1 CM Wells Fargo Special Small Cap Value Fund

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1 All information is as of 3/31/2018 unless otherwise indicated. Ticker: ESPNX Portfolio managers: James M. Tringas, CFA; Robert Rifkin, CFA; and Bryant VanCronkhite, CFA, CPA Subadvisor: Wells Capital Management Inc. Category: Small value Focuses on companies with durable asset bases, flexible balance sheets, and sustainable free cash flows; investing in companies with these characteristics helps insulate the fund from volatility caused by cyclical earnings swings Appraises companies for both upside and downside potential; invests only where the fund stands to be adequately compensated for the level of risk being taken Builds the portfolio in a manner intended to achieve diversification across sectors and industries to produce consistently strong risk-adjusted returns Special Small Cap Value Fund-Inst Russell 2000 Value Index 3 month Year to date *Returns for periods of less than one year are not annualized. 1 year year year year Since inception (5/07/93) Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes 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 1.00%. The fund s net expense ratio is 0.95%. The manager has contractually committed, through July 31, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the fund s total annual fund operating expenses after fee waivers at 0.94% 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. 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. Without this cap, the fund s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectus The fund outperformed the Russell 2000 Value Index for the 3- month period and the 12-month period that ended March 31, Stock selection in the information (IT) sector was a key contributor to relative performance two key contributors were in talks to be acquired. Stock selection in the health care sector was a key detractor from relative performance, largely due to Patterson Companies, Inc. The fund outperformed the Russell 2000 Value Index for the three-month period. Market volatility increased during the period as crosscurrents tossed equities from gains to losses. At the start of the period, the index raced to a 4% gain on expectations that global growth would support the rally. However, the index reversed course and fell to a 6% loss over concerns that the Federal Reserve (Fed) might lift interest rates at a pace faster than expected. Those concerns soon faded and the index recovered as reported earnings overall were better than expected. As the quarter came to a close, trade war fears weighed on equities and the index fell 2.64% on the quarter. During the quarter, six of the fund s holdings were in talks to be acquired. Two key contributors that received buyout offers were DST Systems, Inc., and Validus Holdings, Ltd. IT company DST Systems used its balance sheet over a few years to acquire a group of disparate assets. Our analysis all along indicated that the value of those assets and the company s cash flow stream weren t fully reflected in the company s valuation. DST s stock jumped more than 20% once news of the buyout offer was public. In the financials sector, Validus was a notable contributor the company received a buyout offer from American International Group, Inc. (AIG). Validus is a well-managed property and casualty insurance company that maintained a clean and flexible balance sheet despite operating in the property and casualty industry. Validus stock soared more than 40% on news of AIG s offer. DST and Validus possess the financial flexibility that is essential to our investment process and to building shareholder value. A key detractor from performance was Patterson Companies. Patterson, a health care supply distributor, experienced a series of headwinds. The company recently hired a new chief executive officer (CEO), who is working to improve the company s performance. We are confident our active investment process is well equipped to take advantage of newly created opportunities caused by increased volatility. (See pages 6 7 for important information.) 1 CM Wells Fargo Special Small Cap Value Fund

2 Stock selection in the IT sector was a key contributor to results. Two notable contributors were DST Systems and Orbotech Ltd. both companies were in talks to be acquired during the period. Our original analysis indicated that the value of DST s assets weren t fully reflected in the company s share price and its cash flow could be used to strengthen its competitive position. In the case of Orbotech, our original analysis indicated that its strong balance sheet and cash flow were underutilized. Further, both companies exhibited attractive reward/risk ratios. In the financials sector, Validus was a noteworthy contributor. The company is a well-managed property and casualty insurance company that maintained a flexible balance sheet despite operating in the property and casualty industry. Natural disasters and other insurance losses can weaken insurance companies balance sheets; however, Validus navigated through those potential issues and maintained a clean balance sheet. We believe AIG s offer reflects the value that our analysis indicated could be realized. A key detractor from performance was paper company Neenah Paper, Inc. The company experienced higher-than-expected pulp costs and delayed the timing on when one of its factories would reach breakeven those items weighed on its financial results. We believe both of these issues are transitory. Pulp costs are cyclical and are likely to fall, and the factory has a backlog of orders (so we aren t overly concerned about management delaying the breakeven date). Neenah produces specialty papers, not commodity paper. Neenah is one of the fund s largest holdings, and our work suggests the reward/risk ratio is favorable. A key detractor in the health care sector was Patterson. Patterson is a supplier of health products to dentists and veterinarians. The company reported earnings below expectations, and that weighed on its stock price. Patterson is experiencing a few issues that are hampering its performance. Recently, the company hired a new CEO, and he reset earnings expectations below previous guidance. In addition, Patterson and some of its competitors are being sued by the Federal Trade Commission for not offering fair pricing to some large buying groups. We believe the CEO is in the process of addressing these issues. Our analysis indicates that the company s valuation more than discounts these headwinds. Special Small Cap Value Fund versus Russell 2000 Value Index from sector weight (%) from stock selection (%) Total value added (%) Financials Health care Industrials Financials Health care Special Small Cap Value Fund Russell 2000 Value Index Over/underweight Fund sector return Index sector return Relative return Industrials Sources: FactSet and Wells Fargo Funds Management, LLC Sector weights are subject to change and may have changed since the date specified. Other Real estate Telecommunication services Utilities Telecommunication Real estate services Utilities 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 Wells Fargo Special Small Cap Value Fund

3 Special Small Cap Value Fund versus Russell 2000 Value Index The fund outperformed the benchmark over the past 12 months, largely due to stock selection in the IT sector; stock selection in the health care sector was a key detractor. Our bottom-up, fundamental analysis focuses on businesses with flexible balance sheets and strong, or improving, cash flows. Should the stock market become more volatile, we believe companies with these characteristics could outperform. Further, as active managers, we can take advantage of opportunities that develop due to increased market volatility, in contrast to passive investments. Stock selection in the IT sector boosted relative results; Novanta Inc. drove performance. Its shares advanced 96% in the period. The company continued to see broad-based growth across all three operating segments. Design wins and new product revenue meaningfully increased year over year. Further, the company s recent acquisition of World of Medicine GmbH significantly expands the company s presence in medical markets and should provide another source of relatively stable cash flows. Overall sector allocation contributed to performance, largely due to an overweight to the industrials sector and an underweight to the real estate sector. Our bottom-up company analysis drives sector allocations. In the industrials sector, our analysis uncovered several companies, such as Simpson Manufacturing Co., Inc.; CSW Industrials, Inc.; Korn/Ferry International; Kadant Inc.; and others that possessed the balance sheet flexibility, cash flows, and reward/risk ratios required by our investment process. The underweight to the real estate sector is largely a result of our inability to find companies that meet essential elements of our investment process. Stock selection in the health care sector was a key detractor from relative performance, largely due to Patterson Companies. The company is experiencing a few issues that are hampering its performance. Recently, the company hired a new CEO, and he reset earnings expectations below previous guidance. In addition, Patterson and some of its competitors are being sued by the Federal Trade Commission for not offering fair pricing to some large buying groups. We believe the CEO is in the process of addressing these issues. Our analysis indicates that the company s valuation more than discounts these issues. from sector weight (%) from stock selection (%) Total value added (%) Financials Financials Health care Health care Industrials Industrials Special Small Cap Value Fund Russell 2000 Value Index Over/underweight Fund sector return Index sector return Relative return Sources: FactSet and Wells Fargo Funds Management, LLC Sector weights are subject to change and may have changed since the date specified. Real estate Telecommunication services Utilities Telecommunication Real estate services Utilities 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 Wells Fargo Special Small Cap Value Fund

4 Two macroeconomic issues captured investors attention during the quarter: volatility and trade policy. Volatility spiked after Fed Chairman Jerome Powell s first congressional testimony caused concerns about inflation and interest rate increases. Imposition of tariffs on steel, aluminum, and certain imports from China stoked fears of a potential trade war that could restrain economic growth. In our investment approach, we focus on how high-level issues like these affect individual stock performance. During volatile times, we put capital to work in stocks with values that we expect will be sustained in the long run despite any short-run price impact they may experience. Within our framework, stocks held by the fund exhibit favorable reward/risk ratios. During the quarter, we added to positions in the fund that we believe reflect this valuation advantage. We did not meaningfully change factor exposures or sector allocations. Our process and portfolio construction are not designed to allow allocation decisions to drive our fate. It's all about stock selection. We continued to target investments in companies with flexible balance sheets and strong cash flows two fundamental measures that allow companies to make critical investments to strengthen their competitive position in the marketplace throughout a market cycle. In our experience, these capital allocation decisions have often led to future success and business growth. In our view, the key macro factor going forward is volatility, which we expect will remain elevated relative to 2017 for the duration of this economic cycle. Whether the market moves lower or higher, stock selection will drive long-term performance. Independent of any influences that macro events may exert on the broader market, we feel confident in saying our process will guide us to stocks displaying favorable reward/risk ratios. Share class A C Admin Inst R R6 Ticker ESPAX ESPCX ESPIX ESPNX ESPHX ESPRX Gross expense ratio (%) Net expense ratio (%) Contractual expense waiver date 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 waivers at 1.34% (A), 2.09% (C), 1.20% (Admin), 0.94% (Inst), 1.59% (R), and 0.89% (R6). Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses (if any), and extraordinary expenses are excluded from the cap. 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. Without this cap, the fund s returns would have been lower. The expense ratio paid by an investor is the net expense ratio (the total annual fund operating expenses after fee waivers) as stated in the prospectus. 4 Wells Fargo Special Small Cap Value Fund

5 Stock Simpson Manufacturing Co., Inc. First Citizens BancShares, Inc. Class A UMB Financial Corporation Neenah Inc Innospec Inc. HRG Group, Inc. Mueller Industries, Inc. Eagle Inc. Denny's Corporation Hawaiian Electric Industries, Inc. Weighted average market cap Weighted median market cap EPS Growth (3- to 5-year forcast) P/B ratio P/S ratio Number of equity holdings Fund $2.44B $2.10B 1% 2.08x 1.22x 106 % of net assets $2.02B $1.77B 1% P/E ratio (trailing 12-month) 19.41x 17.57x Turnover % Source: FactSet Russell 2000 Value Index 1.51x 0.99x 1398 Inception date 5/07/93 Net expense ratio Inst 0.95% Assets all share classes $2.28B 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. Special Small Cap Value Fund-Inst Lipper Small-Cap Value Funds Average Russell 2000 Value Index Morningstar Small Value Average 1 year year Morningstar total return rankings Institutional Class (as of 3/31/18) Morningstar Category Small value 1 year 3 year 5 year 10 year Overall Morningstar Rating 49 out of out of out of 301 N/A 5 year year The Overall Morningstar Rating, a weighted average of the 3-, 5-, and 10-year (if applicable) ratings, is out of 348 funds in the Small value category, based on risk-adjusted returns as of 3/31/18. Alpha Beta Sharpe ratio Standard deviation R-squared ratio Upside capture Downside capture Fund % % 88.38% Tracking error 3.38% 2. Calculated for the Institutional Class based on a three-year period. Relative measures are compared with the fund s benchmark. 5 Wells Fargo Special Small Cap Value Fund

6 Benchmark descriptions: 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. The Russell 2000 Value Index measures the performance of those Russell 2000 companies with lower price/book ratios and lower forecasted growth values. You cannot invest directly in an index. 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. 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. 6 Wells Fargo Special Small Cap Value Fund

7 The Morningstar Rating for funds, or star rating, is calculated for managed products (including mutual funds, variable annuity and variable life subaccounts, exchange-traded funds, closed-end funds, and separate accounts) with at least a three-year history. Exchange-traded funds and open-ended mutual funds are considered a single population for comparative purposes. It is calculated based on a Morningstar risk-adjusted return measure that accounts for variation in a managed product's monthly excess performance, placing more emphasis on downward variations and rewarding consistent performance. The Morningstar Rating does not include any adjustment for sales loads. The top 10% of products in each product 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. The Overall Morningstar Rating for a managed product is derived from a weighted average of the performance figures associated with its 3-, 5-, and 10-year (if applicable) Morningstar Rating metrics. The weights are: 100% 3-year rating for months of total returns, 60% 5-year rating/40% 3-year rating for months of total returns, and 50% 10-year rating/30% 5-year rating/20% 3-year rating for 120 or more months of total returns. While the 10-year overall star rating formula seems to give the most weight to the 10-year period, the most recent 3-year period actually has the greatest impact because it is included in all three rating periods. Across U.S.-domiciled small value funds, the Special Small Cap Value Fund received 4 stars among 348 funds, 5 stars among 301 funds, and 4 stars among 209 funds for the 3-, 5-, and 10-year periods, respectively. The Morningstar Rating is for the Institutional Class only; other classes may have different performance characteristics. Some of Morningstar s proprietary calculations, including the Morningstar Rating, are not customarily calculated based on adjusted historical returns. However, for new share classes/channels, Morningstar may calculate an extended-performance Morningstar Rating. The extended performance is calculated by adjusting the historical total returns of the oldest share class of a fund to reflect the fee structure of the younger share class/channel, attaching this data to the younger share class s performance record, and then compounding the adjusted plus actual monthly returns into the extended-performance Morningstar risk-adjusted return for the 3-, 5-, and 10-year time periods. The Morningstar risk-adjusted returns are used to determine the extended-performance Morningstar Rating. The extendedperformance Morningstar Rating for this fund does not affect the retail fund data published by Morningstar, as the bell curve distribution on which the ratings are based includes only funds with actual returns. The Overall Morningstar Rating for multishare funds is based on actual performance only or extended performance only. Once the share class turns three years old, the Overall Morningstar Rating will be based on actual ratings only. The Overall Morningstar Rating for multishare variable annuities is based on a weighted average of any ratings that are available. While the inclusion of pre-inception data in the form of extended performance can provide valuable insight into the probable long-term behavior of newer share classes of a fund, investors should be aware that an adjusted historical return can provide only an approximation of that behavior. For example, the fee structures of a retail share class will vary from that of an institutional share class, as retail shares tend to have higher operating expenses and sales charges. These adjusted historical returns are not actual returns. The underlying investments in the share classes used to calculate the pre-performance string likely will vary from the underlying investments held in the fund after inception. Calculation methodologies used by Morningstar may differ from those applied by other entities, including the fund itself. Risks: Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the fund s prospectus for additional information on these and other risks. The inception date of the Institutional Class was July 30, Performance shown for the Institutional Class prior to its inception reflects the performance of the fund s Administrator Class. Performance shown includes the higher expenses applicable to the Administrator Class. If these expenses had not been included, returns would be higher. Historical performance shown for the Administrator Class of the fund prior to July 19, 2010, is based on the performance of the fund s predecessor, the Evergreen Special Values Fund. The views expressed in this document are as of March 31, 2018, 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 NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE CM Wells Fargo Special Small Cap Value Fund