1 CM Wells Fargo Small Cap Value Fund

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1 All information is as of 6/30/2018 unless otherwise indicated. Ticker: WFSVX Portfolio managers: Michael Schneider, CFA; and Erik C. Astheimer Subadvisor: Wells Capital Management Inc. Category: Small blend Takes a broad, flexible approach to value investing based on the belief that value opportunities come in different forms within different markets Uses a team approach to idea generation that consists of three sets of independent screens: intrinsic value, relative value, and contrarian value Uses fundamental research that seeks to identify undervalued companies through the use of trend analysis and correlation analysis and through the identification of a positive catalyst Acts as a long-term investor while a company is executing and while its valuation remains reasonable; the team s focus on being a long-term investor is intended to result in low turnover Small Cap Value -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 (12/31/97) 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 0.99%. The fund s net expense ratio is 0.88%. 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 0.88% 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 underperformed the Russell 2000 Value Index for the threemonth period that ended June 30, Stock selection in the financials and telecommunication services sectors were key contributors to relative performance. Stock selection in the materials and health care sectors were key detractors from relative performance. The Russell 2000 Value Index rallied for most of the period, supported by a jobless rate that hit an 18-year low, strong earnings growth, and what appeared to be fading geopolitical risks on a number of fronts. By the middle of June, the index was 12% higher than it started the quarter. As the quarter s end approached, heightened trade rhetoric between China and the U.S. stalled the market s advance, and the index finished the quarter up 8.3%. The fund underperformed the Russell 2000 Value Index for the three-month period. During the quarter, stock selections in the financials and telecommunication services sectors were key contributors to performance. In the financials sector, online financial services company Enova International, Inc., experienced increased demand for several of its products, and that translated into the company reporting earnings well above expectations; its stock advanced 66% in the period. In the telecommunication services sector, Iridium Communications Inc., a mobile satellite communications provider, had several positive news releases during the period that boosted its stock price 43%. For example, the company won approval to provide Global Maritime Distress and Safety System services. Detracting from performance was stock selection in the materials and health care sectors. In the materials sector, the fund s exposure to precious metals mining companies hampered performance. The fund continues to hold positions in high-quality precious metals mining companies due to our belief that they provide unique diversification benefits. In the health care sector, Tivity Health, Inc., a provider of health fitness services to health insurance providers, reported revenue growth below expectations due to bad weather and the flu season. A key demographic for the company is individuals over 50 years old. We saw signs that visits to its fitness centers rebounded with better weather and a fading flu season. We are focused on building a well-diversified portfolio of undervalued smallcap stocks and believe the portfolio is well positioned for the period ahead. (See pages 6 7 for important information.) 1 CM Wells Fargo Small Cap Value

2 Small Cap Value versus Russell 2000 Value Index Stock selection in the financials sector was a key contributor to results. Several stocks contributed to relative results. Enova was a notable contributor. The online financial services provider reported earnings above analysts expectations due to growth initiatives that resulted in strong customer loan demand. We continue to hold a favorable view of the company due to its low valuation and potential to grow market share. In the telecommunication services sector, Iridium drove performance. The company announced positive results regarding two important issues. First, it won approval to provide Global Maritime Distress and Safety System services a new source of revenue. More important, Iridium has been in the process of upgrading its satellite system and saw the successful launch of five of its new NEXT satellites. Before year-end, Iridium could have upgraded all of its satellites, and that would put the company in position to offer more services to its clients and better position it to gain new clients. We continue to hold a favorable view of the company s prospects. A key detractor from performance was the fund s exposure to precious metals mining companies. The fund continues to hold positions in high-quality precious metals mining companies due to our belief that they provide unique diversification benefits. Also, precious metals could get a boost from the end of quantitative easing if that results in capital markets becoming more volatile. Further, the potential for inflation to overshoot the Federal Open Markets Committee s (FOMC s) expectations has increased, and we think investors might turn to precious metals companies as an inflation hedge. from sector weight (%) from stock selection (%) Total value added (%) Small Cap Value Russell 2000 Value Index Over/underweight Real estate Real estate Telecom Services Telecom Services Utilities Utilities Cash & equivalents Cash In the health care sector, Tivity, a provider of health fitness services to health insurance providers, reported sales growth below expectations, largely due to bad weather and the flu season. A key demographic for the company is individuals over 50 years old. As the weather improved, so did visits to Tivity s fitness centers. Also, the company is well positioned to increase subscribers due to the aging population and the potential for it to win new contracts with other insurers. We continue to believe the company s shares are undervalued. sector return Index sector return Relative return Sources: FactSet and Wells Fargo s Management, LLC 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 Wells Fargo Small Cap Value

3 Small Cap Value versus Russell 2000 Value Index The fund underperformed the benchmark over the past 12 months. The consumer, financials, and real estate sectors were key contributors to performance; health care, information (IT), and industrials were key detractors. Holding cash was neutral to performance. Our bottom-up, fundamental analysis focuses on outof-favor stocks that exhibit low valuations and are poised to improve financial performance. 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 consumer sector contributed to performance in particular, three notable contributors were Cavco Industries, Inc.; Skyline Corp.; and Scientific Games Corp. Skyline agreed to combine with Champion Home Builders, Inc., and Cavco reported earnings well above analysts expectations. Scientific Games benefited from an increase in global demand for its gaming products and, as a result, reported some improved financial results; its stock jumped 88% in the period. In the financials sector, Enova and National General Holdings Corp. were notable contributors. The team identified financial companies trading at low valuations that also had a plan to improve their financial measures and boost shareholder value. Property and casualty insurer National General Holdings reported earnings well above analysts expectations due to an increase in underwriting premiums driven by organic growth and an acquisition. National General s shares rose 26% in the period. We continue to hold a favorable view of the company due to its low valuation and the potential to gain market share. In the IT sector, Diebold Nixdorf, Inc., was a notable detractor. During the period, delayed systems rollout and lighter-than-expected orders sent Diebold s stock lower. New projects are larger, are more complex, and take longer to plan and implement. We ve trimmed the fund s Diebold position in keeping with our risk management; however, we continue to have a favorable view of the stock due to its valuation and the company s potential. Diebold s order backlog looks solid, and banks and retailers seem likely to incorporate more automation. In the health care sector, a lack of exposure to bio companies was a key detractor from performance. The biotech industry was the top-performing industry in the sector for the period. It can be challenging to find small-cap bio companies that fit our value-oriented investment process. from sector weight (%) from stock selection (%) Total value added (%) Small Cap Value Russell 2000 Value Index Over/underweight sector return Index sector return Relative return Sources: FactSet and Wells Fargo s 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 Cash & equivalents Cash & equivalents Wells Fargo Small Cap Value

4 During the period, many of the fund s holdings announced improved earnings or other value-enhancing activities and, as a result, contributed to the fund s relative performance. We use fundamental research to identify undervalued companies, and we take a broad, flexible approach to value investing based on the belief that value opportunities come in different forms within different markets and sectors. We believe the equity market is likely to be choppy as the FOMC normalizes its policies and interest rates rise. Our reasoning for owning shares of precious metals mining companies hasn t changed we believe they add a level of diversification that could prove beneficial should the equity market or inflation take a turn for the worse. The fund s allocation to banks is at the highest it s ever been. We believe the tailwinds of deregulation and rising interest rates could improve their financial performance, and the potential for increased merger and acquisition activity exists. Also, we invested approximately 3% of the fund s assets in steel companies due to the administration s intentions to impose tariffs on some imported steel. Peering further into 2018, we remain cautious due to higher stock valuations following the long run-up since 2009, which we believe was partly fueled by the FOMC s accommodative monetary policies. The unintended consequences of winding down such policies are unknown. What is more certain is that some of the policies that helped drive equity markets higher are unlikely to be repeated during the next five years. As monetary policy normalizes, careful stock selection guided by our years of experience and portfolio risk management will once again become more critical determinants of successful performance. We believe the fund is positioned in a way that will allow it to benefit in a variety of markets. If the global economy meaningfully strengthens going forward, our industrials and energy investments should allow us to participate. If the rate of inflation rises, then our gold-mining positions should provide a meaningful hedge. In our view, the underlying fundamental strengths of the fund s holdings are currently underestimated and the fund s relative performance should improve if our stock analysis proves appropriate over time. Share class A C Admin Inst R6 Ticker SMVAX SMVCX SMVDX WFSVX SMVRX 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 1.28% (A), 2.03% (C), 1.08% (Admin), 0.88% (Inst), and 0.83% (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 Small Cap Value

5 Stock Randgold Resources Limited ADR National General Holdings Corp. Bancorp, Inc. Navigator Holdings Ltd. OSI Systems, Inc. IBERIABANK Corporation CenterState Bank Corporation BankUnited, Inc. ACCO Brands Corporation Cray Inc. Weighted average market cap Weighted median market cap EPS Growth (3- to 5-year forecast) P/B ratio P/S ratio Number of equity holdings $2.07B $1.51B 1% 1.52x 1.02x 102 % of net assets $2.06B $1.94B 8.20% P/E ratio (trailing 12-month) 16.02x 15.28x Turnover % Source: FactSet Russell 2000 Value Index 1.54x 0.93x 1363 Inception date 12/31/97 Net expense ratio Inst 0.88% Assets all share classes $559.50M 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. Small Cap Value -Inst Lipper Small-Cap Core s Average Russell 2000 Value Index Morningstar Small Blend Average 1 year year Morningstar total return rankings Institutional Class (as of 6/30/18) Morningstar Category Small blend 1 year 3 year 5 year 10 year Overall Morningstar Rating 524 out of out of out of out of year year The Overall Morningstar Rating, a weighted average of the 3-, 5-, and 10-year (if applicable) ratings, is out of 639 funds in the Small blend category, based on risk-adjusted returns as of 6/30/18. Alpha Beta Sharpe ratio Standard deviation R-squared ratio Upside capture Downside capture % % 96.23% Tracking error 6.09% 2. Calculated for the Institutional Class based on a three-year period. Relative measures are compared with the fund s benchmark. 5 Wells Fargo Small Cap Value

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 Small Cap Value

7 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. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). This fund is exposed to foreign investment risk. Consult the fund s prospectus for additional information on these and other risks. The inception date of the Institutional Class was July 31, Historical performance shown for the Institutional Class shares prior to their inception reflects the performance of the former Investor Class shares, and includes the higher expenses applicable to the former Investor Class shares. If these expenses had not been included, returns would be higher. Effective June 20, 2008, Class Z was renamed Investor Class and modified to assume the features and attributes of the Investor Class. The views expressed in this document are as of June 30, 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. 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 s Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements. 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 blend funds, the Small Cap Value received 5 stars among 639 funds, 2 stars among 539 funds, and 2 stars among 393 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. 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 the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo s Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo s Distributor, LLC (a broker/dealer and Member FINRA) NOT FDIC INSURED NO BANK GUARANTEE MAY LOSE VALUE CM Wells Fargo Small Cap Value