership in either the future interest payments or the future principal payments on the obligations. These participations are normally issued at a discount to their "face value," and can exhibit greater price volatility than ordinary debt securities.
Debt security investments may include the debt securities of "supranational" entities if the adviser believes that the securities do not present risks inconsistent with a Portfolio's investment objective. Supranational entities include international organizations designated or supported by governmental entities to promote economic reconstruction or development and international banking institutions and related government agencies. Examples include the International Bank for Reconstruction and Development (an agency of the World Bank), the Asian Development Bank and the InterAmerican Development Bank.
U.S. Government obligations include securities issued by the U.S. Treasury, U.S. Government agencies or U.S. Government-sponsored entities. While U.S. Treasury obligations are backed by the "full faith and credit" of the U.S. Government, securities issued by U.S. Government agencies or government-sponsored entities may not be backed by the full faith and credit of the U.S. Government. The Government National Mortgage Association (GNMA), a wholly owned U.S. Government corporation, is authorized to guarantee, with the full faith and credit of the U.S. Government, the timely payment of principal and interest on securities issued by institutions approved by GNMA and backed by pools of mortgages insured by the Federal Housing Administration or the Department of Veterans Affairs. U.S. Government agencies or government-sponsored entities (I.E. not backed by the full faith and credit of the U.S. Government) include the Federal National Mortgage Association (FNMA) and the Federal Home Loan Mortgage Corporation (FHLMC). Pass-through securities issued by FNMA are guaranteed as to timely payment of principal and interest by FNMA but are not backed by the full faith and credit of the U.S. Government. FHLMC guarantees the timely payment of interest and ultimate collection or scheduled payment of principal, but its participation certificates are not backed by the full faith and credit of the U.S. Government. If a government-sponsored entity is unable to meet its obligations, the performance of a Portfolio that holds securities of the entity will be adversely impacted. U.S. Government obligations are subject to low but varying degrees of credit risk, and are still subject to interest rate and market risk.
In addition to the securities discussed above, a Portfolio may also purchase debt guaranteed by the Federal Deposit Insurance Corporation (FDIC), an independent agency of the U.S. Government, through the FDIC's Temporary Liquidity Guarantee Program (TLGP). Under the TLGP, the FDIC guarantees newly issued senior unsecured debt issued on or before June 30, 2009 by FDIC-insured depository institutions, U.S. bank holding companies and financial holding companies and certain U.S. savings and loan holding companies (FDIC-backed debt). The expiration date of the FDIC's guarantee is the earlier of the maturity date of the FDIC-backed debt or June 30, 2012. FDIC-backed debt is backed by the full faith and credit of the U.S. Government, but is still subject to interest rate and market risk.
These securities are debt securities that do not make regular cash interest payments. Zero-coupon securities are securities that make no periodic interest payments, but are instead sold at discounts from face value. Step-up coupon bonds are debt securities that may not pay interest for a specified period of time and then, after the initial period, may pay interest at a series of different rates. Pay-in-kind securities pay bondholders in more bonds instead of cash interest. If these securities do not pay current cash income, the market prices of these securities would generally be more volatile and likely to respond to a greater degree to changes in interest rates than the market prices of securities that pay cash interest periodically having similar maturities and credit qualities.
Derivative securities are securities that derive their value, at least in part, from the price of another security or asset, or the level of an index, such as the S&P 500 Index, or a rate, such as the London Interbank Offered Rate ("LIBOR"), including structured notes, bonds or other instruments with interest rates that are determined by reference to changes in the value of other interest rates, indices or financial indicators ("References") or the relative change in two or more References. Some forms of derivatives, such as exchange-traded futures and options on securities, commodities, or indices, are traded on regulated exchanges. These types of derivatives are standardized contracts that can easily be bought and sold, and whose market values are determined and published daily. Non-standardized derivatives, on the other hand, tend to be more specialized or complex, and may be harder to value. Futures contracts and options are also considered types of derivative securities, and are described more fully under the heading "Futures and Options Contracts" below. Other common types of derivatives include forward foreign currency exchange
contracts, forward contracts on securities and securities indices, linked securities and structured products, collateralized mortgage obligations, stripped securities, warrants, swap agreements, and swaptions.
An investment is often made in derivative securities as a "hedge" against fluctuations in the market value of the other securities in a Portfolio's portfolio due to currency exchange rate fluctuations or other factors in the securities markets, although a Portfolio may also invest in certain derivative securities for investment purposes only. Other reasons why a Portfolio may use derivative securities include protecting its unrealized gains reflected in the value of its portfolio of securities, facilitating the sale of such securities for investment purposes, reducing transaction costs, and/or managing the effective maturity or duration of its portfolio.
While derivative securities are useful for hedging and investment, they also carry additional risks. A hedging policy may fail if the correlation between the value of the derivative securities and the other investments in a Portfolio's portfolio does not follow the adviser's expectations. If the adviser's expectations are not met, it is possible that the hedging strategy will not only fail to protect the value of a Portfolio's investments, but the Portfolio may also lose money on the derivative security itself. In addition, some derivative securities represent relatively recent innovations in the bond markets. The trading market for these instruments is less developed than the markets for traditional types of debt instruments. It is uncertain how these derivative securities will perform under different economic interest-rate scenarios. Because certain of these instruments are leveraged, their market values may be more volatile than other types of securities and may present greater potential for capital gain or loss. Derivative securities and their underlying instruments may experience periods of illiquidity, which could cause a Portfolio to hold a security it might otherwise sell or a Portfolio could be forced to sell a security at inopportune times or for prices that do not reflect current market value. The possibility of default by the issuer or the issuer's credit provider may be greater for structured and derivative instruments than for other types of instruments. As new types of derivative securities are developed and offered to investors, the adviser will, consistent with a Portfolio's investment objective, policies, restrictions and quality standards, consider making investments in such new types of derivative securities.
Additional risks of derivative securities include, but are not limited to:
the risk of disruption of a Portfolio's ability to trade in derivative
securities because of regulatory compliance problems or regulatory changes;
credit risk of counterparties to derivative contracts, and market risk (I.E.,
exposure to adverse price changes).
The adviser uses a variety of internal risk management procedures to ensure that derivatives are closely monitored and that their use is consistent with a particular Portfolio's investment objective, policies, restrictions and quality standards, and does not expose such Portfolio to undue risk.
A Portfolio's use of derivatives also is subject to broadly applicable investment policies. For example, a Portfolio may not invest more than a specified percentage of its assets in "illiquid securities," including those derivatives that do not have active secondary markets. A Portfolio also may not use certain derivatives without establishing adequate "cover" in compliance with the SEC rules limiting the use of leverage.
Derivatives, both equity and credit, include options, futures and options on futures, which may be used to hedge a Portfolio's portfolio, increase returns or maintain exposure to a market without buying individual securities. These investments may pose risks in addition to those associated with investing directly in securities or other investments. Such risks may include illiquidity of the derivative and imperfect correlation of the derivative with underlying investments for which it is being substituted or the Portfolio's other portfolio holdings. Accordingly, there is the risk that such practices may fail to serve their intended purposes, and may reduce returns or increase volatility. These practices also entail transactional expenses.
Additionally, the use of derivatives can lead to losses because of adverse movements in the price or value of the underlying security, asset, index or reference rate, which may be magnified by certain features of the derivatives. These risks are heightened when a Portfolio uses derivatives to enhance its return or as a substitute for a position or security, rather than solely to hedge or offset the risk of a position or security held by a Portfolio. A Portfolio's use of derivatives to leverage risk also may exaggerate a loss, potentially causing a Portfolio to lose more money than if it had invested in the underlying security, or limit a potential gain.
The success of management's derivative strategies will depend on its ability to assess and predict the impact of market or economic developments on the underlying security, asset, index or reference rate and the derivative itself, without necessarily the benefit of observing the performance of the derivative under all possible market conditions. Other risks arise from a Portfolio's potential inability to terminate or sell its derivative positions as a liquid secondary market for such positions may not exist at times when a Portfolio may wish to terminate or sell them. Over-the-counter instruments (investments not traded on an exchange) may be illiquid. Derivatives traded in the over-the-counter market are subject to the risk that the other party will not meet its obligations. Also, with some derivative strategies, there is the risk that a Portfolio may not be able to find a suitable counterparty for the derivative transaction, and therefore may be unable to invest in derivatives altogether. The use of derivatives may also increase the amount and accelerate the timing of taxes payable by shareholders.
A Portfolio may seek to enhance its return through the writing (selling) and purchasing of exchange-traded and over-the-counter options on fixed-income securities or indices. A Portfolio may also attempt to hedge against a decline in the value of securities owned by it or an increase in the price of securities it plans to purchase through the use of those options and the purchase and sale of interest rate futures contracts and options on those futures contracts. These instruments are often referred to as "derivatives," which may be defined as financial instruments whose performance is derived, at least in part, from the performance of another asset (such as a security, currency or an index of securities).
A call option is a contract pursuant to which the purchaser of the call option, in return for a premium paid, has the right to buy the security underlying the option at a specified exercise price at any time during the term of the option. The writer of the call option, who receives the premium, has the obligation upon exercise of the option to deliver the underlying security against payment of the exercise price during the option period. A put option gives its purchaser, in return for a premium, the right to sell the underlying security at a specified price during the term of the option. The writer of the put, who receives the premium, has the obligation to buy the underlying security, upon exercise at the exercise price during the option period. The amount of premium received or paid is based upon certain factors, including the market price of the underlying security or index, the relationship of the exercise price to the market price, the historical price volatility of the underlying security or index, the option period, supply and demand and interest rates.
Pursuant to a notice of eligibility claiming exclusion from the definition of "Commodity Pool Operator filed with the National Futures Association on behalf of the Portfolios, neither the Trust nor any of the individual Portfolios is deemed to be a "commodity pool operator" under the Commodity Exchange Act ("CEA"), and, accordingly, they are not subject to registration or regulation as such under the CEA.
A Portfolio's use of options and futures contracts subjects a Portfolio to certain investment risks and transaction costs to which it might not otherwise be subject. These risks include: (1) dependence on the adviser's ability to predict movements in the prices of individual securities and fluctuations in the general securities markets; (2) imperfect correlations between movements in the prices of options or futures contracts and movements in the price of the securities hedged or used for cover which may cause a given hedge not to achieve its objective; (3) the fact that the skills and techniques needed to trade these instruments are different from those needed to select the other securities in which a Portfolio invests; (4) lack of assurance that a liquid secondary market will exist for any particular instrument at any particular time, which, among other things, may hinder a Portfolio's ability to limit exposures by closing its positions; (5) the possible need to defer closing out of certain options, futures contracts and related options to avoid adverse tax consequences; and (6) the potential for unlimited loss when investing in futures contracts or writing options for which an offsetting position is not held.
Other risks include the inability of a Portfolio, as the writer of covered call options, to benefit from any appreciation of the underlying securities above the exercise price and the possible loss of the entire premium paid for options purchased by a Portfolio. In addition, the futures exchanges may limit the amount of fluctuation permitted in certain futures contract prices during a single trading day. A Portfolio may be forced, therefore, to liquidate or close out a futures contract position at a disadvantageous price. There can be no assurance that a liquid market will exist at a time when a Portfolio seeks to close out a futures position or that a counterparty in an over-the-counter option transaction will be able to perform its obligations.
In pursuing their individual investment objectives, certain of the Portfolios may, to the extent permitted by their investment objectives and policies, invest in commodity-linked derivative instruments. A Portfolio's investments in commodity-linked derivative instruments may subject the Portfolio to greater volatility than investments in traditional securities. The value of commodity-linked derivative instruments may be affected by changes in the overall market movements, commodity index volatility, changes in interest rates, or factors affecting a particular industry or commodity, such as drought, floods, weather, livestock disease, embargoes, tariffs and international economic, political and regulatory developments.
There are several additional risks associated with transactions in commodity futures contracts.
STORAGE. Unlike the financial futures markets, in the commodity futures markets there are costs of physical storage associated with purchasing the underlying commodity. The price of the commodity futures contract will reflect the storage costs of purchasing the physical commodity, including the time value of money invested in the physical commodity. To the extent that the storage costs for an underlying commodity change while the Portfolio is invested in futures contracts on that commodity, the value of the futures contract may change proportionately.
REINVESTMENT. In the commodity futures markets, producers of the underlying commodity may decide to hedge the price risk of selling the commodity by selling futures contracts today to lock in the price of the commodity at delivery tomorrow. In order to induce speculators to purchase the other side of the same futures contract, the commodity producer generally must sell the futures contract at a lower price than the expected future spot price. Conversely, if most hedgers in the futures market are purchasing futures contracts to hedge against a rise in prices, then speculators will only sell the other side of the futures contract at a higher
futures price than the expected future spot price of the commodity. The changing nature of the hedgers and speculators in the commodity markets will influence whether futures prices are above or below the expected future spot price, which can have significant implications for a Portfolio. If the nature of hedgers and speculators in futures markets has shifted when it is time for a Portfolio to reinvest the proceeds of a maturing contract in a new futures contract, the Portfolio might reinvest at higher or lower futures prices, or choose to pursue other investments.
OTHER ECONOMIC FACTORS. The commodities which underlie commodity futures contracts may be subject to additional economic and non-economic variables, such as drought, floods, weather, livestock disease, embargoes, tariffs, and international economic, political and regulatory developments. These factors may have a larger impact on commodity prices and commodity-linked instruments, including futures contracts, than on traditional securities. Certain commodities are also subject to limited pricing flexibility because of supply and demand factors. Others are subject to broad price fluctuations as a result of the volatility of the prices for certain raw materials and the instability of supplies of other materials. These additional variables may create additional investment risks which subject a Portfolio's investments to greater volatility than investments in traditional securities.
FUTURE DEVELOPMENTS. The Portfolios may take advantage of opportunities in the areas of options and futures contracts and options on futures contracts and any other derivative investments which are not presently contemplated for use by the Portfolios or which are not currently available but which may be developed, to the extent such opportunities are both consistent with each Portfolio's investment objective and legally permissible for each such Portfolio.
The following equity securities may be purchased by a Portfolio to the extent such purchase is consistent with the Portfolio's investment objective and strategies.
Common stocks represent an equity (ownership) interest in a company. This ownership interest generally gives a Portfolio the right to vote on issues affecting the company's organization and operations. Preferred stock, unlike common stock, offers a stated dividend rate payable from a corporation's earnings. Preferred stock also generally has a preference over common stock on the distribution of a corporation's assets in the event of liquidation of the corporation, and may be "participating," which means that it may be entitled to a dividend exceeding the stated dividend in certain cases. The rights of preferred stocks on the distribution of a corporation's assets in the event of a liquidation are generally subordinate to the rights associated with a corporation's debt securities. Common and preferred stock are subject to equity market risk. This is the risk that stock prices will fluctuate and can decline and reduce the value of a Portfolio's investment.
Although certain of Portfolios will not invest directly in real estate, the Portfolios may invest in equity securities of issuers primarily engaged in or related to the real estate industry. Therefore, an investment in real estate investment trusts ("REITs") is subject to certain risks associated with the direct ownership of real estate and with the real estate industry in general. These risks include, among others: possible declines in the value of real estate; risks related to general and local economic conditions; possible lack of availability of mortgage funds; overbuilding; extended vacancies of properties; increases in competition, property taxes and operating expenses; changes in zoning laws; costs resulting from the clean-up of, and liability to third parties for damages resulting from, environmental problems; casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters; limitations on and variations in rents; changes in interest rates; and acts of terrorism, war or other acts of violence. To the extent that assets underlying the REITs' investments are concentrated geographically, by property type or in certain other respects, the REITs may be subject to certain of the foregoing risks to a greater extent. Equity REITs may be affected by changes in the value of the underlying property owned by the REITs, while mortgage REITs may be affected by the quality of any credit extended. REITs are dependent upon management skills, are not diversified, are subject to heavy cash flow dependency, default by borrowers and self-liquidation. REITs are also subject to the possibilities of failing to qualify for tax-free pass-through of income under the U.S. Internal Revenue Code and failing to maintain their exemptions from registration under the 1940 Act. REITs (especially mortgage REITs) are also subject to interest rate risks. When interest rates decline, the value of a REIT's investment in fixed rate obligations can be expected to rise. Conversely, when interest rates rise, the value of a REIT's investment in fixed rate obligations can be expected to decline. In contrast, as interest rates on adjustable rate mortgage loans are reset periodically, yields on a REIT's investment in such loans will gradually align themselves to reflect changes in market interest rates, causing the value of such investments to fluctuate less dramatically in response to interest rate fluctuations than would investments in fixed rate obligations.
Investing in REITs involves risks similar to those associated with investing in small capitalization companies. REITs may have limited financial resources, may trade less frequently and in a limited volume and may be subject to more abrupt or erratic price movements than larger company securities.
Investments in mortgage-related securities involve certain risks, which are described under Mortgage-Related Securities, above, and in the Prospectus.
Investments in smaller capitalization companies carry greater risk than investments in larger capitalization companies. Smaller capitalization companies generally experience higher growth rates and higher failure rates than do larger capitalization companies; and the trading volume of smaller capitalization companies' securities is normally lower than that of larger capitalization companies and, consequently, generally has a disproportionate effect on market price (tending to make prices rise more in response to buying demand and fall more in response to selling pressure).
Securities owned by a Portfolio that are traded in the over-the-counter market or on a regional securities exchange may not be traded every day or in the volume typical of securities trading on a national securities exchange. As a result, disposition by a Portfolio of a portfolio security, to meet redemption requests by other investors or otherwise, may require the Portfolio to sell these securities at a discount from market prices, to sell during periods when disposition is not desirable, or to make many small sales over a lengthy period of time.
Investments in smaller, less seasoned issuers generally carry greater risk than is customarily associated with larger, more seasoned companies. Such issuers often have products and management personnel that have not been tested by time or the marketplace and their financial resources may not be as substantial as those of more established companies. Their securities (which a Portfolio may purchase when they are offered to the public for the first time) may have a limited trading market that can adversely affect their sale by a Portfolio and can result in such securities being priced lower than otherwise might be the case. If other institutional investors were to engage in trading this type of security, a Portfolio may be forced to dispose of its holdings in this type of security at prices lower than might otherwise be obtained in the absence of institutional trading in such security.
The Portfolios consider countries with emerging markets to include the following: (i) countries included in the MSCI Emerging Markets Index; and (ii) countries with low- to middle-income economies according to the International Bank for Reconstruction and Development (more commonly referred to as the World Bank). Additionally, the Portfolios consider the following countries to have emerging markets: Argentina, Brazil, Chile, China, the Czech Republic, Colombia, Indonesia, India, Malaysia, Mexico, the Philippines, Poland, Peru, Russia, Singapore, South Africa, Thailand, Taiwan, Turkey, and Venezuela. The Portfolios consider emerging market securities to be securities: (i) issued by companies with their principal place of business or principal office in an emerging market country; or (ii) issued by companies for which the principal securities trading market is an emerging market country. The adviser may invest in those emerging markets that have a relatively low gross national product per capita, compared to the world's major economies, and which exhibit potential for rapid economic growth. The adviser believes that investment in equity securities of emerging market issuers offers significant potential for long-term capital appreciation.
Equity securities of emerging market issuers may include common stock, preferred stocks (including convertible preferred stocks) and warrants, bonds, notes and debentures convertible into common or preferred stock, equity interests in foreign investment funds or trusts and real estate investment trust ("REIT") securities. The Portfolios may invest in American Depositary Receipts ("ADRs"), Canadian Depositary Receipts ("CDRs"), European Depositary Receipts ("EDRs"), Global Depositary Receipts ("GDRs") and International Depositary Receipts ("IDRs") of such issuers.
There are special risks involved in investing in emerging-market countries. Many investments in emerging markets can be considered speculative, and their prices can be much more volatile than in the more developed nations of the world. This difference reflects the greater uncertainties of investing in less established markets and economies. The financial markets of emerging markets countries are generally less well capitalized and thus securities of issuers based in such countries may be less liquid. Most are heavily dependent on international trade, and some are especially vulnerable to recessions in other countries. Many of these countries are also sensitive to world commodity prices. Some countries may still have obsolete financial systems, economic problems or archaic legal systems. The currencies of certain emerging market countries, and therefore the value of securities denominated in such currencies, may be more volatile than currencies of developed countries. In addition, many of these nations are experiencing political and social uncertainties.
Furthermore, with respect to certain foreign countries, taxes may be withheld at the source under foreign tax laws, and there is a possibility of expropriation or potentially confiscatory levels of taxation, political, social and monetary instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, securities of issuers located in those countries. Amounts realized on foreign securities in which a Portfolio may invest may be subject to foreign withholding or other taxes that could reduce the return on these securities. Applicable tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Portfolios would otherwise be subject.
Foreign government securities investments include the securities of "supranational" organizations such as the International Bank for Reconstruction and Development and the Inter-American Development Bank if the adviser believes that the securities do not present risks inconsistent with a Portfolio's investment objective.
Investments in foreign obligations and securities include high-quality, short-term debt obligations of foreign issuers, including foreign branches of U.S. banks, U.S. branches of foreign banks, and short-term debt obligations of foreign governmental agencies and foreign companies that are denominated in and pay interest in U.S. dollars. Investments in foreign obligations involve certain considerations that are not typically associated with investing in domestic obligations. There may be less publicly available information about a foreign issuer than about a domestic issuer and the available information may be less reliable. Foreign issuers also are not generally subject to the same accounting, auditing and financial reporting standards or governmental supervision as domestic issuers. In addition, with respect to certain foreign countries, taxes may be withheld at the source under foreign tax laws, and there is a possibility of expropriation or potentially confiscatory levels of taxation, political or social instability or diplomatic developments that could adversely affect investments in, the liquidity of, and the ability to enforce contractual obligations with respect to, obligations of issuers located in those countries. Amounts realized on certain foreign securities in which a Portfolio may invest may be subject to foreign withholding or other taxes that could reduce the return on these securities. Tax treaties between the United States and foreign countries, however, may reduce or eliminate the amount of foreign taxes to which the Portfolio would otherwise be subject.
Foreign securities include, among others, American Depositary Receipts (ADRs) and similar investments, including Canadian Depositary Receipts (CDRs), European Depositary Receipts (EDRs), Global Depositary Receipts (GDRs), and International Depositary Receipts (IDRs). ADRs, CDRs, EDRs, GDRs, and IDRs are depositary receipts for foreign company stocks issued by a bank and held in trust at that bank, and which entitle the owner of such depositary receipts to any capital gains or dividends from the foreign company stocks underlying the depositary receipts. These securities may not necessarily be denominated in the same currency as the securities into which they may be converted. ADRs (sponsored or unsponsored) are receipts typically issued by a U.S. bank or trust company and traded on a U.S. stock exchange, and CDRs are receipts typically issued by a Canadian bank or trust company that evidence ownership of underlying foreign securities. Issuers of unsponsored ADRs are not contractually obligated to disclose material information in the U.S. and, therefore, such information may not correlate to the market value of the unsponsored ADR. EDRs and IDRs are receipts typically issued by European banks and trust companies, and GDRs are receipts issued by either a U.S. or non-U.S. banking institution, that evidence ownership of the underlying foreign securities. Generally, ADRs in registered form are designed for use in U.S. securities markets and EDRs and IDRs in bearer form are designed primarily for use in Europe.
Foreign securities also include securities denominated in currencies other than the U.S. dollar and may temporarily hold funds in bank deposits or other money market investments denominated in foreign currencies. Therefore, the Portfolios may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rate between such currencies and the dollar.
Because a Portfolio may invest in securities denominated in currencies other than the U.S. dollar and may temporarily hold funds in bank deposits or other money market investments denominated in foreign currencies, it may be affected favorably or unfavorably by exchange control regulations or changes in the exchange rate between such currencies and the dollar. Changes in foreign currency exchange rates influence values within the Portfolio from the perspective of U.S. investors. The rate of exchange between the U.S. dollar and other currencies is determined by a wide range of political and economic factors, including the forces of supply and demand in the foreign exchange markets. The international balance of payments and other economic and financial conditions, government intervention and stability, speculation and other factors also affect exchange rates.
A Portfolio may engage in foreign currency transactions in order to hedge its portfolio and to protect it against possible variations in foreign exchange rates pending the settlement of securities transactions. If a fall in exchange rates for a particular currency is anticipated, a Portfolio may enter into a forward contract to protect against a decrease in the price of securities denominated in a particular currency a Portfolio intends to purchase. If it is anticipated that exchange rates will rise, a Portfolio may enter into a forward contract to protect against an increase in the price of securities denominated in a particular currency the Portfolio intends to purchase. These forward contracts will be used only as a hedge against anticipated currency rate changes. Although such contracts are intended to minimize the risk of loss due to a decline in the value of the hedged currency, at the same time, they tend to limit any potential gain which might result should the value of such currency increase.
Foreign currency transactions, such as forward foreign currency exchange contracts, are contracts for the future delivery of a specified currency at a specified time and at a specified price. These transactions differ from futures contracts in that they are usually conducted on a principal basis instead of through an exchange, and therefore there are no brokerage fees, margin deposits are negotiated between the parties, and the contracts are settled through different procedures. The Adviser considers on an ongoing basis the creditworthiness of the institutions with which the Portfolio enters into foreign currency transactions.
The use of foreign currency transactions involves the risk of imperfect correlation between movements in futures prices and movements in the price of currencies which are the subject of the hedge. The successful use of foreign currency transactions strategies also depends on the ability of the adviser to correctly forecast interest rate movements, currency rate movements and general stock market price movements. There can be no assurance that the adviser's judgment will be accurate. The use of foreign currency transactions also exposes a Portfolio to the general risks of investing in futures contracts, including: the risk of an illiquid market for the foreign currency transactions and the risk of adverse regulatory actions. Any of these events may cause a Portfolio to be unable to hedge its securities, and may cause a Portfolio to lose money on its investments in foreign currency transactions. The Portfolios will either cover a position in such a transaction or maintain, in a segregated account with their custodian bank, cash or high-grade marketable money market securities having an aggregate value equal to the amount of any such commitment until payment is made.
The Portfolios may purchase participation notes, also known as participation certificates. Participation notes are issued by banks or broker-dealers and are designed to replicate the performance of foreign companies or foreign securities markets and can be used by a Portfolio as an alternative means to access the securities market of a country. The performance results of participation notes will not replicate exactly the performance of the foreign companies or foreign securities markets that they seek to replicate due to transaction and other expenses. Investments in participation notes involve the same risks associated with a direct investment in the underlying foreign companies or foreign securities markets that they seek to replicate. There can be no assurance that the trading price of participation notes will equal the underlying value of the foreign companies or foreign securities markets that they seek to replicate. Participation notes are generally traded over-the-counter. Participation notes are subject to counterparty risk, which is the risk that the broker-dealer or bank that issues them will not fulfill its contractual obligation to complete the transaction with the Portfolio. Participation notes constitute general unsecured contractual obligations of the banks or broker-dealers that issue them, the counterparty, and the Portfolio is relying on the creditworthiness of such counterparty and has no rights under a participation note against the issuer of the underlying security. Participation notes involve transaction cost. Participation notes may be illiquid and therefore subject to the Portfolio's percentage limitation for investments in illiquid securities. Participation notes offer a return linked to a particular underlying equity, debt or currency.
For temporary defensive purposes, the Portfolios may invest in fixed-income securities of non-U.S. governmental and private issuers. Such investments may include bonds, notes, debentures and other similar debt securities, including convertible securities.
Money may be borrowed for temporary or emergency purposes, including the meeting of redemption requests. Borrowing involves special risk considerations. Interest costs on borrowings may fluctuate with changing market rates of interest and may partially offset or exceed the return earned on borrowed funds (or on the assets that were retained rather than sold to meet the needs for which funds were borrowed). Under adverse market conditions, a Portfolio might have to sell portfolio securities to meet interest or principal payments at a time when investment considerations would not favor such sales. Reverse repurchase agreements, dollar roll transactions and other similar investments that involve a form of leverage have characteristics similar to borrowings, but are not considered borrowings if the Portfolio maintains a segregated account.
Securities may be purchased or sold on a when-issued or delayed-delivery basis and contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time may also be made. Delivery and payment on such transactions normally take place within 120 days after the date of the commitment to purchase. Securities purchased or sold on a when-issued, delayed-delivery or forward commitment basis involve a risk of loss if the value of the security to be purchased declines, or the value of the security to be sold increases, before the settlement date.
The Portfolios have a segregated account in which they may maintain cash, U.S. Government obligations or other high-quality debt instruments in an amount at least equal in value to each Portfolio's commitments to purchase when-issued securities. If the value of these assets declines, a Portfolio will place additional liquid assets in the account on a daily basis so that the value of the assets in the account is at least equal to the amount of such commitments.
Securities not registered under the 1933 Act, and other securities subject to legal or other restrictions on resale may be less liquid than other investments and may be difficult to sell promptly at an acceptable price. Delay or difficulty in selling securities may result in a loss or be costly to a Portfolio. No Portfolio may invest or hold more than 15% of its net assets in illiquid securities.
Smaller companies may offer initial public offerings which typically have additional risks including more limited product lines, markets and financial resources than larger, more seasoned companies and their securities may trade less frequently and in more limited volume than those of larger, more mature companies.
Portfolio securities may be loaned pursuant to guidelines approved by the Board to brokers, dealers and financial institutions, provided: (i) the loan is secured continuously by collateral consisting of cash, securities of the U.S. Government, its agencies or instrumentalities, or an irrevocable letter of credit issued by a bank organized under the laws of the United States, organized under the laws of a state, or a foreign bank that has filed an agreement with the Federal Reserve Board to comply with the same rules and regulations applicable to U.S. banks in securities credit transactions, and such collateral being maintained on a daily marked-to-market basis in an amount at least equal to the current market value of the securities loaned plus any accrued interest or dividends; (ii) the Portfolio may at any time call the loan and obtain the return of the securities loaned upon sufficient prior notification; (iii) the Portfolio will receive any interest or distributions paid on the loaned securities; and (iv) the aggregate market value of securities loaned will not at any time exceed the limits established by the 1940 Act.
For lending its securities, a Portfolio will earn either a fee payable by the borrower on loans that are collateralized by U.S. Government securities or a letter of credit, or income on instruments purchased with cash collateral (after payment of a "broker rebate fee" to the borrower). Cash collateral is invested on behalf of the Portfolio by the Securities Lending Agent in high-quality, U.S. dollar-denominated short-term money market instruments that have been evaluated and approved by the Portfolios' investment adviser and are permissible investments for a Portfolio. Cash collateral is invested on behalf of a Portfolio in a manner similar to the Portfolios' investment of its cash reserves and the Portfolio bears the gains and losses on such investments. The net asset value of a Portfolio 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 instruments in which cash collateral is invested. Loans of securities also involve a risk that the borrower may fail to return the securities or may fail to provide additional collateral. In either case, a Portfolio could experience delays in recovering securities or collateral or could lose all or part of the value of the loaned securities. Although voting rights, or rights to consent, attendant to securities on loan pass to the borrower, loans may be called at any time and generally will be called if a material event affecting the investment is to occur so that securities may be voted by the Portfolio.
Each lending Portfolio pays a portion of the net interest or fees earned from securities lending to a securities lending agent. Wells Fargo Bank acts as Securities Lending Agent for the Portfolios, subject to the overall supervision of the Portfolios' investment adviser. Pursuant to an exemptive order granted by the SEC, Wells Fargo Bank receives a portion of the revenues generated by securities lending activities as compensation for its services in this regard. The Securities Lending Agent may make payments to borrowers and placing brokers. Borrowers and placing brokers may not be affiliated, directly or indirectly, with the Trust, the adviser or the distributor.
The principal investment strategy of each Portfolio is to invest in shares of other affiliated and unaffiliated open-end management investment companies (as defined previously, the "Underlying Funds"), subject to certain restrictions described below, and pursuant to the portfolio allocation percentages discussed in the Prospectus.
Since each Portfolio seeks to achieve its investment objective by investing substantially all of its investable assets in the Underlying Funds, the investment experience of each of these Portfolios will correspond directly with the investment experience of its respective Underlying Funds. In addition, the Portfolios can be expected to charge operating expenses, such as investment advisory and administration fees, that would be for services different from, and in addition to, such services provided at the Underlying Fund level.
EXCHANGE-TRADED FUNDS. The Portfolios, through their investment in certain Underlying Funds, may indirectly invest in exchange-traded funds ("ETFs"), which are shares of publicly traded unit investment trusts, open-end funds or depositary receipts that seek to track the performance of specific indexes or companies in related industries. ETFs generally are subject to the same risks as the underlying securities the ETFs are designed to track and to the risks of the specific sector or industry tracked by the ETF. ETFs also are subject to the risk that their prices may not totally correlate to the prices of the underlying securities the ETFs are designed to track and the risk of possible trading halts due to market conditions or for other reasons. Although ETFs that track broad market indexes are typically large and their shares are fairly liquid, ETFs that track more specific indexes tend to be newer and smaller, and all ETFs have limited redemption features.
Private placement securities are not registered under the 1933 Act. Private placements often may offer attractive opportunities for investment not otherwise available on the open market. However, private placement and other "restricted" securities typically
cannot be resold without registration under the 1933 Act or the availability of an exemption from registration (such as Rules 144 or 144A (a "Rule 144A Security")), and may not be readily marketable.
Private placement and other restricted securities typically may be resold only to qualified institutional buyers, or in a privately negotiated transaction, or to a limited number of purchasers, or in limited quantities after they have been held for a specified period of time and other conditions are met for an exemption from registration. Investing in private placement and other restricted securities is subject to certain additional risks. They may be considered illiquid securities as they typically are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such securities, especially under adverse market or economic conditions or in the event of adverse changes in the financial condition of the issuer, a Portfolio could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities only at prices lower than if such securities were more widely held and traded. At times, it also may be more difficult to determine the fair value of such securities for purposes of computing a Portfolio's net asset value due to the absence of an active trading market. Delay or difficulty in selling such securities may result in a loss to a Portfolio. Restricted securities, including Rule 144A Securities, that are "illiquid" are subject to a Portfolio's policy of not investing or holding more than 15% of its net assets in illiquid securities. The adviser will evaluate the liquidity characteristics of each Rule 144A Security proposed for purchase by a Portfolio on a case-by-case basis and will consider the following factors, among others, in its evaluation: (i) the frequency of trades and quotes for the Rule 144A Security; (ii) the number of dealers willing to purchase or sell the Rule 144A Security and the number of other potential purchasers; (iii) dealer undertakings to make a market in the Rule 144A Security; and (iv) the nature of the Rule 144A Security and the nature of the marketplace trades (E.G., the time needed to dispose of the Rule 144A Security, the method of soliciting offers and the mechanics of transfer). The adviser will apply a similar process to evaluating the liquidity characteristics of other restricted securities. There can be no assurance that a restricted security that is deemed to be liquid when purchased will continue to be liquid for as long as it is held by a Portfolio.
Repurchase agreements are agreements wherein the seller of a security to a Portfolio agrees to repurchase that security from a Portfolio at a mutually agreed upon time and price. All repurchase agreements will be fully "collateralized," as defined under the 1940 Act. A Portfolio may enter into repurchase agreements only with respect to securities that could otherwise be purchased by such Portfolio. The maturities of the underlying securities in a repurchase agreement transaction may be greater than twelve months, although the maximum term of a repurchase agreement will always be less than twelve months. Repurchase agreements generally are subject to counterparty risk. If the seller defaults and the value of the underlying securities has declined, a Portfolio may incur a loss. In addition, if bankruptcy proceedings are commenced with respect to the seller of the security, a Portfolio's disposition of the underlying securities may be delayed or limited.
A Portfolio may not enter into a repurchase agreement with a maturity of more than seven days, if, as a result, more than 15% of the market value of such Portfolio's net assets would be invested in repurchase agreements with maturities of more than seven days, and other illiquid securities. A Portfolio will only enter into repurchase agreements with broker-dealers and commercial banks that meet guidelines established by the Board and that are not affiliated with the Portfolio's adviser. The Portfolios may participate in pooled repurchase agreement transactions with other funds advised by the adviser.
A reverse repurchase agreement is an agreement under which a Portfolio sells a portfolio security and agrees to repurchase it at an agreed-upon date and price. At the time a Portfolio enters into a reverse repurchase agreement, it will place in a segregated custodial account liquid assets such as U.S. Government securities or other liquid high-grade debt securities having a value equal to or greater than the repurchase price (including accrued interest) and will subsequently monitor the account to ensure that such value is maintained. Reverse repurchase agreements involve the risk that the market value of the securities sold by a Portfolio may decline below the price at which a Portfolio is obligated to repurchase the securities. In the event the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, a Portfolio's use of proceeds of the agreement may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce a Portfolio's obligation to repurchase the securities. Reverse repurchase agreements may be viewed as a form of borrowing.
A short sale is a transaction in which a Portfolio sells a security it does not own in anticipation of a decline in market price. When a Portfolio makes a short sale, the proceeds it receives are retained by the broker until a Portfolio replaces the borrowed security. In order to deliver the security to the buyer, a Portfolio must arrange through a broker to borrow the security and, in so doing, a Portfolio becomes obligated to replace the security borrowed at its market price at the time of replacement, whatever that price may be. Short sales "against the box" means that a Portfolio owns the securities, which are placed in a segregated account until the transaction is closed out, or has the right to obtain securities equivalent in kind and amount to the securities sold short. A Portfolio's ability to enter into short sales transactions is limited by the requirements of the 1940 Act.
Short sales by a Portfolio that are not made "against the box" are limited to transactions in futures and options. Such transactions create opportunities to increase a Portfolio's return but, at the same time, involve special risk considerations and may be considered a speculative technique. Since a Portfolio in effect profits from a decline in the price of the futures or options sold short without the need to invest the full purchase price of the futures or options on the date of the short sale, a Portfolio's NAV per share will tend to increase more when the futures or options it has sold short decrease in value, and to decrease more when the futures or options it has sold short increase in value, than would otherwise be the case if it had not engaged in such short sales. Short sales theoretically involve unlimited loss potential, as the market price of futures or options sold short may continuously increase, although a Portfolio may mitigate such losses by replacing the futures or options sold short before the market price has increased significantly. Under adverse market conditions, a Portfolio might have difficulty purchasing futures or options to meet its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.
If a Portfolio makes a short sale "against the box," a Portfolio would not immediately deliver the securities sold and would not receive the proceeds from the sale. The seller is said to have a short position in the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. A Portfolio's decision to make a short sale "against the box" may be a technique to hedge against market risks when the investment manager believes that the price of a security may decline, causing a decline in the value of a security owned by the Portfolio or a security convertible into or exchangeable for such security. In such case, any future losses in the Portfolio's long position would be reduced by a gain in the short position. Short sale transactions may have adverse tax consequences to the Portfolio and its shareholders.
In the view of the SEC, a short sale involves the creation of a "senior security" as such term is defined under the 1940 Act, unless the sale is "against the box" and the securities sold are placed in a segregated account (not with the broker), or unless the Portfolio's obligation to deliver the securities sold short is "covered" by segregating (not with the broker) cash, U.S. Government securities or other liquid debt or equity securities in an amount equal to the difference between the market value of the securities sold short at the time of the short sale and any cash or securities required to be deposited as collateral with a broker in connection with the sale (not including the proceeds from the short sale), which difference is adjusted daily for changes in the value of the securities sold short. The total value of the cash and securities deposited with the broker and otherwise segregated may not at any time be less than the market value of the securities sold short at the time of the short sale.
To avoid limitations under the 1940 Act on borrowing by investment companies, all short sales by a Portfolio will be "against the box," or the Portfolio's obligation to deliver the futures or options sold short not "against the box" will be "covered" by segregating cash, U.S. Government securities or other liquid debt or equity securities in an amount equal to the market value of its delivery obligation. A Portfolio will not make short sales of futures or options not "against the box" or maintain a short position if doing so could create liabilities or require collateral deposits and segregation of assets aggregating more than 25% of the value of the Portfolio's total assets.
To manage its exposure to different types of investments, a Portfolio may enter into interest rate, currency and mortgage (or other asset) swap agreements and may purchase and sell interest rate "caps," "floors" and "collars." In a typical interest rate swap agreement one party agrees to make regular payments equal to a floating interest rate on a specified amount (the "notional principal amount") in return for payments equal to a fixed interest rate on the same amount for a specified period. If a swap agreement provides for payment in different currencies, the parties may also agree to exchange the notional principal amount. Mortgage swap agreements are similar to interest rate swap agreements, except that the notional principal amount is tied to a reference pool of mortgages. In a cap or floor arrangement, one party agrees, usually in return for a fee, to make payments under particular circumstances. For example, the purchaser of an interest rate cap has the right to receive payments to the extent a specified interest rate exceeds an agreed upon level; the purchaser of an interest rate floor has the right to receive payments to the extent a specified interest rate falls below an agreed upon level. A collar arrangement entitles the purchaser to receive payments to the extent a specified interest rate falls outside an agreed upon range.
Swap agreements may involve leverage and may be highly volatile; depending on how they are used they may have a considerable impact on the Portfolio's performance. Swap agreements involve risks depending upon the counterparties' creditworthiness and ability to perform as well as the Portfolio's ability to terminate its swap agreements or reduce its exposure through offsetting transactions.
Warrants are instruments, typically issued with preferred stock or bonds, that give the holder the right to purchase a given number of shares of common stock at a specified price, usually during a specified period of time. The price usually represents a premium over the applicable market value of the common stock at the time of the warrant's issuance. Warrants have no voting rights with respect to the common stock, receive no dividends and have no rights with respect to the assets of the issuer. Warrants do not pay a fixed dividend. Investments in warrants involve certain risks, including the possible lack of a liquid market for the
resale of the warrants, potential price fluctuations as a result of speculation or other factors and failure of the price of the common stock to rise. A warrant becomes worthless if it is not exercised within the specified time period.
MANAGEMENT
The following information supplements, and should be read in conjunction with, the section in each Prospectus entitled "Organization and Management of the Portfolios."
The Board supervises each Portfolio's activities, monitors its contractual arrangements with various service providers, and decides upon matters of general policy.
GENERAL. The following table provides basic information about the Trustees and Officers of the Trust. Each of the Trustees and Officers listed below acts in identical capacities for the Wells Fargo Advantage family of funds which consists of, as of October 1, 2009, 133 series comprising the Trust, Wells Fargo Variable Trust and Wells Fargo Master Trust (collectively the "Fund Complex" or the "Trusts"), except that the person occupying the office of Treasurer varies for specified Funds. The business address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, with the Trustees subject to retirement from service as required pursuant to the Trust's retirement policy at the end of the calendar year in which a Trustee turns 74.
Information for Trustees who are not "interested" persons of the Trust, as that term is defined under the 1940 Act ("Independent Trustees"), appears below. In addition to the Officers listed below, the Portfolios have appointed an Anti-Money Laundering Compliance Officer.
POSITION HELD OTHER PUBLIC
WITH COMPANY OR
REGISTRANT/ INVESTMENT
LENGTH OF PRINCIPAL OCCUPATION(S) COMPANY
NAME AND AGE SERVICE/1/ DURING PAST 5 YEARS DIRECTORSHIPS
------------------------ ----------------- -------------------------------------------------------------- -------------------
INDEPENDENT TRUSTEES
Peter G. Gordon, 67 Trustee, since Co-Founder, Chairman, President and CEO of Crystal N/A
1998, Chairman, Geyser Water Company.
since 2005
(Lead Trustee
since 2001)
Isaiah Harris, Jr., 56 Trustee, since Retired. Prior thereto, President and CEO of BellSouth CIGNA Corporation
2009, Advisory Advertising and Publishing Corp from 2005 to 2007, Deluxe Corporation
Board Member, President and CEO of BellSouth Enterprises from 2004 to
from 2008 to 2005 and President of BellSouth Consumer Services from
2009 2000 to 2003. Currently a member of the Iowa State
University Foundation Board of Governors and a member of
the Advisory Board of Iowa State University School of
Business.
Judith M. Johnson, 60 Trustee, since Retired. Prior thereto, Chief Executive Officer and Chief N/A
2008 Investment Officer of Minneapolis Employees Retirement
Fund from 1996 to 2008. Ms. Johnson is a certified public
accountant and a certified managerial accountant.
David F. Larcker, 58 Trustee, since James Irvin Miller Professor of Accounting at the Graduate N/A
2009, Advisory School of Business, Stanford University, Director of
Board Member, Corporate Governance Research Program and Co-Director of
from 2008 to The Rock Center for Corporate Governance since 2006.
2009 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.
Olivia S. Mitchell, 56 Trustee, since Professor of Insurance and Risk Management, Wharton N/A
2006 School, University of Pennsylvania. Director of the Boettner
Center on Pensions and Retirement Research. Research
associate and board member, Penn Aging Research Center.
Research associate, National Bureau of Economic Research.
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POSITION HELD OTHER PUBLIC
WITH COMPANY OR
REGISTRANT/ INVESTMENT
LENGTH OF PRINCIPAL OCCUPATION(S) COMPANY
NAME AND AGE SERVICE/1/ DURING PAST 5 YEARS DIRECTORSHIPS
----------------------- ------------------ ------------------------------------------------------------- --------------
Timothy J. Penny, 57 Trustee, since President and CEO of Southern Minnesota Initiative N/A
1996 Foundation, a non-profit organization, since 2007 and Senior
Fellow at the Humphrey Institute Policy Forum at the
University of Minnesota since 1995. Member of the Board
of Trustees of NorthStar Education Finance, Inc., a
non-profit organization, since 2007.
Donald C. Willeke, 69 Trustee, since Principal of the law firm of Willeke & Daniels. General N/A
1996 Counsel of the Minneapolis Employees Retirement Fund
from 1984 to present.
OFFICERS
Karla M. Rabusch, 50 President, since Executive Vice President of Wells Fargo Bank, N.A. and N/A
2003 President of Wells Fargo Funds Management, LLC since
2003. Senior Vice President and Chief Administrative
Officer of Wells Fargo Funds Management, LLC from 2001
to 2003.
David Berardi, 34 Treasurer, since Vice President of Evergreen Investment Management N/A
2009 Company, LLC since 2008. Assistant Vice President of
Evergreen Investment Services, Inc. from 2004 to 2008.
Manager of Fund Reporting and Control for Evergreen
Investment Management Company, LLC since 2004.
Jeremy DePalma, 35 Assistant Senior Vice President of Evergreen Investment Management N/A
Treasurer, since Company, LLC since 2008. Vice President, Evergreen
2009 Investment Services, Inc. from 2004 to 2007. Assistant Vice
President, Evergreen Investment Services, Inc. from 2000 to
2004 and the head of the Fund Reporting and Control Team
within Fund Administration since 2005.
C. David Messman, 49 Secretary, since Senior Vice President and Secretary of Wells Fargo Funds N/A
2000; Chief Management, LLC since 2001. Vice President and Managing
Legal Officer, Senior Counsel of Wells Fargo Bank, N.A. since 1996.
since 2003
Debra Ann Early, 45 Chief Chief Compliance Officer of Wells Fargo Funds N/A
Compliance Management, LLC since 2007. Chief Compliance Officer of
Officer, since Parnassus Investments from 2005 to 2007. Chief Financial
2007 Officer of Parnassus Investments from 2004 to 2007 and
Senior Audit Manager of PricewaterhouseCoopers LLP from
1998 to 2004.
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1 Length of service dates reflect the Trustee's commencement of service with the Trust's predecessor entities, where applicable.
(1) GOVERNANCE COMMITTEE. Whenever a vacancy occurs on the Board, the Governance Committee is responsible for recommending to the Board persons to be appointed as Trustees by the Board, and persons to be nominated for election as Trustees in circumstances where a shareholder vote is required by or under the 1940 Act. Generally, the Governance Committee selects the candidates for consideration to fill Trustee vacancies, or considers candidates recommended by the other Trustees or by the Trust's management. Pursuant to the Trust's charter document, only Independent Trustees may nominate and select persons to become Independent Trustees for the Trust, so long as the Trust has in effect one or more plans pursuant to Rule 12b-1 under the 1940 Act. The Governance Committee meets only as necessary and met once during the Portfolios' most recently completed fiscal year. Peter Gordon serves as the chairman of the Governance Committee.
The Governance Committee has adopted procedures by which a shareholder may properly submit a nominee recommendation for the Committee's consideration, which are set forth in the Trusts' Governance Committee Charter. The shareholder must submit any such recommendation (a "Shareholder Recommendation") in writing to the Trust, to the attention of the Trust's Secretary, at the address of the principal executive offices of the Trust. The Shareholder Recommendation must be delivered to, or mailed and
received at, the principal executive offices of the Trust not less than forty-five (45) calendar days nor more than seventy-five (75) calendar days prior to the date of the Governance Committee meeting at which the nominee would be considered. The Shareholder Recommendation must include: (i) a statement in writing setting forth (A) the name, age, date of birth, business address, residence address, and nationality of the person recommended by the shareholder (the "candidate"), (B) the series (and, if applicable, class) and number of all shares of the Trust owned of record or beneficially by the candidate, as reported to such shareholder by the candidate; (C) any other information regarding the candidate called for with respect to director nominees by paragraphs (a), (d), (e), and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), adopted by the SEC (or the corresponding provisions of any regulation or rule subsequently adopted by the SEC or any successor agency applicable to the Trust); (D) any other information regarding the candidate that would be required to be disclosed if the candidate were a nominee in a proxy statement or other filing required to be made in connection with solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (E) whether the recommending shareholder believes that the candidate is or will be an "interested person" of the Trust (as defined in the 1940 Act) and, if not an "interested person," information regarding the candidate that will be sufficient for the Trust to make such determination; (ii) the written and signed consent of the candidate to be named as a nominee and to serve as a Trustee if elected; (iii) the recommending shareholder's name as it appears on the Trust's books; (iv) the series (and, if applicable, class) and number of all shares of the Trust owned beneficially and of record by the recommending shareholder; and (v) a description of all arrangements or understandings between the recommending shareholder and the candidate and any other person or persons (including their names) pursuant to which the recommendation is being made by the recommending shareholder. In addition, the Governance Committee may require the candidate to interview in person or furnish such other information as it may reasonably require or deem necessary to determine the eligibility of such candidate to serve as a Trustee of the Trust. The Governance Committee has full discretion to reject nominees recommended by shareholders, and there is no assurance that any such person properly recommended and considered by the Committee will be nominated for election to the Board.
The Governance Committee may from time-to-time propose nominations of one or more individuals to serve as members of an "advisory board," as such term is defined in Section 2(a)(1) of the 1940 Act ("Advisory Trustees"). An individual may be eligible to serve as an Advisory Trustee only if that individual meets the requirements to be a "non-interested" Trustee under the 1940 Act and does not otherwise serve the Trust in any other capacity. Any Advisory Trustee shall serve at the pleasure of the Board and may be removed, at any time, with or without cause, by the Board. An Advisory Trustee may be nominated and elected as a Trustee, at which time he or she shall cease to be an Advisory Trustee. Advisory Trustees shall perform solely advisory functions. Unless otherwise specified by the Committee or the Board, Advisory Trustees are invited to attend meetings of the Board and all committees of the Board. Advisory Trustees shall participate in meeting discussions but do not have a vote upon any matter presented to the Board or any committee of the Board, nor do they have any power or authority to act on behalf of or to bind the Board, any committee of the Board or the Trust. Advisory Trustees shall not have any responsibilities or be subject to any liabilities imposed upon Trustees by law or otherwise. Advisory Trustees shall be entitled, to the maximum extent permitted by law, to be indemnified by the Trust and shall be covered by any liability insurance coverage that extends to Trustees and officers of the Trust. Advisory Trustees shall be paid the same meeting fees payable to Trustees and shall have their expenses reimbursed in accordance with existing Board expense reimbursement policies. Advisory Trustees shall not receive any retainer fees.
(2) AUDIT COMMITTEE. The Audit Committee oversees the Portfolios' accounting and financial reporting policies and practices, reviews the results of the annual audits of the Portfolios' financial statements, and interacts with the Portfolios' independent registered public accounting firm on behalf of the full Board. The Audit Committee operates pursuant to a separate charter, and met four times during the Portfolios' most recently completed fiscal year. Judith M. Johnson serves as the chairperson of the Audit Committee.
COMPENSATION. For the calendar year ended December 31, 2008, each Trustee received an annual retainer (payable quarterly) of $160,000 from the Fund Complex. Each Trustee and Advisory Board Member also received a combined fee of $7,500 for attendance at in-person Fund Complex Board meetings, and a combined fee of $1,500 for attendance at the first telephonic Fund Complex Board meeting and each telephonic Board meeting beyond five. In addition, the Chairperson of the Fund Complex Board received an additional $40,000 annual retainer and the Chairperson of the Audit Committee received an additional $20,000 annual retainer, for the additional work and time devoted by the Chairpersons. Prior to January 1, 2008, each Trustee received an annual retainer (payable quarterly) of $140,000 from the Fund Complex. Each Trustee also received a combined fee of $7,500 for attendance at in-person Fund Complex Board meetings, and a combined fee of $1,500 for attendance at telephonic Fund Complex Board meetings. In addition, the Chairperson of the Fund Complex Board received an additional $40,000 annual retainer and the Chairperson of the Audit Committee received an additional $16,000 annual retainer, for the additional work and time devoted by the Chairpersons.
Effective January 1, 2009, each Trustee receives an annual retainer (payable quarterly) of $160,000 from the Fund Complex. Each Trustee and Advisory Board Member receives a combined fee of $7,500 for attendance at in-person Fund Complex Board meetings, and a combined fee of $1,500 for attendance at telephonic Fund Complex Board meetings. In addition, the Chairperson
of the Fund Complex Board receives an additional $40,000 annual retainer and the Chairperson of the Audit Committee receives an additional $20,000 annual retainer, for the additional work and time devoted by the Chairpersons.
The Trustees do not receive any retirement benefits or deferred compensation from the Trust or any other entity of the Fund Complex. The Officers are not compensated by the Trust for their services. For the fiscal year ended May 31, 2009, the Trustees received the following compensation:
COMPENSATION TABLE
FISCAL YEAR ENDED MAY 31, 2009
INDEPENDENT TRUSTEES
PETER G. ISAIAH HARRIS, JUDITH M. DAVID F. OLIVIA TIMOTHY J. DONALD C.
PORTFOLIO GORDON JR./3/ JOHNSON/2/ LARCKER/3/ MITCHELL PENNY WILLEKE
Conservative
Allocation $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Equity $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Growth Allocation $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Growth Balanced $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Moderate Balanced $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
Tactical Equity $ 1,985 $ 515 $ 1,165 $ 487 $ 1,687 $ 1,687 $ 1,687
TOTAL COMPENSATION
FROM THE FUND
COMPLEX/1/ $266,000 $68,967 $156,164 $65,217 $226,000 $226,000 $226,000
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/1/ Includes Trustee compensation received by other funds within the entire Fund Complex (consisting of 134 funds as of the fiscal year end).
/2/ Judith Johnson was appointed to the Board as an Independent Trustee effective August 1, 2008. The compensation reflected in the table above for Ms. Johnson is for the period August 1, 2008 to May 31, 2009.
/3/ Isaiah Harris, Jr. and David F. Larcker became Independent Trustees effective April 17, 2009. From November 1, 2008, to April 17, 2009, Messrs. Harris and Larcker served as Advisory Board Members. The compensation reflected in the table above for Messrs. Harris and Larcker is for the period November 1, 2008 to May 31, 2009.
BENEFICIAL EQUITY OWNERSHIP INFORMATION. As of the calendar year ended December 31, 2008, the Trustees, the Advisory Board Members and Officers of the Trust, as a group, beneficially owned less than 1% of the outstanding shares of the Trust. The table below shows for each Trustee, the dollar value of Portfolio equity securities beneficially owned by the Trustee, and the aggregate value of all investments in equity securities of the Fund Complex, stated as one of the following ranges: $0; $1-$10,000; $10,001-$50,000; $50,001-$100,000; and over $100,000.
BENEFICIAL EQUITY OWNERSHIP IN THE PORTFOLIOS AND FUND COMPLEX
CALENDAR YEAR ENDED DECEMBER 31, 2008
INDEPENDENT TRUSTEES
PETER G. ISAIAH HARRIS, JUDITH M.
PORTFOLIO GORDON JR/2/ JOHNSON
Conservative
Allocation $0 $0 $0
Equity $0 $0 $0
Growth Allocation $0 $0 $0
Growth Balanced $0 $0 $0
Moderate Balanced $0 $0 $0
Tactical Equity $0 $0 $0
Aggregate Dollar
Range of
Equity Securities Of
Fund
Complex/1/ over $100,000 over $100,000 $0
INDEPENDENT TRUSTEES
DAVID F. OLIVIA TIMOTHY J. DONALD C.
PORTFOLIO LARCKER/2/ MITCHELL PENNY WILLEKE
Conservative
Allocation $0 $0 $0 $0
Equity $0 $0 $0 $0
Growth Allocation $0 $0 $0 $0
Growth Balanced $0 $0 $0 $0
Moderate Balanced $0 $0 $0 $0
Tactical Equity $0 $0 $0 $0
Aggregate Dollar
Range of
Equity Securities Of
Fund
Complex/1/ $0 over $100,000 over $100,000 over $100,000
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/1/ Includes Trustee ownership in shares of other funds within the entire Fund Complex (consisting of 134 funds at calendar year end).
/2/ Messrs. Harris and Larcker were elected to the Board as Independent Trustees effective April 17, 2009.
OWNERSHIP OF SECURITIES OF CERTAIN ENTITIES. As of the calendar year ended December 31, 2008, none of the Independent Trustees and/or their immediate family members own securities of the adviser, any sub-advisers, or the distributor, or any entity directly or indirectly controlling, controlled by, or under common control with the adviser, any sub-advisers, or the distributor.
Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company and an affiliate of Wells Fargo Bank, is the investment adviser for the Portfolios. Funds Management is responsible for implementing the investment policies and guidelines for the Portfolios, and for supervising the sub-adviser who is responsible for the day-to-day portfolio management of the Portfolios.
YEAR ENDED YEAR ENDED YEAR ENDED
5/31/2009 5/31/2008 5/31/2007
FEES FEES FEES
PAID PAID PAID
FEES AFTER FEES FEES AFTER FEES FEES AFTER FEES
PORTFOLIO INCURRED WAIVER WAIVED INCURRED WAIVER WAIVED INCURRED WAIVER WAIVED
Conservative $315,498 $101,053 $214,445 $ 190,150 $ 83,145 $107,005 $ 111,046 $ 55,593 $ 55,453
Allocation
Equity $236,363 $125,704 $110,659 $ 396,728 $173,264 $223,464 $ 351,428 $212,455 $138,973
Growth $297,061 $131,488 $165,573 $ 354,479 $136,397 $218,082 $ 202,263 $122,103 $ 80,160
Allocation
Growth Balanced $961,886 $280,177 $681,709 $1,311,500 $474,808 $836,692 $1,036,985 $894,365 $142,620
Moderate $437,232 $145,211 $292,021 $ 385,440 $133,159 $252,281 $ 206,873 $143,581 $ 63,292
Balanced
Tactical Equity $719,771 $259,459 $460,312 $1,115,175 $411,175 $704,000 $ 728,489 $493,323 $235,166
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Funds Management has engaged Wells Capital Management Incorporated ("Wells Capital Management" or "Sub-Adviser"), an affiliate of Funds Management, to serve as investment sub-adviser to the Portfolios. Subject to the direction of the Trust's Board and the overall supervision and control of Funds Management and the Trust, the Sub-Adviser makes recommendations regarding the investment and reinvestment of the Portfolios' assets. The Sub-Adviser furnishes to Funds Management periodic reports on the investment activity and performance of the Portfolios. The Sub-Adviser also furnishes such additional reports and information as Funds Management and the Trust's Board and Officers may reasonably request. Funds Management may, from time to time and in its sole discretion, allocate and reallocate services provided by and fees paid to Wells Capital Management.
As compensation for its sub-advisory services to each Portfolio, Wells Capital Management is entitled to receive a monthly fee equal to an annual rate of 0.15% of the Portfolio's average daily net assets. Wells Capital Management is compensated for its services by Funds Management from the fees Funds Management receives for its services as adviser.
The following information supplements, and should be read in conjunction with, the section in each Prospectus entitled "Portfolio Managers." The information in this section is provided as of May 31, 2008, the most recent fiscal year end for the Portfolios managed by the portfolio managers listed below (each a "Portfolio Manager" and together, the "Portfolio Managers"). The Portfolio Managers manage the investment activities of the Portfolios on a day-to-day basis as follows.
PORTFOLIO SUB-ADVISER PORTFOLIO MANAGERS ------------------------- -------------------------- ------------------------ Conservative Allocation Wells Capital Management Doug Beath Equity Galen G. Blomster, CFA Growth Allocation Petros Bocray, CFA Growth Balanced Jeffrey P. Mellas, CAIA Moderate Balanced Tactical Equity |
MANAGEMENT OF OTHER ACCOUNTS. The following table indicates the type of, number of, and total assets in accounts managed by the Portfolio Managers, not including the Portfolios. The accounts described include accounts that a Portfolio Manager manages in a professional capacity as well as accounts that a Portfolio Manager may manage in a personal capacity, if any, which are included under "Other Accounts."
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES OTHER ACCOUNTS
NUMBER TOTAL NUMBER TOTAL NUMBER TOTAL
OF ASSETS OF ASSETS OF ASSETS
PORTFOLIO MANAGER ACCOUNTS* MANAGED ACCOUNTS* MANAGED ACCOUNTS* MANAGED
WELLS CAPITAL MANAGEMENT
Doug Beath 4 $1655MM 0 $ 0 15 $3336MM
Galen G. Blomster, CFA 6 $2394MM 1 $244MM 0 $ 0
Petros Bocray, CFA** 0 $ 0 0 $ 0 3 less than $1,000,000
Jeffrey P. Mellas, CAIA 6 $2394MM 2 $268MM 13 $3226MM
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** Information current as of October 1, 2009.
The following table indicates the number and total assets managed of the above accounts for which the advisory fee is based on the performance of such accounts.
REGISTERED INVESTMENT OTHER POOLED
COMPANIES INVESTMENT VEHICLES OTHER ACCOUNTS
NUMBER TOTAL NUMBER TOTAL NUMBER TOTAL
OF ASSETS OF ASSETS OF ASSETS
PORTFOLIO MANAGER ACCOUNTS* MANAGED ACCOUNTS* MANAGED ACCOUNTS* MANAGED
WELLS CAPITAL MANAGEMENT
Doug Beath 0 $0 0 $0 3 $186MM
Galen G. Blomster, CFA 0 $0 0 $0 0 $ 0
Petros Bocray, CFA** 0 $0 0 $0 0 $ 0
Jeffrey P. Mellas, CAIA 0 $0 0 $0 4 $150MM
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* If an account has one of the Portfolio Managers as a co-portfolio manager or an assistant portfolio manager, the total number of accounts and assets have been allocated to each respective Portfolio Manager. Therefore, some accounts and assets have been counted twice.
** Information current as of October 1, 2009.
To minimize the effects of these inherent conflicts of interest, the Sub-Adviser has adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, that it believes address the potential conflicts associated with managing portfolios for multiple clients and ensures that all clients are treated fairly and equitably. Additionally, the Sub-Adviser minimizes inherent conflicts of interest by assigning the Portfolio Managers to accounts having similar objectives. Accordingly, security block purchases are allocated to all accounts with similar objectives in proportionate weightings. Furthermore, the Sub-Adviser has adopted a Code of Ethics under Rule 17j-1 of the 1940 Act and Rule 204A-1 under the Investment Advisers Act of 1940 (the "Advisers Act") to address potential conflicts associated with managing the Portfolios and any personal accounts the Portfolio Managers may maintain.
WELLS CAPITAL MANAGEMENT. Wells Capital Management's Portfolio Managers often provide investment management for separate accounts advised in the same or similar investment style as that provided to mutual funds. While management of multiple accounts could potentially lead to conflicts of interest over various issues such as trade allocation, fee disparities and research acquisition, Wells Capital Management has implemented policies and procedures for the express purpose of ensuring that clients are treated fairly and that potential conflicts of interest are minimized.
WELLS CAPITAL MANAGEMENT COMPENSATION. The compensation structure for Wells Capital Management's Portfolio Managers includes a competitive fixed base salary plus variable incentives (Wells Capital Management utilizes investment management compensation surveys as confirmation). Incentive bonuses are typically tied to pre-tax relative investment performance of all accounts under his or her management within acceptable risk parameters. Relative investment performance is generally evaluated for 1- and 3- year performance results versus the relevant benchmarks and/or peer groups consistent with the investment style. This evaluation takes into account relative performance of the accounts to each account's individual benchmark and/or the relative composite performance of all accounts to one or more relevant benchmarks consistent with the overall investment style. In the case of each Portfolio, the benchmark(s) against which the performance of the Portfolio's portfolio may be compared for these purposes generally are indicated in the "Performance" sections of the Prospectuses.
$0;
$1 - $10,000;
$10,001 - $50,000;
$50,001 - $100,000;
$100,001 - $500,000;
$500,001 - $1,000,000; and
over $1,000,000.
PORTFOLIO MANAGER PORTFOLIO BENEFICIAL OWNERSHIP
WELLS CAPITAL MANAGEMENT
Doug Beath Conservative Allocation $ 0
Equity $ 0
Growth Allocation $ 0
Growth Balanced $ 0
Moderate Balanced $ 0
Tactical Equity $ 0
Galen G. Blomster, CFA Conservative Allocation $ 0
Equity $ 0
Growth Allocation $ 0
Growth Balanced $ 0
Moderate Balanced $ 0
Tactical Equity $10,001-$50,000
Petros Bocray, CFA* Conservative Allocation $ 0
Equity $ 0
Growth Allocation $ 0
Growth Balanced $ 0
Moderate Balanced $ 0
Tactical Equity $ 0
Jeffrey P. Mellas, CAIA Conservative Allocation $ 0
Equity $ 0
Growth Allocation $ 0
Growth Balanced $ 0
Moderate Balanced $ 0
Tactical Equity $ 0
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* Information current as of October 1, 2009.
The Portfolios' shareholders will bear indirectly a pro-rata portion of fees of the Underlying Funds, which may include shareholder servicing fees and Rule 12b-1 distribution fees, some of which are used to compensate shareholder servicing and selling agents and the Portfolios' distributor for providing services to the Portfolios' shareholders. In order that these fees be available to pay for such services, the Portfolios may choose not to invest in the least expensive share class of an Underlying Fund. In addition, Funds Management, Wells Capital Management, their affiliates and Wells Fargo Funds Distributor, LLC ("Funds Distributor" or the "Distributor") as distributor for the Portfolios may receive fees from the Underlying Funds for providing
various services to the Underlying Funds. For example, Funds Management may receive advisory fees and Wells Capital Management may receive sub-advisory fees from the Underlying Funds and Wells Fargo Bank may receive fees for providing custody services to the Underlying Funds. These fees are separate from and in addition to fees received by Funds Management, Wells Capital Management and their affiliates for providing services to the Portfolios. These fees may differ among the Underlying Funds.
The Trust has retained Funds Management (the "Administrator"), the investment adviser for the Portfolios, located at 525 Market Street, 12th Floor, San Francisco, CA 94105, as administrator on behalf of the Portfolios pursuant to an Administration Agreement. Under the Administration Agreement with the Trust, Funds Management provides, among other things: (i) general supervision of the Portfolios' operations, including communication, coordination, and supervision services with regard to the Portfolios' transfer agent, custodian, fund accountant and other service organizations that render record-keeping or shareholder communication services; (ii) coordination of the preparation and filing of reports and other information materials regarding the Portfolios, including prospectuses, proxies and other shareholder communications; (iii) development and implementation of procedures for monitoring compliance with regulatory requirements and compliance with the Portfolios' investment objectives, policies and restrictions; and (iv) any other administrative services reasonably necessary for the operation of the Portfolios other than those services that are provided by the Portfolios' transfer agent, custodian, and fund accountant. Funds Management also furnishes office space and certain facilities required for conducting the Portfolios' business together with ordinary clerical and bookkeeping services.
In addition, Funds Management has agreed to pay all of the Portfolios' fees and expenses for services provided by the Portfolios' transfer agent and various sub-transfer agents and omnibus account servicers and record-keepers out of the fees it receives as Administrator. For providing administrative services, including paying the Portfolios' fees and expenses for services provided by the Portfolios' transfer agent and various sub-transfer agents and omnibus account servicers and record-keepers, Funds Management is entitled to receive an annual fee at the rates indicated below, as a percentage of each Portfolio's average daily net assets:
FEE
CLASS EFFECTIVE 8/2/04
Single Class 0-4.99B 0.33%
5-9.99B 0.32%
>9.99B 0.31%
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For the fiscal year-ends indicated below, the Portfolios paid the following administrative fees to Funds Management:
ADMINISTRATIVE
ADMINISTRATIVE FEES PAID AFTER
YEAR ENDED 5/31/09 FEES INCURRED WAIVER WAIVER
Conservative Allocation Portfolio $ 520,571 $0 $ 520,571
Equity Portfolio $ 390,000 $0 $ 390,000
Growth Allocation Portfolio $ 490,151 $0 $ 490,151
Growth Balanced Portfolio $1,587,113 $0 $1,587,113
Moderate Balanced Portfolio $ 721,432 $0 $ 721,432
Tactical Equity Portfolio $1,187,622 $0 $1,187,622
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ADMINISTRATIVE
ADMINISTRATIVE FEES PAID AFTER
YEAR ENDED 5/31/08 FEES INCURRED WAIVER WAIVER
Conservative Allocation Portfolio $ 313,748 $0 $ 313,748
Equity Portfolio $ 654,601 $0 $ 654,601
Growth Allocation Portfolio $ 584,890 $0 $ 584,890
Growth Balanced Portfolio $2,163,976 $0 $2,163,976
Moderate Balanced Portfolio $ 635,976 $0 $ 635,976
Tactical Equity Portfolio $1,840,039 $0 $1,840,039
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ADMINISTRATIVE
ADMINISTRATIVE FEES PAID AFTER
YEAR ENDED 5/31/07 FEES INCURRED WAIVER WAIVER
Conservative Allocation Portfolio $ 183,227 $0 $ 183,227
Equity Portfolio $ 579,856 $0 $ 579,856
Growth Allocation Portfolio $ 333,734 $0 $ 333,734
Growth Balanced Portfolio $1,711,025 $0 $1,711,025
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ADMINISTRATIVE
ADMINISTRATIVE FEES PAID AFTER
YEAR ENDED 5/31/07 FEES INCURRED WAIVER WAIVER
Moderate Balanced Portfolio $ 341,340 $0 $ 341,340
Tactical Equity Portfolio $1,202,006 $0 $1,202,006
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Wells Fargo Funds Distributor, LLC ("Funds Distributor"), an affiliate of Funds Management located at 525 Market Street, San Francisco, California 94105, serves as the distributor to the Portfolios.
The Portfolios have adopted a distribution plan (a "Plan") under Section 12(b) of the 1940 Act and Rule 12b-1 thereunder (the "Rule") for their shares. The Plan was adopted by the Board, including a majority of the Trustees who were not "interested persons" (as defined under the 1940 Act) of the Portfolios and who had no direct or indirect financial interest in the operation of the Plan or in any agreement related to the Plan (the "Non-Interested Trustees").
Under the Plan and pursuant to the related Distribution Agreement, the shares of these Portfolios pay the Distributor, on a monthly basis, an annual fee of 0.75% of the average daily net assets as compensation for distribution-related services or as reimbursement for distribution-related expenses.
The actual fee payable to the Distributor by these Portfolios is determined, within such limits, from time to time by mutual agreement between the Trust and the Distributor and will not exceed the maximum sales charges payable by mutual funds sold by members of the Financial Industry Regulatory Authority ("FINRA") under the Conduct Rules. The Distributor's distribution-related revenues from the Plan may be more or less than distribution-related expenses incurred during the period. The Distributor may enter into selling agreements with one or more selling agents (which may include Wells Fargo Bank, Funds Management and their affiliates) under which such agents may receive compensation for distribution-related services from the Distributor, including, but not limited to, commissions or other payments to such agents based on the average daily net assets of Portfolio shares attributable to their customers. The Trustees believe that these relationships and distribution channels provide potential for increased Portfolio assets and ultimately corresponding economic efficiencies (I.E., lower per-share transaction costs and fixed expenses) that are generated by increased assets under management. In addition to payments received from the Portfolio, selling or servicing agents may receive significant additional payments directly from the Adviser, Distributor, or their affiliates in connection with the sale of Portfolio shares. The Distributor may retain any portion of the total distribution fee payable thereunder to compensate it for distribution-related services provided by it or to reimburse it for other distribution-related expenses.
For the fiscal year ended May 31, 2009, the Portfolios paid the Distributor the following fees for distribution-related services:
DISTRIBUTION FEES
PRINTING, COMPENSATION COMPENSATION
MAILING & TO TO
PORTFOLIO TOTAL ADVERTISING PROSPECTUS UNDERWRITERS BROKER/DEALERS
CONSERVATIVE ALLOCATION $1,183,117 $0 $0 $103,689 $1,079,428
EQUITY $ 886,363 $0 $0 $ 11,313 $ 875,050
GROWTH ALLOCATION $1,113,979 $0 $0 $ 26,795 $1,087,184
GROWTH BALANCED $3,607,074 $0 $0 $100,484 $3,506,590
MODERATE BALANCED $1,639,619 $0 $0 $ 89,991 $1,549,628
TACTICAL EQUITY $2,699,141 $0 $0 $ 29,411 $2,669,730
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The Plan provides that the Treasurer of the Trust shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefor) under the Plan. The Rule also requires that the selection and nomination of Trustees who are not "interested persons" of the Trust be made by such Non-Interested Trustees.
Wells Fargo Bank and Funds Management, interested persons (as that term is defined under Section 2(a)(19) under the 1940 Act) of the Trust, act as selling agents for the Portfolios' shares pursuant to selling agreements with the Distributor authorized under the Plan. As selling agents, Wells Fargo Bank and Funds Management have an indirect financial interest in the operation of the Plan. The Board has concluded that the Plan is reasonably likely to benefit the Portfolios and their shareholders because the Plan authorizes the relationships with selling agents, including Wells Fargo Bank and Funds Management, that have previously developed distribution channels and relationships with the retail customers that the Portfolios are designed to serve. The Trustees believe that these relationships and distribution channels provide potential for increased Portfolio assets and ultimately corresponding economic efficiencies (I.E., lower per-share transaction costs and fixed expenses) that are generated by increased assets under management. In addition to payments received from the Portfolios, selling or servicing agents may receive significant additional payments directly from the Adviser, the Distributor, or their affiliates in connection with the sale of Portfolio shares.
The Portfolios have approved a Shareholder Servicing Plan and have entered into related Shareholder Servicing Agreements with financial institutions, including Wells Fargo Bank and Funds Management. Under the agreements, Shareholder Servicing Agents (including Wells Fargo Bank and Funds Management) agree to perform, as agents for their customers, administrative services, with respect to Portfolio shares, which include aggregating and transmitting shareholder orders for purchases, exchanges and redemptions; maintaining shareholder accounts and records; and providing such other related services as the Trust or a shareholder may reasonably request. For providing these services, a Shareholder Servicing Agent is entitled to an annual fee from the applicable Portfolio of up to 0.25% of the average daily net assets of the Single Class shares owned of record or beneficially by the customers of the Shareholder Servicing Agent during the period for which payment is being made. The Shareholder Servicing Plan and related Shareholder Servicing Agreements were approved by the Trustees and provide that a Portfolio shall not be obligated to make any payments under such plans or related agreements that exceed the maximum amounts payable under the Conduct Rules enforced by FINRA.
General. The Shareholder Servicing Plan will continue in effect from year
The Shareholder Servicing Plan requires that the Administrator of the Trust shall provide to the Trustees, and the Trustees shall review, at least quarterly, a written report of the amounts expended (and purposes therefore) under the Shareholder Servicing Plan.
Wells Fargo Bank, N.A. (the "Custodian") located at Wells Fargo Center, 6th and Marquette, Minneapolis, Minnesota 55479, acts as custodian for each Portfolio. The Custodian, among other things, maintains a custody account or accounts in the name of each Portfolio, receives and delivers all assets for each Portfolio upon purchase and upon sale or maturity, collects and receives all income and other payments and distributions on account of the assets of each Portfolio and pays all expenses of each Portfolio. For its services as Custodian, Wells Fargo Bank is entitled to receive an annual fee at the rate of 0.02% of the average daily net assets of each Portfolio.
PNC Global Investment Servicing (U.S.), Inc. ("PNC"), (formerly PFPC), located at 400 Bellevue Parkway, Wilmington, Delaware 19809, serves as fund accountant and in such capacity maintains the financial books and records for the Portfolios. For these services, PNC is entitled to receive from each Portfolio an annual asset-based Fund Complex fee as shown in the chart below:
AVERAGE FUND COMPLEX DAILY NET ASSETS ANNUAL ASSET-BASED
(EXCLUDING THE MASTER TRUST PORTFOLIO ASSETS) FEES
First $85B 0.0051%
Over $85B 0.0025%
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In addition, PNC is entitled to receive an annual base fee of $20,000 per Portfolio. PNC is also entitled to receive a monthly multiple manager fee beyond the first manager as follows: $2,000 for the second manager in each Portfolio, $1,500 for the third manager in each Portfolio and $500 for each manager beyond the third manager in each Portfolio. Finally, PNC is entitled to receive certain out-of-pocket costs. Each Portfolio's share of the annual asset-based Fund Complex fee is based on its proportionate share of the aggregate average net assets of all the funds in the Fund Complex, excluding the Master Trust portfolios.
On or about October 26, 2009, State Street Bank and Trust Company ("State
Street") will replace Wells Fargo Bank, N.A., and PNC Global Investing Service
(U.S.), Inc. ("PNC"), as the Portfolios' Custodian and fund accountant,
respectively.
State Street Bank and Trust Company ("State Street") is located at State Street
Financial Center, One Lincoln Street Boston, Massachusetts 02111. As Custodian,
State Street, among other things, will maintain a custody account or accounts
in the name of each Portfolio, handle the receipt and delivery of securities,
select and monitor foreign sub custodians as the Portfolios' global custody
manager, determine income and collect interest on each Fund's investments and
maintain certain books and records. As fund accountant, State Street will be
responsible for calculating each Portfolio's daily net asset value per share
and for maintaining its portfolio and general accounting records. For its
services, State Street will be entitled to receive certain transaction fees,
asset-based fees and out-of-pocket costs.
Boston Financial Data Services, Inc. ("BFDS"), located at Two Heritage Drive, Quincy, Massachusetts 02171, acts as transfer and distribution disbursing agent for the Portfolios. For providing such services, BFDS is entitled to receive fees from the Administrator.
The Distributor serves as the principal underwriter distributing securities of the Portfolios on a continuous basis.
For the fiscal years ended May 31, 2007, May 31, 2008 and May 31, 2009 the Portfolios paid no underwriting commissions to the Distributor.
The Fund Complex, the Adviser, the Distributor and the Sub-Adviser each has adopted a code of ethics which contains policies on personal securities transactions by "access persons" as defined in each of the codes. These policies comply with Rule 17j-1 under the 1940 Act and Rule 204A-1 under the Advisers Act, as applicable. Each code of ethics, among other things, permits access persons to invest in certain securities, subject to various restrictions and requirements. More specifically, each code of ethics either prohibits its access persons from purchasing or selling securities that may be purchased or held by a Portfolio or permits such access persons to purchase or sell such securities, subject to certain restrictions. Such restrictions do not apply to purchases or sales of certain types of securities, including shares of open-end investment companies that are unaffiliated with the WELLS FARGO ADVANTAGE FUNDS family, money market instruments and certain U.S. Government securities. To facilitate enforcement, the codes of ethics generally require that an access person, other than "disinterested" directors or trustees, submit reports to a designated compliance person regarding transactions involving securities which are eligible for purchase by a Portfolio. The codes of ethics for the Fund Complex, the Adviser, the Distributor and the Sub-Adviser are on public file with, and are available from, the SEC.
DETERMINATION OF NET ASSET VALUE
The NAV per share for each Portfolio is determined as of the close of regular trading (currently 4:00 p.m. (Eastern time)) on each day the New York Stock Exchange ("NYSE") is open for business. Expenses and fees, including advisory fees, are accrued daily and are taken into account for the purpose of determining the NAV of each Portfolio's shares.
Each Portfolio's investments are generally valued at current market prices. Securities are generally valued based on the last sales price during the regular trading session if the security trades on an exchange ("closing price"). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price ("NOCP"), and if no NOCP is available, then at the last reported sales price. A Portfolio is required to depart from these general valuation methods and use fair value pricing methods to determine the value of certain investments if it is determined that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Portfolio calculates its NAV. In addition, we also use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price but before a Portfolio calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security. With
respect to any portion of a Portfolio's assets that are invested in other mutual funds, the Portfolio's NAV is calculated based upon the net asset values of the other mutual funds in which the Portfolio invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing. In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price.
Money market instruments and debt instruments maturing in 60 days or less generally are valued at amortized cost. Futures contracts will be marked to market daily at their respective settlement prices determined by the relevant exchange. Prices may be furnished by a reputable independent pricing service. Prices provided by an independent pricing service may be determined without exclusive reliance on quoted prices and may take into account appropriate factors such as institutional-size trading in similar groups of securities, yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data.
ADDITIONAL PURCHASE AND REDEMPTION INFORMATION
Shares of the Portfolios may be purchased on any day a Portfolio is open for business. Generally, each Portfolio is open for business each day the New York Stock Exchange is open for trading (a "Business Day"). The New York Stock Exchange is currently closed in observance of New Year's Day, Martin Luther King Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and Christmas Day (each a "Holiday"). When any Holiday falls on a weekend, the NYSE typically is closed on the weekday immediately before or after such Holiday.
Purchase orders for a Portfolio received before such Portfolio's NAV calculation time, generally are processed at such time on that Business Day. Purchase orders received after a Portfolio's NAV calculation time generally are processed at such Portfolio's NAV calculation time on the next Business Day. Selling Agents may establish earlier cut-off times for processing your order. Requests received by a Selling Agent after the applicable cut-off time will be processed on the next Business Day. On any day the NYSE closes early, the Portfolios will close early. On these days, the NAV calculation time and the distribution, purchase and redemption cut-off times for the Portfolios may be earlier than their stated NAV calculation time described above.
Payment for shares may, in the discretion of the Adviser, be made in the form of securities that are permissible investments for the Portfolio. For further information about this form of payment, please contact the Distributor. In connection with an in-kind securities payment, the Portfolios will require, among other things, that the securities be valued on the day of purchase in accordance with the pricing methods used by a Portfolio and that such Portfolio receives satisfactory assurances that (i) it will have good and marketable title to the securities received by it; (ii) that the securities are in proper form for transfer to the Portfolio; and (iii) adequate information will be provided concerning the basis and other matters relating to the securities.
Each Portfolio reserves the right to reject any purchase orders, and under the 1940 Act, may suspend the right of redemption or postpone the date of payment upon redemption for any period during which the NYSE is closed (other than customary weekend and holiday closings), or during which trading is restricted, or during which, as determined by SEC rule, regulation or order, an emergency exists as a result of which disposal or valuation of portfolio securities is not reasonably practicable, or for such periods as the SEC may permit. The Portfolio may also redeem shares involuntarily or make payment for redemption in securities or other property if it appears appropriate to do so in light of the Portfolio's responsibilities under the 1940 Act. In addition, the Portfolio may redeem shares involuntarily to reimburse a Portfolio for any losses sustained by reason of the failure of a shareholder to make full payment for shares purchased or to collect any charge relating to a transaction effected for the benefit of a shareholder which is applicable to shares of a Portfolio as provided from time to time in the Prospectuses.
brokerage account should contact their selling agent.
authorized one or more brokers to receive on its behalf purchase and redemption orders, and such brokers are authorized to designate other intermediaries to receive purchase and redemption orders on the Trust's behalf. The Trust will be deemed to have received a purchase or redemption order for Portfolio shares when an authorized broker or, if applicable, a broker's authorized designee, receives the order, and such orders will be priced at the Portfolio's NAV next calculated after they are received by the authorized broker or the broker's designee.
o 401(k) Investment Services, Inc.
o ADP Broker-Dealer, Inc.
o A.G. Edwards & Sons, Inc.
o AIG Retirement Services Company
o Ameriprise Financial Services, Inc.
o Charles Schwab & Co., Inc.
o Citigroup Global Markets, Inc.
o CitiStreet Advisors LLC
o DWS Investments Distributors, Inc.
o Fidelity Brokerage Services LLC
o Goldman, Sachs & Co.
o GPC Securities, Inc.
o GWFS Equities, Inc.
o GunnAllen Financial, Inc.
o H.D. Vest Financial Services
o Hewitt Financial Services, LLC
o J. P. Morgan Securities Inc.
o LPL Financial Corp.
o Mellon Financial Markets, LLC
o Merrill Lynch, Pierce, Fenner & Smith, Inc.
o Merriman Curhan Ford & Co. Inc.
o Mid Atlantic Capital Corporation
o Morgan Stanley DW Inc.
o MSCS Financial Services, LLC
o Nationwide Investment Services Corp.
o Pershing LLC
o Prudential Investment Management Services, LLC
o Prudential Retirement Brokerage Services, Inc.
o Raymond James & Associates, Inc.
o RBC Dain Rauscher, Inc.
o Robert W. Baird & Co.
o Ross, Sinclaire & Associates, LLC
o Security Distributors, Inc.
o State Street Global Markets, LLC
o TD Ameritrade Trust Company
o UBS Financial Services, Inc.
o VALIC Financial Advisors, Inc.
o Wachovia Securities, LLC
o Wells Fargo Investments
In addition to member firms of FINRA, Additional Payments are also made to other selling and shareholder servicing agents, and to affiliates of selling and shareholder servicing agents that sell shares of or provide services to the Portfolios and their shareholders, such as banks, insurance companies and plan administrators. These firms are not included on the list above, although they may be affiliated with companies on the above list.
Also not included on the list above are other subsidiaries of Wells Fargo & Company who may receive revenue from the Adviser, the Portfolios' Distributor or their affiliates through intra-company compensation arrangements and for financial, distribution, administrative and operational services.
Purchases and sales of equity securities on a securities exchange are effected through broker-dealers who charge a negotiated commission for their services. Orders may be directed to any broker-dealer including, to the extent and in the manner permitted by applicable law, affiliated broker-dealers. However, the Portfolios and Funds Management have adopted a policy pursuant to Rule 12b-1(h) under the 1940 Act that prohibits the Portfolios from directing portfolio brokerage to brokers who sell Portfolio shares as compensation for such selling efforts. In the over-the-counter market, securities are generally traded on a "net" basis with broker-dealers acting as principal for their own accounts without a stated commission, although the price of the security usually includes a profit to the broker-dealer. In underwritten offerings, securities are purchased at a fixed price that includes an amount of compensation to the underwriter, generally referred to as the underwriter's concession or discount.
Purchases and sales of non-equity securities usually will be principal transactions. Portfolio securities normally will be purchased or sold from or to broker-dealers serving as market makers for the securities at a net price. The Portfolios also will purchase portfolio securities in underwritten offerings and may purchase securities directly from the issuer. Generally, municipal obligations and taxable money market securities are traded on a net basis and do not involve brokerage commissions. The cost of executing a Portfolio's portfolio securities transactions will consist primarily of broker-dealer spreads and underwriting commissions. Under the 1940 Act, persons affiliated with the Trust are prohibited from dealing with the Trust as a principal in the purchase and sale of securities unless an exemptive order allowing such transactions is obtained from the SEC or an exemption is otherwise available. The Portfolio may purchase securities from underwriting syndicates of which the Distributor or Funds Management is a member under certain conditions in accordance with the provisions of a rule adopted under the 1940 Act and in compliance with procedures adopted by the Trustees.
In placing orders for portfolio securities of a Portfolio, the Portfolio's Sub-Adviser is required to give primary consideration to obtaining the most favorable price and efficient execution. This means that a Sub-Adviser will seek to execute each transaction at a price and commission, if any, that provide the most favorable total cost or proceeds reasonably attainable in the circumstances. Commission rates are established pursuant to negotiations with the broker-dealer based, in part, on the quality and quantity of execution services provided by the broker-dealer and in the light of generally prevailing rates. Furthermore, the Adviser oversees the trade execution procedures of the Sub-Adviser to ensure that such procedures are in place, that they are adhered to, and that adjustments are made to the procedures to address ongoing changes in the marketplace.
The Sub-Adviser may, in circumstances in which two or more broker-dealers are in a position to offer comparable results for a portfolio transaction, give preference to a broker-dealer that has provided statistical or other research services to the Sub-Adviser. In selecting a broker-dealer under these circumstances, the Sub-Adviser will consider, in addition to the factors listed above, the quality of the research provided by the broker-dealer.
The Sub-Adviser may pay higher commissions than those obtainable from other broker-dealers in exchange for such research services. The research services generally include: (1) furnishing advice as to the value of securities, the advisability of investing in, purchasing, or selling securities, and the advisability of securities or purchasers or sellers of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental thereto. By allocating transactions in this manner, a Sub-Adviser is able to supplement its research and analysis with the views and information of securities firms. Information so received will be in addition to, and not in lieu of, the services required to be performed by the Sub-Adviser under the advisory contracts, and the expenses of the Sub-Adviser will not necessarily be reduced as a result of the receipt of this supplemental research information. Furthermore, research services furnished by broker-dealers through which a sub-adviser places securities transactions for a Portfolio may be used by the Sub-Adviser in servicing its other accounts, and not all of these services may be used by the Sub-Adviser in connection with advising the Portfolios.
The table below shows the Portfolio's turnover rates for the two most recent fiscal years:
PORTFOLIO PORTFOLIO
TURNOVER RATE TURNOVER RATE
PORTFOLIO MAY 31, 2009 MAY 31, 2008
Conservative Allocation 153% 135%
Equity 62% 37%
Growth Allocation 119% 76%
Growth Balanced 142% 104%
Moderate Balanced 134% 109%
Tactical Equity 123%* 47%
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PORTFOLIO EXPENSES
From time to time, Funds Management may waive fees from a Portfolio in whole or in part. Any such waiver will reduce expenses and, accordingly, have a favorable impact on a Portfolio's performance.
Except for the expenses borne by Funds Management, the Trust bears all costs of its operations, including the compensation of its Trustees who are not affiliated with Funds Management or any of its affiliates; advisory, shareholder servicing and administration fees; payments pursuant to any Plan; interest charges; taxes; fees and expenses of its independent auditors, legal counsel, transfer agent and distribution disbursing agent; expenses of redeeming shares; expenses of preparing and printing prospectuses (except the expense of printing and mailing prospectuses used for promotional purposes, unless otherwise payable pursuant to a Plan), shareholders' reports, notices, proxy statements and reports to regulatory agencies; insurance premiums and certain expenses relating to insurance coverage; trade association membership dues (including membership dues in the Investment Company Institute allocable to a Portfolio); brokerage and other expenses connected with the execution of portfolio transactions; fees and expenses of its custodian, including those for keeping books and accounts and calculating the NAV per share of a Portfolio; expenses of shareholders' meetings; expenses relating to the issuance, registration and qualification of a Portfolio's shares; pricing services, organizational expenses and any extraordinary expenses. Expenses attributable to a Portfolio are charged
against Portfolio assets. General expenses of the Trust are allocated among all of the series of the Trust, including the Portfolios, in a manner proportionate to the net assets of each Portfolio, on a transactional basis, or on such other basis as the Trust's Board deems equitable.
FEDERAL INCOME TAXES
The following information supplements and should be read in conjunction with the section in the Prospectus entitled "Taxes." The Prospectus generally describes the federal income tax treatment of distributions by the Portfolios. This section of the SAI provides additional information concerning federal income taxes. It is based on the Internal Revenue Code of 1986, as amended (the "Code"), applicable Treasury Regulations, judicial authority, and administrative rulings and practice, all as of the date of this SAI and all of which are subject to change, including changes with retroactive effect. Except as specifically set forth below, the following discussion does not address any state, local or foreign tax matters.
A shareholder's tax treatment may vary depending upon the shareholder's particular situation. This discussion applies only to shareholders holding Portfolio shares as capital assets within the meaning of the Code. Except as otherwise noted, it may not apply to certain types of shareholders who may be subject to special rules, such as insurance companies, tax-exempt organizations, shareholders holding Portfolio shares through tax-advantaged accounts (such as 401(k) Plan Accounts or IRAs), financial institutions, broker-dealers, entities that are not organized under the laws of the United States or a political subdivision thereof, persons who are neither citizens nor residents of the United States, shareholders holding Portfolio shares as part of a hedge, straddle or conversion transaction, and shareholders who are subject to the federal alternative minimum tax.
The Trust has not requested and will not request an advance ruling from the Internal Revenue Service (the "IRS") as to the federal income tax matters described below. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. In addition, the following discussion and the discussions in each Prospectus applicable to each shareholder address only some of the federal income tax considerations generally affecting investments in the Portfolios. Prospective shareholders are urged to consult their own tax advisers and financial planners regarding the federal tax consequences of an investment in a Portfolio, the application of state, local or foreign laws, and the effect of any possible changes in applicable tax laws on their investment in the Portfolios.
In order to qualify as a RIC under the Code, each Portfolio must, among other things, derive at least 90% of its gross income each taxable year generally from (i) dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, and other income attributable to its business of investing in such stock, securities or foreign currencies (including, but not limited to, gains from options, futures or forward contracts) and (ii) net income derived from an interest in a qualified publicly traded partnership, as defined in the Code. Future Treasury Regulations may (possibly retroactively) exclude from qualifying income foreign currency gains that are not directly related to a Portfolio's principal business of investing in stock, securities or options and futures with respect to stock or securities. In general, for purposes of this 90% gross income requirement, income derived from a partnership will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the RIC. However, 100% of the net income derived from an interest in a qualified publicly traded partnership will be treated as qualifying income.
Each Portfolio must also diversify its holdings so that, at the end of each quarter of the Portfolio's taxable year: (i) at least 50% of the fair market value of its assets consists of (A) cash and cash items (including receivables), U.S. government securities and securities of other RICs, and (B) securities of any one issuer (other than those described in clause (A)) to the extent such securities do not exceed 5% of the value of the Portfolio's total assets and do not exceed 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Portfolio's total assets consists of the securities of any one issuer (other than those described in clause (i)(A)), the securities of two or more issuers the Portfolio controls and which are engaged in the same, similar or related trades or businesses, or the securities of one or more qualified publicly traded partnerships. In addition, for purposes of meeting this diversification requirement, the term "outstanding voting securities of such issuer" includes the equity securities of a qualified publicly traded partnership. The qualifying income and diversification requirements applicable to a Portfolio may limit the extent to which it can engage in transactions in options, futures contracts, forward contracts and swap agreements.
In addition, each Portfolio generally must distribute to its shareholders at least 90% of its investment company taxable income for the taxable year, which generally includes its ordinary income and the excess of any net short-term capital gain over net long-term capital loss, and at least 90% of its net tax-exempt interest income earned for the taxable year, if any. If a Portfolio
meets all of the RIC requirements, it generally will not be subject to federal income tax on any of the investment company taxable income and net capital gain (I.E., the excess of net long-term capital gain over net short-term capital loss) it distributes to its shareholders. For this purpose, a Portfolio generally must make the distributions in the same year that it realizes the income and gain, although in certain circumstances, a Portfolio may make the distributions in the following taxable year. Shareholders generally are taxed on any distributions from a Portfolio in the year they are actually distributed. If a Portfolio declares a distribution to shareholders of record in October, November or December of one year and pays the distribution by January 31 of the following year, however, the Portfolio and its shareholders will be treated as if the Portfolio paid the distribution by December 31 of the first taxable year. Each Portfolio intends to distribute, or be deemed to have distributed, a sufficient amount of its investment company taxable income (as described above) and net tax-exempt interest income, if any, in a timely manner to maintain its status as a RIC and eliminate portfolio-level federal income taxation of such distributed income. However, no assurance can be given that a Portfolio will not be subject to federal income tax.
Moreover, each Portfolio intends to distribute substantially all of its net capital gain. If a Portfolio retains any net capital gain, it will be subject to a tax at corporate rates on the amount of net capital gain retained, but may designate the retained amount as undistributed capital gain in a notice to its shareholders, who (i) will be required to include in income for federal income tax purposes, as long-term capital gain, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Portfolio on such undistributed amount against their federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For federal income tax purposes, the tax basis of shares owned by a shareholder of the Portfolio will be increased by an amount equal to the difference between the amount of undistributed capital gain included in the shareholder's gross income and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence.
If, for any taxable year, a Portfolio fails to qualify as a RIC under the Code or fails to meet the distribution requirements, it will be taxed in the same manner as an ordinary corporation without any deduction for its distributions to shareholders, and all distributions from the Portfolio's current and accumulated earnings and profits (including any distributions of its net tax-exempt income and net long-term capital gain) to its shareholders will be taxable to shareholders as dividend income. To re-qualify to be taxed as a RIC in a subsequent year, the Portfolio may be required to distribute to its shareholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Portfolio to the IRS. In addition, if a Portfolio which had previously qualified as a RIC were to fail to qualify as a RIC for a period greater than two taxable years, the Portfolio generally would be required to recognize and pay tax on any net built-in gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Portfolio had been liquidated) or, alternatively, to be subject to tax on such built-in gain recognized for a period of ten years, in order to re-qualify as a RIC in a subsequent year.
As of May 31, 2009, the following Portfolios had capital loss carry-forwards approximating the amount indicated for federal income tax purposes, expiring in the year indicated:
Fund Year Expires Capital Loss Carry-Forwards Tactical Equity Portfolio 2017 $63,879,487 Equity Portfolio 2017 $ 5,904,385 Growth Balanced Portfolio 2017 $44,040,467 Conservative Allocation Portfolio 2017 $ 3,040,712 Growth Allocation Portfolio 2017 $14,320,404 Moderate Balanced Portfolio 2017 $11,827,450 |
If a Portfolio engages in a reorganization, either as an acquiring fund or acquired fund, its capital loss carry-forwards (if any), its unrealized losses (if any), and any such losses of other funds participating in the reorganization may be subject to severe
limitations that could make such losses substantially unusable. The Portfolios have engaged in reorganizations in the past and/or may engage in reorganizations in the future.
If an Underlying Fund purchases a debt obligation with original issue discount ("OID") (generally, a debt obligation with a purchase price less than its principal amount, such as a zero-coupon bond), the Underlying Fund may be required to annually include in its taxable income a portion of the OID as ordinary income, even though the Underlying Fund will not receive cash payments for such discount until maturity or disposition of the obligation. Inflation-protected bonds generally can be expected to produce OID income as their principal amounts are adjusted upward for inflation. A portion of the OID includible in income with respect to certain high-yield corporate discount obligations may be treated as a dividend for federal income tax purposes. In general, gains recognized on the disposition of a debt obligation (including a municipal obligation) purchased by an Underlying Fund at a market discount, generally at a price less than its principal amount, will be treated as ordinary income to the extent of the portion of market discount which accrued, but was not previously recognized pursuant to an available election, during the term that the Underlying Fund held the debt obligation. An Underlying Fund generally will be required to make distributions to shareholders representing the OID income on debt obligations that is currently includible in income, even though the cash representing such income may not have been received by an Underlying Fund. Cash to pay such distributions may be obtained from borrowing or from sales proceeds of securities held by the Underlying Fund which an Underlying Fund otherwise might have continued to hold; obtaining such cash might be disadvantageous for the Underlying Fund.
In addition, payment-in-kind securities similarly will give rise to income which is required to be distributed and is taxable even though an Underlying Fund holding such a security receives no interest payment in cash on the security during the year.
If an Underlying Fund invests in debt obligations that are in the lowest rating categories or are unrated, including debt obligations of issuers not currently paying interest or who are in default, special tax issues may exist for the Underlying Fund. Tax rules are not entirely clear about issues such as when an Underlying Fund may cease to accrue interest, OID, or market discount, when and to what extent deductions may be taken for bad debts or worthless securities, and how payments received on obligations in default should be allocated between principal and income. These and other related issues will be addressed by an Underlying Fund when, as, and if it invests in such securities, in order to seek to ensure that it distributes sufficient income to preserve its status as a RIC and does not become subject to U.S. federal income or excise tax.
If an option granted by an Underlying Fund is sold, lapses or is otherwise terminated through a closing transaction, such as a repurchase by the Underlying Fund of the option from its holder, the Underlying Fund will realize a short-term capital gain or loss, depending on whether the premium income is greater or less than the amount paid by the Underlying Fund in the closing transaction. Some capital losses realized by an Underlying Fund in the sale, exchange, exercise, or other disposition of an option may be deferred if they result from a position that is part of a "straddle," discussed below. If securities are sold by an Underlying Fund pursuant to the exercise of a covered call option granted by it, the Underlying Fund generally will add the premium received to the sale price of the securities delivered in determining the amount of gain or loss on the sale. If securities are purchased by an Underlying Fund pursuant to the exercise of a put option written by it, the Underlying Fund generally will subtract the premium received from its cost basis in the securities purchased.
Some regulated futures contracts, certain foreign currency contracts, and non-equity, listed options used by an Underlying Fund will be deemed "Section 1256 contracts." An Underlying Fund will be required to "mark-to-market" any such contracts held at the end of the taxable year by treating them as if they had been sold on the last day of that year at market value. Sixty percent of any net gain or loss realized on all dispositions of Section 1256 contracts, including deemed dispositions under the "mark-to-market" rule, generally will be treated as long-term capital gain or loss, and the remaining 40% will be treated as short-term
capital gain or loss, although certain foreign currency gains and losses from such contracts may be treated as ordinary income or loss (as described below). These provisions may require an Underlying Fund to recognize income or gains without a concurrent receipt of cash. Transactions that qualify as designated hedges are exempt from the mark-to-market rule and the "60%/40%" rule and may require the Underlying Fund to defer the recognition of losses on certain futures contracts, foreign currency contracts and non-equity options.
Foreign currency gains and losses realized by an Underlying Fund in
connection with certain transactions involving foreign currency-denominated
debt obligations, certain options, futures contracts, forward contracts, and
similar instruments relating to foreign currency, foreign currencies, or
payables or receivables denominated in a foreign currency are subject to
Section 988 of the Code, which generally causes such gains and losses to be
treated as ordinary income or loss and may affect the amount and timing of
recognition of the Portfolio's income. Under future Treasury Regulations, any
such transactions that are not directly related to an Underlying Fund's
investments in stock or securities (or its options contracts or futures
contracts with respect to stock or securities) may have to be limited in order
to enable the Underlying Fund to satisfy the 90% income test described above.
If the net foreign currency loss exceeds an Underlying Fund's net investment
company taxable income (computed without regard to such loss) for a taxable
year, the resulting ordinary loss for such year will not be deductible by the
Underlying Fund or its shareholders in future years.
Offsetting positions held by an Underlying Fund involving certain derivative instruments, such as financial forward, futures, and options contracts, may be considered, for federal income tax purposes, to constitute "straddles." "Straddles" are defined to include "offsetting positions" in actively traded personal property. The tax treatment of "straddles" is governed by Section 1092 of the Code which, in certain circumstances, overrides or modifies the provisions of Section 1256. If an Underlying Fund is treated as entering into a "straddle" and at least one (but not all) of the Underlying Fund's positions in derivative contracts comprising a part of such straddle is governed by Section 1256 of the Code, described above, then such straddle could be characterized as a "mixed straddle." An Underlying Fund may make one or more elections with respect to "mixed straddles." Depending upon which election is made, if any, the results with respect to an Underlying Fund may differ. Generally, to the extent the straddle rules apply to positions established by an Underlying Fund, losses realized by the Underlying Fund may be deferred to the extent of unrealized gain in any offsetting positions. Moreover, as a result of the straddle rules, short-term capital loss on straddle positions may be recharacterized as long-term capital loss, and long-term capital gain may be characterized as short-term capital gain. In addition, the existence of a straddle may affect the holding period of the offsetting positions. As a result, the straddle rules could cause distributions that would otherwise constitute qualified dividend income to fail to satisfy the applicable holding period requirements and therefore to be taxed as ordinary income. Furthermore, the Underlying Fund may be required to capitalize, rather than deduct currently, any interest expense and carrying charges applicable to a position that is part of a straddle, including any interest expense on indebtedness incurred or continued to purchase or carry any positions that are part of a straddle. Because the application of the straddle rules may affect the character and timing of gains and losses from affected straddle positions, the amount which must be distributed to shareholders, and which will be taxed to shareholders as ordinary income or long-term capital gain, may be increased or decreased substantially as compared to the situation where an Underlying Fund had not engaged in such transactions.
If an Underlying Fund enters into a "constructive sale" of any appreciated
financial position in stock, a partnership interest, or certain debt
instruments, the Underlying Fund will be treated as if it had sold and
immediately repurchased the property and must recognize gain (but not loss)
with respect to that position. A constructive sale of an appreciated financial
position occurs when an Underlying Fund enters into certain offsetting
transactions with respect to the same or substantially identical property,
including: (i) a short sale; (ii) an offsetting notional principal contract;
(iii) a futures or forward contract; or (iv) other transactions identified in
future Treasury Regulations. The character of the gain from constructive sales
will depend upon an Underlying Fund's holding period in the appreciated
financial position. Losses realized from a sale of a position that was
previously the subject of a constructive sale will be recognized when the
position is subsequently disposed of. The character of such losses will depend
upon an Underlying Fund's holding period in the position and the application of
various loss deferral provisions in the Code. Constructive sale treatment does
not apply to certain closed transactions, including if such a transaction is
closed on or before the 30th day after the close of the Underlying Fund's
taxable year and the Underlying Fund holds the appreciated financial position
unhedged throughout the 60-day period beginning with the day such transaction
was closed.
The amount of long-term capital gain an Underlying Fund may recognize from certain derivative transactions with respect to interests in certain pass-through entities is limited under the Code's constructive ownership rules. The amount of long-term capital gain is limited to the amount of such gain an Underlying Fund would have had if the Underlying Fund directly invested in the pass-through entity during the term of the derivative contract. Any gain in excess of this amount is treated as ordinary income. An interest charge is imposed on the amount of gain that is treated as ordinary income.
In addition, an Underlying Fund's transactions in securities and certain types of derivatives (E.G., options, futures contracts, forward contracts, and swap agreements) may be subject to other special tax rules, such as the wash sale rules or the short sale rules, the effect of which may be to accelerate income to the Underlying Fund, defer losses to the Underlying Fund, cause adjustments to the holding periods of the Underlying Fund's securities, convert long-term capital gains into short-term capital
gains, and/or convert short-term capital losses into long-term capital losses. These rules could therefore affect the amount, timing, and character of distributions to shareholders.
Certain of an Underlying Fund's hedging activities (including its
transactions, if any, in foreign currencies or foreign currency-denominated
instruments) are likely to produce a difference between its book income and its
taxable income. If an Underlying Fund's book income exceeds its taxable income,
the distribution (if any) of such excess generally will be treated as (i) a
dividend to the extent of the Underlying Fund's remaining earnings and profits
(including earnings and profits arising from tax-exempt income), (ii)
thereafter, as a return of capital up to the amount of the Portfolio's tax
basis in its Underlying Fund Underlying Fund shares, and (iii) thereafter, as
capital gain. If an Underlying Fund's book income is less than taxable income,
the Underlying Fund could be required to make distributions exceeding book
income in order to qualify as a RIC.
Rules governing the federal income tax aspects of derivatives, including swap agreements, are in a developing stage and are not entirely clear in certain respects, particularly in light of a 2006 IRS revenue ruling that held that income from a derivative contract with respect to a commodity index is not qualifying income for a RIC. Accordingly, while each Underlying Fund intends to account for such transactions in a manner it deems appropriate, the IRS might not accept such treatment. If it did not, the status of an Underlying Fund (as well as a Portfolio investing in such Underlying Fund) as a RIC might be jeopardized. Certain requirements that must be met under the Code in order for each Underlying Fund to qualify as a RIC may limit the extent to which an Underlying Fund will be able to engage in derivatives transactions.
An Underlying Fund may invest in REITs. Investments in REIT equity securities may require an Underlying Fund to accrue and distribute income not yet received. To generate sufficient cash to make the requisite distributions, the Underlying Fund may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. An Underlying Fund's investments in REIT equity securities may at other times result in the Underlying Fund's receipt of cash in excess of the REIT's earnings if the Underlying Fund distributes these amounts, these distributions could constitute a return of capital to Underlying Fund shareholders for federal income tax purposes. Dividends received by the Underlying Fund from a REIT generally will not constitute qualified dividend income and will not qualify for the dividends-received deduction.
An Underlying Fund may invest directly or indirectly (e.g., through a REIT) in residual interests in real estate mortgage investment conduits ("REMICs") or in REITs or qualified REIT subsidiaries that are taxable mortgage pools ("REIT TMPs"). Under recent IRS guidance, an Underlying Fund must allocate "excess inclusion income" received directly or indirectly from REMIC residual interests or REIT TMPs to its shareholders in proportion to dividends paid to such shareholders, with the same consequences as if the shareholders had invested in the REMIC residual interests or REIT TMPs directly.
In general, excess inclusion income allocated to shareholders (i) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (ii) constitutes unrelated business taxable income ("UBTI") to Keogh, 401(k) and qualified pension plans, as well as IRAs and certain other tax exempt entities, thereby potentially requiring such an entity, which otherwise might not be required to file a tax return, to file a tax return and pay tax on such income, and (iii) in the case of a foreign shareholder, does not qualify for any reduction, by treaty or otherwise, in the 30% federal withholding tax. In addition, if at any time during any taxable year a "disqualified organization" (as defined in the Code) is a record holder of a share in an Underlying Fund, then the Underlying Fund will be subject to a tax equal to that portion of its excess inclusion income for the taxable year that is allocable to the disqualified organization, multiplied by the highest federal corporate income tax rate. To the extent permitted under the Investment Act of 1940, an Underlying Fund may elect to specially allocate any such tax to the applicable disqualified organization, and thus reduce such shareholder's distributions for the year by the amount of the tax that relates to such shareholder's interest in the Underlying Fund. The Underlying Funds have not yet determined whether such an election will be made.
"Passive foreign investment companies" ("PFICs") are generally defined as foreign corporations with respect to which at least 75% of their gross income for their taxable year is income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or at least 50% of their assets on average produce such passive income. If an Underlying Fund acquires any equity interest in a PFIC, the Underlying Fund could be subject to federal income tax and interest charges on "excess distributions" received from the PFIC or on gain from the sale of such equity interest in the PFIC, even if all income or gain actually received by the Underlying Fund is timely distributed to its shareholders. Excess distributions maybe characterized as ordinary income even though, absent the application of PFIC rules, these amounts may have been classified as capital gain.
An Underlying Fund will not be permitted to pass through to its shareholders any credit or deduction for taxes and interest charges incurred with respect to PFICs. Elections may be available that would ameliorate these adverse tax consequences, but such elections could require an Underlying Fund to recognize taxable income or gain without the concurrent receipt of cash. Investments in PFICs could also result in the treatment of associated capital gains as ordinary income. The Underlying Funds may attempt to limit and/or manage their holdings in PFICs to minimize their tax liability or maximize their returns from these investments but there can be no assurance that they will be able to do so. Moreover, because it is not always possible to identify a
foreign corporation as a PFIC in advance of acquiring shares in the corporation, an Underlying Fund may incur the tax and interest charges described above in some instances. Dividends paid by PFICs will not be eligible to be treated as qualified dividend income.
In addition to the investments described above, prospective shareholders should be aware that other investments made by the Underlying Funds may involve complex tax rules that may result in income or gain recognition by the Underlying Funds without corresponding current cash receipts. If the Underlying Funds recognize any noncash income, the Underlying Funds may distribute cash derived from other sources in order to meet the minimum distribution requirements described above. In this regard, the Underlying Funds could be required at times to liquidate investments prematurely in order to satisfy their minimum distribution requirements.
Considerations similar to those set forth above would apply to any investments made directly by a Portfolio. In addition, a Portfolio may receive taxable income or gain upon the receipt of distributions from an Underlying Fund or upon a sale, exchange or redemption of shares in an Underlying Fund. A redemption of shares in an Underlying Fund may be characterized as a dividend (taxable as ordinary income rather than capital gain) to the extent provided in the Code and Treasury Regulations.
For federal income tax purposes, distributions of investment income are generally taxable as ordinary income, and distributions of gains from the sale of investments that a Portfolio owned for one year or less will be taxable as ordinary income. Distributions properly designated by a Portfolio as capital gain dividends will be taxable to shareholders as long-term capital gain (to the extent such distributions do not exceed the Portfolio's actual net long-term capital gain for the taxable year), regardless of how long a shareholder has held Portfolio shares, and do not qualify as dividends for purposes of the dividends-received deduction or as qualified dividend income. Each Portfolio will designate capital gain dividends, if any, in a written notice mailed by the Portfolio to its shareholders not later than 60 days after the close of the Portfolio's taxable year.
Income and capital gain received by a Portfolio from an Underlying Fund generally will be distributed by the Portfolio (after deductions for the Portfolio's allowable losses and expenses) and generally will be taxable to shareholders as described above. However, special rules may apply to Portfolio distributions attributable to Underlying Fund distributions and the extent to which such Portfolio distributions may result in qualified dividend income, the dividends-received deduction, and other tax consequences discussed herein. Accordingly, the tax consequences of an investment in a Portfolio may differ from, and may be less favorable than, the tax consequences of a direct investment in an Underlying Fund.
Some states will not tax distributions made to individual shareholders that are attributable to interest a Portfolio earned on direct obligations of the U.S. government if the Portfolio meets the state's minimum investment or reporting requirements, if any. Investments in GNMA or FNMA securities, bankers' acceptances, commercial paper and repurchase agreements collateralized by U.S. government securities generally do not qualify for tax-free treatment. This exemption may not apply to corporate shareholders.
If a shareholder sells or exchanges Portfolio shares within 90 days of having acquired such shares and if, as a result of having initially acquired those shares, the shareholder subsequently pays a reduced sales charge on a new purchase of shares of the Fund or a different RIC, the sales charge previously incurred in acquiring the Portfolio's shares generally shall not be taken into account (to the extent the previously incurred charges do not exceed the reduction in sales charges on the new purchase) for the purpose of determining the amount of gain or loss on the disposition, but generally will be treated as having been incurred in the new purchase. Also, if a shareholder realizes a loss on a disposition of Portfolio shares, the loss will be disallowed under the "wash sale" rules to the extent the shareholder purchases substantially identical shares within the 61-day period beginning 30 days before and ending 30 days after the disposition. Any disallowed loss generally will be reflected in an adjustment to the tax basis of the purchased shares.
If a shareholder receives, or is deemed to receive, a capital gain dividend with respect to any Portfolio share and such Portfolio share is held for six months or less, then (unless otherwise disallowed) any loss on the sale or exchange of that Portfolio share will be treated as a long-term capital loss to the extent of the capital gain dividend. If such loss is incurred from the redemption of shares pursuant to a periodic redemption plan then Treasury Regulations may permit an exception to this six-month rule. No such regulations have been issued as of the date of this SAI.
Current federal income tax law also provides for a maximum individual federal income tax rate applicable to "qualified dividend income" equal to the highest net long-term capital gains rate, which generally is 15%. In general, "qualified dividend income" is income attributable to dividends received by a Portfolio in taxable years beginning on or before December 31, 2010, from certain domestic and foreign corporations, as long as certain holding period and other requirements are met by the Portfolio with respect to the dividend-paying corporation's stock and by the shareholders with respect to the Portfolio's shares. If 95% or more of a Portfolio's gross income (excluding net long-term capital gain over net short-term capital loss) constitutes qualified dividend income, all of its distributions (other than capital gain dividends) will be generally treated as qualified dividend income in the hands of individual shareholders, as long as they have owned their Portfolio shares for at least 61 days during the 121-day period beginning 60 days before the Portfolio's ex-dividend date (or, in the case of certain preferred stock, 91 days during the 181-day period beginning 90 days before such date). In general, if less than 95% of a Portfolio's income is attributable to qualified dividend income, then only the portion of the Portfolio's distributions that is attributable to qualified dividend income and designated as such in a timely manner will be so treated in the hands of individual shareholders. Payments received by a Portfolio from securities lending, repurchase, and other derivative transactions ordinarily will not qualify. The rules attributable to the qualification of Portfolio distributions as qualified dividend income are complex, including the holding period requirements. Individual Portfolio shareholders therefore are urged to consult their own tax advisers and financial planners.
The maximum stated corporate federal income tax rate applicable to ordinary income and net capital gain is 35%. Actual marginal tax rates may be higher for some shareholders, for example, through reductions in deductions. Naturally, the amount of tax payable by any taxpayer will be affected by a combination of tax laws covering, for example, deductions, credits, deferrals, exemptions, sources of income and other matters. Federal income tax rates are set to increase in future years under various "sunset" provisions of federal income tax laws.
A portion of the interest paid or accrued on certain high-yield discount obligations owned by a Portfolio may not be deductible to the issuer. If a portion of the interest paid or accrued on certain high-yield discount obligations is not deductible, that portion will be treated as a dividend for purposes of the corporate dividends-received deduction if certain requirements are met. In such cases, if the issuer of the high-yield discount obligations is a domestic corporation, dividend payments by a Portfolio may be eligible for the dividends-received deduction to the extent of the dividend portion of such interest.
Generally, subject to certain exceptions described below, distributions made to foreign shareholders will be subject to non-refundable federal income tax withholding at a 30% rate (or such lower rate provided under an applicable income tax treaty, except in the case of excess inclusion income, which does not qualify for any treaty exemption or reduction), even if they are funded by income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that, if paid to a foreign person directly, would not be subject to withholding. However, for taxable years of a Portfolio beginning before January 1, 2008, distributions made to exempt foreign shareholders and properly designated by a Portfolio as "interest-related dividends" will be exempt from federal income tax withholding. Interest-related dividends are generally attributable to the Portfolio's net interest income earned on certain debt obligations and paid to foreign shareholders. In order to qualify as an interest-related dividend, the Portfolio must designate a distribution as such in a written notice mailed to its shareholders not later than 60 days after the close of the Portfolio's taxable year. Notwithstanding the foregoing, if any distribution described above is "effectively connected" with a U.S. trade or business (or, if an applicable income tax treaty so requires, is attributable to a permanent establishment) of the recipient foreign shareholder, neither federal income tax withholding nor the exemption for interest-related dividends will apply, the distribution will be subject to the tax, withholding, and reporting requirements generally applicable to U.S. shareholders and an additional branch profits tax may apply if the foreign shareholder is a foreign corporation.
In general, a foreign shareholder's capital gains realized on the disposition of Portfolio shares, capital gain dividends and, with respect to taxable years of a Portfolio beginning before January 1, 2010, "short-term capital gain dividends" (defined below) are not subject to federal income or withholding tax, provided that the Portfolio obtains a properly completed and signed certificate of foreign status, unless: (i) such gains or distributions are effectively connected with a U.S. trade or business (or, if an applicable income tax treaty so requires, are attributable to a permanent establishment) of the foreign shareholder; (ii) in the case of an individual foreign shareholder, the shareholder is present in the U.S. for a period or periods aggregating 183 days or more during the year of the disposition of Portfolio shares or the receipt of capital gain dividends and certain other conditions are met; or (iii) the Portfolio shares on which the foreign shareholder realized gain constitute U.S. real property interests ("USRPIs," defined below) or, in certain cases, distributions are attributable to gain from the sale or exchange of a USRPI. If the requirements of clause (i) are met, the tax, withholding, and reporting requirements applicable to U.S. shareholders generally will apply to the foreign shareholder, and an additional branch profits tax may apply if the foreign shareholder is a foreign corporation. If the requirements of clause (i) are not met but the requirements of clause (ii) are met, such gains and distributions will be subject to federal income tax at a 30% rate (or such lower rate provided under an applicable income tax treaty). If the requirements of clause (iii) are met, the foreign shareholder may be subject to certain tax, withholding, and/or reporting requirements, depending in part on whether the foreign shareholder holds (or has held in the prior 12 months) more than a 5% interest in the Portfolio. "Short-term capital gain dividends" are distributions attributable to a Funds' net short-term capital gain in excess of its net long-term capital loss and designated as such by the Portfolio in a written notice mailed by the Portfolio to its shareholders not later than 60 days after the close of the Portfolio's taxable year.
"Short-term capital gain dividends" are distributions attributable to a Portfolio's net short-term capital gain in excess of its net long-term capital loss and designated as such by the Portfolio in a written notice mailed by the Portfolio to its shareholders not later than 60 days after the close of the Portfolio's taxable year. Subject to certain exceptions, a "USRPI" is generally defined as (i) an interest in real property located in the United States or the Virgin Islands, or (ii) any interest (other than solely as a creditor) in a domestic corporation that was a U.S. real property holding corporation (as defined in the Code) at any time during the shorter of the five-year period ending on the testing date or the period during which the interest was held.
In order to qualify for any exemptions from withholding described above or for lower withholding tax rates under income tax treaties, a foreign shareholder must comply with applicable certification requirements relating to its foreign status (including, in general, furnishing an IRS Form W-8BEN or substitute form). Foreign shareholders should consult their tax advisers in this regard.
In the case of shares held through an intermediary, even if a Portfolio makes a designation with respect to a payment, no assurance can be made that the intermediary will respect such a designation. Foreign shareholders should contact their intermediaries regarding the application of these rules to their accounts.
Even if permitted to do so, the Portfolios provide no assurance that they will designate any distributions as interest-related dividends or short-term capital gain dividends.
Special tax rules apply to distributions that a qualified investment entity ("QIE") makes to foreign shareholders that are attributable to gain from the QIE's sale or exchange of a USRPI. Special tax rules also apply to the sale of shares in a U.S. real property holding corporation ("USRPHC"). However, the Portfolios do not expect such special tax rules to apply because the Portfolios do not expect to be QIEs or USRPHCs.
Special rules apply to foreign partnerships and those holding Portfolio shares through foreign partnerships.
As discussed above, distributions and redemption proceeds paid or credited to a foreign shareholder are generally exempt from backup withholding. However, a foreign shareholder may be required to establish that exemption by providing certification of foreign status on an appropriate IRS Form W-8.
Any investment in residual interests of a collateralized mortgage obligation that has elected to be treated as a REMIC can create complex tax consequences, especially if a Portfolio has state or local governments or other tax-exempt organizations as shareholders.
Special tax consequences apply to charitable remainder trusts ("CRTs") (as defined in Section 664 of the Code) that invest in RICs that invest directly or indirectly in residual interests in REMICs or equity interests in REIT TMPs. CRTs are urged to consult their own tax advisers and financial planners concerning these special tax consequences.
PROXY VOTING POLICIES AND PROCEDURES
The Trusts and Funds Management have adopted policies and procedures ("Procedures") that are used to vote proxies relating to portfolio securities held by the Portfolios of the Trusts. The Procedures are designed to ensure that proxies are voted in the best interests of Portfolio shareholders, without regard to any relationship that any affiliated person of the Portfolio (or an affiliated person of such affiliated person) may have with the issuer of the security.
The responsibility for voting proxies relating to the Portfolios' portfolio securities has been delegated to Funds Management. In accordance with the Procedures, Funds Management exercises its voting responsibility with the goal of maximizing value to shareholders consistent with governing laws and the investment policies of each Portfolio. While each Portfolio does not purchase securities to exercise control or to seek to effect corporate change through share ownership, it supports sound corporate governance practices within companies in which it invests and reflects that support through its proxy voting process.
Funds Management has established a Proxy Voting Committee (the "Proxy Committee") that is responsible for overseeing the proxy voting process and ensuring that the voting process is implemented in conformance with the Procedures. Funds Management has retained an independent, unaffiliated nationally recognized proxy voting company, as proxy voting agent. The Proxy Committee monitors the proxy voting agent and the voting process and, in certain situations, votes proxies or directs the proxy voting agent how to vote.
The Procedures set out guidelines regarding how Funds Management and the proxy voting agent will vote proxies. Where the guidelines specify a particular vote on a particular matter, the proxy voting agent handles the proxy, generally without further involvement by the Proxy Committee. Where the guidelines specify a case-by-case determination, or where a particular issue is not addressed in the guidelines, the proxy voting agent forwards the proxy to the Proxy Committee for a vote determination by the Proxy Committee. In addition, even where the guidelines specify a particular vote, the Proxy Committee may exercise a discretionary vote if it determines that a case-by-case review of a particular matter is warranted. As a general matter, proxies are voted consistently in the same matter when securities of an issuer are held by multiple Portfolios of the Trusts. However, proxies for securities held by the Social Sustainability Fund related to social and environmental proposals will be voted pursuant to
RiskMetrics Group's ("RMG") then current SRI Proxy Voting Guidelines. Accordingly, the Social Sustainability Fund may vote its proxies related to social and environmental proposals differently than the other Funds.
The Procedures set forth Funds Management's general position on various proposals, such as:
In all cases where the Proxy Committee makes the decision regarding how a particular proxy should be voted, the Proxy Committee exercises its voting discretion in accordance with the voting philosophy of the Portfolios and in the best interests of Portfolio shareholders. In deciding how to vote, the Proxy Committee may rely on independent research, input and recommendations from third parties including independent proxy services, other independent sources, investment sub-advisers, company managements and shareholder groups as part of its decision-making process.
In most cases, any potential conflicts of interest involving Funds Management or any affiliate regarding a proxy are avoided through the strict and objective application of the Portfolio's voting guidelines. However, when the Proxy Committee is aware of a material conflict of interest regarding a matter that would otherwise be considered on a case-by-case basis by the Proxy Committee, the Proxy Committee shall address the material conflict by using any of the following methods: (i) instructing the proxy voting agent to vote in accordance with the recommendation it makes to its clients; (ii) disclosing the conflict to the Board and obtaining their consent before voting; (iii) submitting the matter to the Board to exercise its authority to vote on such matter; (iv) engaging an independent fiduciary who will direct the Proxy Committee on voting instructions for the proxy; (v) consulting with outside legal counsel for guidance on resolution of the conflict of interest; (vi) erecting information barriers around the person or persons making voting decisions; (vii) voting in proportion to other shareholders; or (viii) voting in other ways that are consistent with each Portfolio's obligation to vote in the best interests of its shareholders. Additionally, the Proxy Committee does not permit its votes to be influenced by any conflict of interest that exists for any other affiliated person of the Portfolios (such as a sub-adviser or principal underwriter) and the Proxy Committee votes all such matters without regard to the conflict. The Procedures may reflect voting positions that differ from practices followed by other companies or subsidiaries of Wells Fargo & Company.
While Funds Management uses its best efforts to vote proxies, in certain circumstances it may be impractical or impossible for Funds Management to vote proxies (E.G., limited value or unjustifiable costs). For example, in accordance with local law or business practices, many foreign companies prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting ("share blocking"). Due to these restrictions, Funds Management must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. As a result, Funds Management will generally not vote those proxies in the absence of an unusual, significant vote or compelling economic importance. Additionally, Funds Management may not be able to vote proxies for certain foreign securities if Funds Management does not receive the proxy statement in time to vote the proxies due to custodial processing delays.
As a general matter, securities on loan will not be recalled to facilitate proxy voting (in which case the borrower of the security shall be entitled to vote the proxy). However, if the Proxy Committee is aware of an item in time to recall the security and has determined in good faith that the importance of the matter to be voted upon outweighs the loss in lending revenue that would result from recalling the security (I.E., if there is a controversial upcoming merger or acquisition, or some other significant matter), the security will be recalled for voting.
Information regarding how the Portfolios voted proxies relating to portfolio securities held during the most recent 12-month period ended June 30 may be obtained on the Portfolios' Web site at www.wellsfargo.com/advantagefunds or by accessing the SEC's Web site at www.sec.gov.
POLICIES AND PROCEDURES FOR DISCLOSURE OF FUND PORTFOLIO HOLDINGS
Fargo Funds Trust ("Funds Trust"), Wells Fargo Master Trust ("Master Trust") and Wells Fargo Variable Trust ("Variable Trust") (each of Funds Trust, Master Trust and Variable Trust referred to collectively herein as the "Funds" or individually as the "Fund") now existing or hereafter created.
Under no circumstances shall Funds Management or the Funds receive any compensation in return for the disclosure of information about a Fund's portfolio securities or for any ongoing arrangements to make available information about a Fund's portfolio securities.
1. The underlying funds held by a fund that operates as a fund of funds shall be posted to the Funds' website and included in fund fact sheets on a monthly, seven-day or more delayed basis.
2. A change to the underlying funds held by a Fund in a fund of funds structure or changes in a Fund's target allocations between or among its fixed-income and/or equity investments may be posted to the Funds' website simultaneous with the change.
Furthermore, as required by the SEC, each Fund (except money market funds) shall file its complete portfolio holdings schedule in public filings made with the SEC on a quarterly basis. Each Fund, (including money market funds) is required to file its complete portfolio schedules for the second and fourth fiscal quarter on Form N-CSR, and each Fund (except money market funds) is required to file its complete portfolio schedules for the first and third fiscal quarters on From N-Q, in each instance within 60 days of the end of the Fund's fiscal quarter. Through Form N-CSR and Form N-Q filings made with the SEC, the Funds' full portfolio holdings will be publicly available to shareholders on a quarterly basis. Such filings shall be made on or shortly before the 60th day following the end of a fiscal quarter.
Each Fund's complete portfolio schedules for the second and fourth fiscal quarter, required to be filed on Form N-CSR, shall be delivered to shareholders in the Fund's semi-annual and annual reports. Each Fund's complete portfolio schedule for the first and third fiscal quarters, required to be filed on Form N-Q, will not be delivered to shareholders. Each Fund, however, shall include appropriate disclosure in its semi-annual and annual reports as to how a shareholder may obtain holdings information for the Fund's first and third fiscal quarters.
Advantage Funds for purposes of anticipating money market sweep activity which in turn helps to enhance liquidity management within the money market funds.
Certain of the information described above will be included in quarterly fund commentaries and will contain information that includes, among other things, top contributors/detractors from fund performance and significant portfolio changes during the calendar quarter. This information will be posted contemporaneously with their distribution on the Funds' website.
No person shall receive any of the information described above if, in the sole judgment of Funds Management, the information could be used in a manner that would be harmful to the Funds.
CAPITAL STOCK
The Portfolios are six series of the Trust in the Wells Fargo Advantage family of funds. The Trust was organized as a Delaware statutory trust on March 10, 1999.
Most of the Trust's series are authorized to issue multiple classes of shares, one class generally subject to a front-end sales charge and, in some cases, classes subject to a CDSC, that are offered to retail investors. Certain of the Trust's series also are authorized to issue other classes of shares, which are sold primarily to institutional investors. Each share in a series represents an equal, proportionate interest in the series with all other shares. Shareholders bear their pro rata portion of a series' operating
expenses, except for certain class-specific expenses (E.G., any state securities registration fees, shareholder servicing fees or distribution fees that may be paid under Rule 12b-1) that are allocated to a particular class. Please contact Investor Services at 1-800-222-8222 if you would like additional information about other series or classes of shares offered.
All shares of a Portfolio have equal voting rights and will be voted in the aggregate, and not by series, except where voting by a series is required by law or where the matter involved only affects one series. For example, a change in a Portfolio's fundamental investment policy affects only one series and would be voted upon only by shareholders of the Portfolio involved. Additionally, approval of an advisory agreement, since it affects only one Portfolio, is a matter to be determined separately by each series. Approval by the shareholders of one series is effective as to that series whether or not sufficient votes are received from the shareholders of the other series to approve the proposal as to those series.
As used in the Prospectus and in this SAI, the term "majority," when referring to approvals to be obtained from shareholders of a Portfolio means the vote of the lesser of (i) 67% of the shares of the Portfolio represented at a meeting if the holders of more than 50% of the outstanding shares of the Portfolio are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio. The term "majority," when referring to approvals to be obtained from shareholders of the Portfolio, means the vote of the lesser of (i) 67% of the shares of the Portfolio represented at a meeting if the holders of more than 50% of the outstanding shares of the Portfolio are present in person or by proxy, or (ii) more than 50% of the outstanding shares of the Portfolio. The term "majority," when referring to the approvals to be obtained from shareholders of the Trust as a whole, means the vote of the lesser of (i) 67% of the Trust's shares represented at a meeting if the holders of more than 50% of the Trust's outstanding shares are present in person or by proxy, or (ii) more than 50% of the Trust's outstanding shares.
Shareholders are not entitled to any preemptive rights. All shares are issued in uncertificated form only, and, when issued will be fully paid and non-assessable by the Trust. The Trust may dispense with an annual meeting of shareholders in any year in which it is not required to elect Trustees under the 1940 Act.
Each share of a class of a Portfolio represents an equal proportional interest in the Portfolio with each other share of the same class and is entitled to such dividends and distributions out of the income earned on the assets belonging to the Portfolio as are declared in the discretion of the Trustees. In the event of the liquidation or dissolution of the Trust, shareholders of a Portfolio are entitled to receive the assets attributable to that Portfolio that are available for distribution, and a distribution of any general assets not attributable to a particular Portfolio that are available for distribution in such manner and on such basis as the Trustees in their sole discretion may determine.
Set forth below as of September 2, 2009, is the name, address and share ownership of each person with record ownership of 5% or more of the voting securities of a Portfolio and each person known by the Trust to have beneficial ownership of 25% or more of the voting securities of the Portfolio. Except as identified below, no person with record ownership of 5% or more of a Portfolio is known by the Trust to have beneficial ownership of such shares.
5% OWNERSHIP AS OF SEPTEMBER 2, 2009
PERCENTAGE
OF
PORTFOLIO NAME AND ADDRESS PORTFOLIO
------------------------- -------------------------------- -----------
CONSERVATIVE ALLOCATION AMERICAN ENTERPRISE INVESTMENT 28.98%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
EQUITY AMERICAN ENTERPRISE INVESTMENT 18.82%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
GROWTH ALLOCATION AMERICAN ENTERPRISE INVESTMENT 32.61%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
GROWTH BALANCED AMERICAN ENTERPRISE INVESTMENT 25.77%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
|
PERCENTAGE
OF
PORTFOLIO NAME AND ADDRESS PORTFOLIO
------------------- -------------------------------- -----------
MODERATE BALANCED AMERICAN ENTERPRISE INVESTMENT 43.80%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
TACTICAL EQUITY AMERICAN ENTERPRISE INVESTMENT 21.46%
SERVICES FBO
PO BOX 9446
MINNEAPOLIS MN 55440-9446
|
For purposes of the 1940 Act, any person who owns directly or through one or more controlled companies more than 25% of the voting securities of a company is presumed to "control" such company. Accordingly, to the extent that a person identified in the foregoing table is identified as the beneficial owner of more than 25% of a Portfolio, or is identified as the record owner of more than 25% of a Portfolio and has voting and/or investment powers, it may be presumed to control such Portfolio. A controlling person's vote could have a more significant effect on matters presented to shareholders for approval than the vote of other Portfolio shareholders.
OTHER INFORMATION
The Trust's Registration Statement, including the Prospectus and SAI for the Portfolios and the exhibits filed therewith, may be examined at the office of the SEC, located at 100 "F" Street NE, in Washington, D.C., 20549-0102. Statements contained in the Prospectus or the SAI as to the contents of any contract or other document referred to herein or in the Prospectus are not necessarily complete, and, in each instance, reference is made to the copy of such contract or other document filed as an exhibit to the Registration Statement, each such statement being qualified in all respects by such reference.
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
KPMG LLP has been selected as the independent registered public accounting firm for the Trust. KPMG LLP provides audit services, tax return preparation and assistance and consultation in connection with review of certain SEC filings. KPMG LLP's address is 1601 Market Street, Philadelphia, PA 19103.
FINANCIAL INFORMATION
The audited financial statements for the Portfolios for the fiscal year ended May 31, 2009, are hereby incorporated by reference to the Portfolios' Annual Report.
APPENDIX
The ratings of Standard & Poor's ("S&P"), Moody's Investors Services ("Moody's"), Fitch Investor Services ("Fitch"), represent their opinion as to the quality of debt securities. It should be emphasized, however, that ratings are general and not absolute standards of quality, and debt securities with the same maturity, interest rate and rating may have different yields while debt securities of the same maturity and interest rate with different ratings may have the same yield. Subsequent to purchase by the Portfolios, an issue of debt securities may cease to be rated or its rating may be reduced below the minimum rating required for purchase by the Portfolios. The adviser will consider such an event in determining whether the Portfolio involved should continue to hold the obligation.
The following is a description of the ratings given by S&P, Fitch, and Moody's to corporate and municipal bonds and corporate and municipal commercial paper and variable rate demand obligations.
S&P
S&P rates the long-term debt obligations issued by various entities in categories ranging from "AAA" to "D," according to quality, as described below. The first four ratings denote investment-grade securities. Plus (+) or minus(-) The ratings from AA to CCC may be modified by the addition of a plus or minus sign to show relative standing within the major rating categories.
AAA - This is the highest rating assigned by S&P to a debt obligation and indicates an extremely strong capacity to pay interest and repay principal.
AA - Debt rated AA is considered to have a very strong capacity to pay interest and repay principal and differs from AAA issues only in a small degree.
A - Debt rated A has a strong capacity to pay interest and repay principal although it is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than debt in higher-rated categories.
BBB - Debt rated BBB is regarded as having an adequate capacity to pay interest and repay principal. Whereas it normally exhibits adequate protection parameters, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity to pay interest and repay principal for debt in this category than for those in higher-rated categories.
BB - Debt rated BB has less near-term vulnerability to default than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to inadequate capacity to meet timely interest and principal payments.
B - Debt rated B has greater vulnerability to default but currently has the capacity to meet interest payments and principal repayments. Adverse business, financial, or economic conditions will likely impair capacity or willingness to pay interest and repay principal.
CCC - Debt CCC is currently vulnerable and is dependent upon favorable business, financial, and economic conditions to meet timely interest and principal payments.
CC - Debt rated CC is currently highly vulnerable to nonpayment. Debt rated CC is subordinate to senior debt rated CCC.
C - Debt rated C is currently highly vulnerable to nonpayment. Debt rated C is subordinate to senior debt rated CCC-. The C rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. Debt rated C also will be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
D - Debt rated D is currently in default, where payment of interest and/or repayment of principal is in arrears.
Moody's rates the long-term debt obligations issued by various entities in categories ranging from "Aaa" to "C," according to quality, as described below. The first four denote investment-grade securities.
Aaa - Bonds rated Aaa are judged to be of the best quality. They carry the smallest degree of investment risk, and interest payments are protected by a large or by an exceptionally stable margin and principal is secure. While the various protective elements are likely to change, such changes as can be visualized are most unlikely to impair the fundamentally strong position of such issues.
Aa - Bonds rated Aa are judged to be of high quality by all standards. Together with the Aaa group, such bonds comprise what are generally known as high grade bonds. They are rated lower than the best bonds because margins of protection may not be as large as in Aaa securities or fluctuation of protective elements may be of greater amplitude or there may be other elements present which make the long-term risks appear somewhat larger than in Aaa securities.
A - Bonds rated A possess many favorable investment attributes and are to be considered upper to medium investment-grade obligations. Factors giving security to principal and interest are considered adequate, but elements may be present which suggest a susceptibility to impairment sometime in the future.
Baa - Bonds rated Baa are considered medium-grade (and still investment-grade) obligations, I.E., they are neither highly protected nor poorly secured. Interest payments and principal security appear adequate for the present but certain protective elements may be lacking or may be characteristically unreliable over any great length of time. Such bonds lack outstanding investment characteristics and in fact have speculative characteristics as well.
Ba - Bonds rated Ba are judged to have speculative elements; their future cannot be considered as well assured. Often the protection of interest and principal payments may be very moderate and thereby not as well safeguarded during both good times and bad times over the future. Uncertainty of position characterizes bonds in this class.
B - Bonds rated B generally lack characteristics of a desirable investment. Assurance of interest and principal payments or of maintenance of other terms of the contract over any long period of time may be small.
Caa - Bonds rated Caa are of poor standing. Issues may be in default or there may be present elements of danger with respect to principal or interest.
Ca - Bonds rated Ca are speculative in a high degree. Such bonds are often in default or have other marked shortcomings.
C - Bonds rated C are the lowest rated class of bonds. Such bonds can be regarded as having extremely poor prospects of ever attaining any real investment standing.
Moody's applies numerical modifiers (1, 2 and 3) to rating categories. The modifier 1 indicates that the bond being rated ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates that the bond ranks in the lower end of its generic rating category. With regard to municipal bonds, those bonds in the Aa, A and Baa groups which Moody's believes possess the strongest investment attributes are designated by the symbols Aal, A1 or Baal, respectively.
National Long-Term Credit Ratings. A special identifier for the country concerned will be added at the end of all national ratings. For illustrative purposes, (xxx) has been used, below.
AAA(xxx) - 'AAA' national ratings denote the highest rating assigned in its national rating scale for that country. This rating is assigned to the "best" credit risk relative to all other issuers or issues in the same country and will normally be assigned to all financial commitments issued or guaranteed by the sovereign state.
AA(xxx) - 'AA' national ratings denote a very strong credit risk relative to other issuers or issues in the same country. The credit risk inherent in these financial commitments differs only slightly from the country's highest rated issuers or issues.
A(xxx) - 'A' national ratings denote a strong credit risk relative to other issuers or issues in the same country. However, changes in circumstances or economic conditions may affect the capacity for timely repayment of these financial commitments to a greater degree than for financial commitments denoted by a higher rated category.
BBB(xxx) - 'BBB' national ratings denote an adequate credit risk relative to other issuers or issues in the same country. However, changes in circumstances or economic conditions are more likely to affect the capacity for timely repayment.
BB(xxx) - 'BB' national ratings denote a fairly weak credit risk relative to other issuers or issues in the same country. Within the context of the country, payment of these financial commitments is uncertain to dome degree and capacity for timely repayment remains more vulnerable to adverse economic change over time.
B(xxx) - 'B' national ratings denote a significantly weak credit risk relative to other issuers or issues in the same country. Financial commitments are currently being met but a limited margin of safety remains and capacity for continued timely payment is contingent upon a sustained, favorable business and economic environment.
CCC(xxx), CC(xxx), C(xxx) - These categories of national ratings denote an extremely weak credit risk relative to other issuers or issues in the same country. Capacity for meeting financial commitments is solely reliant upon sustained, favorable business or economic developments.
DDD(xxx), DD(xxx), D(xxx) - These categories of national ratings are assigned to entities or financial commitments which are currently in default.
A-1 - Debt rated A-1 is rated in the highest category by S&P. The obligor's capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor's capacity to meet its financial commitment on these obligations is extremely strong.
A-2 - Debt rated A-2 is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor's capacity to meet its financial commitment on the obligation is satisfactory.
A-3 - Debt rated A-3 exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
B - Debt rated B is regarded as having significant speculative characteristics. The obligor currently has the capacity to meet its financial commitment on the obligation; however, it faces major ongoing uncertainties which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
C - Debt rated C is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
D - Debt rated D is in payment default. The D rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless S&P believes that such payments will be made during such grace period. The D rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Prime-1: Issuers rated Prime-1 have a superior ability for repayment of senior short-term debt obligations.
Prime-2: Issuers rated Prime-2 have a strong ability to repay senior short-term debt obligations, but earnings trends, while sound, will be subject to more variation.
Prime-3: Issuers rated Prime-3 have acceptable credit quality and an adequate capacity for timely payment of short-term deposit obligations.
Not Prime: Issuers rated Not Prime have questionable to poor credit quality and an uncertain capacity for timely payment of short-term deposit obligations.
National Long-Term Credit Ratings. A special identifier for the country concerned will be added at the end of all national ratings. For illustrative purposes, (xxx) has been used, below.
F1(xxx) - Indicates the strongest capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Under their national rating scale, this rating is assigned to the"best" credit risk relative to all others in the same country and is normally assigned to all financial commitments issued or guaranteed by the sovereign state. Where the credit risk is particularly strong , a "+" is added to the assigned rating.
F2(xxx) - Indicates a satisfactory capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, the margin of safety is not as great as in the case of the higher ratings.
F3(xxx) - Indicates an adequate capacity for timely payment of financial commitments relative to other issuers or issues in the same country. However, such capacity is more susceptible to near-term adverse changes than for financial commitments in higher rated categories.
B(xxx) - Indicates an uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Such capacity is highly susceptible to near-term adverse changes in financial and economic conditions.
C(xxx) - Indicates a highly uncertain capacity for timely payment of financial commitments relative to other issuers or issues in the same country. Capacity or meeting financial commitments is solely reliant upon a sustained, favorable business and economic environment.
D(xxx) - Indicates actual or imminent payment default.
Note to National Short-Term ratings: In certain countries, regulators have established credit rating scales, to be used within their domestic markets, using specific nomenclature. In these countries, our National Short-Term Ratings definitions for F1+(xxx), F1(xxx), F2(xxx) and F3(xxx) may be substituted by those regulatory scales, E.G. A1+, A1, A2 and A3.
S&P:
SP-1 - Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
SP-2 - Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
SP-3 - Speculative capacity to pay principal and interest.
MOODY'S:
VMIG 1: This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 2: This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
VMIG 3: This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
SG: This designation denotes speculative-grade credit quality. Demand features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term rating or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
WELLS FARGO FUNDS TRUST
FILE NOS. 333-74295; 811-09253
PART C
OTHER INFORMATION
EXHIBIT
NUMBER DESCRIPTION
------------------- ---------------------------------------------------------------------------------------
(a) - Amended and Restated Declaration of Trust, incorporated by reference to Post-Effective
Amendment No. 83, filed April 11, 2005.
(b) - Not Applicable.
(c) - Not Applicable.
(d) (1) - Investment Advisory Agreement with Wells Fargo Funds Management, LLC, incorporated
by reference to Post-Effective Amendment No. 87, filed November 1, 2005; Schedule A,
filed herewith.
(2) - Amended and Restated Fee and Expense Agreement between Wells Fargo Funds Trust,
Wells Fargo Master Trust and Wells Fargo Funds Management, LLC; Schedule A, filed
herewith.
(3) - Investment Sub-Advisory Agreement with Schroder Investment Management North
America Inc., incorporated by reference to Post-Effective Amendment No. 20, filed May
1, 2001; Schedule A, incorporated by reference to Post-Effective Amendment No. 83,
filed April 11, 2005.
(4) - Investment Sub-Advisory Agreement with Wells Capital Management Incorporated,
incorporated by reference to Post-Effective Amendment No. 22, filed June 15, 2001;
Schedule A, and Appendix A, filed herewith.
(5) - Investment Sub-Advisory Agreement with RCM Capital Management, LLC (formerly
Dresdner RCM Global Investors, LLC), incorporated by reference to Post-Effective
Amendment No. 32, filed February 8, 2002; Appendix A and Schedule A, incorporated by
reference to Post-Effective Amendment No. 119, filed March 1, 2008.
(6) - Investment Sub-Advisory Agreement with Global Index Advisors, Inc., incorporated by
reference to Post-Effective Amendment No. 93, filed June 26, 2006. Appendix A
incorporated by reference to Post-Effective Amendment No. 111, filed June 29, 2007.
Appendix B, filed herewith.
(7) - Investment Sub-Advisory Agreement with LSV Asset Management, incorporated by
reference to Post-Effective Amendment No. 69, filed January 30, 2004; Appendix A,
incorporated by reference to Post-Effective Amendment No. 93, filed June 26, 2006.
(8) - Investment Sub-Advisory Agreement with Cooke & Bieler, L.P., incorporated by reference
to Post-Effective Amendment No. 74, filed July 26, 2004; Appendix A and Schedule A,
incorporated by reference to Post-Effective Amendment No. 136, filed April 30, 2009.
(9) - Investment Sub-Advisory Agreement with Artisan Partners Limited Partnership,
incorporated by reference to Post-Effective Amendment No. 82, filed March 1, 2005;
Appendix A and Appendix B, incorporated by reference to Post-Effective Amendment No.
88, filed December 1, 2005.
(10) - Investment Sub-Advisory Agreement with Matrix Asset Advisors, Inc., incorporated by
reference to Post-Effective Amendment No. 83, filed April 11, 2005; Appendix A and
Schedule A, incorporated by reference to Post-Effective Amendment No. 119, filed March
1, 2008.
(11) - Sub-Advisory Agreement with Phocas Financial Corporation, incorporated by reference to
Post-Effective Amendment No. 122, filed March 21, 2008.
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Sub-Advisory Agreement with Nelson Capital Management, LLC, incorporated by
(12) - reference to Post-Effective Amendment No. 131, filed October 1, 2008.
(13) - Sub-Advisory Agreement with Evergreen Investment Management Company, LLC
("Evergreen Investments"), incorporated by reference to Post-Effective Amendment No.
136, filed April 30, 2009.
(e) - Distribution Agreement with Wells Fargo Funds Distributor, LLC, incorporated by
reference to Post-Effective Amendment No. 84, filed July 1, 2005; Schedule I, filed
herewith.
(f) - Not Applicable.
(g) (1) - Amended and Restated Custody Agreement with Wells Fargo Bank, N.A. incorporated by
reference to Post-Effective Amendment No. 83, filed April 11, 2005; Appendix A, filed
herewith.
(2) - Delegation Agreement (17f-5) with Wells Fargo Bank, N.A., incorporated by reference to
Post-Effective Amendment No. 93, filed June 26, 2006. Exhibit A, filed herewith.
(3) - Securities Lending Agency Agreement by and among Wells Fargo Funds Trust, Wells
Fargo Master Trust, Wells Fargo Variable Trust, Wells Fargo Funds Management, LLC
and Wells Fargo Bank, N.A.,incorporated by reference to Post-Effective Amendment No.
134, filed January 28, 2009. Schedule 4, filed herewith.
(4) - Master Custodian Agreement with State Street Bank and Trust Company, filed herewith.
(h) (1) - Administration Agreement with Wells Fargo Funds Management, LLC, incorporated by
reference to Post-Effective Amendment No. 65, filed August 15, 2003; Schedule A to
Appendix A, filed herewith.
(2) - Accounting Services Agreement with PFPC Inc., along with Amended and Restated Letter
Agreement, incorporated by reference to Post-Effective Amendment No. 83, filed April
11, 2005; Amendment, incorporated by reference to Post-Effective Amendment No. 88,
filed December 1, 2005; Exhibit A, filed herewith.
(3) - Transfer Agency and Service Agreement with Boston Financial Data Services, Inc.,
incorporated by reference to Post-Effective Amendment No. 92, filed May 1, 2006;
Schedule A, filed herewith.
(4) - Shareholder Servicing Plan, incorporated by reference to Post-Effective Amendment No.
16, filed October 30, 2000; Appendix A, filed herewith.
(5) - Administrative and Shareholder Servicing Agreement, Form of Agreement, incorporated
by reference to Post-Effective Amendment No. 111, filed June 29, 2007.
(i) (1) - Legal Opinion, filed herewith.
(2) - Not Applicable.
(j) (A) - Consent of Independent Auditor, filed herewith.
(j) (1) - Power of Attorney, Peter G. Gordon, incorporated by reference to Post-Effective
Amendment No. 72, filed June 30, 2004.
(2) - Power of Attorney, J. Tucker Morse, incorporated by reference to Post-Effective
Amendment No. 72, filed June 30, 2004.
(3) - Power of Attorney, Timothy J. Penny, incorporated by reference to Post-Effective
Amendment No. 72, filed June 30, 2004.
(4) - Power of Attorney, Donald C. Willeke, incorporated by reference to Post-Effective
Amendment No. 72, filed June 30, 2004.
(5) - Power of Attorney, Karla M. Rabusch, incorporated by reference to Post-Effective
Amendment No. 72, filed June 30, 2004.
(6) - Power of Attorney, Olivia S. Mitchell, incorporated by reference to Post-Effective
Amendment No. 90, filed March 1, 2006.
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Power of Attorney, Judith M. Johnson, incorporated by reference to Post-Effective
(7) - Amendment No. 131, filed October 1, 2008.
(8) - Power of Attorney, Isaiah Harris, Jr., incorporated by reference to Post-Effective
Amendment No. 136, filed April 30, 2009.
(9) - Power of Attorney, David F. Larcker, incorporated by reference to Post-Effective
Amendment No. 136, filed April 30, 2009.
(10) - Power of Attorney, David Berardi, incorporated by reference to Post-Effective
Amendment No. 138, filed June 26, 2009.
(11) - Power of Attorney, Jeremy DePalma, Jr.,incorporated by reference to Post-Effective
Amendment No. 138, filed June 26, 2009.
(k) - Not Applicable.
(l) - Not Applicable.
(m) - Rule 12b-1 Plan, incorporated by reference to Post-Effective Amendment No. 87, filed
November 1, 2005; Schedule I, incorporated by reference to Post-Effective Amendment
No. 127, filed July 1, 2008; Appendix A, filed herewith.
(n) - Rule 18f-3 Plan, incorporated by reference to Post-Effective Amendment No. 131, filed
October 1, 2008; Appendix A, incorporated by reference to Post-Effective Amendment
No. 134, filed January 28, 2009.
(o) - Not Applicable.
(p) (1) - Joint Code of Ethics for Wells Fargo Funds Trust, Wells Fargo Master Trust and Wells
Fargo Variable Trust, incorporated by reference to Post-Effective Amendment No. 129,
filed September 26, 2008.
(2) - Joint Code of Ethics for Wells Fargo Funds Management, LLC and Wells Fargo Funds
Distributor, LLC, incorporated by reference to Post-Effective Amendment No. 133, filed
November 28, 2008.
(3) - RCM Capital Management, LLC (formerly Dresdner RCM Global Investors, LLC) Code
of Ethics, incorporated by reference to Post-Effective Amendment No. 138, filed June 26,
2009.
(4) - Galliard Capital Management, Inc. Code of Ethics, incorporated by reference to Post-
Effective Amendment No. 138, filed June 26, 2009.
(5) - Peregrine Capital Management, Inc. Code of Ethics, incorporated by reference to Post-
Effective Amendment No. 138, filed June 26, 2009.
(6) - Schroder Investment Management North America Inc. Code of Ethics, incorporated by
reference to Post-Effective Amendment No. 119, filed March 1, 2008.
(7) - Smith Asset Management Group, L.P. Code of Ethics, incorporated by reference to Post-
Effective Amendment No. 111, filed June 29, 2007.
(8) - Wells Capital Management Incorporated Code of Ethics, incorporated by reference to
Post-Effective Amendment No. 127, filed July 1, 2008.
(9) - Systematic Financial Management, L.P. Code of Ethics, incorporated by reference to Post-
Effective Amendment No. 138, filed June 26, 2009.
(10) - LSV Asset Management Code of Ethics and Personal Trading Policy, incorporated by
reference to Post-Effective Amendment No. 138, filed June 26, 2009.
(11) - Cooke & Bieler, L.P. Code of Ethics, incorporated by reference to Post-Effective
Amendment No. 127, filed July 1, 2008.
(12) - Artisan Partners Limited Partnership Code of Ethics, incorporated by reference to Post-
Effective Amendment No. 129, filed September 26, 2008.
(13) - Matrix Asset Advisors, Inc. Code of Ethics, incorporated by reference to Post-Effective
Amendment No. 87, filed November 1, 2005.
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Global Index Advisors, Inc. Code of Ethics, incorporated by reference to Post-Effective
(14) - Amendment No. 111, filed June 29, 2007.
(15) - Phocas Financial Corporation Code of Ethics, incorporated by reference to Post-Effective
Amendment No. 138, filed June 26, 2009.
(16) - Nelson Capital Management, LLC, Code of Ethics, filed herewith.
(17) - Evergreen Investments Code of Ethics, incorporated by reference to Post-Effective
Amendment No. 136, filed April 30, 2009.
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Registrant believes that no person is controlled by or under common control with Registrant.
Article IX of the Registrant's Declaration of Trust limits the liability and, in certain instances, provides for mandatory indemnification of the Registrant's Trustees, officers, employees, agents and holders of beneficial interests in the Trust. In addition, the Trustees are empowered under Article III, Section 1(t) of the Registrant's Declaration of Trust to obtain such insurance policies as they deem necessary.
(a) Effective March 1, 2001, Wells Fargo Funds Management, LLC ("Funds Management") assumed investment advisory responsibilities for each of the Funds. For providing these services, Funds Management is entitled to receive fees at the same annual rates as were applicable under the advisory contract with Wells Fargo Bank, N.A. ("Wells Fargo Bank"). Funds Management, an indirect, wholly owned subsidiary of Wells Fargo & Company, was created to succeed to the mutual fund advisory responsibilities of Wells Fargo Bank in early 2001.
To the knowledge of Registrant, none of the directors or officers of Funds Management is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature, except that they also hold various positions with and engage in business for Wells Fargo Bank.
(b) Global Index Advisors, Inc. ("GIA"), serves as a sub-adviser to various Funds of Wells Fargo Funds Trust (the "Trust") and as adviser or sub-adviser to certain other open-end management investment companies. The descriptions of GIA in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of GIA is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(c) Wells Capital Management Incorporated ("Wells Capital Management"), an affiliate of Funds Management, serves as sub-adviser to various Funds of the Trust. The descriptions of Wells Capital Management in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Wells Capital Management is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(d) Peregrine Capital Management, Inc. ("Peregrine"), an indirect, wholly owned subsidiary of Wells Fargo & Company, serves as sub-adviser to various Funds of the Trust. The descriptions of Peregrine in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Peregrine is or has been at any time during the last two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(e) Schroder Investment Management North America Inc. ("Schroder"), serves as sub-adviser to the Small Cap Opportunities Fund of the Trust. The descriptions of Schroder in Parts A and B of the Registration Statement are incorporated by reference herein. Schroder Capital Management International Limited ("Schroder Ltd.") is a United Kingdom affiliate of Schroder which provides investment management services to international clients located principally in the United States. Schroder Ltd. and Schroder p.l.c. are located at 31 Gresham St., London ECZV 7QA, United Kingdom. To the knowledge of the Registrant, none of the directors or officers of Schroder is or has been at any time during the last two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(f) Galliard Capital Management, Inc. ("Galliard"), an indirect, wholly owned subsidiary of Wells Fargo & Company serves as sub-adviser to various Funds of the Trust. The descriptions of Galliard in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Galliard is or has been at any time during the last two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(g) Smith Asset Management Group, L.P. ("Smith"), in which Wells Fargo Bank maintains an indirect, minority-ownership interest, serves as sub-adviser to various Funds of the Trust. The descriptions of Smith in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of this sub- adviser is or has been at any time during the last two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(h) RCM Capital Management, LLC (formerly Dresdner RCM Global Investors,
LLC) ("RCM"), a wholly owned subsidiary of RCM US Holdings LLC, serves as
sub-adviser for the Specialized Technology Fund and Specialized Health Sciences
Fund of the Trust. The descriptions of RCM in Parts A and B of the Registration
Statement are incorporated by reference herein. To the knowledge of the
Registrant, none of the directors or officers of RCM is or has been at any time
during the last two fiscal years engaged in any other business, profession,
vocation or employment of a substantial nature.
(i) Systematic Financial Management, L.P. ("Systematic") serves as sub-adviser to the Large Cap Value Portfolio of Master Trust in which several Funds of the Trust invest. The descriptions of Systematic in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Systematic is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(j) LSV Asset Management ("LSV") serves as co-sub-adviser for the International Equity Fund of the Trust. The descriptions of LSV in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of LSV is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(k) Cooke & Bieler, L.P. ("Cooke & Bieler") serves as sub-adviser for the Wells Fargo C&B Mid Cap Value Fund and Wells Fargo C&B Tax-Managed Value Fund of the Trust and for the C&B Large Cap Value Portfolio of Master Trust in which the C&B Large Cap Value Fund invests. The descriptions of Cooke & Bieler in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Cooke & Bieler is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(l) Artisan Partners Limited Partnership ("Artisan") serves as co-sub-adviser for the International Equity Fund of the Trust. The descriptions of Artisan in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Artisan is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(m) Matrix Asset Advisors, Inc. ("Matrix") serves as Sub-Adviser for the Growth and Income Fund and Large Company Core Fund of the Trust. The descriptions of Matrix in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Matrix is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(n) Phocas Financial Corporation ("Phocas") serves as Sub-Adviser for the Large Company Value Fund of the Trust. The descriptions of Phocas in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Phocas is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(o) Nelson Capital Management, LLC ("Nelson") serves as Sub-Adviser for the Social Sustainability Fund of the Trust. The descriptions of Nelson in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Nelson is or has been at any time during the past two fiscal years engaged in any other business, profession, vocation, or employment of a substantial nature.
(p) Evergreen Investments serves as sub-adviser to the International Core Fund. The descriptions of Evergreen Investments in Parts A and B of the Registration Statement are incorporated by reference herein. To the knowledge of the Registrant, none of the directors or officers of Evergreen Investments is or has been at any time during the last two fiscal years engaged in any other business, profession, vocation or employment of a substantial nature.
(a) Wells Fargo Funds Distributor, LLC, distributor for the Registrant, also acts as principal underwriter for Wells Fargo Variable Trust and Wells Fargo Funds Trust, and is the exclusive placement agent for Wells Fargo Master Trust, all of which are registered open-end management investment companies.
(b) The following table provides information for each director and officer of Wells Fargo Funds Distributor, LLC.
(1) (2) (3) NAME AND PRINCIPAL BUSINESS POSITIONS AND OFFICES WITH POSITIONS AND OFFICES WITH ADDRESS UNDERWRITER FUND ------------------------------------ ----------------------------------- --------------------------------- Karla M. Rabusch Chairman of the Board President Wells Fargo Funds Management, LLC 525 Market Street, 12th Floor San Francisco, CA 94105 Cara Peck Director, President and Secretary None Wells Fargo Funds Distributor, LLC 525 Market Street, 12th Floor San Francisco, CA 94105 A. Erdem Cimen Director None Wells Fargo Funds Management, LLC 525 Market Street, 12th Floor San Francisco, CA 94105 Kevin J. Scott Financial Operations Officer None Wells Fargo Funds Management, LLC (FINOP) 100 Heritage Reserve Menomonee Falls, WI 53051 Carol J. Lorts Chief Compliance Officer Assistant Secretary Wells Fargo Funds Distributor, LLC 525 Market Street, 12th Floor San Francisco, CA 94105 Samuel H. Hom Anti-Money Laundering Compliance Anti-Money Laundering Compliance Wells Fargo Funds Distributor, LLC Officer Officer 525 Market Street, 12th Floor San Francisco, CA 94105 Randy Henze Director None Wells Fargo Funds Management, LLC 100 Heritage Reserve Menomonee Falls, WI 53051 |
(c) Not Applicable.
(a) The Registrant maintains accounts, books and other documents required by Section 31(a) of the Investment Company Act of 1940 and the rules thereunder (collectively, "Records") at the offices of Wells Fargo Funds Management, LLC, 525 Market Street, 12th Floor, San Francisco, CA 94105.
(b) Wells Fargo Funds Management, LLC maintains all Records relating to its services as investment adviser and administrator at 525 Market Street, 12th Floor, San Francisco, CA 94105.
(c) Boston Financial Data Services, Inc. maintains all Records relating to its services as transfer agent at Two Heritage Drive, Quincy, Massachusetts 02171.
(d) Global Index Advisors, Inc. maintains all Records relating to their services as sub-adviser at 29 North Park Square NE, Suite 201, Marietta, GA 30060.
(e) Wells Fargo Funds Distributor, LLC maintains all Records relating to its services as distributor at 525 Market Street, 12th Floor, San Francisco, CA 94105.
(f) Wells Fargo Bank, N.A. (formerly Wells Fargo Bank Minnesota, N.A.) maintains all Records relating to its services as custodian at 6th & Marquette, Minneapolis, MN 55479-0040.
(g) Wells Capital Management Incorporated maintains all Records relating to its services as investment sub-adviser at 525 Market Street, 10th Floor, San Francisco, CA 94105.
(h) Peregrine Capital Management, Inc. maintains all Records relating to its services as investment sub-adviser at 800 LaSalle Avenue, Suite 1850, Minneapolis, MN 55402.
(i) Galliard Capital Management, Inc. maintains all Records relating to its services as investment sub-adviser at 800 LaSalle Avenue, Suite 1100, Minneapolis, MN 55479.
(j) Smith Asset Management Group, L.P. maintains all Records relating to its services as investment sub-adviser at 100 Crescent Court, Suite 1150, Dallas, TX 75201.
(k) Schroder Investment Management North America Inc. maintains all Records relating to its services as investment sub-adviser at 875 Third Avenue, 22nd Floor, New York, New York 10022.
(l) RCM Capital Management, LLC (formerly Dresdner RCM Global Investors, LLC) maintains all Records relating to its services as investment sub-adviser at Four Embarcadero Center, San Francisco, California 94111.
(m) Systematic Financial Management, L.P. maintains all Records relating to its services as investment sub-adviser at 300 Frank W. Burr Boulevard, Glenpointe East, Teaneck, NJ 07666.
(n) LSV Asset Management maintains all Records relating to its services as investment sub-adviser at One North Wacker Drive, Suite 4000, Chicago, Illinois 60606.
(o) Cooke & Bieler, L.P. maintains all Records relating to its services as investment sub-adviser at 1700 Market Street, Philadelphia, PA 19103.
(p) Artisan Partners Limited Partnership maintains all Records relating to its services as investment sub-adviser at 875 East Wisconsin Avenue, Suite 800, Milwaukee, WI 53202.
(q) Matrix Asset Advisors, Inc. maintains all Records relating to its services as investment sub-adviser at 747 Third Avenue, 31st Floor, New York, New York 10017.
(r) Phocas Financial Corporation maintains all Records relating to its services as investment sub-adviser at 980 Atlantic Avenue, suite 106, Alameda, California 94501.
(s) Nelson Capital Management, LLC maintains all Records relating to its services as investment sub-adviser at 1860 Embarcadero Road, Suite 140, Palo Alto California 94303.
(t) Evergreen Investments maintains all Records relating to its services as investment sub-adviser at 200 Berkeley Street, Boston, MA 02116.
Other than as set forth under the captions "Organization and Management of the Funds" in the Prospectuses constituting Part A of this Registration Statement and "Management" in the Statement of Additional Information constituting Part B of this Registration Statement, the Registrant is not a party to any management-related service contract.
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Amendment to the Registration Statement on Form N-1A, pursuant to Rule 485(b) under the Securities Act of 1933, and has duly caused this Amendment to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized in the City of San Francisco, State of California on the 28th day of September, 2009.
WELLS FARGO FUNDS TRUST
By: /s/ Carol J. Lorts
--------------------
Carol J. Lorts
Assistant Secretary
|
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. 139 to its Registration Statement on Form N-1A has been signed below by the following persons in the capacities and on the date indicated:
SIGNATURE TITLE DATE
----------------------------------- ----------------------------------- --------
* Trustee
---------------------------------
Peter G. Gordon
* Trustee
---------------------------------
Isaiah Harris, Jr.
* Trustee
---------------------------------
Judith M. Johnson
* Trustee
---------------------------------
David F. Larcker
* Trustee
---------------------------------
Olivia S. Mitchell
* Trustee
---------------------------------
Timothy J. Penny
* Trustee
---------------------------------
Donald C. Willeke
* President
--------------------------------- (Principal Executive Officer)
Karla M. Rabusch
* Treasurer and Assistant Treasurer
--------------------------------- (Principal Financial Officer)
David Berardi
* Treasurer and Assistant Treasurer 9/28/09
--------------------------------- (Principal Financial Officer)
Jeremy DePalma
|
* By: /s/ Carol J. Lorts
--------------------
Carol J. Lorts
As Attorney-in-Fact
September 28, 2009
|
WELLS FARGO FUNDS TRUST
FILE NOS. 333-74295; 811-09253
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION --------------- ----------------------------------------------------------------- EX-99.(d)(1) Advisory Agreement EX-99.(d)(2) Fee and Expense Agreement EX-99.(d)(4) Sub-Advisory Agreement - Wells Capital Management Incorporated EX-99.(d)(6) Sub-Advisory Agreement - Global Index Advisors Incorporated EX-99.(e) Distribution Agreement EX-99.(g)(1) Custody Agreement - Wells Fargo Bank EX-99.(g)(2) Delegation Agreement EX-99.(g)(3) Securities Lending Agency Agreement EX-99.(g)(4) Master Custodian Agreement - State Street Bank and Trust Company EX-99.(h)(1) Administration Agreement EX-99.(h)(2) Accounting Services Agreement EX-99.(h)(3) Transfer Agency and Services Agreement EX-99.(h)(4) Shareholder Servicing Plan EX-99.(i)(1) Legal Opinion EX-99.(j)(A) Consent of Independent Auditor EX-99.(m) Distribution Plan (Rule 12b-1) EX-99.(p)(16) Code of Ethics - Nelson |
Exhibit 99.(d)(1)
SCHEDULE A
WELLS FARGO FUNDS MANAGEMENT
INVESTMENT ADVISORY AGREEMENT
WELLS FARGO FUNDS TRUST
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Aggressive Allocation Fund 0.25
Asia Pacific Fund First 500M 1.10
Next 500M 1.05
Next 2B 1.00
Next 2B 0.975
Over 5B 0.95
Asset Allocation Fund First 500M 0.65
Next 500M 0.60
Next 2B 0.55
Next 2B 0.525
Over 5B 0.50
California Limited-Term Tax-Free Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
California Tax-Free Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
California Tax-Free Money Market Fund/1/ First 1B 0.30
Next 4B 0.275
Over 5B 0.25
California Tax-Free Money Market Trust/1/ 0.00
Capital Growth Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
Cash Investment Money Market Fund 0.10
Colorado Tax-Free Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
----------
|
/1/ On August 12, 2009, the Board of Trustees approved a fundamental investment policy change for the California Tax-Free Money Market Fund and California Tax-Free Money Market Trust. Upon shareholder approval the fundamental investment policy and the Fund names will change to the California Municipal Money Market Fund and California Municipal Money Market Trust, effective December 1, 2009.
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Common Stock Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Conservative Allocation Fund 0.25
C&B Mid Cap Value Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
C&B Large Cap Value Fund 0.00*
Discovery Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Diversified Bond Fund 0.25
Diversified Equity Fund 0.25
Diversified Small Cap Fund 0.25
Emerging Gropwth Fund 0.00*
Emerging Markets Equity Fund First 500M 1.10
Next 500M 1.05
Next 2B 1.00
Next 2B 0.975
Over 5B 0.95
Endeavor Select Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
Enterprise Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Equity Income Fund 0.00*
Equity Value Fund 0.00*
Government Money Market Fund 0.10
Government Securities Fund First 500M 0.40
Next 500M 0.375
Next 2B 0.35
Next 2B 0.325
Over 5B 0.30
|
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Growth Balanced Fund 0.25
Growth Equity Fund 0.25
Growth Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Heritage Money Market Fund 0.10
High Income Fund First 500M 0.50
Next 500M 0.475
Next 2B 0.45
Next 2B 0.425
Over 5B 0.40
Income Plus Fund First 500M 0.50
Next 500M 0.475
Next 2B 0.45
Next 2B 0.425
Over 5B 0.40
Index Fund 0.00*
Inflation-Protected Bond Fund 0.00*
Intermediate Tax/AMT Free Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
International Core Fund First 500M 0.95
Next 500M 0.90
Next 2B 0.85
Next 2B 0.825
Over 5B 0.80
International Equity Fund First 500M 0.95
Next 500M 0.90
Next 2B 0.85
Next 2B 0.825
Over 5B 0.80
International Value Fund 0.00*
Large Cap Appreciation Fund 0.00*
Large Cap Growth Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
|
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Large Company Core Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
Large Company Growth Fund 0.00*
Large Company Value Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
Managed Account CoreBuilder Shares Series G 0.00
Managed Account CoreBuilder Shares Series M 0.00
Mid Cap Disciplined Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Mid Cap Growth Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Minnesota Money Market Fund First 1B 0.30
Next 4B 0.275
Over 5B 0.25
Minnesota Tax-Free Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
Moderate Balanced Fund 0.25
Money Market Fund First 1B 0.30
Next 4B 0.275
Over 5B 0.25
Money Market Trust 0.00
Municipal Bond Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
Municipal Money Market Fund First 1B 0.30
Next 4B 0.275
Over 5B 0.25
National Tax-Free Money Market Fund 0.10
National Tax-Free Money Market Trust 0.00
|
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Opportunity Fund First 500M 0.75
Next 500M 0.70
Next 2B 0.65
Next 2B 0.625
Over 5B 0.60
Overland Express Sweep Fund First 1B 0.30
Next 4B 0.275
Over 5B 0.25
Prime Investment Money Market Fund 0.10
Short Duration Government Bond Fund First 500M 0.40
Next 500M 0.375
Next 2B 0.35
Next 2B 0.325
Over 5B 0.30
Short-Term Bond Fund First 500M 0.40
Next 500M 0.375
Next 2B 0.35
Next 2B 0.325
Over 5B 0.30
Short-Term High Yield Bond Fund First 500M 0.50
Next 500M 0.475
Next 2B 0.45
Next 2B 0.425
Over 5B 0.40
Short-Term Municipal Bond Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
Small Cap Disciplined Fund First 500M 0.85
Next 500M 0.825
Next 1B 0.80
Next 1B 0.775
Over 3B 0.75
Small Cap Growth Fund First 500M 0.85
Next 500M 0.825
Next 1B 0.80
Next 1B 0.775
Over 3B 0.75
Small Cap Opportunities Fund First 500M 0.85
Next 500M 0.825
Next 1B 0.80
Next 1B 0.775
Over 3B 0.75
Small Cap Value Fund First 500M 0.85
Next 500M 0.825
Next 1B 0.80
Next 1B 0.775
Over 3B 0.75
|
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Small Company Growth Fund 0.00*
Small Company Value Fund 0.00*
Small/Mid Cap Value Fund First 500M 0.85
Next 500M 0.825
Next 1B 0.80
Next 1B 0.775
Over 3B 0.75
Social Sustainability Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
Specialized Financial Services Fund First 500M 0.95
Next 500M 0.90
Next 2B 0.85
Next 2B 0.825
Over 5B 0.80
Specialized Technology Fund First 500M 1.05
Next 500M 1.00
Next 2B 0.95
Next 2B 0.925
Over 5B 0.90
Stable Income Fund 0.00*
Strategic Income Fund First 500M 0.50
Next 500M 0.475
Next 2B 0.45
Next 2B 0.425
Over 5B 0.40
Strategic Small Cap Value Fund/2/ 0.00*
Target Today Fund/3/ 0.25
Target 2010 Fund/3/ 0.25
Target 2015 Fund/3/ 0.25
Target 2020 Fund/3/ 0.25
Target 2025 Fund/3/ 0.25
Target 2030 Fund/3/ 0.25
Target 2035 Fund/3/ 0.25
----------
|
/2/ On June 2, 2009, the Board of Trustees approved the liquidation of the Strategic Small Cap Value Fund effective on or about August 21, 2009.
/3/ On August 12, 2009, the Board of Trustees approved an advisory fee reduction to each of the Target Date Funds. Effective October 1, 2009 the advisory fees will be: 0.25% for the first $500M; 0.23% for the next $500M; 0.21% for the next $2B; and 0.19% over $3B.
Fee as % of Avg. Daily
Funds Net Asset Value
---------------------------------------------------- -------------------------
Target 2040 Fund/3/ 0.25
Target 2045 Fund/3/ 0.25
Target 2050 Fund/3/ 0.25
Total Return Bond Fund 0.00*
Treasury Plus Money Market Fund 0.10
Ultra Short-Term Income Fund First 500M 0.40
Next 500M 0.375
Next 2B 0.35
Next 2B 0.325
Over 5B 0.30
Ultra Short-Term Municipal Income Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
U.S. Value Fund First 500M 0.70
Next 500M 0.65
Next 2B 0.60
Next 2B 0.575
Over 5B 0.55
WealthBuilder Conservative Allocation Portfolio First 1B 0.20
Next 4B 0.175
Over 5B 0.15
WealthBuilder Equity Portfolio First 1B 0.20
Next 4B 0.175
Over 5B 0.15
WealthBuilder Growth Allocation Portfolio First 1B 0.20
Next 4B 0.175
Over 5B 0.15
WealthBuilder Growth Balanced Portfolio First 1B 0.20
Next 4B 0.175
Over 5B 0.15
WealthBuilder Moderate Balanced Portfolio First 1B 0.20
Next 4B 0.175
Over 5B 0.15
WealthBuilder Tactical Equity Portfolio First 1B 0.20
Next 4B 0.175
Over 5B 0.15
Wisconsin Tax-Free Fund First 500M 0.35
Next 500M 0.325
Next 2B 0.30
Next 2B 0.275
Over 5B 0.25
100% Treasury Money Market Fund First 1B 0.30
Next 4B 0.275
Over 5B 0.25
|
Most recent annual approval by the Board of Trustees: March 27, 2009 Schedule A amended: August 12, 2009
* As long as the Fund invests all (or substantially all) of its assets in a single, registered, open-end management investment company in accordance with Section 12(d)(1)(E) under the 1940 Act, the Fund does not pay Funds Management an investment advisory fee. At the time the Fund invests some of its assets in two or more registered, open-end management investment companies in accordance with Section 12(d)(1)(G) under the 1940 Act, the Fund shall pay Funds Management an investment advisory fee of 0.25% for asset allocation services.
The foregoing fee schedule is agreed to as of August 12, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST
WELLS FARGO FUNDS MANAGEMENT, LLC
Exhibit 99.(d)(2)
SCHEDULE A
FEE AND EXPENSE AGREEMENT
WELLS FARGO FUNDS TRUST
(CAPPED OPERATING EXPENSE RATIOS)
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Aggressive Allocation Fund
Administrator Class 1.00% January 31, 2010
Asia Pacific Fund
Class A 1.60% January 31, 2010
Class C 2.35% January 31, 2010
Investor Class 1.65% January 31, 2010
Asset Allocation Fund
Class A 1.15% January 31, 2010
Class B 1.90% January 31, 2010
Class C 1.90% January 31, 2010
Administrator Class 0.90% January 31, 2010
C&B Large Cap Value Fund
Class A 1.15% January 31, 2010
Class B 1.90% January 31, 2010
Class C 1.90% January 31, 2010
Administrator Class 0.95% January 31, 2010
Institutional Class 0.70% January 31, 2010
Investor Class 1.20% January 31, 2010
C&B Mid Cap Value Fund
Class A 1.20% February 28, 2010
Class B 1.95% February 28, 2010
Class C 1.95% February 28, 2010
Administrator Class 1.15% February 28, 2010
Institutional Class 0.90% February 28, 2010
Investor Class 1.25% February 28, 2010
California Limited-Term Tax-Free Fund
Class A 0.85% October 31, 2009
Class C 1.60% October 31, 2009
Administrator Class 0.60% October 31, 2009
A-1
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
California Tax-Free Fund
Class A 0.80% October 31, 2009
Class B 1.55% October 31, 2009
Class C 1.55% October 31, 2009
Administrator Class 0.55% October 31, 2009
California Tax-Free Money Market Fund/1/
Class A 0.65% June 30, 2010
Institutional Class 0.20% June 30, 2010
Service Class 0.45% June 30, 2010
California Tax-Free Money Market
Trust/1/ 0.20% June 30, 2010
Capital Growth Fund
Class A 1.25% November 30, 2009
Class C 2.00% November 30, 2009
Administrator Class 0.94% November 30, 2009
Institutional Class 0.75% November 30, 2009
Investor Class 1.35% November 30, 2009
Cash Investment Money Market Fund
Administrator Class 0.35% June 30, 2010
Institutional Class 0.20% June 30, 2010
Select Class 0.13% June 30, 2010
Service Class 0.50% June 30, 2010
Colorado Tax-Free Fund
Class A 0.85% October 31, 2009
Class B 1.60% October 31, 2009
Class C 1.60% October 31, 2009
Administrator Class 0.60% October 31, 2009
Common Stock Fund
Class A 1.26% February 28, 2010
Class B 2.01% February 28, 2010
Class C 2.01% February 28, 2010
Investor Class 1.29% February 28, 2010
Conservative Allocation Fund
Administrator Class 0.85% January 31, 2010
Discovery Fund
Class A 1.33% February 28, 2010
Class C 2.08% February 28, 2010
Administrator Class 1.15% February 28, 2010
Institutional Class 0.95% February 28, 2010
Investor Class 1.38% February 28, 2010
Diversified Bond Fund
Administrator Class 0.70% September 30, 2009
----------
|
/1/ On August 12, 2009, the Board of Trustees approved a fundamental investment policy change for the California Tax-Free Money Market Fund and California Tax-Free Money Market Trust. Upon shareholder approval the fundamental investment policy and the Fund names will change to the California Municipal Money Market Fund and California Municipal Money Market Trust, effective December 1, 2009.
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Diversified Equity Fund
Class A 1.25% January 31, 2010
Class B 2.00% January 31, 2010
Class C 2.00% January 31, 2010
Administrator Class 1.00% January 31, 2010
Diversified Small Cap Fund
Administrator Class 1.00% January 31, 2010
Emerging Growth Fund
Class A 1.45% January 31, 2010
Class C 2.20% January 31, 2010
Administrator Class 1.20% January 31, 2010
Institutional Class 0.95% January 31, 2010
Investor Class 1.49% January 31, 2010
Emerging Markets Equity Fund
Class A 1.90% January 31, 2010
Class B 2.65% January 31, 2010
Class C 2.65% January 31, 2010
Administrator Class 1.60% January 31, 2010
Endeavor Select Fund
Class A 1.25% November 30, 2009
Class B 2.00% November 30, 2009
Class C 2.00% November 30, 2009
Administrator Class 1.00% November 30, 2009
Institutional Class 0.80% November 30, 2009
Enterprise Fund
Class A 1.35% February 28, 2010
Class C 2.10% February 28, 2010
Administrator Class 1.15% February 28, 2010
Institutional Class 0.90% February 28, 2010
Investor Class 1.45% February 28, 2010
Equity Income Fund
Class A 1.10% January 31, 2010
Class B 1.85% January 31, 2010
Class C 1.85% January 31, 2010
Administrator Class 0.85% January 31, 2010
Equity Value Fund
Class A 1.25% January 31, 2010
Class B 2.00% January 31, 2010
Class C 2.00% January 31, 2010
Administrator Class 1.00% January 31, 2010
Institutional Class 0.75% January 31, 2010
Government Money Market Fund
Class A 0.65% June 30, 2010
Administrator Class 0.35% June 30, 2010
Institutional Class 0.20% June 30, 2010
Service Class 0.50% June 30, 2010
A-3
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Government Securities Fund
Class A 0.90% September 30, 2009
Class B 1.65% September 30, 2009
Class C 1.65% September 30, 2009
Administrator Class 0.70% September 30, 2009
Institutional Class 0.48% September 30, 2009
Investor Class 0.95% September 30, 2009
Growth Fund
Class A 1.30% November 30, 2009
Class C 2.05% November 30, 2009
Administrator Class 0.96% November 30, 2009
Institutional Class 0.80% November 30, 2009
Investor Class 1.40% November 30, 2009
Growth Balanced Fund
Class A 1.20% January 31, 2010
Class B 1.95% January 31, 2010
Class C 1.95% January 31, 2010
Administrator Class 0.95% January 31, 2010
Growth Equity Fund
Class A 1.50% January 31, 2010
Class B 2.25% January 31, 2010
Class C 2.25% January 31, 2010
Administrator Class 1.25% January 31, 2010
Institutional Class 1.05% January 31, 2010
Heritage Money Market Fund
Administrator Class 0.35% June 30, 2010
Institutional Class 0.20% June 30, 2010
Select Class 0.13% June 30, 2010
High Income Fund
Class A 0.90% September 30, 2009
Class B 1.65% September 30, 2009
Class C 1.65% September 30, 2009
Institutional Class 0.50% September 30, 2009
Investor Class 0.95% September 30, 2009
Income Plus Fund
Class A 0.90% September 30, 2009
Class B 1.65% September 30, 2009
Class C 1.65% September 30, 2009
Institutional Class 0.61% September 30, 2009
Investor Class 0.94% September 30, 2009
Index Fund
Class A 0.62% January 31, 2010
Class B 1.37% January 31, 2010
Administrator Class 0.25% January 31, 2010
Investor Class 0.45% January 31, 2010
A-4
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Inflation-Protected Bond Fund
Class A 0.85% September 30, 2009
Class B 1.60% September 30, 2009
Class C 1.60% September 30, 2009
Administrator Class 0.60% September 30, 2009
Intermediate Tax/AMT-Free Fund
Class A 0.70% October 31, 2009
Class C 1.45% October 31, 2009
Administrator Class 0.60% October 31, 2009
Institutional Class 0.42% October 31, 2009
Investor Class 0.75% October 31, 2009
International Core Fund
Class A 1.50% January 31, 2010
Class B 2.25% January 31, 2010
Class C 2.25% January 31, 2010
Administrator Class 1.25% January 31, 2010
International Equity Fund
Class A 1.41% January 31, 2010
Class B 2.16% January 31, 2010
Class C 2.16% January 31, 2010
Administrator Class 1.25% January 31, 2010
Institutional Class 0.99% January 31, 2010
Investor Class 1.46% January 31, 2010
International Value Fund
Class A 1.50% January 31, 2010
Class B 2.25% January 31, 2010
Class C 2.25% January 31, 2010
Administrator Class 1.25% January 31, 2010
Institutional Class 1.05% January 31, 2010
Large Cap Appreciation Fund
Class A 1.25% January 31, 2010
Class B 2.00% January 31, 2010
Class C 2.00% January 31, 2010
Administrator Class 1.00% January 31, 2010
Institutional Class 0.70% January 31, 2010
Large Cap Growth Fund
Investor Class 1.19% November 30, 2009
Large Company Core Fund
Class A 1.14% November 30, 2009
Class B 1.89% November 30, 2009
Class C 1.89% November 30, 2009
Administrator Class 0.95% November 30, 2009
Investor Class 1.28% November 30, 2009
Institutional Class 0.66% November 30, 2009
A-5
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Large Company Growth Fund
Class A 1.20% January 31, 2010
Class B 1.95% January 31, 2010
Class C 1.95% January 31, 2010
Administrator Class 0.95% January 31, 2010
Institutional Class 0.75% January 31, 2010
Investor Class 1.27% January 31, 2010
Large Company Value Fund
Class A 1.25% November 30, 2009
Class C 2.00% November 30, 2009
Administrator Class 0.96% November 30, 2009
Institutional Class 0.75% November 30, 2009
Investor Class 1.35% November 30, 2009
Mid Cap Disciplined Fund
Class A 1.25% February 28, 2010
Class C 2.00% February 28, 2010
Administrator Class 1.15% February 28, 2010
Institutional Class 0.90% February 28, 2010
Investor Class 1.31% February 28, 2010
Mid Cap Growth Fund
Class A 1.35% February 28, 2010
Class B 2.10% February 28, 2010
Class C 2.10% February 28, 2010
Administrator Class 1.15% February 28, 2010
Institutional Class 0.90% February 28, 2010
Investor Class 1.45% February 28, 2010
Minnesota Money Market Fund
Class A 0.80% June 30, 2010
Minnesota Tax-Free Fund
Class A 0.85% October 31, 2009
Class B 1.60% October 31, 2009
Class C 1.60% October 31, 2009
Administrator Class 0.60% October 31, 2009
Moderate Balanced Fund
Class A 1.15% January 31, 2010
Class B 1.90% January 31, 2010
Class C 1.90% January 31, 2010
Administrator Class 0.90% January 31, 2010
Money Market Fund
Class A 0.76% June 30, 2010
Class B 1.51% June 30, 2010
Investor Class 0.65% June 30, 2010
Money Market Trust 0.20% June 30, 2010
A-6
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Municipal Bond Fund
Class A 0.75% October 31, 2009
Class B 1.50% October 31, 2009
Class C 1.50% October 31, 2009
Administrator Class 0.60% October 31, 2009
Institutional Class/2/ 0.42% October 31, 2009
Investor Class 0.80% October 31, 2009
Municipal Money Market Fund
Institutional Class 0.20% June 30, 2010
Investor Class 0.64% June 30, 2010
National Tax-Free Money Market Fund
Class A 0.65% June 30, 2010
Administrator Class 0.30% June 30, 2010
Institutional Class 0.20% June 30, 2010
Service Class 0.45% June 30, 2010
National Tax-Free Money Market Trust 0.20% June 30, 2010
Opportunity Fund
Class A 1.29% February 28, 2010
Class C 2.04% February 28, 2010
Administrator Class 1.04% February 28, 2010
Investor Class 1.35% February 28, 2010
Overland Express Sweep Fund 1.08% June 30, 2010
Prime Investment Money Market Fund
Institutional Class 0.20% June 30, 2010
Service Class 0.55% June 30, 2010
Short Duration Government Bond Fund
Class A 0.85% September 30, 2009
Class B 1.60% September 30, 2009
Class C 1.60% September 30, 2009
Administrator Class 0.60% September 30, 2009
Institutional Class 0.42% September 30, 2009
Short-Term Bond Fund
Class A 0.80% September 30, 2009
Class C 1.55% September 30, 2009
Institutional Class 0.48% September 30, 2009
Investor Class 0.85% September 30, 2009
Short-Term High Yield Bond Fund
Class A 0.81% September 30, 2009
Class C 1.56% September 30, 2009
Investor Class 0.86% September 30, 2009
----------
|
/2/ On June 2, 2009, the Board of Trustees approved an increase to the Municipal Bond Fund Institutional Class from 0.42% to 0.50% effective November 1, 2009.
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Short-Term Municipal Bond Fund
Class A 0.60% October 31, 2009
Class C 1.35% October 31, 2009
Institutional Class 0.40% October 31, 2009
Investor Class 0.66% October 31, 2009
Small Cap Disciplined Fund
Class A 1.45% February 28, 2010
Class C 2.20% February 28, 2010
Administrator Class 1.20% February 28, 2010
Institutional Class 1.00% February 28, 2010
Investor Class 1.49% February 28, 2010
Small Cap Growth Fund
Class A 1.40% February 28, 2010
Class B 2.15% February 28, 2010
Class C 2.15% February 28, 2010
Administrator Class 1.20% February 28, 2010
Institutional Class 0.90% February 28, 2010
Investor Class 1.49% February 28, 2010
Small Cap Opportunities Fund
Administrator Class 1.20% February 28, 2010
Small Cap Value Fund
Class A 1.44% February 28, 2010
Class B 2.19% February 28, 2010
Class C 2.19% February 28, 2010
Institutional Class 0.95% February 28, 2010
Investor Class 1.36% February 28, 2010
Small Company Growth Fund
Class A 1.45% January 31, 2010
Class B 2.20% January 31, 2010
Class C 2.20% January 31, 2010
Administrator Class 1.20% January 31, 2010
Institutional Class 0.95% January 31, 2010
Small Company Value Fund
Class A 1.45% January 31, 2010
Class B 2.20% January 31, 2010
Class C 2.20% January 31, 2010
Administrator Class 1.20% January 31, 2010
Small/Mid Cap Value Fund
Class A 1.40% February 28, 2010
Class C 2.15% February 28, 2010
Administrator Class 1.15% February 28, 2010
Institutional Class 0.95% February 28, 2010
Investor Class 1.49% February 28, 2010
Social Sustainability Fund
Class A 1.25% November 30, 2009
Class C 2.00% November 30, 2009
Administrator Class 1.00% November 30, 2009
A-8
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Specialized Financial Services Fund
Class A 1.35% February 28, 2010
Class B 2.10% February 28, 2010
Class C 2.10% February 28, 2010
Specialized Technology Fund
Class A 1.75% February 28, 2010
Class B 2.50% February 28, 2010
Class C 2.50% February 28, 2010
Investor Class 1.85% February 28, 2010
Stable Income Fund
Class A 0.85% September 30, 2009
Class B 1.60% September 30, 2009
Class C 1.60% September 30, 2009
Administrator Class 0.65% September 30, 2009
Strategic Income Fund
Class A 1.10% September 30, 2009
Class B 1.85% September 30, 2009
Class C 1.85% September 30, 2009
Strategic Small Cap Value Fund/3/
Class A 1.45% January 31, 2010
Class C 2.20% January 31, 2010
Administrator Class 1.20% January 31, 2010
Target Today Fund/4/
Class A 1.15% June 30, 2010
Class B 1.90% June 30, 2010
Class C 1.90% June 30, 2010
Administrator Class 0.85% June 30, 2010
Institutional Class 0.62% June 30, 2010
Investor Class 0.91% June 30, 2010
Target 2010 Fund/4/
Class A 1.18% June 30, 2010
Class B 1.93% June 30, 2010
Class C 1.93% June 30, 2010
Administrator Class 0.88% June 30, 2010
Institutional Class 0.65% June 30, 2010
Investor Class 0.94% June 30, 2010
----------
|
/3/ On June 2, 2009, the Board of Trustees approved the liquidation of the Strategic Small Cap Value Fund effective on or about August 21, 2009.
/4/ On August 12, 2009, the Board of Trustees were notified of reductions to the net operating expense ratios for each of the Target Date Funds. Effective from October 1, 2009 through June 30, 2010 the reductions will be as follows: Institutional Class reduced by 17 basis points; Administrator Class reduced by 5 basis points; Class A, B and C reduced by 17 basis points; and Investor Class reduced by 5 basis points.
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Target 2015 Fund/4/
Institutional Class 0.66% June 30, 2010
Administrator Class 0.89% June 30, 2010
Investor Class 0.95% June 30, 2010
Target 2020 Fund/4/
Class A 1.20% June 30, 2010
Class B 1.95% June 30, 2010
Class C 1.95% June 30, 2010
Administrator Class 0.90% June 30, 2010
Institutional Class 0.67% June 30, 2010
Investor Class 0.96% June 30, 2010
Target 2025 Fund/4/
Administrator Class 0.90% June 30, 2010
Institutional Class 0.67% June 30, 2010
Investor Class 0.96% June 30, 2010
Target 2030 Fund/4/
Class A 1.21% June 30, 2010
Class B 1.96% June 30, 2010
Class C 1.96% June 30, 2010
Administrator Class 0.91% June 30, 2010
Institutional Class 0.68% June 30, 2010
Investor Class 0.97% June 30, 2010
Target 2035 Fund/4/
Administrator Class 0.92% June 30, 2010
Institutional Class 0.69% June 30, 2010
Investor Class 0.98% June 30, 2010
Target 2040 Fund/4/
Class A 1.22% June 30, 2010
Class B 1.97% June 30, 2010
Class C 1.97% June 30, 2010
Administrator Class 0.92% June 30, 2010
Institutional Class 0.69% June 30, 2010
Investor Class 0.98% June 30, 2010
Target 2045 Fund/4/
Administrator Class 0.92% June 30, 2010
Institutional Class 0.69% June 30, 2010
Investor Class 0.98% June 30, 2010
Target 2050 Fund/4/
Administrator Class 0.92% June 30, 2010
Institutional Class 0.69% June 30, 2010
Investor Class 0.98% June 30, 2010
Total Return Bond Fund
Class A 0.85% September 30, 2009
Class B 1.60% September 30, 2009
Class C 1.60% September 30, 2009
Administrator Class 0.70% September 30, 2009
Institutional Class 0.42% September 30, 2009
Investor Class 0.90% September 30, 2009
A-10
|
CAPPED OPERATING EXPIRATION /
FUNDS/CLASSES EXPENSE RATIO RENEWAL DATE
---------------------------------------- ---------------- ------------------
Treasury Plus Money Market Fund
Class A 0.65% June 30, 2010
Administrator Class 0.35% June 30, 2010
Institutional Class 0.20% June 30, 2010
Service Class 0.50% June 30, 2010
Ultra Short-Term Income Fund
Class A 0.70% September 30, 2009
Class C 1.45% September 30, 2009
Administrator Class 0.55% September 30, 2009
Institutional Class 0.35% September 30, 2009
Investor Class 0.75% September 30, 2009
Ultra Short-Term Municipal Income Fund
Class A 0.67% October 31, 2009
Class C 1.42% October 31, 2009
Institutional Class 0.37% October 31, 2009
Investor Class 0.72% October 31, 2009
U.S. Value Fund
Class A 1.25% November 30, 2009
Class B 2.00% November 30, 2009
Class C 2.00% November 30, 2009
Administrator Class 0.96% November 30, 2009
Investor Class 1.32% November 30, 2009
WealthBuilder Conservative Allocation
Portfolio 1.50% September 30, 2009
WealthBuilder Equity Portfolio 1.50% September 30, 2009
WealthBuilder Growth Allocation
Portfolio 1.50% September 30, 2009
WealthBuilder Growth Balanced Portfolio 1.50% September 30, 2009
WealthBuilder Moderate Balanced
Portfolio 1.50% September 30, 2009
WealthBuilder Tactical Equity Portfolio 1.50% September 30, 2009
Wisconsin Tax-Free Fund
Class A 0.70% October 31, 2009
Class C 1.49% October 31, 2009
Investor Class 0.75% October 31, 2009
100% Treasury Money Market Fund
Class A 0.65% June 30, 2010
Service Class 0.50% June 30, 2010
Most Recent Annual Approval: March 27, 2009
|
Schedule A amended: August 12, 2009
The foregoing schedule of capped operating expense ratios is agreed to as of August 12, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST
WELLS FARGO FUNDS MANAGEMENT, LLC
AS OF MAY 18, 2004
AMENDED AND RESTATED FEE AND EXPENSE AGREEMENT
SCHEDULE B
WELLS FARGO FUNDS TRUST
NOT SUBJECT TO CAPPED OPERATING EXPENSE RATIOS
DATE OF
REMOVAL FROM
NAME OF FUND/CLASS SCHEDULE A
------------------ -------------------
|
Exhibit 99.(d)(4)
APPENDIX A
WELLS CAPITAL MANAGEMENT INCORPORATED
INVESTMENT SUB-ADVISORY AGREEMENT
WELLS FARGO FUNDS TRUST
Funds Trust Funds
Aggressive Allocation Fund
Asia Pacific Fund
Asset Allocation Fund
California Limited-Term Tax-Free Fund
California Tax-Free Fund
California Tax-Free Money Market Fund/1/
California Tax-Free Money Market Trust/1/
Capital Growth Fund
Cash Investment Money Market Fund
Colorado Tax-Free Fund
Common Stock Fund
Conservative Allocation Fund
Discovery Fund
Emerging Markets Equity Fund
Endeavor Select Fund
Enterprise Fund
Government Money Market Fund
Government Securities Fund
Growth Balanced Fund
Growth Fund
Heritage Money Market Fund
High Income Fund
Income Plus Fund
Intermediate Tax/AMT-Free Fund
Large Cap Growth Fund
Managed Account CoreBuilder Shares Series G Managed Account CoreBuilder Shares Series M Mid Cap Disciplined Fund Mid Cap Growth Fund Minnesota Money Market Fund Minnesota Tax-Free Fund Moderate Balanced Fund Money Market Fund Money Market Trust Municipal Bond Fund Municipal Money Market Fund National Tax-Free Money Market Fund
Funds Trust Funds
National Tax-Free Money Market Trust
Opportunity Fund
Overland Express Sweep Fund
Prime Investment Money Market Fund
Short Duration Government Bond Fund
Short-Term Bond Fund
Short-Term High Yield Bond Fund
Short-Term Municipal Bond Fund
Small Cap Disciplined Fund
Small Cap Growth Fund
Small Cap Value Fund
Small Mid/Cap Value Fund
Specialized Financial Services Fund
Strategic Income Fund
Treasury Plus Money Market Fund
Ultra Short-Term Income Fund
Ultra Short-Term Municipal Income Fund
U.S. Value Fund
WealthBuilder Conservative Allocation Portfolio WealthBuilder Equity Portfolio WealthBuilder Growth Allocation WealthBuilder Growth Balanced Portfolio WealthBuilder Moderate Balanced Portfolio WealthBuilder Tactical Equity Portfolio Wisconsin Tax-Free Fund 100% Treasury Money Market Fund
Most recent annual approval by the Board of Trustees: March 27, 2009 Appendix A amended: August 12, 2009
SCHEDULE A
WELLS CAPITAL MANAGEMENT INCORPORATED
INVESTMENT SUB-ADVISORY AGREEMENT
FEE AGREEMENT
WELLS FARGO FUNDS TRUST
This fee agreement is made as of the 27th day of March, 2009, by and between Wells Fargo Funds Management, LLC (the "Adviser") and Wells Capital Management Incorporated (the "Sub-Adviser"); and
WHEREAS, the parties and Wells Fargo Funds Trust (the "Trust") have entered into an Investment Sub-Advisory Agreement ("Sub-Advisory Agreement") whereby the Sub-Adviser provides investment management advice to each series of the Trust as listed in Appendix A to the Sub-Advisory Agreement (each a "Fund" and collectively the "Funds").
WHEREAS, the Sub-Advisory Agreement provides that the fees to be paid to the Sub-Adviser are to be as agreed upon in writing by the parties.
NOW THEREFORE, the parties agree that the fees to be paid to the Sub-Adviser under the Sub-Advisory Agreement shall be calculated as follows on a monthly basis by applying the annual rates described in this Schedule A to Appendix A for each Fund listed in Appendix A.
The Sub-Adviser shall receive a fee as described in this Schedule A to Appendix A of the assets of the Aggressive Allocation Fund, Conservative Allocation Fund, Growth Balanced Fund and Moderate Balanced Fund and from each WealthBuilder Portfolio for providing services with respect to which Master Trust Portfolios (or, in the case of the WealthBuilder Portfolios, other unaffiliated funds) these Funds will invest in and the percentage to allocate to each Master Portfolio or unaffiliated fund in reliance on Section 12(d)(1)(G) under the Act, the rules thereunder, or order issued by the Commission exempting the Fund from the provisions of Section 12(d)(1)(A) under the Act (a "Fund of Funds structure").
The net assets under management against which the foregoing fees are to be applied are the net assets as of the first business day of the month. If this fee agreement becomes effective subsequent to the first day of a month or shall terminate before the last day of a month, compensation for that part of the month this agreement is in effect shall be subject to a pro rata adjustment based on the number of days elapsed in the current month as a percentage of the total number of days in such month. If the determination of the net asset value is suspended as of the first business day of the month, the net asset value for the last day prior to such suspension shall for this purpose be deemed to be the net asset value on the first business day of the month.
SCHEDULE A
WELLS CAPITAL MANAGEMENT INCORPORATED
INVESTMENT SUB-ADVISORY AGREEMENT
FEE AGREEMENT
WELLS FARGO FUNDS TRUST
Fee as % of Avg.
Funds Trust Funds Daily Net Assets
----------------------------------------------- -----------------
Aggressive Allocation Fund First 250M 0.10
Over 250M 0.05
Asia Pacific Fund First 100M 0.65
Next 100M 0.55
Over 200M 0.45
Asset Allocation Fund First 100M 0.15
Next 100M 0.125
Over 200M 0.10
California Limited-Term Tax-Free Fund First 100M 0.15
Next 200M 0.10
Over 300M 0.05
California Tax-Free Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
California Tax-Free Money Market Fund/2/ First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
California Tax-Free Money Market Trust/1/ 0.00
Capital Growth Fund First 100M 0.35
Next 100M 0.30
Next 300M 0.20
Over 500M 0.15
Cash Investment Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
Colorado Tax-Free Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
----------
|
/2/ On August 12, 2009, the Board of Trustees approved a fundamental investment policy change for the California Tax-Free Money Market Fund and California Tax-Free Money Market Trust. Upon shareholder approval the fundamental investment policy and the Fund names will change to the California Municipal Money Market Fund and California Municipal Money Market Trust, effective December 1, 2009.
Fee as % of Avg.
Funds Trust Funds Daily Net Assets
----------------------------------------------- -----------------
Common Stock Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.30
Conservative Allocation Fund First 250M 0.10
Over 250M 0.05
Discovery Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.35
Emerging Markets Equity Fund First 100M 0.65
Next 100M 0.55
Over 200M 0.45
Endeavor Select Fund First 100M 0.35
Next 100M 0.30
Next 300M 0.20
Over 500M 0.15
Enterprise Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.30
Government Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
Government Securities Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
Growth Balanced Fund First 250M 0.10
Over 250M 0.05
Growth Fund First 100M 0.35
Next 100M 0.30
Next 300M 0.20
Over 500M 0.15
Heritage Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
High Income Fund First 100M 0.35
Next 200M 0.30
Next 200M 0.25
Over 500M 0.20
Income Plus Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
Intermediate Tax/AMT-Free Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
|
Fee as % of Avg.
Funds Trust Funds Daily Net Assets
----------------------------------------------- -----------------
Large Cap Growth Fund First 100M 0.35
Next 100M 0.30
Next 300M 0.20
Over 500M 0.15
Managed Account CoreBuilder Shares Series G 0.00
Managed Account CoreBuilder Shares Series M 0.00
Mid Cap Disciplined Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.30
Mid Cap Growth Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.30
Minnesota Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
Minnesota Tax-Free Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
Moderate Balanced Fund First 250M 0.10
Over 250M 0.05
Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
Money Market Trust 0.00
Municipal Bond Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
Municipal Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
National Tax-Free Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
National Tax-Free Money Market Trust 0.00
Opportunity Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.30
Overland Express Sweep Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
|
Fee as % of Avg.
Funds Trust Funds Daily Net Assets
----------------------------------------------- -----------------
Prime Investment Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
Short Duration Government Bond Fund First 100M 0.15
Next 200M 0.10
Over 300M 0.05
Short-Term Bond Fund First 100M 0.15
Next 200M 0.10
Over 300M 0.05
Short-Term High Yield Bond Fund First 100M 0.35
Next 200M 0.30
Next 200M 0.25
Over 500M 0.20
Short-Term Municipal Bond Fund First 100M 0.15
Next 200M 0.10
Over 300M 0.05
Small Cap Disciplined Fund First 100M 0.55
Next 100M 0.50
Over 200M 0.40
Small Cap Growth Fund First 100M 0.55
Next 100M 0.50
Over 200M 0.40
Small Cap Value Fund First 100M 0.55
Next 100M 0.50
Over 200M 0.40
Small Mid/Cap Value Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.35
Specialized Financial Services Fund First 100M 0.45
Next 100M 0.40
Over 200M 0.30
Strategic Income Fund First 100M 0.35
Next 200M 0.30
Next 200M 0.25
Over 500M 0.20
Treasury Plus Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
Ultra Short-Term Income Fund First 100M 0.15
Next 200M 0.10
Over 300M 0.05
Ultra Short-Term Municipal Income Fund First 100M 0.15
Next 200M 0.10
Over 300M 0.05
|
Fee as % of Avg.
Funds Trust Funds Daily Net Assets
----------------------------------------------- -----------------
U.S. Value Fund First 100M 0.35
Next 100M 0.30
Next 300M 0.20
Over 500M 0.15
WealthBuilder Conservative Allocation Portfolio 0.15
WealthBuilder Equity Portfolio 0.15
WealthBuilder Growth Allocation Portfolio 0.15
WealthBuilder Growth Balanced Portfolio 0.15
WealthBuilder Moderate Balanced Portfolio 0.15
WealthBuilder Tactical Equity Portfolio 0.15
Wisconsin Tax-Free Fund First 100M 0.20
Next 200M 0.175
Next 200M 0.15
Over 500M 0.10
100% Treasury Money Market Fund First 1B 0.05
Next 2B 0.03
Next 3B 0.02
Over 6B 0.01
|
Most recent annual approval by the Board of Trustees: March 27, 2009 Schedule A amended: August 12, 2009
The foregoing fee schedule is agreed to as of August 12, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS MANAGEMENT, LLC
WELLS CAPITAL MANAGEMENT INCORPORATED
Exhibit 99.(d)(6)
APPENDIX B
GLOBAL INDEX ADVISORS SUB-ADVISORY AGREEMENT
FEE AGREEMENT
WELLS FARGO FUNDS TRUST
This fee agreement is effective as of the 26th day of June, 2006, by and between Wells Fargo Funds Trust (the "Trust"), Wells Fargo Funds Management, LLC (the "Adviser") and Global Index Advisors, Inc. (the "Sub-Adviser").
WHEREAS, the parties have entered into an Investment Sub-Advisory Agreement ("Sub-Advisory Agreement") whereby the Sub-Adviser provides management and other services to each series of the Trust listed in Appendix A to the Sub-Advisory Agreement (each a "Fund" and collectively the "Funds"); and
WHEREAS, the Sub-Advisory Agreement provides that the fees to be paid to the Sub-Adviser are to be as indicated on this Appendix B;
NOW THEREFORE, the parties agree that the fees to be paid to the Sub-Adviser under the Sub-Advisory Agreement shall be calculated and paid on a monthly basis by applying the annual rates indicated below to the average daily net assets of each Fund throughout the month:
Name of Fund Sub-Advisory Rate/1/ ------------------------------------------------- -------------------- Wells Fargo Advantage Dow Jones Target 2050 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2045 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2040 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2035 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2030 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2025 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2020 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2015 Fund 0.06% Wells Fargo Advantage Dow Jones Target 2010 Fund 0.06% Wells Fargo Advantage Dow Jones Target Today Fund 0.06% |
If the Sub-Adviser shall provide management and other services for less than the whole of a month, the foregoing compensation shall be prorated based on the number of days in the month that such Sub-Adviser provided management and other services to the Fund.
dc-61928
The foregoing fee schedule is agreed to as of this 12th day of August, 2009, and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST
on behalf of the Fund
WELLS FARGO FUNDS MANAGEMENT, LLC
GLOBAL INDEX ADVISORS, INC.
Exhibit 99.(e)
SCHEDULE I
DISTRIBUTION AGREEMENT
WELLS FARGO FUNDS TRUST
100% Treasury Money Market Fund
Aggressive Allocation Fund
Asia Pacific Fund
Asset Allocation Fund
C&B Large Cap Value Fund
C&B Mid Cap Value Fund
California Limited-Term Tax-Free Fund
California Tax-Free Fund
California Tax-Free Money Market Fund/1/
California Tax-Free Money Market Trust/1/
Capital Growth Fund
Cash Investment Money Market Fund
Colorado Tax-Free Fund
Common Stock Fund
Conservative Allocation Fund
Discovery Fund
Diversified Bond Fund
Diversified Equity Fund
Diversified Small Cap Fund
Emerging Growth Fund
Emerging Markets Equity Fund
Endeavor Select Fund
Enterprise Fund
Equity Income Fund
Equity Value Fund
Government Money Market Fund
Government Securities Fund
Growth Fund
Growth Balanced Fund
Growth Equity Fund
Heritage Money Market Fund
High Income Fund
Income Plus Fund
Index Fund
Inflation-Protected Bond Fund
Intermediate Tax/AMT-Free Fund
International Core Fund
International Equity Fund
International Value Fund Large Cap Appreciation Fund Large Cap Growth Fund Large Company Core Fund Large Company Value Fund Large Company Growth Fund Managed Account CoreBuilder Shares Series G Managed Account CoreBuilder Shares Series M Mid Cap Disciplined Fund Mid Cap Growth Fund Minnesota Money Market Fund Minnesota Tax-Free Fund Moderate Balanced Fund Money Market Fund Money Market Trust Municipal Bond Fund Municipal Money Market Fund National Tax-Free Money Market Trust National Tax-Free Money Market Fund Opportunity Fund Overland Express Sweep Fund Prime Investment Money Market Fund Short Duration Government Bond Fund Short-Term Bond Fund Short-Term High Yield Bond Fund Short-Term Municipal Bond Fund Small Cap Disciplined Fund Small Cap Growth Fund Small Cap Opportunities Fund Small Cap Value Fund Small Company Growth Fund Small Company Value Fund Small/Mid Cap Value Fund Social Sustainability Fund Specialized Financial Services Fund Specialized Technology Fund Stable Income Fund Strategic Income Fund Strategic Small Cap Value Fund/2/ Target 2010 Fund Target 2015 Fund Target 2020 Fund Target 2025 Fund Target 2030 Fund
Target 2035 Fund Target 2040 Fund Target 2045 Fund Target 2050 Fund Target Today Fund Total Return Bond Fund Treasury Plus Money Market Fund U.S. Value Fund Ultra Short-Term Income Fund Ultra Short-Term Municipal Income Fund WealthBuilder Conservative Allocation Portfolio WealthBuilder Equity Portfolio WealthBuilder Growth Allocation Portfolio WealthBuilder Growth Balanced Portfolio WealthBuilder Moderate Balanced Portfolio WealthBuilder Tactical Equity Portfolio Wisconsin Tax-Free Fund
Most recent annual approval by the Board of Trustees: March 27, 2009 Schedule I Amended: August 12, 2009
Exhibit 99.(g)(1)
APPENDIX A
CUSTODY AGREEMENT
WELLS FARGO FUNDS TRUST
For its custodial services, the Custodian shall receive a fee, with respect to each Fund of 0.02% of the average daily net assets of each such Fund. Exceptions to the custodial fees are noted below for the following Funds:
. The custodial fee for the WealthBuilder Portfolios is 0.00% so as long as they invest their assets solely in one or more investment companies.
. The custodial fee for the Gateway Funds, which are listed below with an asterisk, is 0.00% so long as they remain Gateway Funds.
. The custodial fee of 0.02% for the Managed Account CoreBuilder Shares Series G and Managed Account CoreBuilder Shares Series M will be paid by the investment adviser, Wells Fargo Funds Management, LLC.
. The custodial fee for the International Core Fund, International Equity Fund and International Value Fund is 0.10%.
. The custodial fee for the Asia Pacific Fund and Emerging Markets Equity Fund is 0.25%.
. The custodial fee for the Specialized Technology Fund is 0.07%.
22. Enterprise Fund
23. Equity Income Fund*
24. Equity Value Fund*
25. Government Money Market Fund
26. Government Securities Fund
27. Growth Balanced Fund*
28. Growth Equity Fund*
29. Growth Fund
30. Heritage Money Market Fund
31. High Income Fund
32. Income Plus Fund
33. Index Fund*
34. Inflation-Protected Bond Fund*
35. Intermediate Tax/AMT-Free Fund
36. International Core Fund
37. International Equity Fund
38. International Value Fund*
39. Large Cap Appreciation Fund*
40. Large Cap Growth Fund
41. Large Company Core Fund
42. Large Company Growth Fund*
43. Large Company Value Fund
44. Managed Account CoreBuilder Shares Series G
45. Managed Account CoreBuilder Shares Series M
46. Mid Cap Disciplined Fund
47. Mid Cap Growth Fund
48. Minnesota Money Market Fund
49. Minnesota Tax-Free Fund
50. Moderate Balanced Fund*
51. Money Market Fund
52. Money Market Trust
53. Municipal Bond Fund
54. Municipal Money Market Fund
55. National Tax-Free Money Market Fund
56. National Tax-Free Money Market Trust
57. Opportunity Fund
58. Overland Express Sweep Fund
59. Prime Investment Money Market Fund
60. Short Duration Government Bond Fund
61. Short-Term Bond Fund
62. Short-Term High Yield Bond Fund
63. Short-Term Municipal Bond Fund
64. Small Cap Disciplined Fund
65. Small Cap Growth Fund
66. Small Cap Opportunities Fund
67. Small Cap Value Fund
68. Small Company Growth Fund*
69. Small Company Value Fund*
70. Small/Mid Cap Value Fund
71. Social Sustainability Fund
72. Specialized Financial Services Fund
73. Specialized Technology Fund
74. Stable Income Fund*
75. Strategic Income Fund
76. Strategic Small Cap Value Fund*/1/
77. Target Today Fund*
78. Target 2010 Fund*
79. Target 2015 Fund*
80. Target 2020 Fund*
81. Target 2025 Fund*
82. Target 2030 Fund*
83. Target 2035 Fund*
84. Target 2040 Fund*
85. Target 2045 Fund*
86. Target 2050 Fund*
87. Total Return Bond Fund*
88. Treasury Plus Money Market Fund
89. Ultra Short-Term Income Fund
90. Ultra Short-Term Municipal Income Fund
91. U.S. Value Fund
92. WealthBuilder Conservative Allocation Portfolio
93. WealthBuilder Equity Portfolio
94. WealthBuilder Growth Allocation Portfolio
95. WealthBuilder Growth Balanced Portfolio
96. WealthBuilder Moderate Balanced Portfolio
97. WealthBuilder Tactical Equity Portfolio
98. Wisconsin Tax-Free Fund
99. 100% Treasury Money Market Fund
Most recent annual approval by the Board of Trustees: March 27, 2009 Appendix A amended: June 2, 2009
/1/ On June 2, 2009, the Board of Trustees approved the liquidation of the Strategic Small Cap Value Fund effective on or about August 21, 2009.
The foregoing fee schedule is agreed to as of June 2, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST
WELLS FARGO BANK, N.A.
Exhibit 99.(g)(2)
Exhibit A
DELEGATION AGREEMENT
WELLS FARGO FUNDS TRUST
Portfolios of Wells Fargo Funds Trust
Asia Pacific Fund
Common Stock Fund
Emerging Markets Equity Fund
International Core Fund
International Equity Fund
International Value Fund
Mid Cap Disciplined Fund
Opportunity Fund
Small Cap Disciplined Fund
Small Cap Opportunities Fund
Small Cap Value Fund
Small/Mid Cap Value Fund
Social Sustainability Fund
Specialized Technology Fund
Strategic Small Cap Value Fund/1/
Most recent annual approval by the Board of Trustees: March 27, 2009 Exhibit A amended: June 2, 2009
Exhibit 99.(g)(3)
SCHEDULE 4
Permitted Collateral Investments
[LOGO OF WELLS FARGO] Wells Fargo Securities Lending
Wells Fargo Advantage Mutual Fund
Collateral Investment Portfolio Guidelines
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Investment Objective:
The Portfolio seeks to provide a positive return compared to the daily Fed Funds rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments, where the prime considerations for the Portfolio shall be safety of principal and daily liquidity requirements. The Portfolio may invest in securities with fixed, variable, or floating rates of interest. The Portfolio seeks to achieve a stable $1.00 price per share, and the interest is determined daily, accumulated and distributed monthly. Portfolio investments are valued based upon the amortized cost valuation technique pursuant to Rule 2a-7 under the Investment Company Act of 1940.
Portfolio Guidelines:
Quality:
. An obligation must be rated in the highest short-term rating category by one of two Nationally Recognized Statistical Reporting Organization (NRSRO), for example A-1 by Standard & Poor's Corp, or P-1 by Moody's Investor Services, Inc. If the obligor is rated by more than one NRSRO, each rating must meet the minimum rating criteria. In the event the obligor does not have a short-term rating, its long-term debt rating must be within the `A' or better category.
. A financial institution approved for repurchase agreement transactions must carry the highest short-term rating category by at least two NRSROs. One of the two highest short-term ratings of the NRSROs must be either Standard & Poor's Corp., or Moody's Investors Service Inc.
Maturity:
. The maximum weighted average maturity of the Portfolio will not exceed 45 days.
. Issues must mature in 397 days or less. Issues with fixed rates must mature in 365 days or less.
. Repurchase agreements must mature in one year or less.
Diversification:
. Maximum of 5% of the Portfolio will be invested in any single issuer except for U.S. Governments, it's agencies, and instrumentalities, and repurchase agreements.
. Maximum of 35% of the Portfolio will be invested in variable rate issues.
. Minimum of 20% of the Portfolio will be invested on an overnight basis.
. Maximum of 10% of the Portfolio will be invested in illiquid instruments.
Issue Selection:
. U.S. Treasury and Government sponsored agency obligations
. Repurchase agreements
. Variable rate or put issues
. Approved money market funds
. Domestic and foreign bank obligations, and bankers' acceptances
. Debt obligations, including commercial paper and participations, corporate notes, bonds and debentures
. Mortgage-backed and mortgage pass-through securities
. Asset-backed securities
. Rule 144A securities
. Taxable municipal securities
Compliance Standards:
. Compliance with all standards will be determined at time of purchase.
. The purchase of structured and/or derivative securities must meet the provisions outlined in the Derivatives Guidelines.
. The Portfolio may retain a security whose rating has been lowered below the Portfolio's lowest permissible rating category if it is determined that retaining the security is in the best interest of the Portfolio, as approved by Securities Lending Management.
. Policy is governed by Securities Lending Management, through established Guidelines, and may be amended from time to time according to approved policy. Specific pre-approved exceptions to these policies may be made after presentation to Management.
. The Securities Lending Compliance Manager or designee shall review the Portfolio against guidelines daily to ensure compliance, and shall report this compliance to Securities Lending Management on a monthly basis.
Maturity:
. The maturity of repurchase agreements must meet the provision of the Guidelines for the Use of Repurchase Agreements.
. Securities with a floating or variable rate, and with a reset date, shall use the reset date as the maturity date for interest rate sensitivity calculations.
. For securities using a weighted average life for the maximum maturity determinant, the industry convention for these types of securities will be used.
Diversification:
. Maximum of 25% of the Portfolio will be invested in any industry or sector, except the financial services or banking industry.
. The 20% overnight liquidity requirement will use the contractual maturity date.
Issue Selection:
. No investments shall be made in securities or deposits of Wells Fargo & Company or any of its affiliates.
. Transactions involving repurchase agreements, funding agreements, and master notes will be preceded by an appropriately executed investment agreement. All other transactions involving the investment of cash collateral will require a post transaction confirmation.
. All other US dollar- denominated money market instruments, not listed above, and meeting the quality standards outlined above, may be purchased after review and approval by Securities Lending Management.
. Money market funds must be 2a(7) or 2a(7) like; they use amortized cost accounting.
Cheyne/Gryphon Pass-Through Notes:
. Notwithstanding any of the other provisions of these Guidelines, the Portfolio may purchase and hold, in exchange for the Portfolio's current interest in securities of Cheyne Financial, pass-through notes issued by Gryphon, an investment vehicle created to receive assets of Cheyne Financial as part of the restructuring plan of Cheyne Financial.
VFNC/Victoria Pass-Through Notes:
. Notwithstanding any of the other provisions of these Guidelines, the Portfolio may purchase and hold, in exchange for the Portfolio's current interest in securities of Victoria Finance LLC, pass-through notes issued by VFNC, an issuer organized for the purposes of receiving assets of Victoria Finance LLC as part of the restructuring plan of Victoria Finance LLC.
Schedule 4 Amended: September 9, 2009
Exhibit 99.(g)(4)
MASTER CUSTODIAN AGREEMENT
This Agreement is made as of August 10, 2009 by and among each management investment company identified on Appendix A hereto (each such investment company and each management investment company made subject to this Agreement in accordance with Section 18.5 below, shall hereinafter be referred to as (the "Fund"), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the "Custodian").
WITNESSETH:
WHEREAS, each Fund may or may not be authorized to issue shares of common stock or shares of beneficial interest in separate series ("Shares"), with each such series representing interests in a separate portfolio of securities and other assets;
WHEREAS, each Fund so authorized intends that this Agreement be applicable to each of its series set forth on Appendix A hereto (such series together with all other series subsequently established by the Fund and made subject to this Agreement in accordance with Section 18.6 below, shall hereinafter be referred to as the "Portfolio(s)").
WHEREAS, each Fund not so authorized intends that this Agreement be applicable to it and all references hereinafter to one or more "Portfolio(s)" shall be deemed to refer to such Fund(s); and
NOW, THEREFORE, in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:
SECTION 1. EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT.
Each Fund hereby employs the Custodian as a custodian of assets of the Portfolios, including securities which the Fund, on behalf of the applicable Portfolio, desires to be held in places within the United States ("domestic securities") and securities it desires to be held outside the United States ("foreign securities"). Each Fund, on behalf of its Portfolio(s), agrees to deliver to the Custodian all securities and cash of the Portfolios, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by the Portfolio(s) from time to time, and the cash consideration received by it for such Shares as may be issued or sold from time to time. The Custodian shall not be responsible for any property of a Portfolio which is not received by it or which is delivered out in accordance with Proper Instructions (as such term is defined in Section 7 hereof) including, without limitation, Portfolio property (i) held by brokers, private bankers or other entities on behalf of the Portfolio (each a "Local Agent"), (ii) held by Special Sub-Custodians (as such term is defined in Section 5 hereof), (iii) held by entities which have advanced monies to or on behalf of the Portfolio and which have received Portfolio property as security for such advance(s) (each a "Pledgee"), or (iv) delivered or otherwise removed from the custody of the Custodian (a) in connection with any Free Trade (as such term is defined in Sections 2.2(14) and 2.6(7) hereof) or (b) pursuant to Special Instructions (as such term is defined in Section 7 hereof). With respect to uncertificated shares (the "Underlying Shares") of registered "investment companies" (as defined in Section 3(a)(1) of the Investment Company Act of 1940, as amended from time to time (the "1940 Act")), whether in the same "group of investment companies" (as defined in Section 12(d)(1)(G)(ii) of the 1940 Act) or otherwise, including pursuant to Section 12(d)(1)(F) of the 1940 Act (hereinafter
sometimes referred to as the "Underlying Portfolios") the holding of confirmation statements that identify the shares as being recorded in the Custodian's name on behalf of the Portfolios will be deemed custody for purposes hereof.
Upon receipt of Proper Instructions, the Custodian shall on behalf of the applicable Portfolio(s) from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees or the Board of Directors of the Fund (as appropriate, and in each case, the "Board") on behalf of the applicable Portfolio(s), and provided that the Custodian shall have no more or less responsibility or liability to any Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian. The Custodian may place and maintain each Fund's foreign securities with foreign banking institution sub-custodians employed by the Custodian and/or foreign securities depositories, all as designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4 hereof.
SECTION 2. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS TO BE HELD IN THE UNITED STATES.
SECTION 2.1 HOLDING SECURITIES. The Custodian shall hold and physically segregate for the account of each Portfolio all non-cash property, to be held by it in the United States, including all domestic securities owned by such Portfolio other than (a) securities which are maintained pursuant to Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a "U.S. Securities System") and (b) Underlying Shares owned by each Fund which are maintained pursuant to Section 2.10 hereof in an account with State Street Bank and Trust Company or such other entity which may from time to time act as a transfer agent for the Underlying Portfolios and with respect to which the Custodian is provided with Proper Instructions (the "Underlying Transfer Agent").
SECTION 2.2 DELIVERY OF SECURITIES. The Custodian shall release and deliver domestic securities owned by a Portfolio held by the Custodian, in a U.S. Securities System account of the Custodian or in an account at the Underlying Transfer Agent, only upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
1) Upon sale of such securities for the account of the Portfolio and receipt of payment therefor;
2) Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Portfolio;
3) In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.8 hereof;
4) To the depository agent in connection with tender or other similar offers for securities of the Portfolio;
5) To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;
6) To the issuer thereof, or its agent, for transfer into the name of the
Portfolio or into the name of any nominee or nominees of the Custodian
or into the name or nominee name of any agent appointed pursuant to
Section 2.7 or into the name or nominee name of any sub-custodian
appointed pursuant to Section 1; or for exchange for a different
number of bonds, certificates or other evidence representing the same
aggregate face amount or number of units; provided that, in any such
case, the new securities are to be delivered to the Custodian;
7) Upon the sale of such securities for the account of the Portfolio, to the broker or its clearing agent, against a receipt, for examination in accordance with "street delivery" custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian's own negligence or willful misconduct;
8) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
9) In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;
10) For delivery in connection with any loans of securities made by the Portfolio (a) against receipt of collateral as agreed from time to time by the Fund on behalf of the Portfolio, except that in connection with any loans for which collateral is to be credited to the Custodian's account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Portfolio prior to the receipt of such collateral or (b) to the lending agent, or the lending agent's custodian, in accordance with written Proper Instructions (which may not provide for the receipt by the Custodian of collateral therefor) agreed upon from time to time by the Custodian and the Fund;
11) For delivery as security in connection with any borrowing by a Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio;
12) For delivery in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the "Exchange Act") and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA", formerly known as The National Association of Securities Dealers, Inc.), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund on behalf of a Portfolio;
13) For delivery in accordance with the provisions of any agreement among a Fund on behalf of the Portfolio, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission (the "CFTC") and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund on behalf of a Portfolio;
14) Upon the sale or other delivery of such investments (including, without limitation, to one or more (a) Special Sub-Custodians or (b) additional custodians appointed by the Fund, and communicated to the Custodian from time to time via a writing duly executed by an authorized officer of the Fund, for the purpose of engaging in repurchase agreement transactions(s), each a "Repo Custodian"), and prior to receipt of payment therefor, as set forth in written Proper Instructions (such delivery in advance of payment, along with payment in advance of delivery made in accordance with Section 2.6(7), as applicable, shall each be referred to herein as a "Free Trade"), provided that such Proper Instructions shall set forth (a) the securities of the Portfolio to be delivered and (b) the person(s) to whom delivery of such securities shall be made;
15) Upon receipt of instructions from the Fund's transfer agent (the "Transfer Agent") for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the currently effective prospectus and statement of additional information of the Fund related to the Portfolio (the "Prospectus"), in satisfaction of requests by holders of Shares for repurchase or redemption;
16) In the case of a sale processed through the Underlying Transfer Agent of Underlying Shares, in accordance with Section 2.10 hereof;
17) For delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; and
18) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the applicable Portfolio specifying (a) the securities of the Portfolio to be delivered and (b) the person or persons to whom delivery of such securities shall be made.
SECTION 2.3 REGISTRATION OF SECURITIES. Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Portfolio or in the name of any nominee of a Fund on behalf of the Portfolio or of any nominee of the Custodian which nominee shall be assigned exclusively to the Portfolio, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered management investment companies having the same investment adviser as the Portfolio, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1. All securities accepted by the Custodian on behalf of the Portfolio under the terms of this Agreement shall be in "street name" or other good delivery form. If, however, a Fund directs the Custodian to maintain securities in "street name", the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.
SECTION 2.4 BANK ACCOUNTS. The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of each Portfolio of each Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Portfolio, other than cash maintained by the Portfolio in a bank account established and used in accordance with Rule 17f-3 under the 1940 Act. Funds held by the Custodian for a Portfolio may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided, however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the funds to be deposited with each such bank or trust company shall on behalf of each applicable Portfolio be approved by vote of a majority of the Board. Such funds shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.
SECTION 2.5 COLLECTION OF INCOME. Except with respect to Portfolio property
released and delivered pursuant to Section 2.2(14) or purchased pursuant to
Section 2.6(7), and subject to the provisions of Section 2.3, the Custodian
shall collect on a timely basis all income and other payments with respect to
registered domestic securities held hereunder to which each Portfolio shall be
entitled either by law or pursuant to custom in the securities business, and
shall collect on a timely basis all income and other payments with respect to
bearer domestic securities if, on the date of payment by the issuer, such
securities are held by the Custodian or its agent thereof and shall credit such
income, as collected, to such Portfolio's custodian account. Without limiting
the generality of the foregoing, the Custodian shall detach and present for
payment all coupons and other income items requiring presentation as and when
they become due and shall collect interest when due on securities held
hereunder. Income due each Portfolio on securities loaned pursuant to the
provisions of Section 2.2 (10) shall be the responsibility of the applicable
Fund. The Custodian will have no duty or responsibility in connection therewith,
other than to provide the Fund with such information or data as may be necessary
to assist the Fund in arranging for the timely delivery to the Custodian of the
income to which the Portfolio is properly entitled.
SECTION 2.6 PAYMENT OF FUND MONIES. Upon receipt of Proper Instructions on behalf of the applicable Portfolio, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of a Portfolio in the following cases only:
1) Upon the purchase of domestic securities, options, futures contracts
or options on futures contracts for the account of the Portfolio but
only (a) against the delivery of such securities or evidence of title
to such options, futures contracts or options on futures contracts to
the Custodian (or any bank, banking firm or trust company doing
business in the United States or abroad which is qualified under the
1940 Act to act as a custodian and has been designated by the
Custodian as its agent for this purpose) registered in the name of the
Portfolio or in the name of a nominee of the Custodian referred to in
Section 2.3 hereof or in proper form for transfer; (b) in the case of
a purchase effected through a U.S. Securities System, in accordance
with the conditions set forth in Section 2.8 hereof; (c) in the case
of a purchase of Underlying Shares, in accordance with the conditions
set forth in Section 2.10 hereof; (d) in the case of repurchase
agreements entered into between the applicable Fund on behalf of a
Portfolio and the Custodian, or another bank, or a broker-dealer which
is a member of FINRA, (i) against delivery of the securities either in
certificate form or through an entry crediting the Custodian's account
at the Federal Reserve Bank with such securities or (ii) against
delivery of the receipt evidencing purchase by the Portfolio of
securities owned by the Custodian along with written evidence of the
agreement by the Custodian to repurchase such securities from the
Portfolio; or (e) for transfer to a time deposit account of the Fund
in any bank, whether domestic or foreign; such transfer may be
effected prior to receipt of a confirmation from a broker and/or the
applicable bank pursuant to Proper Instructions from the Fund as
defined herein;
2) In connection with conversion, exchange or surrender of securities owned by the Portfolio as set forth in Section 2.2 hereof;
3) For the redemption or repurchase of Shares issued as set forth in
Section 6 hereof;
4) For the payment of any expense or liability incurred by the Portfolio, including but not limited to the following payments for the account of the Portfolio: interest, taxes, management, accounting, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;
5) For the payment of any dividends on Shares declared pursuant to the Fund's articles of incorporation or organization and by-laws or agreement or declaration of trust, as applicable, and Prospectus (collectively, "Governing Documents");
6) For payment of the amount of dividends received in respect of securities sold short;
7) Upon the purchase of domestic investments including, without limitation, repurchase agreement transactions involving delivery of Portfolio monies to Repo Custodian(s),
and prior to receipt of such investments, as set forth in written
Proper Instructions (such payment in advance of delivery, along with
delivery in advance of payment made in accordance with Section
2.2(14), as applicable, shall each be referred to herein as a "Free
Trade"), provided that such Proper Instructions shall also set forth
(a) the amount of such payment and (b) the person(s) to whom such
payment is made;
8) For payment as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund on behalf of the Portfolio; and
9) For any other purpose, but only upon receipt of Proper Instructions from the Fund on behalf of the Portfolio specifying (a) the amount of such payment and (b) the person or persons to whom such payment is to be made.
SECTION 2.7 APPOINTMENT OF AGENTS. The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided, however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder. The Underlying Transfer Agent shall not be deemed an agent or sub-custodian of the Custodian for purposes of this Section 2.7 or any other provision of this Agreement.
SECTION 2.8 DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS. The Custodian may deposit and/or maintain securities owned by a Portfolio in a U.S. Securities System in compliance with the conditions of Rule 17f-4 under the 1940 Act, as amended from time to time.
SECTION 2.9 SEGREGATED ACCOUNT. The Custodian shall upon receipt of Proper Instructions on behalf of each applicable Portfolio, establish and maintain a segregated account or accounts for and on behalf of each such Portfolio, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof, (a) in accordance with the provisions of any agreement among the Fund on behalf of the Portfolio, the Custodian and a broker-dealer registered under the Exchange Act and a member of the FINRA (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Portfolio, (b) for purposes of segregating cash or government securities in connection with options purchased, sold or written by the Portfolio or commodity futures contracts or options thereon purchased or sold by the Portfolio, (c) for the purposes of compliance by the Portfolio with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the "SEC"), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered management investment companies, and (d) for any other purpose in accordance with Proper Instructions.
SECTION 2.10 DEPOSIT OF FUND ASSETS WITH THE UNDERLYING TRANSFER AGENT. Underlying Shares beneficially owned by the Fund, on behalf of a Portfolio, shall be deposited and/or maintained in an account or accounts maintained with an Underlying Transfer Agent and the Custodian's only responsibilities with respect thereto shall be limited to the following:
1) Upon receipt of a confirmation or statement from an Underlying Transfer Agent that such Underlying Transfer Agent is holding or maintaining Underlying Shares in the name of the Custodian (or a nominee of the Custodian) for the benefit of a Portfolio, the Custodian shall identify by book-entry that such Underlying Shares are being held by it as custodian for the benefit of such Portfolio.
2) In respect of the purchase of Underlying Shares for the account of a Portfolio, upon receipt of Proper Instructions, the Custodian shall pay out monies of such Portfolio as so directed, and record such payment from the account of such Portfolio on the Custodian's books and records.
3) In respect of the sale or redemption of Underlying Shares for the account of a Portfolio, upon receipt of Proper Instructions, the Custodian shall transfer such Underlying Shares as so directed, record such transfer from the account of such Portfolio on the Custodian's books and records and, upon the Custodian's receipt of the proceeds therefor, record such payment for the account of such Portfolio on the Custodian's books and records.
The Custodian shall not be liable to the Fund for any loss or damage to the Fund or any Portfolio resulting from the maintenance of Underlying Shares with an Underlying Transfer Agent except for losses resulting directly from the fraud, negligence or willful misconduct of the Custodian or any of its agents or of any of its or their employees.
SECTION 2.11 OWNERSHIP CERTIFICATES FOR TAX PURPOSES. The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of each Portfolio held by it and in connection with transfers of securities.
SECTION 2.12 PROXIES. Except with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to Section 2.6(7), the Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Portfolio or a nominee of the Portfolio, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.
SECTION 2.13 COMMUNICATIONS RELATING TO PORTFOLIO SECURITIES. Except with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to Section 2.6(7), and subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the applicable Fund for each Portfolio all written information (including, without limitation,
pendency of calls and maturities of domestic securities and expirations of
rights in connection therewith and notices of exercise of call and put options
written by the Fund on behalf of the Portfolio and the maturity of futures
contracts purchased or sold by the Fund on behalf of the Portfolio) received by
the Custodian from issuers of the securities being held for the Portfolio. With
respect to tender or exchange offers, the Custodian shall transmit promptly to
the applicable Fund all written information received by the Custodian from
issuers of the securities whose tender or exchange is sought and from the party
(or its agents) making the tender or exchange offer. The Custodian shall not be
liable for any untimely exercise of any tender, exchange or other right or power
in connection with domestic securities or other property of the Portfolios at
any time held by it unless (i) the Custodian is in actual possession of such
domestic securities or property and (ii) the Custodian receives Proper
Instructions with regard to the exercise of any such right or power, and both
(i) and (ii) occur at least three business days prior to the date on which the
Custodian is to take action to exercise such right or power. The Custodian shall
also transmit promptly to the applicable Fund for each Portfolio all written
information received by the Custodian regarding any class action or other
litigation in connection with Portfolio securities or other assets issued in the
United States and then held, or previously held, during the term of this
Agreement by the Custodian for the account of the Fund for such Portfolio,
including, but not limited to, opt-out notices and proof-of-claim forms. For
avoidance of doubt, upon and after the effective date of any termination of this
Agreement, with respect to a Fund or its Portfolio(s), as may be applicable, the
Custodian shall have no responsibility to so transmit any information under this
Section 2.13.
SECTION 3. PROVISIONS RELATING TO RULES 17F-5 AND 17F-7.
SECTION 3.1. DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:
"Country Risk" means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country's political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country.
"Eligible Foreign Custodian" has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian (as set forth in Rule 17f-5 or by other appropriate action of the SEC), or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.
"Eligible Securities Depository" has the meaning set forth in section (b)(1) of Rule 17f-7.
"Foreign Assets" means any of the Portfolios' investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Portfolios' transactions in such investments.
"Foreign Custody Manager" has the meaning set forth in section (a)(3) of Rule 17f-5.
"Rule 17f-5" means Rule 17f-5 promulgated under the 1940 Act.
"Rule 17f-7" means Rule 17f-7 promulgated under the 1940 Act.
SECTION 3.2. THE CUSTODIAN AS FOREIGN CUSTODY MANAGER.
3.2.1 DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. Each Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets of the Portfolios held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager with respect to the Portfolios.
3.2.2 COUNTRIES COVERED. The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by any Fund with the agreement of the Foreign Custody Manager. The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the assets of the Portfolios, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager. The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof.
Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by each Fund, on behalf of the applicable Portfolio(s), of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by such Fund's Board on behalf of such Portfolio(s) responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation. Execution of this Agreement by each Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A. Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of a Portfolio with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board on behalf of such Portfolio to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn and the Custodian shall immediately cease to be the Foreign Custody Manager with respect to such Portfolio with respect to that country.
The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund. Thirty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian's acceptance of delegation is withdrawn.
3.2.3 SCOPE OF DELEGATED RESPONSIBILITIES:
(a) SELECTION OF ELIGIBLE FOREIGN CUSTODIANS. Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time. In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the country in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1).
(b) CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS. The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2).
(c) MONITORING. In each case in which the Foreign Custody Manager maintains
Foreign Assets with an Eligible Foreign Custodian selected by the Foreign
Custody Manager, the Foreign Custody Manager shall establish a system to monitor
(i) the appropriateness of maintaining the Foreign Assets with such Eligible
Foreign Custodian and (ii) the contract governing the custody arrangements
established by the Foreign Custody Manager with the Eligible Foreign Custodian.
In the event the Foreign Custody Manager determines that the custody
arrangements with an Eligible Foreign Custodian it has selected are no longer
appropriate, the Foreign Custody Manager shall notify the Board in accordance
with Section 3.2.5 hereunder.
3.2.4 GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY. For purposes of this Section 3.2, the Board shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Portfolios.
3.2.5 REPORTING REQUIREMENTS. The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred. The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Portfolios described in this Section 3.2 after the occurrence of the material change.
3.2.6 STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF A PORTFOLIO. In performing the responsibilities delegated to it, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of assets of management investment companies registered under the 1940 Act would exercise.
3.2.7 REPRESENTATIONS WITH RESPECT TO RULE 17F-5. The Foreign Custody Manager represents to each Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5.
Each Fund represents to the Custodian that its Board has determined that it is reasonable for such Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Portfolios.
3.2.8 EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER. Each Board's delegation to the Custodian as Foreign Custody Manager of the Portfolios shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party. Termination will become effective thirty (30) days after receipt by the non-terminating party of such notice. The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Portfolios with respect to designated countries.
SECTION 3.3 ELIGIBLE SECURITIES DEPOSITORIES.
3.3.1 ANALYSIS AND MONITORING. The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment adviser) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment adviser) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.
3.3.2 STANDARD OF CARE. The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1.
SECTION 4. DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE PORTFOLIOS TO BE HELD OUTSIDE THE UNITED STATES.
SECTION 4.1 DEFINITIONS. As used throughout this Agreement, the capitalized terms set forth below shall have the indicated meanings:
"Foreign Securities System" means an Eligible Securities Depository listed on Schedule B hereto.
"Foreign Sub-Custodian" means a foreign banking institution serving as an Eligible Foreign Custodian.
SECTION 4.2. HOLDING SECURITIES. The Custodian shall identify on its books as belonging to the Portfolios the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System. The Custodian may hold foreign securities for all of its customers, including the Portfolios, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Portfolios which are maintained in such account shall identify those securities as belonging to the Portfolios and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign
Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.
SECTION 4.3. FOREIGN SECURITIES SYSTEMS. Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country.
SECTION 4.4. TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT.
4.4.1. DELIVERY OF FOREIGN ASSETS. The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Portfolios held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:
(i) Upon the sale of such foreign securities for the Portfolio in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System;
(ii) In connection with any repurchase agreement related to foreign securities;
(iii) To the depository agent in connection with tender or other similar offers for foreign securities of the Portfolios;
(iv) To the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;
(v) To the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;
(vi) To brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case, the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such foreign securities prior to receiving payment for such foreign securities except as may arise from the Foreign Sub-Custodian's own negligence or willful misconduct;
(vii) For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such
securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;
(viii) In the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;
(ix) For delivery as security in connection with any borrowing by a Fund on behalf of a Portfolio requiring a pledge of assets by the Fund on behalf of such Portfolio;
(x) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(xi) Upon the sale or other delivery of such foreign securities (including, without limitation, to one or more Special Sub-Custodians or Repo Custodians) as a Free Trade, provided that applicable Proper Instructions shall set forth (A) the foreign securities to be delivered and (B) the person or persons to whom delivery shall be made;
(xii) In connection with the lending of foreign securities; and
(xiii) For any other purpose, but only upon receipt of Proper Instructions specifying (A) the foreign securities to be delivered and (B) the person or persons to whom delivery of such securities shall be made.
4.4.2. PAYMENT OF PORTFOLIO MONIES. Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of a Portfolio in the following cases only:
(i) Upon the purchase of foreign securities for the Portfolio, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;
(ii) In connection with the conversion, exchange or surrender of foreign securities of the Portfolio;
(iii) For the payment of any expense or liability of the Portfolio, including but not limited to the following payments: interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;
(iv) For the purchase or sale of foreign exchange or foreign exchange contracts for the Portfolio, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;
(v) In connection with trading in options and futures contracts, including delivery as original margin and variation margin;
(vi) Upon the purchase of foreign investments including, without limitation, repurchase agreement transactions involving delivery of Portfolio monies to Repo Custodian(s), as a Free Trade, provided that applicable Proper Instructions shall set forth (A) the amount of such payment and (B) the person or persons to whom payment shall be made;
(vii) For payment of part or all of the dividends received in respect of securities sold short;
(viii) In connection with the borrowing or lending of foreign securities; and
(ix) For any other purpose, but only upon receipt of Proper Instructions specifying (A) the amount of such payment and (B) the person or persons to whom such payment is to be made.
4.4.3. MARKET CONDITIONS. Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Portfolios and delivery of Foreign Assets maintained for the account of the Portfolios may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.
The Custodian shall provide to each Board the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule. The Custodian may revise Schedule C from time to time, provided that no such revision shall result in a Board being provided with substantively less information than had been previously provided hereunder.
SECTION 4.5. REGISTRATION OF FOREIGN SECURITIES. The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the applicable Portfolio or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and the applicable Fund on behalf of such Portfolio agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of a Portfolio under the terms of this Agreement unless the form of such
securities and the manner in which they are delivered are in accordance with reasonable market practice.
SECTION 4.6 BANK ACCOUNTS. The Custodian shall identify on its books as belonging to the applicable Fund cash (including cash denominated in foreign currencies) deposited with the Custodian. Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of a Portfolio with a Foreign Sub-Custodian. All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Portfolio. Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.
SECTION 4.7. COLLECTION OF INCOME. The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Portfolios shall be entitled and shall credit such income, as collected, to the applicable Portfolio. In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.
SECTION 4.8 SHAREHOLDER RIGHTS. With respect to the foreign securities held pursuant to this Section 4, the Custodian shall use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued. Each Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of such Fund to exercise shareholder rights.
SECTION 4.9. COMMUNICATIONS RELATING TO FOREIGN SECURITIES. The Custodian shall transmit promptly to the applicable Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith). With respect to tender or exchange offers, the Custodian shall transmit promptly to the applicable Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer. The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Portfolios at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power. The Custodian shall also transmit promptly to the applicable Fund all written information received by the Custodian
via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Portfolios regarding any class action or other litigation in connection with Portfolio foreign securities or other assets issued outside the United States and then held, or previously held, during the term of this Agreement by the Custodian via a Foreign Sub-Custodian for the account of the Fund for such Portfolio, including, but not limited to, opt-out notices and proof-of-claim forms. For avoidance of doubt, upon and after the effective date of any termination of this Agreement, with respect to a Fund or its Portfolio(s), as may be applicable, the Custodian shall have no responsibility to so transmit any information under this Section 4.9.
SECTION 4.10. LIABILITY OF FOREIGN SUB-CUSTODIANS. Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall, to the extent possible, require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and to indemnify, and hold harmless, the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian's performance of such obligations. At a Fund's election, the Portfolios shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Portfolios have not been made whole for any such loss, damage, cost, expense, liability or claim.
SECTION 4.11 TAX LAW. The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on any Fund, the Portfolios or the Custodian as custodian of the Portfolios by the tax law of the United States or of any state or political subdivision thereof. It shall be the responsibility of each Fund to notify the Custodian of the obligations imposed on such Fund with respect to the Portfolios or the Custodian as custodian of the Portfolios by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting. The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with respect to any claim for exemption or refund under the tax law of countries for which such Fund has provided such information.
SECTION 4.12. LIABILITY OF CUSTODIAN. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in this Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care.
SECTION 5. SPECIAL SUB-CUSTODIANS.
Upon receipt of Special Instructions (as such term is defined in Section 7 hereof), the Custodian shall, on behalf of one or more Portfolios, appoint one or more banks, trust companies or other entities designated in such Special Instructions to act as a sub-custodian for the purposes of effecting such transaction(s) as may be designated by a Fund in Special Instructions. Each such designated sub-custodian is referred to herein as a "Special Sub-Custodian." Each such duly appointed Special
Sub-Custodian shall be listed on Schedule D hereto, as it may be amended from time to time by a Fund, with the acknowledgment of the Custodian. In connection with the appointment of any Special Sub-Custodian, and in accordance with Special Instructions, the Custodian shall enter into a sub-custodian agreement with the Fund and the Special Sub-Custodian in form and substance approved by such Fund, provided that such agreement shall in all events comply with the provisions of the 1940 Act and the rules and regulations thereunder and the terms and provisions of this Agreement.
SECTION 6. PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES.
The Custodian shall receive from the distributor of the Shares or from the Transfer Agent and deposit into the account of the appropriate Portfolio such payments as are received for Shares thereof issued or sold from time to time by the applicable Fund. The Custodian will provide timely notification to such Fund on behalf of each such Portfolio and the Transfer Agent of any receipt by it of payments for Shares of such Portfolio.
From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders. In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by a Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between such Fund and the Custodian.
SECTION 7. PROPER INSTRUCTIONS AND SPECIAL INSTRUCTIONS.
"Proper Instructions," which may also be standing instructions, as such term is used throughout this Agreement shall mean instructions received by the Custodian from a Fund, a Fund's duly authorized investment manager or investment adviser, or a person or entity duly authorized by either of them. Such instructions may be in writing signed by the authorized person or persons or may be in a tested communication or in a communication utilizing access codes effected between electro-mechanical or electronic devices or may be by such other means and utilizing such intermediary systems and utilities as may be agreed from time to time by the Custodian and the person(s) or entity giving such instruction, provided that the Fund has followed any security procedures agreed to from time to time by the applicable Fund and the Custodian including, but not limited to, the security procedures selected by the Fund via the form of Funds Transfer Addendum hereto, the terms of which are hereby agreed to. Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to provide such instructions with respect to the transaction involved; the Fund shall cause all oral instructions to be confirmed in writing. For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any multi-party agreement which requires a segregated asset account in accordance with Section 2.9 hereof.
"Special Instructions," as such term is used throughout this Agreement, means Proper Instructions countersigned or confirmed in writing by the Treasurer or any Assistant Treasurer of the applicable Fund or any other person designated in writing by the Treasurer of such Fund, which countersignature or confirmation shall be (a) included on the same instrument containing the Proper Instructions or on a separate instrument clearly relating thereto and (b) delivered by hand, by facsimile transmission, or in such other manner as the Fund and the Custodian agree in writing.
Concurrently with the execution of this Agreement, and from time to time thereafter, as appropriate, each Fund shall deliver to the Custodian, duly certified by such Fund's Treasurer or Assistant Treasurer, a certificate setting forth: (i) the names, titles, signatures and scope of authority of all persons authorized to give Proper Instructions or any other notice, request, direction, instruction, certificate or instrument on behalf of the Fund and (ii) the names, titles and signatures of those persons authorized to give Special Instructions. Such certificate may be accepted and relied upon by the Custodian as conclusive evidence of the facts set forth therein and shall be considered to be in full force and effect until receipt by the Custodian of a similar certificate to the contrary.
SECTION 8. EVIDENCE OF AUTHORITY.
The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed by or on behalf of the applicable Fund. The Custodian may receive and accept a copy of a resolution certified by the Secretary or an Assistant Secretary of any Fund as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the applicable Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.
SECTION 9. ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.
The Custodian may in its discretion, without express authority from the applicable Fund on behalf of each applicable Portfolio:
1) Make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement; provided that all such payments shall be accounted for to the Fund on behalf of the Portfolio;
2) Surrender securities in temporary form for securities in definitive form;
3) Endorse for collection, in the name of the Portfolio, checks, drafts and other negotiable instruments; and
4) In general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Portfolio except as otherwise directed by the applicable Board.
SECTION 10. DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME.
The Custodian shall cooperate with and supply necessary information to the
entity or entities appointed by the applicable Board to keep the books of
account of each Portfolio and/or compute the net asset value per Share of the
outstanding Shares or, if directed in writing to do so by a Fund on behalf of a
Portfolio, shall itself keep such books of account and/or compute such net asset
value per Share. If so directed, the Custodian shall also calculate daily the
net income of the Portfolio as described in the Prospectus and shall advise the
Fund and the Transfer Agent daily of the total amounts of such net income and,
if instructed in writing by an officer of the Fund to do so, shall advise the
Transfer Agent periodically of the division of such net income among its various
components. Each Fund acknowledges and agrees that, with respect to investments
maintained with the Underlying Transfer Agent, the Underlying Transfer Agent is
the sole source of information on the number of shares of a fund held by it on
behalf of a Portfolio and that the Custodian has the right to rely on holdings
information furnished by the Underlying Transfer Agent to the Custodian in
performing its duties under this Agreement, including without limitation, the
duties set forth in this Section 10 and in Section 11 hereof; provided, however,
that the Custodian shall be obligated to reconcile information as to purchases
and sales of Underlying Shares contained in trade instructions and confirmations
received by the Custodian and to report promptly any discrepancies to the
Underlying Transfer Agent. The calculations of the net asset value per Share and
the daily income of each Portfolio shall be made at the time or times described
from time to time in the Prospectus. Each Fund acknowledges that, in keeping the
books of account of the Portfolio and/or making the calculations described
herein with respect to Portfolio property released and delivered pursuant to
Section 2.2(14), or purchased pursuant to Section 2.6(7) hereof, the Custodian
is authorized and instructed to rely upon information provided to it by the
Fund, the Fund's counterparty(ies), or the agents of either of them.
SECTION 11. RECORDS.
The Custodian shall with respect to each Portfolio create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of each Fund under the 1940 Act, with particular attention to section 31 thereof and Rules 31a-1 and 31a-2 thereunder. All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of such Fund and employees and agents of the SEC. The Custodian shall, at a Fund's request, supply the Fund with a tabulation of securities owned by each Portfolio and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations. Each Fund acknowledges that, in creating and maintaining the records as set forth herein with respect to Portfolio property released and delivered pursuant to Section 2.2(14), or purchased pursuant to Section 2.6(7) hereof, the Custodian is authorized and instructed to rely upon information provided to it by the Fund, the Fund's counterparty(ies), or the agents of either of them.
SECTION 12. OPINION OF FUND'S INDEPENDENT ACCOUNTANT.
The Custodian shall take all reasonable action, as a Fund with respect to a Portfolio may from time to time request, to obtain from year to year favorable opinions from the Fund's independent accountants with respect to its activities hereunder in connection with the preparation of the Fund's Form N-1A or Form N-2, as applicable, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.
SECTION 13. REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS.
The Custodian shall provide the applicable Fund, on behalf of each of the Portfolios at such times as such Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System (either, a "Securities System"), relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.
SECTION 14. COMPENSATION OF CUSTODIAN.
The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between each Fund on behalf of each applicable Portfolio and the Custodian.
SECTION 15. RESPONSIBILITY OF CUSTODIAN.
So long as and to the extent that it is in the exercise of reasonable care, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement. The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by and shall be without liability to any Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction. It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted pursuant to such advice. The Custodian shall be without liability to any Fund or Portfolio for any loss, liability, claim or expense resulting from or caused by anything that is part of Country Risk, including without limitation nationalization, expropriation, currency restrictions, insolvency of a Foreign Sub-custodian, acts of war, revolution, riots or terrorism.
Except as may arise from the Custodian's own negligence or willful misconduct or the negligence or willful misconduct of a sub-custodian or agent, the Custodian shall be without liability to any Fund
for any loss, liability, claim or expense resulting from or caused by; (i) events or circumstances beyond the reasonable control of the Custodian or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by any Fund or its duly authorized investment manager or investment adviser in their instructions to the Custodian provided such instructions have been in accordance with this Agreement; (iii) the insolvency of or acts or omissions by a Securities System; (iv) any act or omission of a Special Sub-Custodian including, without limitation, reliance on reports prepared by a Special Sub-Custodian; (v) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian's sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (vi) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, any Fund, the Custodian's sub-custodians, nominees or agents or any consequential losses arising out of such delay or failure to transfer such securities including non-receipt of bonus, dividends and rights and other accretions or benefits; (vii) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (viii) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction. The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in this Agreement.
If a Fund on behalf of a Portfolio requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund or the Portfolio being liable for the payment of money or incurring liability of some other form, such Fund on behalf of the Portfolio, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.
If a Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee's own negligent action, negligent failure to act or willful misconduct, any property at any time held for the account of the applicable Portfolio shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of such Portfolio's assets to the extent necessary to obtain reimbursement.
Except as may arise from the Custodian's own negligence or willful misconduct, each Fund shall indemnify and hold the Custodian harmless from and against any and all costs, expenses, losses, damages, charges, counsel fees, payments and liabilities which may be asserted against the Custodian (a) acting in accordance with any Proper Instruction or Special Instruction including,
without limitation, any Proper Instruction with respect to Free Trades including, but not limited to, cost, expense, loss, damage, liability, tax, charge, assessment or claim resulting from (i) the failure of the applicable Fund to receive income with respect to purchased investments, (ii) the failure of the applicable Fund to recover amounts invested on maturity of purchased investments, (iii) the failure of the Custodian to respond to or be aware of notices or other corporate communications with respect to purchased investments, or (iv) the Custodian's reliance upon information provided by the applicable Fund, such Fund's counterparty(ies) or the agents of either of them with respect to Fund property released, delivered or purchased pursuant to either of Section 2.2(14) or Section 2.6(7) hereof; (b) for the acts or omissions of any Special Sub-Custodian; or (c) for the acts or omissions of any Local Agent or Pledgee.
In no event shall the Custodian be liable for indirect, special or consequential damages.
SECTION 16. EFFECTIVE PERIOD, TERMINATION AND AMENDMENT.
This Agreement shall remain in full force and effect for an initial term ending
August 10, 2014 (the "Initial Term"). After the expiration of the Initial Term,
this Agreement shall renew, subject to written notice from the Funds of their
intent to renew (such notice to be delivered at least ninety (90) days prior to
the end of the Initial Term or the then-current term, which notice period may be
waived by the Custodian) for additional successive two-year terms (each, a
"Renewal Term"), and may be terminated by any party with respect to such party
during any Renewal Term by written instrument delivered or mailed, such
termination to take effect not sooner than ninety (90) days after the date of
such delivery or mailing. During the Initial Term and thereafter, either party
may terminate this Agreement: (i) in the event of the other party's material
breach of a material provision of this Agreement that the other party has either
(a) failed to cure or (b) failed to establish a remedial plan to cure that is
reasonably acceptable, within 60 days' written notice of such breach, or (ii) in
the event of the appointment of a conservator or receiver for the other party or
upon the happening of a like event to the other party at the direction of an
appropriate agency or court of competent jurisdiction. In addition, a Fund may
terminate this Agreement during the Initial Term and thereafter if, in such
Fund's reasonable opinion, the Custodian has not achieved one or more of the
performance measures set forth in any service level document (a "Service Level
Document") that may be established in good faith by the parties, and a plan or
revised plan has not been put into place in accordance with the following
procedures: In the event that such Fund reasonably believes that the Custodian
has not met one or more of the performance measures set forth in any Service
Level Document during any calendar quarter, the Fund may, in its discretion,
submit a written deficiency notice to the Custodian outlining the performance
deficiencies ("Deficiency Notice"). Such Deficiency Notice shall be provided to
the Custodian within 20 days of the end of such calendar quarter. After receipt
of such notice, the Custodian shall present the Fund with a written plan (the
"Plan") to address the deficiencies set forth in the Deficiency Notice. Such
Plan must be provided to the Fund within 30 days after receipt of the Deficiency
Notice. If the Custodian fails to submit a Plan within such 30-day period, the
Fund may terminate this Agreement upon 60 days' written notice to the Custodian.
The Fund, in its discretion, may accept or reject the Plan by notifying the
Custodian in writing ("Plan Notice") within 15 days after submission of the
Plan. If the Fund fails to provide a Plan Notice within such 15-day period, it
shall be presumed that the Fund accepted the Plan. In the event the Fund submits
a Plan Notice rejecting the Plan, the Custodian shall submit a revised plan
("Revised Plan") within 30 days after provision of such Plan Notice. If the Custodian fails to submit a Revised Plan within such 30-day period, the Fund may terminate the Agreement upon 60 days' written notice to the Custodian. The Fund, in its discretion, may accept or reject the Revised Plan by notifying the Custodian in writing ("Revised Plan Notice") within 15 days after provision of the Revised Plan. If the Fund fails to provide a Revised Plan Notice within such 15-day period, it shall be presumed that the Fund accepted the Revised Plan. If the Fund provides a Revised Plan Notice to the Custodian that rejects the Revised Plan, the Fund may, in its discretion, terminate this Agreement upon 60 days' written notice to the Custodian. Such termination notice must be submitted to the Custodian within 60 days after provision of the Revised Plan Notice. Upon termination of this Agreement pursuant to this paragraph with respect to any Fund or Portfolio, the applicable Fund shall pay Custodian its compensation due and shall reimburse Custodian for its costs, expenses and disbursements.
In the event of: (i) any Fund's termination of this Agreement with respect to such Fund or its Portfolio(s) for any reason other than as set forth in the foregoing paragraph or (ii) a transaction not in the ordinary course of business pursuant to which the Custodian is not retained to continue providing services hereunder to a Fund or Portfolio (or its respective successor), the applicable Fund shall pay the Custodian its compensation due through the end of the then-current term (based upon the average monthly compensation previously earned by Custodian with respect to such Fund or Portfolio) and shall reimburse the Custodian for its costs, expenses and disbursements. Upon receipt of such payment and reimbursement, the Custodian will deliver such Fund's or Portfolio's securities and cash as set forth hereinbelow. For the avoidance of doubt, no payment will be required pursuant to clause (ii) of this paragraph in the event of any transaction such as a merger of a Fund or Portfolio into, or the consolidation of a Fund or Portfolio with, another entity, the sale by a Fund or Portfolio of all, or substantially all, of its assets to another entity, or the liquidation or dissolution of a Fund or Portfolio and distribution of such Fund's or Portfolio's assets, in each case where the Custodian is retained to continue providing services to such Fund or Portfolio (or its respective successor) on substantially the same terms as this Agreement.
Termination of this Agreement with respect to any one particular Fund or Portfolio shall in no way affect the rights and duties under this Agreement with respect to any other Fund or Portfolio. The provisions of Sections 4.11, 14 and 15 of this Agreement shall survive termination of this Agreement for any reason.
This Agreement may be amended at any time in writing by mutual agreement of the parties hereto.
SECTION 17. SUCCESSOR CUSTODIAN.
If a successor custodian for one or more Portfolios shall be appointed by the applicable Board, the Custodian shall, upon termination and receipt of Proper Instructions, deliver to such successor custodian at the office of the Custodian, duly endorsed and in the form for transfer, all securities of each applicable Portfolio then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of each such Portfolio held in a Securities System or at the Underlying Transfer Agent.
If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of Proper Instructions, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such resolution.
In the event that no Proper Instructions designating a successor custodian or alternative arrangements shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a "bank" as defined in the 1940 Act, doing business in Boston, Massachusetts or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian on behalf of each applicable Portfolio and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of each applicable Portfolio, and to transfer to an account of such successor custodian all of the securities of each such Portfolio held in any Securities System or at the Underlying Transfer Agent. Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement.
In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of any Fund to provide Proper Instructions as aforesaid, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.
SECTION 18. GENERAL.
SECTION 18.1 MASSACHUSETTS LAW TO APPLY. This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.
SECTION 18.2 PRIOR AGREEMENTS. This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between each Fund on behalf of each of the Portfolios and the Custodian relating to the custody of such Fund's assets.
SECTION 18.3 ASSIGNMENT. This Agreement may not be assigned by (a) any Fund without the written consent of the Custodian or (b) by the Custodian without the written consent of each applicable Fund.
SECTION 18.4 INTERPRETIVE AND ADDITIONAL PROVISIONS. In connection with the operation of this Agreement, the Custodian and each Fund on behalf of each of the Portfolios, may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement. Any such interpretive or additional provisions shall be in a writing signed by all parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of a Fund's Governing Documents. No interpretive or
additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.
SECTION 18.5 ADDITIONAL FUNDS. In the event that any management investment
company in addition to those listed on Appendix A hereto desires to have the
Custodian render services as custodian under the terms hereof, it shall so
notify the Custodian in writing, and if the Custodian agrees in writing to
provide such services, such management investment company shall become a Fund
hereunder and be bound by all terms and conditions and provisions hereof
including, without limitation, the representations and warranties set forth in
Section 18.7 below.
SECTION 18.6 ADDITIONAL PORTFOLIOS. In the event that any Fund establishes one or more series of Shares in addition to those set forth on Appendix A hereto with respect to which it desires to have the Custodian render services as custodian under the terms hereof, it shall so notify the Custodian in writing, and if the Custodian agrees in writing to provide such services, such series of Shares shall become a Portfolio hereunder.
SECTION 18.7 THE PARTIES. All references herein to the "Fund" are to each
of the management investment companies listed on Appendix A hereto, and each
management investment company made subject to this Agreement in accordance with
Section 18.5 above, individually, as if this Agreement were between such
individual Fund and the Custodian. In the case of a series corporation, trust or
other entity, all references herein to the "Portfolio" are to the individual
series or portfolio of such corporation, trust or other entity, or to such
corporation, trust or other entity on behalf of the individual series or
portfolio, as appropriate. Any reference in this Agreement to "the parties"
shall mean the Custodian and such other individual Fund as to which the matter
pertains. Each Fund hereby represents and warrants that (a) it is duly
incorporated or organized and is validly existing in good standing in its
jurisdiction of incorporation or organization; (b) it has the requisite power
and authority under applicable law and its Governing Documents to enter into and
perform this Agreement; (c) all requisite proceedings have been taken to
authorize it to enter into and perform this Agreement; (d) this Agreement
constitutes its legal, valid, binding and enforceable agreement; and (e) its
entrance into this Agreement shall not cause a material breach or be in material
conflict with any other agreement or obligation of the Fund or any law or
regulation applicable to it.
SECTION 18.8 REMOTE ACCESS SERVICES ADDENDUM. The Custodian and each Fund agree to be bound by the terms of the Remote Access Services Addendum hereto.
SECTION 18.9 NOTICES. Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time.
To any Fund: c/o WELLS FARGO
200 Berkeley Street, Suite 2100
Boston, MA 02118
-26-
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Attention: Kasey Phillips, Senior Vice President
Telephone: 617-210-3272
Telecopy: 617-210-2722
To the Custodian: STATE STREET BANK AND TRUST COMPANY
2 Avenue de Lafayette
Boston, MA 02111
Attention: Neal J. Chansky, Senior Vice President
Telephone: 617-662-1376
Telecopy: 617-662-2204
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Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof. Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.
SECTION 18.10 COUNTERPARTS. This Agreement may be executed in several counterparts, each of which shall be deemed to be an original, and all such counterparts taken together shall constitute one and the same Agreement.
SECTION 18.11 SEVERABILITY. If any provision or provisions of this Agreement shall be held to be invalid, unlawful or unenforceable, the validity, legality and enforceability of the remaining provisions shall not in any way be affected or impaired.
SECTION 18.12 CONFIDENTIALITY. The parties hereto agree that each shall treat confidentially all information provided by each party to the other party regarding its business and operations. All confidential information provided by a party hereto shall be used by any other party hereto solely for the purpose of rendering or receiving services pursuant to this Agreement and, except as may be required in carrying out this Agreement, shall not be disclosed to any third party. The foregoing shall not be applicable to any information (i) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, or that is independently derived by any party hereto without the use of any information provided by the other party hereto in connection with this Agreement, (ii) that is required in any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, or by operation of law or regulation, or (iii) where the party seeking to disclose has received the prior written consent of the party providing the information, which consent shall not be unreasonably withheld. Notwithstanding anything herein to the contrary, the Custodian and its affiliates may report and use nonpublic portfolio holdings information of its clients, including a Fund or Portfolio, on an aggregated basis with all or substantially all other client information and without specific reference to any Fund or Portfolio.
The receiving party acknowledges it would be difficult to fully compensate the disclosing
party for damages that may result from the breach or threatened breach of this section and, accordingly, the disclosing party will be entitled to seek injunctive relief, including temporary restraining orders, preliminary injunctions, and permanent injunctions, to enforce such provisions. This provision with respect to injunctive relief will not, however, diminish the disclosing party's right to seek other legal, contractual or equitable remedies, or to claim and recover damages.
Section 18.13 BUSINESS CONTINUITY/DISASTER RECOVERY. In the event of equipment failure, work stoppage, governmental action, communication disruption or other impossibility of performance beyond the Custodian's control, the Custodian shall take reasonable steps to minimize service interruptions. The Custodian shall enter into and shall maintain in effect at all times during the term of this Agreement with appropriate parties one or more agreements making reasonable provision for (i) periodic back-up of the computer files and data with respect to the Funds; and (ii) emergency use of electronic data processing equipment to provide services under this Agreement. Upon reasonable request, the Custodian shall discuss with senior management of the Funds any business continuity/disaster recovery plan of the Custodian and/or provide a high-level presentation summarizing such plan.
Section 18.14. INFORMATION SECURITY. Custodian's information security program has been reasonably designed and is and will continue to be implemented in an effort to (i) mitigate the risks identified by either of the parties to this agreement, and (ii) maintain adequate controls regarding the services provided under this agreement. Custodian has established and will maintain reasonable safeguards against the destruction, loss, alteration of or unauthorized disclosure or access to each Fund's data in its possession.
With respect to information security, each Fund reserves the right to
conduct (i) an initial risk assessment prior to commencing receipt of services
under this agreement, (ii) additional risk assessments annually thereafter, and
(iii) risk assessments upon a material modification of existing services to be
provided, all to identify the risks associated with the services to be provided,
and, depending on the results of such risks assessments, each Fund may also
conduct a site visit or other reasonable evaluations of Custodian's information
security program acceptable to Custodian. Any such visits, assessments or
evaluations will be (i) subject to reasonable limitations required by Custodian
relating to confidentiality and privacy and shall be limited solely to systems
handling information and data of the Fund, (ii) conducted so as to not
unreasonably interfere with the operations of Custodian, (iii) conducted at
times and locations mutually agreeable to the Fund and Custodian with
representatives of Custodian present at all times, and (iv) subject to the
confidentiality provisions in Section 18.12 hereof. Custodian will reasonably
cooperate in such risk assessments. Custodian reasonably believes that its
information security program reflects information security standards, which may
include (i) administrative, technical and physical safeguards appropriate for
the size and complexity of Custodian's operations and the nature and scope of
the services to be provided and reasonably designed to maintain the
confidentiality, integrity and availability of each Fund's confidential
information, (ii) policies and procedures reasonably designed and regularly
tested to detect, assess, control and respond to any unauthorized access to a
Fund's confidential information, or (iii) information regarding the risk
assessment, risk management and control, training of Custodian's personnel on
compliance with the information security program, testing of the information
security program, oversight of any subcontractor
arrangements, periodic reports to each Fund in respect thereof, and the process for the annual certification of the Custodian in relation to its information security program. The risk assessments will be conducted by each Fund or its designee (who will be a nationally known security firm) identified to and acceptable to Custodian. Should any risk assessment result in the discovery of what a Fund reasonably determines to be material security risks, the Fund will promptly notify Custodian of such risks and the parties will discuss such risks and Custodian's plan to address them if Custodian reasonably agrees that such risks are material to its provision of services hereunder.
If and to the extent applicable to the services provided hereunder, Custodian represents and warrants that: (i) it will not alter or disable any hardware or software security programs residing on a Fund's hardware or systems, and (ii) it will take reasonable steps to not allow unauthorized traffic to pass as a result of its access to the Fund's networks. If, and to the extent applicable to the services provided hereunder, Custodian does allow unauthorized traffic to pass into a Fund's networks, it may immediately terminate this access. Further, if remote access is granted to Custodian's employees telecommuting in any capacity and to the extent applicable to the services provided hereunder, then Custodian may be subject to additional data security obligations, such as a system access agreement to the extent acceptable to Custodian.
If a network connection is established between a Fund and the computing
environment(s) used by Custodian, Custodian will take reasonable steps so that
(i) the Fund is permitted to perform network assessments of such computing
environment(s) based on a mutually-agreed annual schedule, and (ii) Custodian
maintains an alert status regarding the security of such computing environments,
including all vulnerabilities and security patches or corrective actions, by
subscribing to an industry-recognized service. Further, Custodian will furnish
the Fund with a high-level summary of reports prepared by a nationally known
independent auditor of such testing of its systems. Custodian understands that,
should a Fund assessment or determination reveal inappropriate or inadequate
security in the reasonable opinion of Fund and based on the pre-defined
requirements for security that are acceptable to Custodian, the Fund may, in
addition to other remedies it may have, remove access by Custodian's personnel
to the Fund's network until Custodian satisfactorily complies with applicable
security requirements. Custodian shall be relieved from its obligations
hereunder if performance of such obligations is impeded or otherwise adversely
affected by Custodian's not having access to a Fund's network.
To the extent consistent with Custodian's customary and standard employment practices and policies: (a) Custodian warrants and agrees that it will cause to be conducted criminal background checks on each of its employees who will perform Sensitive Services (as defined below), and that no Ineligible Personnel will perform Sensitive Services. "Ineligible Personnel" means any person who, as evidenced by such background checks (i) has been convicted at any time of any material criminal offense involving dishonesty, a breach of trust, or money laundering, or who has entered into a pre-trial diversion or similar program in connection with a prosecution for such offense, or (ii) has been convicted of a felony. "Sensitive Services" means those services provided hereunder that (i) require access to customer information; (ii) related to a Fund's computer networks, information systems, databases or secure facilities under circumstances that would permit modifications to such systems; or (iii) involve primarily unsupervised access to secure facilities. (b) Upon reasonable request but no more than once annually, Custodian will provide written confirmation that all its employees
providing Sensitive Services have undergone a criminal background check and are eligible to provide Sensitive Services. In the event Custodian becomes aware of any actual security breach that compromises a Fund's confidential information, including customer information (e.g., physical trespass on a secure facility, computing systems intrusion/hacking, loss/theft of a PC (laptop or desktop), or loss/theft of printed materials) (collectively, a "Security Breach"), unless prohibited by law or regulation and following completion of internal incident review, Custodian will promptly notify security personnel of such Security Breach at the following twenty-four (24) hour phone number: 800-947-4915 (or other number provided to Custodian from time to time in writing in accordance with Section 18.9 hereof), and will take reasonable steps to investigate and remedy the security breach. Except as may be required by its regulators or otherwise by applicable law, regulation, subpoena, or government or court order, Custodian agrees that it will not inform any third party, other than regulators or agents of Custodian, of the Fund's involvement with any such security breach without a Fund's prior written consent, which shall not be unreasonably withheld; however, if such disclosure is so required, Custodian will endeavor, to the extent practicable and permissible, to obtain a Fund's approval regarding the content of such disclosure so as to minimize any potential adverse impact upon a Fund. Custodian will maintain records of any known or suspected security breaches in connection with the services provided hereunder to the Funds in accordance with its customary practices, and if not prohibited by applicable law, regulation or confidentiality requirement, will make such records available to a Fund for review at Custodian's office upon reasonable request.
Each Fund or its representatives ("Auditors"), not more than once annually, will have the right to audit Custodian's performance hereunder solely as necessary to determine its compliance with this Section 18.14 ("Audit"). The Auditors will be granted reasonable access, subject to reasonable restrictions imposed by Custodian relating to confidentiality, security and privacy, and Custodian will cooperate with the Auditors and provide them with such reasonable assistance as they may reasonably request solely to verify the provision of services in accordance with this Section 18.14, provided that (i) Audits may only occur during normal business hours at the locations where the Custodian's personnel provide services hereunder or retain records hereunder at mutually agreeable times; (ii) Audits will be conducted in a manner that is designed to minimize any adverse impact on normal business operations and with representatives of Custodian present at all times; (iii) Auditors will comply with all standard safety and security procedures of the Custodian in conducting any such Audits; and (iv) any information accessed by Auditors in the performance of any such Audit will be deemed to be the confidential information of the Custodian, and any such Audit shall be subject to the confidentiality provisions in Section 18.12 hereof or if the Auditor is not a Fund, the execution of a confidentiality agreement between such Auditor and Custodian; however, the results of the Audit will be the property of the Funds, or the Auditor, as applicable and subject to ongoing obligations of confidentiality. If an Audit identifies a critical control weakness or risk that in the reasonable opinion of the Fund will adversely impact Custodian's ability to provide services as agreed, comply with applicable law, or meet Custodian's business continuity obligations hereunder, a Fund will promptly inform Custodian in writing of such opinion of control weakness. Custodian will have thirty (30) business days to respond to this written notice. Nothing contained herein shall obligate Custodian to provide access to or otherwise disclose: (i) any information that is unrelated to the relevant Fund and the provision of the services hereunder to such Fund; (ii) any information that is treated as confidential under the Custodian's corporate policies, including, without limitation,
internal audit reports, compliance or risk management plans or reports, work
papers and other reports and information relating to management functions; or
(iii) any other documents, reports or other information that the Custodian is
obligated to maintain in confidence by contract, by its regulators or otherwise
as a matter of law or regulation. In addition, any access provided hereunder to
technology shall be limited to a demonstration by the Custodian of the
functionality thereof and a reasonable opportunity to communicate with the
Custodian personnel regarding such technology.
SECTION 18.15 REPRODUCTION OF DOCUMENTS. This Agreement and all schedules, addenda, exhibits, appendices, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.
SECTION 18.16 SHAREHOLDER COMMUNICATIONS ELECTION. SEC Rule 14b-2 requires banks which hold securities for the account of customers to respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information. In order to comply with the rule, the Custodian needs each Fund to indicate whether it authorizes the Custodian to provide such Fund's name, address, and share position to requesting companies whose securities the Fund owns. If a Fund tells the Custodian "no," the Custodian will not provide this information to requesting companies. If a Fund tells the Custodian "yes" or does not check either "yes" or "no" below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund. For a Fund's protection, the Rule prohibits the requesting company from using the Fund's name and address for any purpose other than corporate communications. Please indicate below whether the Fund consents or objects by checking one of the alternatives below.
YES [_] The Custodian is authorized to release the Fund's name, address, and
share positions.
NO [X] The Custodian is not authorized to release the Fund's name, address,
and share positions.
|
SIGNATURE PAGE
IN WITNESS WHEREOF, each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative under seal as of the date first above-written.
EACH OF THE ENTITIES
SET FORTH ON APPENDIX A HERETO
STATE STREET BANK AND TRUST COMPANY
Master Custodian Agreement
APPENDIX A
TO
MASTER CUSTODIAN AGREEMENT
MANAGEMENT INVESTMENT COMPANIES REGISTERED WITH THE SEC AND PORTFOLIOS THEREOF, IF ANY
Wells Fargo Funds Trust
100% Treasury Money Market Fund
Aggressive Allocation Fund
Asia Pacific Fund
Asset Allocation Fund
C&B Large Cap Value Fund
C&B Mid Cap Value Fund
California Limited-Term Tax-Free Fund
California Tax-Free Fund
California Tax-Free Money Market Fund
California Tax-Free Money Market Trust
Capital Growth Fund
Cash Investment Money Market Fund
Colorado Tax-Free Fund
Common Stock Fund
Conservative Allocation Fund
Discovery Fund
Diversified Bond Fund
Diversified Equity Fund
Diversified Small Cap Fund
Dow Jones Target 2010 Fund
Dow Jones Target 2015 Fund
Dow Jones Target 2020 Fund
Dow Jones Target 2025 Fund
Dow Jones Target 2030 Fund
Dow Jones Target 2035 Fund
Dow Jones Target 2040 Fund
Dow Jones Target 2045 Fund
Dow Jones Target 2050 Fund
Dow Jones Target Today Fund
Emerging Growth Fund
Emerging Markets Equity Fund
Endeavor Select Fund
Enterprise Fund
Equity Income Fund
Equity Value Fund
Government Money Market Fund
Government Securities Fund
Growth Fund
Growth Balanced Fund
Growth Equity Fund
Heritage Money Market Fund
High Income Fund
Income Plus Fund
Index Fund
Inflation-Protected Bond Fund
Intermediate Tax/AMT-Free Fund
International Core Fund
International Equity Fund
International Value Fund
Large Cap Appreciation Fund
Large Cap Growth Fund
Large Company Core Fund
Large Company Growth Fund
Large Company Value Fund
Mid Cap Disciplined Fund
Mid Cap Growth Fund
Minnesota Money Market Fund
Minnesota Tax-Free Fund
Moderate Balanced Fund
Money Market Fund
Money Market Trust
Municipal Bond Fund
Municipal Money Market Fund
National Tax-Free Money Market Fund
National Tax-Free Money Market Trust
Opportunity Fund
Overland Express Sweep Fund
Prime Investment Money Market Fund
Short Duration Government Bond Fund
Short-Term Bond Fund
Short-Term High Yield Bond Fund
Short-Term Municipal Bond Fund
Small Cap Disciplined Fund
Small Cap Growth Fund
Small Cap Opportunities Fund
Small Cap Value Fund
Small Company Growth Fund
Small Company Value Fund
Small/Mid Cap Value Fund
Social Sustainability Fund
Specialized Financial Services Fund
Specialized Technology Fund
Stable Income Fund
Strategic Income Fund
Strategic Small Cap Value Fund
Total Return Bond Fund
Treasury Plus Money Market Fund
U.S. Value Fund
Ultra Short-Term Income Fund
Ultra Short-Term Municipal Income Fund
WealthBuilder Conservative Allocation Portfolio
WealthBuilder Equity Portfolio
WealthBuilder Growth Allocation Portfolio
WealthBuilder Growth Balanced Portfolio
WealthBuilder Moderate Balanced Portfolio
WealthBuilder Tactical Equity Portfolio
Wisconsin Tax-Free Fund
Wells Fargo Managed Account CoreBuilder Shares - Series G
Wells Fargo Managed Account CoreBuilder Shares - Series M
Wells Fargo Master Trust
C&B Large Cap Value Portfolio
Disciplined Growth Portfolio
Diversified Fixed Income Portfolio
Diversified Stock Portfolio
Emerging Growth Portfolio
Equity Income Portfolio
Equity Value Portfolio
Index Portfolio
Inflation-Protected Bond Portfolio
International Core Portfolio
International Growth Portfolio
International Index Portfolio
International Value Portfolio
Large Cap Appreciation Portfolio
Large Company Growth Portfolio
Managed Fixed Income Portfolio
Short-Term Investment Portfolio
Small Cap Index Portfolio
Small Company Growth Portfolio
Small Company Value Portfolio
Stable Income Portfolio
Strategic Small Cap Value Portfolio
Total Return Bond Portfolio
Wells Fargo Variable Trust
VT Asset Allocation Fund
VT C&B Large Cap Value Fund
VT Discovery Fund
VT Equity Income Fund
VT International Core Fund
VT Large Company Core Fund
VT Large Company Growth Fund
VT Money Market Fund
VT Opportunity Fund
VT Small Cap Growth Fund
VT Small/Mid Cap Value Fund
VT Total Return Bond Fund
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
Market Subcustodian
----------------------- ------------------------------------------------------
Argentina Citibank, N.A.
Australia The Hongkong and Shanghai Banking Corporation Limited
Citigroup Pty. Limited
Austria UniCredit Bank Austria AG
Bahrain HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Bangladesh Standard Chartered Bank
Belgium Deutsche Bank AG, Netherlands (operating through its
Amsterdam branch with support from its Brussels
branch)
Benin via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Bermuda Bank of Bermuda Limited
Botswana Barclays Bank of Botswana Limited
Brazil Citibank, N.A.
Bulgaria ING Bank N.V.
Burkina Faso via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Canada State Street Trust Company Canada
Cayman Islands Close Trustees (Cayman) Limited
Chile Banco Itau Chile
People's Republic of HSBC Bank (China) Company Limited
China (as delegate of The Hongkong and Shanghai Banking
(Shanghai and Shenzhen) Corporation Limited)
Colombia Cititrust Colombia S.A. Sociedad Fiduciaria
Costa Rica Banco BCT S.A.
Croatia Privredna Banka Zagreb d.d.
Cyprus BNP Paribas Securities Services, S.A., Greece
(operating through its Athens branch)
Czech Republic Ceskoslovenska obchodni banka, a.s.
Denmark Skandinaviska Enskilda Banken AB, Sweden (operating
through its Copenhagen branch)
Ecuador Banco de la Produccion S.A. PRODUBANCO
As of 6/30/09
1
|
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
Market Subcustodian
----------------------- ------------------------------------------------------
Egypt HSBC Bank Egypt S.A.E.
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Estonia AS SEB Pank
Finland Skandinaviska Enskilda Banken AB, Sweden (operating
through its Helsinki branch)
France Deutsche Bank AG, Netherlands (operating through its
Amsterdam branch with support from its Paris branch)
Germany Deutsche Bank AG
Ghana Barclays Bank of Ghana Limited
Greece BNP Paribas Securities Services, S.A.
Guinea-Bissau via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Hong Kong Standard Chartered Bank (Hong Kong) Limited
Hungary UniCredit Bank Hungary Zrt.
Iceland New Kaupthing Banki hf.
India Deutsche Bank AG
The Hongkong and Shanghai Banking Corporation Limited
Indonesia Deutsche Bank AG
Ireland Bank of Ireland
Israel Bank Hapoalim B.M.
Italy Deutsche Bank S.p.A.
Ivory Coast Societe Generale de Banques en Cote d'Ivoire
Jamaica Bank of Nova Scotia Jamaica Limited
Japan Mizuho Corporate Bank Limited
Sumitomo Mitsui Banking Corporation
Jordan HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Kazakhstan SB HSBC Bank Kazakhstan JSC
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Kenya Barclays Bank of Kenya Limited
As of 6/30/09
2
|
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
Market Subcustodian
----------------------- ------------------------------------------------------
Republic of Korea Deutsche Bank AG
The Hongkong and Shanghai Banking Corporation Limited
Kuwait HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Latvia AS SEB Banka
Lebanon HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Lithuania AB SEB Bankas
Malaysia Standard Chartered Bank Malaysia Berhad
Mali via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Malta The Hongkong and Shanghai Banking Corporation Limited
Mauritius The Hongkong and Shanghai Banking Corporation Limited
Mexico Banco Nacional de Mexico S.A.
Morocco Citibank Maghreb
Namibia Standard Bank Namibia Limited
Netherlands Deutsche Bank AG
New Zealand The Hongkong and Shanghai Banking Corporation Limited
Niger via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Nigeria Stanbic IBTC Bank Plc.
Norway Skandinaviska Enskilda Banken AB, Sweden (operating
through its Oslo branch)
Oman HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Pakistan Deutsche Bank AG
Palestine HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Peru Citibank del Peru, S.A.
Philippines Standard Chartered Bank
Poland Bank Handlowy w Warszawie S.A.
As of 6/30/09
3
|
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
Market Subcustodian
----------------------- ------------------------------------------------------
Portugal Banco Comercial Portugues S.A.
Puerto Rico Citibank N.A.
Qatar HSBC Bank Middle East Limited
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Romania ING Bank N.V.
Russia ING Bank (Eurasia) ZAO, Moscow
Saudi Arabia Saudi British Bank
(as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
Senegal via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Serbia UniCredit Bank Serbia JSC
Singapore DBS Bank Limited
United Overseas Bank Limited
Slovak Republic Ceskoslovenska obchodna banka, a.s.
Slovenia UniCredit Banka Slovenija d.d.
South Africa Nedbank Limited
Standard Bank of South Africa Limited
Spain Deutsche Bank S.A.E.
Sri Lanka The Hongkong and Shanghai Banking Corporation Limited
Swaziland Standard Bank Swaziland Limited
Sweden Skandinaviska Enskilda Banken AB
Switzerland UBS AG
Credit Suisse
Taiwan - R.O.C. Bank of Taiwan
Thailand Standard Chartered Bank (Thai) Public Company Limited
Togo via Societe Generale de Banques en Cote d'Ivoire,
Abidjan, Ivory Coast
Trinidad & Tobago Republic Bank Limited
Tunisia Banque Internationale Arabe de Tunisie
Turkey Citibank, A.S.
As of 6/30/09
4
|
SCHEDULE A
STATE STREET
GLOBAL CUSTODY NETWORK
SUBCUSTODIANS
Market Subcustodian
----------------------- ------------------------------------------------------
Uganda Barclays Bank of Uganda Limited
Ukraine ING Bank Ukraine
United Arab Emirates - HSBC Bank Middle East Limited
Dubai Financial Market (as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
United Arab Emirates - HSBC Bank Middle East Limited
Dubai International (as delegate of The Hongkong and Shanghai Banking
Financial Center Corporation Limited)
United Arab Emirates - HSBC Bank Middle East Limited
Abu Dhabi (as delegate of The Hongkong and Shanghai Banking
Corporation Limited)
United Kingdom State Street Bank and Trust Company, United Kingdom
branch
Uruguay Banco Itau Uruguay S.A.
Venezuela Citibank, N.A.
Vietnam HSBC Bank (Vietnam) Limited
Zambia Barclays Bank of Zambia Plc.
Zimbabwe Barclays Bank of Zimbabwe Limited
As of 6/30/09
5
|
SCHEDULE B
STATE STREET
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
Market Depository
----------------------- ------------------------------------------------------
Argentina Caja de Valores S.A.
Australia Austraclear Limited
Austria Oesterreichische Kontrollbank AG (Wertpapiersammelbank
Division)
Bahrain Clearing, Settlement, and Depository System of the
Bahrain Stock Exchange
Bangladesh Central Depository Bangladesh Limited
Belgium National Bank of Belgium
Euroclear Belgium
Benin Depositaire Central - Banque de Reglement
Bermuda Bermuda Securities Depository
Botswana Central Securities Depository Company of Botswana Ltd.
Brazil Central de Custodia e de Liquidacao Financeira de
Titulos Privados (CETIP)
Companhia Brasileira de Liquidacao e Custodia
Sistema Especial de Liquidacao e de Custodia (SELIC)
Bulgaria Bulgarian National Bank
Central Depository AD
Burkina Faso Depositaire Central - Banque de Reglement
Canada The Canadian Depository for Securities Limited
Chile Deposito Central de Valores S.A.
People's Republic China Securities Depository and Clearing Corporation
of China Limited, Shanghai Branch
China Securities Depository and Clearing Corporation
Limited, Shenzhen Branch
Colombia Deposito Central de Valores
Deposito Centralizado de Valores de Colombia S.A.
(DECEVAL)
Costa Rica Central de Valores S.A.
Croatia Sredisnje klirinsko depozitarno drustvo d.d.
Cyprus Central Depository and Central Registry
Czech Republic Czech National Bank
Stredisko cennych papiru - Ceska republika
Denmark VP Securities A/S
|
As of 6/30/09
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
Market Depository
----------------------- ------------------------------------------------------
Egypt Misr for Central Clearing, Depository and Registry
S.A.E. Central Bank of Egypt
Estonia AS Eesti Vaartpaberikeskus
Finland Euroclear Finland
France Euroclear France
Germany Clearstream Banking AG, Frankfurt
Ghana GSE Securities Depository Company Ltd.
Greece Kentriko Apothetirio Aksion, a department of Hellenic
Exchanges S.A. Holding Bank of Greece, System for
Monitoring Transactions in Securities in Book-Entry
Form
Guinea-Bissau Depositaire Central - Banque de Reglement
Hong Kong Central Moneymarkets Unit
Hong Kong Securities Clearing Company Limited
Hungary Kozponti Elszamolohaz es Ertektar (Budapest) Zrt.
(KELER)
Iceland Icelandic Securities Depository Limited
India Central Depository Services (India) Limited
National Securities Depository Limited
Reserve Bank of India
Indonesia Bank Indonesia
PT Kustodian Sentral Efek Indonesia
Israel Tel Aviv Stock Exchange Clearing House Ltd. (TASE
Clearing House)
Italy Monte Titoli S.p.A.
Ivory Coast Depositaire Central - Banque de Reglement
Jamaica Jamaica Central Securities Depository
Japan Bank of Japan - Net System
Japan Securities Depository Center (JASDEC)
Incorporated
Jordan Securities Depository Center
Kazakhstan Central Securities Depository
Kenya Central Depository and Settlement Corporation Limited
Central Bank of Kenya
|
As of 6/30/09
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
Market Depository
----------------------- ------------------------------------------------------
Republic of Korea Korea Securities Depository
Kuwait Kuwait Clearing Company
Latvia Latvian Central Depository
Lebanon Banque du Liban
Custodian and Clearing Center of Financial Instruments
for Lebanon and the Middle East (Midclear) S.A.L.
Lithuania Central Securities Depository of Lithuania
Malaysia Bank Negara Malaysia
Bursa Malaysia Depository Sdn. Bhd.
Mali Depositaire Central - Banque de Reglement
Malta Central Securities Depository of the Malta Stock
Exchange
Mauritius Bank of Mauritius
Central Depository and Settlement Co. Ltd.
Mexico S.D. Indeval, S.A. de C.V.
Morocco Maroclear
Namibia Bank of Namibia
Netherlands Euroclear Nederland
New Zealand New Zealand Central Securities Depository Limited
Niger Depositaire Central - Banque de Reglement
Nigeria Central Securities Clearing System Limited
Norway Verdipapirsentralen
Oman Muscat Depository & Securities Registration Company,
SAOC
Pakistan Central Depository Company of Pakistan Limited
State Bank of Pakistan
Palestine Clearing, Depository and Settlement system, a
department of the Palestine Securities Exchange
Peru CAVALI S.A. Institucion de Compensacion y Liquidacion
de Valores
Philippines Philippine Depository & Trust Corporation
Registry of Scripless Securities (ROSS) of the Bureau
of Treasury
|
As of 6/30/09
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
Market Depository
----------------------- ------------------------------------------------------
Poland Rejestr Papierow Wartosciowych
Krajowy Depozyt Papierow Wartosciowych S.A.
Portugal INTERBOLSA - Sociedad Gestora de Sistemas
de Liquidacao e de Sistemas Centralizados de Valores
Mobiliarios, S.A.
Qatar Central Clearing and Registration (CCR), a department
of the Qatar Exchange
Romania S.C. Depozitarul Central S.A.
National Bank of Romania
Russia Vneshtorgbank, Bank for Foreign Trade of the Russian
Federation
National Depository Center
Saudi Arabia Tadawul Central Securities Depository
Saudi Arabian Monetary Agency
Senegal Depositaire Central - Banque de Reglement
Serbia Central Registrar Depository and Clearinghouse
Singapore The Central Depository (Pte) Limited
Monetary Authority of Singapore
Slovak Republic Centralny depozitar cennych papierov SR, a.s.
Slovenia KDD - Centralna klirinsko depotna druzba d.d.
South Africa Strate Ltd.
Spain IBERCLEAR
Sri Lanka Central Bank of Sri Lanka
Central Depository System (Pvt) Limited
Sweden Euroclear Sweden
Switzerland SIX SIS AG
Taiwan - R.O.C. Taiwan Depository and Clearing Corporation
Central Bank of China
Thailand Thailand Securities Depository Company Limited
Togo Depositaire Central - Banque de Reglement
Trinidad and Tobago Central Bank of Trinidad and Tobago
Trinidad and Tobago Central Depository Limited
|
As of 6/30/09
STATE STREET SCHEDULE B
GLOBAL CUSTODY NETWORK
DEPOSITORIES OPERATING IN NETWORK MARKETS
Market Depository
----------------------- ------------------------------------------------------
Tunisia Societe Tunisienne Interprofessionelle pour la
Compensation et le Depots des Valeurs Mobilieres
(STICODEVAM)
Turkey Central Bank of Turkey
Central Registry Agency
Uganda Bank of Uganda
Ukraine Mizhregionalny Fondovy Souz
National Bank of Ukraine
United Arab Emirates - Clearing and Depository System, a department of the
Dubai Financial Market Dubai Financial Market
United Arab Emirates - Central Securities Depository, owned and operated by
Dubai International NASDAQ Dubai Limited
Financial Center
United Arab Emirates - Clearing, Settlement, Depository and Registry
Abu Dhabi department of the Abu Dhabi Securities Exchange
United Kingdom Euroclear UK & Ireland Limited
Uruguay Banco Central del Uruguay
Venezuela Banco Central de Venezuela
Caja Venezolana de Valores
Vietnam Vietnam Securities Depository
Zambia Bank of Zambia
LuSE Central Shares Depository Limited
TRANSNATIONAL
Euroclear Bank S.A./N.V.
Clearstream Banking, S.A.
As of 6/30/09
5
|
SCHEDULE C
MARKET INFORMATION
|
Publication/Type of Information Brief Description
----------------------------------------- ----------------------------------------------------------------
(scheduled frequency)
The Guide to Custody in World Markets An overview of settlement and safekeeping procedures, custody
(hardcopy annually and regular practices and foreign investor considerations for the
website updates) markets in which State Street offers custodial services.
Global Custody Network Review Information relating to Foreign Sub-Custodians in State Street's
(annually) Global Custody Network. The Review stands as an integral part of
the materials that State Street provides to its U.S. mutual fund
clients to assist them in complying with SEC Rule 17f-5. The
Review also gives insight into State Street's market expansion
and Foreign Sub-Custodian selection processes, as well as the
procedures and controls used to monitor the financial condition
and performance of our Foreign Sub-Custodian banks.
Securities Depository Review Custody risk analyses of the Foreign Securities Depositories
(annually) presently operating in Network markets. This publication is an
integral part of the materials that State Street provides to its
U.S. mutual fund clients to meet informational obligations
created by SEC Rule 17f-7.
Global Legal Survey With respect to each market in which State Street offers
(annually) custodial services, opinions relating to whether local law
restricts (i) access of a fund's independent public accountants
to books and records of a Foreign Sub-Custodian or Foreign
Securities System, (ii) a fund's ability to recover in the event
of bankruptcy or insolvency of a Foreign Sub-Custodian or
Foreign Securities System, (iii) a fund's ability to recover in
the event of a loss by a Foreign Sub-Custodian or Foreign
Securities System, and (iv) the ability of a foreign investor to
convert cash and cash equivalents to U.S. dollars.
Subcustodian Agreements Copies of the contracts that State Street has entered into with
(annually) each Foreign Sub-Custodian that maintains U.S. mutual fund
assets in the markets in which State Street offers custodial
services.
Global Market Bulletin Information on changing settlement and custody conditions in
(daily or as necessary) markets where State Street offers custodial services. Includes
changes in market and tax regulations, depository developments,
dematerialization information, as well as other market changes
that may impact State Street's clients.
Foreign Custody Advisories For those markets where State Street offers custodial services
(as necessary) that exhibit special risks or infrastructures impacting custody,
State Street issues market advisories to highlight those unique
market factors which might impact our ability to offer
recognized custody service levels.
Material Change Notices Informational letters and accompanying materials confirming
(presently on a quarterly basis or summary of material changes with Foreign Sub-Custodians that
State Street's foreign custody have occurred during the previous quarter. The notices also
arrangements, including a as otherwise identify any material changes in the custodial risks associated
necessary) with maintaining assets with Foreign Securities Depositories.
|
As of 6/30/09
SCHEDULE D
TO
MASTER CUSTODIAN AGREEMENT
SPECIAL SUB-CUSTODIANS:
None
As of 6/30/09
[LOGO OF STATE STREET]
Serving Institutional Investors Worldwide(SM)
FUNDS TRANSFER ADDENDUM
OPERATING GUIDELINES
1. OBLIGATION OF THE SENDER: State Street is authorized to promptly debit Client's account(s) upon the receipt of a payment order in compliance with the selected Security Procedure chosen for funds transfer and in the amount of money that State Street has been instructed to transfer. State Street shall execute payment orders in compliance with the Security Procedure and with the Client's instructions on the execution date provided that such payment order is received by the customary deadline for processing such a request, unless the payment order specifies a later time. All payment orders and communications received after this time will be deemed to have been received on the next business day.
2. SECURITY PROCEDURE: The Client acknowledges that the Security Procedure it has designated on the Selection Form was selected by the Client from Security Procedures offered by State Street. The Client agrees that the Security Procedures are reasonable and adequate for its wire transfer transactions and agrees to be bound by any payment orders, amendments and cancellations, whether or not authorized, issued in its name and accepted by State Street after being confirmed by any of the selected Security Procedures. The Client also agrees to be bound by any other valid and authorized payment order accepted by State Street. The Client shall restrict access to confidential information relating to the Security Procedure to authorized persons as communicated in writing to State Street. The Client must notify State Street immediately if it has reason to believe unauthorized persons may have obtained access to such information or of any change in the Client's authorized personnel. State Street shall verify the authenticity of all instructions according to the Security Procedure.
3. ACCOUNT NUMBERS: State Street shall process all payment orders on the basis of the account number contained in the payment order. In the event of a discrepancy between any name indicated on the payment order and the account number, the account number shall take precedence and govern. Financial institutions that receive payment orders initiated by State Street at the instruction of the Client may also process payment orders on the basis of account numbers, regardless of any name included in the payment order. State Street will also rely on any financial institution identification numbers included in any payment order, regardless of any financial institution name included in the payment order.
4. REJECTION: State Street reserves the right to decline to process or delay the processing of a payment order which (a) is in excess of the collected balance in the account to be charged at the time of State Street's receipt of such payment order; (b) if initiating such payment order would cause State Street, in State Street's sole judgment, to exceed any volume, aggregate dollar, network, time, credit or similar limits upon wire transfers which are applicable to State Street; or (c) if State Street, in good faith, is unable to satisfy itself that the transaction has been properly authorized.
5. CANCELLATION OR AMENDMENT: State Street shall use reasonable efforts to act on all authorized requests to cancel or amend payment orders received in compliance with the Security Procedure provided that such requests are received in a timely manner affording State Street reasonable opportunity to act. However, State Street assumes no liability if the request for amendment or cancellation cannot be satisfied.
6. ERRORS: State Street shall assume no responsibility for failure to detect any erroneous payment order provided that State Street complies with the payment order instructions as received and State Street complies with the Security Procedure. The Security Procedure is established for the purpose of authenticating payment orders only and not for the detection of errors in payment orders.
7. INTEREST AND LIABILITY LIMITS: State Street shall assume no responsibility for lost interest with respect to the refundable amount of any unauthorized payment order, unless State Street is notified of the unauthorized payment order within thirty (30) days of notification by State Street of the acceptance of such payment order. In no event shall State Street be liable for special, indirect or consequential damages, even if advised of the possibility of such damages and even for failure to execute a payment order.
8. AUTOMATED CLEARING HOUSE ("ACH") CREDIT ENTRIES/PROVISIONAL PAYMENTS: When a Client initiates or receives ACH credit and debit entries pursuant to these Guidelines and the rules of the National Automated Clearing House Association and the New England Clearing House Association, State Street will act as an Originating Depository Financial Institution and/or Receiving Depository Institution, as the case may be, with respect to such entries. Credits given by State Street with respect to an ACH credit entry are provisional until State Street receives final settlement for such entry from the Federal Reserve Bank. If State Street does not receive such final settlement, the Client agrees that State Street shall receive a refund of the amount credited to the Client in connection with such entry, and the party making payment to the Client via such entry shall not be deemed to have paid the amount of the entry.
9. CONFIRMATION STATEMENTS: Confirmation of State Street's execution of payment orders shall ordinarily be provided within 24 hours. Notice may be delivered through State Street's proprietary information systems, such as, but not limited to Horizon and GlobalQuest(R), account statements, advices, or by facsimile or callback. The Client must report any objections to the execution of a payment order within 30 days.
[LOGO OF STATE STREET]
Serving Institutional Investors Worldwide(SM)
FUNDS TRANSFER ADDENDUM
10. LIABILITY ON FOREIGN ACCOUNTS: State Street shall not be required to repay any deposit made at a non-U.S. branch of State Street, or any deposit made with State Street and denominated in a non-U.S. dollar currency, if repayment of such deposit or the use of assets denominated in the non-U.S. dollar currency is prevented, prohibited or otherwise blocked due to: (a) an act of war, insurrection or civil strife; (b) any action by a non-U.S. government or instrumentality or authority asserting governmental, military or police power of any kind, whether such authority be recognized as a defacto or a dejure government, or by any entity, political or revolutionary movement or otherwise that usurps, supervenes or otherwise materially impairs the normal operation of civil authority; or(c) the closure of a non-U.S. branch of State Street in order to prevent, in the reasonable judgment of State Street, harm to the employees or property of State Street. The obligation to repay any such deposit shall not be transferred to and may not be enforced against any other branch of State Street.
The foregoing provisions constitute the disclosure required by Massachusetts General Laws, Chapter 167D, Section 36.
While State Street is not obligated to repay any deposit made at a non-U.S. branch or any deposit denominated in a non-U.S. currency during the period in which its repayment has been prevented, prohibited or otherwise blocked, State Street will repay such deposit when and if all circumstances preventing, prohibiting or otherwise blocking repayment cease to exist.
11. MISCELLANEOUS: State Street and the Client agree to cooperate to attempt to recover any funds erroneously paid to the wrong party or parties, regardless of any fault of State Street or the Client, but the party responsible for the erroneous payment shall bear all costs and expenses incurred in trying to effect such recovery. These Guidelines may not be amended except by a written agreement signed by the parties.
[LOGO OF STATE STREET]
Serving Institutional Investors Worldwide(SM)
FUNDS TRANSFER ADDENDUM
Security Procedure(s) Selection Form
Please select one or more of the funds transfer security procedures indicated below.
[X] SWIFT
SWIFT (Society for Worldwide Interbank Financial Telecommunication) is a cooperative society owned and operated by member financial institutions that provides telecommunication services for its membership. Participation is limited to securities brokers and dealers, clearing and depository institutions, recognized exchanges for securities, and investment management institutions. SWIFT provides a number of security features through encryption and authentication to protect against unauthorized access, loss or wrong delivery of messages, transmission errors, loss of confidentiality and fraudulent changes to messages. SWIFT is considered to be one of the most secure and efficient networks for the delivery of funds transfer instructions.
Selection of this security procedure would be most appropriate for existing SWIFT members.
[_] Standing Instructions
Standing Instructions may be used where funds are transferred to a broker on the Client's established list of brokers with which it engages in foreign exchange transactions. Only the date, the currency and the currency amount are variable. In order to establish this procedure, State Street will send to the Client a list of the brokers that State Street has determined are used by the Client. The Client will confirm the list in writing, and State Street will verify the written confirmation by telephone. Standing Instructions will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the Standing Instruction will be confirmed by telephone prior to execution.
[_] Remote Batch Transmission
Wire transfer instructions are delivered via Computer-to-Computer (CPU-CPU) data communications between the Client and State Street. Security procedures include encryption and or the use of a test key by those individuals authorized as Automated Batch Verifiers.
Clients selecting this option should have an existing facility for completing CPU-CPU transmissions. This delivery mechanism is typically used for high-volume business.
[_] Global Horizon Interchange(sm) Funds Transfer Service
Global Horizon Interchange Funds Transfer Service (FTS) is a State Street proprietary microcomputer-based wire initiation system. FTS enables Clients to electronically transmit authenticated Fedwire, CHIPS or internal book transfer instructions to State Street.
This delivery mechanism is most appropriate for Clients with a low-to-medium number of transactions (5-75 per day), allowing Clients to enter, batch, and review wire transfer instructions on their PC prior to release to State Street.
[X] Telephone Confirmation (Callback)
Telephone confirmation will be used to verify all non-repetitive funds transfer instructions received via untested facsimile or phone. This procedure requires Clients to designate individuals as authorized initiators and authorized verifiers. State Street will verify that the instruction contains the signature of an authorized person and prior to execution, will contact someone other than the originator at the Client's location to authenticate the instruction.
Selection of this alternative is appropriate for Clients who do not have the capability to use other security procedures.
[X] Repetitive Wires
For situations where funds are transferred periodically (minimum of one instruction per calendar quarter) from an existing authorized account to the same payee (destination bank and account number) and only the date and currency amount are variable, a repetitive wire may be implemented. Repetitive wires will be subject to a mutually agreed upon limit. If the payment order exceeds the established limit, the instruction will be confirmed by telephone prior to execution. Telephone confirmation is used to establish this process. Repetitive wire instructions must be reconfirmed annually.
This alternative is recommended whenever funds are frequently transferred between the same two accounts.
[_] Transfers Initiated by Facsimile
The Client faxes wire transfer instructions directly to State Street Mutual Fund Services. Standard security procedure requires the use of a random number test key for all transfers. Every six months the Client receives test key logs from State Street. The test key contains alpha-numeric characters, which the Client puts on each document faxed to State Street. This procedure ensures all wire instructions received via fax are authorized by the Client.
We provide this option for Clients who wish to batch wire instructions and transmit these as a group to State Street Mutual Fund Services once or several times a day.
[LOGO OF STATE STREET]
Serving Institutional Investors Worldwide(SM)
FUNDS TRANSFER ADDENDUM
[_] Instruct
Instruct is a State Street web-based application designed to provide internet-enabled remote access that allows for the capturing, verification and processing of various instruction types, including securities, cash and foreign exchange transactions. Instruct is designed using industry standard formats to facilitate straight-through processing. Instruct provides a number of security features through user entitlements, industry standard encryption protocols, digital security certificates and multiple tiers of user authentication requirements.
[_] Secure Transport
Secure Transport is a file transfer application based upon the Secure File Transfer Protocol standard that is designed to enable State Street clients/ investment managers to send file based transfer and transaction instructions over the internet. Secure Transport features multi-factor authenticators such as SecurID and digital certificates, and incorporates industry-standard encryption protocols.
[_] Automated Clearing House (ACH)
State Street receives an automated transmission or a magnetic tape from a Client for the initiation of payment (credit) or collection (debit) transactions through the ACH network. The transactions contained on each transmission or tape must be authenticated by the Client. Clients using ACH must select one or more of the following delivery options:
[_] Global Horizon Interchange Automated Clearing House Service
Transactions are created on a microcomputer, assembled into batches and delivered to State Street via fully authenticated electronic transmissions in standard NACHA formats.
[_] Transmission from Client PC to State Street Mainframe with Telephone Callback
[_] Transmission from Client Mainframe to State Street Mainframe with Telephone Callback
[_] Transmission from DST Systems to State Street Mainframe with Encryption
[_] Magnetic Tape Delivered to State Street with Telephone Callback
State Street is hereby instructed to accept funds transfer instructions only via the delivery methods and security procedures indicated. The selected delivery methods and security procedure(s) will be effective August 17, 2009 for payment orders initiated by our organization.
Key Contact Information
Whom shall we contact to implement your selection(s)?
CLIENT OPERATIONS CONTACT ALTERNATE CONTACT Jeremy DePalma David Berardi 200 Berkeley Street 200 Berkeley Street Boston, MA 02116-5022 Boston, MA 02116-5022 617-210-3588 (Telephone) 617-210-3548 (Telephone) 617-954-0634 (Facsimile) 617-954-0634 (Facsimile) |
INSTRUCTION(S)
TELEPHONE CONFIRMATION
Fund See wave conversion timeline
Investment Adviser ___________________________________________
Authorized Initiators
Please Type or Print
Please provide a listing of Fund officers or other individuals who are currently authorized to INITIATE wire transfer instructions to State Street: Please use previously provided list of authorized persons (FMG)
NAME TITLE (Specify whether position SPECIMEN SIGNATURE
is with Fund or Investment
Adviser)
|
Please see attached authorized signer lists for IMs.
Authorized Verifiers
Please Type or Print
Please provide a listing of Fund officers or other individuals who will be CALLED BACK to verify the initiation of repetitive wires of $10 million or more and all non-repetitive wire instructions:
NAME CALLBACK PHONE NUMBER DOLLAR LIMITATION (IF ANY)
Please use previously provided list of authorized administrative persons (FMG)
Please see attached authorized signers lists for IMs.
REMOTE ACCESS SERVICES ADDENDUM
TO MASTER CUSTODIAN AGREEMENT
ADDENDUM to that certain Master Custodian Agreement dated as of July 1, 2009 (the "Custodian Agreement") by and among each management investment company identified on Appendix A thereto or made subject thereto pursuant to Section 19.5 thereof (each, a "Customer") and State Street Bank and Trust Company, including its subsidiaries and affiliates ("State Street").
State Street has developed and/or utilizes proprietary or third-party accounting and other systems in conjunction with the services that State Street provides to the Customer. In this regard, State Street maintains certain information in databases under its ownership and/or control that it makes available to its customers (the "Remote Access Services").
The Services
State Street agrees to provide the Customer, and its designated investment advisors, consultants or other third parties who agree to abide by the terms of this Addendum ("Authorized Designees") with access to State Street propriety and third-party systems as may be offered by State Street from time to time (each, a "System") on a remote basis.
Security Procedures
The Customer agrees to comply, and to cause its Authorized Designees to comply, with remote access operating standards and procedures and with user identification or other password control requirements and other security devices and procedures as may be issued or required from time to time by State Street or its third-party vendors for use of the System and access to the Remote Access Services. The Customer is responsible for any use and/or misuse of the System and Remote Access Services by its Authorized Designees. The Customer agrees to advise State Street immediately in the event that it learns or has reason to believe that any person to whom it has given access to the System or the Remote Access Services has violated or intends to violate the terms of this Addendum and the Customer will cooperate with State Street in seeking injunctive or other equitable relief. The Customer agrees to discontinue use of the System and Remote Access Services, if requested, for any security reasons cited by State Street and State Street may restrict access of the System and Remote Access Services by the Customer or any Authorized Designee for security reasons or noncompliance with the terms of this Addendum at any time.
Fees
Fees and charges for the use of the System and the Remote Access Services and related payment terms shall be as set forth in the fee schedule in effect from time to time between the parties. The Customer shall be responsible for any tariffs, duties or taxes imposed or levied by any government or governmental agency by reason of the transactions contemplated by this Addendum, including, without limitation, federal, state and local taxes, use, value added and personal property taxes (other than income, franchise or similar taxes which may be imposed or assessed against State Street). Any claimed exemption from such tariffs, duties or taxes shall be supported by proper documentary evidence delivered to State Street.
Proprietary Information/Injunctive Relief
The System and Remote Access Services described herein and the databases, computer programs, screen formats, report formats, interactive design techniques, formulae, processes, systems, software, know- how, algorithms, programs, training aids, printed materials, methods, books, records, files, documentation and other information made available to the Customer by State Street as part of the Remote Access Services and through the use of the System and all copyrights, patents, trade secrets and other proprietary and intellectual property
rights of State Street and third-party vendors related thereto are the exclusive, valuable and confidential proprietary property of State Street and its relevant licensors and third-party vendors (the "Proprietary Information"). The Customer agrees on behalf of itself and its Authorized Designees to keep the Proprietary Information confidential and to limit access to its employees and Authorized Designees (under a similar duty of confidentiality) who require access to the System for the purposes intended. The foregoing shall not apply to Proprietary Information in the public domain or required by law to be made public.
The Customer agrees to use the Remote Access Services only in connection with the proper purposes of this Addendum. The Customer will not, and will cause its employees and Authorized Designees not to, (i) permit any third party to use the System or the Remote Access Services, (ii) sell, rent, license or otherwise use the System or the Remote Access Services in the operation of a service bureau or for any purpose other than as expressly authorized under this Addendum, (iii) use the System or the Remote Access Services for any fund, trust or other investment vehicle without the prior written consent of State Street, or (iv) allow or cause any information transmitted from State Street's databases, including data from third-party sources, available through use of the System or the Remote Access Services, to be published, redistributed or retransmitted for other than use for or on behalf of the Customer, as State Street's customer.
The Customer agrees that neither it nor its Authorized Designees will modify the System in any way, enhance, copy or otherwise create derivative works based upon the System, nor will the Customer or its Authorized Designees reverse engineer, decompile or otherwise attempt to secure the source code for all or any part of the System.
The Customer acknowledges that the disclosure of any Proprietary Information, or of any information which at law or equity ought to remain confidential, will immediately give rise to continuing irreparable injury to State Street or its third-party licensors and vendors inadequately compensable in damages at law and that State Street shall be entitled to obtain immediate injunctive relief against the breach or threatened breach of any of the foregoing undertakings, in addition to any other legal remedies which may be available.
Limited Warranties
State Street represents and warrants that it is the owner of and/or has the right to grant access to the System and to provide the Remote Access Services contemplated herein. Because of the nature of computer information technology including, but not limited to the use of the Internet, and the necessity of relying upon third-party sources, and data and pricing information obtained from third parties, the System and Remote Access Services are provided "AS IS" without warranty express or implied including as to availability of the System, and the Customer and its Authorized Designees shall be solely responsible for the use of the System and Remote Access Services and investment decisions, results obtained, regulatory reports and statements produced using the Remote Access Services. State Street and its relevant licensors and third-party vendors will not be liable to the Customer or its Authorized Designees for any direct or indirect, special, incidental, punitive or consequential damages arising out of or in any way connected with the System or the Remote Access Services, nor shall any party be responsible for delays or nonperformance under this Addendum arising out of any cause or event beyond such party's control.
EXCEPT AS EXPRESSLY SET FORTH IN THIS ADDENDUM, STATE STREET, FOR ITSELF AND ITS RELEVANT LICENSORS AND THIRD-PARTY VENDORS EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES CONCERNING THE SYSTEM AND THE SERVICES TO BE RENDERED HEREUNDER, WHETHER EXPRESS OR IMPLIED INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTIBILITY OR FITNESS FOR A PARTICULAR PURPOSE.
Infringement
State Street will defend or, at its option, settle any claim or action brought against the Customer to the extent that it is based upon an assertion that access to or use of State Street proprietary systems by the Customer under this Addendum constitutes direct infringement of any United States patent or copyright or misappropriation of a trade secret, provided that the Customer notifies State Street promptly in writing of any such claim or proceeding, cooperates with State Street in the defense of such claim or proceeding and allows State Street sole control over such claim or proceeding. Should the State Street proprietary system or any part thereof become, or in State Street's opinion be likely to become, the subject of a claim of infringement or the like under any applicable patent, copyright or trade secret laws, State Street shall have the right, at State Street's sole option, to (i) procure for the Customer the right to continue using the State Street proprietary system, (ii) replace or modify the State Street proprietary system so that the State Street proprietary system becomes noninfringing, or (iii) terminate this Addendum without further obligation. This section constitutes the sole remedy to the Customer for the matters described in this section.
Termination
Either party to the Custodian Agreement may terminate this Addendum (i) for any reason by giving the other party at least one-hundred and eighty (180) days prior written notice in the case of notice of termination by State Street to the Customer or thirty (30) days notice in the case of notice from the Customer to State Street of termination, or (ii) immediately for failure of the other party to comply with any material term and condition of the Addendum by giving the other party written notice of termination. This Addendum shall in any event terminate within ninety (90) days after the termination of any service agreement applicable to the Customer. The Customer's use of any third-party System is contingent upon its compliance with any terms of use of such system imposed by such third party and State Street's continued access to, and use of, such third-party system. In the event of termination, the Customer will return to State Street all copies of documentation and other confidential information in its possession or in the possession of its Authorized Designees and immediately cease access to the System and Remote Access Services. The foregoing provisions with respect to confidentiality and infringement will survive termination for a period of three (3) years.
Miscellaneous
This Addendum constitutes the entire understanding of the parties to the Custodian Agreement with respect to access to the System and the Remote Access Services. This Addendum cannot be modified or altered except in a writing duly executed by each of State Street and the Customer and shall be governed by and construed in accordance with the laws of The Commonwealth of Massachusetts.
By its execution of the Custodian Agreement, the Customer: (a) confirms to State
Street that it informs all Authorized Designees of the terms of this Addendum;
(b) accepts responsibility for its and its Authorized Designees' compliance with
the terms of this Addendum; and (c) indemnifies and holds State Street harmless
from and against any and all costs, expenses, losses, damages, charges, counsel
fees, payments and liabilities arising from any failure of the Customer or any
of its Authorized Designees to abide by the terms of this Addendum.
Exhibit 99.(h)(1)
Schedule A to Appendix A
Administration Agreement
WELLS FARGO FUNDS TRUST
List of Funds
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Aggressive Allocation Fund
Administrator Class 0.15% 0.14% 0.13%
Asia Pacific Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Investor Class 0.43% 0.42% 0.41%
Asset Allocation Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
C&B Large Cap Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
C&B Mid Cap Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
California Limited-Term Tax-Free Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
California Tax-Free Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
California Tax-Free Money Market Fund/1/
Class A 0.27% 0.26% 0.25%
Institutional Class 0.13% 0.12% 0.11%
Service Class 0.17% 0.16% 0.15%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
California Tax-Free Money Market Trust/1/ 0.17% 0.16% 0.15%
Capital Growth Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Cash Investment Money Market Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Select Class 0.09% 0.08% 0.07%
Service Class 0.17% 0.16% 0.15%
Colorado Tax-Free Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Common Stock Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Investor Class 0.43% 0.42% 0.41%
Conservative Allocation Fund
Administrator Class 0.15% 0.14% 0.13%
Discovery Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Diversified Bond Fund
Administrator Class 0.15% 0.14% 0.13%
Diversified Equity Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Diversified Small Cap Fund
Administrator Class 0.15% 0.14% 0.13%
Emerging Growth Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Emerging Markets Equity Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Endeavor Select Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Enterprise Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Equity Income Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Equity Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Government Money Market Fund
Class A 0.27% 0.26% 0.25%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Service Class 0.17% 0.16% 0.15%
Government Securities Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Growth Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Growth Balanced Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Growth Equity Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Heritage Money Market Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Select Class 0.09% 0.08% 0.07%
High Income Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Income Plus Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Index Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Investor Class 0.43% 0.42% 0.41%
Inflation-Protected Bond Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Intermediate Tax/AMT-Free Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
International Core Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
International Equity Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
International Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Large Cap Appreciation Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Large Cap Growth Fund
Investor Class 0.43% 0.42% 0.41%
Large Company Core Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Large Company Growth Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Large Company Value Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Managed Account CoreBuilder Shares Series G 0.00% 0.00% 0.00%
Managed Account CoreBuilder Shares Series M 0.00% 0.00% 0.00%
Mid Cap Disciplined Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Mid Cap Growth Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Investor Class 0.43% 0.42% 0.41%
Institutional Class 0.13% 0.12% 0.11%
Minnesota Money Market Fund
Class A 0.27% 0.26% 0.25%
Minnesota Tax-Free Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Moderate Balanced Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Money Market Fund
Class A 0.27% 0.26% 0.25%
Class B 0.27% 0.26% 0.25%
Investor Class 0.32% 0.31% 0.30%
Money Market Trust 0.17% 0.16% 0.15%
Municipal Bond Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Municipal Money Market Fund
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.32% 0.31% 0.30%
National Tax-Free Money Market Fund
Class A 0.27% 0.26% 0.25%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Service Class 0.17% 0.16% 0.15%
National Tax-Free Money Market Trust 0.17% 0.16% 0.15%
Opportunity Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Investor Class 0.43% 0.42% 0.41%
Overland Express Sweep Fund 0.27% 0.26% 0.25%
Prime Investment Money Market Fund
Institutional Class 0.13% 0.12% 0.11%
Service Class 0.17% 0.16% 0.15%
Short Duration Government Bond Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Short-Term Bond Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Short-Term High Yield Bond Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Investor Class 0.28% 0.27% 0.26%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Short-Term Municipal Bond Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Small Cap Disciplined Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Small Cap Growth Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Small Cap Opportunities Fund
Administrator Class 0.15% 0.14% 0.13%
Small Cap Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Small Company Growth Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Small Company Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Small/Mid Cap Value Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Social Sustainability Fund
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Specialized Financial Services Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Specialized Technology Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Investor Class 0.43% 0.42% 0.41%
Stable Income Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Strategic Income Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Strategic Small Cap Value Fund/2/
Class A 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Target Today Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2010 Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2015 Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2020 Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2025 Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
Target 2030 Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2035 Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2040 Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2045 Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Target 2050 Fund
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.43% 0.42% 0.41%
Total Return Bond Fund
Class A 0.23% 0.22% 0.21%
Class B 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Treasury Plus Money Market Fund
Class A 0.27% 0.26% 0.25%
Institutional Class 0.13% 0.12% 0.11%
Administrator Class 0.15% 0.14% 0.13%
Service Class 0.17% 0.16% 0.15%
Ultra Short-Term Income Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Administrator Class 0.15% 0.14% 0.13%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
Ultra Short-Term Municipal Income Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Institutional Class 0.13% 0.12% 0.11%
Investor Class 0.28% 0.27% 0.26%
|
Total Breakpoint Administration Fees
------------------------------------
Funds/Classes First 5B Next 5B Over 10B
----------------------------------------------- ----------- ------- ------------
U.S. Value Fund
Class A 0.33% 0.32% 0.31%
Class B 0.33% 0.32% 0.31%
Class C 0.33% 0.32% 0.31%
Administrator Class 0.15% 0.14% 0.13%
Investor Class 0.43% 0.42% 0.41%
WealthBuilder Conservative Allocation Portfolio 0.33% 0.32% 0.31%
WealthBuilder Equity Portfolio 0.33% 0.32% 0.31%
WealthBuilder Growth Allocation Portfolio 0.33% 0.32% 0.31%
WealthBuilder Growth Balanced Portfolio 0.33% 0.32% 0.31%
WealthBuilder Moderate Balanced Portfolio 0.33% 0.32% 0.31%
WealthBuilder Tactical Equity Portfolio 0.33% 0.32% 0.31%
Wisconsin Tax-Free Fund
Class A 0.23% 0.22% 0.21%
Class C 0.23% 0.22% 0.21%
Investor Class 0.28% 0.27% 0.26%
100% Treasury Money Market Fund
Class A 0.27% 0.26% 0.25%
Service Class 0.17% 0.16% 0.15%
|
Most recent annual approval by the Board of Trustees: March 27, 2009 Schedule A to Appendix A amended: August 12, 2009
The foregoing fee schedule is agreed to as of August 12, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST
WELLS FARGO FUNDS MANAGEMENT, LLC
Exhibit 99.(h)(2)
EXHIBIT A
WELLS FARGO FUNDS TRUST
WELLS FARGO MASTER TRUST
WELLS FARGO VARIABLE TRUST
ACCOUNTING SERVICES AGREEMENT
THIS EXHIBIT A, as of the date set forth below, is Exhibit A to the Amended and Restated Accounting Services Agreement dated as of May 10, 2006, between PFPC INC. and Wells Fargo Funds Trust, Wells Fargo Master Trust and Wells Fargo Variable Trust.
WELLS FARGO FUNDS TRUST
Names of Portfolios Existing Classes ------------------------------------------- ----------------------------------------------- 100% Treasury Money Market Fund A, Service Aggressive Allocation Fund Administrator Asia Pacific Fund A, C, Investor Asset Allocation Fund A, B, C, Administrator C&B Large Cap Value Fund A, B, C, Administrator, Institutional, Investor C&B Mid Cap Value Fund A, B, C, Administrator, Institutional, Investor California Limited-Term Tax-Free Fund A, C, Administrator California Tax-Free Fund A, B, C, Administrator California Tax-Free Money Market Fund A, Institutional, Service California Tax-Free Money Market Trust Single Class Capital Growth Fund A, C, Administrator, Institutional, Investor Cash Investment Money Market Fund Administrator, Institutional, Service, Select Colorado Tax-Free Fund A, B, C, Administrator Common Stock Fund A, B, C, Investor Conservative Allocation Fund Administrator Discovery Fund A, C, Administrator, Investor, Institutional Diversified Bond Fund Administrator Diversified Equity Fund A, B, C, Administrator Diversified Small Cap Fund Administrator Emerging Growth Fund A, C, Administrator, Institutional, Investor Emerging Markets Equity Fund A, B, C, Administrator Endeavor Select Fund A, B, C, Administrator, Institutional Enterprise Fund A, C, Administrator, Institutional, Investor Equity Income Fund A, B, C, Administrator Equity Value Fund A, B, C, Administrator, Institutional Government Money Market Fund A, Administrator, Institutional, Service Government Securities Fund A, B, C, Administrator, Institutional, Investor Growth Balanced Fund A, B, C, Administrator Growth Equity Fund A, B, C, Administrator, Institutional Growth Fund A, C, Administrator, Institutional, Investor Heritage Money Market Fund Administrator, Institutional, Select High Income Fund A, B, C, Institutional, Investor |
Names of Portfolios Existing Classes ------------------------------------------- ----------------------------------------------- Income Plus Fund A, B, C, Institutional, Investor Index Fund A, B, Administrator, Investor Inflation-Protected Bond Fund A, B, C, Administrator Intermediate Tax/AMT-Free Fund A, C, Administrator, Institutional, Investor International Core Fund A, B, C, Administrator International Equity Fund A, B, C, Administrator, Institutional, Investor International Value A, B, C, Administrator, Institutional Large Cap Appreciation Fund A, B, C, Administrator, Institutional Large Cap Growth Fund Investor Large Company Core Fund A, B, C, Administrator, Institutional, Investor Large Company Growth Fund A, B, C, Administrator, Institutional, Investor Large Company Value Fund A, C, Administrator, Institutional, Investor Managed Account CoreBuilder Shares Series G Single Class Managed Account CoreBuilder Shares Series M Single Class Mid Cap Disciplined Fund A, C, Administrator, Institutional, Investor Mid Cap Growth Fund A, B, C, Administrator, Institutional, Investor Minnesota Money Market Fund A Minnesota Tax-Free Fund A, B, C, Administrator Moderate Balanced Fund A, B, C, Administrator Money Market Fund A, B, Investor Money Market Trust Single Class Municipal Bond Fund A, B, C, Administrator, Institutional, Investor Municipal Money Market Fund Institutional, Investor National Tax-Free Money Market Fund A, Institutional, Service, Administrator National Tax-Free Money Market Trust Single Class Opportunity Fund A, C, Administrator, Investor Overland Express Sweep Fund Single Class Prime Investment Money Market Fund Institutional, Service Short Duration Government Bond Fund A, B, C, Administrator, Institutional Short-Term Bond Fund A, C, Institutional, Investor Short-Term High Yield Bond Fund A, C, Investor Short-Term Municipal Bond Fund A, C, Investor Small Cap Disciplined Fund A, C, Administrator, Institutional, Investor Small Cap Growth Fund A, B, C, Administrator, Institutional, Investor Small Cap Opportunities Fund Administrator Small Cap Value Fund A, B, C, Institutional, Investor Small Company Growth Fund A, B, C, Administrator, Institutional Small Company Value Fund A, B, C, Administrator Small/Mid Cap Value Fund A, C, Administrator, Investor, Institutional Social Sustainability Fund A, C, Administrator Specialized Financial Services Fund A, B, C Specialized Technology Fund A, B, C, Investor Stable Income Fund A, B, C, Administrator Strategic Income Fund A, B, C |
Names of Portfolios Existing Classes ------------------------------------------- ----------------------------------------------- Strategic Small Cap Value Fund/1/ A, C, Administrator Target Today Fund A, B, C, Administrator, Institutional, Investor Target 2010 Fund A, B, C, Administrator, Institutional, Investor Target 2015 Fund Administrator, Institutional, Investor Target 2020 Fund A, B, C, Administrator, Institutional, Investor Target 2025 Fund Administrator, Institutional, Investor Target 2030 Fund A, B, C, Administrator, Institutional, Investor Target 2035 Fund Administrator, Institutional, Investor Target 2040 Fund A, B, C, Administrator, Institutional, Investor Target 2045 Fund Administrator, Institutional, Investor Target 2050 Fund Investor, Institutional, Administrator Total Return Bond Fund A, B, C, Administrator, Institutional, Investor Treasury Plus Money Market Fund A, Administrator, Institutional, Service U.S. Value Fund A, B, C, Administrator, Investor Ultra Short-Term Income Fund A, C, Administrator, Institutional, Investor Ultra Short-Term Municipal Income Fund A, C, Institutional, Investor WealthBuilder Conservative Allocation Portfolio Single Class WealthBuilder Equity Portfolio Single Class WealthBuilder Growth Allocation Portfolio Single Class WealthBuilder Growth Balanced Portfolio Single Class WealthBuilder Moderate Balanced Portfolio Single Class WealthBuilder Tactical Equity Portfolio Single Class Wisconsin Tax-Free Fund A, C, Investor |
WELLS FARGO MASTER TRUST
Names of Portfolios Existing Classes ------------------------------------------- ----------------------------------------------- C&B Large Cap Value Portfolio Single Class Disciplined Growth Portfolio Single Class Diversified Fixed Income Portfolio Single Class Diversified Stock Portfolio Single Class Emerging Growth Portfolio Single Class Equity Income Portfolio Single Class Equity Value Portfolio Single Class Index Portfolio Single Class Inflation-Protected Bond Portfolio Single Class International Core Portfolio Single Class International Growth Portfolio Single Class International Index Portfolio Single Class International Value Portfolio Single Class Large Cap Appreciation Portfolio Single Class Large Company Growth Portfolio Single Class |
Names of Portfolios Existing Classes ------------------------------------------- ----------------------------------------------- Managed Fixed Income Portfolio Single Class Short-Term Investment Portfolio Single Class Small Cap Index Portfolio Single Class Small Company Growth Portfolio Single Class Small Company Value Portfolio Single Class Stable Income Portfolio Single Class Strategic Small Cap Value Portfolio Single Class Total Return Bond Portfolio Single Class |
WELLS FARGO VARIABLE TRUST
Names of Portfolios Existing Classes ------------------------------------------- ----------------------------------------------- VT Asset Allocation Fund Single Class VT C&B Large Cap Value Fund Single Class VT Discovery Fund Single Class VT Equity Income Fund Single Class VT International Core Fund Single Class VT Large Company Core Fund Single Class VT Large Company Growth Fund Single Class VT Money Market Fund Single Class VT Opportunity Fund Single Class VT Small Cap Growth Fund Single Class VT Small/Mid Cap Value Fund Single Class VT Total Return Bond Fund Single Class |
Exhibit A amended: June 2, 2009
The foregoing exhibit is agreed to as of June 2, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST PFPC INC.
By: By:
-------------------------------- -------------------------------------
Name: Jeremy DePalma Name: James A. Gallo
Title: Treasurer Title: Vice President & Managing Director
|
WELLS FARGO MASTER TRUST
WELLS FARGO VARIABLE TRUST
Exhibit 99.(h)(3)
TRANSFER AGENCY AND SERVICE AGREEMENT
SCHEDULE A
List of Wells Fargo Advantage Funds
Wells Fargo Funds Trust
100% Treasury Money Market Fund
Aggressive Allocation Fund
Asia Pacific Fund
Asset Allocation Fund
C&B Large Cap Value Fund
C&B Mid Cap Value Fund
California Limited-Term Tax-Free Fund
California Tax-Free Fund
California Tax-Free Money Market Fund/1/
California Tax-Free Money Market Trust/1/
Capital Growth Fund
Cash Investment Money Market Fund
Colorado Tax-Free Fund
Common Stock Fund
Conservative Allocation Fund
Discovery Fund
Diversified Bond Fund
Diversified Equity Fund
Diversified Small Cap Fund
Emerging Growth Fund
Emerging Markets Equity Fund
Endeavor Select Fund
Enterprise Fund
Equity Income Fund
Equity Value Fund
Government Money Market Fund
Government Securities Fund
Growth Fund
Growth Balanced Fund
Growth Equity Fund
Heritage Money Market Fund
High Income Fund
Income Plus Fund
Index Fund
Inflation-Protected Bond Fund
Intermediate Tax/AMT-Free Fund
International Core Fund International Equity Fund International Value Fund Large Cap Appreciation Fund Large Cap Growth Fund Large Company Core Fund Large Company Growth Fund Large Company Value Fund Managed Account CoreBuilder Shares Series G Managed Account CoreBuilder Shares Series M Mid Cap Disciplined Fund Mid Cap Growth Fund Minnesota Money Market Fund Minnesota Tax-Free Fund Moderate Balanced Fund Money Market Fund Money Market Trust Municipal Bond Fund Municipal Money Market Fund National Tax-Free Money Market Trust National Tax-Free Money Market Fund Opportunity Fund Overland Express Sweep Fund Prime Investment Money Market Fund Short Duration Government Bond Fund Short-Term Bond Fund Short-Term High Yield Bond Fund Short-Term Municipal Bond Fund Small Cap Disciplined Fund Small Cap Growth Fund Small Cap Opportunities Fund Small Cap Value Fund Small Company Growth Fund Small Company Value Fund Small/Mid Cap Value Fund Social Sustainability Fund Specialized Financial Services Fund Specialized Technology Fund Stable Income Fund Strategic Income Fund Strategic Small Cap Value Fund/2/ Target 2010 Fund Target 2015 Fund Target 2020 Fund
Target 2025 Fund Target 2030 Fund Target 2035 Fund Target 2040 Fund Target 2045 Fund Target 2050 Fund Target Today Fund Total Return Bond Fund Treasury Plus Money Market Fund U.S. Value Fund Ultra Short-Term Income Fund Ultra Short-Term Municipal Income Fund WealthBuilder Conservative Allocation Portfolio WealthBuilder Equity Portfolio WealthBuilder Growth Allocation Portfolio WealthBuilder Growth Balanced Portfolio WealthBuilder Moderate Balanced Portfolio WealthBuilder Tactical Equity Portfolio Wisconsin Tax-Free Fund
Wells Fargo Variable Trust
VT Asset Allocation Fund
VT C&B Large Cap Value Fund
VT Discovery Fund
VT Equity Income Fund
VT International Core Fund
VT Large Company Core Fund
VT Large Company Growth Fund
VT Money Market Fund
VT Small/Mid Cap Value Fund
VT Opportunity Fund
VT Small Cap Growth Fund
VT Total Return Bond Fund
Schedule A amended: August 12, 2009
The foregoing schedule is agreed to as of August 12, 2009 and shall remain in effect until changed in writing by the parties.
Each of the Trusts on Schedule A
ATTEST:
BOSTON FINANCIAL DATA SERVICES, INC.
ATTEST:
Exhibit 99.(h)(4)
APPENDIX A
SHAREHOLDER SERVICING PLAN
WELLS FARGO FUNDS TRUST
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Aggressive Allocation Fund
Administrator Class 0.25
Asia Pacific Fund
Class A 0.25
Class C 0.25
Investor Class 0.25
Asset Allocation Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
C&B Large Cap Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Administrator Class 0.25
C&B Mid Cap Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Administrator Class 0.25
California Limited-Term Tax-Free Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
California Tax-Free Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
California Tax-Free Money Market Fund
Class A 0.25
Service Class 0.25
Capital Growth Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Cash Investment Money Market Fund
Administrator Class 0.10
Service Class 0.25
1
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Colorado Tax-Free Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Common Stock Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Conservative Allocation Fund
Administrator Class 0.25
Discovery Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Diversified Bond Fund
Administrator Class 0.25
Diversified Equity Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Diversified Small Cap Fund
Administrator Class 0.25
Emerging Growth Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Emerging Markets Equity Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Endeavor Select Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Enterprise Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Equity Income Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
2
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Equity Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Government Money Market Fund
Class A 0.25
Administrator Class 0.10
Service Class 0.25
Government Securities Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Growth Balanced Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Growth Equity Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Growth Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Heritage Money Market Fund
Administrator Class 0.10
High Income Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Income Plus Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Index Fund
Class A 0.25
Class B 0.25
Administrator Class 0.10
Investor Class 0.25
3
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Inflation-Protected Bond Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Intermediate Tax/AMT-Free Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
International Core Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
International Equity Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
International Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Large Cap Appreciation Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Large Cap Growth Fund
Investor Class 0.25
Large Company Core Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Large Company Growth Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Large Company Value Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
4
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Mid Cap Disciplined Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Mid Cap Growth Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Minnesota Money Market Fund
Class A 0.25
Minnesota Tax-Free Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Moderate Balanced Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Money Market Fund
Class A 0.25
Class B 0.25
Investor Class 0.25
Municipal Bond Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Municipal Money Market Fund
Investor Class 0.25
National Tax-Free Money Market Fund
Class A 0.25
Administrator Class 0.10
Service Class 0.25
Opportunity Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Overland Express Sweep Fund 0.25
Prime Investment Money Market Fund
Service Class 0.25
5
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Short Duration Government Bond Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Short-Term Bond Fund
Class A 0.25
Class C 0.25
Investor Class 0.25
Short-Term High Yield Bond Fund
Class A 0.25
Class C 0.25
Investor Class 0.25
Short-Term Municipal Bond Fund
Class A 0.25
Class C 0.25
Investor Class 0.25
Small Cap Disciplined Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Small Cap Growth Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Small Cap Opportunities Fund
Administrator Class 0.25
Small Cap Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Small Company Growth Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Small Company Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Small/Mid Cap Value Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
6
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Social Sustainability Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Specialized Financial Services Fund
Class A 0.25
Class B 0.25
Class C 0.25
Specialized Technology Fund
Class A 0.25
Class B 0.25
Class C 0.25
Investor Class 0.25
Stable Income Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Strategic Income Fund
Class A 0.25
Class B 0.25
Class C 0.25
Strategic Small Cap Value Fund/1/
Class A 0.25
Class C 0.25
Administrator Class 0.25
Target Today Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Target 2010 Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Target 2015 Fund
Administrator Class 0.25
Investor Class 0.25
Target 2020 Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
----------
|
/1/ On June 2, 2009, the Board of Trustees approved the liquidation of the Strategic Small Cap Value Fund effective on or about August 21, 2009.
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
Target 2025 Fund
Administrator Class 0.25
Investor Class 0.25
Target 2030 Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Target 2035 Fund
Administrator Class 0.25
Investor Class 0.25
Target 2040 Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Target 2045 Fund
Administrator Class 0.25
Investor Class 0.25
Target 2050 Fund
Investor Class 0.25
Administrator Class 0.25
Total Return Bond Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Treasury Plus Money Market Fund
Class A 0.25
Administrator Class 0.10
Service Class 0.25
Ultra Short-Term Income Fund
Class A 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
Ultra Short-Term Municipal Income Fund
Class A 0.25
Class C 0.25
Investor Class 0.25
U.S. Value Fund
Class A 0.25
Class B 0.25
Class C 0.25
Administrator Class 0.25
Investor Class 0.25
WealthBuilder Conservative Allocation Portfolio 0.25
WealthBuilder Equity Portfolio 0.25
8
|
Maximum
Funds Trust Shareholder
Funds and Share Classes* Servicing Fee
--------------------------------------------------------------- --------------
WealthBuilder Growth Allocation Portfolio 0.25
WealthBuilder Growth Balanced Portfolio 0.25
WealthBuilder Moderate Balanced Portfolio 0.25
WealthBuilder Tactical Equity Portfolio 0.25
Wisconsin Tax-Free Fund
Class A 0.25
Class C 0.25
Investor Class 0.25
100% Treasury Money Market Fund
Class A 0.25
Service Class 0.25
|
Fees payable to a Servicing Agent are expressed as a percentage of the average daily net asset value of the shares of the specified class of the particular Fund beneficially owned by or attributable to clients of the Servicing Agent.
* On November 7, 2007, the Board of Trustees approved the closing of Class B shares to new investors and additional investments, effective February 14, 2008, with the exception of the Money Market Fund. Following the closing of the Class B shares, 12b-1 and shareholder servicing fees will continue to reimburse previously incurred distribution-related expenses and expenses for servicing shareholder accounts and retain the assets of existing shareholders.
Most recent agreement approval: March 27, 2009 Appendix A amended: June 2, 2009
The foregoing fee schedule is agreed to as of June 2, 2009 and shall remain in effect until changed in writing by the parties.
WELLS FARGO FUNDS TRUST
WELLS FARGO FUNDS MANAGEMENT, LLC
Exhibit 99.(i)(1)
[WELLS FARGO FUNDS LETTERHEAD]
September 28, 2009
Wells Fargo Funds Trust
525 Market Street
San Francisco, California 94105
Re: Shares of Beneficial Interest of
Wells Fargo Funds Trust
Ladies/Gentlemen:
I am Senior Counsel of Wells Fargo Funds Management, LLC (the "Company"), adviser and administrator to the Wells Fargo Advantage Funds. I have acted as Counsel to the Company in connection with the issuance and sale of shares by the Wells Fargo Advantage Funds.
I refer to the Registration Statement on Form N-1A (SEC File Nos. 333-74295 and 811-09253) (the "Registration Statement") of Wells Fargo Funds Trust relating to the registration of an indefinite number of shares of beneficial interest in the Trust (collectively, the "Shares").
I have been requested by the Trust to furnish this opinion as Exhibit
(i)(1) to the Registration Statement.
Based upon and subject to the foregoing, I am of the opinion that:
(a) The issuance and sale of the Shares of the Funds by the Trust has been duly and validly authorized by all appropriate action of the Trust, and assuming delivery by sale or in accord with the Trust's dividend reinvestment plan in accordance with the description set forth in the Funds' current prospectuses under the Securities Act of 1933, as amended, the Shares will be legally issued, fully paid and nonassessable by the Trust.
(b) Pursuant to paragraph (b)(4) of Rule 485 under the Securities Act of 1933 (the "Rule"), as amended, the Registration Statement does not contain disclosures which would render it ineligible to become effective pursuant to paragraph (b) of the Rule.
I consent to the inclusion of this opinion as an exhibit to the Registration Statement.
Sincerely,
/s/ Karin Brotman ---------------------------------------- Karin Brotman Senior Counsel Wells Fargo Funds Management, LLC |
Exhibit 99.(j)(a)
Consent of Independent Registered Public Accounting Firm
The Board of Trustees of Wells Fargo Funds Trust The Board of Trustees of Wells Fargo Master Trust:
We consent to the use of our reports for the Diversified Bond Fund, Government Securities Fund, High Income Fund, Income Plus Fund, Inflation-Protected Bond Fund, Short Duration Government Bond Fund, Short-Term Bond Fund, Short-Term High Yield Bond Fund, Stable Income Fund, Strategic Income Fund, Total Return Bond Fund, Ultra Short-Term Income Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, and the WealthBuilder Tactical Equity Portfolio, a total of eighteen funds of the Wells Fargo Funds Trust, dated July 24, 2009, incorporated herein by reference, and to the references to our firm under the heading "Independent Registered Public Accounting Firm" in the statements of additional information.
We also consent to the use of our report for the Managed Fixed Income Portfolio, Stable Income Portfolio, Total Return Bond Portfolio, and the Inflation-Protected Bond Portfolio, four portfolios of Wells Fargo Master Trust, dated July 24, 2009, incorporated herein by reference.
/s/ KPMG LLP Philadelphia, Pennsylvania September 30, 2009 |
dc-426613
Exhibit 99.(M)
APPENDIX A
DISTRIBUTION PLAN
WELLS FARGO FUNDS TRUST
Funds Trust Maximum
Funds and Share Classes* Rule 12b-1 Fee
-------------------------------------------------------------- ---------------
Asia Pacific Fund
Class C 0.75
Asset Allocation Fund
Class B 0.75
Class C 0.75
California Limited-Term Tax-Free Fund
Class C 0.75
California Tax-Free Fund
Class B 0.75
Class C 0.75
Capital Growth Fund
Class C 0.75
Colorado Tax-Free Fund
Class B 0.75
Class C 0.75
Common Stock Fund
Class B 0.75
Class C 0.75
C&B Large Cap Value Fund
Class B 0.75
Class C 0.75
C&B Mid Cap Value Fund
Class B 0.75
Class C 0.75
Discovery Fund
Class C 0.75
Diversified Equity Fund
Class B 0.75
Class C 0.75
Emerging Growth Fund
Class C 0.75
Emerging Markets Equity Fund
Class B 0.75
Class C 0.75
Endeavor Select Fund
Class B 0.75
Class C 0.75
Enterprise Fund
Class C 0.75
Equity Income Fund
Class B 0.75
Class C 0.75
Equity Value Fund
Class B 0.75
Class C 0.75
A-1
|
Funds Trust Maximum
Funds and Share Classes* Rule 12b-1 Fee
-------------------------------------------------------------- ---------------
Government Securities Fund
Class B 0.75
Class C 0.75
Growth Balanced Fund
Class B 0.75
Class C 0.75
Growth Equity Fund
Class B 0.75
Class C 0.75
Growth Fund
Class C 0.75
High Income Fund
Class B 0.75
Class C 0.75
Income Plus Fund
Class B 0.75
Class C 0.75
Index Fund
Class B 0.75
Inflation-Protected Bond Fund
Class B 0.75
Class C 0.75
Intermediate Tax/AMT-Free Fund
Class C 0.75
International Core Fund
Class B 0.75
Class C 0.75
International Equity Fund
Class B 0.75
Class C 0.75
International Value Fund
Class B 0.75
Class C 0.75
Large Cap Appreciation Fund
Class B 0.75
Class C 0.75
Large Company Core Fund
Class B 0.75
Class C 0.75
Large Company Growth Fund
Class B 0.75
Class C 0.75
Large Company Value Fund
Class C 0.75
Managed Account CoreBuilder Shares Series G 0.00
Managed Account CoreBuilder Shares Series M 0.00
Mid Cap Disciplined Fund
Class C 0.75
Mid Cap Growth Fund
Class B 0.75
Class C 0.75
A-2
|
Funds Trust Maximum
Funds and Share Classes* Rule 12b-1 Fee
-------------------------------------------------------------- ---------------
Minnesota Tax-Free Fund
Class B 0.75
Class C 0.75
Moderate Balanced Fund
Class B 0.75
Class C 0.75
Money Market Fund
Class B 0.75
Municipal Bond Fund
Class B 0.75
Class C 0.75
Opportunity Fund
Class C 0.75
Overland Express Sweep Fund 0.25
Short Duration Government Bond Fund
Class B 0.75
Class C 0.75
Short-Term Bond Fund
Class C 0.75
Short-Term High Yield Bond Fund
Class C 0.75
Short-Term Municipal Bond Fund
Class C 0.75
Small Cap Disciplined Fund
Class C 0.75
Small Cap Growth Fund
Class B 0.75
Class C 0.75
Small Cap Value Fund
Class B 0.75
Class C 0.75
Small Company Growth Fund
Class B 0.75
Class C 0.75
Small Company Value Fund
Class B 0.75
Class C 0.75
Small/Mid Cap Value Fund
Class C 0.75
Social Sustainability Fund
Class C 0.75
Specialized Financial Services Fund
Class B 0.75
Class C 0.75
Specialized Technology Fund
Class B 0.75
Class C 0.75
Stable Income Fund
Class B 0.75
Class C 0.75
Strategic Income Fund
Class B 0.75
A-3
|
Funds Trust Maximum Funds and Share Classes* Rule 12b-1 Fee -------------------------------------------------------------- --------------- Class C 0.75 Strategic Small Cap Value Fund/1/ Class C 0.75 Target Today Fund Class B 0.75 Class C 0.75 Target 2010 Fund Class B 0.75 Class C 0.75 Target 2020 Fund Class B 0.75 Class C 0.75 Target 2030 Fund Class B 0.75 Class C 0.75 Target 2040 Fund Class B 0.75 Class C 0.75 Total Return Bond Fund Class B 0.75 Class C 0.75 Ultra Short-Term Income Fund Class C 0.75 Ultra Short-Term Municipal Income Fund Class C 0.75 U.S. Value Fund Class B 0.75 Class C 0.75 WealthBuilder Conservative Allocation Portfolio 0.75 WealthBuilder Equity Portfolio 0.75 WealthBuilder Growth Allocation Portfolio 0.75 WealthBuilder Growth Balanced Portfolio 0.75 WealthBuilder Moderate Balanced Portfolio 0.75 WealthBuilder Tactical Equity Portfolio 0.75 Wisconsin Tax-Free Fund Class C 0.75 |
Most recent annual approval by the Board of Trustees: March 27, 2009 Appendix A amended: June 2, 2009
* On November 7, 2007, the Board of Trustees approved the closing of Class B shares to new investors and additional investments, effective February 14, 2008, with the exception of the Money Market Fund. Following the closing of the Class B shares, 12b-1 payments will continue to fund previously incurred distribution-related expenses.
Exhibit 99.(p)(16)
NELSON CAPITAL MANAGEMENT
Code of Ethics
Policy on Personal Securities Transactions And Insider Trading
I. INTRODUCTION
The directors, officers and employees of Nelson Capital Management ("NCM") owe a duty of loyalty to NCM and its clients. NCM and its personnel have a fiduciary obligation not to make, participate in, or engage in any act, practice or course of conduct that would, in any way, conflict with the interests of its clients, or breach any applicable federal or state securities laws. In addition, NCM and its personnel have a fiduciary obligation to NCM's clients to protect the confidentiality of all proprietary, sensitive or other confidential information communicated to NCM.
This obligation encompasses:
a) the duty at all times to place the interests of clients first;
b) the duty to act at all times in the spirit of openness, integrity, honesty and trust; and
c) the duty to ensure that all personal securities transactions be conducted in a manner consistent with the standards below.
Code of Ethics
As a registered investment adviser, NCM is required to maintain a policy governing personal securities transactions and insider trading by its officers and employees. This Code of Ethics and Policy on Personal Securities Transactions and Insider Trader (the "Code") has been adopted under Section 204A of the Investment Advisers Act of 1940, as amended ("the Advisers Act"), and Rule 204A-1 thereunder, in order to establish and enforce NCM's policies and procedures governing the personal securities transactions of its officers and employees. NCM believes that the Code is reasonably designed to prevent the misuse of material, non-public information, and it outlines the policies and procedures for the activities referred to above.
Section 17(j) of the Investment Company Act of 1940, as amended (the "Company Act"), and Rule 17j-1, thereunder, require that every investment adviser to a registered investment company adopt a written code of ethics. Because NCM is the sub-adviser to the Wells Fargo Social Sustainability Fund, a registered investment company (the "Fund"), NCM has incorporated the requirements of Rule 17j-1 in this Code. As a result, NCM is required to provide a report to the Fund's Board of Trustees, at least annually, certifying that it has procedures in place designed to prevent access persons from violating the Code and describing issues arising under the Code, if any, and the sanction/response imposed.
In addition, this Code is intended to be followed in conjunction with the policies outlined in the Handbook for Wells Fargo Team Members and the Wells Fargo Code of Conduct and Business Ethics applicable to Wells Fargo employees. Acknowledgement of, and compliance with, this Code are conditions of employment.
All references in this Code to employees, officers, directors, accounts, departments and clients refer to those of NCM. NCM personnel must avoid actions or activities that allow (or appear to allow) them or their family members to profit or benefit from their relationships with NCM clients.
NCM personnel are also reminded not to use indirect means (i.e., cause or use another person) to do anything that is prohibited by law or the policies of NCM.
II. DEFINITIONS
"Access Person" means each employee, officer or director of NCM that has access to non-public information regarding any client's, specifically including the Funds' purchase or sale of Covered Securities, as defined herein, is involved in making securities recommendations to clients or has access to such recommendations that are non-public. For purposes of this Code, all NCM personnel (this may include independent contractors, if appropriate) are considered to be "Access Persons" and are subject to the policies and procedures set out in this Code. The list of Access Persons is attached as Exhibit A and will be updated at least annually, and periodically, as needed.
"Automatic Investment Plan" means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
"Beneficial Ownership" means ownership where a team member, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares a direct or indirect pecuniary interest in the securities. Direct pecuniary interest in any class of securities includes the opportunity, directly or indirectly, to profit or share in any profit derived from a transaction in securities. For example, a team member may be deemed to be a beneficial owner of securities held by members of a team member's immediate family sharing the same household, or by certain partnerships, client accounts, corporations or other arrangements.
"Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Company Act.
"Covered Security" means a security as defined in Section 202(a)(18) of the Advisers Act and Section 2 (a)(36) of the Company Act /1/, except that it does not include:
. Direct obligations of the Government of the United States;
. Money market instruments including bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements;
. Shares of unaffiliated open-end investment companies registered under the Company Act (non-proprietary mutual funds); and
. Shares of open-end exchange trades funds (ETFs).
"Fund" means Wells Fargo Advantage Social Sustainability Fund
"Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, as amended (the "1933 Act"), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act.
"Limited Offering" means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the 1933 Act.
"Purchase or Sale of a Covered Security" means the purchase or sale of a Covered Security, and includes, among other things, the writing of an option to purchase or sell a Covered Security.
III. PROCEDURES
Applicability
All of the following restrictions and procedures apply to accounts of which Access Persons have control and are considered to have beneficial ownership, which includes:
a) Accounts over which NCM personnel have any control, influence, authority, or beneficial interest, whether direct or indirect (including and transaction for which a NCM employee is the sole owner, joint owner, trustee, co-trustee, attorney-in-fact, etc.);
b) Accounts where NCM personnel direct activities for others, including relatives, friends, etc.
Certification and Acknowledgment
NCM Access Persons are required to certify that they have received a copy of NCM's Code of Ethics, and acknowledge that they have read, understand and will comply with this Code and related policies. The Certification and Acknowledgement Form is attached as Exhibit B and must be completed no later than 10 days after becoming an Access Person, and on an annual basis, thereafter. NCM may rely on the fourth quarter acknowledgment and certification submitted via the applicable personal trading application used by its Wells Fargo division to satisfy this annual certification requirement.
Initial and Annual Holdings Report
NCM Access Persons are required to disclose all personal securities holdings and all brokerage and trading accounts to NCM Compliance no later than 10 days after becoming an NCM Access Person. The information must be current as of a date no more than 45 days prior to the date the person became an access person. The Initial Holdings Report is attached as Exhibit C.
Access Persons are required to submit a report of holdings annually by January 30 of each year and provide information as of a date not earlier than December 31 of the preceding year. NCM may rely on the fourth quarter acknowledgment and certification submitted via the applicable personal trading application used by its Wells Fargo division to satisfy this annual report requirement.
Quarterly Transaction Reporting and Account Certification
Quarterly Transaction Reports that list personal securities transactions executed for the quarter must be certified by Access Persons to NCM Compliance no later than 30 business days after the end of each calendar quarter. In addition, NCM Access Persons are required to certify to NCM
Compliance all brokerage accounts in which they have a beneficial interest. Access Persons should submit information on any new or closed brokerage accounts to NCM Compliance each quarter. Quarterly transaction reporting and account certification may be completed electronically via the applicable personal trading application used by its Wells Fargo division.
Pre-clearance of Trades
It is NCM's policy that Access Persons are required to pre-clear personal trades on the trade date before the purchase or sale of a Covered Security. In addition, to pre-clearing transactions via the applicable personal trading application used by its Wells Fargo division, NCM Access Persons are required to have their trades pre-cleared by a member of the NCM trading desk.
Prior to submitting a personal trade for pre-clearance, an Access Person should
determine that the reason for placing the trade does not involve any conflict of
interest, including information considered material and non-public.
Specifically, any trades placed in personal securities accounts based on insider
information and/or tipping of such information is strictly prohibited. (See
Section IV - Insider Trading, below.)
Access Persons may only purchase and sell securities if the following conditions are met:
1. The security has not been traded in client accounts or the Fund, and is not scheduled to be traded in any of the client accounts or the Fund that trade day (i.e. the security is not on the trade blotter), and the Access Person has received appropriate approvals, including approval from NCM's Head Trader
2. The security has been traded in client accounts or is scheduled to be traded (i.e. the security is on the trade blotter), the Access Person's trade may not occur until the trading in that security for clients has been completed.
3. The Access Person may execute their personal trade at anytime during the trade date after receiving approval from NCM's Trader. However, in the event a client trade in the same security is placed on the same trade day after the Access Person's trade is executed, the Access Person may be asked by Compliance to break their trade. Therefore, it is in the best interest of NCM Access Persons' to hold their personal trades to the final half hour of trading to reduce the potential risk of having their trade breaking.
4. For limit and stop orders, the Access Person must document the trade with a screen print of the order.
These procedures apply to all transactions in Covered Securities held in accounts in which Access Persons have a beneficial interest and over which they exercise influence or control, including accounts for their family members or other household accounts. The restrictions do not apply to Automatic Investment Plan transactions, Wells Fargo 401(k) plan trades, and/or external 401(k) plans that do not trade in individual securities.
Note - pre-clearance does not assure that the trade will not violate policy
because Access Persons must ensure that they do not place any trades in client
accounts in the same security after the trade has been pre-cleared on the same
day.
To pre-clear while out-of-office call the applicable NCM Compliance Consultant or the NCM Trader.
Restricted/Prohibited Securities
Rules 204A-1 and 17j-1 both require that Access Persons of investment advisers pre-clear any purchase in an Initial Public Offering or Limited Offering (a private placement, an LP or LLC (including hedge funds) or any thinly traded public security). Therefore, NCM Access Persons may not purchase securities in an Initial Public Offering or Limited Offering unless approval is obtained from NCM Compliance (and the NCM Trading Desk). It should be noted that private investment funds, including Wells Fargo proprietary hedge funds, are considered to be Limited Offerings and must be pre-cleared.
In addition, NCM Access Persons may not invest in options (other than employee stock options), puts, calls, short sales, futures contracts or other similar transactions involving securities issued by Wells Fargo & Co. In the event an Access Person has been issued employee stock options, such options must be pre-cleared before they are exercised.
Exempt Securities and Transactions
Securities excluded from the definition of Covered Securities, above, are exempt from pre-clearance requirements, as well as initial, quarterly and annual reporting requirements. Transactions in proprietary mutual funds, such as the Fund, or any mutual fund advised by an affiliate of NCM are exempt from pre-clearance requirements, but are subject to the initial, quarterly and annual reporting requirements.
Note - Transactions in closed-end mutual funds and ETFs are not exempt from the
pre-clearance and reporting requirements because closed-end funds and ETFs are
Covered Securities.
Post Trade Review
Quarterly Compliance Testing
a) Delinquent Certifications.
On a quarterly basis, NCM Compliance will run a quarterly certifications report to detect any late or missing certifications. These will be tracked in order to determine applicability of any penalties. See below for discussion of penalty process.
b) Breaches of Trading Restrictions.
i. On a quarterly basis, NCM Compliance monitors potential "front-running" and will review for purchases or sales of restricted Securities. The reviews will Compare reported personal transactions in Reportable Securities with transactions in associated client accounts; and
ii. NCM Compliance will then forward an e-mail to all Access Persons with possible violation information. Once the Access Person has received the e-mail and corresponding possible violation detail, he/she must respond in writing to NCM Compliance within 14 days of receipt with an explanation detailing all circumstances concerning the noted possible violations.
iii. Before determining that an Access Person has violated the Code, NCM Compliance shall give the person an opportunity to supply explanatory material. No team member is required to participate in a determination of whether he or she has committed a violation or discuss the imposition of any sanction against himself or herself.
iv. After NCM Compliance has received all responses, an analysis will be conducted to determine any trending, the legitimacy of explanations, and/or possible disciplinary actions. NCM Senior Management will be contacted in writing should further disciplinary action be warranted for violations of this policy.
Note: Failure to respond back to NCM Compliance within the required timeframe will result in further escalation to NCM Senior Management.
Annual Compliance Testing
Missing and/or incomplete annual reports. NCM Compliance will review holding report files to determine if any Certification and Acknowledgement of the Code, Holdings Report, and Account Certifications (if applicable) are missing and/or incomplete and will follow up with the Access Person to obtain the required report(s).
IV. INSIDER TRADING
Insider trading refers generally to buying or selling a security, in breach of fiduciary duty or other relationship of trust and confidence, while in possession of material, non-public information. Rule 10b-5 under the Securities Exchange Act of 1934, as amended, prohibits trading on the basis of inside information.
Inside and non-public information: Any information about a business organization that is not generally available to or known by the public.
Material inside information: Inside and non-public information is considered "material" if there is a likelihood that it would be considered important by an investor in making a decision to buy or sell a company's securities, whether stock, bonds, notes, debentures, limited partnership units or other equity or debt securities. Inside information shall be presumed "material" if it relates to, among other things, any of the following:
a) Earnings, or financial results, before publicly disclosed,
b) Dividend increases or decreases,
c) Changes in previously released earnings estimates,
d) Significant gains or losses,
e) Significant expansion or curtailment of operations,
f) Significant merger or acquisition proposals or agreements,
g) Significant purchase or sale of assets,
h) Significant new products or discoveries,
i) Significant borrowing,
j) Major litigation,
k) New debt or equity offerings,
l) Liquidity problems, or
m) Significant management changes.
No person covered by this Code may trade, either personally or on behalf of others, while in possession of Inside Information. This includes "tipping" of information to others who trade on behalf of their own accounts. This means:
NCM Access Persons shall not trade for their own accounts (or recommend trading in client accounts) on the basis of material, or inside and non-public information in their possession. Access Persons are required to observe the limitations imposed by the federal securities laws, particularly Rules 10b-5 and 10b5-1.
If an Access Person has any question as to whether information is material or inside and non-public, he or she shall resolve the question(s) before trading, recommending trading or divulging the information.
If there is any unresolved question in a team member's mind as to whether information is material or inside and non-public, it should be brought to the attention of NCM's Chief Compliance Officer ("CCO"). Wells Fargo's Law Department will be consulted prior to trading or recommending trading.
V. PENALTIES
NCM Compliance will report violations of the Code quarterly, or as they occur, to NCM's President. In addition, each Access Person must immediately report to the CCO any known or reasonably suspected violations of this Code of which he or she becomes aware.
Penalties may range from a notice of censure, disgorgement of profits, to a dismissal and referral to authorities. A consistent pattern of violating any of the above standards could lead to dismissal.
VI. ADMINISTRATION
The CCO is responsible for administering this Code.
Any Access Person who has knowledge of misconduct relating to, or wish to express concern relating to, accounting, internal accounting controls or auditing matters and/or a violation of any federal or state securities law of provisions of the Code, should submit a written complaint expressing such facts and/or concerns to the CCO.
Any such complaint will be held in the strictest of confidence and shall not be disclosed except when required pursuant to the Code, NCM policy, this procedure or by law.
VII. CONFIDENTIALITY
All reports of personal securities transactions, holdings and any other information filed pursuant to this Code will be kept confidential, provided, however that such information may also be subject to review by appropriate NCM Compliance Personnel, NCM's CCO and/or Senior Management and legal counsel. Such information will also be provided to the Securities and Exchange Commission ("SEC") or other government authority when properly requested or pursuant to a court order.
EXHIBIT A
NELSON CAPITAL MANAGEMENT, LLC
ACCESS PERSONS
As of 6/25/2009
Covered by NCM Code of Ethics
-----------------------------
Aguilar, Lisa Yes
Apt, Justin Yes
Asuncion, Evita Yes
Benner, Scott Yes
Brooks, Robin Yes
Brown, Dian Yes
Dunegan, Dede Yes
Horton, Shannon Yes
Klosky, Michele Yes
Kurtz, Lloyd Yes
Manchester, Jon Yes
McQuillen, Lena Yes
Marcoux, Frank Yes
Mayhew, Anissa Yes
Ramar, Sue Yes
Roncal, Stephanie Yes
Weng, Jessica Yes
|
EXHIBIT B
NELSON CAPITAL MANAGEMENT
CERTIFICATION AND ACKNOWLEDGEMENT
Code of Ethics
Policy on Personal Securities Transactions And Insider Trading
Pursuant to Rule 204A-1(a) of the Investment Advisers Act of 1940 and Rule 17j1(c)(1) of the Investment Company Act of 1940 and, Nelson Capital Management ("NCM") has adopted procedures that are necessary to prevent Access Persons from violating its Code of Ethics Policy on Personal Securities Transactions and Insider Trading ("Code").
I hereby certify that I have received a copy of NCM's Code and acknowledge that I have read it and understand it. I have had the opportunity to ask any questions I may have concerning the meaning and interpretation of the provisions of the Code and I understand the obligations set forth therein that are applicable to me. I agree to abide by and comply with all such policies and procedures.
Compliance Review
The Certification and Acknowledgement form is due 10 days from date of receipt.
EXHIBIT C
NELSON CAPITAL MANAGEMENT
INITIAL HOLDINGS REPORT
PERSONAL HOLDINGS DISCLOSURE
[_] I have attached a report that, at a minimum, includes the security name and number of shares or principal amount of every non-exempt security in which I have any beneficial ownership within all of my personal securities accounts listed below.*
[_] I have no holdings except for those securities exempt by the Code.
DUPLICATE TRADE CONFIRMATION & STATEMENT
[_] I have directed the following firms (list all firms and provide account numbers) with which I have personal securities accounts to supply duplicate copies of confirmations of all personal securities transactions for all accounts in which I have any beneficial ownership.**
[_] I have no brokerage account(s).
I hereby certify that the information provided herein is complete and accurate. I also acknowledge that I have received, reviewed and understand the Nelson Capital Management's Code of Ethics Policy on Personal Securities Transactions and Insider Trading, and have complied with all of their requirements.
Compliance Review
The Holdings Report form is due 10 days from date of receipt and on an annual basis, thereafter.
* Account statements no older than 45 days from the day of reporting may be submitted in lieu of this report.
** Copies of broker(s) documentation (with the exception of Charles Schwab and Wells Fargo) are to be directed to the following:
Nelson Capital Management
PST Administrator
MAC A0112-063
550 California St, 6th Floor
San Francisco, CA 94104-1004
EXHIBIT J/A
CODE OF ETHICS
Under Rule 17j-1 of the Investment Company Act of 1940, as amended
Effective October 1, 2008
It is the policy of Nelson Capital Management (NCM), as sub-adviser to the Wells Fargo Advantage Social Sustainability Fund (the "Fund") that NCM personnel should seek (1) at all times to place the interests of Fund investors first; (2) conduct all personal securities transactions in a manner that is consistent with this Code and in such a manner as to avoid any actual or potential conflict of interest or any abuse of the individual's position of trust and responsibility; and (3) adhere to the fundamental standard that NCM should not take inappropriate advantage of their position or engage in any act, practice or course of conduct that would violate this Code, the fiduciary duty owed to Fund investors, or the provisions of Section 17(j) of the Investment Company Act of 1940, as amended (the "Company Act") and Rule 17j-1, thereunder.
NCM imposes additional reporting and review requirements and restrictions on the personal securities transactions of their personnel. The Board of Trustees of the Fund has determined that, in addition to the requirements of this Code of Ethics (the "Code"), the standards and reporting and review requirements established will be appropriately applied to the Fund to those of its managers who are affiliated with the Fund.
This Code does not attempt to identify all possible conflicts of interest, and literal compliance with each of its specific provisions will not shield against liability for personal trading or other conduct that violates a fiduciary duty to Fund investors.
1. DEFINITIONS
"Access Person" means any Advisory Person of the Fund or NCM, who, in the ordinary course of business makes, participates in or obtains information regarding, the Purchase or Sale of a Covered Security by the Fund, whose functions or duties in the ordinary course of business relate to the making of any recommendation to a Fund regarding the Purchase or Sale of a Covered Security.
"Advisory Person" of a Fund or of NCM means: (i) any member, director, manager, officer, general partner or employee of the Fund or NCM (or of any company in a Control relationship to the Fund or NCM) who, in connection with his or her regular functions or duties, makes, participates in, or obtains information regarding the Purchase or Sale of a Covered Security by the Fund, or whose functions relate to the making of any recommendations with respect to such purchase or sale; and (ii) any natural person in a Control relationship to the Fund or NCM who obtains information concerning recommendations made to the Fund with regard to the Purchase or Sale of a Covered Security by the Fund.
"Automatic Investment Plan" means a program in which regular periodic purchases (or withdrawals) are made automatically in (or from) investment accounts in accordance with a predetermined schedule and allocation. An Automatic Investment Plan includes a dividend reinvestment plan.
"Beneficial Ownership" shall be interpreted in the same manner as it would be under Rule 16a-1(a)(2) under the Securities Exchange Act of 1934, as amended (the "1934 Act"), in determining whether a person is the beneficial owner of a security for purposes of Section 16 of the 1934 Act and the rules and regulations thereunder.
"Control" shall have the same meaning as that set forth in Section 2(a)(9) of the Investment Company Act of 1940, as amended (the "1940 Act").
"Covered Security" means a security as defined in Section 2(a)(36) of the 1940 Act, except that it does not include:
. Direct obligations of the Government of the United States;
. Bankers' acceptances, bank certificates of deposit, commercial paper and high quality short-term debt instruments, including repurchase agreements; and
. Shares issued by non-proprietary open-end investment companies registered under the 1940 Act. "Fund" means Wells Fargo Advantage Social Sustainability Fund
"Initial Public Offering" means an offering of securities registered under the Securities Act of 1933, as amended (the "1933 Act"), the issuer of which, immediately before the registration, was not subject to the reporting requirements of Sections 13 or 15(d) of the 1934 Act.
"Investment Personnel" of the Fund or NCM means: (i) any employee of the Fund or NCM (or of any company in a Control relationship to the Fund or NCM) who, in connection with his or her regular functions or duties, makes or participates in making recommendations regarding the Purchase or Sale of a Covered Security by the Fund; or (ii) any natural person who Controls the Fund or NCM and who obtains information concerning recommendations made to the Fund regarding the Purchase or Sale of a Covered Security by the Fund.
"Limited Offering" means an offering that is exempt from registration under the 1933 Act pursuant to Section 4(2) or Section 4(6) or pursuant to Rule 504, Rule 505, or Rule 506 under the 1933 Act.
"Purchase or Sale of a Covered Security" means the purchase or sale of a Covered Security, and includes, among other things, the writing of an option to purchase or sell a Covered Security.
"Security Held or to be Acquired by the Fund" means (i) Any Covered Security which, within the most recent 15 days: (A) is or has been held by the Fund; or (B) is being or has been considered by the Fund or NCM for purchase by the Fund; and (ii) any option to purchase or sell, and any security convertible into or exchangeable for, a Covered Security described in part (i) of this paragraph.
2. RESTRICTIONS ON PERSONAL INVESTING ACTIVITIES
Investment Personnel of the Fund or NCM must obtain approval from the Fund or NCM before directly or indirectly acquiring Beneficial Ownership in any securities in an Initial Public Offering or in a Limited Offering.
3. REPORTING
Initial Holdings Reports
Except as otherwise provided in this Code, every Access Person of the Fund and every Access Person of NCM, shall report to the Fund or NCM, as applicable, no later than 10
days after the person becomes an Access Person, the following information (which information must be current as of a date no more than 45 days prior to the date the person becomes an Access Person):
. The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect Beneficial Ownership when the person became an Access Person;
. The name of any broker, dealer or bank with whom the Access Person maintained an account in which any securities were held for the direct or indirect benefit of the Access Person as of the date the person became an Access Person; and
. The date that the report is submitted by the Access Person.
Quarterly Transaction Reports
Except as otherwise provided in this Code, every Access Person of a Fund and every Access Person of NCM shall report to that Fund or NCM, as applicable, no later than 30 days after the end of each calendar quarter, the following information:
With respect to any transaction during the quarter in a Covered Security in which the Access Person had, or by reason of such transaction acquired, any direct or indirect Beneficial Ownership in the Covered Security:
. The date of the transaction, the title, the interest rate and maturity date (if applicable) and the number of shares and the principal amount of each Covered Security involved;
. The nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition);
. The price of the Covered Security at which the transaction was effected;
. The name of the broker, dealer or bank with or through which the transaction was effected; and
. The date that the report is submitted by the Access Person.
With respect to any account established by the Access Person in which any securities were held during the quarter for the direct or indirect benefit of the Access Person:
. The name of the broker, dealer or bank with whom the Access Person established the account;
. The date the account was established; and
. The date that the report is submitted by the Access Person.
An Access Person need not make a quarterly transaction report under this
Section 3 if the report would duplicate information contained in broker
trade confirmations or account statements received by the Fund or NCM with
respect to the Access Person in the time period required by Section 3(b)(i)
of this Code, if all of the
information required by Section 3(b)(i) is contained in the broker trade confirmations or account statements, or in the records of the Fund or NCM.
An Access Person need not make a quarterly transaction report under this
Section 3 with respect to transactions effected pursuant to an Automatic
Investment Plan or if a report is made on the applicable personal trading
system.
Annual Holdings Reports
Except as otherwise provided in this Code, every Access Person of the Fund and every Access Person of NCM, shall report to the Fund or NCM, as applicable, annually the following information (which must be current as of a date no more than 45 days before the report is submitted):
. The title, number of shares and principal amount of each Covered Security in which the Access Person had any direct or indirect Beneficial Ownership;
. The name of any broker, dealer or bank with whom the Access Person maintains an account in which any securities are held for the direct or indirect benefit of the Access Person; and
. The date that the report is submitted by the Access Person.
Initial Holdings Reports, Quarterly Transaction Reports, and Annual Holdings Reports
Notwithstanding Sections 3(a)(i), 3(b)(i) and 3(c)(i) of this Code, an Access Person need not make a report to NCM under this Code to the extent the information in the report would duplicate information required to be recorded by NCM under Rule 204-2(a)(13) under the Investment Advisers Act of 1940, as amended, or if a report is made on the applicable personal trading system.
A person need not make a report under this Section 3 with respect to transactions effected for, and A Covered Security held in, any account over which the person has no direct or indirect influence or Control.
Disclaimer
Any report under this Section 3 may contain a statement that the report shall not be construed as an admission by the person making such report that he or she has any direct or indirect Beneficial Ownership in the security to which the report relates.
ADMINISTRATION OF THIS CODE OF ETHICS
General Rule
The Fund and NCM must use reasonable diligence and institute procedures reasonably necessary to prevent violations of this Code.
Written Report to Fund's Board of Trustees
No less frequently than annually, the Fund and NCM must furnish to the Fund's Board of Trustees, and the Fund's Board of Trustees must consider, a written report that:
. Describes any issues arising under this Code or related procedures since the last report to the Fund's Board of Trustees, including, but not limited to, information about material violations of this Code or procedures and sanctions imposed in response to material violations; and
. Certifies that the Fund and NCM have adopted procedures reasonably necessary to prevent Access Persons from violating this Code.