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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSRS

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21507

 

 

Wells Fargo Utilities and High Income Fund

(Exact name of registrant as specified in charter)

 

 

525 Market St., San Francisco, CA 94105

(Address of principal executive offices) (Zip code)

 

 

C. David Messman

Wells Fargo Funds Management, LLC

525 Market St., San Francisco, CA 94105

(Name and address of agent for service)

 

 

Registrant’s telephone number, including area code: 800-222-8222

Date of fiscal year end: August 31

Date of reporting period: February 29, 2016

 

 

 

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ITEM 1. REPORT TO STOCKHOLDERS

 

2

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Semi-Annual Report

February 29, 2016

 

 

Wells Fargo

Utilities and High Income Fund (ERH)

 

 

 

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Contents

 

 

 

Letter to shareholders			2
Performance highlights			4
Summary portfolio of investments*			7
Financial statements
Statement of assets and liabilities			15
Statement of operations			16
Statement of changes in net assets			17
Statement of cash flow			18
Financial highlights			19
Notes to financial statements			20
Other information			25
Automatic dividend reinvestment plan			28
List of abbreviations			29

 

*

A complete schedule of portfolio holdings as of the report date may be obtained, free of charge, by accessing the following website: https://www.wellsfargofunds.com/assets/edocs/regulatory/holdings/utilities-and-high-income-semi.pdf or by calling Wells Fargo Funds at 1-800-222-8222. This complete schedule, filed on Form N-CSRS, is also available on the SEC’s website at sec.gov.

The views expressed and any forward-looking statements are as of February 29, 2016, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements. The views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

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2		Wells Fargo Utilities and High Income Fund		Letter to shareholders (unaudited)

 

 

 

 

1	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.

 

2	The S&P 500 Utilities Index is a market-value-weighted index that measures the performance of all stocks within the utilities sector of the S&P 500 Index. You cannot invest directly in an index.

 

3	The S&P 500 Energy Index is a market-value-weighted index that measures the performance of all stocks within the energy sector of the S&P 500 Index. You cannot invest directly in an index.

 

4	The S&P 500 Materials Index is a market-value-weighted index that measures the performance of all stocks within the materials sector of the S&P 500 Index. You cannot invest directly in an index.

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Letter to shareholders (unaudited)		Wells Fargo Utilities and High Income Fund			3

 

 

 

Notice to shareholders

On December 17, 2015, the Fund announced an open-market share repurchase program (the “Buyback Program”). Under the Buyback Program, the Fund may repurchase up to 10% of its outstanding shares within one year of December 17, 2015. The Fund’s Board of Trustees has delegated to Wells Fargo Funds Management, LLC, the Fund’s adviser, full discretion to administer the Buyback Program including the determination of the amount and timing of repurchases in accordance with the best interests of the Fund and subject to applicable legal limitations.

 

For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.

 

 

5

The Barclays U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar–denominated, nonconvertible, non-investment-grade debt index. The index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million. You cannot invest directly in an index.

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4		Wells Fargo Utilities and High Income Fund		Performance highlights (unaudited)

High-yield, lower-rated bonds may contain more risk due to the increased possibility of default. Foreign investments may contain more risk due to the inherent risks associated with changing political climates, foreign market instability, and foreign currency fluctuations. Risks of international investing are magnified in emerging or developing markets. Funds that concentrate their investments in a single industry or sector may face increased risk of price fluctuation due to adverse developments within that industry or sector. Small- and midcap securities may be subject to special risks associated with narrower product lines and limited financial resources compared with their large-cap counterparts. The use of leverage results in certain risks including, among others, the likelihood of greater volatility of net asset value and the market price of common shares. Derivatives involve additional risks, including interest-rate risk, credit risk, the risk of improper valuation, and the risk of noncorrelation to the relevant instruments they are designed to hedge or to closely track. There are numerous risks associated with transactions in options on securities. Illiquid securities may be subject towide fluctuations in market value and may be difficult to sell.

 

 

1

Total returns based on market value are calculated assuming a purchase of common stock on the first day and sale on the last day of the period reported. Total returns based on NAV are calculated based on the NAV at the beginning of the period and end of the period. Dividends and distributions, if any, are assumed for the purposes of these calculations to be reinvested at prices obtained under the Fund’s Automatic Dividend Reinvestment Plan.

 

2	This chart does not reflect any brokerage commissions charged on the purchase and sale of the Fund’s common stock. Dividends and distributions paid by the Fund are included in the Fund’s average annual total returns but have the effect of reducing the Fund’s NAV.

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Performance highlights (unaudited)		Wells Fargo Utilities and High Income Fund			5

MANAGERS’ DISCUSSION

The Fund’s return, based on market value, was 16.80% for the six-month period that ended February 29, 2016. During the same period, the Fund’s return based on net asset value was 1.24%.

Overview

During the period, investors confronted issues and concerns that drove higher volatility in global equity and bond markets. Among the most significant influences that combined to temper investor willingness to take on risk were signs of slowing economic growth in China; the anticipation and, in December, the announcement of a federal funds rate increase by the U.S. Federal Reserve; a stronger U.S. dollar; and the persistence of low commodity prices.

Bond interest rates declined during the six-month period, which positively influenced utilities stock performance in general and rate-sensitive utilities in particular. The S&P 500 Utility Index³ gained 11.27%. Regulated utility businesses in general performed well because the regulatory climate remains largely supportive of the industry; however, energy prices remain depressed. During the period, the Fund’s cash position declined and allocations to preferred stocks, which generally are considered less risky than other stocks across the equity spectrum, increased.

High-yield bonds fell in price, driven by large outflows from the asset class, heightened equity volatility, and concerns that the decline in oil prices and a slowdown in China would cause a global recession. The energy and metals and mining sectors within the high-yield market endured substantial declines. Energy-related issues comprised approximately 13% of the high-yield market as of August 2015 and, on average, those issues had a negative total return of about 26% during the period. Metals and mining issues, which comprised a much smaller 3% of the market, had a negative total return of approximately 12%, on average.

Contributors to performance

Within the Fund’s equity portfolio, significant performance contributors included utilities American Electric Power Company, Incorporated; American Water Works Company Incorporated; Edison International; Eversource Energy; Great Plains Energy Incorporated; NextEra Energy, Incorporated; and PNM Resources, Incorporated, as well as telecom carriers Shenandoah Telecommunications Company and Verizon Communications Incorporated.

Within the high-yield portion of the Fund’s portfolio, limited exposure to the high-yield debt of energy exploration and production and metals and mining companies benefited performance.

Detractors from performance

Equity investments in Europe detracted from performance partly due to currency volatility. Those investments included Deutsche Post AG in Germany, Enel S.p.A. in Italy, Endesa S.A. in Spain, and Vivendi S.A. in France. Within the energy sector, The Williams Companies, Incorporated, stock performance detracted as turmoil in the industry driven by lower prices cast uncertainty over prospects for a merger that had been announced previously.

 

 

3	The S&P 500 Utilities Index is a market-value-weighted index that measures the performance of all stocks within the utilities sector of the S&P 500 Index. You cannot invest directly in an index.

 

4	The ten largest holdings, excluding cash and cash equivalents, are calculated based on the value of the investments divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified.

 

5

The credit quality distribution of portfolio holdings reflected in the chart is based on ratings from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit quality ratings apply to the underlying holdings of the Fund and not to the Fund itself. The percentages of the Fund’s portfolio with the ratings depicted in the chart are calculated based on the total market value of fixed income securities held by the Fund. If a security was rated by all three rating agencies, the middle rating was utilized. If rated by two of three rating agencies, the lower rating was utilized, and if rated by one of the rating agencies, that rating was utilized. Standard & Poor’s rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Ratings from A to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the rating categories. Standard & Poor’s rates the creditworthiness of short-term notes from SP-1 (highest) to SP-3 (lowest). Moody’s rates the creditworthiness of bonds, ranging from Aaa (highest) to C (lowest). Ratings Aa to B may be modified by the addition of a number 1 (highest) to 3 (lowest) to show relative standing within the ratings categories. Moody’s rates the creditworthiness of short-term U.S. tax-exempt municipal securities from MIG 1/VMIG 1 (highest) to SG (lowest). Fitch rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Credit quality distribution is subject to change and may have changed since the date specified.

 

6	Amounts are calculated based on the total long-term investments of the Fund. These amounts are subject to change and may have changed since the date specified.

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6		Wells Fargo Utilities and High Income Fund		Performance highlights (unaudited)

Among high-yield investments in the Fund, exposure to oil field services companies detracted from performance, as did investments in cable/satellite businesses. The Fund’s positioning among higher-rated bonds tended to restrain performance while its allocation to lower-rated bonds benefited performance, as did security selection across the credit-rating spectrum.

Management outlook

In our view, the U.S. economy is maintaining a positive trend overall based on low but positive gross domestic product measures and slowly improving employment conditions, while economic growth in Europe remains less consistent throughout the region with some larger countries in expansion mode while other smaller and emerging markets economies are stagnant. U.S. short-term interest rates are rising while longer-term rates, so far at least, are dropping, which tends to benefit utilities stock prices but is less favorable for returns on capital allowed by regulations. Regulated U.S. utility transmission businesses have performed well, although sales remain soft. Electricity generation and supply businesses that compete on price continue to struggle with low prices. On balance, our outlook is reasonably favorable.

In the long run, we expect high yield’s relative performance primarily will be driven by corporate fundamentals and defaults. In the near term, with the exception of the energy and other commodity sectors, our default outlook remains benign and supportive of high yield. Over a full cycle, we believe the best way to protect the Fund from periodic bouts of systemic fears and rebalancing will be our continued focus on a bottom-up approach that attempts to minimize downside risk while capturing the return potential of high-yield issuers. From a fundamental perspective, we believe lower energy and commodity prices are generally a positive for the economy and most high-yield sectors with the exception of energy exploration and development and metals and mining companies and companies associated with them. We expect default rates to rise in 2016 but that the majority of the increase to be concentrated in the energy and commodity sectors. High yields and low prices of the bonds being offered by these sectors suggest that a significant increase in the default rate already may have been reflected in the costs of these bonds. In the event oil prices stabilize or rise, we would expect the high-yield market to perform well as sentiment toward the asset class could improve.

 

 

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Summary portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			7

      

 

 

The Summary portfolio of investments shows the 50 largest portfolio holdings in unaffiliated issuers and any holdings exceeding 1% of the total net assets as of the report date. The remaining securities held are grouped as “Other securities” in each category.

 

 

 

Security name				Shares				Value				Percent of net assets
Common Stocks: 62.42%
Consumer Discretionary: 3.71%
Media: 3.71%
Vivendi SA					200,000			$	4,148,647				3.71	%
Energy: 4.14%
Oil, Gas & Consumable Fuels: 4.14%
EQT Corporation					15,000				836,100				0.75
Spectra Energy Corporation					75,000				2,190,000				1.96
The Williams Companies Incorporated					100,000				1,599,000				1.43
									4,625,100				4.14
Industrials: 3.22%
Air Freight & Logistics: 3.18%
Deutsche Post AG					150,000				3,556,224				3.18
Construction & Engineering: 0.04%
Other securities									46,260				0.04
Telecommunication Services: 6.60%
Diversified Telecommunication Services: 4.65%
BCE Incorporated					16,000				689,920				0.62
CenturyLink Incorporated					75,000				2,294,250				2.05
Verizon Communications Incorporated					41,291				2,094,692				1.87
Other securities									120,812				0.11
									5,199,674				4.65
Wireless Telecommunication Services: 1.95%
Shenandoah Telecommunications Company					90,000				2,174,400				1.95
Utilities: 44.75%
Electric Utilities: 35.01%
American Electric Power Company Incorporated					90,000				5,557,500				4.97
Duke Energy Corporation					30,514				2,266,580				2.03
Edison International					75,000				5,112,000				4.57
Endesa SA					80,000				1,441,928				1.29
Enel SpA					400,000				1,598,575				1.43
Eversource Energy					90,000				4,887,000				4.37
Exelon Corporation					16,000				503,840				0.45
Great Plains Energy Incorporated					170,000				4,987,800				4.46
IDACORP Incorporated					25,000				1,774,000				1.59
NextEra Energy Incorporated					45,000				5,076,900				4.54
PNM Resources Incorporated					75,000				2,394,000				2.14
Terna SpA					650,000				3,382,111				3.03
Other securities									144,804				0.14
									39,127,038				35.01

 

The accompanying notes are an integral part of these financial statements.

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8		Wells Fargo Utilities and High Income Fund		Summary portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name										Shares				Value				Percent of net assets
Gas Utilities: 0.50%
Snam SpA											100,000			$	538,901				0.48	%
Other securities															24,028				0.02
															562,929				0.50
Multi-Utilities: 6.34%
CenterPoint Energy Incorporated											50,000				931,500				0.83
Public Service Enterprise Group Incorporated											50,000				2,133,000				1.91
Sempra Energy											19,900				1,920,549				1.72
Suez Environnement Company SA											25,000				431,847				0.38
TECO Energy Incorporated											50,000				1,373,500				1.23
Other securities															301,881				0.27
															7,092,277				6.34
Water Utilities: 2.90%
American Water Works Company Incorporated											50,000				3,241,000				2.90
Total Common Stocks (Cost $52,286,754)															69,773,549				62.42
		Interest rate				Maturity date				Principal
Corporate Bonds and Notes: 29.53%
Consumer Discretionary: 5.63%
Auto Components: 0.20%
Other securities															224,350				0.20
Distributors: 0.06%
Other securities															72,000				0.06
Diversified Consumer Services: 0.47%
Service Corporation International			7.50	%			4-1-2027			$	351,000				402,773				0.36
Other securities															122,038				0.11
															524,811				0.47
Hotels, Restaurants & Leisure: 1.45%
CCM Merger Incorporated 144A			9.13				5-1-2019				465,000				473,138				0.42
Greektown Holdings LLC 144A			8.88				3-15-2019				675,000				658,125				0.59
Other securities															485,263				0.44
															1,616,526				1.45
Household Durables: 0.17%
Other securities															189,475				0.17
Leisure Products: 0.04%
Other securities															41,300				0.04
Media: 2.68%
Gray Television Incorporated			7.50				10-1-2020				375,000				394,219				0.35
Other securities															2,599,474				2.33
															2,993,693				2.68

 

The accompanying notes are an integral part of these financial statements.

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Summary portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			9

      

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Specialty Retail: 0.52%
Other securities														$	584,213				0.52	%
Textiles, Apparel & Luxury Goods: 0.04%
Other securities															46,238				0.04
Consumer Staples : 0.37%
Beverages: 0.10%
Other securities															112,900				0.10
Food Products: 0.25%
Other securities															286,389				0.25
Household Products: 0.02%
Other securities															20,400				0.02
Energy: 5.22%
Energy Equipment & Services: 1.88%
NGPL PipeCo LLC 144A			7.77	%			12-15-2037			$	900,000				639,000				0.57
Other securities															1,461,826				1.31
															2,100,826				1.88
Oil, Gas & Consumable Fuels: 3.34%
Sabine Pass LNG LP			6.50				11-1-2020				370,000				390,239				0.35
Other securities															3,348,460				2.99
															3,738,699				3.34
Financials: 5.40%
Banks: 0.31%
Other securities															346,151				0.31
Capital Markets: 0.43%
Other securities															477,100				0.43
Consumer Finance: 1.59%
Other securities															1,776,119				1.59
Diversified Financial Services: 0.61%
Other securities															680,557				0.61
Insurance: 0.32%
Other securities															363,188				0.32
Real Estate Management & Development: 0.21%
Other securities															230,000				0.21
REITs: 1.93%
Iron Mountain Incorporated			5.75				8-15-2024				410,000				410,513				0.37
Other securities															1,748,808				1.56
															2,159,321				1.93

 

The accompanying notes are an integral part of these financial statements.

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10		Wells Fargo Utilities and High Income Fund		Summary portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Health Care: 2.63%
Health Care Equipment & Supplies: 0.36%
Other securities														$	407,004				0.36	%
Health Care Providers & Services: 1.58%
Select Medical Corporation			6.38	%			6-1-2021			$	455,000				409,500				0.37
Other securities															1,355,037				1.21
															1,764,537				1.58
Health Care Technology: 0.33%
Other securities															363,875				0.33
Pharmaceuticals: 0.36%
Other securities															406,425				0.36
Industrials: 1.83%
Airlines: 0.10%
Other securities															108,000				0.10
Commercial Services & Supplies: 0.73%
Other securities															821,651				0.73
Construction & Engineering: 0.34%
Other securities															375,306				0.34
Machinery: 0.02%
Other securities															24,313				0.02
Professional Services: 0.01%
Other securities															13,750				0.01
Trading Companies & Distributors: 0.63%
Other securities															707,251				0.63
Information Technology: 2.23%
Communications Equipment: 0.07%
Other securities															74,250				0.07
Electronic Equipment, Instruments & Components: 0.73%
Jabil Circuit Incorporated			8.25				3-15-2018				620,000				671,150				0.60
Other securities															140,738				0.13
															811,888				0.73
Internet Software & Services: 0.09%
Other securities															96,063				0.09
IT Services: 0.51%
Other securities															569,258				0.51
Semiconductors & Semiconductor Equipment: 0.25%
Other securities															284,762				0.25

 

The accompanying notes are an integral part of these financial statements.

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Summary portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			11

      

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Software: 0.19%
Other securities														$	214,281				0.19	%
Technology Hardware, Storage & Peripherals: 0.39%
NCR Corporation			6.38	%			12-15-2023			$	433,000				424,340				0.38
Other securities															14,738				0.01
															439,078				0.39
Materials: 0.61%
Chemicals: 0.02%
Other securities															21,200				0.02
Containers & Packaging: 0.59%
Other securities															662,439				0.59
Telecommunication Services: 3.40%
Diversified Telecommunication Services: 1.29%
Other securities															1,440,889				1.29
Wireless Telecommunication Services: 2.11%
Sprint Capital Corporation			6.88				11-15-2028				1,125,000				815,625				0.73
Other securities															1,540,442				1.38
															2,356,067				2.11
Utilities: 2.21%
Electric Utilities: 1.46%
ComEd Financing III			6.35				3-15-2033				1,340,000				1,402,814				1.26
Other securities															224,939				0.20
															1,627,753				1.46
Gas Utilities: 0.20%
Other securities															223,806				0.20
Independent Power & Renewable Electricity Producers : 0.55%
Other securities															614,257				0.55
Total Corporate Bonds and Notes (Cost $36,029,327)															33,012,359				29.53
Loans: 1.03%
Consumer Discretionary: 0.37%
Hotels, Restaurants & Leisure: 0.03%
Other securities															39,443				0.03
Media: 0.18%
Other securities															199,284				0.18
Specialty Retail: 0.16%
Other securities															175,608				0.16

 

The accompanying notes are an integral part of these financial statements.

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12		Wells Fargo Utilities and High Income Fund		Summary portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name												Value				Percent of net assets
Financials: 0.06%
Diversified Financial Services: 0.04%
Other securities												$	46,750				0.04	%
Insurance: 0.02%
Other securities													20,200				0.02
Industrials: 0.09%
Commercial Services & Supplies: 0.04%
Other securities													46,011				0.04
Transportation Infrastructure: 0.05%
Other securities													54,943				0.05
Information Technology: 0.02%
Technology Hardware, Storage & Peripherals: 0.02%
Other securities													26,850				0.02
Telecommunication Services: 0.14%
Diversified Telecommunication Services: 0.14%
Other securities													151,497				0.14
Utilities: 0.35%
Electric Utilities: 0.35%
Other securities													390,064				0.35
Total Loans (Cost $2,256,888)													1,150,650				1.03
		Dividend yield						Shares
Preferred Stocks: 17.21%
Financials: 0.08%
Banks: 0.08%
Other securities													83,867				0.08
Utilities: 17.13%
Electric Utilities: 15.88%
Alabama Power Company			6.45	%					106,766				2,932,734				2.62
Baltimore Gas & Electric Company			6.70						20,100				2,042,035				1.83
Baltimore Gas & Electric Company			6.99						31,310				3,181,879				2.85
Entergy Louisiana LLC			4.70						83,000				2,005,280				1.79
Gulf Power Company			6.45						20,000				2,085,000				1.86
Indianapolis Power & Light Company			5.65						28,811				2,940,523				2.63
Southern Company			6.25						50,000				1,331,250				1.19
The Connecticut Light & Power Company			5.28						12,000				615,376				0.55
The Connecticut Light & Power Company			6.56						12,000				621,000				0.56
													17,755,077				15.88

 

The accompanying notes are an integral part of these financial statements.

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Summary portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			13

      

 

 

Security name		Dividend yield						Shares				Value				Percent of net assets
Multi-Utilities: 1.25%
Integrys Holding Incorporated ±			2.94	%					54,650			$	1,393,575				1.25	%
Total Preferred Stocks (Cost $18,677,407)													19,232,519				17.21
Warrants: 0.00%
Utilities: 0.00%
Gas Utilities: 0.00%
Other securities													1,312				0.00
Total Warrants (Cost $30,480)													1,312				0.00
Yankee Corporate Bonds and Notes: 2.12%
Energy: 0.35%
Oil, Gas & Consumable Fuels: 0.35%
Other securities													387,922				0.35
Financials: 0.03%
Banks: 0.03%
Other securities													31,238				0.03
Health Care: 0.48%
Pharmaceuticals: 0.48%
Other securities													539,769				0.48
Industrials: 0.16%
Building Products: 0.02%
Other securities													15,713				0.02
Commercial Services & Supplies: 0.12%
Other securities													137,750				0.12
Machinery: 0.02%
Other securities													19,650				0.02
Materials: 0.42%
Containers & Packaging: 0.28%
Other securities													313,999				0.28
Metals & Mining: 0.06%
Other securities													70,563				0.06
Paper & Forest Products: 0.08%
Other securities													88,500				0.08
Telecommunication Services: 0.68%
Diversified Telecommunication Services: 0.64%
Other securities													714,416				0.64

 

The accompanying notes are an integral part of these financial statements.

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14		Wells Fargo Utilities and High Income Fund		Summary portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name								Shares				Value				Percent of net assets
Wireless Telecommunication Services: 0.04%
Other securities												$	50,063				0.04	%
Total Yankee Corporate Bonds and Notes (Cost $3,376,869)													2,369,583				2.12
		Yield
Short-Term Investments: 8.89%
Investment Companies: 8.89%
Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)			0.43	%					9,933,190				9,933,190				8.89
Total Short-Term Investments (Cost $9,933,190)													9,933,190				8.89
Total investments in securities (Cost $122,590,915) *													135,473,162				121.20	%
Other assets and liabilities, net													(23,698,841	)			(21.20	)
Total net assets												$	111,774,321				100.00	%

 

 

±	Variable rate investment. The rate shown is the rate in effect at period end.

 

144A	The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933.

 

(l)	The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940.

 

(u)	The rate represents the 7-day annualized yield at period end.

 

*	Cost for federal income tax purposes is $123,313,510 and unrealized gains (losses) consists of:

 

Gross unrealized gains		$	22,755,292
Gross unrealized losses			(10,595,640	)
Net unrealized gains		$	12,159,652

 

The accompanying notes are an integral part of these financial statements.

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Statement of assets and liabilities—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			15

Assets
Investments
In unaffiliated securities, at value (cost $112,657,725)		$	125,539,972
In affiliated securities, at value (cost $9,933,190)			9,933,190
Total investments, at value (cost $122,590,915)			135,473,162
Cash			200,264
Foreign currency, at value (cost $128,323)			129,353
Receivable for investments sold			157,299
Receivable for dividends and interest			1,143,561
Prepaid expenses and other assets			3,964
Total assets			137,107,603
Liabilities
Dividends payable			692,201
Payable for investments purchased			2,464,284
Secured borrowing payable			22,015,573
Advisory fee payable			63,186
Administration fees payable			5,266
Accrued expenses and other liabilities			92,772
Total liabilities			25,333,282
Total net assets		$	111,774,321
NET ASSETS CONSIST OF
Paid-in capital		$	151,460,387
Overdistributed net investment income			(1,678,910	)
Accumulated net realized losses on investments			(50,887,211	)
Net unrealized gains on investments			12,880,055
Total net assets		$	111,774,321
NET ASSET VALUE PER SHARE
Based on $111,774,321 divided by 9,232,832 shares issued and outstanding (unlimited number of shares authorized)		$	12.11

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

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16		Wells Fargo Utilities and High Income Fund		Statement of operations—six months ended February 29, 2016 (unaudited)

Investment income
Dividends (net of foreign withholding taxes of $50,860)		$	1,701,140
Interest			1,484,105
Income from affiliated securities			8,369
Total investment income			3,193,614
Expenses
Advisory fee			402,042
Administration fee			33,504
Custody and accounting fees			16,937
Professional fees			38,571
Shareholder report expenses			25,905
Trustees’ fees and expenses			6,739
Transfer agent fees			17,445
Interest expense			108,819
Other fees and expenses			8,155
Total expenses			658,117
Net investment income			2,535,497
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains on investments			233,879
Net change in unrealized gains (losses) on investments			(1,688,463	)
Net realized and unrealized gains (losses) on investments			(1,454,584	)
Net increase in net assets resulting from operations		$	1,080,913

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

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Statement of changes in net assets		Wells Fargo Utilities and High Income Fund			17

		Six months ended February 29, 2016 (unaudited)				Year ended August 31, 2015
Operations
Net investment income		$	2,535,497			$	8,422,585
Net realized gains on investments			233,879				319,865
Net change in unrealized gains (losses) on investments			(1,688,463	)			(13,285,652	)
Net increase (decrease) in net assets resulting from operations			1,080,913				(4,543,202	)
Distributions to shareholders from
Net investment income			(4,154,775	)			(8,308,807	)
Capital share transactions
Net asset value shares issued under the Automatic Dividend Reinvestment Plan			0				22,151
Total decrease in net assets			(3,073,862	)			(12,829,858	)
Net assets
Beginning of period			114,848,183				127,678,041
End of period		$	111,774,321			$	114,848,183
Undistributed (overdistributed) net investment income		$	(1,678,910	)		$	155,876

 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

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18		Wells Fargo Utilities and High Income Fund		Statement of cash flows—year ended February 29, 2016 (unaudited)

Cash flows from operating activities:
Net increase in net assets resulting from operations		$	1,080,913
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:
Purchase of securities			(20,697,108	)
Proceeds from sale of securities			20,961,172
Amortization			(83,054	)
Purchase of short-term securities, net			(753,619	)
Decrease in receivable for investments sold			93,971
Decrease in receivable for dividends and interest			100,342
Decrease in prepaid expenses and other assets			4,852
Increase in payable for investments purchased			2,302,030
Decrease in advisory fee payable			(8,210	)
Decrease in administration fees payable			(684	)
Decrease in accrued expenses and other liabilities			(17,511	)
Net realized gains on investments			(233,879	)
Net change in unrealized gains (losses) on investments			1,688,463
Net cash provided by operating activities			4,437,678
Cash flows from financing activities:
Cash distributions paid			(4,175,357	)
Increase in secured borrowing payable			1,009
Net cash used in financing activities			(4,174,348	)
Net increase in cash			263,330
Cash (including foreign currency):
Beginning of period		$	66,287
End of period		$	329,617
Supplemental cash disclosure
Cash paid for interest		$	107,810

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.

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Financial highlights		Wells Fargo Utilities and High Income Fund			19

(For a share outstanding throughout each period)

 

		Six months ended February 29, 2016 (unaudited)				Year ended August 31
						2015				2014				2013				2012				2011
Net asset value, beginning of period			$12.44				$13.83				$12.24				$11.74				$11.75				$11.23
Net investment income			0.27				0.91				0.97	1			0.87	1			0.87	1			0.99	1
Net realized and unrealized gains (losses) on investments			(0.15	)			(1.40	)			1.52				0.53				0.02				0.43
Total from investment operations			0.12				(0.49	)			2.49				1.40				0.89				1.42
Distributions to shareholders from
Net investment income			(0.45	)			(0.90	)			(0.90	)			(0.90	)			(0.90	)			(0.90	)
Net asset value, end of period			$12.11				$12.44				$13.83				$12.24				$11.74				$11.75
Market value, end of period			$12.23				$10.89				$12.87				$12.04				$11.92				$11.03
Total return based on market value2			16.80	%			(9.11	)%			14.89	%			8.93	%			17.03	%			5.99	%
Ratios to average net assets (annualized)
Expenses3			1.17	%			1.19	%			1.11	%			1.25	%			1.20	%			1.24	%
Net investment income			4.52	%			6.88	%			7.38	%			7.11	%			7.48	%			8.14	%
Supplemental data
Portfolio turnover rate			14	%			61	%			29	%			65	%			48	%			64	%
Net assets, end of period (000s omitted)			$111,774				$114,848				$127,678				$113,001				$108,327				$108,146
Borrowings outstanding, end of period (000s omitted)			$22,000				$22,000				$22,000				$22,000				$22,000				$22,000
Asset coverage per $1,000 of borrowing, end of period			$6,081				$6,220				$6,804				$6,136				$5,866				$5,916

 

 

 

 

1	Calculated based upon average shares outstanding

 

2

Total return is calculated assuming a purchase of common stock on the first day and a sale on the last day of the period reported. Dividends and distributions, if any, are assumed for purposes of these calculations to be reinvested at prices obtained under the Fund’s Automatic Dividend Reinvestment Plan. Total return does not reflect brokerage commissions that a shareholder would pay on the purchase and sale of shares.

 

3	Ratios include interest expense relating to interest associated with borrowings and/or leverage transactions as follows:

 

Six months ended February 29, 2016 (unaudited)			0.19	%
Year ended August 31, 2015			0.16	%
Year ended August 31, 2014			0.19	%
Year ended August 31, 2013			0.21	%
Year ended August 31, 2012			0.25	%
Year ended August 31, 2011			0.25	%

 

The accompanying notes are an integral part of these financial statements.

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20		Wells Fargo Utilities and High Income Fund		Notes to financial statements (unaudited)

1. ORGANIZATION

The Wells Fargo Utilities and High Income Fund (the “Fund”) was organized as a statutory trust under the laws of the state of Delaware on February 4, 2004. Originally classified as non-diversified, the Fund now is classified as a diversified closed-end management investment company and is registered under the Investment Company Act of 1940, as amended. As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification Topic 946, Financial Services – Investment Companies.

2. SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Securities valuation

All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time).

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the principal exchange or market that day, the prior day’s price will be deemed “stale” and a fair value price will be determined in accordance with the Fund’s Valuation Procedures.

The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).

Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On February 29, 2016, such fair value pricing was used in pricing foreign securities.

Debt securities are valued at the evaluated bid price provided by an independent pricing service or, if a reliable price is not available, the quoted bid price from an independent broker-dealer.

Investments in registered open-end investment companies are valued at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

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Notes to financial statements (unaudited)		Wells Fargo Utilities and High Income Fund			21

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.

When-issued transactions

The Fund may purchase securities on a forward commitment or when-issued basis. The Fund records a when-issued transaction on the trade date and will segregate assets in an amount at least equal in value to the Fund’s commitment to purchase when-issued securities. Securities purchased on a when-issued basis are marked-to-market daily and the Fund begins earning interest on the settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

Loans

The Fund may invest in direct debt instruments which are interests in amounts owed to lenders by corporate or other borrowers. The loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. Investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When the Fund purchases participations, it generally has no rights to enforce compliance with terms of the loan agreement with the borrower. As a result, the Fund assumes the credit risk of both the borrower and the lender that is selling the participation. When the Fund purchases assignments from lenders, it acquires direct rights against the borrower on the loan and may enforce compliance by the borrower with the terms of the loan agreement. Loans may include fully funded term loans or unfunded loan commitments, which are contractual obligations for future funding.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.

Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.

Distributions to shareholders

Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

Federal and other taxes

The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

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22		Wells Fargo Utilities and High Income Fund		Notes to financial statements (unaudited)

As of August 31, 2015, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $47,268,666 with $19,833,087 expiring in 2017; and $27,435,579 expiring in 2018.

As of August 31, 2015, the Fund had current year deferred post-October capital losses consisting of $3,364,114 in short-term losses which was recognized on the first day of the current fiscal year.

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

n

Level 1 – quoted prices in active markets for identical securities

 

n

Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.)

 

n

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of February 29, 2016:

 

		Quoted prices (Level 1)				Other significant observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Total
Assets
Investments in:
Common stocks
Consumer discretionary		$	0			$	4,148,647			$	0			$	4,148,647
Energy			4,625,100				0				0				4,625,100
Industrials			46,260				3,556,224				0				3,602,484
Telecommunication services			7,253,262				120,812				0				7,374,074
Utilities			42,629,882				7,393,362				0				50,023,244
Corporate bonds and notes			0				33,012,359				0				33,012,359
Loans			0				759,515				391,135				1,150,650
Preferred stocks
Financials			83,867				0				0				83,867
Utilities			4,090,280				15,058,372				0				19,148,652
Warrants
Utilities			0				1,312				0				1,312
Yankee corporate bonds and notes			0				2,332,336				37,247				2,369,583
Short-term investments
Investment companies			9,933,190				0				0				9,933,190
Total assets		$	68,661,841			$	66,382,939			$	428,382			$	135,473,162

The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At February 29, 2016, fair value pricing was used in pricing certain foreign securities and securities valued at $15,219,045 were transferred from Level 1 to Level 2 within the fair value hierarchy. The Fund had no material transfers into/out of Level 3.

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Notes to financial statements (unaudited)		Wells Fargo Utilities and High Income Fund			23

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Advisory fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”) is the adviser to the Fund and is entitled to receive a fee at an annual rate of 0.60% of the Fund’s average daily total assets. Total assets consist of net assets of the Fund plus borrowings or other leverage for investment purposes to the extent excluded in calculating net assets.

Funds Management has retained the services of certain investment subadvisers to provide daily portfolio management to the Fund. The fees for subadvisory services are borne by Funds Management. Wells Capital Management Incorporated (an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo) and Crow Point Partners, LLC are each investment subadvisers to the Fund and are each entitled to receive a fee from Funds Management at an annual rate of 0.20% of the Fund’s average daily total assets.

Administration fee

Funds Management also serves as the administrator to the Fund, providing the Fund with a wide range of administrative services necessary to the operation of the Fund. Funds Management is entitled to receive an annual administration fee from the Fund equal to 0.05% of the Fund’s average daily total assets.

5. CAPITAL SHARE TRANSACTIONS

The Fund has authorized an unlimited number of shares with no par value. For the six months ended February 29, 2016, the Fund did not issue any shares. For the year ended August 31, 2015 the Fund issued 1,649 shares.

6. BORROWINGS

The Fund has borrowed $22 million through a revolving credit facility administered by a major financial institution (the “Facility”). The Facility has a commitment amount of $25 million with no specific contract expiration date but the Facility can be terminated upon 180 days’ notice. The Fund is charged interest at London Interbank Offered Rate (LIBOR) plus 0.70% and a commitment fee of 0.30% of the average daily unutilized amount of the commitment which may be waived if the amount drawn on the Facility is over 75% of the committed amount.

At February 29, 2016, the Fund had borrowings outstanding in the amount of $22,015,573 (including accrued interest and commitment fees payable). During the six months ended February 29, 2016, an effective interest rate of 0.99% was incurred on the borrowings and the Fund incurred interest expense in the amount of $108,819, representing 0.19% of the Fund’s average daily net assets.

7. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the six months ended February 29, 2016 were $19,947,400 and $18,165,319, respectively.

8. CONCENTRATION RISK

The Fund invests a substantial portion of its assets in utilities companies and, therefore, would be more affected by changes in that industry than would be a fund whose investments are not heavily weighted in the industry.

9. INDEMNIFICATION

Under the Fund’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund may enter into contracts with service providers that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.

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24		Wells Fargo Utilities and High Income Fund		Notes to financial statements (unaudited)

10. SUBSEQUENT DISTRIBUTIONS

The Fund declared the following distributions to common shareholders:

 

Declaration date		Record date		Payable date		Per share amount
February 18, 2016		March 15, 2016		April 1, 2016		$0.075
March 24, 2016		April 13, 2016		May 2, 2016		0.075
April 29, 2016		May 16, 2016		June 1, 2016		0.075

These distributions are not reflected in the accompanying financial statements. The final determination of the source of all distributions is subject to change and made after the Fund’s tax year-end.

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Other information (unaudited)		Wells Fargo Utilities and High Income Fund			25

PROXY VOTING INFORMATION

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wellsfargofunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available on the Fund’s website at wellsfargofunds.com or by visiting the SEC website at sec.gov.

ANNUAL MEETING OF SHAREHOLDERS

On December 7, 2015, an Annual Meeting of Shareholders for the Fund was held to consider the following proposal. The results of the proposal are indicated below.

Proposal 1 – Election of Trustees:

 

Net assets voted “For”		William R. Ebsworth		$	98,208,888
Net assets voted “Against”				$	4,268,209
Net assets voted “For”		Jane A. Freeman		$	97,678,598
Net assets voted “Against”				$	4,798,499
Net assets voted “For”		Judith M. Johnson		$	97,975,569
Net assets voted “Against”				$	4,501,528
Net assets voted “For”		Donald C. Willeke		$	97,873,263
Net assets voted “Against”				$	4,603,834

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargofunds.com), on a one-month delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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26		Wells Fargo Utilities and High Income Fund		Other information (unaudited)

BOARD OF TRUSTEES AND OFFICERS

The following table provides basic information about the Board of Trustees and Officers of the Fund. Each of the Trustees and Officers listed below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 144 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust, and four closed-end funds, including the Fund (collectively the “Fund Complex”). The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. The Board of Trustees is classified into three classes of which one is elected annually. Each Trustee serves a three-year term concurrent with the class from which the Trustee is elected. Each Officer serves an indefinite term.

Independent Trustees

 

Name and year of birth		Position held and length of service*		Principal occupations during past five years or longer		Current other public company or investment company directorships
William R. Ebsworth (Born 1957)		Trustee, since 2015		Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief financial officer at Fidelity Management and Research Company in Boston, Tokyo, and Hong Kong and retired in 2013 as Chief Investment Officer of Fidelity Strategic Advisers, Inc. where he lead a team of investment professionals managing client assets. Prior thereto, Board member of Hong Kong Securities Clearing Co., Hong Kong Options Clearing Corp., the Thailand International Fund, Ltd., Fidelity Investments Life Insurance Company, and Empire Fidelity Investments Life Insurance Company. Mr. Ebsworth is a CFA® charterholder and an Adjunct Lecturer, Finance, at Babson College.		Asset Allocation Trust
Jane A. Freeman (Born 1953)		Trustee, since 2015		Retired. From 2012 to 2014 and 1999 to 2008, Chief Financial Officer of Scientific Learning Corporation. From 2008 to 2012, Ms. Freeman provided consulting services related to strategic business projects. Prior to 1999, Portfolio Manager at Rockefeller & Co. and Scudder, Stevens & Clark. Board member of the Harding Loevner Funds from 1996 to 2014, serving as both Lead Independent Director and chair of the Audit Committee. Board member of the Russell Exchange Traded Funds Trust from 2011 to 2012 and the chair of the Audit Committee. Ms. Freeman is Chair of Taproot Foundation (non-profit organization), a Board Member of Ruth Bancroft Garden (non-profit organization) and an inactive chartered financial analyst.		Asset Allocation Trust
Peter G. Gordon (Born 1942)		Trustee, since 2010; Chairman, since 2010		Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College.		Asset Allocation Trust
Isaiah Harris, Jr. (Born 1952)		Trustee, since 2010		Retired. Chairman of the Board of CIGNA Corporation since 2009, and Director since 2005. From 2003 to 2011, Director of Deluxe Corporation. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Advisory Board Member, Palm Harbor Academy (charter school). Advisory Board Member, Child Evangelism Fellowship (non-profit). Mr. Harris is a certified public accountant (inactive status).		CIGNA Corporation; Asset Allocation Trust
Judith M. Johnson (Born 1949)		Trustee, since 2010; Audit Committee Chairman, since 2010		Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant.		Asset Allocation Trust
David F. Larcker (Born 1950)		Trustee, since 2010		James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of the Corporate Governance Research Initiative and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.		Asset Allocation Trust

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Other information (unaudited)		Wells Fargo Utilities and High Income Fund			27

Name and year of birth		Position held and length of service*		Principal occupations during past five years or longer		Current other public company or investment company directorships
Olivia S. Mitchell (Born 1953)		Trustee, since 2010		International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993.		Asset Allocation Trust
Timothy J. Penny (Born 1951)		Trustee, since 2010		President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.		Asset Allocation Trust
Michael S. Scofield (Born 1943)		Trustee, since 2004		Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield.		Asset Allocation Trust

 

*	Length of service dates reflect the Trustee’s commencement of service with the Fund’s predecessor entities, where applicable.

Officers

 

Name and year of birth		Position held and length of service		Principal occupations during past five years or longer
Karla M. Rabusch (Born 1959)		President, since 2010		Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.
Nancy Wiser1 (Born 1967)		Treasurer, since 2012		Executive Vice President of Wells Fargo Funds Management, LLC since 2011. Chief Operating Officer and Chief Compliance Officer at LightBox Capital Management LLC, from 2008 to 2011.
C. David Messman (Born 1960)		Secretary, since 2010; Chief Legal Officer, since 2010		Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank, N.A. from 1996 to 2013.
Debra Ann Early (Born 1964)		Chief Compliance Officer, since 2010		Executive Vice President of Wells Fargo Funds Management, LLC since 2014, Senior Vice President and Chief Compliance Officer from 2007 to 2014.
David Berardi (Born 1975)		Assistant Treasurer, since 2009		Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.
Jeremy DePalma1 (Born 1974)		Assistant Treasurer, since 2005		Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010 and head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.

 

 

1	Nancy Wiser acts as Treasurer of 72 funds in the Fund Complex. Jeremy DePalma acts as Treasurer of 72 funds and Assistant Treasurer of 72 funds in the Fund Complex.

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28		Wells Fargo Utilities and High Income Fund		Automatic dividend reinvestment plan

AUTOMATIC DIVIDEND REINVESTMENT PLAN

All common shareholders are eligible to participate in the Automatic Dividend Reinvestment Plan (“the Plan”). Pursuant to the Plan, unless a common shareholder is ineligible or elects otherwise, all cash dividends and capital gains distributions are automatically reinvested by Computershare Trust Company, N.A., as agent for shareholders in administering the Plan (“Plan Agent”), in additional common shares of the Fund. Whenever the Fund declares an ordinary income dividend or a capital gain dividend (collectively referred to as “dividends”) payable either in shares or in cash, nonparticipants in the Plan will receive cash, and participants in the Plan will receive the equivalent in common shares. The shares are acquired by the Plan Agent for the participant’s account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund (“newly issued common shares”) or (ii) by purchase of outstanding common shares on the open-market (open-market purchases) on the NYSE Amex or elsewhere. If, on the payment date for any dividend or distribution, the net asset value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (“market premium”), the Plan Agent will invest the amount of such dividend or distribution in newly issued shares on behalf of the participant. The number of newly issued common shares to be credited to the participant’s account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date the net asset value per share is greater than the market value (“market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. All correspondence concerning the Plan should be directed to the Plan Agent at P.O. Box 30170, College Station, Texas 77842-3170 or by calling 1-800-730-6001.

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List of abbreviations		Wells Fargo Utilities and High Income Fund			29

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

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Transfer Agent, Registrar, Shareholder Servicing

Agent & Dividend Disbursing Agent

Computershare Trust Company, N.A.

P.O. Box 30170

College Station, TX 77842-3170

1-800-730-6001

Website: wellsfargofunds.com

Wells Fargo Funds Management, LLC, is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s broker/dealer subsidiaries. Certain material contained in this report may be considered marketing material and has been reviewed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2016 Wells Fargo Funds Management, LLC. All rights reserved.

 

		241415 04-16 SUHIF/SAR152 2-16

 

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ITEM 2. CODE OF ETHICS

Not applicable.

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

Not applicable.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not applicable.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS

Not applicable.

ITEM 6. INVESTMENTS

Wells Fargo Utilities and High Income Fund included a Summary Portfolio of Investments under Item 1. A Portfolio of Investments for Wells Fargo Utilities and High Income Fund is filed under this Item.

 

3

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			1

      

 

 

Security name						Shares				Value
Common Stocks: 62.42%
Consumer Discretionary: 3.71%
Media: 3.71%
Vivendi SA							200,000			$	4,148,647
Energy: 4.14%
Oil, Gas & Consumable Fuels: 4.14%
EQT Corporation							15,000				836,100
Spectra Energy Corporation							75,000				2,190,000
The Williams Companies Incorporated							100,000				1,599,000
											4,625,100
Industrials: 3.22%
Air Freight & Logistics: 3.18%
Deutsche Post AG							150,000				3,556,224
Construction & Engineering: 0.04%
Ameresco Incorporated Class A †							9,000				46,260
Telecommunication Services: 6.60%
Diversified Telecommunication Services: 4.65%
BCE Incorporated							16,000				689,920
CenturyLink Incorporated							75,000				2,294,250
Telefonica Deutschland Holding AG							25,000				120,812
Verizon Communications Incorporated							41,291				2,094,692
											5,199,674
Wireless Telecommunication Services: 1.95%
Shenandoah Telecommunications Company							90,000				2,174,400
Utilities: 44.75%
Electric Utilities: 35.01%
American Electric Power Company Incorporated							90,000				5,557,500
Chesapeake Utilities Corporation							300				18,690
Duke Energy Corporation							30,514				2,266,580
Edison International							75,000				5,112,000
Endesa SA							80,000				1,441,928
Enel SpA							400,000				1,598,575
Entergy Corporation							1,000				72,210
Eversource Energy							90,000				4,887,000
Exelon Corporation							16,000				503,840
Great Plains Energy Incorporated							170,000				4,987,800
Hydro One Limited 144A							3,000				51,286
IDACORP Incorporated							25,000				1,774,000
NextEra Energy Incorporated							45,000				5,076,900
Pepco Holdings Incorporated							100				2,618
PNM Resources Incorporated							75,000				2,394,000
Terna SpA							650,000				3,382,111
											39,127,038

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2		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name										Shares				Value
Gas Utilities: 0.50%
New Jersey Resources Corporation											400			$	13,848
Snam SpA											100,000				538,901
South Jersey Industries Incorporated											400				10,180
															562,929
Multi-Utilities: 6.34%
Alliant Energy Corporation											4,000				271,800
CenterPoint Energy Incorporated											50,000				931,500
Dominion Resources Incorporated											300				20,976
MDU Resources Group Incorporated											500				9,105
Public Service Enterprise Group Incorporated											50,000				2,133,000
Sempra Energy											19,900				1,920,549
Suez Environnement Company SA											25,000				431,847
TECO Energy Incorporated											50,000				1,373,500
															7,092,277
Water Utilities: 2.90%
American Water Works Company Incorporated											50,000				3,241,000
Total Common Stocks (Cost $52,286,754)															69,773,549
		Interest rate				Maturity date				Principal
Corporate Bonds and Notes: 29.53%
Consumer Discretionary: 5.63%
Auto Components: 0.20%
Cooper Tire & Rubber Company (i)			7.63	%			3-15-2027			$	190,000				197,600
Goodyear Tire & Rubber Company			7.00				5-15-2022				25,000				26,750
															224,350
Distributors: 0.06%
LKQ Corporation			4.75				5-15-2023				75,000				72,000
Diversified Consumer Services: 0.47%
Monitronics International			9.13				4-1-2020				25,000				21,188
Service Corporation International			7.00				6-15-2017				25,000				26,375
Service Corporation International			7.50				4-1-2027				351,000				402,773
Service Corporation International			7.63				10-1-2018				25,000				27,875
Service Corporation International			8.00				11-15-2021				40,000				46,600
															524,811
Hotels, Restaurants & Leisure: 1.45%
CCM Merger Incorporated 144A			9.13				5-1-2019				465,000				473,138
Greektown Holdings LLC 144A			8.88				3-15-2019				675,000				658,125
Hilton Worldwide Finance LLC			5.63				10-15-2021				15,000				15,563
Pinnacle Entertainment Incorporated			7.50				4-15-2021				355,000				369,200
Speedway Motorsports Incorporated			5.13				2-1-2023				100,000				100,500
															1,616,526

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			3

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Household Durables: 0.17%
American Greetings Corporation			7.38	%			12-1-2021			$	150,000			$	153,000
Tempur Sealy International Incorporated 144A			5.63				10-15-2023				10,000				10,150
Tempur Sealy International Incorporated			6.88				12-15-2020				25,000				26,325
															189,475
Leisure Products: 0.04%
Vista Outdoor Incorporated 144A			5.88				10-1-2023				40,000				41,300
Media: 2.68%
Altice US Finance I Corporation 144A			5.38				7-15-2023				200,000				203,500
Cable One Incorporated 144A			5.75				6-15-2022				25,000				25,125
Cablevision Systems Corporation			8.63				9-15-2017				145,000				154,135
CCO Holdings LLC			5.13				2-15-2023				50,000				49,625
CCO Holdings LLC 144A			5.13				5-1-2023				35,000				34,738
CCO Holdings LLC			5.25				9-30-2022				90,000				91,013
CCO Holdings LLC 144A			5.38				5-1-2025				335,000				330,813
CCO Holdings LLC 144A			5.88				4-1-2024				50,000				51,000
CCO Holdings LLC 144A			5.88				5-1-2027				50,000				50,000
CCO Holdings LLC			6.63				1-31-2022				50,000				52,500
CCO Holdings LLC			7.38				6-1-2020				125,000				130,063
CCOH Safari LLC 144A			5.75				2-15-2026				275,000				275,723
Cequel Communications Holdings I LLC 144A			5.13				12-15-2021				15,000				13,763
Cequel Communications Holdings I LLC 144A			5.13				12-15-2021				100,000				91,750
Cequel Communications Holdings I LLC 144A			7.75				7-15-2025				100,000				93,250
Cinemark USA Incorporated			7.38				6-15-2021				75,000				78,563
CSC Holdings LLC			7.88				2-15-2018				75,000				79,875
CSC Holdings LLC			8.63				2-15-2019				125,000				134,375
Gray Television Incorporated			7.50				10-1-2020				375,000				394,219
Lamar Media Corporation			5.88				2-1-2022				75,000				78,188
LIN Television Corporation			6.38				1-15-2021				25,000				26,031
Live Nation Entertainment Incorporated 144A			7.00				9-1-2020				35,000				36,706
National CineMedia LLC			6.00				4-15-2022				155,000				161,200
National CineMedia LLC			7.88				7-15-2021				100,000				103,750
Nexstar Broadcasting Group Incorporated 144A			6.13				2-15-2022				25,000				24,000
Nexstar Broadcasting Group Incorporated			6.88				11-15-2020				145,000				147,175
Outfront Media Capital Corporation			5.25				2-15-2022				15,000				15,338
Outfront Media Capital Corporation			5.88				3-15-2025				65,000				67,275
															2,993,693
Specialty Retail: 0.52%
ABC Supply Company Incorporated 144A			5.63				4-15-2021				40,000				40,900
ABC Supply Company Incorporated 144A			5.75				12-15-2023				50,000				51,500
Century Intermediate Holding Company (PIK at 10.50%) 144A¥(i)			9.75				2-15-2019				15,000				15,263
Penske Auto Group Incorporated			5.38				12-1-2024				160,000				155,200
Penske Auto Group Incorporated			5.75				10-1-2022				94,000				94,000
Sonic Automotive Incorporated			5.00				5-15-2023				70,000				66,150
Sonic Automotive Incorporated			7.00				7-15-2022				155,000				161,200
															584,213

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4		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Textiles, Apparel & Luxury Goods: 0.04%
Wolverine World Wide Company			6.13	%			10-15-2020			$	45,000			$	46,238
Consumer Staples: 0.37%
Beverages: 0.10%
Cott Beverages Incorporated			5.38				7-1-2022				50,000				49,750
Cott Beverages Incorporated			6.75				1-1-2020				60,000				63,150
															112,900
Food Products: 0.25%
B&G Foods Incorporated			4.63				6-1-2021				30,000				30,338
Darling Ingredients Incorporated			5.38				1-15-2022				15,000				14,775
Pilgrim’s Pride Corporation 144A			5.75				3-15-2025				85,000				82,663
Prestige Brands Incorporated 144A			6.38				3-1-2024				10,000				10,300
Simmons Foods Incorporated 144A			7.88				10-1-2021				175,000				148,313
															286,389
Household Products: 0.02%
Central Garden & Pet Company			6.13				11-15-2023				20,000				20,400
Energy: 5.22%
Energy Equipment & Services: 1.88%
Bristow Group Incorporated			6.25				10-15-2022				380,000				214,700
Cleaver Brooks Incorporated 144A			8.75				12-15-2019				40,000				37,100
Era Group Incorporated			7.75				12-15-2022				334,000				254,675
Forum Energy Technologies Incorporated			6.25				10-1-2021				25,000				18,938
Hilcorp Energy Company 144A			5.00				12-1-2024				75,000				51,000
Hilcorp Energy Company 144A			5.75				10-1-2025				75,000				51,000
Hornbeck Offshore Services Incorporated			1.50				9-1-2019				100,000				42,500
Hornbeck Offshore Services Incorporated			5.00				3-1-2021				230,000				120,463
Hornbeck Offshore Services Incorporated			5.88				4-1-2020				235,000				122,200
NGPL PipeCo LLC 144A			7.12				12-15-2017				190,000				177,175
NGPL PipeCo LLC 144A			7.77				12-15-2037				900,000				639,000
NGPL PipeCo LLC 144A			9.63				6-1-2019				35,000				32,900
PHI Incorporated			5.25				3-15-2019				405,000				332,100
Pride International Incorporated			8.50				6-15-2019				10,000				7,075
															2,100,826
Oil, Gas & Consumable Fuels: 3.34%
Alpha Natural Resources Incorporated (s)			6.25				6-1-2021				50,000				125
Arch Coal Incorporated (s)			7.00				6-15-2019				100,000				500
Arch Coal Incorporated (s)			7.25				6-15-2021				50,000				250
Berry Petroleum Company LLC			6.38				9-15-2022				225,000				24,188
Berry Petroleum Company LLC			6.75				11-1-2020				25,000				2,750
Continental Resources Incorporated			3.80				6-1-2024				25,000				17,041
Continental Resources Incorporated			5.00				9-15-2022				150,000				113,850
CSI Compressco LP			7.25				8-15-2022				125,000				71,250
Denbury Resources Incorporated			4.63				7-15-2023				275,000				79,750
Denbury Resources Incorporated			5.50				5-1-2022				30,000				9,450

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			5

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Oil, Gas & Consumable Fuels (continued)
Denbury Resources Incorporated			6.38	%			8-15-2021			$	160,000			$	51,200
El Paso Pipeline Partners Operating LLC			5.00				10-1-2021				125,000				116,576
Enlink Midstream Partners LP			4.15				6-1-2025				100,000				69,051
Enlink Midstream Partners LP			4.40				4-1-2024				250,000				176,408
Exterran Partners LP			6.00				4-1-2021				200,000				130,500
Kinder Morgan Incorporated			5.55				6-1-2045				75,000				62,276
Kinder Morgan Incorporated			6.50				9-15-2020				45,000				45,462
Kinder Morgan Incorporated			7.00				6-15-2017				75,000				77,278
Kinder Morgan Incorporated (i)			7.42				2-15-2037				90,000				81,713
Kinder Morgan Incorporated			7.80				8-1-2031				100,000				95,071
Northern Tier Energy LLC			7.13				11-15-2020				200,000				186,000
Overseas Shipholding Group Incorporated			8.13				3-30-2018				110,000				106,700
Rockies Express Pipeline LLC 144A			5.63				4-15-2020				260,000				231,758
Rockies Express Pipeline LLC 144A			6.00				1-15-2019				50,000				46,750
Rockies Express Pipeline LLC 144A			6.88				4-15-2040				290,000				203,000
Rockies Express Pipeline LLC 144A(i)			7.50				7-15-2038				205,000				153,750
Rose Rock Midstream LP			5.63				11-15-2023				50,000				27,625
Sabine Oil & Gas Corporation (i)(s)			7.25				6-15-2019				50,000				4,000
Sabine Oil & Gas Corporation (i)(s)			7.50				9-15-2020				260,000				20,800
Sabine Pass Liquefaction LLC			5.63				2-1-2021				75,000				71,578
Sabine Pass Liquefaction LLC			5.63				4-15-2023				165,000				152,213
Sabine Pass Liquefaction LLC			5.63				3-1-2025				50,000				45,375
Sabine Pass Liquefaction LLC			5.75				5-15-2024				50,000				46,031
Sabine Pass Liquefaction LLC			6.25				3-15-2022				200,000				190,500
Sabine Pass LNG LP			6.50				11-1-2020				370,000				390,239
Sabine Pass LNG LP			7.50				11-30-2016				295,000				307,818
SemGroup Corporation			7.50				6-15-2021				250,000				189,375
Southwestern Energy Company			4.10				3-15-2022				75,000				42,638
Suburban Propane Partners LP			5.50				6-1-2024				20,000				17,000
Suburban Propane Partners LP			7.38				8-1-2021				26,000				25,480
Swift Energy Company (i)(s)			7.13				6-1-2017				422,000				16,880
Swift Energy Company (i)(s)			8.88				1-15-2020				75,000				3,000
Ultra Petroleum Corporation 144A			5.75				12-15-2018				35,000				1,750
Ultra Petroleum Corporation 144A			6.13				10-1-2024				675,000				33,750
															3,738,699
Financials: 5.40%
Banks: 0.31%
CIT Group Incorporated 144A			5.50				2-15-2019				100,000				103,312
CIT Group Incorporated 144A			6.63				4-1-2018				231,000				242,839
															346,151
Capital Markets: 0.43%
Jefferies Finance LLC 144A			6.88				4-15-2022				350,000				246,750
Jefferies Finance LLC 144A			7.38				4-1-2020				80,000				61,600
Jefferies Finance LLC 144A			7.50				4-15-2021				225,000				168,750
															477,100

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6		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Consumer Finance: 1.59%
Ally Financial Incorporated			5.75	%			11-20-2025			$	50,000			$	48,500
Ally Financial Incorporated			8.00				12-31-2018				100,000				108,750
Ally Financial Incorporated			8.00				3-15-2020				203,000				225,838
Ford Motor Credit Company LLC			8.00				12-15-2016				25,000				26,193
Homer City Generation LLC			8.73				10-1-2026				139,827				88,091
Navient Corporation			5.88				3-25-2021				40,000				35,100
Navient Corporation			8.00				3-25-2020				275,000				271,563
SLM Corporation			6.13				3-25-2024				90,000				75,321
SLM Corporation			7.25				1-25-2022				70,000				63,700
SLM Corporation			8.45				6-15-2018				125,000				133,204
Springleaf Finance Corporation			5.75				9-15-2016				50,000				50,000
Springleaf Finance Corporation			6.00				6-1-2020				175,000				152,469
Springleaf Finance Corporation			6.50				9-15-2017				50,000				49,438
Springleaf Finance Corporation			6.90				12-15-2017				243,000				242,089
Springleaf Finance Corporation			7.75				10-1-2021				100,000				88,750
Springleaf Finance Corporation			8.25				10-1-2023				135,000				117,113
															1,776,119
Diversified Financial Services: 0.61%
Denali Borrower LLC 144A			5.63				10-15-2020				330,000				347,157
Infinity Acquisition LLC 144A(i)			7.25				8-1-2022				185,000				155,400
NewStar Financial Incorporated			7.25				5-1-2020				200,000				178,000
															680,557
Insurance: 0.32%
Hub Holdings LLC (PIK at 8.88%) 144A¥			8.13				7-15-2019				275,000				228,938
Hub International Limited 144A			7.88				10-1-2021				150,000				134,250
															363,188
Real Estate Management & Development: 0.21%
Onex Corporation 144A			7.75				1-15-2021				250,000				230,000
REITs: 1.93%
Crown Castle International Corporation			4.88				4-15-2022				35,000				36,575
Crown Castle International Corporation			5.25				1-15-2023				70,000				74,113
DuPont Fabros Technology Incorporated LP			5.63				6-15-2023				225,000				227,250
DuPont Fabros Technology Incorporated LP			5.88				9-15-2021				340,000				353,600
Equinix Incorporated			5.88				1-15-2026				25,000				26,125
ESH Hospitality Incorporated 144A			5.25				5-1-2025				200,000				194,000
Iron Mountain Incorporated			5.75				8-15-2024				410,000				410,513
Iron Mountain Incorporated 144A			6.00				10-1-2020				20,000				21,200
Iron Mountain Incorporated			6.00				8-15-2023				267,000				283,688
Sabra Health Care Incorporated			5.38				6-1-2023				50,000				49,775
Sabra Health Care Incorporated			5.50				2-1-2021				105,000				106,281
The Geo Group Incorporated			5.13				4-1-2023				25,000				23,875
The Geo Group Incorporated			5.88				1-15-2022				205,000				206,538
The Geo Group Incorporated			5.88				10-15-2024				75,000				73,688
The Geo Group Incorporated			6.63				2-15-2021				70,000				72,100
															2,159,321

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			7

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Health Care: 2.63%
Health Care Equipment & Supplies: 0.36%
Crimson Merger Sub Incorporated 144A			6.63	%			5-15-2022			$	320,000			$	230,400
Hill-Rom Holdings Incorporated 144A			5.75				9-1-2023				25,000				25,688
Hologic Incorporated 144A			5.25				7-15-2022				90,000				94,266
Kinetic Concepts Incorporated 144A			7.88				2-15-2021				55,000				56,650
															407,004
Health Care Providers & Services: 1.58%
Centene Corporation			5.75				6-1-2017				75,000				77,625
DaVita HealthCare Partners Incorporated			5.00				5-1-2025				35,000				34,913
DaVita HealthCare Partners Incorporated			5.75				8-15-2022				170,000				178,925
HCA Incorporated			5.88				3-15-2022				25,000				26,813
HCA Incorporated			6.50				2-15-2020				325,000				360,003
HealthSouth Corporation 144A			5.75				11-1-2024				25,000				25,250
HealthSouth Corporation			5.75				11-1-2024				25,000				25,250
HealthSouth Corporation 144A			5.75				9-15-2025				100,000				99,250
Mednax Incorporated 144A			5.25				12-1-2023				50,000				51,813
Molina Healthcare Incorporated 144A			5.38				11-15-2022				25,000				25,313
MPT Operating Partnership LP			6.38				2-15-2022				70,000				72,100
MPT Operating Partnership LP			6.38				3-1-2024				10,000				10,250
MPT Operating Partnership LP			6.88				5-1-2021				125,000				130,313
Select Medical Corporation			6.38				6-1-2021				455,000				409,500
Team Health Incorporated 144A			7.25				12-15-2023				100,000				105,000
Tenet Healthcare Corporation			6.00				10-1-2020				50,000				52,906
Vizient Incorporated 144A			10.38				3-1-2024				75,000				79,313
															1,764,537
Health Care Technology: 0.33%
Emdeon Incorporated			11.00				12-31-2019				355,000				363,875
Pharmaceuticals: 0.36%
Endo Finance LLC 144A			5.75				1-15-2022				65,000				64,675
Endo Finance LLC 144A			5.88				1-15-2023				50,000				49,750
Endo Finance LLC 144A			6.00				2-1-2025				50,000				49,750
Endo Finance LLC 144A			7.75				1-15-2022				180,000				186,750
PRA Holdings Incorporated 144A			9.50				10-1-2023				50,000				55,500
															406,425
Industrials: 1.83%
Airlines: 0.10%
Aviation Capital Group Corporation 144A			6.75				4-6-2021				100,000				108,000
Commercial Services & Supplies: 0.73%
ADT Corporation			4.13				6-15-2023				85,000				71,613
ADT Corporation			6.25				10-15-2021				300,000				292,500
Aramark Services Incorporated 144A			5.13				1-15-2024				10,000				10,475
Covanta Holding Corporation			5.88				3-1-2024				185,000				159,100
Covanta Holding Corporation			6.38				10-1-2022				195,000				179,888
Covanta Holding Corporation			7.25				12-1-2020				110,000				108,075
															821,651

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8		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Construction & Engineering: 0.34%
AECOM			5.75	%			10-15-2022			$	15,000			$	15,150
AECOM			5.88				10-15-2024				200,000				199,000
United Rentals North America Incorporated			4.63				7-15-2023				90,000				90,000
United Rentals North America Incorporated			5.50				7-15-2025				75,000				71,156
															375,306
Machinery: 0.02%
Enpro Industries Incorporated			5.88				9-15-2022				25,000				24,313
Professional Services: 0.01%
Ascent Capital Group Incorporated			4.00				7-15-2020				25,000				13,750
Trading Companies & Distributors: 0.63%
Ashtead Capital Incorporated 144A			6.50				7-15-2022				350,000				359,625
H&E Equipment Services Incorporated			7.00				9-1-2022				325,000				309,563
International Lease Finance Corporation 144A			7.13				9-1-2018				35,000				38,063
															707,251
Information Technology: 2.23%
Communications Equipment: 0.07%
CommScope Technologies Finance LLC 144A			6.00				6-15-2025				75,000				74,250
Electronic Equipment, Instruments & Components: 0.73%
Jabil Circuit Incorporated			8.25				3-15-2018				620,000				671,150
Zebra Technologies Corporation			7.25				10-15-2022				135,000				140,738
															811,888
Internet Software & Services: 0.09%
Infor Software Parent LLC 144A			6.50				5-15-2022				50,000				43,375
Infor Software Parent LLC (PIK at 7.88%) 144A¥			7.13				5-1-2021				75,000				52,688
															96,063
IT Services: 0.51%
Audatex North America Incorporated 144A			6.00				6-15-2021				225,000				227,250
Audatex North America Incorporated 144A			6.13				11-1-2023				140,000				141,400
First Data Corporation 144A			5.00				1-15-2024				20,000				20,313
First Data Corporation 144A			5.75				1-15-2024				20,000				20,125
First Data Corporation 144A			6.75				11-1-2020				152,000				160,170
															569,258
Semiconductors & Semiconductor Equipment: 0.25%
Micron Technology Incorporated 144A			5.25				8-1-2023				25,000				21,375
Micron Technology Incorporated 144A			5.25				1-15-2024				75,000				63,000
Micron Technology Incorporated			5.50				2-1-2025				85,000				71,825
Micron Technology Incorporated 144A			5.63				1-15-2026				85,000				68,850
Micron Technology Incorporated			5.88				2-15-2022				65,000				59,712
															284,762

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			9

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Software: 0.19%
Activision Blizzard Incorporated 144A			5.63	%			9-15-2021			$	45,000			$	47,306
Activision Blizzard Incorporated 144A			6.13				9-15-2023				10,000				10,700
Boxer Parent Company Incorporated (PIK at 9.75%) 144A¥			9.00				10-15-2019				200,000				104,500
Emdeon Incorporated 144A			6.00				2-15-2021				50,000				46,500
SS&C Technologies Incorporated 144A			5.88				7-15-2023				5,000				5,275
															214,281
Technology Hardware, Storage & Peripherals: 0.39%
NCR Corporation			5.88				12-15-2021				15,000				14,738
NCR Corporation			6.38				12-15-2023				433,000				424,340
															439,078
Materials: 0.61%
Chemicals: 0.02%
Celanese US Holdings LLC			5.88				6-15-2021				20,000				21,200
Containers & Packaging: 0.59%
Ball Corporation			5.25				7-1-2025				15,000				15,638
Berry Plastics Corporation			5.13				7-15-2023				50,000				50,000
Berry Plastics Corporation 144A			6.00				10-15-2022				15,000				15,600
Crown Cork & Seal Company Incorporated			7.38				12-15-2026				5,000				5,338
Crown Cork & Seal Company Incorporated (i)			7.50				12-15-2096				50,000				49,750
Owens-Brockway Glass Container Incorporated 144A			5.38				1-15-2025				50,000				48,750
Owens-Brockway Glass Container Incorporated 144A			5.88				8-15-2023				50,000				51,500
Owens-Brockway Glass Container Incorporated 144A			6.38				8-15-2025				250,000				256,875
Owens-Illinois Incorporated			7.80				5-15-2018				60,000				65,550
Sealed Air Corporation 144A			5.13				12-1-2024				75,000				77,813
Silgan Holdings Incorporated			5.00				4-1-2020				25,000				25,625
															662,439
Telecommunication Services: 3.40%
Diversified Telecommunication Services: 1.29%
Citizens Communications Company			7.88				1-15-2027				25,000				19,375
Frontier Communications Corporation			8.13				10-1-2018				60,000				62,100
GCI Incorporated			6.75				6-1-2021				170,000				168,300
GCI Incorporated			6.88				4-15-2025				125,000				122,188
Level 3 Financing Incorporated			5.13				5-1-2023				75,000				76,500
Level 3 Financing Incorporated			5.38				8-15-2022				125,000				128,438
Level 3 Financing Incorporated 144A			5.38				1-15-2024				50,000				51,250
Level 3 Financing Incorporated			5.38				5-1-2025				75,000				76,969
Level 3 Financing Incorporated			5.63				2-1-2023				65,000				66,950
Level 3 Financing Incorporated			6.13				1-15-2021				80,000				83,600
Level 3 Financing Incorporated			7.00				6-1-2020				15,000				15,731
Qwest Corporation (i)			7.63				8-3-2021				20,000				20,025
Syniverse Holdings Incorporated			9.13				1-15-2019				650,000				235,625
Windstream Corporation			6.38				8-1-2023				50,000				36,250
Windstream Corporation			7.88				11-1-2017				265,000				277,588
															1,440,889

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Table of Contents

 

10		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Wireless Telecommunication Services: 2.11%
MetroPCS Wireless Incorporated			6.63	%			11-15-2020			$	240,000			$	249,600
SBA Communications Corporation			4.88				7-15-2022				100,000				101,750
SBA Communications Corporation			5.63				10-1-2019				10,000				10,400
SBA Communications Corporation			5.75				7-15-2020				100,000				103,875
Sprint Capital Corporation			6.88				11-15-2028				1,125,000				815,625
Sprint Capital Corporation			8.75				3-15-2032				250,000				192,500
Sprint Communications Incorporated 144A			9.00				11-15-2018				25,000				25,953
Sprint Corporation			7.13				6-15-2024				70,000				49,875
Sprint Corporation			7.63				2-15-2025				25,000				17,875
Sprint Corporation			7.88				9-15-2023				50,000				36,901
T-Mobile USA Incorporated			6.00				3-1-2023				25,000				25,813
T-Mobile USA Incorporated			6.13				1-15-2022				5,000				5,150
T-Mobile USA Incorporated			6.25				4-1-2021				30,000				31,425
T-Mobile USA Incorporated			6.38				3-1-2025				145,000				146,813
T-Mobile USA Incorporated			6.46				4-28-2019				10,000				10,275
T-Mobile USA Incorporated			6.50				1-15-2024				5,000				5,125
T-Mobile USA Incorporated			6.50				1-15-2026				15,000				15,201
T-Mobile USA Incorporated			6.54				4-28-2020				10,000				10,350
T-Mobile USA Incorporated			6.63				4-1-2023				35,000				36,575
T-Mobile USA Incorporated			6.63				4-28-2021				65,000				67,925
T-Mobile USA Incorporated			6.73				4-28-2022				305,000				319,061
T-Mobile USA Incorporated			6.84				4-28-2023				75,000				78,000
															2,356,067
Utilities: 2.21%
Electric Utilities: 1.46%
ComEd Financing III			6.35				3-15-2033				1,340,000				1,402,814
Otter Tail Corporation (i)			9.00				12-15-2016				215,000				224,939
															1,627,753
Gas Utilities: 0.20%
AmeriGas Finance LLC			6.75				5-20-2020				175,000				177,625
AmeriGas Finance LLC			7.00				5-20-2022				45,000				46,181
															223,806
Independent Power & Renewable Electricity Producers: 0.55%
Calpine Corporation 144A			5.88				1-15-2024				20,000				20,350
Calpine Corporation 144A			6.00				1-15-2022				40,000				41,000
Calpine Corporation 144A			7.88				1-15-2023				40,000				42,300
NSG Holdings LLC 144A			7.75				12-15-2025				313,687				329,371
Reliant Energy Incorporated (i)			9.24				7-2-2017				34,985				34,286
Reliant Energy Incorporated			9.68				7-2-2026				10,000				9,700
TerraForm Power Operating LLC 144A			5.88				2-1-2023				85,000				63,750
TerraForm Power Operating LLC 144A			6.13				6-15-2025				100,000				73,500
															614,257
Total Corporate Bonds and Notes (Cost $36,029,327)															33,012,359

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			11

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Loans: 1.03%
Consumer Discretionary: 0.37%
Hotels, Restaurants & Leisure: 0.03%
CCM Merger Incorporated ±			4.50	%			8-8-2021			$	39,724			$	39,443
Media: 0.18%
Learfield Communications Incorporated ±			8.75				10-9-2021				202,319				199,284
Specialty Retail: 0.16%
Focus Brands Incorporated ±			10.25				8-21-2018				176,935				175,608
Financials: 0.06%
Diversified Financial Services: 0.04%
American Beacon Advisors Incorporated ±(i)			9.75				3-3-2023				50,000				46,750
Insurance: 0.02%
Asurion LLC ±			8.50				3-3-2021				25,000				20,200
Industrials: 0.09%
Commercial Services & Supplies: 0.04%
W3 Company ±(i)			9.25				9-13-2020				19,950				7,980
WASH Multifamily Laundry Systems LLC ±			4.25				5-14-2022				25,401				24,449
WASH Multifamily Laundry Systems LLC ±			4.25				5-14-2022				4,449				4,282
WASH Multifamily Laundry Systems LLC ±			8.00				5-12-2023				1,490				1,386
WASH Multifamily Laundry Systems LLC ±(i)			8.00				5-14-2023				8,510				7,914
															46,011
Transportation Infrastructure: 0.05%
HGIM Corporation ±			5.50				6-18-2020				122,095				54,943
Information Technology: 0.02%
Technology Hardware, Storage & Peripherals: 0.02%
Peak 10 Incorporated ±(i)			8.25				6-17-2022				30,000				26,850
Telecommunication Services: 0.14%
Diversified Telecommunication Services: 0.14%
nTelos Incorporated ±			5.75				11-9-2019				153,414				151,497
Utilities: 0.35%
Electric Utilities: 0.35%
Texas Competitive Electric Holdings Company LLC ±(s)			4.66				10-10-2016				1,471,940				390,064
Total Loans (Cost $2,256,888)															1,150,650
		Dividend yield								Shares
Preferred Stocks: 17.21%
Financials: 0.08%
Banks: 0.08%
GMAC Capital Trust I ±			4.19								3,457				83,867

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12		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Dividend yield								Shares				Value
Utilities: 17.13%
Electric Utilities: 15.88%
Alabama Power Company			6.45	%							106,766			$	2,932,734
Baltimore Gas & Electric Company			6.70								20,100				2,042,035
Baltimore Gas & Electric Company			6.99								31,310				3,181,879
Entergy Louisiana LLC			4.70								83,000				2,005,280
Gulf Power Company			6.45								20,000				2,085,000
Indianapolis Power & Light Company			5.65								28,811				2,940,523
Southern Company			6.25								50,000				1,331,250
The Connecticut Light & Power Company			5.28								12,000				615,376
The Connecticut Light & Power Company			6.56								12,000				621,000
															17,755,077
Multi-Utilities: 1.25%
Integrys Holding Incorporated ±			2.94								54,650				1,393,575
Total Preferred Stocks (Cost $18,677,407)															19,232,519
						Expiration date
Warrants: 0.00%
Utilities: 0.00%
Gas Utilities: 0.00%
Kinder Morgan Incorporated †							5-25-2017				16,000				1,312
Total Warrants (Cost $30,480)															1,312
		Interest rate				Maturity date				Principal
Yankee Corporate Bonds and Notes: 2.12%
Energy: 0.35%
Oil, Gas & Consumable Fuels: 0.35%
Baytex Energy Corporation 144A			5.63				6-1-2024			$	25,000				13,625
Griffin Coal Mining Company Limited 144A(a)(i)(s)			9.50				12-1-2016				93,118				37,247
Teekay Corporation 144A			8.50				1-15-2020				75,000				47,250
Teekay Corporation			8.50				1-15-2020				460,000				289,800
															387,922
Financials: 0.03%
Banks: 0.03%
Nielsen Holding and Finance BV 144A			5.50				10-1-2021				30,000				31,238
Health Care: 0.48%
Pharmaceuticals: 0.48%
Mallinckrodt plc 144A			5.50				4-15-2025				50,000				47,125
Mallinckrodt plc 144A			5.63				10-15-2023				20,000				19,650
Valeant Pharmaceuticals International Incorporated 144A			5.63				12-1-2021				5,000				4,278
Valeant Pharmaceuticals International Incorporated 144A			5.88				5-15-2023				75,000				61,091
Valeant Pharmaceuticals International Incorporated 144A			6.13				4-15-2025				50,000				40,375

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Portfolio of investments—February 29, 2016 (unaudited)		Wells Fargo Utilities and High Income Fund			13

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Pharmaceuticals (continued)
Valeant Pharmaceuticals International Incorporated 144A			6.75	%			8-15-2018			$	50,000			$	47,000
Valeant Pharmaceuticals International Incorporated 144A			7.50				7-15-2021				350,000				320,250
															539,769
Industrials: 0.16%
Building Products: 0.02%
Allegion plc			5.88				9-15-2023				15,000				15,713
Commercial Services & Supplies: 0.12%
GFL Environmental Incorporated 144A			7.88				4-1-2020				145,000				137,750
Machinery: 0.02%
Sensata Technologies BV 144A			5.00				10-1-2025				20,000				19,650
Materials: 0.42%
Containers & Packaging: 0.28%
Ardagh Finance Holdings SA (PIK at 8.63%) 144A¥			8.63				6-15-2019				104,292				97,174
Ardagh Packaging Finance plc 144A			9.13				10-15-2020				210,000				216,825
															313,999
Metals & Mining: 0.06%
ArcelorMittal SA			7.25				2-25-2022				25,000				22,500
Novelis Incorporated			8.38				12-15-2017				25,000				24,875
Novelis Incorporated			8.75				12-15-2020				25,000				23,188
															70,563
Paper & Forest Products: 0.08%
Sappi Limited 144A(i)			7.50				6-15-2032				100,000				88,500
Telecommunication Services: 0.68%
Diversified Telecommunication Services: 0.64%
Intelsat Jackson Holdings SA			5.50				8-1-2023				545,000				354,250
Intelsat Jackson Holdings SA			7.25				10-15-2020				50,000				34,500
Intelsat Jackson Holdings SA			7.50				4-1-2021				150,000				100,340
Intelsat Luxembourg SA			7.75				6-1-2021				125,000				37,500
Intelsat Luxembourg SA			8.13				6-1-2023				500,000				152,500
Virgin Media Finance plc 144A			5.38				4-15-2021				9,000				9,326
Virgin Media Finance plc 144A			6.38				4-15-2023				25,000				26,000
															714,416
Wireless Telecommunication Services: 0.04%
Telesat Canada Incorporated 144A			6.00				5-15-2017				50,000				50,063
Total Yankee Corporate Bonds and Notes (Cost $3,376,869)															2,369,583

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14		Wells Fargo Utilities and High Income Fund		Portfolio of investments—February 29, 2016 (unaudited)

      

 

 

Security name		Yield						Shares				Value
Short-Term Investments: 8.89%
Investment Companies: 8.89%
Wells Fargo Cash Investment Money Market Fund, Select Class (l)(u)			0.43	%					9,933,190			$	9,933,190
Total Short-Term Investments (Cost $9,933,190)													9,933,190

 

Total investments in securities (Cost $122,590,915) *			121.20	%			135,473,162
Other assets and liabilities, net			(21.20	)			(23,698,841	)
Total net assets			100.00	%		$	111,774,321

 

 

 

 

 

†	Non-income-earning security

 

144A	The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933.

 

(i)	Illiquid security

 

¥	A payment-in-kind (PIK) security is a security in which the issuer may make interest or dividend payments in cash or additional securities. These additional securities generally have the same terms as the original holdings.

 

(s)	The security is currently in default with regards to scheduled interest and/or principal payments. The Fund has stopped accruing interest on the security.

 

±	Variable rate investment. The rate shown is the rate in effect at period end.

 

(a)	The security is fair valued in accordance with procedures approved by the Board of Trustees.

 

(l)	The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940.

 

(u)	The rate represents the 7-day annualized yield at period end.

 

*	Cost for federal income tax purposes is $123,313,510 and unrealized gains (losses) consists of:

 

Gross unrealized gains		$	22,755,292
Gross unrealized losses			(10,595,640	)
Net unrealized gains		$	12,159,652

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ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

PROXY VOTING POLICIES AND PROCEDURES

REVISED AS OF AUGUST 13, 2014

1. Scope of Policies and Procedures. These Policies and Procedures (“Procedures”) are used to determine how to vote proxies relating to portfolio securities held by the series of Wells Fargo Funds Trust, Wells Fargo Master Trust, Wells Fargo Variable Trust, Asset Allocation Trust, Wells Fargo Advantage Global Dividend Opportunity Fund, Wells Fargo Advantage Income Opportunities Fund, Wells Fargo Advantage Multi-Sector Income Fund, and Wells Fargo Advantage Utilities & High Income Fund (the “Trusts”) except for those series that exclusively hold non-voting securities (hereafter, all such series, and all such Trusts not having separate series, holding voting securities are referred to as the “Funds”).

2. Voting Philosophy. The Funds and Wells Fargo Funds Management, LLC (“Funds Management”) have adopted these Procedures to ensure that proxies are voted in the best interests of Fund shareholders, without regard to any relationship that any affiliated person of the Fund (or an affiliated person of such affiliated person) may have with the issuer. Funds Management exercises its voting responsibility, as a fiduciary, with the goal of maximizing value to shareholders consistent with governing laws and the investment policies of each Fund. While securities are not purchased to exercise control or to seek to effect corporate change through share ownership, the Funds support sound corporate governance practices within companies in which they invest.

3. Responsibilities

(a) Board of Trustees. The Board of Trustees of each Trust (the “Board”) has delegated the responsibility for voting proxies relating to the Funds’ portfolio securities to Funds Management. The Board retains the authority to make or ratify any voting decisions or approve any changes to these Procedures as the Board deems appropriate. Funds Management will provide reports to the Board regarding voting matters when and as reasonably requested by the Board. The Board shall review these Procedures as often as it deems appropriate to consider whether any revisions are warranted. On an annual basis, the Board shall receive and review areport from Funds Management on the proxy voting process.

 

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(b) Funds Management Proxy Committee

 

(i)

Responsibilities. The Funds Management Proxy Voting Committee (the “Proxy Committee”) shall be responsible for overseeing the proxy voting process to ensure its implementation in conformance with these Procedures. The Proxy Committee shall monitor Institutional Shareholder Services (“ISS”), the proxy voting agent for Funds Management, to determine that ISS is accurately applying the Procedures as set forth herein. The Proxy Committee shall review the continuing appropriateness of the Procedures set forth herein, recommend revisions to the Board as necessary and provide an annual update to the Board on the proxy voting process.

 

(ii)

Voting Guidelines. Appendix A hereto sets forth guidelines regarding how proxies will be voted on the issues specified. ISS will vote proxies for or against as directed by the guidelines. Where the guidelines specify a “case by case” determination for a particular issue, ISS will forward the proxy to the Proxy Committee for a vote determination by the Proxy Committee. Finally, with respect to issues for which a vote for or against is specified by the Procedures, the Proxy Committee shall have the authority to direct ISS to forward the proxy to the Proxy Committee for a discretionary vote by the Proxy Committee if the Proxy Committee determines that a case-by-case review of such matter is warranted. The Proxy Committee may also consult Fund sub-advisers on certain proxy voting issues on a case-by-case basis as the Proxy Committee deems appropriate or to the extent that a sub-adviser of a Fund makes a recommendation regarding a proxy voting issue. As a general matter, however, proxies are voted consistently on the same matter when securities of an issuer are held by multiple Funds.

 

(iii)

Proxy Committee. In all cases, the Proxy Committee will exercise its voting discretion in accordance with the voting philosophy of the Funds. In cases where a proxy is forwarded by ISS to the Proxy Committee, the Proxy Committee may be assisted in its voting decision through receipt of:

(i) independent research and voting recommendations provided by ISS or other independent sources; (ii) input from the investment sub-adviser responsible for purchasing the security; and (iii) information provided by company management and shareholder groups.

Voting decisions made by the Proxy Committee will be reported to ISS to ensure that the vote is registered in a timely manner and included in Form N-PX reporting.

 

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(iv)

Securities on Loan. As a general matter, securities on loan will not be recalled to facilitate proxy voting (in which case the borrower of the security shall be entitled to vote the proxy). However, if the Proxy Committee is aware of an item in time to recall the security and has determined in good faith that the importance of the matter to be voted upon outweighs the loss in lending revenue that would result from recalling the security (i.e., if there is a controversial upcoming merger or acquisition, or some other significant matter), the security will be recalled for voting.

 

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(v)

Practical Limitations to Proxy Voting. While Funds Management uses its best efforts to vote proxies, in certain circumstances it may be impractical or impossible for Funds Management to vote proxies (e.g., limited value or unjustifiable costs). For example, in accordance with local law or business practices, many foreign companies prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting (“share blocking”). Due to these restrictions, Funds Management must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. As a result, Funds Management will generally not vote those proxies in the absence of an unusual, significant vote or compelling economic importance. Additionally, Funds Management may not be able to vote proxies for certain foreign securities if Funds Management does not receive the proxy statement in time to vote the proxies due to custodial processing delays.

 

(vi)

Conflicts of Interest. Funds Management may have a conflict of interest regarding a proxy to be voted upon if, for example, Funds Management or its affiliates have other relationships with the issuer of the proxy. In most instances, conflicts of interest are avoided through a strict and objective application of the voting guidelines attached hereto. However, when the Proxy Committee is aware of a material conflict of interest regarding a matter that would otherwise require a vote by the Proxy Committee, the Proxy Committee shall address the material conflict by using any of the following methods: (1) instructing ISS to vote in accordance with the recommendation ISS makes to its clients; (2) disclosing the conflict to the Board and obtaining their consent before voting; (3) submitting the matter to the Board to exercise its authority to vote on such matter; (4) engaging an independent fiduciary who will direct the Proxy Committee on voting instructions for the proxy; (5) consulting with outside legal counsel for guidance on resolution of the conflict of interest; (6) erecting information barriers around the person or persons making voting decisions; (7) voting in proportion to other shareholders (“mirror voting”); or (8) voting in other ways that are consistent with each Fund’s obligation to vote in the best interests of its shareholders. Additionally, the Proxy Committee will not permit its votes to be influenced by any conflict of interest that exists for any other affiliated person of the Fund (such as a sub-adviser or principal underwriter) or any affiliated persons of such affiliated persons and the Proxy Committee will vote all such matters without regard to the conflict.

 

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Funds Management may also have a conflict of interest regarding a proxy to be voted on if a member of the Board has an affiliation, directly or indirectly, with a public or private company (an “Identified Company”). Identified Companies include a Board member’s employer, as well as any company of which the Board member is a director or officer or a 5% or more shareholder. The Proxy Committee shall address such a conflict by instructing ISS to vote in accordance with the recommendation ISS makes to its clients.

 

(vii)

Meetings. The Proxy Committee shall convene as needed and when discretionary voting determinations need to be considered, and shall have the authority to act by vote of a majority of the Proxy Committee members available at that time. The Proxy Committee shall also meet at least semi-annually to review the Procedures and the performance of ISS in exercising its proxy voting responsibilities.

 

(viii)

Membership. The voting members of the Proxy Committee shall be Tom Biwer, Travis Keshemberg, Erik Sens, Aldo Ceccarelli and Melissa Duller. Changes to the membership of the Proxy Committee will be made only with Board approval. Upon departure from Funds Management, a member’s position on the Proxy Committee will automatically terminate.

4. Disclosure of Policies and Procedures. Each Fund shall disclose in its statement of additional information a description of the policies and procedures it uses to determine how to vote proxies relating to securities held in its portfolio. In addition, each Fund shall disclose in its semi- and annual reports that a description of its proxy voting policies and procedures is available without charge, upon request, by calling 1-800-222-8222, on the Fund’s web site at www.wellsfargo.com/advantagefunds and on the Securities and Exchange Commission’s website at http://www.sec.gov.

5. Disclosure of Proxy Voting Record. Each Trust shall file with the Commission an annual report on Form N-PX not later than August 31 of each year (beginning August 31, 2004), containing the Trust’s proxy voting record for the most recent twelve-month period ended June 30.

Each Fund shall disclose in its statement of additional information and semi- and annual reports that information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Funds’ web site at www.wellsfargo.com/advantagefunds or by accessing the Commission’s web site at www.sec.gov.

 

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Each Fund shall disclose the following information on Form N-PX for each matter relating to a portfolio security considered at any shareholder meeting held during the period covered by the report and with respect to which the Fund was entitled to vote:

 

•

The name of the issuer of the portfolio security;

 

•

The exchange ticker symbol of the portfolio security;

 

•

The Council of Uniform Securities Identification Procedures (“CUSIP”) number for the portfolio security (unless the CUSIP is not available through reasonably practicable means, in which case it will be omitted);

 

•

The shareholder meeting date;

 

•

A brief identification of the matter voted on;

 

•

Whether the matter was proposed by the issuer or by a security holder;

 

•

Whether the Fund cast its vote on the matter;

 

•

How the Fund cast its vote (e.g. for or against a proposal, or abstain; for or withhold regarding election of directors); and

 

•

Whether the Fund cast its vote for or against management.

Form N-PX shall be made available to Fund shareholders through the SEC web site.

 

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APPENDIX A

TO

PROXY VOTING POLICIES AND PROCEDURES

Funds Management will vote proxies relating to portfolio securities held by the Trusts in accordance with the following proxy voting guidelines. To the extent the specific guidelines below do not address a proxy voting proposal, Funds Management will vote pursuant to ISS’ current U.S. and International proxy voting guidelines. Proxies related to issues not addressed by the specific guidelines below or by ISS’ current U.S. and International proxy voting guidelines will be forwarded to the Proxy Committee for a vote determination by the Proxy Committee.

 

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Uncontested Election of Directors or Trustees
THE FUNDS will generally vote for all uncontested director or trustee nominees. The Nominating Committee is in the best position to select nominees who are available and capable of working well together to oversee management of the company. THE FUNDS will not require a performance test for directors.		FOR
THE FUNDS will generally vote for reasonably crafted shareholder proposals calling for directors to be elected with an affirmative majority of votes cast and/or the elimination of the plurality standard for electing directors, unless the company has adopted formal corporate governance principles that present a meaningful alternative to the majority voting standard.		FOR
THE FUNDS will withhold votes for a director if the nominee fails to attend at least 75% of the board and committee meetings without a valid excuse.		WITHHOLD
THE FUNDS will vote against routine election of directors if any of the following apply: company fails to disclose adequate information in a timely manner, serious issues with the finances, questionable transactions, conflicts of interest, record of abuses against minority shareholder interests, bundling of director elections, and/or egregious governance practices.		AGAINST
THE FUNDS will withhold votes from the entire board (except for new nominees) where the director(s) receive more than 50% withhold votes out of those cast and the issue that was the underlying cause of the high level of withhold votes has not been addressed.		WITHHOLD
THE FUNDS will withhold votes from members of the Audit Committee and/or the full board if poor accounting practices, which rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures, are identified.		WITHHOLD

 

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THE FUNDS will withhold votes from members of the Audit Committee if the company receives an adverse opinion on the company’s financial statements from its auditor.				WITHHOLD
THE FUNDS will withhold votes from members of the Audit Committee if there is persuasive evidence that the audit committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm.				WITHHOLD
THE FUNDS will withhold votes from all directors (except for new nominees) if the company has adopted or renewed a poison pill without shareholder approval since the company’s last annual meeting, does not put the pill to a vote at the current annual meeting, and does not have a requirement or does not commit to put the pill to shareholder vote within 12 months. In addition, THE FUNDS will withhold votes on all directors at any company that responds to the majority of the shareholders voting by putting the poison pill to a shareholder vote with a recommendation other than to eliminate the pill.				WITHHOLD
THE FUNDS will withhold votes from compensation committee members if they fail to submit one-time transferable stock options (TSO’s) to shareholders for approval.				WITHHOLD
Limitation on Number of Boards a Director May Sit On
THE FUNDS will withhold votes from directors who sit on more than six boards.				WITHHOLD
THE FUNDS will withhold votes from CEO directors who sit on more than two outside boards besides their own.				WITHHOLD
Ratification of Auditors
THE FUNDS will vote against auditors and withhold votes from audit committee members if non-audit fees are greater than audit fees, audit-related fees, and permitted tax fees, combined. THE FUNDS will follow the disclosure categories being proposed by the SEC in applying the above formula.				AGAINST/ WITHHOLD
With the above exception, THE FUNDS will generally vote for proposals to ratify auditors unless:				FOR
•		an auditor has a financial interest in or association with the company, and is therefore not independent, or		AGAINST
•		there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company’s financial position.		AGAINST

 

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THE FUNDS will vote against proposals that require auditors to attend annual meetings as auditors are regularly reviewed by the board audit committee, and such attendance is unnecessary.		AGAINST
THE FUNDS will vote for shareholder proposals requesting a shareholder vote for audit firm ratification.		FOR AGAINST
THE FUNDS will vote against shareholder proposals asking for audit firm rotation. This practice is viewed as too disruptive and too costly to implement for the benefit achieved.
Company Name Change/Purpose
THE FUNDS will vote for proposals to change the company name as management and the board is best suited to determine if such change in company name is necessary.		FOR
However, where the name change is requested in connection with a reorganization of the company, the vote will be based on the merits of the reorganization.		CASE-BY-CASE
In addition, THE FUNDS will generally vote for proposals to amend the purpose of the company. Management is in the best position to know whether the description of what the company does is accurate, or whether it needs to be updated by deleting, adding or revising language.		FOR
Employee Stock Purchase Plans/401(k) Employee Benefit Plans
THE FUNDS will vote for proposals to adopt, amend or increase authorized shares for employee stock purchase plans and 401(k) plans for employees as properly structured plans enable employees to purchase common stock at a slight discount and thus own a beneficial interest in the company, provided that the total cost of the company’s plan is not above the allowable cap for the company.		FOR
Similarly, THE FUNDS will generally vote for proposals to adopt or amend thrift and savings plans, retirement plans, pension plans and profit plans.		FOR
Anti-Hedging/Pledging/Speculative Investments Policy
THE FUNDS will consider proposals prohibiting named executive officers from engaging in derivative or speculative transactions involving company stock, including hedging, holding stock in a margin account, or pledging stock as collateral for a loan on a case-by-case basis. The company’s existing policies regarding responsible use of company stock will be considered.		CASE-BY-CASE

 

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Approve Other Business
THE FUNDS will generally vote for proposals to approve other business. This transfer of authority allows the corporation to take certain ministerial steps that may arise at the annual or special meeting.		FOR
However, THE FUNDS retains the discretion to vote against such proposals if adequate information is not provided in the proxy statement, or the measures are significant and no further approval from shareholders is sought.		AGAINST
Independent Board of Directors/Board Committees
THE FUNDS will vote for proposals requiring that two-thirds of the board be independent directors. An independent board faces fewer conflicts and is best prepared to protect stockholders’ interests.		FOR
THE FUNDS will withhold votes from insiders and affiliated outsiders on boards that are not at least majority independent.		WITHHOLD
THE FUNDS will withhold votes from compensation committee members where there is a pay-for-performance disconnect (for Russell 3000 companies).		WITHHOLD
THE FUNDS will vote for proposals requesting that the board audit, compensation and/or nominating committees be composed of independent directors, only. Committees should be composed entirely of independent directors in order to avoid conflicts of interest.		FOR
THE FUNDS will withhold votes from any insiders or affiliated outsiders on audit, compensation or nominating committees. THE FUNDS will withhold votes from any insiders or affiliated outsiders on the board if any of these key committees has not been established.		WITHHOLD
THE FUNDS will vote against proposals from shareholders requesting an independent compensation consultant.		AGAINST
Director Fees
THE FUNDS, will vote for proposals to set director fees.		FOR

 

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Minimum Stock Requirements by Directors
THE FUNDS will vote against proposals requiring directors to own a minimum number of shares of company stock in order to qualify as a director, or to remain on the board. Minimum stock ownership requirements can impose an across-the-board requirement that could prevent qualified individuals from serving as directors.		AGAINST
Indemnification and Liability Provisions for Directors and Officers
THE FUNDS will vote for proposals to allow indemnification of directors and officers, when the actions taken were on behalf of the company and no criminal violations occurred. THE FUNDS will also vote in favor of proposals to purchase liability insurance covering liability in connection with those actions. Not allowing companies to indemnify directors and officers to the degree possible under the law would limit the ability of the company to attract qualified individuals.		FOR
Alternatively, THE FUNDS will vote against indemnity proposals that are overly broad. For example, THE FUNDS will oppose proposals to indemnify directors for acts going beyond mere carelessness, such as gross negligence, acts taken in bad faith, acts not otherwise allowed by state law or more serious violations of fiduciary obligations.		AGAINST
Nominee Statement in the Proxy
THE FUNDS will vote against proposals that require board nominees to have a statement of candidacy in the proxy, since the proxy statement already provides adequate information pertaining to the election of directors.		AGAINST
Director Tenure/Retirement Age
THE FUNDS will vote against proposals to limit the tenure of directors as such limitations based on an arbitrary number could prevent qualified individuals from serving as directors. However, THE FUNDS is in favor of inserting cautionary language when the average director tenure on the board exceeds 15 years for the entire board.		AGAINST
The Funds will vote for proposals to establish a mandatory retirement age for directors provided that such retirement age is not less than 65.		FOR
Board Powers/Procedures/Qualifications
THE FUNDS will consider on a case-by-case basis proposals to amend the corporation’s By-laws so that the Board of Directors shall have the power,		CASE-BY-CASE

 

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without the assent or vote of the shareholders, to make, alter, amend, or rescind the By-laws, fix the amount to be reserved as working capital, and fix the number of directors and what number shall constitute a quorum of the Board. In determining these issues, THE FUNDS will rely on the proxy voting Guidelines.
Adjourn Meeting to Solicit Additional Votes
THE FUNDS will examine proposals to adjourn the meeting to solicit additional votes on a case-by-case basis. As additional solicitation may be costly and could result in coercive pressure on shareholders, THE FUNDS will consider the nature of the proposal and its vote recommendations for the scheduled meeting.		CASE-BY-CASE
THE FUNDS will vote for this item when:
THE FUNDS is supportive of the underlying merger proposal; the company provides a sufficient, compelling reason to support the adjournment proposal; and the authority is limited to adjournment proposals requesting the authority to adjourn solely to solicit proxies to approve a transaction THE FUNDS supports.		FOR
Reimbursement of Solicitation Expenses
THE FUNDS will consider contested elections on a case-by-case basis, considering the following factors: long-term financial performance of the target company relative to its industry; management’s track record; background of the proxy contest; qualifications of director or trustee nominees (both slates); evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and stock ownership positions.		CASE-BY-CASE
Board Structure: Staggered vs. Annual Elections
THE FUNDS will consider the issue of classified boards on a case-by-case basis. In some cases, the division of the board into classes, elected for staggered terms, can entrench the incumbent management and make them less responsive to shareholder concerns. On the other hand, in some cases, staggered elections may provide for the continuity of experienced directors on the Board.		CASE-BY-CASE
Removal of Directors
THE FUNDS will consider on a case-by-case basis proposals to eliminate shareholders’ rights to remove directors with or without cause or only with approval of two-thirds or more of the shares entitled to vote.		CASE-BY-CASE

 

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However, a requirement that a 75% or greater vote be obtained for removal of directors is abusive and will warrant a vote against the proposal.		AGAINST
Board Vacancies
THE FUNDS will vote against proposals that allow the board to fill vacancies without shareholder approval as these authorizations run contrary to basic shareholders’ rights.		AGAINST
Alternatively, THE FUNDS will vote for proposals that permit shareholders to elect directors to fill board vacancies.		FOR
Cumulative Voting
THE FUNDS will vote on proposals to permit or eliminate cumulative voting on a case-by-case basis based upon the existence of a counter balancing governance structure and company performance, in accordance with its proxy voting guideline philosophy.		CASE-BY-CASE
THE FUNDS will vote for against cumulative voting if the board is elected annually.		AGAINST
Board Size
THE FUNDS will vote for proposals that seek to fix the size of the board, as the ability for management to increase or decrease the size of the board in the face of a proxy contest may be used as a takeover defense.		FOR
However, if the company has cumulative voting, downsizing the board may decrease a minority shareholder’s chances of electing a director.
By increasing the size of the board, management can make it more difficult for dissidents to gain control of the board. Fixing the size of the board also prevents a reduction in the board size as a means to oust independent directors or those who cause friction within an otherwise homogenous board.
Shareholder Rights Plan (Poison Pills)
THE FUNDS will generally vote for proposals that request a company to submit its poison pill for shareholder ratification.		FOR CASE-BY-CASE
Alternatively, THE FUNDS will analyze proposals to redeem a company’s poison pill, or requesting the ratification of a poison pill on a case-by-case basis.

 

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Poison pills are one of the most potent anti-takeover measures and are generally adopted by boards without shareholder approval. These plans harm shareholder value and entrench management by deterring stock acquisition offers that are not favored by the board.
Fair Price Provisions
THE FUNDS will consider fair price provisions on a case-by-case basis, evaluating factors such as the vote required to approve the proposed mechanism, the vote required to approve the proposed acquisition, the vote required to repeal the fair price provision, and the mechanism for determining the fair price.		CASE-BY-CASE
THE FUNDS will vote against fair price provisions with shareholder vote requirements of 75% or more of disinterested shares.		AGAINST
Greenmail
THE FUNDS will generally vote in favor of proposals limiting the corporation’s authority to purchase shares of common stock (or other outstanding securities) from a holder of a stated interest (5% or more) at a premium unless the same offer is made to all shareholders. These are known as “anti-greenmail” provisions. Greenmail discriminates against rank-and-file shareholders and may have an adverse effect on corporate image.		FOR
If the proposal is bundled with other charter or bylaw amendments, THE FUNDS will analyze such proposals on a case-by-case basis. In addition, THE FUNDS will analyze restructurings that involve the payment of pale greenmail on a case-by-case basis.		CASE-BY-CASE
Voting Rights
THE FUNDS will vote for proposals that seek to maintain or convert to a one-share, one-vote capital structure as such a principle ensures that management is accountable to all the company’s owners.		FOR
Alternatively, THE FUNDS will vote against any proposals to cap the number of votes a shareholder is entitled to. Any measure that places a ceiling on voting may entrench management and lessen its interest in maximizing shareholder value.		AGAINST
Dual Class/Multiple-Voting Stock
THE FUNDS will vote against proposals that authorize, amend or increase dual class or multiple-voting stock which may be used in exchanges or recapitalizations. Dual class or multiple-voting stock carry unequal voting rights, which differ from those of the broadly traded class of common stock.		AGAINST

 

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Alternatively, THE FUNDS will vote for the elimination of dual class or multiple-voting stock, which carry different rights than the common stock.		FOR
Confidential Voting
THE FUNDS will vote for proposals to adopt confidential voting.		FOR
Vote Tabulations
THE FUNDS will vote against proposals asking corporations to refrain from counting abstentions and broker non-votes in their vote tabulations and to eliminate the company’s discretion to vote unmarked proxy ballots. Vote counting procedures are determined by a number of different standards, including state law, the federal proxy rules, internal corporate policies, and mandates of the various stock exchanges.		AGAINST
Equal Access to the Proxy
THE FUNDS will evaluate Shareholder proposals requiring companies to give shareholders access to the proxy ballot for the purpose of nominating board members, on a case-by-case basis taking into account the ownership threshold proposed in the resolution and the proponent’s rationale for the proposal at the targeted company in terms of board and director conduct.		CASE-BY-CASE
Disclosure of Information
THE FUNDS will vote against shareholder proposals requesting fuller disclosure of company policies, plans, or business practices. Such proposals rarely enhance shareholder return and in many cases would require disclosure of confidential business information.		AGAINST

 

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Annual Meetings
THE FUNDS will vote for proposals to amend procedures or change date or location of the annual meeting. Decisions as to procedures, dates or locations of meetings are best placed with management.		FOR
Alternatively, THE FUNDS will vote against proposals from shareholders calling for a change in the location or date of annual meetings as no date or location proposed will be acceptable to all shareholders.		AGAINST
THE FUNDS will generally vote in favor of proposals to reduce the quorum necessary for shareholders’ meetings, subject to a minimum of a simple majority of the company’s outstanding voting shares.		FOR

 

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Shareholder Advisory Committees/Independent Inspectors
THE FUNDS will vote against proposals seeking to establish shareholder advisory committees or independent inspectors. The existence of such bodies dilutes the responsibility of the board for managing the affairs of the corporation.		AGAINST
Technical Amendments to the Charter of Bylaws
THE FUNDS will generally vote in favor of charter and bylaw amendments proposed solely to conform to modern business practices, for simplification, or to comply with what management’s counsel interprets as applicable law.		FOR
However, amendments that have a material effect on shareholder’s rights will be considered on a case-by-case basis.		CASE-BY-CASE
Bundled Proposals
THE FUNDS will vote for bundled or “conditional” proxy proposals on a case-by-case basis, as THE FUNDS will examine the benefits and costs of the packaged items, and determine if the effect of the conditioned items are in the best interests of shareholders.		CASE-BY-CASE
Dividends
THE FUNDS will vote for proposals to allocate income and set dividends.		FOR FOR
THE FUNDS will also vote for proposals that authorize a dividend reinvestment program as it allows investors to receive additional stock in lieu of a cash dividend.		AGAINST
However, if a proposal for a special bonus dividend is made that specifically rewards a certain class of shareholders over another, THE FUNDS will vote against the proposal.		AGAINST
THE FUNDS will also vote against proposals from shareholders requesting management to redistribute profits or restructure investments. Management is best placed to determine how to allocate corporate earnings or set dividends.

 

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Reduce the Par Value of the Common Stock
THE FUNDS will vote for proposals to reduce the par value of common stock.		FOR
Preferred Stock Authorization
THE FUNDS will generally vote for proposals to create preferred stock in cases where the company expressly states that the stock will not be used as a takeover defense or carry superior voting rights, or where the stock may be used to consummate beneficial acquisitions, combinations or financings.		FOR
Alternatively, THE FUNDS will vote against proposals to authorize or issue preferred stock if the board has asked for the unlimited right to set the terms and conditions for the stock and may issue it for anti-takeover purposes without shareholder approval (blank check preferred stock).		AGAINST
In addition, THE FUNDS will vote against proposals to issue preferred stock if the shares to be used have voting rights greater than those available to other shareholders.		AGAINST
THE FUNDS will vote for proposals to require shareholder approval of blank check preferred stock issues for other than general corporate purposes (white squire placements).		FOR
Preemptive Rights
THE FUNDS will generally vote for proposals to eliminate preemptive rights. Preemptive rights are unnecessary to protect shareholder interests due to the size of most modern companies, the number of investors and the liquidity of trading.		FOR
Share Repurchase Plans
THE FUNDS will vote for share repurchase plans, unless:		FOR AGAINST
•    there is clear evidence of past abuse of the authority; or		AGAINST
•    the plan contains no safeguards against selective buy-backs.
Corporate stock repurchases are a legitimate use of corporate funds and can add to long-term shareholder returns.
Executive and Director Compensation Plans
THE FUNDS will analyze on a case-by-case basis proposals on executive or director compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having high payout sensitivity to increases in shareholder value. Such proposals may seek shareholder approval to adopt a new plan, or to increase shares reserved for an existing plan.		CASE-BY-CASE

 

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THE FUNDS will review the potential cost and dilutive effect of the plan. After determining how much the plan will cost, ISS evaluates whether the cost is reasonable by comparing the cost to an allowable cap. The allowable cap is industry-specific, market cap-base, and pegged to the average amount paid by companies performing in the top quartile of their peer groups. If the proposed cost is below the allowable cap, THE FUNDS will vote for the plan. ISS will also apply a pay for performance overlay in assessing equity-based compensation plans for Russell 3000 companies.				FOR
If the proposed cost is above the allowable cap, THE FUNDS will vote against the plan.				AGAINST
Among the plan features that may result in a vote against the plan are:				AGAINST
•		plan administrators are given the authority to reprice or replace underwater options; repricing guidelines will conform to changes in the NYSE and NASDAQ listing rules.
THE FUNDS will vote against equity plans that have high average three-year burn rate. (The burn rate is calculated as the total number of stock awards and stock options granted any given year divided by the number of common shares outstanding.) THE FUNDS will define a high average three-year burn rate as the following: The company’s most recent three-year burn rate exceeds one standard deviation of its four-digit GICS peer group segmented by Russell 3000 index and non-Russell 3000 index; and the company’s most recent three-year burn rate exceeds 2% of common shares outstanding. For companies that grant both full value awards and stock options to their employees, THE FUNDS shall apply a premium on full value awards for the past three fiscal years.				AGAINST
Even if the equity plan fails the above burn rate, THE FUNDS will vote for the plan if the company commits in a public filing to a three-year average burn rate equal to its GICS group burn rate mean plus one standard deviation. If the company fails to fulfill its burn rate commitment, THE FUNDS will consider withholding from the members of the compensation committee.				FOR
THE FUNDS will calculate a higher award value for awards that have Dividend Equivalent Rights (DER’s) associated with them.				CASE-BY-CASE
THE FUNDS will generally vote for shareholder proposals requiring performance-based stock options unless the proposal is overly restrictive or the company demonstrates that it is using a substantial portion of performance-based awards for its top executives.				FOR

 

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THE FUNDS will vote for shareholder proposals asking the company to expense stock options, as a result of the FASB final rule on expensing stock options.		FOR
THE FUNDS will generally vote for shareholder proposals to exclude pension fund income in the calculation of earnings used in determining executive bonuses/compensation.		FOR
THE FUNDS will generally vote for TSO awards within a new equity plan if the total cost of the equity plan is less than the company’s allowable cap.		FOR AGAINST
THE FUNDS will generally vote against shareholder proposals to ban future stock option grants to executives. This may be supportable in extreme cases where a company is a serial repricer, has a huge overhang, or has highly dilutive, broad-based (non-approved) plans and is not acting to correct the situation.		CASE-BY-CASE
THE FUNDS will evaluate shareholder proposals asking companies to adopt holding periods for their executives on a case-by-case basis taking into consideration the company’s current holding period or officer share ownership requirements, as well as actual officer stock ownership in the company.
For certain OBRA-related proposals, THE FUNDS will vote for plan provisions that (a) place a cap on annual grants or amend administrative features, and (b) add performance criteria to existing compensation plans to comply with the provisions of Section 162(m) of the Internal Revenue Code.		FOR
In addition, director compensation plans may also include stock plans that provide directors with the option of taking all or a portion of their cash compensation in the form of stock. THE FUNDS will consider these plans based on their voting power dilution.		CASE-BY-CASE
THE FUNDS will generally vote for retirement plans for directors.
THE FUNDS will evaluate compensation proposals (Tax Havens) requesting share option schemes or amending an existing share option scheme on a case-by-case basis.		FOR CASE-BY-CASE
Stock options align management interests with those of shareholders by motivating executives to maintain stock price appreciation. Stock options, however, may harm shareholders by diluting each owner’s interest. In addition, exercising options can shift the balance of voting power by increasing executive ownership.

 

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Bonus Plans
THE FUNDS will vote for proposals to adopt annual or long-term cash or cash-and-stock bonus plans on a case-by-case basis. These plans enable companies qualify for a tax deduction under the provisions of Section 162(m) of the IRC. Payouts under these plans may either be in cash or stock and are usually tied to the attainment of certain financial or other performance goals. THE FUNDS will consider whether the plan is comparable to plans adopted by companies of similar size in the company’s industry and whether it is justified by the company’s performance.		CASE-BY-CASE
Deferred Compensation Plans
THE FUNDS will generally vote for proposals to adopt or amend deferred compensation plans as they allow the compensation committee to tailor the plan to the needs of the executives or board of directors, unless		FOR
•    the proposal is embedded in an executive or director compensation plan that is contrary to guidelines		AGAINST
Disclosure on Executive or Director Compensation Cap or Restrict Executive or Director Compensation
THE FUNDS will generally vote for shareholder proposals requiring companies to report on their executive retirement benefits (deferred compensation, split-dollar life insurance, SERPs, and pension benefits.		FOR
THE FUNDS will generally vote for shareholder proposals requesting to put extraordinary benefits contained in SERP agreements to a shareholder vote, unless the company’s executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans.		FOR
THE FUNDS will generally vote against proposals seek to limit executive and director pay.		AGAINST
Tax-Gross-Up Payments
THE FUNDS will examine on a case-by-case basis proposals calling for companies to adopt a policy of not providing tax gross-up payments to executives.		CASE-BY-CASE

 

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Relocation Benefits
The FUNDS will not consider relocation benefits as a problematic pay practice in connection with management say-on-pay proposals.
Exchange Offers/Re-Pricing
The FUNDS will not vote against option exchange programs made available to executives and directors that are otherwise found acceptable.
Golden and Tin Parachutes
THE FUNDS will vote for proposals that seek shareholder ratification of golden or tin parachutes as shareholders should have the opportunity to approve or disapprove of these severance agreements.		FOR
Alternatively, THE FUNDS will examine on a case-by-case basis proposals that seek to ratify or cancel golden or tin parachutes. Effective parachutes may encourage management to consider takeover bids more fully and may also enhance employee morale and productivity. Among the arrangements that will be considered on their merits are:		CASE-BY-CASE
•    arrangements guaranteeing key employees continuation of base salary for more than three years or lump sum payment of more than three times base salary plus retirement benefits;
•    guarantees of benefits if a key employee voluntarily terminates;
•    guarantees of benefits to employees lower than very senior management; and		AGAINST
•    indemnification of liability for excise taxes.
By contrast, THE FUNDS will vote against proposals that would guarantee benefits in a management-led buyout.
Stakeholder Laws
THE FUNDS will vote against resolutions that would allow the Board to consider stakeholder interests (local communities, employees, suppliers, creditors, etc.) when faced with a takeover offer.		AGAINST
Similarly, THE FUNDS will vote for proposals to opt out of stakeholder laws, which permit directors, when taking action, to weight the interests of constituencies other than shareholders in the process of corporate decision-making. Such laws allow directors to consider nearly any factor they deem relevant in discharging their duties.		FOR

 

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Mergers/Acquisitions and Corporate Restructurings
THE FUNDS will consider proposals on mergers and acquisitions on a case-by-case basis. THE FUNDS will determine if the transaction is in the best economic interests of the shareholders. THE FUNDS will take into account the following factors:		CASE-BY-CASE
•    anticipated financial and operating benefits;
•    offer price (cost versus premium);
•    prospects for the combined companies;
•    how the deal was negotiated;		CASE-BY-CASE
•    changes in corporate governance and their impact on shareholder rights.
In addition, THE FUNDS will also consider whether current shareholders would control a minority of the combined company’s outstanding voting power, and whether a reputable financial advisor was retained in order to ensure the protection of shareholders’ interests.		CASE-BY-CASE
On all other business transactions, i.e. corporate restructuring, spin-offs, asset sales, liquidations, and restructurings, THE FUNDS will analyze such proposals on a case-by-case basis and utilize the majority of the above factors in determining what is in the best interests of shareholders.
Specifically, for liquidations, the cost versus premium factor may not be applicable, but THE FUNDS may also review the compensation plan for executives managing the liquidation.
Appraisal Rights
THE FUNDS will vote for proposals to restore, or provide shareholders with rights of appraisal.		FOR
Rights of appraisal provide shareholders who are not satisfied with the terms of certain corporate transactions (such as mergers) the right to demand a judicial review in order to determine the fair value of their shares.
Mutual Fund Proxies
THE FUNDS will vote mutual fund proxies on a case-by-case basis. Proposals may include, and are not limited to, the following issues:		CASE-BY-CASE
•    eliminating the need for annual meetings of mutual fund shareholders;
•    entering into or extending investment advisory agreements and management contracts;
•    permitting securities lending and participation in repurchase agreements;

 

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APPENDIX B TO

PROXY VOTING POLICIES AND PROCEDURES

Members of Funds Management Proxy Voting Committee

Thomas C. Biwer, CFA

Mr. Biwer has over 38 years of investment industry experience. He has served as an investment analyst, portfolio strategist, and corporate pension officer. He received B.S. and M.B.A. degrees from the University of Illinois and has earned the right to use the CFA designation.

Erik J. Sens, CFA

Mr. Sens has over 22 years of investment industry experience. He has served as an investment analyst and portfolio manager. He received undergraduate degrees in Finance and Philosophy from the University of San Francisco and has earned the right to use the CFA designation.

Travis L. Keshemberg, CFA

Mr. Keshemberg has over 17 years of investment industry experience. He has served as an overlay portfolio manager and investment consultant. He holds a Master’s Degree from the University of Wisconsin – Milwaukee and Bachelor’s degree from Marquette University. He has earned the right to use the CFA, CIPM and CIMA designations.

Aldo Ceccarelli, CFA

Mr. Ceccarelli has over 14 years of investment industry experience. He has served as Fixed Income Analyst with responsibilities including portfolio manager selection and performance. He earned his bachelor’s degree in business administration with an emphasis in economics from Santa Clara University. He has earned the right to use the CFA designation and is a member of the CFA Institute and the CFA society of San Francisco.

Melissa Duller, CIMA, CFA

Ms. Duller has over 16 years of experience in the investment industry. She has served as an investment analyst, provides oversight for domestic equity strategies and assists with investment communications for core equity mutual funds, sector specific mutual funds, and closed-end funds. She has also provided research and communications for growth equity and international equity strategies as well as short-term and tax advantaged fixed income products. In addition, she has served as a regional investment manager for high net worth individuals, personal trusts, and charitable foundations.

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ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no material changes to the procedures by which shareholders may recommend nominees to the registrant’s Board of Trustees that have been implemented since the registrant’s last provided disclosure in response to the requirements of this Item.

ITEM 11. CONTROLS AND PROCEDURES

(a) The President and Treasurer have concluded that the Wells Fargo Utilities and High Income Fund (the “Fund”) disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) provide reasonable assurances that material information relating to the Fund is made known to them by the appropriate persons based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.

(b) There were no significant changes in the Fund’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

ITEM 12. EXHIBITS

(a)(1) Not applicable.

(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.

(a)(3) Not applicable.

(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.