Overview, Strategy, and Outlook, as of April 30, 2010

Wells Fargo Advantage Money Market Funds Portfolio Manager Commentary Overview, Strategy, and Outlook, as of April 30, 2010 Rates in the money markets have begun to move higher, despite the absence of action by the Federal Reserve. Credit concerns, supply pressures, and regulatory changes joined forces to place an upward pressure on money market yields and the slope of the yield curve. Surveying the Landscape After an extended period of relative calm, credit concerns once again leapt to the forefront, this time in the form of concerns about the viability of certain sovereign credits. Greece grabbed the headlines as its ability to refinance its debts came into question. Greece faces the challenge of refinancing 54 billion euros in debt this year, with 10 billion euros coming due in the second quarter. Greece announced a stability program in January aimed at reducing its budget deficit from 12.7% of Gross Domestic Product (GDP) in 2009 to 2.8% in 2012. (As a comparison, the Congressional Budget Office estimates that the U.S. budget deficit will reach 10.3% of GDP this year.) As the various groups affected by the stability program resisted, potential buyers of Greece s debt backed away, and the likelihood of a default increased. In April, eurozone leaders agreed to a joint support package with the International Monetary Fund (IMF). On April 23, Greece asked for the package to be activated, but political considerations especially the elections in Germany scheduled for May 9 and a rumored dispute between the European Central Bank and the IMF over who would be in charge of ensuring that Greece reduced its deficit cast the plan into uncertainty. The April 27 downgrade of Greece to junk status by Standard & Poor s exacerbated the situation. Credit default swaps, which had been trading in the 300-basis points (bps) area in mid-march, gapped out to 900+ bps in late April, before narrowing back to about 650 bps at month-end. For money market funds, Greece itself does not pose a problem, as it does not appear that any U.S. money funds have direct exposure to Greek sovereign debt, but as in every credit event since 2007, the fear of contagion looms large. There are questions about which banks may have direct exposure to Greece and whether a similar problem could confront other European nations. Fuel was added to this fire when Standard & Poor s downgraded Spain from AA+ to AA on April 28. Now, AA is still a mighty strong rating, but the direction of the change and the fact that there was an actual downgrade caused concern that other countries might be in the ratings agencies sights. Bank exposure to Greece sovereign debt appears to be manageable, especially by those banks in which we invest. We would view bank exposure to actually be a positive in a macro sense, as it is yet another reason for the European Union to step up and assist Greece in a significant way. Still, we would prefer to see the matter resolved sooner rather than later in order to stem the uncertainty. In light of the global uncertainty, it was no surprise that the Federal Open Market Committee did not take a more bearish stance in the statement released after its meeting on April 28. In our opinion, all of the important language was retained, including the expectation that inflation is likely to remain subdued for some time, and the magic words declaring that conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period. But away from any overt action by the Fed, rates have begun to creep higher. We think several factors have been at work here: n First, the settlements of new U.S. Treasury debt have been large, and the need to finance those securities in the repo market has been putting upward pressure on those rates. As overnight repo rates move higher, longer-term money market rates must also move higher in order to induce investors to extend the term of their investments. n Second, we ve seen a slow but steady increase in the effective federal funds rate. As opposed to the federal funds target rate, which is set by the Fed, the effective rate is a tradeweighted average of where Fed funds have traded in that market. Since the Fed began paying banks interest on excess 1

reserves in October 2008, the volume in the Fed funds market has declined markedly. The general view is that there are a few small banks that are buying Fed funds and paying well above the target rate, while some of the governmentsponsored enterprises (GSEs), have been selling at below the target. Speculation is that more recently, the GSEs have been selling somewhat less into this market; the lower volume being transacted below the target rate has been driving up the average. Whatever the cause, the increase in the effective rate has been putting upward pressure on the repo market, which has been putting upward pressure on the longer-term money market rates. Wash, rinse, and repeat. HISTORICAL INTEREST RATES September 2008 through April 2010 5.00 4.00 3.00 2.00 1.00 0.00 9-1-08 10-1-08 11-1-08 12-1-08 1-1-09 2-1-09 3-1-09 4-1-09 5-1-09 6-1-09 7-1-09 8-1--09 9-1-09 10-1-09 11-1-09 12-1-09 1-1-10 2-1-10 3-1-10 4-1-10 4-30-10 Source: Bloomberg LP 3-Month LIBOR 1-Month Asset-Backed Commercial Paper Federal Funds Effective Rate n Finally, there is a disconnect between market participants need to invest short-term and the issuers need to borrow for longer periods. Almost entirely driven by new regulatory requirements, this simply means that borrowers who wish to obtain longer-dated funding will need to pay more. The amendments to U.S. Securities and Exchange Commission (SEC) Rule 2a-7 require that money market funds maintain fairly hefty portions of their portfolios in assets maturing in a week or less, while liquidity regulations governing banks coming out of the Federal Services Authority and Basel will have the effect of discouraging banks from taking deposits in this maturity area. We would expect this upward pressure on the slope of the money market yield curve to continue. Indeed, at 18 bps, the spread between the federal funds rate and three-month London Interbank Offered Rate (LIBOR) is fairly narrow by historical standards. EFFECTIVE FEDERAL FUNDS RATE Versus SIX-MONTH LIBOR AND ASSOCIATED SPREAD 25-year look back 12.0 10.0 8.0 6.0 4.0 2.0 Effective Federal Funds Rate (Left Scale) Six-Month LIBOR (Left Scale) Spread (Right Scale) 0.0-1.5 1984 1989 1994 1999 2004 2009 Source: Bloomberg LP The amendments to Rule 2a-7, the section of the Investment Company Act that governs money market funds, that were adopted at the SEC s January 27 meeting start to take effect May 5, 2010; however, required compliance dates are staggered throughout 2010 and into 2011. The SEC had proposed certain amendments last June, asking for public comment. After receiving over 150 comments from the public, the final amendments largely mirrored the initial proposals. We have been supportive of regulatory reform in this area. The SEC states that the rule changes will increase the resilience of these funds to economic stresses and reduce the risks of runs on the funds, and improve liquidity, increase credit quality and shorten maturity limits and also enhance disclosures Having long emphasized high credit quality and liquidity in our funds, the new rules required few changes on our part, and the portfolios of the Wells Fargo Advantage Money Market Funds are currently positioned in a manner that is in compliance with the rule changes. See page 5 for a table that summarizes the changes to Rule 2a-7 that were adopted. Strategies for the Prime Markets As discussed above, the disconnect between liquidity requirements and bank funding needs has resulted in a steeper curve for taxable money market yields. Finally, onemonth LIBOR increased three bps in April from 0.25% to 0.28%. Three-month LIBOR increased six bps, rising from 0.29% at the end of March to close April at 0.35%. It might 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 2

not sound like much of a move, but for the previous six months, one-month LIBOR averaged 0.24% with a high/low point of 0.25% and 0.23%. Three-month LIBOR averaged 0.26% with a high/low of 0.25% and 0.29%. Commercial paper and CD yields increased in lock-step with LIBOR out to maturities of six months. Yield Comparison in the Money Markets as of 4-30-10 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Overnight Agency Discount Notes Tier 1 Commercial Paper LIBOR 1 Week 2 Week 1 Month 2 Month Source: Bloomberg LP 3 Month 4 Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Month Assets in prime institutional funds have fallen $30 billion over the past month and about $120 billion since the beginning of the year. Even though commercial paper outstanding has also decreased $6.3 billion and $63 billion over the month and year-to-date periods, respectively, with fewer buyers for their paper, issuers are feeling the pinch and are more willing to consider bids when writing new paper. We have focused our term trades in one- to three-month maturities. We do hear of some spotty issuance in six-month fixed-rate paper but none for longer periods. The pressure on yields should continue as other funds focus on shortening their weighted average maturities (WAMs) and weighted average final maturities (WAFMs) to fulfill the new SEC liquidity requirements. The new amendments to Rule 2a-7 have required few changes on our part, letting us take advantage of higher near-term market levels. During April, we added to the tax-exempt variable-rate demand note (VRDN) exposure in our prime funds, as taxexempt funds sold to cover outflows resulting from tax payments mid-month. Most VRDNs with a daily put option had yields comparable to overnight repo yields, while weekly VRDNs had yields comparable to one-month commercial paper. Exposure to this sector in the prime funds has been in the area of 7% of portfolio assets. While we have maintained our 20% to 25% exposure to the floating-rate note sector, we have shifted our focus somewhat to securities that reset off of quarterly LIBOR, as opposed to monthly LIBOR. With an official Fed stance of being on hold for an extended period, the quarterly index captures the steepness of the short end of the LIBOR curve. The monthly resets are usually more attractive just before and during a Fed tightening cycle. Our focus remains on liquidity and maintaining a stable $1.00 net asset value (NAV). In our prime category money market funds, we have mostly avoided investing in securities longer than three to four months in maturity. Rates have started to rise, and we have the liquidity and flexibility in our WAMs to take advantage of some of these offerings. We will continue to do so judiciously. As the trend in rates has now shifted to increasing levels, it could continue for some time before yields get to a normalized level. Strategies for the U.S. Government Markets Yields on U.S. Treasury Bills (T-Bills) continued their march higher as the overall trend in market yields rose during the month. As discussed in this month s Surveying the Landscape section, increases in the effective federal funds rate and overnight repo rates are forcing yields higher further out on the curve in many markets, including T-Bills. Another factor contributing to higher yields in the T-Bill market continues to be the U.S. Treasury s issuance of T-Bills under the Special Financing Program (SFP). Remember, this program was reintroduced in February after Congress approved an increase in the debt ceiling. Funds raised by the Treasury under the SFP are deposited in its account at the Federal Reserve. This, in turn, drains excess reserves from the banking system, something the Federal Reserve is actively pursuing. A total of $200 billion in additional T-Bill supply has been raised under the SFP. However, seasonal factors this month have slowed the rate of increases in yields. The all-important April 15 tax date meant the U.S. Government received a large amount of tax receipts mid- to late-month. By filling the coffers with these funds, the amount of regular T-Bills the Treasury needed to issue declined dramatically. During the last two weeks of the month, $36 billion of T-Bill supply was removed from the market as the Treasury reduced the amount issued in its weekly scheduled auctions. At the same time, the SFP outstandings reached the $200 billion threshold on April 15, so weekly auctions under that program are simply rolling maturities. After everything is said and done, yields across the entire T-Bill curve were up a modest one basis point from the previous month-end. The yield on three-month T-Bills ended April at 0.16%, while the yield on six-month T-Bills finished the month at 0.21%. 3

Our focus in the Wells Fargo Advantage 100% Treasury Money Market Fund has been to ladder maturities across the yield curve in an effort to provide liquidity and maintain a stable $1.00 NAV. In the Wells Fargo Advantage Treasury Plus Money Market Fund, we have emphasized U.S. Treasury-backed repurchase agreements, which offer price stability and daily liquidity at a higher yield than T-Bills. Somewhat similar to the pattern in the T-Bill market, yields on GSE discount notes rose modestly during the month. Higher overnight rates in both the repo market and the Fed funds market forced issuers to cheapen up longer-dated maturities to entice investors further out on the curve. While this has been occurring, both Fannie Mae and Freddie Mac have continued buying delinquent mortgages from their securitization pools, allowing them to recognize cost savings by bringing these loans back onto their balance sheets. One way both agencies have been able to fund these purchases has been by issuing discount notes with maturities out to one year. In order for both Fannie Mae and Freddie Mac to get the funds needed through the discount note market, they have had to cheapen the yields to make them attractive to investors. What had kept yields in the discount note market from going higher during the month was the ability of the GSEs to find more advantageous funding further out on the curve, outside the maturity limit for 2a-7 money market funds. Recent events in global markets increased overall volatility, which made issuing securities with longer maturities that included call provisions more attractive. We saw this in April as many of the GSEs took advantage of this opportunity. Had this opportunity not been present, it would have been conceivable that more discount notes would have been issued during the month, resulting in yields higher than what we ultimately saw. Like T-Bills, the entire GSE discount note curve was higher by basically one basis point during the month. The yield on three-month discount notes finished April at 0.18% while the six-month discount notes yielded 0.25%. Our focus in the Wells Fargo Advantage Government Money Market Fund has been on liquidity and a stable $1.00 NAV. Most of our investments have been in GSE floating-rate notes and three- to six-month GSE debt, which is consistent with the primary objectives of the funds. Strategies for the Municipal Markets During the month of April, institutional and retail municipal money market funds experienced yet another episode of client redemptions, due primarily to low absolute rates and renewed confidence in both equity and credit markets that led to increased flows into bond and stock funds. Outflows were exacerbated by tax-season-related pressure during midmonth. Total municipal money market fund assets dropped 2.2% from $367 billion at March 31, 2010, to $359 billion as of April 27, 2010. For the month, the Securities Industry and Financial Markets Association (SIFMA) Swap Index increased from 0.24% on April 7 to 0.30% on April 28, as total dealer VRDN inventories swelled to $10.3 billion at month-end from $6.8 billion earlier in the month. The SIFMA index averaged 0.29% for the month versus 0.21% for the first quarter of 2010. Levels on longerdated money-market-eligible paper rose during the month as well, with Municipal Market Data one-year yields increasing from 0.32% to 0.39%. Our investment strategy across all municipal money market funds continues to be to maintain high levels of liquidity and shorter weighted average maturities than our peer group, with an emphasis on puttable floating-rate securities. The Inside Track With money market rates showing signs of rising, despite the Fed s continued commitment to a low federal funds target rate, risks have shifted to those that accompany a rising-rate environment. We see our commitment to a stable net asset value and highly liquid portfolio as an advantage for our shareholders as the money market landscape continues to evolve. Finally, we note the passing of Ernie Harwell, broadcaster for the Detroit Tigers for 42 seasons, who died on May 4 after a year-long battle with cancer. To many of us, his will always be the voice of summer. Summary of major changes to SEC Rule 2A-7 on the following page. 4

Summary of Major Changes to SEC Rule 2a-7 SECTION REVISED RULES PRIOR RULES Portfolio Liquidity Portfolio Maturity Daily Liquidity: For all taxable money market funds, at least 10% of assets must be in cash, U.S. Treasury securities, or securities that convert into cash the next business day. Weekly Liquidity: For all money market funds, at least 30% of assets must be in cash, U.S. Treasury securities, certain government securities maturing within 60 days, or securities that convert into cash the next five business days. Illiquid Securities: Illiquid securities (securities that cannot be sold at carrying value within seven days) cannot exceed 5% of portfolio at time of purchase. Weighted Average Maturity (WAM) 1 : Maximum WAM of 60 days. Weighted Average Final Maturity (WAFM) 2 : Maximum WAFM of 120 days. Credit Quality Second Tier Securities 3 : Second tier exposure limited to 0.5% per issuer and 3% in total, maturing in 45 days or less. Know Your Investor Periodic Stress Testing Disclosure Money Fund Operations Future Considerations Ratings Agencies: Fund board will annually designate four Nationally Recognized Statistical Rating Organizations (NRSROs) to be used to determine minimum ratings criteria. Repurchase Agreements: To look through, collateral must be cash items or government securities with creditworthy counterparties. Advisor must evaluate the creditworthiness of the repurchase counterparty. All Funds: Hold sufficient liquid securities to meet foreseeable redemptions. Funds are required to develop procedures to identify investors whose redemption requests may pose risks for the funds. Monthly testing of a fund s ability to maintain a stable $1.00 net asset value (NAV) in the event of interest-rate or spread changes, shareholder redemptions, and credit changes. Portfolio Holdings: Portfolio holdings to be posted to fund s Web site at least monthly and maintained for a period of at least six months. Monthly SEC Filing (Form N-MFP): Information about a fund s risk characteristics, yield, portfolio holdings, and mark-to-market ( shadow ) NAV (this will be made public with a 60-day lag). Funds may suspend redemptions if the NAV falls below $1.00 and, as a result, the fund will be liquidated; advisor systems must be able to process shareholder transactions at a price other than $1.00. Revision to Rule 17a-9: Affiliates may purchase securities from funds before a downgrade or default without prior approval by the SEC; SEC must still be notified if this occurs. n A floating NAV, rather than the stable $1.00 NAV prevalent today; n Mandatory redemptions-in-kind for large redemptions (such as by institutional investors); n Real time disclosure of shadow NAV; n A private liquidity facility to provide liquidity to money market funds in times of stress; n A possible two-tiered system of money market funds, with a stable NAV only for money market funds subject to greater risk-limiting conditions and possible liquidity facility requirements; and n Several other options being discussed with the President s Working Group. No daily liquidity provision. No weekly liquidity provision. Illiquid securities cannot exceed 10% of fund assets. Maximum WAM of 90 days. 1% per issuer, 5% total; Maximum maturity of 397 days. Collateral must be highly rated. No requirement with respect to the creditworthiness of repo counterparties. No portfolio holdings Web site disclosure requirement. No disclosure requirement. compliance date 6-30-2010 12-31-2010 12-31-2010 10-7-2010 12-7-2010 10-31-2011 SEC approval was required prior to allowing affiliate purchases. 5-5-2010 All new concepts. Not adopted 1. Weighted Average Maturity (WAM): WAM calculates an average time to maturity of all of the securities held in the portfolio, weighted by each security s percentage of net assets. The calculation takes into account the final maturity of a fixed-income security and the interest rate reset date for floating-rate securities held in the portfolio. This is a way to measure a fund s sensitivity to potential interest rate changes. 2. Weighted Average Final Maturity (WAFM): WAFM calculates a fund s average time to maturity for all of the securities held in the portfolio, weighted to their percentage of assets in the fund. In contrast to WAM, the WAFM calculation takes into account the final maturity date for each security held in the portfolio. This is a way to measure a fund s potential sensitivity to credit-spread changes. 3. Second Tier Securities: Eligible money market securities that, if rated, have received other than the highest short-term debt rating from the requisite NRSROs or, if unrated, have been determined by the fund s board of directors to be of comparable quality. Source: Securities and Exchange Commission 5

For more information, please contact: Institutional Sales Desk 1-888-253-6584 Web Site www.wellsfargo.com/advantagefunds Click Institutional Cash Management. Click here for current money market fund performance. Click here to view a list of complete holdings. An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund. A portion of the Municipal Money Market Fund s income may be subject to federal, state, and/or local income taxes or the alternative minimum tax (AMT). Any capital gains distributions may be taxable. For the Government Money Market Fund, the U.S. government guarantee applies to certain underlying securities and not to shares of the Fund. The views expressed are as of April 30, 2010, and are those of David D. Sylvester, head of Money Markets at Wells Capital Management, subadvisor to the Wells Fargo Advantage Money Market Funds and Wells Fargo Funds Management, LLC. 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 Advantage Fund. Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus for Wells Fargo Advantage Funds, containing this and other information, visit www.wellsfargo.com/advantagefunds. Read it carefully before investing. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage 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/SIPC, an affiliate of Wells Fargo & Company. 122989 05-10 2010 Wells Fargo Funds Management, LLC. All rights reserved 6