Wells Fargo Growth Fund

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1 All information is as of unless otherwise indicated. Overview General fund information Ticker: SGRNX Portfolio managers: Thomas Ognar, CFA; Bruce Olson, CFA; Joseph Eberhardy, CFA, CPA Subadvisor: Wells Capital Management Inc. Category: All-cap growth Fund strategy Invests in companies where growth of revenue and earnings is robust, sustainable, and not fully recognized by the market Conducts fundamental, all-cap research that provides unique insights into a company's true growth rate Continuously manages risk by evaluating the rate and sustainability of a company's true growth rate relative to the market's expectation Acts quickly on new information, both positive and negative, in an effort to exploit investor biases Average annual total returns (%) as of * Year to Since inception 3 month date 1 year 3 year 5 year 10 year ( ) Growth Fund Inst Russell 3000 Growth Index *Returns for periods of less than one year are not annualized. Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on a fund. Investment return and principal value of an investment will fluctuate so that an investor s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available at the fund s website, wellsfargofunds.com. Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge. The fund s gross expense ratio is 0.84%. The fund s net expense ratio is 0.75%. The manager has contractually committed, through November 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the fund s total annual fund operating expenses after fee waiver at 0.75% for the Institutional Class. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the cap. Without these reductions, the fund s returns would have been lower. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. The expense ratio paid by an investor is the net expense ratio or the total annual fund operating expense after fee waivers, as stated in the prospectus. Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A fund's performance, especially for short time periods, should not be the sole factor in making your investment decision. Key drivers of performance The fund underperformed its benchmark, the Russell 3000 Growth Index, for the 3-month period and outperformed the benchmark for the 12-month period that ended December 31, For the 3-month period, stock selection in the information technology (IT) and health care sectors detracted the most from relative returns. However, stock selection in consumer discretionary boosted results. For the 12-month period, stock selection in the IT, consumer staples, and consumer discretionary sectors boosted relative returns; an overweight to IT also aided results. However, an overweight to the energy sector hindered relative returns the most during the period. Market and portfolio overview U.S. growth stocks continued to rally during the fourth quarter, boosted by a confluence of positive factors. Synchronized expansion in the global economy and favorable earnings from a variety of U.S. companies provided key catalysts for strong market gains. Consensus earnings estimates overall continued to rise, reflecting the improving fundamental backdrop. As the quarter progressed, stocks received an additional boost from growing optimism regarding the prospects for tax-reform legislation. The first half of the quarter reflected trends evident for much of 2017, with strong earnings reports driving share prices higher for many higher-growth stocks. During the latter part of the quarter, market leadership shifted modestly toward companies with cyclical characteristics and those regarded as the largest beneficiaries of corporate tax reform, which led to a resurgence in the financials and industrials sectors. The consumer discretionary sector also responded favorably to these developments and to improvements in the retail segment. We have a favorable outlook for the U.S. economy, supported by positive consumer trends, improving activity within the industrials sector, and robust spending on technology solutions. We also believe that recent tax-reform legislation could have positive effects on certain economic factors, such as consumer spending, but we have not seen evidence of a significant acceleration for the broad economy. As always, we will continue to focus on identifying dynamic, faster-growing companies that we believe may thrive in a variety of economic scenarios. The higher-growth stocks emphasized in the fund may continue to benefit from strong fundamental drivers that we believe other investors have not have fully appreciated. Our analysis indicates that these companies also may benefit from increased recognition by investors of their durable growth potential and valuations that appear attractive relative to many other stocks. We believe these companies likely may be effectively positioned to continue driving robust growth in a modestly to moderately expanding economy. (See pages 8 9 for important information.) 1 CM

2 Quarterly attribution analysis Contributors Stock selection in the consumer discretionary sector provided the largest boost to relative returns. Off-price retailer Burlington Stores, Inc., and discount retailer Dollar Tree, Inc., rallied this quarter, driven by strong earnings and indications of potentially favorable growth in Dollar Tree benefited from robust sales in its core business and improving profit margins within its Family Dollar segment. Burlington continued to execute effectively within the off-price retail space, leading to aboveconsensus earnings. Both holdings may continue to benefit from share gains within their respective retail markets and from internal efforts to expand profit margins. Amazon.com, Inc. (see page 4), also performed well. Holdings in the capital markets industry, such as CME Group Inc. (see page 4), influenced success in the financials sector. These holdings benefited from a variety of positive developments, such as higher shortterm interest rates, positive trends in underlying fundamentals, and the anticipated boost to earnings from tax-reform legislation. In the industrials sector, railroad holdings, including Union Pacific Corp., rallied this quarter, boosted by favorable operating results and likely benefits from recent tax-reform legislation. Detractors Key detractors in the IT sector underperformed in the midst of a modest shift in leadership toward primary beneficiaries of tax reform. Microchip Technology Inc. (see page 5) and Envestnet, Inc., were among the largest detractors despite exhibiting solid fundamentals. Envestnet, a leading cloud-based platform for financial advisors, reported aboveconsensus revenues and raised its full-year outlook as the company continued to grow the number of financial advisors and client accounts on its platform. Stock selection in health care was a key source of weakness for the fund. The two largest detractors were behavioral health care provider Acadia Healthcare Co., Inc., and biopharmaceuticals firm Celgene Corp. Leading up to the fourth quarter, we were actively reducing the position in Acadia as the stock had rallied for much of During the recent quarter, elevated costs in its U.K. business led to the stock s decline, and we exited the position entirely based on limited visibility into Acadia s profitability potential. Celgene suffered from discontinuation of testing for a drug targeting ulcerative colitis, which concerned investors given that Celgene s key drug solution, Revlimid, will lose patent protection in a few years. Company management also reduced its earnings guidance for 2020 due to this development and to softness in its underlying business. We exited the position given Celgene s uncertain earnings prospects. Growth Fund versus Russell 3000 Growth Index Consumer Consumer Discretionary Staples Energy Financials Health Care Industrials Info Tech Materials Real Estate Sector weights (average % weight during the quarter) Telecom Services Utilities Cash Growth Fund Russell 3000 Growth Index Over/underweight Sector returns (%) Fund sector return Index sector return Relative return Sources: FactSet and Wells Fargo Funds Management, LLC Past performance is no guarantee of future results. Sector weights are subject to change and may have changed since the date specified. When reviewing the performance attribution of our portfolio, it is vital to remember that we construct our portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio based on its own investment thesis. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to obtain a sector distribution to resemble an index. Our exposure to any given sector is a result of our security selection process. 2

3 ure Quarterly report Q Trailing 12-month attribution analysis Key drivers of performance Companies reporting strong earnings and favorable longer-term prospects rallied over the 12-month period in an environment of low interest rates and modest growth in the U.S. economy. Market dynamics were conducive to our emphasis on companies effectively positioned to potentially generate robust growth through companyspecific catalysts and secular drivers. The fund achieved solid outperformance of its benchmark over this period, with positive contributions from a majority of market sectors. The most significant outperformance was evident within the IT, consumer staples, and consumer discretionary sectors. Strong gains from holdings operating within the payment-processing segment, such as PayPal Holdings, Inc., and Square, Inc., influenced success in the IT sector. These companies benefited from strong secular trends toward e-commerce and mobile commerce, which reinforced the rapid growth in digital payments. PayPal, operator of a leading global-payments platform, consistently exceeded consensus earnings expectations aided by expanded strategic partnerships. We believe PayPal may continue to benefit from its expanded market presence, the potential for higher profit margins, and favorable secular trends. We initiated a position in Square in February 2017 based partly on our belief that the company was well positioned to significantly expand its share of the mobile-payments market and become the payment platform of choice for small and midsize merchants. The stock rallied more than 100% since the initial purchase, driven by quarterly earnings that consistently exceeded consensus expectations. Facebook, Inc., was the top performer within the IT sector, supported by strong advertising revenues and successful monetization of newer platforms, such as Instagram. Underweights to the consumer staples and real estate sectors boosted relative returns as investors favored other areas of the market with stronger growth prospects. These sectors also suffered as demand for higher-dividend-yielding stocks waned in a higher-interest-rate environment. Within the consumer discretionary sector, Amazon provided a strong contribution as the company generated strong growth from its e-commerce and cloud-computing segments. An overweight to the energy sector hindered results as energy was by far the worst-performing sector over the period. The fund s weakness in the health care sector was influenced by fourth-quarter declines in Celgene and in select medical-device holdings, such as Boston Scientific Corp. (see page 5). Growth Fund versus Russell 3000 Growth Index Consumer Consumer Discretionary Staples Energy Financials Health Care Industrials Info Tech Materials Real Estate Sector weights (average % weight during the past 12 months) Telecom Services Utilities Cash Growth Fund Russell 3000 Growth Index Over/underweight Sector returns (%) Fund sector return Index sector return Relative return Sources: FactSet and Wells Fargo Funds Management Past performance is no guarantee of future results. Sector weights are subject to change and may have changed since the date specified. When reviewing the performance attribution of our portfolio, it is vital to remember that we construct our portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio based on its own investment thesis. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to obtain a sector distribution to resemble an index. Our exposure to any given sector is a result of our security selection process. 3

4 0.99 Quarterly report Q Portfolio analysis Representative portfolio holdings Company name Descriptor % of fund Company profile Strategic fit and analysis Amazon.com, Inc. (AMZN) Contributor 6.12 Amazon is an e-commerce and cloud-computing company serving millions of customers worldwide. Its e-commerce business offers a vast array of products, and the company offers customers personalized shopping services, web-based credit card payment, and direct shipping. Amazon also produces consumer electronics, including Kindle E- reader, Fire Tablet, and Fire TV products, and is one of the world s largest providers of cloud services through Amazon Web Services (AWS). Amazon is based in Seattle. From our perspective, investors continue to underappreciate the growth potential of Amazon. Within its e-commerce division, Amazon Prime in particular may be underappreciated. Subscription revenue, for which Amazon Prime primarily is responsible, grew 59% year over year in the third quarter of 2017, and Prime s climbing membership has proved very profitable for Amazon: Prime members, whose spending has been increasing at a 12% annual pace, have tended to spend two to three times more than non-prime customers have. During the quarter, investors rewarded Amazon after the company reported strong third-quarter results that exceeded expectations across the board. The company also provided fourth-quarter revenue guidance that beat the consensus estimate. We have a positive outlook for Amazon. While investors may have begun to recognize the company s improving profitability and accelerating revenue growth, we think Amazon s earnings potential and ability to deliver robust, sustainable growth may significantly exceed the market s expectations. In our view, Amazon s gross margin and operating margin each potentially could expand 200 basis points (bps; 100 bps equal 1.00%) by We also believe the company s AWS division may grow more than 30% annually over the next three years and its e-commerce division may experience annual growth in the high teens over the same period. Even with the robust growth the e-commerce division has experienced to date, there appears to be plenty of future running room: Amazon s key e-commerce markets have been penetrated just 9% to 13% thus far. CME Group Inc. (CME) Contributor 1.67 CME Group operates a derivatives marketplace; its exchanges offer a wide range of global benchmark products across all major asset classes, including futures and options based on interest rates, stock indices, foreign exchange, energy, agricultural commodities, metals, weather, and real estate. The exchanges bring together buyers and sellers of derivatives products on CME s trading floors and its electronic trading platform as well as through privately negotiated transactions that it clears. CME is based in Chicago. CME, a top futures and options marketplace, operates with industry-leading margins due to being the major or sole operator in most of its product categories and also due to disciplined expense management. When we added a position in CME to the fund, we recognized potential tailwinds we believed the market underappreciated, including potential positive impacts from globalization of markets, tax reform, increased sales of market-data offerings, possible relaxed regulations under the new administration, and the Federal Reserve s (Fed s) balance-sheet unwind. During the quarter, CME reported solid third-quarter results that exceeded the consensus estimates for adjusted earnings per share (EPS) and revenue. Also, average daily volume increased 10% during the third quarter, and trading growth outside of U.S. trading hours from transactions taking place in international markets increased 50%. It is possible that CME s stock benefited as well from investors excitement over CME s announcement of plans to launch trading in bitcoin futures. We remain optimistic regarding CME Group. We estimate the company potentially could deliver sustained mid- to high-single-digit topline growth and some margin expansion that in turn could drive high-single-digit to low-double-digit earnings growth. CME also tends to generate strong free cash flow that consistently has been paid out through recurring dividends along with a special, yearend dividend. All in all, we anticipate CME likely may be capable of delivering midteen total returns to investors over time. (Continued on next page.) 4

5 Portfolio analysis Representative portfolio holdings (continued) Company name Descriptor % of fund Company profile Strategic fit and analysis Boston Scientific Corp. (BSX) Detractor 1.70 Boston Scientific develops, manufactures, and sells minimally invasive medical devices. The company s products serve a broad range of medical specialties, including electrophysiology, gastroenterology, gynecology, interventional cardiology, interventional radiology, neurological surgery, orthopedic surgery, pulmonology, urology, and vascular surgery, among others. The company is based in Marlborough, Massachusetts. We were drawn to Boston Scientific, one of the fastest-growing large manufacturers of medical devices, for a few reasons. First, the company has a diverse mix of products, so its sources of growth are spread across multiple areas. Second, Boston Scientific has demonstrated the capability to successfully improve its operating margins. Third, the company has worked to strengthen its balance sheet and create some flexibility for potential share buybacks and/or merger and acquisition (M&A) activity. During the quarter, Boston Scientific reported solid third-quarter results; adjusted EPS were in line with the consensus estimate, and revenue exceeded the estimate. However, the company s stock declined, due largely to Boston Scientific s announcement that because of a manufacturing issue, an indefinite hold had been placed on the launch of the company s widely anticipated transcatheter heart valve. The valve would have made Boston Scientific the third player in the heart-valve market, along with Edwards Lifesciences Corp. and Medtronic plc. We retain a favorable outlook for Boston Scientific. From our perspective, the company has a solid product pipeline that may help it continue growing faster than the broader industry and potentially drive double-digit EPS growth. Microchip Technology Inc. (MCHP) Detractor 3.71 Microchip designs, manufactures, and sells microcontroller, memory, and analog semiconductors. The company is based in Chandler, Arizona. Microchip Technology is a longtime holding we purchased based on the longevity of its business model. Different from companies competing to have their semiconductors used in the latest electronic devices, Microchip strives to be included in the design of everyday products that will be around for years, such as washing machines, toasters, garage-door openers, and car remotes. As a result, Microchip can focus primarily on dependability without much pricing pressure. Microchip has made profitable acquisitions including Atmel Corp., acquired in April Within three quarters of the purchase, Atmel s operating margin increased by more than 25%. During the quarter, Microchip reported favorable third-quarter results as adjusted EPS and revenue exceeded analysts estimates. The company s guidance for fourth-quarter adjusted EPS and revenue also were above expectations. Despite the positive news, Microchip s stock declined during the quarter, likely due to some profit-taking by investors in conjunction with some investor concern over whether semiconductor purchases might decelerate. Our near-term and long-term outlooks for Microchip remain positive. We believe the company has demonstrated strong execution, highlighted in recent quarters by its effective management of product supply relative to customer demand. We continue to see robust demand for semiconductors, especially within the key industrial and automotive markets. Also, the company s broad portfolio of communications capabilities including Bluetooth and Wi-Fi positions Microchip well as that segment continues to grow. We believe Microchip may continue exceeding its accretion targets from the Atmel acquisition, and we would not be surprised to see more acquisitions in the future. Finally, Microchip s stock has been trading at a valuation that we view as especially attractive for a company that potentially could deliver solid sales and EPS growth in coming years. 5

6 Market analysis Market summary Outlook During the fourth quarter of 2017, the U.S. stock market followed a steady, upward trajectory with no meaningful pullbacks, similar to its path during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue growth from many companies. Investors anticipation of less regulation and lower corporate taxes for U.S. companies along with synchronous economic expansion worldwide provided a favorable environment for the market to rise with minimal volatility. In the U.S., the growth style of investing outperformed the value style, similar to the previous three quarters of the year. The Russell 3000 Growth Index returned 7.61% compared with a 5.08% return for the Russell 3000 Value Index. Looking at individual sectors in the Russell 3000 Growth Index, the consumer discretionary, industrials, and consumer staples sectors performed best, returning 10.47%, 9.80%, and 9.42%, respectively. In contrast, health care was the weakest-performing sector, with a return of 1.16%. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate, just ahead of the second quarter s 3.1% pace. Hiring remained solid during the quarter and for 2017 overall. The hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Although wage growth has remained modest over the more than eight years since the Great Recession ended, signs of improvement are appearing in U.S. cities that have some of the tightest labor markets. In December, the Fed raised the target for the federal funds rate for the third time in 2017, to a range of 1.25% to 1.50%, in a widely anticipated move that reflected the Fed s confidence that the U.S. economy would continue to strengthen. Low unemployment, solid economic growth, and a rising stock market have kept consumer confidence high. As a result, consumers who account for more than two-thirds of U.S. economic output have begun demonstrating a willingness to save less and spend more. According to the U.S. Department of Commerce, the personal saving rate slipped below 3% in November for the first time since November Consumer spending, in turn, accelerated over the holiday season: Mastercard SpendingPulse which follows online and in-store purchases across all payment types (including cash and check) reported that from November 1 through Christmas Eve, U.S. retail sales excluding automobiles rose 4.9%, compared with a 3.7% increase over the same period in The business environment continued to improve in the quarter as well. Orders for durable factory goods products designed to last at least three years, such as computers and trucks increased 1.3% month over month in November, according to the Commerce Department. For the first 11 months of 2017, demand for durable goods rose more than 5% year over year, well above the rate of inflation, as did overall investment by businesses; increased willingness to spend indicates that companies have become more confident in the U.S. economy. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth. Throughout 2017, investors remained focused on growth stocks and rewarded many highergrowth companies with solid fundamentals the types of companies we emphasize within the fund. Investors continued confidence was supported by favorable economic trends such as steady expansion among global economies, consistent and well-telegraphed decisions by the Fed, low market volatility, and mild inflation. Although valuations have risen during the extended bull market for growth stocks, we believe attractive opportunities remain, especially among faster-growing companies; the market may not have fully priced in the positive impact of the very low discount rates and interest rates we have been experiencing. Even in today s market, we have found select, fast-growing companies that we view as promising trading in a range near their five-year historical lows. Some investors, though, may wonder whether the market s heavy preference for the growth style of investing throughout 2017 might mean that it could be time to brace for a growth downturn. From our perspective, what transpired for growth stocks during 2017 simply closed the gap, relative to value, that opened up during Although growth outperformed value by about 16% in 2017, the roles were reversed a year earlier: During 2016, value beat growth by roughly 10% (per annual returns for the Russell 3000 Growth and Russell 3000 Value Indices). During the first half of the quarter, investors favored companies positioned to potentially benefit from strong, secular trends. In mid-november, as passage of a tax-reform package appeared more imminent, we saw a modest shift in market leadership toward companies that investors perceived would benefit the most from tax reform. Throughout the quarter, investors maintained their interest in companies linked in some manner to the internet, where tremendous growth has occurred and continues to take place. Within the fund, we continued to emphasize innovative companies in internet-focused areas that we view as particularly promising and to focus the fund s internet-related investments largely across these five areas: software as a service, cloud computing and storage, online retail, digital payments, and the internet of things. With our ongoing emphasis in these areas, the fund remained overweight the IT sector. However, we also have invested in companies in other sectors that have been benefiting from these powerful trends, including consumer discretionary and health care. Regarding the U.S. tax-reform package signed into law in late December, we are still evaluating the specific impacts it will have on individual companies. From a broader perspective, though, we believe businesses that are predominantly U.S.-focused many of which are smaller companies rather than large ones stand to benefit the most from the new, lower corporate tax rate given that their revenues are earned primarily in the U.S. and therefore are subject to the U.S. tax code. Businesses will have a variety of ways to deploy the increased cash flow they will have from paying less in taxes; we wouldn t be surprised to see increased M&A activity and more cash returned to shareholders through share buybacks and dividends. Also, consumers could end up benefiting from the lower corporate tax rate should those lower taxes translate into lower prices for goods and services. Looking ahead, we believe themes that prevailed in 2017 may carry through in 2018: modest to moderate economic growth, slow normalization of monetary policy, and growth in corporate profits. Although interest rates are expected to increase in 2018, it is our view that highergrowth companies may stand to benefit during the early to middle stages of a rising-interestrate environment. We believe investors likely could continue to reward faster-growing companies in the coming year. 6

7 Fund information Top holdings Stock % of net assets Facebook, Inc. Class A 6.20 Amazon.com, Inc Alphabet Inc. Class A 5.82 Microchip Technology Incorporated 3.71 Visa Inc. Class A 2.92 Apple Inc Mastercard Incorporated Class A 2.64 Microsoft Corporation 2.59 MarketAxess Holdings Inc Burlington Stores, Inc Portfolio characteristics Russell 3000 Growth Fund Index Weighted average market cap $79.89B $11.80B Weighted median market cap $194.58B $210.36B EPS growth (3- to 5-year forecast) 17.60% 12.00% P/E ratio (trailing 12-month) 37.00x 27.30x Turnover¹ 36.54% P/B ratio 6.02x 6.51x P/S ratio 4.19x 2.95x Number of equity holdings 90 1,726 Source: FactSet Fund facts Inception date Net expense ratio Inst 0.75% Assets all share classes $4,582.95M Portfolio holdings and characteristics are subject to change and may have changed since the date specified. The holdings listed should not be considered recommendations to purchase or sell a particular security. 1. Calculated based on a one-year period. Performance (%) 1 year 3 year 5 year 10 year Growth Fund Inst Russell 3000 Growth Index Lipper Multi-Cap Growth Funds Average Morningstar Large Growth Average Rankings and ratings Morningstar total return rankings Institutional Class (as of ) Morningstar Category: Large growth 1 year 109 out of 1,363 funds 3 year 579 out of 1,216 funds 5 year 849 out of 1,109 funds 10 year 50 out of 787 funds Overall Morningstar Rating The Overall Morningstar Rating, a weighted average of the 3-, 5-, and 10-year (if applicable) ratings, is out of 1,216 funds in the large growth category, based on risk-adjusted returns as of Performance and volatility measures 2 Fund Alpha Beta 1.07 Sharpe ratio 0.9 Standard deviation 12.26% R-squared 0.86 Information ratio Upside capture 95.92% Downside capture % Tracking error 4.74% Past performance is no guarantee of future results. 2. Calculated for the Institutional Class based on a three-year period. Relative measures are compared with the fund s benchmark. 7

8 Share class availability Share class Ticker Gross expense ratio (%) Net expense ratio (%) Contractual expense waiver date A SGRAX C WGFCX Admin SGRKX Inst SGRNX R6 SGRHX The manager has contractually committed to waive fees and/or reimburse expenses to the extent necessary to cap the fund s total annual fund operating expenses after fee waiver at 1.16% (A), 1.91 (C), 0.96 (Admin), 0.75 (I), and 0.70 (R6). Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the cap. Without these reductions, the fund s returns would have been lower. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. The expense ratio paid by an investor is the net expense ratio or the total annual fund operating expense after fee waivers, as stated in the prospectus. Benchmark descriptions: The Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far East) Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. You cannot invest directly in an index. The Morgan Stanley Capital International (MSCI) Emerging Markets Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 23 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. You cannot invest directly in an index. The Lipper averages are compiled by Lipper, Inc., an independent mutual fund research and rating service. Each Lipper average represents a universe of funds that are similar in investment objective. You cannot invest directly in a Lipper average. The Morningstar Category average is the average return for the peer group based on the returns of each individual fund within the group. The total return of the Morningstar Category average does not include the effect of sales charges. You cannot invest directly in a Morningstar Category average. Benchmark descriptions, continued: The Russell 3000 Growth Index measures the performance of those Russell 3000 Index companies with higher price/book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000 Growth Index or the Russell 2000 Growth Index. You cannot invest directly in an index. The Russell 3000 Value Index measures the performance of those Russell 3000 Index companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. You cannot invest directly in an index. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock's weight in the index proportionate to its market value. You cannot invest directly in an index. Attribution analysis: Performance attribution and sector returns are calculated using the Brinson-Fachler attribution model. As such, performance attribution calculations may differ from the fund s actual investment results. Definition of terms: Alpha measures the difference between a fund s actual returns and its expected performance given its level of risk (as measured by beta). Beta measures fund volatility relative to general market movements. It is a standardized measure of systematic risk in comparison with a specified index. The benchmark beta is 1.00 by definition. Downside capture measures a fund s replication of its benchmark during periods of negative returns. During periods of negative benchmark returns, a downside capture ratio less than 100% reflects product performance greater than the benchmark and a downside capture ratio greater than 100% reflects performance less than the benchmark. Information ratio measures the consistency of excess return (return in excess of a benchmark). This value is determined by taking the annualized excess return over a benchmark (style benchmark by default) and dividing it by the standard deviation of excess return. R-squared is a measurement of how similar a fund s historical performance has been to that of the benchmark. The measure ranges from 0.0, which means that the fund s performance bears no relationship to the performance of the index, to 1.0, which means that the fund s performance was perfectly synchronized with the performance of the benchmark. Sharpe ratio measures the potential reward offered by a mutual fund relative to its risk level. The ratio uses a fund s standard deviation and its excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund s historical risk-adjusted performance. Standard deviation represents the degree to which an investment s performance has varied from its average performance over a particular time period. Tracking error measures the extent to which a manager s performance mimics that of a benchmark. The value is the standard deviation of the difference between a fund s performance and a benchmark s performance. Upside capture measures a fund s replication of its benchmark during periods of positive returns. During periods of positive benchmark returns, an upside capture ratio greater than 100% reflects product performance greater than the benchmark and an upside capture ratio less than 100% reflects performance less than the benchmark. 8

9 Risks: Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). This fund is exposed to foreign investment risk and smaller-company securities risk. Consult the fund's prospectus for additional information on these and other risks. For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar risk-adjusted return measure that accounts for variation in a fund s monthly performance (including the effects of sales charges, loads, and redemption fees, unless otherwise indicated), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and is rated separately, which may cause slight variations in the distribution percentages.) Across U.S.-domiciled large growth funds, the Growth Fund received 3 stars among 1,216 funds, 2 stars among 1,109 funds, and 5 stars among 787 funds for the 3-, 5-, and 10-year periods, respectively. Morningstar Ratings and Rankings are for the Institutional Class only; other classes may have different performance characteristics. The Morningstar Return ranking is based on the fund s total return rank relative to all funds that have the same category for the same time period. Past performance is no guarantee of future results. The views expressed in this document are as of December 31, 2017, and are those of the portfolio manager(s). The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Wells Fargo Fund. Any specific securities discussed may or may not be current or future holdings of the fund. The securities discussed should not be considered recommendations to purchase or sell a particular security. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements. Carefully consider a fund s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, visit wellsfargofunds.com. Read it carefully before investing. Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind including a recommendation for any specific investment, strategy, or plan CM