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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09255
Wells Fargo Variable Trust
(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: December 31
Registrant is making a filing for 6 of its series:
Wells Fargo VT Discovery Fund, Wells Fargo VT Index Asset Allocation Fund, Wells Fargo VT International Equity Fund, Wells Fargo VT Omega Growth Fund, Wells Fargo VT Opportunity Fund, and the Wells Fargo VT Small Cap Growth Fund.
Date of reporting period: December 31, 2017
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ITEM 1. REPORT TO STOCKHOLDERS
Table of Contents
Annual Report
December 31, 2017
Wells Fargo VT Discovery Fund
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Reduce clutter. Save trees.
Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2017, 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.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
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2 | Wells Fargo VT Discovery Fund | Letter to shareholders (unaudited) |
Andrew Owen
President
Wells Fargo Funds
Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well.
Dear Shareholder:
We are pleased to offer you this annual report for the Wells Fargo VT Discovery Fund for the 12-month period that ended December 31, 2017. Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well. U.S. and international stocks performed similarly overall with returns of 21.83% and 27.19%, respectively, for the 12-month period, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2, respectively. Within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 3.54% and the Bloomberg Barclays Municipal Bond Index4 returned 5.45% as interest rates gradually rose over the period.
Investment markets gained during the first two quarters of 2017 on positive economic data.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. In the U.S., hiring remained strong, and business and consumer sentiment improved. In March, the U.S. Federal Reserve (Fed) raised its target interest rate by a quarter percentage point to a range of 0.75% to 1.00%; with the Fed rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets because they benefited from both global economic growth and recent weakening of the U.S. dollar. Stocks in Asia, Europe, and Latin America also outperformed the U.S. market during the quarter.
Globally, stocks marked continued gains through the second quarter of 2017. Steady, albeit modest, economic growth both in the U.S. and abroad and generally favorable corporate earnings announcements supported higher valuations. U.S. inflation trended lower despite a continued decline in the unemployment rate. Ten-year U.S. Treasury yields declined, resulting in stronger prices for long-term bonds. As was widely expected, the Fed raised the target interest rate in June by a quarter percentage point to a range of 1.00% to 1.25%. In addition, the Fed indicated that it planned to start selling bonds accumulated on its balance sheet during quantitative easing programs conducted since 2008.
As global growth improved in the third quarter of 2017, investment markets generally advanced.
Most stock markets worldwide moved higher during the quarter and ended the period at or near all-time highs. Moderate acceleration in global economic growth was supported by improving corporate earnings, low inflation pressure, and still-low interest rates. While North Korea’s recent missile launches and nuclear testing raised serious concerns around the world, the heightened geopolitical risk had relatively minimal impact on the quarter’s stock returns. In the U.S., economic data released during the quarter reflected a generally healthy economy. Second-quarter economic output grew at a 3.1% annual rate, and consumers displayed more willingness to spend. Meanwhile, the Fed maintained the target range for the federal funds rate at 1.00% to 1.25%, noting that inflation had remained below the Fed’s 2.00% objective.
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 Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
4 | The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo VT Discovery Fund | 3 |
However, Fed officials also stated the possibility of one more 0.25% increase in the federal funds rate by the end of 2017 and announced plans to begin the process of unwinding its $4.5 trillion portfolio of bonds and other assets in October. Outside the U.S., stocks in the Asia Pacific region benefited from solid earnings reports and investors’ willingness to take on risk despite the rising tensions between North Korea and the U.S. In Europe, markets were supported by better-than-expected economic growth, which led to narrowing of the gap between Europe’s growth rate and that of the U.S. In emerging markets, many countries benefited from stronger currencies versus the U.S. dollar.
Positive economic and market news continued through the fourth quarter.
During the fourth quarter, stock markets followed a steady, upward trajectory with no meaningful pullbacks, similar to their paths during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue surprises from many companies. Synchronous economic expansion worldwide with mild inflation provided a favorable environment for markets to rise with minimal volatility. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate. Hiring remained solid during the quarter; the hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Fed officials began unwinding the Fed’s $4.5 trillion portfolio of bonds and other assets in October as planned, and in December they raised the target for the federal funds rate to a range of 1.25% to 1.50%. As a result, long-term interest rates in the U.S. continued trending upward, although the 10-year rate remained below 2.5%. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for 2017. International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
Andrew Owen
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-260-5969. We are available 24 hours a day, 7 days a week.
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4 | Wells Fargo VT Discovery Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Michael T. Smith, CFA®
Christopher J. Warner, CFA®
Average annual total returns (%) as of December 31, 2017
Expense ratios1 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
Class 2 | 5-8-1992 | 29.13 | 14.60 | 9.48 | 1.18 | 1.15 | ||||||||||||||||
Russell 2500TM Growth Index3 | – | 24.46 | 15.47 | 9.62 | – | – |
Figures quoted represent past performance, which is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-260-5969. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If these charges had been reflected, performance would have been lower.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A fund’s performance, especially for short time periods, should not be the sole factor in making your investment decision.
Shares are sold without a front-end sales charge or contingent deferred sales charge.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo VT Discovery Fund | 5 |
Growth of $10,000 investment as of December 31, 20174 |
1 | Reflects the expense ratios as stated in the most recent prospectus. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
2 | The manager has contractually committed through April 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at the amount shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectus. |
3 | The Russell 2500TM Growth Index measures the performance of those Russell 2500 companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index. |
4 | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 2500TM Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
5 | 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. |
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 VT Discovery Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund outperformed its benchmark, the Russell 2500TM Growth Index, for the 12-month period that ended December 31, 2017. |
∎ | Stock selection in the information technology (IT) and health care sectors contributed to performance. |
∎ | Stock selection in the industrials sector detracted from Fund performance. |
Global stock markets rose sharply during 2017. Rising optimism due to synchronized global growth along with expectations for higher interest rates and U.S. tax reform were key drivers of the strong returns. Market leadership during the period primarily favored growth-oriented sectors, as these companies often have tended to command higher valuations during periods of improving economic conditions. Market volatility remained low during the period. This backdrop proved beneficial to the Fund’s positioning.
Despite recent signs of rising inflation, we have not significantly repositioned the Fund into cyclical sectors such as financials, materials, or energy. The Fund remains positioned toward companies with high visibility of earnings growth, which we believe may prove beneficial should economic conditions become more volatile.
The Fund benefited from stock selection in the IT and health care sectors.
Within the IT sector, positioning in electronic equipment, instruments, and components and in software industries aided returns. Within electronic equipment, instruments, and components, Universal Display Corporation provided strong returns. Demand for the company’s materials used in manufacturing organic light-emitting diode (OLED) displays for smartphones continued to surge, which led to financial results that exceeded the consensus expectations. OLED displays are being incorporated into an increasing number of new phone models, as they are lighter and cheaper and offer more flexibility and power efficiency than legacy phone display screens. We have continued to maintain a position in Universal Display and have been closely monitoring its valuation. Take-Two Interactive Software, Incorporated, a video-game developer and publisher, also contributed to the IT sector’s outperformance. Like many video-game software firms, Take-Two has benefited from rising digital downloads and in-game monetization opportunities. These revenue streams tend to carry significantly higher profit margins, which meaningfully increased year-over-year gross margins and helped earnings grow well above consensus estimates. We have continued to maintain a position in Take-Two.
Within the health care sector, stock selection among health care providers contributed to returns. VCA Incorporated, which manages animal hospitals and provides pet-care services, agreed to be purchased by Mars, Incorporated, at the beginning of 2017. Consistent with our discipline, we exited the stock following the acquisition as shares approached our internal valuation target. Also within health care, Tivity Health, Incorporated, posted earnings and revenue above consensus estimates, which contributed to positive returns. Tivity provides solutions for health care insurers by promoting and facilitating physical fitness programs for certain demographics; the company serves as a contractor between fitness facilities and insurance companies to offer these services via its Silver Sneakers program.
Ten largest holdings (%) as of December 31, 20175 | ||||
Waste Connections Incorporated | 2.93 | |||
Take-Two Interactive Software Incorporated | 2.84 | |||
WEX Incorporated | 2.40 | |||
Bright Horizons Family Solutions Incorporated | 2.06 | |||
BWX Technologies Incorporated | 2.04 | |||
Brink’s Company | 1.97 | |||
Universal Display Corporation | 1.95 | |||
Univar Incorporated | 1.90 | |||
Teradyne Incorporated | 1.79 | |||
Siteone Landscape Supply Incorporated | 1.76 |
Stock selection in the industrials sector weighed on the Fund’s performance.
Among the Fund’s industrials holdings, Spirit Airlines, Incorporated, detracted from performance. Our thesis for adding the position in Spirit—an ultralow-cost airline that serves customers by offering low base fares—was predicated on our expectation that the company would be adding capacity in markets it did not yet serve. We also thought that Spirit could raise prices because of the pricing umbrella that resulted from industry consolidation and network rationalization. The company succeeded at increasing the amount of revenue generated per passenger; however, the industry’s pricing backdrop became more competitive. We have remained committed to Spirit Airlines
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo VT Discovery Fund | 7 |
and have seen improvement in the share price but are monitoring fundamentals very closely. The Fund’s exposure to Acuity Brands, Incorporated—which provides lighting and building-management solutions and has a strong position in commercial LED solutions—also detracted from performance. Weak demand for short-cycle lighting projects caused the company to report disappointing results that led to a share-price decline. After reevaluating our investment thesis, we exited the position in favor of stocks in which we had higher conviction.
Sector distribution as of December 31, 20176 |
While we are cautious regarding the macro environment, we remain confident in the Fund’s positioning.
Looking ahead into 2018, we believe the market backdrop remains mostly constructive but retain a modestly higher level of caution. Volatility has stayed low, and the market has not experienced a decline in many months. For the time being, inflation expectations have overcome deflationary fears. Credit markets have remained calm, and capital has flowed freely at a low cost. Offsetting weakness in areas such as automobiles
and mall-based retailers, domestic industries including housing, travel and leisure, e-commerce, and digital advertising have maintained relatively strong positions. Signs appear to point to an elongated business cycle marked by steady, if unspectacular, earnings growth and modestly higher interest rates. In our view, the U.S. economy seems poised to continue to expand, but at a more sluggish rate than many would like to see.
Scarcity of growth remains a key theme and, despite our increased caution, potentially could be a driver for continued positive returns. In this tepid macro environment, the number of companies capable of producing strong organic growth, from our perspective, has decreased. As the current business cycle continues to age, the market may look beyond companies that have benefited from a temporary investor preference for more economically sensitive investments. Therefore, it seems rational to us that companies with innovative products and the ability to grow earnings regardless of general economic conditions in the U.S. or globally likely may command a higher valuation given the scarcity of their attractive growth potential in the marketplace.
Please see footnotes on page 5.
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8 | Wells Fargo VT Discovery Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2017 to December 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2017 | Ending account value 12-31-2017 | Expenses paid during the period¹ | Annualized net expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,155.15 | $ | 6.25 | 1.15 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.41 | $ | 5.85 | 1.15 | % |
1 | Expenses paid is equal to the annualized net expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
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Portfolio of investments—December 31, 2017 | Wells Fargo VT Discovery Fund | 9 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 99.04% | ||||||||||||||||
Consumer Discretionary: 11.90% | ||||||||||||||||
Diversified Consumer Services: 3.54% | ||||||||||||||||
Adtalem Global Education Incorporated † | 51,200 | $ | 2,152,960 | |||||||||||||
Bright Horizons Family Solutions Incorporated † | 31,800 | 2,989,200 | ||||||||||||||
5,142,160 | ||||||||||||||||
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Hotels, Restaurants & Leisure: 5.52% | ||||||||||||||||
Hilton Grand Vacations Incorporated † | 59,000 | 2,475,050 | ||||||||||||||
Six Flags Entertainment Corporation « | 33,292 | 2,216,248 | ||||||||||||||
Vail Resorts Incorporated | 10,700 | 2,273,429 | ||||||||||||||
Wingstop Incorporated | 27,041 | 1,054,058 | ||||||||||||||
8,018,785 | ||||||||||||||||
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Media: 1.13% | ||||||||||||||||
Cinemark Holdings Incorporated | 46,974 | 1,635,635 | ||||||||||||||
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Specialty Retail: 1.71% | ||||||||||||||||
Burlington Stores Incorporated † | 20,116 | 2,474,871 | ||||||||||||||
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Consumer Staples: 2.34% | ||||||||||||||||
Beverages: 1.19% | ||||||||||||||||
National Beverage Corporation « | 17,700 | 1,724,688 | ||||||||||||||
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Food Products: 1.15% | ||||||||||||||||
Lamb Weston Holdings Incorporated | 29,500 | 1,665,275 | ||||||||||||||
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Energy: 1.23% | ||||||||||||||||
Oil, Gas & Consumable Fuels: 1.23% | ||||||||||||||||
Diamondback Energy Incorporated † | 14,100 | 1,780,125 | ||||||||||||||
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Financials: 3.53% | ||||||||||||||||
Capital Markets: 1.30% | ||||||||||||||||
Raymond James Financial Incorporated | 21,100 | 1,884,230 | ||||||||||||||
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Consumer Finance: 1.32% | ||||||||||||||||
SLM Corporation † | 169,200 | 1,911,960 | ||||||||||||||
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Thrifts & Mortgage Finance: 0.91% | ||||||||||||||||
Radian Group Incorporated | 64,100 | 1,321,101 | ||||||||||||||
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Health Care: 16.25% | ||||||||||||||||
Biotechnology: 5.19% | ||||||||||||||||
Array BioPharma Incorporated † | 70,707 | 905,050 | ||||||||||||||
Bioverativ Incorporated † | 26,900 | 1,450,448 | ||||||||||||||
Exelixis Incorporated † | 46,810 | 1,423,024 | ||||||||||||||
Flexion Therapeutics Incorporated Ǡ | 55,868 | 1,398,935 | ||||||||||||||
Ignyta Incorporated † | 31,100 | 830,370 | ||||||||||||||
Puma Biotechnology Incorporated † | 8,800 | 869,880 | ||||||||||||||
Tesaro Incorporated Ǡ | 7,900 | 654,673 | ||||||||||||||
7,532,380 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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10 | Wells Fargo VT Discovery Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Health Care Equipment & Supplies: 7.47% | ||||||||||||||||
ABIOMED Incorporated † | 6,200 | $ | 1,161,942 | |||||||||||||
Cantel Medical Corporation | 13,658 | 1,404,998 | ||||||||||||||
Hill-Rom Holdings Incorporated | 25,100 | 2,115,679 | ||||||||||||||
Hologic Incorporated † | 55,200 | 2,359,800 | ||||||||||||||
ICU Medical Incorporated † | 9,400 | 2,030,400 | ||||||||||||||
Insulet Corporation † | 25,799 | 1,780,131 | ||||||||||||||
10,852,950 | ||||||||||||||||
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Health Care Providers & Services: 2.37% | ||||||||||||||||
Amedisys Incorporated † | 27,922 | 1,471,769 | ||||||||||||||
Tivity Health Incorporated † | 25,900 | 946,645 | ||||||||||||||
WellCare Health Plans Incorporated † | 5,100 | 1,025,661 | ||||||||||||||
3,444,075 | ||||||||||||||||
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Life Sciences Tools & Services: 0.89% | ||||||||||||||||
Bio-Rad Laboratories Incorporated Class A † | 5,400 | 1,288,818 | ||||||||||||||
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Pharmaceuticals: 0.33% | ||||||||||||||||
MyoKardia Incorporated † | 11,379 | 479,056 | ||||||||||||||
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Industrials: 22.34% | ||||||||||||||||
Aerospace & Defense: 4.51% | ||||||||||||||||
Aerojet Rocketdyne Holdings † | 47,400 | 1,478,880 | ||||||||||||||
BWX Technologies Incorporated | 48,900 | 2,957,961 | ||||||||||||||
Curtiss-Wright Corporation | 2,610 | 318,029 | ||||||||||||||
Mercury Computer Systems Incorporated † | 34,900 | 1,792,115 | ||||||||||||||
6,546,985 | ||||||||||||||||
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Airlines: 1.10% | ||||||||||||||||
Spirit Airlines Incorporated † | 35,600 | 1,596,660 | ||||||||||||||
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Building Products: 3.81% | ||||||||||||||||
A.O. Smith Corporation | 32,600 | 1,997,728 | ||||||||||||||
Allegion plc | 19,655 | 1,563,752 | ||||||||||||||
Masonite International Corporation † | 26,600 | 1,972,390 | ||||||||||||||
5,533,870 | ||||||||||||||||
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Commercial Services & Supplies: 4.90% | ||||||||||||||||
Brink’s Company | 36,400 | 2,864,680 | ||||||||||||||
Waste Connections Incorporated | 59,943 | 4,252,356 | ||||||||||||||
7,117,036 | ||||||||||||||||
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Machinery: 2.77% | ||||||||||||||||
John Bean Technologies Corporation | 17,514 | 1,940,551 | ||||||||||||||
Nordson Corporation | 14,200 | 2,078,880 | ||||||||||||||
4,019,431 | ||||||||||||||||
|
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The accompanying notes are an integral part of these financial statements.
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Portfolio of investments—December 31, 2017 | Wells Fargo VT Discovery Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Professional Services: 1.59% | ||||||||||||||||
TransUnion † | 41,950 | $ | 2,305,572 | |||||||||||||
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Trading Companies & Distributors: 3.66% | ||||||||||||||||
Siteone Landscape Supply Incorporated † | 33,350 | 2,557,945 | ||||||||||||||
Univar Incorporated † | 89,180 | 2,761,013 | ||||||||||||||
5,318,958 | ||||||||||||||||
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Information Technology: 36.53% | ||||||||||||||||
Electronic Equipment, Instruments & Components: 5.99% | ||||||||||||||||
Littelfuse Incorporated | 9,657 | 1,910,348 | ||||||||||||||
National Instruments Corporation | 29,800 | 1,240,574 | ||||||||||||||
Novanta Incorporated † | 27,565 | 1,378,250 | ||||||||||||||
Universal Display Corporation | 16,400 | 2,831,460 | ||||||||||||||
Zebra Technologies Corporation Class A † | 12,800 | 1,328,640 | ||||||||||||||
8,689,272 | ||||||||||||||||
|
| |||||||||||||||
Internet Software & Services: 8.63% | ||||||||||||||||
Box Incorporated Class A † | 113,300 | 2,392,896 | ||||||||||||||
Envestnet Incorporated † | 23,500 | 1,171,475 | ||||||||||||||
Etsy Incorporated † | 51,000 | 1,042,950 | ||||||||||||||
LogMeIn Incorporated | 17,700 | 2,026,650 | ||||||||||||||
Match Group Incorporated Ǡ | 49,700 | 1,556,107 | ||||||||||||||
MercadoLibre Incorporated | 7,860 | 2,473,228 | ||||||||||||||
Yandex NV Class A † | 56,885 | 1,862,984 | ||||||||||||||
12,526,290 | ||||||||||||||||
|
| |||||||||||||||
IT Services: 10.98% | ||||||||||||||||
Black Knight Incorporated † | 47,100 | 2,079,465 | ||||||||||||||
EPAM Systems Incorporated † | 23,019 | 2,472,931 | ||||||||||||||
Euronet Worldwide Incorporated † | 23,093 | 1,946,047 | ||||||||||||||
Gartner Incorporated † | 20,400 | 2,512,260 | ||||||||||||||
Switch Incorporated « | 68,999 | 1,255,092 | ||||||||||||||
Total System Services Incorporated | 27,700 | 2,190,793 | ||||||||||||||
WEX Incorporated † | 24,700 | 3,488,381 | ||||||||||||||
15,944,969 | ||||||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment: 3.07% | ||||||||||||||||
MKS Instruments Incorporated | 19,600 | 1,852,200 | ||||||||||||||
Teradyne Incorporated | 62,200 | 2,604,314 | ||||||||||||||
4,456,514 | ||||||||||||||||
|
| |||||||||||||||
Software: 6.68% | ||||||||||||||||
Ellie Mae Incorporated Ǡ | 13,397 | 1,197,692 | ||||||||||||||
Proofpoint Incorporated † | 22,221 | 1,973,447 | ||||||||||||||
Take-Two Interactive Software Incorporated † | 37,600 | 4,127,728 | ||||||||||||||
The Ultimate Software Group Incorporated † | 11,000 | 2,400,530 | ||||||||||||||
9,699,397 | ||||||||||||||||
|
| |||||||||||||||
Technology Hardware, Storage & Peripherals: 1.18% | ||||||||||||||||
NCR Corporation † | 50,600 | 1,719,894 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo VT Discovery Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Materials: 3.82% | ||||||||||||||||
Chemicals: 0.84% | ||||||||||||||||
Albemarle Corporation | 9,600 | $ | 1,227,744 | |||||||||||||
|
| |||||||||||||||
Construction Materials: 1.23% | ||||||||||||||||
Vulcan Materials Company | 13,900 | 1,784,343 | ||||||||||||||
|
| |||||||||||||||
Containers & Packaging: 1.75% | ||||||||||||||||
Berry Plastics Group Incorporated † | 43,200 | 2,534,544 | ||||||||||||||
|
| |||||||||||||||
Utilities: 1.10% | ||||||||||||||||
Water Utilities: 1.10% | ||||||||||||||||
Evoqua Water Technologies Company † | 67,637 | 1,603,672 | ||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $113,625,924) | 143,781,260 | |||||||||||||||
|
| |||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 7.34% | ||||||||||||||||
Investment Companies: 7.34% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) | 1.57 | % | 9,357,894 | 9,358,830 | ||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) | 1.19 | 1,291,715 | 1,291,715 | |||||||||||||
Total Short-Term Investments (Cost $10,650,285) | 10,650,545 | |||||||||||||||
|
|
Total investments in securities (Cost $124,276,209) | 106.38 | % | 154,431,805 | |||||
Other assets and liabilities, net | (6.38 | ) | (9,257,106 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 145,174,699 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment company purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
Investments in Affiliates
An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:
Shares, beginning of period | Shares purchased | Shares sold | Shares, end of period | Net realized gains (losses) | Net change in unrealized gains (losses) | Income from affiliated securities | Value, end of period | % of net assets | ||||||||||||||||||||||||||||
Short-Term Investments | ||||||||||||||||||||||||||||||||||||
Investment Companies | ||||||||||||||||||||||||||||||||||||
Securities Lending Cash Investment LLC | 4,994,580 | 99,544,308 | 95,180,994 | 9,357,894 | $ | (125 | ) | $ | 0 | $ | 78,821 | $ | 9,358,830 | |||||||||||||||||||||||
Wells Fargo Government Money Market Fund Select Class | 3,032,149 | 42,371,339 | 44,111,773 | 1,291,715 | 0 | 0 | 19,782 | 1,291,715 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (125 | ) | $ | 0 | $ | 98,603 | $ | 10,650,545 | 7.34 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of assets and liabilities—December 31, 2017 | Wells Fargo VT Discovery Fund | 13 |
Assets | ||||
Investments in unaffiliated securities (including $9,077,566 of securities loaned), at value (cost $113,625,924) | $ | 143,781,260 | ||
Investments in affiliated securities, at value (cost $10,650,285) | 10,650,545 | |||
Cash | 2,764 | |||
Receivable for investments sold | 517,108 | |||
Receivable for Fund shares sold | 54,584 | |||
Receivable for dividends | 26,217 | |||
Receivable for securities lending income | 5,904 | |||
Prepaid expenses and other assets | 4,394 | |||
|
| |||
Total assets | 155,042,776 | |||
|
| |||
Liabilities | ||||
Payable upon receipt of securities loaned | 9,358,575 | |||
Payable for investments purchased | 178,671 | |||
Payable for Fund shares redeemed | 174,499 | |||
Management fee payable | 94,066 | |||
Distribution fee payable | 31,700 | |||
Administration fee payable | 10,144 | |||
Trustees’ fees and expenses payable | 2,054 | |||
Accrued expenses and other liabilities | 18,368 | |||
|
| |||
Total liabilities | 9,868,077 | |||
|
| |||
Total net assets | $ | 145,174,699 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 97,355,082 | ||
Accumulated net realized gains on investments | 17,664,021 | |||
Net unrealized gains on investments | 30,155,596 | |||
|
| |||
Total net assets | $ | 145,174,699 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 2 | $ | 145,174,699 | ||
Shares outstanding – Class 21 | 4,574,102 | |||
Net asset value per share – Class 2 | $31.74 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo VT Discovery Fund | Statement of operations—year ended December 31, 2017 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $4,666) | $ | 538,047 | ||
Securities lending income from affiliates, net | 78,821 | |||
Income from affiliated securities | 19,782 | |||
|
| |||
Total investment income | 636,650 | |||
|
| |||
Expenses | ||||
Management fee | 1,007,607 | |||
Administration fee | ||||
Class 2 | 107,478 | |||
Distribution fee | ||||
Class 2 | 335,869 | |||
Custody and accounting fees | 26,498 | |||
Professional fees | 36,123 | |||
Shareholder report expenses | 24,601 | |||
Trustees’ fees and expenses | 20,946 | |||
Other fees and expenses | 4,525 | |||
|
| |||
Total expenses | 1,563,647 | |||
Less: Fee waivers and/or expense reimbursements | (18,650 | ) | ||
|
| |||
Net expenses | 1,544,997 | |||
|
| |||
Net investment loss | (908,347 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: | ||||
Unaffiliated securities | 18,740,881 | |||
Affiliated securities | (125 | ) | ||
|
| |||
Net realized gains on investments | 18,740,756 | |||
Net change in unrealized gains (losses) on investments | 16,114,650 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 34,855,406 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 33,947,059 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of changes in net assets | Wells Fargo VT Discovery Fund | 15 |
Year ended December 31, 2017 | Year ended December 31, 2016 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (908,347 | ) | $ | (617,120 | ) | ||||||||||
Net realized gains on investments | 18,740,756 | 6,984,194 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 16,114,650 | 1,943,485 | ||||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 33,947,059 | 8,310,559 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net realized gains – Class 2 | (7,089,124 | ) | (8,810,379 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 374,458 | 10,970,353 | 326,229 | 8,069,688 | ||||||||||||
Reinvestment of distributions – Class 2 | 244,790 | 7,089,124 | 361,229 | 8,810,379 | ||||||||||||
Payment for shares redeemed – Class 2 | (674,278 | ) | (19,662,185 | ) | (938,572 | ) | (23,299,476 | ) | ||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (1,602,708 | ) | (6,419,409 | ) | ||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | 25,255,227 | (6,919,229 | ) | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 119,919,472 | 126,838,701 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 145,174,699 | $ | 119,919,472 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 0 | $ | 0 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
16 | Wells Fargo VT Discovery Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $25.91 | $25.99 | $30.71 | $35.20 | $25.16 | |||||||||||||||
Net investment loss | (0.20 | ) | (0.13 | ) | (0.21 | ) | (0.22 | ) | (0.17 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 7.60 | 2.00 | 0.21 | 0.16 | 11.06 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 7.40 | 1.87 | 0.00 | (0.06 | ) | 10.89 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | 0.00 | 0.00 | 0.00 | 0.00 | (0.00 | )1 | ||||||||||||||
Net realized gains | (1.57 | ) | (1.95 | ) | (4.72 | ) | (4.43 | ) | (0.85 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (1.57 | ) | (1.95 | ) | (4.72 | ) | (4.43 | ) | (0.85 | ) | ||||||||||
Net asset value, end of period | $31.74 | $25.91 | $25.99 | $30.71 | $35.20 | |||||||||||||||
Total return2 | 29.13 | % | 7.65 | % | (1.46 | )% | 0.36 | % | 43.80 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.16 | % | 1.18 | % | 1.17 | % | 1.14 | % | 1.16 | % | ||||||||||
Net expenses | 1.15 | % | 1.15 | % | 1.15 | % | 1.14 | % | 1.15 | % | ||||||||||
Net investment loss | (0.68 | )% | (0.52 | )% | (0.72 | )% | (0.68 | )% | (0.56 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 75 | % | 85 | % | 90 | % | 79 | % | 88 | % | ||||||||||
Net assets, end of period (000s omitted) | $145,175 | $119,919 | $126,839 | $138,490 | $158,451 |
1 | Amount is less than $0.005. |
2 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Notes to financial statements | Wells Fargo VT Discovery Fund | 17 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo VT Discovery Fund (the “Fund”) which is a diversified series of the Trust. The Trust offers shares of the Fund to separate accounts of various life insurance companies as funding vehicles for certain variable annuity contracts and variable life insurance policies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
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, a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally 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 of the Fund. 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 of Wells Fargo Funds Management, LLC (“Funds Management”). 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 manager 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.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
Table of Contents
18 | Wells Fargo VT Discovery Fund | Notes to financial statements |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income from affiliates (net of fees and rebates) on the Statement of Operations.
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. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital.
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.
As of December 31, 2017, the aggregate cost of all investments for federal income tax purposes was $124,402,491 and the unrealized gains (losses) consisted of:
Gross unrealized gains | $ | 31,850,608 | ||
Gross unrealized losses | (1,821,294 | ) | ||
Net unrealized gains | $ | 30,029,314 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassification is due to net operating losses. At December 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized gains on investments | |
$908,347 | $(908,347) |
Table of Contents
Notes to financial statements | Wells Fargo VT Discovery Fund | 19 |
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 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:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | 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 December 31, 2017:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 17,271,451 | $ | 0 | $ | 0 | $ | 17,271,451 | ||||||||
Consumer staples | 3,389,963 | 0 | 0 | 3,389,963 | ||||||||||||
Energy | 1,780,125 | 0 | 0 | 1,780,125 | ||||||||||||
Financials | 5,117,291 | 0 | 0 | 5,117,291 | ||||||||||||
Health care | 23,597,279 | 0 | 0 | 23,597,279 | ||||||||||||
Industrials | 32,438,512 | 0 | 0 | 32,438,512 | ||||||||||||
Information technology | 53,036,336 | 0 | 0 | 53,036,336 | ||||||||||||
Materials | 5,546,631 | 0 | 0 | 5,546,631 | ||||||||||||
Utilities | 1,603,672 | 0 | 0 | 1,603,672 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,291,715 | 0 | 0 | 1,291,715 | ||||||||||||
Investments measured at net asset value* | 9,358,830 | |||||||||||||||
Total assets | $ | 145,072,975 | $ | 0 | $ | 0 | $ | 154,431,805 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $9,358,830 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At December 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds
Table of Contents
20 | Wells Fargo VT Discovery Fund | Notes to financial statements |
Management is entitled to receive an annual management fee starting at 0.75% and declining to 0.58% as the average daily net assets of the Fund increase. For the year ended December 31, 2017, the management fee was equivalent to an annual rate of 0.75% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.35% as the average daily net assets of the Fund increase.
Administration fee
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives a class level administration fee of 0.08% which is calculated based on the average daily net assets of Class 2 shares.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2018 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.15% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Out-of-pocket reimbursements
During the year ended December 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $111 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations.
Distribution fee
The Trust has adopted a distribution plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Interfund transactions
The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2017 were $99,142,107 and $106,661,150, respectively.
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 29, 2017, the revolving credit agreement amount was $250,000,000.
For the year ended December 31, 2017, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $7,089,124 and $8,810,379 of long-term capital gain for the years ended December 31, 2017 and December 31, 2016, respectively.
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Notes to financial statements | Wells Fargo VT Discovery Fund | 21 |
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | ||
$1,655,786 | $16,134,517 | $30,029,314 |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’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 Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’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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22 | Wells Fargo VT Discovery Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Wells Fargo VT Discovery Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, including the portfolio of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies, however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
February 26, 2018
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Other information (unaudited) | Wells Fargo VT Discovery Fund | 23 |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $7,089,124 was designated as a 20% rate gain distribution for the fiscal year ended December 31, 2017.
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 1-800-260-5969, 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.
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. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more 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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24 | Wells Fargo VT Discovery Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 153 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
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 | |||
William R. Ebsworth (Born 1957) | Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment 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 led 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. Board member of the Forté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder. | Asset Allocation Trust | |||
Jane A. Freeman** (Born 1953) | Trustee, since 2015; Chair Liaison, since 2018 | 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 a Board Member of Ruth Bancroft Garden (non-profit organization) and the Glimmerglass Festival. She is also an inactive Chartered Financial Analyst. | Asset Allocation Trust | |||
Peter G. Gordon*** (Born 1942) | Trustee, since 1998; Chairman, from 2005 to 2017 | 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 2009 | 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 2008; Audit Committee Chairman, since 2008 | 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 2009 | 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 VT Discovery Fund | 25 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | Current other public company or | |||
Olivia S. Mitchell**** (Born 1953) | Trustee, since 2006; Governance Committee Chairman, since 2018 | 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 1996; Chairman, since 2018; Vice Chairman, from 2017 to 2018 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
James G. Polisson****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | 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. 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 | |||
Pamela Wheelock****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Chief Operating Officer, Twin Cities Habitat for Humanity, since January, 2017. Vice President of University Services, University of Minnesota from 2012 to 2017. Prior thereto, Interim President and Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2010 to 2011, Chairman of the Board from 2009 to 2011 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently on the Board of Directors, Governance Committee and Finance Committee, for the Minnesota Philanthropy Partners (Saint Paul Foundation) since 2012 and Board Chair of the Minnesota Wild Foundation since 2010. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Jane Freeman became Chair Liaison effective January 1, 2018. |
*** | Peter Gordon retired on December 31, 2017. |
**** | Olivia Mitchell became Chairman of the Governance Committee effective January 1, 2018. |
***** | Timothy Penny became Chairman effective January 1, 2018. |
****** | James Polisson and Pamela Wheelock each became a Trustee effective January 1, 2018. |
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26 | Wells Fargo VT Discovery Fund | Other information (unaudited) |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) | President, since 2017 | Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | 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. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | 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. | ||||
Michael H. Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016. | ||||
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. |
1 | Jeremy DePalma acts as Treasurer of 76 funds and Assistant Treasurer of 77 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-260-5969 or by visiting the website at wellsfargofunds.com. |
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List of abbreviations | Wells Fargo VT Discovery Fund | 27 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
CLO | — Collateralized loan obligation |
CLP | — Chilean peso |
COP | — Colombian peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
INR | — Indian rupee |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
PJSC | — Public Joint Stock Company |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals:
1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-260-5969 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
308051 02-18 SAAVT1/AR147 12-17 |
Table of Contents
Annual Report
December 31, 2017
Wells Fargo VT Index Asset Allocation Fund
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The views expressed and any forward-looking statements are as of December 31, 2017, 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.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
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2 | Wells Fargo VT Index Asset Allocation Fund | Letter to shareholders (unaudited) |
Andrew Owen
President
Wells Fargo Funds
Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well.
Dear Shareholder:
We are pleased to offer you this annual report for the Wells Fargo VT Index Asset Allocation Fund for the 12-month period that ended December 31, 2017. Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well. U.S. and international stocks performed similarly overall with returns of 21.83% and 27.19%, respectively, for the 12-month period, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2, respectively. Within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 3.54% and the Bloomberg Barclays Municipal Bond Index4 returned 5.45% as interest rates gradually rose over the period.
Investment markets gained during the first two quarters of 2017 on positive economic data.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. In the U.S., hiring remained strong, and business and consumer sentiment improved. In March, the U.S. Federal Reserve (Fed) raised its target interest rate by a quarter percentage point to a range of 0.75% to 1.00%; with the Fed rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets because they benefited from both global economic growth and recent weakening of the U.S. dollar. Stocks in Asia, Europe, and Latin America also outperformed the U.S. market during the quarter.
Globally, stocks marked continued gains through the second quarter of 2017. Steady, albeit modest, economic growth both in the U.S. and abroad and generally favorable corporate earnings announcements supported higher valuations. U.S. inflation trended lower despite a continued decline in the unemployment rate. Ten-year U.S. Treasury yields declined, resulting in stronger prices for long-term bonds. As was widely expected, the Fed raised the target interest rate in June by a quarter percentage point to a range of 1.00% to 1.25%. In addition, the Fed indicated that it planned to start selling bonds accumulated on its balance sheet during quantitative easing programs conducted since 2008.
As global growth improved in the third quarter of 2017, investment markets generally advanced.
Most stock markets worldwide moved higher during the quarter and ended the period at or near all-time highs. Moderate acceleration in global economic growth was supported by improving corporate earnings, low inflation pressure, and still-low interest rates. While North Korea’s recent missile launches and nuclear testing raised serious concerns around the world, the heightened geopolitical risk had relatively minimal impact on the quarter’s stock returns. In the U.S., economic data released during the quarter reflected a generally healthy economy. Second-quarter economic output grew at a 3.1% annual rate, and consumers displayed more willingness to spend. Meanwhile, the Fed maintained the target range for the federal funds rate at 1.00% to 1.25%, noting that inflation had remained below the Fed’s 2.00% objective.
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 Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
4 | The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo VT Index Asset Allocation Fund | 3 |
However, Fed officials also stated the possibility of one more 0.25% increase in the federal funds rate by the end of 2017 and announced plans to begin the process of unwinding its $4.5 trillion portfolio of bonds and other assets in October. Outside the U.S., stocks in the Asia Pacific region benefited from solid earnings reports and investors’ willingness to take on risk despite the rising tensions between North Korea and the U.S. In Europe, markets were supported by better-than-expected economic growth, which led to narrowing of the gap between Europe’s growth rate and that of the U.S. In emerging markets, many countries benefited from stronger currencies versus the U.S. dollar.
Positive economic and market news continued through the fourth quarter.
During the fourth quarter, stock markets followed a steady, upward trajectory with no meaningful pullbacks, similar to their paths during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue surprises from many companies. Synchronous economic expansion worldwide with mild inflation provided a favorable environment for markets to rise with minimal volatility. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate. Hiring remained solid during the quarter; the hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Fed officials began unwinding the Fed’s $4.5 trillion portfolio of bonds and other assets in October as planned, and in December they raised the target for the federal funds rate to a range of 1.25% to 1.50%. As a result, long-term interest rates in the U.S. continued trending upward, although the 10-year rate remained below 2.5%. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for 2017. International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
Andrew Owen
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-260-5969. We are available 24 hours a day, 7 days a week.
Table of Contents
4 | Wells Fargo VT Index Asset Allocation Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term total return, consisting of capital appreciation and current income.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Kandarp Acharya, CFA®, FRM
Petros Bocray, CFA®, FRM‡
Christian L. Chan, CFA®
Average annual total returns (%) as of December 31, 2017
Expense ratios1 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
Class 2 | 4-15-1994 | 12.25 | 11.56 | 6.79 | 1.10 | 1.00 | ||||||||||||||||
Index Asset Allocation Blended Index3 | – | 13.67 | 10.88 | 8.34 | – | – | ||||||||||||||||
Bloomberg Barclays U.S. Treasury Index4 | – | 2.31 | 1.27 | 3.31 | – | – | ||||||||||||||||
S&P 500 Index5 | – | 21.83 | 15.79 | 8.50 | – | – |
Figures quoted represent past performance, which is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-260-5969. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If these charges had been reflected, performance would have been lower.
Shares are sold without a front-end sales charge or contingent deferred sales charge.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Balanced funds may invest in stocks and bonds. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. The use of derivatives may reduce returns and/or increase volatility. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo VT Index Asset Allocation Fund | 5 |
Growth of $10,000 investment as of December 31, 20176 |
‡ | Mr. Bocray became a portfolio manager of the Fund on May 8, 2017. |
1 | Reflects the expense ratios as stated in the most recent prospectus. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
2 | The manager has contractually committed through April 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at the amount shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectus. |
3 | Source: Wells Fargo Funds Management, LLC. The Index Asset Allocation Blended Index is weighted 60% in the S&P 500 Index and 40% in the Bloomberg Barclays U.S. Treasury Index. You cannot invest directly in an index. |
4 | The Bloomberg Barclays U.S. Treasury Index is an unmanaged index of prices of U.S. Treasury bonds with maturities of 1 to 30 years. You cannot invest directly in an index. |
5 | 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. |
6 | The chart compares the performance of Class 2 shares for the most recent ten years with the Index Asset Allocation Blended Index, Bloomberg Barclays U.S. Treasury Index, and the S&P 500 Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
7 | The Morgan Stanley Capital International (MSCI) Europe, Australasia, Far East (EAFE) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. The MSCI EAFE Index (Net) consists of the following 21 developed-market country indices: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
8 | The MSCI Emerging Markets (EM) Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure large- and mid-cap equity market performance of emerging markets. The MSCI EM Index (Net) consists of the following 24 emerging-market country indices: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and the United Arab Emirates. You cannot invest directly in an index. |
9 | The Bloomberg Barclays 20+ Year U.S. Treasury Index is an unmanaged index composed of securities in the U.S. Treasury Index with maturities of 20 years or greater. You cannot invest directly in an index. |
10 | 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. |
11 | 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. |
12 | Current target allocation includes the effect of any tactical futures overlay that may be in place. These amounts are subject to change and may have changed since the date specified. |
Table of Contents
6 | Wells Fargo VT Index Asset Allocation Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed its benchmark, the Index Asset Allocation Blended Index, for the 12-month period that ended December 31, 2017. |
∎ | A lower duration relative to the Treasury benchmark detracted from performance during the period. |
∎ | The Fund’s tactical asset allocation shifts between stocks and bonds contributed positively to relative performance. |
The 12-month period had low volatility for both equities and bonds.
The past 12 months were marked by political surprise and generally low market volatility. The U.S. election came as a surprise to the U.S. markets, which were left optimistic but uncertain about the specific changes the election might bring. Many of the concerns related to tax reform, health care reform, and a changing political establishment. Markets were sensitive to communications with North Korea and updates to tax reform.
International markets’ economic indicators firmed up during the year. In the European Union (EU), growth rates and inflation numbers ticked up. This increase in economic fundamentals coincided with an increase in investors’ appetite for risk. The EU and developed international markets saw increased fund inflows and positive returns for the year.
For the period, the S&P 500 Index posted a return of 21.83%. Developed non-U.S. markets, as measured by the MSCI EAFE Index (Net),7 returned 25.03%. Emerging markets, as measured by the MSCI Emerging Markets (EM) Index (Net),8 posted a 37.28% return.
Longer-duration government bond prices fell during the period as yields increased. The Bloomberg Barclays U.S. Treasury Index gained just 2.31% during the 12-month period, with the Bloomberg Barclays 20+ Year U.S. Treasury Index9 gaining 8.98%, rewarding investors for investing in longer-duration bonds.
Ten largest holdings (%) as of December 31, 201710 | ||||
Apple Incorporated | 2.28 | |||
Microsoft Corporation | 1.73 | |||
Amazon.com Incorporated | 1.22 | |||
Facebook Incorporated Class A | 1.10 | |||
Berkshire Hathaway Incorporated Class B | 1.00 | |||
Johnson & Johnson | 0.98 | |||
JPMorgan Chase & Company | 0.97 | |||
Exxon Mobil Corporation | 0.93 | |||
Alphabet Incorporated Class C | 0.83 | |||
Alphabet Incorporated Class A | 0.82 |
Tactical shifts between stocks and bonds contributed positively, while a lower duration detracted from performance.
The Fund’s stock holdings seek to replicate the holdings of the S&P 500 Index, and its bond holdings seek to replicate the holdings of the Bloomberg Barclays U.S. Treasury Index. The Fund’s neutral target allocation is 60% stocks and 40% bonds. As of year-end, the Fund had an effective allocation of 60% stocks and 40% bonds. The underlying bond portfolio reduced duration for the period by underweighting longer-duration bonds. This strategic allocation detracted from performance for the year due to a flattening in the yield curve. For the year, longer-duration bonds outperformed shorter-duration bonds.
In February 2017, the team saw an opportunity to implement tactical trades in its futures overlay by shorting the 10-year U.S. Treasury future. Then, in March, April, and August the team further shorted the 10-year U.S. Treasury future. A portion of these positions were unwound in September. The short exposure added a small amount to performance. In light of the historical lows for bond yields, the team continues to view this as a prudent measure in a rising interest-rate environment.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo VT Index Asset Allocation Fund | 7 |
Equity sector distribution as of December 31, 201711 |
Current target allocation as of December 31, 201712 |
|
Neutral target allocation |
Relative to its benchmark, the Fund is neutral toward stocks and bonds.
The Fund’s effective allocation is determined by a combination of inputs from multiple quantitative and qualitative factors. As of the close of the period, the Fund was neutral in regard to stocks relative to bonds and held a lower duration relative to its benchmark. All of the changes to the effective allocation were implemented with futures contracts.
Please see footnotes on page 5.
Table of Contents
8 | Wells Fargo VT Index Asset Allocation Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2017 to December 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2017 | Ending account value 12-31-2017 | Expenses paid during the period¹ | Annualized net expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,055.50 | $ | 5.18 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
1 | Expenses paid is equal to the annualized net expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 9 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 59.78% |
| |||||||||||||||
Consumer Discretionary: 7.30% |
| |||||||||||||||
Auto Components: 0.11% | ||||||||||||||||
Aptiv plc | 574 | $ | 48,692 | |||||||||||||
BorgWarner Incorporated | 427 | 21,815 | ||||||||||||||
The Goodyear Tire & Rubber Company | 531 | 17,157 | ||||||||||||||
87,664 | ||||||||||||||||
|
| |||||||||||||||
Automobiles: 0.29% | ||||||||||||||||
Ford Motor Company | 8,406 | 104,991 | ||||||||||||||
General Motors Company | 2,751 | 112,763 | ||||||||||||||
Harley-Davidson Incorporated | 362 | 18,419 | ||||||||||||||
236,173 | ||||||||||||||||
|
| |||||||||||||||
Distributors: 0.07% | ||||||||||||||||
Genuine Parts Company | 315 | 29,928 | ||||||||||||||
LKQ Corporation † | 668 | 27,168 | ||||||||||||||
57,096 | ||||||||||||||||
|
| |||||||||||||||
Diversified Consumer Services: 0.02% | ||||||||||||||||
H&R Block Incorporated | 449 | 11,773 | ||||||||||||||
|
| |||||||||||||||
Hotels, Restaurants & Leisure: 1.11% | ||||||||||||||||
Carnival Corporation | 874 | 58,007 | ||||||||||||||
Chipotle Mexican Grill Incorporated † | 53 | 15,319 | ||||||||||||||
Darden Restaurants Incorporated | 266 | 25,541 | ||||||||||||||
Hilton Worldwide Holdings Incorporated | 435 | 34,739 | ||||||||||||||
Marriott International Incorporated Class A | 658 | 89,310 | ||||||||||||||
McDonald’s Corporation | 1,712 | 294,669 | ||||||||||||||
MGM Resorts International | 1,094 | 36,529 | ||||||||||||||
Norwegian Cruise Line Holdings Limited † | 382 | 20,342 | ||||||||||||||
Royal Caribbean Cruises Limited | 368 | 43,895 | ||||||||||||||
Starbucks Corporation | 3,057 | 175,564 | ||||||||||||||
Wyndham Worldwide Corporation | 217 | 25,144 | ||||||||||||||
Wynn Resorts Limited | 171 | 28,829 | ||||||||||||||
Yum! Brands Incorporated | 725 | 59,167 | ||||||||||||||
907,055 | ||||||||||||||||
|
| |||||||||||||||
Household Durables: 0.25% | ||||||||||||||||
D.R. Horton Incorporated | 733 | 37,434 | ||||||||||||||
Garmin Limited | 238 | 14,178 | ||||||||||||||
Leggett & Platt Incorporated | 283 | 13,508 | ||||||||||||||
Lennar Corporation Class A | 439 | 27,762 | ||||||||||||||
Mohawk Industries Incorporated † | 135 | 37,247 | ||||||||||||||
Newell Rubbermaid Incorporated | 1,057 | 32,661 | ||||||||||||||
Pulte Group Incorporated | 581 | 19,318 | ||||||||||||||
Whirlpool Corporation | 154 | 25,971 | ||||||||||||||
208,079 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Internet & Direct Marketing Retail: 1.71% | ||||||||||||||||
Amazon.com Incorporated † | 858 | $ | 1,003,405 | |||||||||||||
Expedia Incorporated | 264 | 31,619 | ||||||||||||||
Netflix Incorporated † | 934 | 179,291 | ||||||||||||||
The Priceline Group Incorporated † | 104 | 180,725 | ||||||||||||||
TripAdvisor Incorporated † | 233 | 8,029 | ||||||||||||||
1,403,069 | ||||||||||||||||
|
| |||||||||||||||
Leisure Products: 0.04% | ||||||||||||||||
Hasbro Incorporated | 243 | 22,086 | ||||||||||||||
Mattel Incorporated | 734 | 11,289 | ||||||||||||||
33,375 | ||||||||||||||||
|
| |||||||||||||||
Media: 1.65% | ||||||||||||||||
CBS Corporation Class B | 779 | 45,961 | ||||||||||||||
Charter Communications Incorporated Class A † | 417 | 140,095 | ||||||||||||||
Comcast Corporation Class A | 10,030 | 401,702 | ||||||||||||||
Discovery Communications Incorporated Class A † | 329 | 7,363 | ||||||||||||||
Discovery Communications Incorporated Class C † | 435 | 9,209 | ||||||||||||||
DISH Network Corporation Class A † | 490 | 23,398 | ||||||||||||||
Interpublic Group of Companies Incorporated | 839 | 16,914 | ||||||||||||||
News Corporation Class A | 823 | 13,341 | ||||||||||||||
News Corporation Class B | 261 | 4,333 | ||||||||||||||
Omnicom Group Incorporated | 496 | 36,124 | ||||||||||||||
Scripps Networks Interactive Incorporated Class A | 208 | 17,759 | ||||||||||||||
The Walt Disney Company | 3,250 | 349,408 | ||||||||||||||
Time Warner Incorporated | 1,674 | 153,121 | ||||||||||||||
Twenty-First Century Fox Incorporated Class A | 2,261 | 78,072 | ||||||||||||||
Twenty-First Century Fox Incorporated Class B | 942 | 32,141 | ||||||||||||||
Viacom Incorporated Class B | 758 | 23,354 | ||||||||||||||
1,352,295 | ||||||||||||||||
|
| |||||||||||||||
Multiline Retail: 0.28% | ||||||||||||||||
Dollar General Corporation | 559 | 51,993 | ||||||||||||||
Dollar Tree Incorporated † | 509 | 54,621 | ||||||||||||||
Kohl’s Corporation | 361 | 19,577 | ||||||||||||||
Macy’s Incorporated | 659 | 16,600 | ||||||||||||||
Nordstrom Incorporated | 251 | 11,892 | ||||||||||||||
Target Corporation | 1,166 | 76,082 | ||||||||||||||
230,765 | ||||||||||||||||
|
| |||||||||||||||
Specialty Retail: 1.36% | ||||||||||||||||
Advance Auto Parts Incorporated | 159 | 15,851 | ||||||||||||||
AutoZone Incorporated † | 58 | 41,259 | ||||||||||||||
Best Buy Company Incorporated | 546 | 37,385 | ||||||||||||||
CarMax Incorporated † | 391 | 25,075 | ||||||||||||||
Foot Locker Incorporated | 265 | 12,423 | ||||||||||||||
L Brands Incorporated | 531 | 31,977 | ||||||||||||||
Lowe’s Companies Incorporated | 1,794 | 166,734 | ||||||||||||||
O’Reilly Automotive Incorporated † | 182 | 43,778 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Specialty Retail (continued) | ||||||||||||||||
Ross Stores Incorporated | 829 | $ | 66,527 | |||||||||||||
Signet Jewelers Limited | 130 | 7,352 | ||||||||||||||
The Gap Incorporated | 469 | 15,974 | ||||||||||||||
The Home Depot Incorporated | 2,504 | 474,583 | ||||||||||||||
The TJX Companies Incorporated | 1,366 | 104,444 | ||||||||||||||
Tiffany & Company | 218 | 22,661 | ||||||||||||||
Tractor Supply Company | 270 | 20,183 | ||||||||||||||
ULTA Beauty Incorporated † | 125 | 27,958 | ||||||||||||||
1,114,164 | ||||||||||||||||
|
| |||||||||||||||
Textiles, Apparel & Luxury Goods: 0.41% | ||||||||||||||||
HanesBrands Incorporated | 783 | 16,373 | ||||||||||||||
Michael Kors Holdings Limited † | 326 | 20,522 | ||||||||||||||
Nike Incorporated Class B | 2,817 | 176,203 | ||||||||||||||
PVH Corporation | 166 | 22,777 | ||||||||||||||
Ralph Lauren Corporation | 118 | 12,235 | ||||||||||||||
Tapestry Incorporated | 611 | 27,025 | ||||||||||||||
Under Armour Incorporated Class A † | 395 | 5,700 | ||||||||||||||
Under Armour Incorporated Class C † | 396 | 5,275 | ||||||||||||||
VF Corporation | 704 | 52,096 | ||||||||||||||
338,206 | ||||||||||||||||
|
| |||||||||||||||
Consumer Staples: 4.90% |
| |||||||||||||||
Beverages: 1.20% | ||||||||||||||||
Brown-Forman Corporation Class B | 421 | 28,910 | ||||||||||||||
Constellation Brands Incorporated Class A | 370 | 84,571 | ||||||||||||||
Dr Pepper Snapple Group Incorporated | 387 | 37,562 | ||||||||||||||
Molson Coors Brewing Company Class B | 397 | 32,582 | ||||||||||||||
Monster Beverage Corporation † | 880 | 55,695 | ||||||||||||||
PepsiCo Incorporated | 3,055 | 366,356 | ||||||||||||||
The Coca-Cola Company | 8,231 | 377,638 | ||||||||||||||
983,314 | ||||||||||||||||
|
| |||||||||||||||
Food & Staples Retailing: 1.09% | ||||||||||||||||
Costco Wholesale Corporation | 938 | 174,581 | ||||||||||||||
CVS Health Corporation | 2,181 | 158,123 | ||||||||||||||
Sysco Corporation | 1,031 | 62,613 | ||||||||||||||
The Kroger Company | 1,911 | 52,457 | ||||||||||||||
Wal-Mart Stores Incorporated | 3,144 | 310,470 | ||||||||||||||
Walgreens Boots Alliance Incorporated | 1,869 | 135,727 | ||||||||||||||
893,971 | ||||||||||||||||
|
| |||||||||||||||
Food Products: 0.74% | ||||||||||||||||
Archer Daniels Midland Company | 1,202 | 48,176 | ||||||||||||||
Campbell Soup Company | 414 | 19,918 | ||||||||||||||
ConAgra Foods Incorporated | 880 | 33,150 | ||||||||||||||
General Mills Incorporated | 1,220 | 72,334 | ||||||||||||||
Hormel Foods Corporation | 578 | 21,033 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Food Products (continued) | ||||||||||||||||
Kellogg Company | 534 | $ | 36,301 | |||||||||||||
McCormick & Company Incorporated | 257 | 26,191 | ||||||||||||||
Mondelez International Incorporated Class A | 3,212 | 137,474 | ||||||||||||||
The Hershey Company | 302 | 34,280 | ||||||||||||||
The J.M. Smucker Company | 244 | 30,315 | ||||||||||||||
The Kraft Heinz Company | 1,282 | 99,688 | ||||||||||||||
Tyson Foods Incorporated Class A | 638 | 51,723 | ||||||||||||||
610,583 | ||||||||||||||||
|
| |||||||||||||||
Household Products: 0.98% | ||||||||||||||||
Church & Dwight Company Incorporated | 538 | 26,991 | ||||||||||||||
Colgate-Palmolive Company | 1,885 | 142,223 | ||||||||||||||
Kimberly-Clark Corporation | 753 | 90,857 | ||||||||||||||
The Clorox Company | 277 | 41,201 | ||||||||||||||
The Procter & Gamble Company | 5,468 | 502,400 | ||||||||||||||
803,672 | ||||||||||||||||
|
| |||||||||||||||
Personal Products: 0.10% | ||||||||||||||||
Coty Incorporated Class A | 1,017 | 20,228 | ||||||||||||||
The Estee Lauder Companies Incorporated Class A | 480 | 61,075 | ||||||||||||||
81,303 | ||||||||||||||||
|
| |||||||||||||||
Tobacco: 0.79% | ||||||||||||||||
Altria Group Incorporated | 4,096 | 292,495 | ||||||||||||||
Philip Morris International | 3,345 | 353,399 | ||||||||||||||
645,894 | ||||||||||||||||
|
| |||||||||||||||
Energy: 3.63% |
| |||||||||||||||
Energy Equipment & Services: 0.48% | ||||||||||||||||
Baker Hughes Incorporated | 915 | 28,951 | ||||||||||||||
Halliburton Company | 1,873 | 91,534 | ||||||||||||||
Helmerich & Payne Incorporated | 232 | 14,996 | ||||||||||||||
National Oilwell Varco Incorporated | 817 | 29,428 | ||||||||||||||
Schlumberger Limited | 2,970 | 200,148 | ||||||||||||||
TechnipFMC plc | 943 | 29,525 | ||||||||||||||
394,582 | ||||||||||||||||
|
| |||||||||||||||
Oil, Gas & Consumable Fuels: 3.15% | ||||||||||||||||
Anadarko Petroleum Corporation | 1,174 | 62,973 | ||||||||||||||
Andeavor Corporation | 309 | 35,331 | ||||||||||||||
Apache Corporation | 817 | 34,494 | ||||||||||||||
Cabot Oil & Gas Corporation | 998 | 28,543 | ||||||||||||||
Chesapeake Energy Corporation † | 1,960 | 7,762 | ||||||||||||||
Chevron Corporation | 4,078 | 510,525 | ||||||||||||||
Cimarex Energy Company | 204 | 24,890 | ||||||||||||||
Concho Resources Incorporated † | 319 | 47,920 | ||||||||||||||
ConocoPhillips | 2,564 | 140,738 | ||||||||||||||
Devon Energy Corporation | 1,129 | 46,741 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 13 |
Security name | Shares | Value | ||||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||||||
EOG Resources Incorporated | 1,242 | $ | 134,024 | |||||||||||||
EQT Corporation | 531 | 30,225 | ||||||||||||||
Exxon Mobil Corporation | 9,105 | 761,542 | ||||||||||||||
Hess Corporation | 579 | 27,485 | ||||||||||||||
Kinder Morgan Incorporated | 4,146 | 74,918 | ||||||||||||||
Marathon Oil Corporation | 1,833 | 31,033 | ||||||||||||||
Marathon Petroleum Corporation | 1,048 | 69,147 | ||||||||||||||
Newfield Exploration Company † | 427 | 13,463 | ||||||||||||||
Noble Energy Incorporated | 1,046 | 30,480 | ||||||||||||||
Occidental Petroleum Corporation | 1,646 | 121,244 | ||||||||||||||
ONEOK Incorporated | 828 | 44,257 | ||||||||||||||
Phillips 66 Company | 924 | 93,463 | ||||||||||||||
Pioneer Natural Resources Company | 366 | 63,263 | ||||||||||||||
Range Resources Corporation | 487 | 8,308 | ||||||||||||||
The Williams Companies Incorporated | 1,779 | 54,242 | ||||||||||||||
Valero Energy Corporation | 941 | 86,487 | ||||||||||||||
2,583,498 | ||||||||||||||||
|
| |||||||||||||||
Financials: 8.85% |
| |||||||||||||||
Banks: 3.95% | ||||||||||||||||
Bank of America Corporation | 20,873 | 616,171 | ||||||||||||||
BB&T Corporation | 1,698 | 84,425 | ||||||||||||||
Citigroup Incorporated | 5,682 | 422,798 | ||||||||||||||
Citizens Financial Group Incorporated | 1,060 | 44,499 | ||||||||||||||
Comerica Incorporated | 374 | 32,467 | ||||||||||||||
Fifth Third Bancorp | 1,518 | 46,056 | ||||||||||||||
Huntington Bancshares Incorporated | 2,336 | 34,012 | ||||||||||||||
JPMorgan Chase & Company | 7,466 | 798,414 | ||||||||||||||
KeyCorp | 2,318 | 46,754 | ||||||||||||||
M&T Bank Corporation | 323 | 55,230 | ||||||||||||||
People’s United Financial Incorporated | 747 | 13,969 | ||||||||||||||
PNC Financial Services Group Incorporated | 1,023 | 147,609 | ||||||||||||||
Regions Financial Corporation | 2,497 | 43,148 | ||||||||||||||
SunTrust Banks Incorporated | 1,025 | 66,205 | ||||||||||||||
US Bancorp | 3,389 | 181,583 | ||||||||||||||
Wells Fargo & Company (l) | 9,538 | 578,670 | ||||||||||||||
Zions Bancorporation | 431 | 21,908 | ||||||||||||||
3,233,918 | ||||||||||||||||
|
| |||||||||||||||
Capital Markets: 1.83% | ||||||||||||||||
Affiliated Managers Group Incorporated | 119 | 24,425 | ||||||||||||||
Ameriprise Financial Incorporated | 317 | 53,722 | ||||||||||||||
Bank of New York Mellon Corporation | 2,200 | 118,492 | ||||||||||||||
BlackRock Incorporated | 265 | 136,133 | ||||||||||||||
CBOE Holdings Incorporated | 244 | 30,400 | ||||||||||||||
CME Group Incorporated | 731 | 106,763 | ||||||||||||||
E*TRADE Financial Corporation † | 582 | 28,850 | ||||||||||||||
Franklin Resources Incorporated | 703 | 30,461 | ||||||||||||||
Intercontinental Exchange Incorporated | 1,257 | 88,694 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Capital Markets (continued) | ||||||||||||||||
Invesco Limited | 877 | $ | 32,046 | |||||||||||||
Moody’s Corporation | 358 | 52,844 | ||||||||||||||
Morgan Stanley | 2,992 | 156,990 | ||||||||||||||
Northern Trust Corporation | 463 | 46,249 | ||||||||||||||
Raymond James Financial Incorporated | 276 | 24,647 | ||||||||||||||
S&P Global Incorporated | 548 | 92,831 | ||||||||||||||
State Street Corporation | 796 | 77,698 | ||||||||||||||
T. Rowe Price Group Incorporated | 521 | 54,669 | ||||||||||||||
The Charles Schwab Corporation | 2,569 | 131,970 | ||||||||||||||
The Goldman Sachs Group Incorporated | 754 | 192,089 | ||||||||||||||
The NASDAQ OMX Group Incorporated | 250 | 19,208 | ||||||||||||||
1,499,181 | ||||||||||||||||
|
| |||||||||||||||
Consumer Finance: 0.47% | ||||||||||||||||
American Express Company | 1,548 | 153,732 | ||||||||||||||
Capital One Financial Corporation | 1,043 | 103,862 | ||||||||||||||
Discover Financial Services | 782 | 60,151 | ||||||||||||||
Navient Corporation | 567 | 7,552 | ||||||||||||||
Synchrony Financial | 1,581 | 61,042 | ||||||||||||||
386,339 | ||||||||||||||||
|
| |||||||||||||||
Diversified Financial Services: 1.02% | ||||||||||||||||
Berkshire Hathaway Incorporated Class B † | 4,136 | 819,838 | ||||||||||||||
Leucadia National Corporation | 675 | 17,881 | ||||||||||||||
837,719 | ||||||||||||||||
|
| |||||||||||||||
Insurance: 1.58% | ||||||||||||||||
AFLAC Incorporated | 845 | 74,174 | ||||||||||||||
American International Group Incorporated | 1,932 | 115,109 | ||||||||||||||
Aon plc | 537 | 71,958 | ||||||||||||||
Arthur J. Gallagher & Company | 390 | 24,679 | ||||||||||||||
Assurant Incorporated | 115 | 11,597 | ||||||||||||||
Brighthouse Financial Incorporated † | 205 | 12,021 | ||||||||||||||
Chubb Limited | 997 | 145,692 | ||||||||||||||
Cincinnati Financial Corporation | 321 | 24,065 | ||||||||||||||
Everest Reinsurance Group Limited | 88 | 19,471 | ||||||||||||||
Lincoln National Corporation | 471 | 36,206 | ||||||||||||||
Loews Corporation | 593 | 29,668 | ||||||||||||||
Marsh & McLennan Companies Incorporated | 1,097 | 89,285 | ||||||||||||||
MetLife Incorporated | 2,260 | 114,266 | ||||||||||||||
Principal Financial Group Incorporated | 577 | 40,713 | ||||||||||||||
Prudential Financial Incorporated | 911 | 104,747 | ||||||||||||||
The Allstate Corporation | 771 | 80,731 | ||||||||||||||
The Hartford Financial Services Group Incorporated | 767 | 43,167 | ||||||||||||||
The Progressive Corporation | 1,253 | 70,569 | ||||||||||||||
The Travelers Companies Incorporated | 588 | 79,756 | ||||||||||||||
Torchmark Corporation | 230 | 20,863 | ||||||||||||||
UnumProvident Corporation | 482 | 26,457 | ||||||||||||||
Willis Towers Watson plc | 284 | 42,796 | ||||||||||||||
XL Group Limited | 552 | 19,408 | ||||||||||||||
1,297,398 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 15 |
Security name | Shares | Value | ||||||||||||||
Health Care: 8.24% |
| |||||||||||||||
Biotechnology: 1.66% | ||||||||||||||||
AbbVie Incorporated | 3,422 | $ | 330,942 | |||||||||||||
Alexion Pharmaceuticals Incorporated † | 481 | 57,523 | ||||||||||||||
Amgen Incorporated | 1,557 | 270,762 | ||||||||||||||
Biogen Incorporated | 454 | 144,631 | ||||||||||||||
Celgene Corporation † | 1,691 | 176,473 | ||||||||||||||
Gilead Sciences Incorporated | 2,808 | 201,165 | ||||||||||||||
Incyte Corporation † | 376 | 35,611 | ||||||||||||||
Regeneron Pharmaceuticals Incorporated † | 165 | 62,033 | ||||||||||||||
Vertex Pharmaceuticals Incorporated † | 545 | 81,674 | ||||||||||||||
1,360,814 | ||||||||||||||||
|
| |||||||||||||||
Health Care Equipment & Supplies: 1.62% | ||||||||||||||||
Abbott Laboratories | 3,735 | 213,156 | ||||||||||||||
Align Technology Incorporated † | 155 | 34,439 | ||||||||||||||
Baxter International Incorporated | 1,076 | 69,553 | ||||||||||||||
Becton Dickinson & Company | 567 | 121,418 | ||||||||||||||
Boston Scientific Corporation † | 2,950 | 73,131 | ||||||||||||||
Danaher Corporation | 1,315 | 122,058 | ||||||||||||||
Dentsply Sirona Incorporated | 494 | 32,520 | ||||||||||||||
Edwards Lifesciences Corporation † | 456 | 51,396 | ||||||||||||||
Hologic Incorporated † | 593 | 25,351 | ||||||||||||||
IDEXX Laboratories Incorporated † | 188 | 29,399 | ||||||||||||||
Intuitive Surgical Incorporated † | 240 | 87,586 | ||||||||||||||
Medtronic plc | 2,907 | 234,740 | ||||||||||||||
ResMed Incorporated | 305 | 25,830 | ||||||||||||||
Stryker Corporation | 691 | 106,994 | ||||||||||||||
The Cooper Companies Incorporated | 104 | 22,660 | ||||||||||||||
Varian Medical Systems Incorporated | 196 | 21,785 | ||||||||||||||
Zimmer Biomet Holdings Incorporated | 437 | 52,733 | ||||||||||||||
1,324,749 | ||||||||||||||||
|
| |||||||||||||||
Health Care Providers & Services: 1.67% | ||||||||||||||||
Aetna Incorporated | 702 | 126,634 | ||||||||||||||
AmerisourceBergen Corporation | 347 | 31,862 | ||||||||||||||
Anthem Incorporated | 551 | 123,981 | ||||||||||||||
Cardinal Health Incorporated | 678 | 41,541 | ||||||||||||||
Centene Corporation † | 371 | 37,426 | ||||||||||||||
Cigna Corporation | 531 | 107,841 | ||||||||||||||
DaVita HealthCare Partners Incorporated † | 325 | 23,481 | ||||||||||||||
Envision Healthcare Corporation † | 260 | 8,986 | ||||||||||||||
Express Scripts Holding Company † | 1,217 | 90,837 | ||||||||||||||
HCA Holdings Incorporated † | 609 | 53,495 | ||||||||||||||
Henry Schein Incorporated † | 338 | 23,619 | ||||||||||||||
Humana Incorporated | 306 | 75,909 | ||||||||||||||
Laboratory Corporation of America Holdings † | 218 | 34,773 | ||||||||||||||
McKesson Corporation | 449 | 70,022 | ||||||||||||||
Patterson Companies Incorporated | 177 | 6,395 | ||||||||||||||
Quest Diagnostics Incorporated | 292 | 28,759 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
16 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Health Care Providers & Services (continued) | ||||||||||||||||
UnitedHealth Group Incorporated | 2,089 | $ | 460,541 | |||||||||||||
Universal Health Services Incorporated Class B | 188 | 21,310 | ||||||||||||||
1,367,412 | ||||||||||||||||
|
| |||||||||||||||
Health Care Technology: 0.06% | ||||||||||||||||
Cerner Corporation † | 679 | 45,758 | ||||||||||||||
|
| |||||||||||||||
Life Sciences Tools & Services: 0.48% | ||||||||||||||||
Agilent Technologies Incorporated | 692 | 46,343 | ||||||||||||||
Illumina Incorporated † | 313 | 68,387 | ||||||||||||||
IQVIA Holdings Incorporated † | 313 | 30,643 | ||||||||||||||
Mettler-Toledo International Incorporated † | 54 | 33,454 | ||||||||||||||
PerkinElmer Incorporated | 236 | 17,256 | ||||||||||||||
Thermo Fisher Scientific Incorporated | 862 | 163,677 | ||||||||||||||
Waters Corporation † | 171 | 33,035 | ||||||||||||||
392,795 | ||||||||||||||||
|
| |||||||||||||||
Pharmaceuticals: 2.75% | ||||||||||||||||
Allergan plc | 715 | 116,960 | ||||||||||||||
Bristol-Myers Squibb Company | 3,520 | 215,706 | ||||||||||||||
Eli Lilly & Company | 2,080 | 175,677 | ||||||||||||||
Johnson & Johnson | 5,767 | 805,765 | ||||||||||||||
Merck & Company Incorporated | 5,877 | 330,699 | ||||||||||||||
Mylan NV † | 1,152 | 48,741 | ||||||||||||||
Perrigo Company plc | 281 | 24,492 | ||||||||||||||
Pfizer Incorporated | 12,804 | 463,761 | ||||||||||||||
Zoetis Incorporated | 1,047 | 75,426 | ||||||||||||||
2,257,227 | ||||||||||||||||
|
| |||||||||||||||
Industrials: 6.09% |
| |||||||||||||||
Aerospace & Defense: 1.52% | ||||||||||||||||
Arconic Incorporated | 913 | 24,879 | ||||||||||||||
General Dynamics Corporation | 597 | 121,460 | ||||||||||||||
L-3 Technologies Incorporated | 167 | 33,041 | ||||||||||||||
Lockheed Martin Corporation | 537 | 172,404 | ||||||||||||||
Northrop Grumman Corporation | 374 | 114,784 | ||||||||||||||
Raytheon Company | 621 | 116,655 | ||||||||||||||
Rockwell Collins Incorporated | 350 | 47,467 | ||||||||||||||
Textron Incorporated | 565 | 31,973 | ||||||||||||||
The Boeing Company | 1,204 | 355,072 | ||||||||||||||
TransDigm Group Incorporated | 103 | 28,286 | ||||||||||||||
United Technologies Corporation | 1,597 | 203,729 | ||||||||||||||
1,249,750 | ||||||||||||||||
|
| |||||||||||||||
Air Freight & Logistics: 0.44% | ||||||||||||||||
C.H. Robinson Worldwide Incorporated | 300 | 26,727 | ||||||||||||||
Expeditors International of Washington Incorporated | 383 | 24,776 | ||||||||||||||
FedEx Corporation | 529 | 132,007 | ||||||||||||||
United Parcel Service Incorporated Class B | 1,476 | 175,865 | ||||||||||||||
359,375 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 17 |
Security name | Shares | Value | ||||||||||||||
Airlines: 0.32% | ||||||||||||||||
Alaska Air Group Incorporated | 265 | $ | 19,480 | |||||||||||||
American Airlines Group Incorporated | 917 | 47,712 | ||||||||||||||
Delta Air Lines Incorporated | 1,412 | 79,072 | ||||||||||||||
Southwest Airlines Company | 1,174 | 76,838 | ||||||||||||||
United Continental Holdings Incorporated † | 543 | 36,598 | ||||||||||||||
259,700 | ||||||||||||||||
|
| |||||||||||||||
Building Products: 0.20% | ||||||||||||||||
A.O. Smith Corporation | 313 | 19,181 | ||||||||||||||
Allegion plc | 203 | 16,151 | ||||||||||||||
Fortune Brands Home & Security Incorporated | 331 | 22,654 | ||||||||||||||
Johnson Controls International plc | 1,995 | 76,029 | ||||||||||||||
Masco Corporation | 678 | 29,791 | ||||||||||||||
163,806 | ||||||||||||||||
|
| |||||||||||||||
Commercial Services & Supplies: 0.18% | ||||||||||||||||
Cintas Corporation | 185 | 28,829 | ||||||||||||||
Republic Services Incorporated | 489 | 33,061 | ||||||||||||||
Stericycle Incorporated † | 184 | 12,510 | ||||||||||||||
Waste Management Incorporated | 860 | 74,218 | ||||||||||||||
148,618 | ||||||||||||||||
|
| |||||||||||||||
Construction & Engineering: 0.05% | ||||||||||||||||
Fluor Corporation | 300 | 15,495 | ||||||||||||||
Jacobs Engineering Group Incorporated | 259 | 17,084 | ||||||||||||||
Quanta Services Incorporated † | 331 | 12,945 | ||||||||||||||
45,524 | ||||||||||||||||
|
| |||||||||||||||
Electrical Equipment: 0.34% | ||||||||||||||||
Acuity Brands Incorporated | 91 | 16,016 | ||||||||||||||
AMETEK Incorporated | 498 | 36,090 | ||||||||||||||
Eaton Corporation plc | 948 | 74,901 | ||||||||||||||
Emerson Electric Company | 1,381 | 96,242 | ||||||||||||||
Rockwell Automation Incorporated | 276 | 54,193 | ||||||||||||||
277,442 | ||||||||||||||||
|
| |||||||||||||||
Industrial Conglomerates: 1.14% | ||||||||||||||||
3M Company | 1,279 | 301,038 | ||||||||||||||
General Electric Company | 18,660 | 325,617 | ||||||||||||||
Honeywell International Incorporated | 1,636 | 250,897 | ||||||||||||||
Roper Industries Incorporated | 219 | 56,721 | ||||||||||||||
934,273 | ||||||||||||||||
|
| |||||||||||||||
Machinery: 1.05% | ||||||||||||||||
Caterpillar Incorporated | 1,280 | 201,702 | ||||||||||||||
Cummins Incorporated | 336 | 59,351 | ||||||||||||||
Deere & Company | 686 | 107,366 | ||||||||||||||
Dover Corporation | 334 | 33,731 | ||||||||||||||
Flowserve Corporation | 281 | 11,839 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
18 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Machinery (continued) | ||||||||||||||||
Fortive Corporation | 657 | $ | 47,534 | |||||||||||||
Illinois Tool Works Incorporated | 662 | 110,455 | ||||||||||||||
Ingersoll-Rand plc | 538 | 47,984 | ||||||||||||||
Paccar Incorporated | 757 | 53,808 | ||||||||||||||
Parker-Hannifin Corporation | 287 | 57,279 | ||||||||||||||
Pentair plc | 355 | 25,070 | ||||||||||||||
Snap-on Incorporated | 122 | 21,265 | ||||||||||||||
Stanley Black & Decker Incorporated | 330 | 55,998 | ||||||||||||||
Xylem Incorporated | 385 | 26,257 | ||||||||||||||
859,639 | ||||||||||||||||
|
| |||||||||||||||
Professional Services: 0.17% | ||||||||||||||||
Equifax Incorporated | 258 | 30,423 | ||||||||||||||
IHS Markit Limited † | 782 | 35,307 | ||||||||||||||
Nielsen Holdings plc | 723 | 26,317 | ||||||||||||||
Robert Half International Incorporated | 269 | 14,940 | ||||||||||||||
Verisk Analytics Incorporated † | 334 | 32,064 | ||||||||||||||
139,051 | ||||||||||||||||
|
| |||||||||||||||
Road & Rail: 0.57% | ||||||||||||||||
CSX Corporation | 1,923 | 105,784 | ||||||||||||||
J.B. Hunt Transport Services Incorporated | 185 | 21,271 | ||||||||||||||
Kansas City Southern | 221 | 23,254 | ||||||||||||||
Norfolk Southern Corporation | 616 | 89,258 | ||||||||||||||
Union Pacific Corporation | 1,691 | 226,763 | ||||||||||||||
466,330 | ||||||||||||||||
|
| |||||||||||||||
Trading Companies & Distributors: 0.11% | ||||||||||||||||
Fastenal Company | 619 | 33,853 | ||||||||||||||
United Rentals Incorporated † | 182 | 31,288 | ||||||||||||||
W.W. Grainger Incorporated | 111 | 26,224 | ||||||||||||||
91,365 | ||||||||||||||||
|
| |||||||||||||||
Information Technology: 14.25% |
| |||||||||||||||
Communications Equipment: 0.63% | ||||||||||||||||
Cisco Systems Incorporated | 10,624 | 406,899 | ||||||||||||||
F5 Networks Incorporated † | 134 | 17,583 | ||||||||||||||
Harris Corporation | 256 | 36,262 | ||||||||||||||
Juniper Networks Incorporated | 805 | 22,943 | ||||||||||||||
Motorola Solutions Incorporated | 348 | 31,438 | ||||||||||||||
515,125 | ||||||||||||||||
|
| |||||||||||||||
Electronic Equipment, Instruments & Components: 0.25% | ||||||||||||||||
Amphenol Corporation Class A | 658 | 57,772 | ||||||||||||||
Corning Incorporated | 1,866 | 59,693 | ||||||||||||||
FLIR Systems Incorporated | 297 | 13,846 | ||||||||||||||
TE Connectivity Limited | 756 | 71,850 | ||||||||||||||
203,161 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 19 |
Security name | Shares | Value | ||||||||||||||
Internet Software & Services: 2.90% | ||||||||||||||||
Akamai Technologies Incorporated † | 364 | $ | 23,675 | |||||||||||||
Alphabet Incorporated Class A † | 638 | 672,069 | ||||||||||||||
Alphabet Incorporated Class C † | 647 | 677,021 | ||||||||||||||
eBay Incorporated † | 2,096 | 79,103 | ||||||||||||||
Facebook Incorporated Class A † | 5,110 | 901,711 | ||||||||||||||
VeriSign Incorporated † | 182 | 20,828 | ||||||||||||||
2,374,407 | ||||||||||||||||
|
| |||||||||||||||
IT Services: 2.42% | ||||||||||||||||
Accenture plc Class A | 1,328 | 203,304 | ||||||||||||||
Alliance Data Systems Corporation | 102 | 25,855 | ||||||||||||||
Automatic Data Processing Incorporated | 954 | 111,799 | ||||||||||||||
Cognizant Technology Solutions Corporation Class A | 1,269 | 90,124 | ||||||||||||||
CSRA Incorporated | 351 | 10,502 | ||||||||||||||
DXC Technology Company | 613 | 58,174 | ||||||||||||||
Fidelity National Information Services Incorporated | 718 | 67,557 | ||||||||||||||
Fiserv Incorporated † | 448 | 58,746 | ||||||||||||||
Gartner Incorporated † | 195 | 24,014 | ||||||||||||||
Global Payments Incorporated | 342 | 34,282 | ||||||||||||||
International Business Machines Corporation | 1,851 | 283,980 | ||||||||||||||
MasterCard Incorporated Class A | 1,993 | 301,660 | ||||||||||||||
Paychex Incorporated | 688 | 46,839 | ||||||||||||||
PayPal Holdings Incorporated † | 2,425 | 178,529 | ||||||||||||||
The Western Union Company | 991 | 18,839 | ||||||||||||||
Total System Services Incorporated | 360 | 28,472 | ||||||||||||||
Visa Incorporated Class A | 3,895 | 444,108 | ||||||||||||||
1,986,784 | ||||||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment: 2.32% | ||||||||||||||||
Advanced Micro Devices Incorporated Ǡ | 1,765 | 18,144 | ||||||||||||||
Analog Devices Incorporated | 792 | 70,512 | ||||||||||||||
Applied Materials Incorporated | 2,289 | 117,014 | ||||||||||||||
Broadcom Limited | 876 | 225,044 | ||||||||||||||
Intel Corporation | 10,056 | 464,185 | ||||||||||||||
KLA-Tencor Corporation | 336 | 35,304 | ||||||||||||||
Lam Research Corporation | 347 | 63,872 | ||||||||||||||
Microchip Technology Incorporated | 502 | 44,116 | ||||||||||||||
Micron Technology Incorporated † | 2,448 | 100,662 | ||||||||||||||
NVIDIA Corporation | 1,296 | 250,776 | ||||||||||||||
Qorvo Incorporated † | 274 | 18,248 | ||||||||||||||
QUALCOMM Incorporated | 3,162 | 202,431 | ||||||||||||||
Skyworks Solutions Incorporated | 395 | 37,505 | ||||||||||||||
Texas Instruments Incorporated | 2,120 | 221,413 | ||||||||||||||
Xilinx Incorporated | 541 | 36,474 | ||||||||||||||
1,905,700 | ||||||||||||||||
|
| |||||||||||||||
Software: 3.15% | ||||||||||||||||
Activision Blizzard Incorporated | 1,629 | 103,148 | ||||||||||||||
Adobe Systems Incorporated † | 1,058 | 185,404 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
20 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Software (continued) | ||||||||||||||||
Ansys Incorporated † | 182 | $ | 26,861 | |||||||||||||
Autodesk Incorporated † | 472 | 49,480 | ||||||||||||||
CA Incorporated | 674 | 22,431 | ||||||||||||||
Cadence Design Systems Incorporated † | 607 | 25,385 | ||||||||||||||
Citrix Systems Incorporated | 307 | 27,016 | ||||||||||||||
Electronic Arts Incorporated † | 662 | 69,550 | ||||||||||||||
Intuit Incorporated | 522 | 82,361 | ||||||||||||||
Microsoft Corporation | 16,575 | 1,417,826 | ||||||||||||||
Oracle Corporation | 6,548 | 309,589 | ||||||||||||||
Red Hat Incorporated † | 380 | 45,638 | ||||||||||||||
Salesforce.com Incorporated † | 1,474 | 150,687 | ||||||||||||||
Symantec Corporation | 1,336 | 37,488 | ||||||||||||||
Synopsys Incorporated † | 322 | 27,447 | ||||||||||||||
2,580,311 | ||||||||||||||||
|
| |||||||||||||||
Technology Hardware, Storage & Peripherals: 2.58% | ||||||||||||||||
Apple Incorporated | 11,021 | 1,865,084 | ||||||||||||||
Hewlett Packard Enterprise Company | 3,425 | 49,183 | ||||||||||||||
HP Incorporated | 3,585 | 75,321 | ||||||||||||||
NetApp Incorporated | 579 | 32,030 | ||||||||||||||
Seagate Technology plc | 623 | 26,066 | ||||||||||||||
Western Digital Corporation | 634 | 50,422 | ||||||||||||||
Xerox Corporation | 461 | 13,438 | ||||||||||||||
2,111,544 | ||||||||||||||||
|
| |||||||||||||||
Materials: 1.79% |
| |||||||||||||||
Chemicals: 1.32% | ||||||||||||||||
Air Products & Chemicals Incorporated | 468 | 76,789 | ||||||||||||||
Albemarle Corporation | 237 | 30,310 | ||||||||||||||
CF Industries Holdings Incorporated | 499 | 21,227 | ||||||||||||||
DowDuPont Incorporated | 5,035 | 358,593 | ||||||||||||||
Eastman Chemical Company | 309 | 28,626 | ||||||||||||||
Ecolab Incorporated | 558 | 74,872 | ||||||||||||||
FMC Corporation | 289 | 27,357 | ||||||||||||||
International Flavors & Fragrances Incorporated | 170 | 25,944 | ||||||||||||||
LyondellBasell Industries NV Class A | 696 | 76,783 | ||||||||||||||
Monsanto Company | 943 | 110,124 | ||||||||||||||
PPG Industries Incorporated | 547 | 63,901 | ||||||||||||||
Praxair Incorporated | 617 | 95,438 | ||||||||||||||
The Mosaic Company | 752 | 19,296 | ||||||||||||||
The Sherwin-Williams Company | 177 | 72,577 | ||||||||||||||
1,081,837 | ||||||||||||||||
|
| |||||||||||||||
Construction Materials: 0.08% | ||||||||||||||||
Martin Marietta Materials Incorporated | 134 | 29,619 | ||||||||||||||
Vulcan Materials Company | 285 | 36,585 | ||||||||||||||
66,204 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 21 |
Security name | Shares | Value | ||||||||||||||
Containers & Packaging: 0.22% | ||||||||||||||||
Avery Dennison Corporation | 190 | $ | 21,823 | |||||||||||||
Ball Corporation | 755 | 28,577 | ||||||||||||||
International Paper Company | 891 | 51,625 | ||||||||||||||
Packaging Corporation of America | 202 | 24,351 | ||||||||||||||
Sealed Air Corporation | 388 | 19,128 | ||||||||||||||
WestRock Company | 549 | 34,702 | ||||||||||||||
180,206 | ||||||||||||||||
|
| |||||||||||||||
Metals & Mining: 0.17% | ||||||||||||||||
Freeport-McMoRan Incorporated † | 2,924 | 55,439 | ||||||||||||||
Newmont Mining Corporation | 1,144 | 42,923 | ||||||||||||||
Nucor Corporation | 684 | 43,489 | ||||||||||||||
141,851 | ||||||||||||||||
|
| |||||||||||||||
Real Estate: 1.73% |
| |||||||||||||||
Equity REITs: 1.70% | ||||||||||||||||
Alexandria Real Estate Equities Incorporated | 205 | 26,771 | ||||||||||||||
American Tower Corporation | 921 | 131,399 | ||||||||||||||
Apartment Investment & Management Company Class A | 337 | 14,730 | ||||||||||||||
AvalonBay Communities Incorporated | 296 | 52,809 | ||||||||||||||
Boston Properties Incorporated | 331 | 43,040 | ||||||||||||||
Crown Castle International Corporation | 873 | 96,912 | ||||||||||||||
Digital Realty Trust Incorporated | 442 | 50,344 | ||||||||||||||
Duke Realty Corporation | 767 | 20,870 | ||||||||||||||
Equinix Incorporated | 168 | 76,141 | ||||||||||||||
Equity Residential | 790 | 50,378 | ||||||||||||||
Essex Property Trust Incorporated | 141 | 34,033 | ||||||||||||||
Extra Space Storage Incorporated | 270 | 23,612 | ||||||||||||||
Federal Realty Investment Trust | 156 | 20,718 | ||||||||||||||
GGP Incorporated | 1,339 | 31,319 | ||||||||||||||
HCP Incorporated | 1,010 | 26,341 | ||||||||||||||
Host Hotels & Resorts Incorporated | 1,596 | 31,681 | ||||||||||||||
Iron Mountain Incorporated | 581 | 21,921 | ||||||||||||||
Kimco Realty Corporation | 918 | 16,662 | ||||||||||||||
Mid-America Apartment Communities Incorporated | 244 | 24,537 | ||||||||||||||
Prologis Incorporated | 1,145 | 73,864 | ||||||||||||||
Public Storage Incorporated | 321 | 67,089 | ||||||||||||||
Realty Income Corporation | 606 | 34,554 | ||||||||||||||
Regency Centers Corporation | 318 | 21,999 | ||||||||||||||
SBA Communications Corporation † | 253 | 41,330 | ||||||||||||||
Simon Property Group Incorporated | 668 | 114,722 | ||||||||||||||
SL Green Realty Corporation | 210 | 21,195 | ||||||||||||||
The Macerich Company | 232 | 15,238 | ||||||||||||||
UDR Incorporated | 575 | 22,149 | ||||||||||||||
Ventas Incorporated | 766 | 45,968 | ||||||||||||||
Vornado Realty Trust | 371 | 29,005 | ||||||||||||||
Welltower Incorporated | 798 | 50,888 | ||||||||||||||
Weyerhaeuser Company | 1,625 | 57,298 | ||||||||||||||
1,389,517 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
22 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Real Estate Management & Development: 0.03% | ||||||||||||||||
CBRE Group Incorporated Class A † | 652 | $ | 28,238 | |||||||||||||
|
| |||||||||||||||
Telecommunication Services: 1.24% |
| |||||||||||||||
Diversified Telecommunication Services: 1.24% | ||||||||||||||||
AT&T Incorporated | 13,217 | 513,877 | ||||||||||||||
CenturyLink Incorporated | 2,103 | 35,078 | ||||||||||||||
Verizon Communications Incorporated | 8,773 | 464,355 | ||||||||||||||
1,013,310 | ||||||||||||||||
|
| |||||||||||||||
Utilities: 1.76% |
| |||||||||||||||
Electric Utilities: 1.08% | ||||||||||||||||
Alliant Energy Corporation | 497 | 21,168 | ||||||||||||||
American Electric Power Company Incorporated | 1,060 | 77,984 | ||||||||||||||
Duke Energy Corporation | 1,502 | 126,333 | ||||||||||||||
Edison International | 700 | 44,268 | ||||||||||||||
Entergy Corporation | 387 | 31,498 | ||||||||||||||
Eversource Energy | 682 | 43,089 | ||||||||||||||
Exelon Corporation | 2,065 | 81,382 | ||||||||||||||
FirstEnergy Corporation | 957 | 29,303 | ||||||||||||||
NextEra Energy Incorporated | 1,013 | 158,220 | ||||||||||||||
PG&E Corporation | 1,100 | 49,313 | ||||||||||||||
Pinnacle West Capital Corporation | 240 | 20,443 | ||||||||||||||
PPL Corporation | 1,471 | 45,527 | ||||||||||||||
The Southern Company | 2,157 | 103,730 | ||||||||||||||
Xcel Energy Incorporated | 1,094 | 52,632 | ||||||||||||||
884,890 | ||||||||||||||||
|
| |||||||||||||||
Independent Power & Renewable Electricity Producers: 0.04% | ||||||||||||||||
AES Corporation | 1,425 | 15,433 | ||||||||||||||
NRG Energy Incorporated | 653 | 18,597 | ||||||||||||||
34,030 | ||||||||||||||||
|
| |||||||||||||||
Multi-Utilities: 0.60% | ||||||||||||||||
Ameren Corporation | 522 | 30,793 | ||||||||||||||
CenterPoint Energy Incorporated | 928 | 26,318 | ||||||||||||||
CMS Energy Corporation | 607 | 28,711 | ||||||||||||||
Consolidated Edison Incorporated | 668 | 56,747 | ||||||||||||||
Dominion Resources Incorporated | 1,384 | 112,187 | ||||||||||||||
DTE Energy Company | 387 | 42,361 | ||||||||||||||
NiSource Incorporated | 725 | 18,611 | ||||||||||||||
Public Service Enterprise Group Incorporated | 1,090 | 56,135 | ||||||||||||||
SCANA Corporation | 307 | 12,212 | ||||||||||||||
Sempra Energy | 539 | 57,630 | ||||||||||||||
WEC Energy Group Incorporated | 679 | 45,106 | ||||||||||||||
486,811 | ||||||||||||||||
|
| |||||||||||||||
Water Utilities: 0.04% | ||||||||||||||||
American Water Works Company Incorporated | 383 | 35,041 | ||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $24,334,303) | 48,993,681 | |||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 23 |
Security name | Expiration date | Shares | Value | |||||||||||||
Rights: 0.00% | ||||||||||||||||
Consumer Staples: 0.00% | ||||||||||||||||
Food & Staples Retailing: 0.00% | ||||||||||||||||
Safeway Casa Ley Contingent Value Rights †(a) | 1-30-2019 | 684 | $ | 0 | ||||||||||||
Safeway PDC LLC Contingent Value Rights †(a) | 1-30-2018 | 684 | 12 | |||||||||||||
Total Rights (Cost $714) | 12 | |||||||||||||||
|
| |||||||||||||||
Interest rate | Maturity date | Principal | ||||||||||||||
U.S. Treasury Securities: 39.11% |
| |||||||||||||||
U.S. Treasury Bond | 2.13 | % | 9-30-2024 | $ | 118,000 | 116,525 | ||||||||||
U.S. Treasury Bond | 2.13 | 11-30-2024 | 119,000 | 117,447 | ||||||||||||
U.S. Treasury Bond | 2.75 | 8-15-2042 | 126,000 | 126,742 | ||||||||||||
U.S. Treasury Bond | 2.75 | 11-15-2042 | 126,000 | 126,663 | ||||||||||||
U.S. Treasury Bond | 2.88 | 5-15-2043 | 182,000 | 186,941 | ||||||||||||
U.S. Treasury Bond | 3.00 | 5-15-2042 | 84,000 | 88,322 | ||||||||||||
U.S. Treasury Bond | 3.00 | 11-15-2044 | 178,000 | 186,949 | ||||||||||||
U.S. Treasury Bond | 3.13 | 11-15-2041 | 66,000 | 70,881 | ||||||||||||
U.S. Treasury Bond | 3.13 | 2-15-2042 | 87,000 | 93,426 | ||||||||||||
U.S. Treasury Bond | 3.13 | 2-15-2043 | 129,000 | 138,445 | ||||||||||||
U.S. Treasury Bond | 3.13 | 8-15-2044 | 181,000 | 194,462 | ||||||||||||
U.S. Treasury Bond | 3.38 | 5-15-2044 | 187,000 | 209,622 | ||||||||||||
U.S. Treasury Bond | 3.50 | 2-15-2039 | 61,000 | 69,609 | ||||||||||||
U.S. Treasury Bond | 3.63 | 8-15-2043 | 156,000 | 181,883 | ||||||||||||
U.S. Treasury Bond | 3.63 | 2-15-2044 | 218,000 | 254,550 | ||||||||||||
U.S. Treasury Bond | 3.75 | 8-15-2041 | 68,000 | 80,504 | ||||||||||||
U.S. Treasury Bond | 3.75 | 11-15-2043 | 187,000 | 222,587 | ||||||||||||
U.S. Treasury Bond | 3.88 | 8-15-2040 | 71,000 | 85,464 | ||||||||||||
U.S. Treasury Bond | 4.25 | 5-15-2039 | 57,000 | 71,982 | ||||||||||||
U.S. Treasury Bond | 4.25 | 11-15-2040 | 74,000 | 93,893 | ||||||||||||
U.S. Treasury Bond | 4.38 | 2-15-2038 | 32,000 | 40,873 | ||||||||||||
U.S. Treasury Bond | 4.38 | 11-15-2039 | 57,000 | 73,276 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2040 | 83,000 | 106,921 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2041 | 65,000 | 84,018 | ||||||||||||
U.S. Treasury Bond | 4.50 | 2-15-2036 | 70,000 | 90,054 | ||||||||||||
U.S. Treasury Bond | 4.50 | 5-15-2038 | 36,000 | 46,750 | ||||||||||||
U.S. Treasury Bond | 4.50 | 8-15-2039 | 59,000 | 77,004 | ||||||||||||
U.S. Treasury Bond | 4.63 | 2-15-2040 | 102,000 | 135,520 | ||||||||||||
U.S. Treasury Bond | 4.75 | 2-15-2037 | 24,000 | 31,950 | ||||||||||||
U.S. Treasury Bond | 4.75 | 2-15-2041 | 88,000 | 119,341 | ||||||||||||
U.S. Treasury Bond | 5.00 | 5-15-2037 | 29,000 | 39,733 | ||||||||||||
U.S. Treasury Bond | 5.25 | 11-15-2028 | 45,000 | 57,066 | ||||||||||||
U.S. Treasury Bond | 5.25 | 2-15-2029 | 33,000 | 42,012 | ||||||||||||
U.S. Treasury Bond | 5.38 | 2-15-2031 | 70,000 | 92,972 | ||||||||||||
U.S. Treasury Bond | 5.50 | 8-15-2028 | 35,000 | 45,025 | ||||||||||||
U.S. Treasury Bond | 6.13 | 11-15-2027 | 49,000 | 64,926 | ||||||||||||
U.S. Treasury Bond | 6.13 | 8-15-2029 | 25,000 | 34,293 | ||||||||||||
U.S. Treasury Bond | 6.25 | 5-15-2030 | 45,000 | 63,242 | ||||||||||||
U.S. Treasury Bond | 6.38 | 8-15-2027 | 21,000 | 28,175 | ||||||||||||
U.S. Treasury Bond | 6.88 | 8-15-2025 | 21,000 | 27,638 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
24 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) |
| |||||||||||||||
U.S. Treasury Note | 0.75 | % | 2-15-2019 | $ | 107,000 | $ | 105,700 | |||||||||
U.S. Treasury Note | 0.75 | 7-15-2019 | 108,000 | 106,173 | ||||||||||||
U.S. Treasury Note | 0.75 | 8-15-2019 | 108,000 | 106,080 | ||||||||||||
U.S. Treasury Note | 0.88 | 4-15-2019 | 109,000 | 107,644 | ||||||||||||
U.S. Treasury Note | 0.88 | 5-15-2019 | 110,000 | 108,545 | ||||||||||||
U.S. Treasury Note | 0.88 | 6-15-2019 | 108,000 | 106,482 | ||||||||||||
U.S. Treasury Note | 0.88 | 7-31-2019 | 76,000 | 74,848 | ||||||||||||
U.S. Treasury Note | 0.88 | 9-15-2019 | 106,000 | 104,214 | ||||||||||||
U.S. Treasury Note | 1.00 | 3-15-2019 | 107,000 | 105,921 | ||||||||||||
U.S. Treasury Note | 1.00 | 6-30-2019 | 58,000 | 57,273 | ||||||||||||
U.S. Treasury Note | 1.00 | 8-31-2019 | 79,000 | 77,876 | ||||||||||||
U.S. Treasury Note | 1.00 | 9-30-2019 | 148,000 | 145,806 | ||||||||||||
U.S. Treasury Note | 1.00 | 10-15-2019 | 109,000 | 107,328 | ||||||||||||
U.S. Treasury Note | 1.00 | 11-15-2019 | 96,000 | 94,444 | ||||||||||||
U.S. Treasury Note | 1.00 | 11-30-2019 | 142,000 | 139,648 | ||||||||||||
U.S. Treasury Note | 1.13 | 1-15-2019 | 106,000 | 105,226 | ||||||||||||
U.S. Treasury Note | 1.13 | 1-31-2019 | 119,000 | 118,089 | ||||||||||||
U.S. Treasury Note | 1.13 | 2-28-2019 | 118,000 | 117,027 | ||||||||||||
U.S. Treasury Note | 1.13 | 5-31-2019 | 65,000 | 64,346 | ||||||||||||
U.S. Treasury Note | 1.13 | 12-31-2019 | 95,000 | 93,581 | ||||||||||||
U.S. Treasury Note | 1.13 | 3-31-2020 | 93,000 | 91,401 | ||||||||||||
U.S. Treasury Note | 1.13 | 4-30-2020 | 104,000 | 102,131 | ||||||||||||
U.S. Treasury Note | 1.13 | 2-28-2021 | 226,000 | 219,760 | ||||||||||||
U.S. Treasury Note | 1.13 | 6-30-2021 | 228,000 | 220,788 | ||||||||||||
U.S. Treasury Note | 1.13 | 7-31-2021 | 153,000 | 147,946 | ||||||||||||
U.S. Treasury Note | 1.13 | 8-31-2021 | 153,000 | 147,790 | ||||||||||||
U.S. Treasury Note | 1.13 | 9-30-2021 | 152,000 | 146,653 | ||||||||||||
U.S. Treasury Note | 1.25 | 12-15-2018 | 108,000 | 107,431 | ||||||||||||
U.S. Treasury Note | 1.25 | 12-31-2018 | 120,000 | 119,330 | ||||||||||||
U.S. Treasury Note | 1.25 | 1-31-2019 | 125,000 | 124,214 | ||||||||||||
U.S. Treasury Note | 1.25 | 3-31-2019 | 117,000 | 116,130 | ||||||||||||
U.S. Treasury Note | 1.25 | 4-30-2019 | 51,000 | 50,592 | ||||||||||||
U.S. Treasury Note | 1.25 | 5-31-2019 | 114,000 | 113,048 | ||||||||||||
U.S. Treasury Note | 1.25 | 6-30-2019 | 114,000 | 112,981 | ||||||||||||
U.S. Treasury Note | 1.25 | 8-31-2019 | 114,000 | 112,827 | ||||||||||||
U.S. Treasury Note | 1.25 | 10-31-2019 | 75,000 | 74,151 | ||||||||||||
U.S. Treasury Note | 1.25 | 1-31-2020 | 225,000 | 221,992 | ||||||||||||
U.S. Treasury Note | 1.25 | 2-29-2020 | 152,000 | 149,909 | ||||||||||||
U.S. Treasury Note | 1.25 | 3-31-2021 | 226,000 | 220,405 | ||||||||||||
U.S. Treasury Note | 1.25 | 10-31-2021 | 151,000 | 146,272 | ||||||||||||
U.S. Treasury Note | 1.25 | 7-31-2023 | 125,000 | 118,440 | ||||||||||||
U.S. Treasury Note | 1.38 | 12-31-2018 | 91,000 | 90,595 | ||||||||||||
U.S. Treasury Note | 1.38 | 2-28-2019 | 121,000 | 120,337 | ||||||||||||
U.S. Treasury Note | 1.38 | 7-31-2019 | 114,000 | 113,131 | ||||||||||||
U.S. Treasury Note | 1.38 | 9-30-2019 | 111,000 | 110,050 | ||||||||||||
U.S. Treasury Note | 1.38 | 12-15-2019 | 111,000 | 109,894 | ||||||||||||
U.S. Treasury Note | 1.38 | 1-15-2020 | 109,000 | 107,862 | ||||||||||||
U.S. Treasury Note | 1.38 | 1-31-2020 | 101,000 | 99,918 | ||||||||||||
U.S. Treasury Note | 1.38 | 2-15-2020 | 109,000 | 107,786 | ||||||||||||
U.S. Treasury Note | 1.38 | 2-29-2020 | 228,000 | 225,398 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 25 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) |
| |||||||||||||||
U.S. Treasury Note | 1.38 | % | 3-31-2020 | $ | 226,000 | $ | 223,324 | |||||||||
U.S. Treasury Note | 1.38 | 4-30-2020 | 226,000 | 223,175 | ||||||||||||
U.S. Treasury Note | 1.38 | 5-31-2020 | 106,000 | 104,630 | ||||||||||||
U.S. Treasury Note | 1.38 | 8-31-2020 | 256,000 | 252,234 | ||||||||||||
U.S. Treasury Note | 1.38 | 9-15-2020 | 102,000 | 100,562 | ||||||||||||
U.S. Treasury Note | 1.38 | 9-30-2020 | 256,000 | 252,076 | ||||||||||||
U.S. Treasury Note | 1.38 | 10-31-2020 | 232,000 | 228,237 | ||||||||||||
U.S. Treasury Note | 1.38 | 1-31-2021 | 232,000 | 227,561 | ||||||||||||
U.S. Treasury Note | 1.38 | 4-30-2021 | 226,000 | 221,093 | ||||||||||||
U.S. Treasury Note | 1.38 | 5-31-2021 | 226,000 | 220,899 | ||||||||||||
U.S. Treasury Note | 1.38 | 6-30-2023 | 126,000 | 120,348 | ||||||||||||
U.S. Treasury Note | 1.38 | 8-31-2023 | 124,000 | 118,189 | ||||||||||||
U.S. Treasury Note | 1.38 | 9-30-2023 | 90,000 | 85,715 | ||||||||||||
U.S. Treasury Note | 1.50 | 12-31-2018 | 144,000 | 143,539 | ||||||||||||
U.S. Treasury Note | 1.50 | 1-31-2019 | 161,000 | 160,402 | ||||||||||||
U.S. Treasury Note | 1.50 | 2-28-2019 | 147,000 | 146,408 | ||||||||||||
U.S. Treasury Note | 1.50 | 3-31-2019 | 60,000 | 59,746 | ||||||||||||
U.S. Treasury Note | 1.50 | 5-31-2019 | 158,000 | 157,199 | ||||||||||||
U.S. Treasury Note | 1.50 | 10-31-2019 | 225,000 | 223,426 | ||||||||||||
U.S. Treasury Note | 1.50 | 11-30-2019 | 226,000 | 224,340 | ||||||||||||
U.S. Treasury Note | 1.50 | 4-15-2020 | 107,000 | 105,992 | ||||||||||||
U.S. Treasury Note | 1.50 | 5-15-2020 | 107,000 | 105,963 | ||||||||||||
U.S. Treasury Note | 1.50 | 5-31-2020 | 226,000 | 223,749 | ||||||||||||
U.S. Treasury Note | 1.50 | 6-15-2020 | 107,000 | 105,910 | ||||||||||||
U.S. Treasury Note | 1.50 | 7-15-2020 | 107,000 | 105,843 | ||||||||||||
U.S. Treasury Note | 1.50 | 8-15-2020 | 107,000 | 105,806 | ||||||||||||
U.S. Treasury Note | 1.50 | 1-31-2022 | 128,000 | 124,847 | ||||||||||||
U.S. Treasury Note | 1.50 | 2-28-2023 | 126,000 | 121,566 | ||||||||||||
U.S. Treasury Note | 1.50 | 3-31-2023 | 126,000 | 121,452 | ||||||||||||
U.S. Treasury Note | 1.50 | 8-15-2026 | 102,000 | 94,872 | ||||||||||||
U.S. Treasury Note | 1.63 | 3-31-2019 | 154,000 | 153,541 | ||||||||||||
U.S. Treasury Note | 1.63 | 4-30-2019 | 159,000 | 158,500 | ||||||||||||
U.S. Treasury Note | 1.63 | 6-30-2019 | 157,000 | 156,442 | ||||||||||||
U.S. Treasury Note | 1.63 | 7-31-2019 | 155,000 | 154,418 | ||||||||||||
U.S. Treasury Note | 1.63 | 8-31-2019 | 229,000 | 228,049 | ||||||||||||
U.S. Treasury Note | 1.63 | 12-31-2019 | 225,000 | 223,793 | ||||||||||||
U.S. Treasury Note | 1.63 | 3-15-2020 | 107,000 | 106,335 | ||||||||||||
U.S. Treasury Note | 1.63 | 6-30-2020 | 225,000 | 223,314 | ||||||||||||
U.S. Treasury Note | 1.63 | 7-31-2020 | 253,000 | 251,026 | ||||||||||||
U.S. Treasury Note | 1.63 | 10-15-2020 | 102,000 | 101,100 | ||||||||||||
U.S. Treasury Note | 1.63 | 11-30-2020 | 155,000 | 153,431 | ||||||||||||
U.S. Treasury Note | 1.63 | 8-15-2022 | 117,000 | 114,254 | ||||||||||||
U.S. Treasury Note | 1.63 | 8-31-2022 | 151,000 | 147,249 | ||||||||||||
U.S. Treasury Note | 1.63 | 11-15-2022 | 150,000 | 146,160 | ||||||||||||
U.S. Treasury Note | 1.63 | 4-30-2023 | 128,000 | 124,074 | ||||||||||||
U.S. Treasury Note | 1.63 | 5-31-2023 | 128,000 | 123,968 | ||||||||||||
U.S. Treasury Note | 1.63 | 10-31-2023 | 90,000 | 86,871 | ||||||||||||
U.S. Treasury Note | 1.63 | 2-15-2026 | 102,000 | 96,299 | ||||||||||||
U.S. Treasury Note | 1.63 | 5-15-2026 | 105,000 | 98,869 | ||||||||||||
U.S. Treasury Note | 1.75 | 9-30-2019 | 228,000 | 227,461 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
26 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) |
| |||||||||||||||
U.S. Treasury Note | 1.75 | % | 11-30-2019 | $ | 111,000 | $ | 110,736 | |||||||||
U.S. Treasury Note | 1.75 | 10-31-2020 | 148,000 | 147,149 | ||||||||||||
U.S. Treasury Note | 1.75 | 11-15-2020 | 102,000 | 101,422 | ||||||||||||
U.S. Treasury Note | 1.75 | 12-31-2020 | 232,000 | 230,370 | ||||||||||||
U.S. Treasury Note | 1.75 | 11-30-2021 | 134,000 | 132,123 | ||||||||||||
U.S. Treasury Note | 1.75 | 2-28-2022 | 129,000 | 127,015 | ||||||||||||
U.S. Treasury Note | 1.75 | 3-31-2022 | 128,000 | 125,890 | ||||||||||||
U.S. Treasury Note | 1.75 | 4-30-2022 | 126,000 | 123,819 | ||||||||||||
U.S. Treasury Note | 1.75 | 5-15-2022 | 111,000 | 109,204 | ||||||||||||
U.S. Treasury Note | 1.75 | 5-31-2022 | 149,000 | 146,391 | ||||||||||||
U.S. Treasury Note | 1.75 | 6-30-2022 | 149,000 | 146,291 | ||||||||||||
U.S. Treasury Note | 1.75 | 9-30-2022 | 144,000 | 141,097 | ||||||||||||
U.S. Treasury Note | 1.75 | 1-31-2023 | 129,000 | 126,078 | ||||||||||||
U.S. Treasury Note | 1.75 | 5-15-2023 | 226,000 | 220,392 | ||||||||||||
U.S. Treasury Note | 1.88 | 6-30-2020 | 86,000 | 85,880 | ||||||||||||
U.S. Treasury Note | 1.88 | 11-30-2021 | 128,000 | 126,952 | ||||||||||||
U.S. Treasury Note | 1.88 | 1-31-2022 | 157,000 | 155,358 | ||||||||||||
U.S. Treasury Note | 1.88 | 2-28-2022 | 153,000 | 151,334 | ||||||||||||
U.S. Treasury Note | 1.88 | 3-31-2022 | 153,000 | 151,261 | ||||||||||||
U.S. Treasury Note | 1.88 | 4-30-2022 | 153,000 | 151,158 | ||||||||||||
U.S. Treasury Note | 1.88 | 5-31-2022 | 128,000 | 126,523 | ||||||||||||
U.S. Treasury Note | 1.88 | 7-31-2022 | 149,000 | 146,965 | ||||||||||||
U.S. Treasury Note | 1.88 | 8-31-2022 | 142,000 | 139,987 | ||||||||||||
U.S. Treasury Note | 1.88 | 9-30-2022 | 144,000 | 141,941 | ||||||||||||
U.S. Treasury Note | 1.88 | 10-31-2022 | 143,000 | 140,904 | ||||||||||||
U.S. Treasury Note | 1.88 | 8-31-2024 | 125,000 | 121,607 | ||||||||||||
U.S. Treasury Note | 2.00 | 7-31-2020 | 101,000 | 101,155 | ||||||||||||
U.S. Treasury Note | 2.00 | 9-30-2020 | 106,000 | 106,135 | ||||||||||||
U.S. Treasury Note | 2.00 | 11-30-2020 | 122,000 | 122,104 | ||||||||||||
U.S. Treasury Note | 2.00 | 2-28-2021 | 136,000 | 135,910 | ||||||||||||
U.S. Treasury Note | 2.00 | 5-31-2021 | 146,000 | 145,739 | ||||||||||||
U.S. Treasury Note | 2.00 | 8-31-2021 | 127,000 | 126,575 | ||||||||||||
U.S. Treasury Note | 2.00 | 10-31-2021 | 126,000 | 125,451 | ||||||||||||
U.S. Treasury Note | 2.00 | 11-15-2021 | 178,000 | 177,460 | ||||||||||||
U.S. Treasury Note | 2.00 | 12-31-2021 | 155,000 | 154,204 | ||||||||||||
U.S. Treasury Note | 2.00 | 2-15-2022 | 133,000 | 132,357 | ||||||||||||
U.S. Treasury Note | 2.00 | 7-31-2022 | 144,000 | 142,888 | ||||||||||||
U.S. Treasury Note | 2.00 | 10-31-2022 | 143,000 | 141,782 | ||||||||||||
U.S. Treasury Note | 2.00 | 11-30-2022 | 129,000 | 127,808 | ||||||||||||
U.S. Treasury Note | 2.00 | 2-15-2023 | 220,000 | 217,706 | ||||||||||||
U.S. Treasury Note | 2.00 | 4-30-2024 | 123,000 | 120,753 | ||||||||||||
U.S. Treasury Note | 2.00 | 5-31-2024 | 123,000 | 120,676 | ||||||||||||
U.S. Treasury Note | 2.00 | 6-30-2024 | 123,000 | 120,618 | ||||||||||||
U.S. Treasury Note | 2.00 | 2-15-2025 | 289,000 | 282,438 | ||||||||||||
U.S. Treasury Note | 2.00 | 8-15-2025 | 220,000 | 214,418 | ||||||||||||
U.S. Treasury Note | 2.00 | 11-15-2026 | 170,000 | 164,473 | ||||||||||||
U.S. Treasury Note | 2.13 | 8-31-2020 | 138,000 | 138,622 | ||||||||||||
U.S. Treasury Note | 2.13 | 1-31-2021 | 132,000 | 132,454 | ||||||||||||
U.S. Treasury Note | 2.13 | 6-30-2021 | 142,000 | 142,268 | ||||||||||||
U.S. Treasury Note | 2.13 | 8-15-2021 | 178,000 | 178,245 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 27 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) |
| |||||||||||||||
U.S. Treasury Note | 2.13 | % | 9-30-2021 | $ | 128,000 | $ | 128,072 | |||||||||
U.S. Treasury Note | 2.13 | 12-31-2021 | 126,000 | 126,017 | ||||||||||||
U.S. Treasury Note | 2.13 | 6-30-2022 | 126,000 | 125,756 | ||||||||||||
U.S. Treasury Note | 2.13 | 12-31-2022 | 129,000 | 128,445 | ||||||||||||
U.S. Treasury Note | 2.13 | 11-30-2023 | 110,000 | 109,079 | ||||||||||||
U.S. Treasury Note | 2.13 | 2-29-2024 | 128,000 | 126,707 | ||||||||||||
U.S. Treasury Note | 2.13 | 3-31-2024 | 127,000 | 125,677 | ||||||||||||
U.S. Treasury Note | 2.13 | 7-31-2024 | 123,000 | 121,511 | ||||||||||||
U.S. Treasury Note | 2.13 | 5-15-2025 | 234,000 | 230,367 | ||||||||||||
U.S. Treasury Note | 2.25 | 3-31-2021 | 135,000 | 135,881 | ||||||||||||
U.S. Treasury Note | 2.25 | 4-30-2021 | 142,000 | 142,933 | ||||||||||||
U.S. Treasury Note | 2.25 | 7-31-2021 | 194,000 | 195,116 | ||||||||||||
U.S. Treasury Note | 2.25 | 12-31-2023 | 127,000 | 126,740 | ||||||||||||
U.S. Treasury Note | 2.25 | 1-31-2024 | 127,000 | 126,700 | ||||||||||||
U.S. Treasury Note | 2.25 | 10-31-2024 | 121,000 | 120,442 | ||||||||||||
U.S. Treasury Note | 2.25 | 11-15-2024 | 290,000 | 288,435 | ||||||||||||
U.S. Treasury Note | 2.25 | 11-15-2025 | 219,000 | 217,017 | ||||||||||||
U.S. Treasury Note | 2.25 | 2-15-2027 | 196,000 | 193,369 | ||||||||||||
U.S. Treasury Note | 2.25 | 8-15-2027 | 101,000 | 99,548 | ||||||||||||
U.S. Treasury Note | 2.25 | 11-15-2027 | 99,000 | 97,631 | ||||||||||||
U.S. Treasury Note | 2.38 | 12-31-2020 | 123,000 | 124,375 | ||||||||||||
U.S. Treasury Note | 2.38 | 8-15-2024 | 289,000 | 289,858 | ||||||||||||
U.S. Treasury Note | 2.38 | 5-15-2027 | 283,000 | 282,106 | ||||||||||||
U.S. Treasury Note | 2.50 | 8-15-2023 | 190,000 | 192,540 | ||||||||||||
U.S. Treasury Note | 2.50 | 5-15-2024 | 281,000 | 284,109 | ||||||||||||
U.S. Treasury Note | 2.63 | 8-15-2020 | 220,000 | 223,818 | ||||||||||||
U.S. Treasury Note | 2.63 | 11-15-2020 | 355,000 | 361,376 | ||||||||||||
U.S. Treasury Note | 2.75 | 2-15-2019 | 128,000 | 129,269 | ||||||||||||
U.S. Treasury Note | 2.75 | 11-15-2023 | 251,000 | 257,743 | ||||||||||||
U.S. Treasury Note | 2.75 | 2-15-2024 | 217,000 | 222,648 | ||||||||||||
U.S. Treasury Note | 3.13 | 5-15-2019 | 142,000 | 144,420 | ||||||||||||
U.S. Treasury Note | 3.13 | 5-15-2021 | 155,000 | 160,365 | ||||||||||||
U.S. Treasury Note | 3.38 | 11-15-2019 | 159,000 | 163,354 | ||||||||||||
U.S. Treasury Note | 3.50 | 5-15-2020 | 138,000 | 143,029 | ||||||||||||
U.S. Treasury Note | 3.63 | 8-15-2019 | 145,000 | 149,020 | ||||||||||||
U.S. Treasury Note | 3.63 | 2-15-2020 | 191,000 | 197,817 | ||||||||||||
U.S. Treasury Note | 3.63 | 2-15-2021 | 199,000 | 208,671 | ||||||||||||
U.S. Treasury Note | 6.00 | 2-15-2026 | 42,000 | 53,238 | ||||||||||||
U.S. Treasury Note | 6.25 | 8-15-2023 | 35,000 | 42,386 | ||||||||||||
U.S. Treasury Note | 6.50 | 11-15-2026 | 28,000 | 37,181 | ||||||||||||
U.S. Treasury Note | 6.63 | 2-15-2027 | 18,000 | 24,261 | ||||||||||||
U.S. Treasury Note | 6.75 | 8-15-2026 | 21,000 | 28,164 | ||||||||||||
U.S. Treasury Note | 7.13 | 2-15-2023 | 24,000 | 29,679 | ||||||||||||
U.S. Treasury Note | 7.25 | 8-15-2022 | 24,000 | 29,378 | ||||||||||||
U.S. Treasury Note | 7.50 | 11-15-2024 | 22,000 | 29,218 | ||||||||||||
U.S. Treasury Note | 7.63 | 11-15-2022 | 12,000 | 15,022 | ||||||||||||
U.S. Treasury Note | 7.63 | 2-15-2025 | 20,000 | 26,932 | ||||||||||||
U.S. Treasury Note | 7.88 | 2-15-2021 | 15,000 | 17,668 | ||||||||||||
U.S. Treasury Note | 8.00 | 11-15-2021 | 48,000 | 58,476 | ||||||||||||
U.S. Treasury Note | 8.13 | 8-15-2019 | 29,000 | 31,868 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
28 | Wells Fargo VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2017 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) |
| |||||||||||||||
U.S. Treasury Note | 8.13 | % | 5-15-2021 | $ | 17,000 | $ | 20,342 | |||||||||
U.S. Treasury Note | 8.13 | 8-15-2021 | 15,000 | 18,163 | ||||||||||||
U.S. Treasury Note | 8.50 | 2-15-2020 | 15,000 | 17,063 | ||||||||||||
U.S. Treasury Note | 8.75 | 5-15-2020 | 12,000 | 13,912 | ||||||||||||
U.S. Treasury Note | 8.75 | 8-15-2020 | 27,000 | 31,667 | ||||||||||||
U.S. Treasury Note | 8.88 | 2-15-2019 | 29,000 | 31,284 | ||||||||||||
Total U.S. Treasury Securities (Cost $32,231,793) |
| 32,053,305 | ||||||||||||||
|
| |||||||||||||||
Yield | Shares | |||||||||||||||
Short-Term Investments: 2.19% | ||||||||||||||||
Investment Companies: 2.07% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) | 1.57 | 17,598 | 17,600 | |||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) | 1.19 | 1,676,790 | 1,676,790 | |||||||||||||
1,694,390 | ||||||||||||||||
|
| |||||||||||||||
Principal | ||||||||||||||||
U.S. Treasury Securities: 0.12% | ||||||||||||||||
U.S.Treasury Bill (z)# | 1.22 | 3-1-2018 | $ | 100,000 | 99,795 | |||||||||||
|
| |||||||||||||||
Total Short-Term Investments (Cost $1,794,187) | 1,794,185 | |||||||||||||||
|
|
Total investments in securities (Cost $58,360,997) | 101.08 | % | 82,841,183 | |||||
Other assets and liabilities, net | (1.08 | ) | (885,217 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 81,955,966 | ||||
|
|
|
|
† | Non-income-earning security |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
« | All or a portion of this security is on loan. |
(a) | The security is fair valued in accordance with procedures approved by the Board of Trustees. |
(r) | The investment is a non-registered investment company purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
(z) | Zero coupon security. The rate represents the current yield to maturity. |
# | All or a portion of this security is segregated as collateral for investments in derivative instruments. |
Futures Contracts
Description | Number of contracts | Expiration date | Notional cost | Notional value | Unrealized gains | Unrealized losses | ||||||||||||||||||
Long | ||||||||||||||||||||||||
S&P 500 E-Mini Index | 1 | 3-16-2018 | $ | 134,067 | $ | 133,800 | $ | 0 | $ | (267 | ) | |||||||||||||
5-Year U.S. Treasury Notes | 5 | 3-29-2018 | 581,652 | 580,820 | 0 | (832 | ) | |||||||||||||||||
Short | ||||||||||||||||||||||||
10-Year U.S. Treasury Notes | (72) | 3-20-2018 | (8,979,636 | ) | (8,931,375 | ) | 48,261 | 0 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 29 |
Investments in Affiliates
An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:
Shares, beginning of period | Shares purchased | Shares sold | Shares, end of period | Net realized gains (losses) | Net change in unrealized gains (losses) | Income from affiliated securities | Value, end of period | % of net assets | ||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||
Financials | ||||||||||||||||||||||||||||||||||||
Banks | ||||||||||||||||||||||||||||||||||||
Wells Fargo & Company | 11,438 | 11 | 1,911 | 9,538 | $ | 49,886 | $ | 4,097 | $ | 16,109 | $ | 578,670 | 0.71 | % | ||||||||||||||||||||||
Short-Term Investments | ||||||||||||||||||||||||||||||||||||
Investment Companies | ||||||||||||||||||||||||||||||||||||
Securities Lending Cash Investment LLC | 113,422 | 637,346 | 733,170 | 17,598 | 0 | 0 | 230 | 17,600 | ||||||||||||||||||||||||||||
Wells Fargo Government Money Market Fund Select Class | 1,639,441 | 11,769,467 | 11,732,118 | 1,676,790 | 0 | 0 | 6,204 | 1,676,790 | ||||||||||||||||||||||||||||
1,694,390 | 2.07 | |||||||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 49,886 | $ | 4,097 | $ | 22,543 | $ | 2,273,060 | 2.78 | % | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
30 | Wells Fargo VT Index Asset Allocation Fund | Statement of assets and liabilities—December 31, 2017 |
Assets | ||||
Investments in unaffiliated securities (including $16,448 of securities loaned), at value (cost $56,389,141) | $ | 80,568,123 | ||
Investments in affiliated securities, at value (cost $1,971,856) | 2,273,060 | |||
Receivable for investments sold | 766,975 | |||
Receivable for Fund shares sold | 260 | |||
Receivable for dividends and interest | 235,888 | |||
Receivable for daily variation margin on open futures contracts | 1,150 | |||
Receivable for securities lending income | 5 | |||
Prepaid expenses and other assets | 731 | |||
|
| |||
Total assets | 83,846,192 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 1,665,695 | |||
Payable for Fund shares redeemed | 39,441 | |||
Management fee payable | 31,423 | |||
Due to custodian bank | 22,637 | |||
Distribution fee payable | 18,004 | |||
Payable upon receipt of securities loaned | 17,600 | |||
Payable for daily variation margin on open futures contracts | 14,892 | |||
Administration fee payable | 5,760 | |||
Trustees’ fees and expenses payable | 2,215 | |||
Accrued expenses and other liabilities | 72,559 | |||
|
| |||
Total liabilities | 1,890,226 | |||
|
| |||
Total net assets | $ | 81,955,966 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 54,007,124 | ||
Undistributed net investment income | 77,063 | |||
Accumulated net realized gains on investments | 3,344,431 | |||
Net unrealized gains on investments | 24,527,348 | |||
|
| |||
Total net assets | $ | 81,955,966 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 2 | $ | 81,955,966 | ||
Shares outstanding – Class 21 | 4,007,393 | |||
Net asset value per share – Class 2 | $20.45 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of operations—year ended December 31, 2017 | Wells Fargo VT Index Asset Allocation Fund | 31 |
Investment income | ||||
Dividends | $ | 970,181 | ||
Interest | 506,278 | |||
Income from affiliated securities | 22,543 | |||
|
| |||
Total investment income | 1,499,002 | |||
|
| |||
Expenses | ||||
Management fee | 489,686 | |||
Administration fee | ||||
Class 2 | 65,292 | |||
Distribution fee | ||||
Class 2 | 204,036 | |||
Custody and accounting fees | 55,374 | |||
Professional fees | 51,115 | |||
Shareholder report expenses | 36,167 | |||
Trustees’ fees and expenses | 20,255 | |||
Other fees and expenses | 28,501 | |||
|
| |||
Total expenses | 950,426 | |||
Less: Fee waivers and/or expense reimbursements | (134,282 | ) | ||
|
| |||
Net expenses | 816,144 | |||
|
| |||
Net investment income | 682,858 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on: | ||||
Unaffiliated securities | 4,903,143 | |||
Affiliated securities | 49,886 | |||
Futures transactions | 15,523 | |||
|
| |||
Net realized gains on investments | 4,968,552 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 3,782,645 | |||
Affiliated securities | 4,097 | |||
Futures transactions | 45,109 | |||
|
| |||
Net change in unrealized gains (losses) on investments | 3,831,851 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 8,800,403 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 9,483,261 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
32 | Wells Fargo VT Index Asset Allocation Fund | Statement of changes in net assets |
Year ended December 31, 2017 | Year ended December 31, 2016 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 682,858 | $ | 749,200 | ||||||||||||
Net realized gains on investments | 4,968,552 | 3,516,592 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 3,831,851 | 1,691,580 | ||||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 9,483,261 | 5,957,372 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (608,003 | ) | (720,605 | ) | ||||||||||||
Net realized gains – Class 2 | (3,450,453 | ) | (2,289,129 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (4,058,456 | ) | (3,009,734 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 146,463 | 2,893,484 | 333,800 | 6,245,984 | ||||||||||||
Reinvestment of distributions – Class 2 | 207,706 | 4,058,456 | 162,349 | 3,009,734 | ||||||||||||
Payment for shares redeemed – Class 2 | (601,794 | ) | (11,926,259 | ) | (653,618 | ) | (12,192,875 | ) | ||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (4,974,319 | ) | (2,937,157 | ) | ||||||||||||
|
| |||||||||||||||
Total increase in net assets | 450,486 | 10,481 | ||||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 81,505,480 | 81,494,999 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 81,955,966 | $ | 81,505,480 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 77,063 | $ | 2,500 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Financial highlights | Wells Fargo VT Index Asset Allocation Fund | 33 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $19.16 | $18.47 | $18.43 | $15.85 | $13.47 | |||||||||||||||
Net investment income | 0.17 | 0.17 | 0.18 | 0.27 | 0.24 | |||||||||||||||
Net realized and unrealized gains on investments | 2.12 | 1.21 | 0.05 | 2.57 | 2.39 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.29 | 1.39 | 0.23 | 2.84 | 2.63 | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.15 | ) | (0.17 | ) | (0.19 | ) | (0.26 | ) | (0.25 | ) | ||||||||||
Net realized gains | (0.85 | ) | (0.53 | ) | 0.00 | 0.00 | 0.00 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (1.00 | ) | (0.70 | ) | (0.19 | ) | (0.26 | ) | (0.25 | ) | ||||||||||
Net asset value, end of period | $20.45 | $19.16 | $18.47 | $18.43 | $15.85 | |||||||||||||||
Total return1 | 12.25 | % | 7.67 | % | 1.25 | % | 18.06 | % | 19.63 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.16 | % | 1.10 | % | 1.10 | % | 1.02 | % | 1.11 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 0.99 | % | 1.00 | % | ||||||||||
Net investment income | 0.86 | % | 0.93 | % | 0.95 | % | 1.58 | % | 1.57 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 10 | % | 15 | % | 44 | % | 3 | % | 11 | % | ||||||||||
Net assets, end of period (000s omitted) | $81,956 | $81,505 | $81,495 | $92,146 | $86,935 |
1 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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34 | Wells Fargo VT Index Asset Allocation Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo VT Index Asset Allocation Fund (the “Fund”) which is a diversified series of the Trust. The Trust offers shares of the Fund to separate accounts of various life insurance companies as funding vehicles for certain variable annuity contracts and variable life insurance policies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Equity securities and futures 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, a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
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. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally 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 of the Fund. 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 of Wells Fargo Funds Management, LLC (“Funds Management”). 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 manager 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.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy
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Notes to financial statements | Wells Fargo VT Index Asset Allocation Fund | 35 |
by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in income from affiliated securities on the Statement of Operations.
Futures contracts
The Fund is subject to interest rate risk and equity price risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in interest rates and security values. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market.
The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
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.
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 been determined to be doubtful based on consistently applied procedures and the fair value has decreased. 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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital.
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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36 | Wells Fargo VT Index Asset Allocation Fund | Notes to financial statements |
As of December 31, 2017, the aggregate cost of all investments for federal income tax purposes was $59,941,239 and the unrealized gains (losses) consisted of:
Gross unrealized gains | $ | 24,144,204 | ||
Gross unrealized losses | (1,197,098 | ) | ||
Net unrealized gains | $ | 22,947,106 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized gains on investments | |
$(292) | $292 |
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 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:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | 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.
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Notes to financial statements | Wells Fargo VT Index Asset Allocation Fund | 37 |
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2017:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 5,979,714 | $ | 0 | $ | 0 | $ | 5,979,714 | ||||||||
Consumer staples | 4,018,737 | 0 | 0 | 4,018,737 | ||||||||||||
Energy | 2,978,080 | 0 | 0 | 2,978,080 | ||||||||||||
Financials | 7,254,555 | 0 | 0 | 7,254,555 | ||||||||||||
Health care | 6,748,755 | 0 | 0 | 6,748,755 | ||||||||||||
Industrials | 4,994,873 | 0 | 0 | 4,994,873 | ||||||||||||
Information technology | 11,677,032 | 0 | 0 | 11,677,032 | ||||||||||||
Materials | 1,470,098 | 0 | 0 | 1,470,098 | ||||||||||||
Real estate | 1,417,755 | 0 | 0 | 1,417,755 | ||||||||||||
Telecommunication services | 1,013,310 | 0 | 0 | 1,013,310 | ||||||||||||
Utilities | 1,440,772 | 0 | 0 | 1,440,772 | ||||||||||||
Rights | ||||||||||||||||
Consumer staples | 0 | 12 | 0 | 12 | ||||||||||||
U.S. Treasury securities | 32,053,305 | 0 | 0 | 32,053,305 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,676,790 | 0 | 0 | 1,676,790 | ||||||||||||
U.S. Treasury securities | 99,795 | 0 | 0 | 99,795 | ||||||||||||
Investments measured at net asset value* | 17,600 | |||||||||||||||
82,823,571 | 12 | 0 | 82,841,183 | |||||||||||||
Futures contracts | 1,150 | 0 | 0 | 1,150 | ||||||||||||
Total assets | $ | 82,824,721 | $ | 12 | $ | 0 | $ | 82,842,333 | ||||||||
Liabilities | ||||||||||||||||
Futures contracts | $ | 14,892 | $ | 0 | $ | 0 | $ | 14,892 | ||||||||
Total liabilities | $ | 14,892 | $ | 0 | $ | 0 | $ | 14,892 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $17,600 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
Futures contracts are reported at their variation margin at measurement date, which represents the amount due to/from the Fund at that date. All other assets and liabilities are reported at their market value at measurement date.
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At December 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.60% and declining to 0.43% as the average daily net assets of the Fund increase. For the year ended December 31, 2017, the management fee was equivalent to an annual rate of 0.60% of the Fund’s average daily net assets.
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38 | Wells Fargo VT Index Asset Allocation Fund | Notes to financial statements |
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.15% and declining to 0.10% as the average daily net assets of the Fund increase.
Administration fee
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives a class level administration fee of 0.08% which is calculated based on the average daily net assets of Class 2 shares.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2018 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.00% for Class 2. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Out-of-pocket reimbursements
During the year ended December 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $75 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations.
Distribution fee
The Trust has adopted a distribution plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Interfund transactions
The Fund may purchase or sell investment securities to other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2017 were as follows:
Purchases at cost | Sales proceeds | |||||
U.S. government | Non-U.S. government | U.S. government | Non-U.S. government | |||
$7,296,352 | $1,102,796 | $6,138,930 | $9,288,064 |
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2017, the Fund entered into futures contracts for to gain market exposure to certain asset classes consistent with an active asset allocation strategy. The Fund had an average notional amount of $887,526 and $7,241,811 in long and short futures contracts, respectively, during the year ended December 31, 2017.
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Notes to financial statements | Wells Fargo VT Index Asset Allocation Fund | 39 |
A summary of the location of derivative instruments on the financial statements by primary risk exposure is outlined following tables.
The fair value of derivative instruments as of December 31, 2017 was as follows for the Fund:
Asset derivatives | Liability derivatives | |||||||||||
Statement of Assets and Liabilities location | Fair value | Statement of Assets and Liabilities location | Fair value | |||||||||
Interest rate risk | Receivable for daily variation margin on open futures contracts | $ | 1,150 | * | Payable for daily variation margin on open futures contracts | $ | 14,625 | * | ||||
Equity risk | Receivable for daily variation margin on open futures contracts | 0 | * | Payable for daily variation margin on open futures contracts | 267 | * | ||||||
$ | 1,150 | $ | 14,892 |
* | Only the current day’s variation margin as of December 31, 2017 is reported separately on the Statement of Assets and Liabilities. |
The effect of derivative instruments on the Statement of Operations for the year ended December 31, 2017 was as follows for the Fund:
Amount of realized gains (losses) on derivatives | Change in unrealized gains (losses) on derivatives | |||||||
Equity risk | $ | 39,061 | $ | 578 | ||||
Interest rate risk | (23,538 | ) | 44,531 | |||||
$ | 15,523 | $ | 45,109 |
For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, are reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, are noted in the Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:
Counterparty | Gross amounts of assets in the Statement of Assets and Liabilities | Amounts subject to netting agreements | Collateral received | Net amount of assets | ||||||||
Goldman Sachs | $1,150 | $(1,150) | $ | 0 | $ | 0 |
Counterparty | Gross amounts of liabilities in the Statement of Assets and Liabilities | Amounts subject to netting agreements | Collateral pledged1 | Net amount of liabilities | ||||||||
Goldman Sachs | $14,892 | $(1,150) | $ | (13,742 | ) | $ | 0 |
1 | Collateral pledged within this table is limited to the collateral for the net transaction with the counterparty. |
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40 | Wells Fargo VT Index Asset Allocation Fund | Notes to financial statements |
7. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 29, 2017, the revolving credit agreement amount was $250,000,000.
For the year ended December 31, 2017, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2017 and December 31, 2016 were as follows:
Year ended December 31 | ||||||||
2017 | 2016 | |||||||
Ordinary income | $ | 1,035,487 | $ | 720,605 | ||||
Long-term capital gain | 3,022,969 | 2,289,129 |
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | ||
$112,100 | $4,889,636 | $22,947,106 |
9. INDEMNIFICATION
Under the Trust’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 Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’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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Report of independent registered public accounting firm | Wells Fargo VT Index Asset Allocation Fund | 41 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Wells Fargo VT Index Asset Allocation Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, including the portfolio of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies, however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
February 26, 2018
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42 | Wells Fargo VT Index Asset Allocation Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 93.57% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2017.
Pursuant to Section 852 of the Internal Revenue Code, $3,022,969 was designated as a 20% rate gain distribution for the fiscal year ended December 31, 2017.
For the fiscal year ended December 31, 2017, 19.53% of the dividends distributed was derived from interest on U.S. government securities.
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- 260-5969, 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.
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. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more 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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Other information (unaudited) | Wells Fargo VT Index Asset Allocation Fund | 43 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 153 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
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 investment 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 led 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. Board member of the Forté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder. | Asset Allocation Trust | |||
Jane A. Freeman** (Born 1953) | Trustee, since 2015; Chair Liaison, since 2018 | 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 a Board Member of Ruth Bancroft Garden (non-profit organization) and the Glimmerglass Festival. She is also an inactive Chartered Financial Analyst. | Asset Allocation Trust | |||
Peter G. Gordon*** (Born 1942) | Trustee, since 1998; Chairman, from 2005 to 2017 | 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 2009 | 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 2008; Audit Committee Chairman, since 2008 | 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 2009 | 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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44 | Wells Fargo VT Index Asset Allocation Fund | Other information (unaudited) |
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 2006; Governance Committee Chairman, since 2018 | 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 1996; Chairman, since 2018; Vice Chairman, from 2017 to 2018 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
James G. Polisson****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | 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. 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 | |||
Pamela Wheelock****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Chief Operating Officer, Twin Cities Habitat for Humanity, since January, 2017. Vice President of University Services, University of Minnesota from 2012 to 2017. Prior thereto, Interim President and Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2010 to 2011, Chairman of the Board from 2009 to 2011 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently on the Board of Directors, Governance Committee and Finance Committee, for the Minnesota Philanthropy Partners (Saint Paul Foundation) since 2012 and Board Chair of the Minnesota Wild Foundation since 2010. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Jane Freeman became Chair Liaison effective January 1, 2018. |
*** | Peter Gordon retired on December 31, 2017. |
**** | Olivia Mitchell became Chairman of the Governance Committee effective January 1, 2018. |
***** | Timothy Penny became Chairman effective January 1, 2018. |
****** | James Polisson and Pamela Wheelock each became a Trustee effective January 1, 2018. |
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Other information (unaudited) | Wells Fargo VT Index Asset Allocation Fund | 45 |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) | President, since 2017 | Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | 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. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | 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. | ||||
Michael H. Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016. | ||||
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. |
1 | Jeremy DePalma acts as Treasurer of 76 funds and Assistant Treasurer of 77 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-260-5969 or by visiting the website at wellsfargofunds.com. |
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46 | Wells Fargo VT Index Asset Allocation Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
CLO | — Collateralized loan obligation |
CLP | — Chilean peso |
COP | — Colombian peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
INR | — Indian rupee |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
PJSC | — Public Joint Stock Company |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals:
1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-260-5969 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
308052 02-18 SAAVT2/AR148 12-17 |
Table of Contents
Annual Report
December 31, 2017
Wells Fargo VT International Equity Fund
Table of Contents
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4 | ||||
8 | ||||
9 | ||||
Financial statements | ||||
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17 | ||||
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29 |
The views expressed and any forward-looking statements are as of December 31, 2017, 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.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
Table of Contents
2 | Wells Fargo VT International Equity Fund | Letter to shareholders (unaudited) |
Andrew Owen
President
Wells Fargo Funds
Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well.
Dear Shareholder:
We are pleased to offer you this annual report for the Wells Fargo VT International Equity Fund for the 12-month period that ended December 31, 2017. Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well. U.S. and international stocks performed similarly overall with returns of 21.83% and 27.19%, respectively, for the 12-month period, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2, respectively. Within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 3.54% and the Bloomberg Barclays Municipal Bond Index4 returned 5.45% as interest rates gradually rose over the period.
Investment markets gained during the first two quarters of 2017 on positive economic data.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. In the U.S., hiring remained strong, and business and consumer sentiment improved. In March, the U.S. Federal Reserve (Fed) raised its target interest rate by a quarter percentage point to a range of 0.75% to 1.00%; with the Fed rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets because they benefited from both global economic growth and recent weakening of the U.S. dollar. Stocks in Asia, Europe, and Latin America also outperformed the U.S. market during the quarter.
Globally, stocks marked continued gains through the second quarter of 2017. Steady, albeit modest, economic growth both in the U.S. and abroad and generally favorable corporate earnings announcements supported higher valuations. U.S. inflation trended lower despite a continued decline in the unemployment rate. Ten-year U.S. Treasury yields declined, resulting in stronger prices for long-term bonds. As was widely expected, the Fed raised the target interest rate in June by a quarter percentage point to a range of 1.00% to 1.25%. In addition, the Fed indicated that it planned to start selling bonds accumulated on its balance sheet during quantitative easing programs conducted since 2008.
As global growth improved in the third quarter of 2017, investment markets generally advanced.
Most stock markets worldwide moved higher during the quarter and ended the period at or near all-time highs. Moderate acceleration in global economic growth was supported by improving corporate earnings, low inflation pressure, and still-low interest rates. While North Korea’s recent missile launches and nuclear testing raised serious concerns around the world, the heightened geopolitical risk had relatively minimal impact on the quarter’s stock returns. In the U.S., economic data released during the quarter reflected a generally healthy economy. Second-quarter economic output grew at a 3.1% annual rate, and consumers displayed more willingness to spend. Meanwhile, the Fed maintained the target range for the federal funds rate at 1.00% to 1.25%, noting that inflation had remained below the Fed’s 2.00% objective.
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 Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
4 | The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo VT International Equity Fund | 3 |
However, Fed officials also stated the possibility of one more 0.25% increase in the federal funds rate by the end of 2017 and announced plans to begin the process of unwinding its $4.5 trillion portfolio of bonds and other assets in October. Outside the U.S., stocks in the Asia Pacific region benefited from solid earnings reports and investors’ willingness to take on risk despite the rising tensions between North Korea and the U.S. In Europe, markets were supported by better-than-expected economic growth, which led to narrowing of the gap between Europe’s growth rate and that of the U.S. In emerging markets, many countries benefited from stronger currencies versus the U.S. dollar.
Positive economic and market news continued through the fourth quarter.
During the fourth quarter, stock markets followed a steady, upward trajectory with no meaningful pullbacks, similar to their paths during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue surprises from many companies. Synchronous economic expansion worldwide with mild inflation provided a favorable environment for markets to rise with minimal volatility. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate. Hiring remained solid during the quarter; the hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Fed officials began unwinding the Fed’s $4.5 trillion portfolio of bonds and other assets in October as planned, and in December they raised the target for the federal funds rate to a range of 1.25% to 1.50%. As a result, long-term interest rates in the U.S. continued trending upward, although the 10-year rate remained below 2.5%. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for 2017. International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
Andrew Owen
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-260-5969. We are available 24 hours a day, 7 days a week.
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4 | Wells Fargo VT International Equity Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio manager
Venkateshwar Lal‡
Dale A. Winner, CFA®
Average annual total returns (%) as of December 31, 20171
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 8-17-1998 | 24.86 | 8.42 | 1.64 | 0.96 | 0.70 | ||||||||||||||||
Class 2 | 7-31-2002 | 24.34 | 8.14 | 1.39 | 1.21 | 0.95 | ||||||||||||||||
MSCI ACWI ex USA Index (Net)4 | – | 27.19 | 6.80 | 1.84 | – | – |
Figures quoted represent past performance, which is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-260-5969. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If these charges had been reflected, performance would have been lower.
Shares are sold without a front-end sales charge or contingent deferred sales charge.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo VT International Equity Fund | 5 |
Growth of $10,000 investment as of December 31, 20175 |
‡ | Mr. Lal became a portfolio manager of the Fund on June 30, 2017. |
1 | Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen VA International Equity Fund. |
2 | Reflects the expense ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3 | The manager has contractually committed through April 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 0.69% for Class 1 and 0.94% for Class 2. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
5 | The chart compares the performance of Class 2 shares for the most recent ten years with the MSCI ACWI ex USA Index (Net). The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6 | 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. |
7 | 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. |
* | This security was no longer held at the end of the reporting period. |
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6 | Wells Fargo VT International Equity Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed its benchmark, the MSCI ACWI ex USA Index (Net), for the 12-month period that ended December 31, 2017. |
∎ | For the one-year period, positive sector performance attribution included investments in diversified financials, telecommunication services, consumer staples, and materials stocks, which were collectively outweighed by negative attribution from underweights to information technology (IT) and real estate stocks and selected consumer discretionary and financials stocks as well as negative results from partial hedges of European currency exposures and cash balances. |
∎ | The Fund had its largest country weights in German, Japanese, South Korea, Swiss, U.K., Dutch, Italian, U.S., French, Chinese/Hong Kong companies, where the management team believed it uncovered undervalued investments. |
Ten largest holdings (%) as of December 31, 20176 | ||||
CIMB Group Holdings Bhd | 3.66 | |||
Hitachi Limited | 3.60 | |||
Eni SpA | 3.51 | |||
Nomura Holdings Incorporated | 3.47 | |||
DNB ASA | 3.44 | |||
Vodafone Group plc | 3.34 | |||
Novartis AG | 3.27 | |||
UniCredit SpA | 3.15 | |||
Compagnie de Saint-Gobain SA | 3.10 | |||
Cosan Limited Class A | 3.08 |
Stock selection drove Fund performance amid volatility.
In an environment of sustained outperformance of international equities relative to U.S. equities and intersector performance dispersion throughout the year, the investment team continued in their fundamental research approach to maximize attractive long-term opportunities: searching for nonconsensus values around the globe; maintaining a focus on overall investment risk management; and rebalancing infrequently, doing so only to capture unusual stock market or company-specific price movements for investors’ potential benefit by marrying fundamental stock-picking with macro and risk research. The largest sector allocations include financials, industrial, telecommunications services, energy, and health care with notable underweights to consumer, real estate, utilities, and IT stocks.
During the period, selected stocks detracted from portfolio performance, including JBS S.A.;* UniCredit S.p.A.; Coca-Cola Bottlers Japan Holdings Incorporated;* Mitsui Fudosan Company, Limited;* Frontline Limited;* Daiwa Securities Group Incorporated; and Xinyi Solar Holdings Limited. While the underperformance associated with these and other investments caused the performance of the portfolio to trail that of the benchmark, the investment team generated returns in regions and countries globally that were positive on an absolute basis and, in selected instances, on a relative basis when compared to their counterparts in the index. Negative performance attribution originated from investments in Italy, Japan, China/Hong Kong, Brazil, France, Norway, and Switzerland, and positive country attribution was generated by holdings in the U.K., Canada, South Korea, the U.S., the Netherlands, Malaysia, and Russia. Some of the best stock performances came from stocks such as Man Group plc; Kweichow Moutai Company, Limited; SK Telecom Company, Limited; Hana Financial Group Incorporated; Vodafone Group Plc; CIMB Group Holdings Berhad; and Lundin Mining Corporation. The persistent underperformance of value stocks relative to more momentum-oriented growth international stocks during the past year, especially during the first half of 2017, provided some headwind to performance.
Sector distribution as of December 31, 20177 |
Country allocation as of December 31, 20177 |
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo VT International Equity Fund | 7 |
Regionally, divergent and compelling investment opportunities are emerging.
This Fund is concentrated in stock holdings across Europe, Japan, and selected emerging markets, with positioning predicated on cheaper equity valuations (on an absolute and relative basis), greater earning power (with operational leverage to global economic recovery), and more accommodative public policies (across monetary, fiscal, and structural reforms).
A number of themes come from marrying the core of our micro research with macro research, including undervalued European financials with excess capital; undervalued cyclicals with self-help catalysts in Europe, Japan, and the Americas; and undervalued telecommunication services cash cows, those businesses that generate a steady income or profit, particularly in emerging markets.
In Europe, opportunities arose based on stock-specific fundamentals largely improving from indications of a cyclical economic recovery and important self-help restructuring, as companies engaged in business portfolio reshaping and earnings normalization through the implementation of operational efficiencies. Our larger position weights include investments such as Eni S.p.A., DNB ASA, Novartis AG, UniCredit, S.p.A. Compagnie de Saint-Gobain S.A., Bayer AG, OCI N.V., and Koninklijke Philips N.V. in continental Europe as well as Vodafone Group, BP p.l.c., and UBM plc* in the U.K. While we expect the European Central Bank to consider tapering its accommodation potentially as early as 2019, the central bank continues to engage in significant quantitative easing and extend the duration of expected asset purchases, thereby adding to liquidity in local markets.
In Japan, signs of corporate governance reform continued to be visible as Abenomics, the economic policies under Japan Prime Minister Shinzo Abe, continued to expand. Top portfolio holdings include Hitachi, Limited; Nomura Holdings, Incorporated; Mitsubishi UFJ Financial Group, Incorporated; and Daiwa Securities Group Incorporated, under the backdrop of a watchful and active Bank of Japan and ongoing fiscal stimulus complementing reflationary public policies.
More than one quarter of the portfolio is invested in selected stocks considered to represent value in emerging markets, avoiding those deemed emerging-market value traps. Investments in Hong Kong/China represented the most significant emerging-market exposure, specifically in undervalued stocks benefiting from the country’s transition to a more consumer-oriented society—for example, China Mobile Limited; Hollysys Automation Technologies Limited; Shanghai Pharmaceuticals Holding Company, Limited; and Xinyi Glass Holdings Limited. South Korean holdings include SK Telecom; Hana Financial Group; and Samsung Electronics Company, Limited. In addition, the Fund owns holdings in Malaysia (CIMB Group Holdings), Brazil (Cosan S.A.), South Africa (Sasol Limited), and Russia (Mobile TeleSystems OJSC).
Portfolio currency hedges are on the lower end of the Fund’s historical size range, given strengthening economic recoveries around the world, raising those currencies’ forward interest-rate differentials, and unlike in past years, the investment team believes that currently there is an absence of a strong U.S. dollar exchange-rate policy articulated by a U.S. administration speaking with one voice. As such, the Fund currently has only partial hedges of British pound exposure and more limited hedges versus the euro.
We continue to adhere to our investment process while remaining mindful of risks.
We expect that the equity and currency volatility across developed and emerging markets that was evident in years past will persist during 2018 as economies, central banks, and other public policy officials attempt to adjust from long-term deleveraging and economic imbalances—and, in particular, rising geopolitical volatility. We remain mindful of these risks globally and look forward to adapting our portfolio as opportunities arise in quarters to come.
Please see footnotes on page 5.
Table of Contents
8 | Wells Fargo VT International Equity Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2017 to December 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2017 | Ending account value 12-31-2017 | Expenses paid during the period¹ | Annualized net expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,122.45 | $ | 3.69 | 0.69 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.73 | $ | 3.52 | 0.69 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,119.10 | $ | 5.02 | 0.94 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.47 | $ | 4.79 | 0.94 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT International Equity Fund | 9 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 92.36% | ||||||||||||||||
Brazil: 3.08% | ||||||||||||||||
Cosan Limited Class A (Energy, Oil, Gas & Consumable Fuels) | 1,097,736 | $ | 10,648,039 | |||||||||||||
|
| |||||||||||||||
Canada: 1.90% | ||||||||||||||||
Lundin Mining Corporation (Materials, Metals & Mining) | 991,851 | 6,596,559 | ||||||||||||||
|
| |||||||||||||||
China: 7.72% | ||||||||||||||||
China Everbright Limited (Financials, Capital Markets) | 1,566,000 | 3,503,674 | ||||||||||||||
China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services) | 840,500 | 8,525,650 | ||||||||||||||
Hollysys Automation Technologies Limited (Information Technology, Electronic Equipment, Instruments & Components) | 349,153 | 7,775,637 | ||||||||||||||
Shanghai Pharmaceuticals Holding Company Limited H Shares (Health Care, Health Care Providers & Services) | 2,558,900 | 6,927,144 | ||||||||||||||
26,732,105 | ||||||||||||||||
|
| |||||||||||||||
France: 5.62% | ||||||||||||||||
Compagnie de Saint-Gobain SA (Industrials, Building Products) | 194,406 | 10,725,198 | ||||||||||||||
Orange SA (Telecommunication Services, Diversified Telecommunication Services) | 502,039 | 8,719,322 | ||||||||||||||
19,444,520 | ||||||||||||||||
|
| |||||||||||||||
Germany: 11.89% | ||||||||||||||||
Bayer AG (Health Care, Pharmaceuticals) | 78,833 | 9,837,123 | ||||||||||||||
Ceconomy AG (Consumer Discretionary, Specialty Retail) | 289,018 | 4,371,137 | ||||||||||||||
Metro AG (Consumer Staples, Food & Staples Retailing) | 259,783 | 5,189,813 | ||||||||||||||
Muenchener Rueckversicherungs Gesellschaft AG (Financials, Insurance) | 30,482 | 6,610,715 | ||||||||||||||
Rheinmetall AG (Industrials, Industrial Conglomerates) | 30,844 | 3,917,313 | ||||||||||||||
SAP SE (Information Technology, Software) | 54,112 | 6,067,358 | ||||||||||||||
Siemens AG (Industrials, Industrial Conglomerates) | 36,988 | 5,154,740 | ||||||||||||||
41,148,199 | ||||||||||||||||
|
| |||||||||||||||
Hong Kong: 1.89% | ||||||||||||||||
Xinyi Glass Holdings Limited (Consumer Discretionary, Auto Components) | 5,024,000 | 6,546,180 | ||||||||||||||
|
| |||||||||||||||
Italy: 6.99% | ||||||||||||||||
Eni SpA (Energy, Oil, Gas & Consumable Fuels) | 734,686 | 12,164,872 | ||||||||||||||
Prysmian SpA (Industrials, Electrical Equipment) | 35,040 | 1,143,142 | ||||||||||||||
UniCredit SpA (Financials, Banks) | 582,703 | 10,892,847 | ||||||||||||||
24,200,861 | ||||||||||||||||
|
| |||||||||||||||
Japan: 10.70% | ||||||||||||||||
Daiwa Securities Group Incorporated (Financials, Capital Markets) | 832,000 | 5,219,799 | ||||||||||||||
Hitachi Limited (Information Technology, Electronic Equipment, Instruments & Components) | 1,598,000 | 12,450,714 | ||||||||||||||
Mitsubishi UFJ Financial Group Incorporated (Financials, Banks) | 1,003,300 | 7,358,572 | ||||||||||||||
Nomura Holdings Incorporated (Financials, Capital Markets) | 2,033,200 | 12,001,609 | ||||||||||||||
37,030,694 | ||||||||||||||||
|
| |||||||||||||||
Malaysia: 3.66% | ||||||||||||||||
CIMB Group Holdings Bhd (Financials, Banks) | 7,839,420 | 12,668,596 | ||||||||||||||
|
| |||||||||||||||
Netherlands: 10.35% | ||||||||||||||||
Koninklijke Philips NV (Industrials, Industrial Conglomerates) | 233,034 | 8,818,763 | ||||||||||||||
NN Group NV (Financials, Insurance) | 188,997 | 8,190,857 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo VT International Equity Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Netherlands (continued) | ||||||||||||||||
OCI NV (Materials, Chemicals) †« | 375,114 | $ | 9,465,188 | |||||||||||||
Sensata Technologies Holding NV (Industrials, Electrical Equipment) † | 183,129 | 9,359,723 | ||||||||||||||
35,834,531 | ||||||||||||||||
|
| |||||||||||||||
Norway: 3.43% | ||||||||||||||||
DNB ASA (Financials, Banks) | 642,003 | 11,892,999 | ||||||||||||||
|
| |||||||||||||||
Russia: 1.77% | ||||||||||||||||
Mobile TeleSystems PJSC ADR (Telecommunication Services, Wireless Telecommunication Services) | 602,209 | 6,136,510 | ||||||||||||||
|
| |||||||||||||||
South Africa: 2.60% | ||||||||||||||||
Sasol Limited (Materials, Chemicals) | 260,560 | 9,017,303 | ||||||||||||||
|
| |||||||||||||||
South Korea: 5.04% | ||||||||||||||||
Hana Financial Group Incorporated (Financials, Banks) | 124,937 | 5,811,837 | ||||||||||||||
Samsung Electronics Company Limited GDR (Information Technology, Technology Hardware, Storage & Peripherals) 144A | 2,013 | 2,411,574 | ||||||||||||||
SK Telecom Company Limited (Telecommunication Services, Wireless Telecommunication Services) | 36,995 | 9,226,720 | ||||||||||||||
17,450,131 | ||||||||||||||||
|
| |||||||||||||||
Switzerland: 3.76% | ||||||||||||||||
Novartis AG (Health Care, Pharmaceuticals) | 133,712 | 11,306,756 | ||||||||||||||
Zurich Insurance Group AG (Financials, Insurance) | 5,604 | 1,705,728 | ||||||||||||||
13,012,484 | ||||||||||||||||
|
| |||||||||||||||
United Kingdom: 11.09% | ||||||||||||||||
BP plc (Energy, Oil, Gas & Consumable Fuels) | 1,362,622 | 9,616,348 | ||||||||||||||
Man Group plc (Financials, Capital Markets) | 1,863,037 | 5,201,808 | ||||||||||||||
Smiths Group plc (Industrials, Industrial Conglomerates) | 164,274 | 3,304,741 | ||||||||||||||
United Business Media plc (Consumer Discretionary, Media) | 863,427 | 8,708,202 | ||||||||||||||
Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services) | 3,644,756 | 11,564,280 | ||||||||||||||
38,395,379 | ||||||||||||||||
|
| |||||||||||||||
United States: 0.87% | ||||||||||||||||
Apple Incorporated (Information Technology, Technology Hardware, Storage & Peripherals) | 17,730 | 3,000,448 | ||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $271,577,636) |
| 319,755,538 | ||||||||||||||
|
| |||||||||||||||
Exchange-Traded Funds: 2.49% | ||||||||||||||||
United States: 2.49% | ||||||||||||||||
iShares MSCI ACWI ex US ETF « | 172,625 | 8,622,619 | ||||||||||||||
|
| |||||||||||||||
Total Exchange-Traded Funds (Cost $8,479,498) |
| 8,622,619 | ||||||||||||||
|
| |||||||||||||||
Expiration date | ||||||||||||||||
Participation Notes: 0.77% | ||||||||||||||||
China: 0.77% | ||||||||||||||||
HSBC Bank plc (Kweichow Moutai Company Limited Class A) (Consumer Staples, Beverages) †144A(a) | 2-19-2019 | 24,658 | 2,641,079 | |||||||||||||
|
| |||||||||||||||
Total Participation Notes (Cost $843,484) |
| 2,641,079 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT International Equity Fund | 11 |
Security name | Yield | Shares | Value | |||||||||||||
Short-Term Investments: 7.02% | ||||||||||||||||
Investment Companies: 7.02% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) | 1.57 | % | 12,050,503 | $ | 12,051,708 | |||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) | 1.19 | 12,257,057 | 12,257,057 | |||||||||||||
Total Short-Term Investments (Cost $24,308,740) |
| 24,308,765 | ||||||||||||||
|
|
Total investments in securities (Cost $305,209,358) | 102.64 | % | 355,328,001 | |||||
Other assets and liabilities, net | (2.64 | ) | (9,124,940 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 346,203,061 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
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. |
(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. |
(r) | The investment is a non-registered investment company purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
Forward Foreign Currency Contracts
Currency to be received | Currency to be delivered | Counterparty¤¤ | Settlement date | Unrealized gains | Unrealized losses | |||||||||
19,187,773 USD | 16,220,000 EUR | Goldman Sachs | 1-30-2018 | $ | 0 | $ | (304,094 | ) | ||||||
14,943,032 USD | 11,129,500 GBP | Morgan Stanley | 3-12-2018 | 0 | (116,599 | ) | ||||||||
|
|
|
| |||||||||||
$ | 0 | $ | (420,693 | ) | ||||||||||
|
|
|
|
¤¤ | Transactions can only be closed with the originating counterparty. |
Investments in Affiliates
An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:
Shares, beginning of period | Shares purchased | Shares sold | Shares, end of period | Net realized gains (losses) | Net change in unrealized gains (losses) | Income from affiliated securities | Value, end of period | % of net assets | ||||||||||||||||||||||||||||
Short-Term Investments | ||||||||||||||||||||||||||||||||||||
Investment Companies | ||||||||||||||||||||||||||||||||||||
Securities Lending Cash Investment LLC | 5,277,239 | 109,494,606 | 102,721,342 | 12,050,503 | $ | 157 | $ | (156 | ) | $ | 158,698 | $ | 12,051,708 | |||||||||||||||||||||||
Wells Fargo Government Money Market Fund Select Class | 35,731,501 | 124,645,029 | 148,119,473 | 12,257,057 | 0 | 0 | 150,365 | 12,257,057 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 157 | $ | (156 | ) | $ | 309,063 | $ | 24,308,765 | 7.02 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo VT International Equity Fund | Statement of assets and liabilities—December 31, 2017 |
Assets | ||||
Investments in unaffiliated securities (including $11,716,712 of securities loaned), at value (cost $280,900,618) | $ | 331,019,236 | ||
Investments in affiliated securities, at value (cost $24,308,740) | 24,308,765 | |||
Cash segregated for forward foreign currency contracts | 280,000 | |||
Foreign currency, at value (cost $205,285) | 206,904 | |||
Receivable for investments sold | 3,485,737 | |||
Receivable for Fund shares sold | 11,746 | |||
Receivable for dividends | 1,151,066 | |||
Receivable for securities lending income | 13,502 | |||
Prepaid expenses and other assets | 4,636 | |||
|
| |||
Total assets | 360,481,592 | |||
|
| |||
Liabilities | ||||
Payable upon receipt of securities loaned | 12,051,470 | |||
Payable for investments purchased | 1,338,851 | |||
Unrealized losses on forward foreign currency contracts | 420,693 | |||
Management fee payable | 163,589 | |||
Payable for Fund shares redeemed | 160,064 | |||
Distribution fee payable | 68,929 | |||
Administration fees payable | 23,993 | |||
Due to custodian bank | 21,801 | |||
Trustees’ fees and expenses payable | 2,905 | |||
Accrued expenses and other liabilities | 26,236 | |||
|
| |||
Total liabilities | 14,278,531 | |||
|
| |||
Total net assets | $ | 346,203,061 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 269,064,064 | ||
Undistributed net investment income | 11,540,416 | |||
Accumulated net realized gains on investments | 15,825,097 | |||
Net unrealized gains on investments | 49,773,484 | |||
|
| |||
Total net assets | $ | 346,203,061 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 28,000,597 | ||
Shares outstanding – Class 11 | 5,242,781 | |||
Net asset value per share – Class 1 | $5.34 | |||
Net assets – Class 2 | $ | 318,202,464 | ||
Shares outstanding – Class 21 | 59,159,555 | |||
Net asset value per share – Class 2 | $5.38 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of operations—year ended December 31, 2017 | Wells Fargo VT International Equity Fund | 13 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $1,107,699) | $ | 10,032,706 | ||
Income from affiliated securities | 309,063 | |||
|
| |||
Total investment income | 10,341,769 | |||
|
| |||
Expenses | ||||
Management fee | 2,654,973 | |||
Administration fees | ||||
Class 1 | 21,291 | |||
Class 2 | 244,206 | |||
Distribution fee | ||||
Class 2 | 763,144 | |||
Custody and accounting fees | 94,144 | |||
Professional fees | 45,667 | |||
Shareholder report expenses | 42,300 | |||
Trustees’ fees and expenses | 20,916 | |||
Other fees and expenses | 17,087 | |||
|
| |||
Total expenses | 3,903,728 | |||
Less: Fee waivers and/or expense reimbursements | (850,669 | ) | ||
|
| |||
Net expenses | 3,053,059 | |||
|
| |||
Net investment income | 7,288,710 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: |
| |||
Unaffiliated securities | 32,693,387 | |||
Affiliated securities | 157 | |||
Forward foreign currency contract transactions | (1,279,275 | ) | ||
|
| |||
Net realized gains on investments | 31,414,269 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 35,040,647 | |||
Affiliated securities | (156 | ) | ||
Forward foreign currency contract transactions | (1,096,573 | ) | ||
|
| |||
Net change in unrealized gains (losses) on investments | 33,943,918 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 65,358,187 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 72,646,897 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo VT International Equity Fund | Statement of changes in net assets |
Year ended December 31, 2017 | Year ended December 31, 2016 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 7,288,710 | $ | 7,034,171 | ||||||||||||
Net realized gains (losses) on investments | 31,414,269 | (6,282,005 | ) | |||||||||||||
Net change in unrealized gains (losses) on investments | 33,943,918 | 9,162,899 | ||||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 72,646,897 | 9,915,065 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (806,868 | ) | (793,355 | ) | ||||||||||||
Class 2 | (8,561,142 | ) | (8,065,124 | ) | ||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | 0 | (1,930,040 | ) | |||||||||||||
Class 2 | 0 | (21,828,958 | ) | |||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (9,368,010 | ) | (32,617,477 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 376,263 | 1,876,925 | 428,691 | 1,873,330 | ||||||||||||
Class 2 | 962,895 | 4,831,998 | 3,816,908 | 16,773,542 | ||||||||||||
|
| |||||||||||||||
6,708,923 | 18,646,872 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 164,667 | 806,868 | 694,743 | 2,723,395 | ||||||||||||
Class 2 | 1,733,025 | 8,561,142 | 7,549,011 | 29,894,082 | ||||||||||||
|
| |||||||||||||||
9,368,010 | 32,617,477 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (992,988 | ) | (4,886,469 | ) | (1,710,735 | ) | (7,542,633 | ) | ||||||||
Class 2 | (8,469,095 | ) | (42,031,034 | ) | (7,426,109 | ) | (32,722,984 | ) | ||||||||
|
| |||||||||||||||
(46,917,503 | ) | (40,265,617 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions | (30,840,570 | ) | 10,998,732 | |||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | 32,438,317 | (11,703,680 | ) | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 313,764,744 | 325,468,424 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 346,203,061 | $ | 313,764,744 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 11,540,416 | $ | 8,685,137 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Financial highlights | Wells Fargo VT International Equity Fund | 15 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $4.41 | $4.82 | $4.92 | $5.48 | $4.94 | |||||||||||||||
Net investment income | 0.12 | 1 | 0.11 | 1 | 0.11 | 1 | 0.18 | 1 | 0.12 | 1 | ||||||||||
Net realized and unrealized gains (losses) on investments | 0.96 | (0.01 | ) | 0.02 | (0.46 | ) | 0.82 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.08 | 0.10 | 0.13 | (0.28 | ) | 0.94 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.15 | ) | (0.15 | ) | (0.23 | ) | (0.16 | ) | (0.13 | ) | ||||||||||
Net realized gains | 0.00 | (0.36 | ) | 0.00 | (0.12 | ) | (0.27 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.15 | ) | (0.51 | ) | (0.23 | ) | (0.28 | ) | (0.40 | ) | ||||||||||
Net asset value, end of period | $5.34 | $4.41 | $4.82 | $4.92 | $5.48 | |||||||||||||||
Total return2 | 24.86 | % | 3.25 | % | 2.30 | % | (5.30 | )% | 19.94 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.95 | % | 0.95 | % | 0.95 | % | 0.94 | % | 0.95 | % | ||||||||||
Net expenses | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | ||||||||||
Net investment income | 2.41 | % | 2.49 | % | 2.04 | % | 3.44 | % | 2.36 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 55 | % | 77 | % | 34 | % | 39 | % | 32 | % | ||||||||||
Net assets, end of period (000s omitted) | $28,001 | $25,137 | $30,254 | $32,599 | $42,021 |
1 | Calculated based upon average shares outstanding |
2 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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16 | Wells Fargo VT International Equity Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $4.45 | $4.84 | $4.95 | $5.50 | $4.96 | |||||||||||||||
Net investment income | 0.11 | 1 | 0.10 | 0.09 | 1 | 0.16 | 0.11 | 1 | ||||||||||||
Net realized and unrealized gains (losses) on investments | 0.96 | 0.00 | 0.01 | (0.45 | ) | 0.82 | ||||||||||||||
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Total from investment operations | 1.07 | 0.10 | 0.10 | (0.29 | ) | 0.93 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.14 | ) | (0.13 | ) | (0.21 | ) | (0.14 | ) | (0.12 | ) | ||||||||||
Net realized gains | 0.00 | (0.36 | ) | 0.00 | (0.12 | ) | (0.27 | ) | ||||||||||||
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Total distributions to shareholders | (0.14 | ) | (0.49 | ) | (0.21 | ) | (0.26 | ) | (0.39 | ) | ||||||||||
Net asset value, end of period | $5.38 | $4.45 | $4.84 | $4.95 | $5.50 | |||||||||||||||
Total return2 | 24.34 | % | 3.30 | % | 1.80 | % | (5.35 | )% | 19.52 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | 1.20 | % | ||||||||||
Net expenses | 0.94 | % | 0.94 | % | 0.94 | % | 0.94 | % | 0.94 | % | ||||||||||
Net investment income | 2.18 | % | 2.25 | % | 1.77 | % | 3.07 | % | 2.08 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 55 | % | 77 | % | 34 | % | 39 | % | 32 | % | ||||||||||
Net assets, end of period (000s omitted) | $318,202 | $288,628 | $295,215 | $310,909 | $319,565 |
1 | Calculated based upon average shares outstanding |
2 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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Notes to financial statements | Wells Fargo VT International Equity Fund | 17 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo VT International Equity Fund (the “Fund”) which is a diversified series of the Trust. The Trust offers shares of the Fund to separate accounts of various life insurance companies as funding vehicles for certain variable annuity contracts and variable life insurance policies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
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, 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 December 31, 2017, such fair value pricing was not used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally 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. 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 manager 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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18 | Wells Fargo VT International Equity Fund | Notes to financial statements |
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 of securities 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.
Participation notes
The Fund may invest in participation notes to gain exposure to securities in certain foreign markets. Participation notes are issued by banks or broker-dealers and are designed to offer a return linked to a particular underlying foreign security. Participation notes involve transaction costs, which may be higher than those applicable to the underlying foreign security. The holder of the participation note is entitled to receive from the bank or broker-dealer, an amount equal to the dividend paid by the issuer of the underlying foreign security; however, the holder is not entitled to the same rights (i.e. dividends, voting rights) as an owner of the underlying foreign security. Investments in participation notes involve risks beyond those normally associated with a direct investment in an underlying security. The Fund has no rights against the issuer of the underlying foreign security and participation notes expose the Fund to counterparty risk in the event the counterparty does not perform. There is also no assurance there will be a secondary trading market for the participation note or that the trading price of the participation note will equal the underlying value of the foreign security that it seeks to replicate.
Forward foreign currency contracts
The Fund is subject to foreign currency risk in the normal course of pursuing its investment objectives. A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on forward foreign currency contract transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains on the contracts. This risk may be mitigated if there is a master netting arrangement between the Fund and the counterparty.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in income from affiliated securities on the Statement of Operations.
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Notes to financial statements | Wells Fargo VT International Equity Fund | 19 |
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.
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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital.
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.
As of December 31, 2017, the aggregate cost of all investments for federal income tax purposes was $311,661,550 and the unrealized gains (losses) consisted of:
Gross unrealized gains | $ | 50,167,997 | ||
Gross unrealized losses | (6,922,239 | ) | ||
Net unrealized gains | $ | 43,245,758 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to corporate actions and foreign currency transactions. At December 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized gains on investments | |
$4,934,579 | $(4,934,579) |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
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 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:
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20 | Wells Fargo VT International Equity Fund | Notes to financial statements |
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | 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 December 31, 2017:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Brazil | $ | 10,648,039 | $ | 0 | $ | 0 | $ | 10,648,039 | ||||||||
Canada | 6,596,559 | 0 | 0 | 6,596,559 | ||||||||||||
China | 26,732,105 | 0 | 0 | 26,732,105 | ||||||||||||
France | 19,444,520 | 0 | 0 | 19,444,520 | ||||||||||||
Germany | 41,148,199 | 0 | 0 | 41,148,199 | ||||||||||||
Hong Kong | 6,546,180 | 0 | 0 | 6,546,180 | ||||||||||||
Italy | 24,200,861 | 0 | 0 | 24,200,861 | ||||||||||||
Japan | 37,030,694 | 0 | 0 | 37,030,694 | ||||||||||||
Malaysia | 12,668,596 | 0 | 0 | 12,668,596 | ||||||||||||
Netherlands | 35,834,531 | 0 | 0 | 35,834,531 | ||||||||||||
Norway | 11,892,999 | 0 | 0 | 11,892,999 | ||||||||||||
Russia | 6,136,510 | 0 | 0 | 6,136,510 | ||||||||||||
South Africa | 9,017,303 | 0 | 0 | 9,017,303 | ||||||||||||
South Korea | 17,450,131 | 0 | 0 | 17,450,131 | ||||||||||||
Switzerland | 13,012,484 | 0 | 0 | 13,012,484 | ||||||||||||
United Kingdom | 38,395,379 | 0 | 0 | 38,395,379 | ||||||||||||
United States | 3,000,448 | 0 | 0 | 3,000,448 | ||||||||||||
Exchange-traded funds | ||||||||||||||||
United States | 8,622,619 | 0 | 0 | 8,622,619 | ||||||||||||
Participation notes | ||||||||||||||||
China | 0 | 2,641,079 | 0 | 2,641,079 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 12,257,057 | 0 | 0 | 12,257,057 | ||||||||||||
Investments measured at net asset value* | 12,051,708 | |||||||||||||||
Total assets | $ | 340,635,214 | $ | 2,641,079 | $ | 0 | $ | 355,328,001 | ||||||||
Liabilities | ||||||||||||||||
Forward foreign currency contracts | $ | 0 | $ | 420,693 | $ | 0 | $ | 420,693 | ||||||||
Total liabilities | $ | 0 | $ | 420,693 | $ | 0 | $ | 420,693 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $12,051,708 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
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Notes to financial statements | Wells Fargo VT International Equity Fund | 21 |
Forward foreign currency contracts are reported at their unrealized losses at measurement date, which represents the change in the contract’s value from trade date. All other assets and liabilities are reported at their market value at measurement date.
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At December 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.80% and declining to 0.63% as the average daily net assets of the Fund increase. For the year ended December 31, 2017, the management fee was equivalent to an annual rate of 0.80% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives a class administration fee of 0.08% which is calculated based on the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2018 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.69% for Class 1 shares and 0.94% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Out-of-pocket reimbursements
During the year ended December 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $288 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations.
Distribution fee
The Trust has adopted a distribution plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Interfund transactions
The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2017 were $169,425,758 and $180,803,639, respectively.
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22 | Wells Fargo VT International Equity Fund | Notes to financial statements |
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2017, the Fund entered into forward foreign currency contracts for economic hedging purposes. The Fund had average contract amounts of $11,048,205 and $43,067,725 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended December 31, 2017.
The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the corresponding financial statement captions.
For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearinghouse for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, are reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, are noted in the Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:
Counterparty | Gross amounts of liabilities in the Statement of Assets and Liabilities | Amounts subject to netting agreements | Collateral pledged1 | Net amount of liabilities | ||||||||||||
Goldman Sachs | $ | 304,094 | $ | 0 | $ | (280,000 | ) | $ | 24,094 | |||||||
Morgan Stanley | 116,599 | 0 | 0 | 116,599 |
1 | Collateral pledged within this table is limited to the collateral for the net transaction with the counterparty by derivative type. |
7. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 29, 2017, the revolving credit agreement amount was $250,000,000.
For the year ended December 31, 2017, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2017 and December 31, 2016 were as follows:
Year ended December 31 | ||||||||
2017 | 2016 | |||||||
Ordinary income | $ | 9,368,010 | $ | 9,315,372 | ||||
Long-term capital gain | 0 | 23,302,105 |
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | ||
$11,126,433 | $22,697,982 | $43,321,292 |
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Notes to financial statements | Wells Fargo VT International Equity Fund | 23 |
9. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
10. INDEMNIFICATION
Under the Trust’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 Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’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 VT International Equity Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Wells Fargo VT International Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, including the portfolio of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies, however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
February 26, 2018
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Other information (unaudited) | Wells Fargo VT International Equity Fund | 25 |
TAX INFORMATION
Pursuant to Section 853 of the Internal Revenue Code, the following amounts have been designated as foreign taxes paid for the fiscal year ended December 31, 2017. These amounts may be less than the actual foreign taxes paid for financial statement purposes. Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments. None of the income was derived from ineligible foreign sources as defined under Section 901(j) of the Internal Revenue Code.
Creditable foreign taxes paid | Per share amount | Foreign income as % of | ||
$854,186 | $0.0133 | 100% |
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 1-800-260-5969, 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.
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. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more 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 VT International Equity Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 153 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
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 | |||
William R. Ebsworth (Born 1957) | Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment 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 led 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. Board member of the Forté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder. | Asset Allocation Trust | |||
Jane A. Freeman** (Born 1953) | Trustee, since 2015; Chair Liaison, since 2018 | 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 a Board Member of Ruth Bancroft Garden (non-profit organization) and the Glimmerglass Festival. She is also an inactive Chartered Financial Analyst. | Asset Allocation Trust | |||
Peter G. Gordon*** (Born 1942) | Trustee, since 1998; Chairman, from 2005 to 2017 | 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 2009 | 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 2008; Audit Committee Chairman, since 2008 | 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 2009 | 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 VT International Equity 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 | |||
Olivia S. Mitchell**** (Born 1953) | Trustee, since 2006; Governance Committee Chairman, since 2018 | 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 1996; Chairman, since 2018; Vice Chairman, from 2017 to 2018 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
James G. Polisson****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | 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. 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 | |||
Pamela Wheelock****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Chief Operating Officer, Twin Cities Habitat for Humanity, since January, 2017. Vice President of University Services, University of Minnesota from 2012 to 2017. Prior thereto, Interim President and Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2010 to 2011, Chairman of the Board from 2009 to 2011 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently on the Board of Directors, Governance Committee and Finance Committee, for the Minnesota Philanthropy Partners (Saint Paul Foundation) since 2012 and Board Chair of the Minnesota Wild Foundation since 2010. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Jane Freeman became Chair Liaison effective January 1, 2018. |
*** | Peter Gordon retired on December 31, 2017. |
**** | Olivia Mitchell became Chairman of the Governance Committee effective January 1, 2018. |
***** | Timothy Penny became Chairman effective January 1, 2018. |
****** | James Polisson and Pamela Wheelock each became a Trustee effective January 1, 2018. |
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28 | Wells Fargo VT International Equity Fund | Other information (unaudited) |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) | President, since 2017 | Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | 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. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | 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. | ||||
Michael H. Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016. | ||||
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. |
1 | Jeremy DePalma acts as Treasurer of 76 funds and Assistant Treasurer of 77 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-260-5969 or by visiting the website at wellsfargofunds.com. |
Table of Contents
List of abbreviations | Wells Fargo VT International Equity Fund | 29 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
CLO | — Collateralized loan obligation |
CLP | — Chilean peso |
COP | — Colombian peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
INR | — Indian rupee |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
PJSC | — Public Joint Stock Company |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-260-5969 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
308053 02-18 SAAVT3/AR149 12-17 |
Table of Contents
Annual Report
December 31, 2017
Wells Fargo VT Omega Growth Fund
Table of Contents
Reduce clutter. Save trees.
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2017, 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.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
Table of Contents
2 | Wells Fargo VT Omega Growth Fund | Letter to shareholders (unaudited) |
Andrew Owen
President
Wells Fargo Funds
Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well.
Dear Shareholder:
We are pleased to offer you this annual report for the Wells Fargo VT Omega Growth Fund for the 12-month period that ended December 31, 2017. Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well. U.S. and international stocks performed similarly overall with returns of 21.83% and 27.19%, respectively, for the 12-month period, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2, respectively. Within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 3.54% and the Bloomberg Barclays Municipal Bond Index4 returned 5.45% as interest rates gradually rose over the period.
Investment markets gained during the first two quarters of 2017 on positive economic data.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. In the U.S., hiring remained strong, and business and consumer sentiment improved. In March, the U.S. Federal Reserve (Fed) raised its target interest rate by a quarter percentage point to a range of 0.75% to 1.00%; with the Fed rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets because they benefited from both global economic growth and recent weakening of the U.S. dollar. Stocks in Asia, Europe, and Latin America also outperformed the U.S. market during the quarter.
Globally, stocks marked continued gains through the second quarter of 2017. Steady, albeit modest, economic growth both in the U.S. and abroad and generally favorable corporate earnings announcements supported higher valuations. U.S. inflation trended lower despite a continued decline in the unemployment rate. Ten-year U.S. Treasury yields declined, resulting in stronger prices for long-term bonds. As was widely expected, the Fed raised the target interest rate in June by a quarter percentage point to a range of 1.00% to 1.25%. In addition, the Fed indicated that it planned to start selling bonds accumulated on its balance sheet during quantitative easing programs conducted since 2008.
As global growth improved in the third quarter of 2017, investment markets generally advanced.
Most stock markets worldwide moved higher during the quarter and ended the period at or near all-time highs. Moderate acceleration in global economic growth was supported by improving corporate earnings, low inflation pressure, and still-low interest rates. While North Korea’s recent missile launches and nuclear testing raised serious concerns around the world, the heightened geopolitical risk had relatively minimal impact on the quarter’s stock returns. In the U.S., economic data released during the quarter reflected a generally healthy economy. Second-quarter economic output grew at a 3.1% annual rate, and consumers displayed more willingness to spend. Meanwhile, the Fed maintained the target range for the federal funds rate at 1.00% to 1.25%, noting that inflation had remained below the Fed’s 2.00% objective.
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 Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
4 | The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo VT Omega Growth Fund | 3 |
However, Fed officials also stated the possibility of one more 0.25% increase in the federal funds rate by the end of 2017 and announced plans to begin the process of unwinding its $4.5 trillion portfolio of bonds and other assets in October. Outside the U.S., stocks in the Asia Pacific region benefited from solid earnings reports and investors’ willingness to take on risk despite the rising tensions between North Korea and the U.S. In Europe, markets were supported by better-than-expected economic growth, which led to narrowing of the gap between Europe’s growth rate and that of the U.S. In emerging markets, many countries benefited from stronger currencies versus the U.S. dollar.
Positive economic and market news continued through the fourth quarter.
During the fourth quarter, stock markets followed a steady, upward trajectory with no meaningful pullbacks, similar to their paths during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue surprises from many companies. Synchronous economic expansion worldwide with mild inflation provided a favorable environment for markets to rise with minimal volatility. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate. Hiring remained solid during the quarter; the hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Fed officials began unwinding the Fed’s $4.5 trillion portfolio of bonds and other assets in October as planned, and in December they raised the target for the federal funds rate to a range of 1.25% to 1.50%. As a result, long-term interest rates in the U.S. continued trending upward, although the 10-year rate remained below 2.5%. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for 2017. International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
Andrew Owen
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-260-5969. We are available 24 hours a day, 7 days a week.
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4 | Wells Fargo VT Omega Growth Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Michael T. Smith, CFA®
Christopher J. Warner, CFA®
Average annual total returns (%) as of December 31, 20171
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 3-6-1997 | 34.95 | 15.06 | 11.21 | 0.82 | 0.75 | ||||||||||||||||
Class 2 | 7-31-2002 | 34.60 | 14.78 | 10.93 | 1.07 | 1.00 | ||||||||||||||||
Russell 3000® Growth Index4 | – | 29.59 | 17.16 | 9.93 | – | – |
Figures quoted represent past performance, which is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-260-5969. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If these charges had been reflected, performance would have been lower.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A fund’s performance, especially for short time periods, should not be the sole factor in making your investment decision.
Shares are sold without a front-end sales charge or contingent deferred sales charge.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. The Fund is exposed to smaller company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo VT Omega Growth Fund | 5 |
Growth of $10,000 investment as of December 31, 20175 |
1 | Historical performance shown prior to July 19, 2010 is based on the performance of the Fund’s predecessor, Evergreen VA Omega Fund. |
2 | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
3 | The manager has contractually committed through April 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at the amounts shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 3000® Growth Index measures the performance of those Russell 3000® Index companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index. |
5 | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 3000® Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6 | 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. |
7 | 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 VT Omega Growth Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund outperformed its benchmark, the Russell 3000® Growth Index, for the 12-month period that ended December 31, 2017. |
∎ | Stock selection in the information technology (IT) and health care sectors contributed to the Fund’s results. |
∎ | Stock selection in the industrials and financials sectors detracted from relative performance. |
Global stock markets rose sharply during 2017. Rising optimism due to synchronized global growth along with expectations for higher interest rates and U.S. tax reform were key drivers of the strong returns. Market leadership during the period primarily favored growth-oriented sectors, as these companies often have tended to command higher valuations during periods of improving economic conditions. Market volatility remained low during the period. This backdrop proved beneficial to the Fund’s positioning.
Despite recent signs of rising inflation, we have not significantly repositioned the Fund into cyclical sectors such as financials, materials, or energy. The Fund remains positioned toward companies with high visibility of earnings growth, which we believe may prove beneficial should economic conditions become more volatile.
Ten largest holdings (%) as of December 31, 20176 | ||||
Amazon.com Incorporated | 5.66 | |||
Microsoft Corporation | 4.86 | |||
Alphabet Incorporated Class A | 3.83 | |||
Visa Incorporated Class A | 3.77 | |||
UnitedHealth Group Incorporated | 3.72 | |||
Facebook Incorporated Class A | 2.39 | |||
The Home Depot Incorporated | 2.36 | |||
Waste Connections Incorporated | 2.17 | |||
Take-Two Interactive Software Incorporated | 1.97 | |||
Salesforce.com Incorporated | 1.90 |
The Fund benefited from stock selection in the IT and health care sectors.
Within the IT sector, stock selection in internet software and services and in software industries contributed to returns. Tencent Holdings Limited, which provides a fast-growing messaging application in China as well as mobile games, continued to post high sales growth as the company monetized its large user base by selling more advertising. Tencent’s shares followed positive sales and earnings revisions higher during the period. The Fund held a position in Tencent Holdings throughout the reporting period. Take-Two Interactive Software, Incorporated, a video-game developer and publisher, also contributed to the IT sector’s outperformance. Like many video-game software firms, Take-Two benefited
from rising digital downloads and in-game monetization opportunities. These revenue streams tend to carry significantly higher profit margins, which meaningfully increased year-over-year gross margins and helped earnings grow well above consensus estimates. We have continued to maintain a position in Take-Two.
Within the health care sector, stock selection among health care providers contributed to returns. VCA Incorporated, which manages animal hospitals and provides pet-care services, agreed to be purchased by Mars, Incorporated, at the beginning of 2017. Consistent with our discipline, we exited the stock following the acquisition as shares approached our internal valuation target.
Sector distribution as of December 31, 20177 |
Stock selection in the industrials sector negatively affected the Fund’s relative performance.
Among the Fund’s industrials holdings, Spirit Airlines, Incorporated, detracted from performance. Our thesis for adding the position in Spirit—an ultralow-cost airline that serves customers by offering low base fares—was predicated on our expectation that the company would be adding capacity in markets it did not yet serve. We also thought that Spirit could raise prices because of the pricing umbrella that resulted from industry consolidation and network rationalization. The company succeeded
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo VT Omega Growth Fund | 7 |
at increasing the amount of revenue generated per passenger; however, the industry’s pricing backdrop became more competitive. We remain committed to Spirit Airlines and have seen improvement in the share price but are monitoring fundamentals very closely. The Fund’s exposure to Acuity Brands, Incorporated—which provides lighting and building-management solutions and has a strong position in commercial LED solutions—also detracted from performance. Weak demand for short-cycle lighting projects caused the company to report disappointing results that led to a share-price decline. After reevaluating our investment thesis, we exited the position in favor of stocks in which we had higher conviction. The Fund’s position in HD Supply Holdings, Incorporated—a distributor of facilities-maintenance and construction supplies—weighed on performance as well. Higher investment costs in the facilities-maintenance segment caused quarterly results to miss expectations and sent the shares sharply lower. Upon further review of our investment thesis, we exited the position in HD Supply and reallocated the proceeds to investments in which we had higher conviction.
While we are cautious regarding the macro environment, we remain confident in the Fund’s positioning.
Looking ahead into 2018, we believe the market backdrop remains mostly constructive but retain a modestly higher level of caution. Volatility has stayed low, and the market has not experienced a decline in many months. For the time being, inflation expectations have overcome deflationary fears. Credit markets have remained calm, and capital has flowed freely at a low cost. Offsetting weakness in areas such as automobiles and mall-based retailers, domestic industries including housing, travel and leisure, e-commerce, and digital advertising have maintained relatively strong positions. Signs appear to point to an elongated business cycle marked by steady, if unspectacular, earnings growth and modestly higher interest rates. In our view, the U.S. economy seems poised to continue to expand, but at a more sluggish rate than many would like to see.
Scarcity of growth remains a key theme and, despite our increased caution, potentially could be a driver for continued positive returns. In this tepid macro environment, the number of companies capable of producing strong organic growth, from our perspective, has decreased. As the current business cycle continues to age, the market may look beyond companies that have benefited from a temporary investor preference for more economically sensitive investments. Therefore, it seems rational to us that companies with innovative products and the ability to grow earnings regardless of general economic conditions in the U.S. or globally likely may command a higher valuation given the scarcity of their attractive growth potential in the marketplace.
Please see footnotes on page 5.
Table of Contents
8 | Wells Fargo VT Omega Growth Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2017 to December 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2017 | Ending account value 12-31-2017 | Expenses paid during the period¹ | Annualized net expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,184.68 | $ | 4.13 | 0.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,183.35 | $ | 5.50 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Omega Growth Fund | 9 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 99.00% | ||||||||||||||||
Consumer Discretionary: 17.63% | ||||||||||||||||
Auto Components: 0.92% | ||||||||||||||||
Aptiv plc | 10,100 | $ | 856,783 | |||||||||||||
|
| |||||||||||||||
Automobiles: 1.08% | ||||||||||||||||
Ferrari NV | 9,600 | 1,006,464 | ||||||||||||||
|
| |||||||||||||||
Diversified Consumer Services: 3.08% | ||||||||||||||||
Adtalem Global Education Incorporated † | 33,500 | 1,408,675 | ||||||||||||||
Bright Horizons Family Solutions Incorporated † | 15,500 | 1,457,000 | ||||||||||||||
2,865,675 | ||||||||||||||||
|
| |||||||||||||||
Hotels, Restaurants & Leisure: 1.46% | ||||||||||||||||
Vail Resorts Incorporated | 3,400 | 722,398 | ||||||||||||||
Wingstop Incorporated | 16,192 | 631,164 | ||||||||||||||
1,353,562 | ||||||||||||||||
|
| |||||||||||||||
Internet & Direct Marketing Retail: 6.98% | ||||||||||||||||
Amazon.com Incorporated † | 4,500 | 5,262,615 | ||||||||||||||
Netflix Incorporated † | 6,400 | 1,228,544 | ||||||||||||||
6,491,159 | ||||||||||||||||
|
| |||||||||||||||
Media: 1.75% | ||||||||||||||||
Charter Communications Incorporated Class A † | 2,900 | 974,284 | ||||||||||||||
Cinemark Holdings Incorporated | 18,799 | 654,581 | ||||||||||||||
1,628,865 | ||||||||||||||||
|
| |||||||||||||||
Specialty Retail: 2.36% | ||||||||||||||||
The Home Depot Incorporated | 11,600 | 2,198,548 | ||||||||||||||
|
| |||||||||||||||
Consumer Staples: 0.95% | ||||||||||||||||
Beverages: 0.95% | ||||||||||||||||
Monster Beverage Corporation † | 13,900 | 879,731 | ||||||||||||||
|
| |||||||||||||||
Energy: 0.72% | ||||||||||||||||
Oil, Gas & Consumable Fuels: 0.72% | ||||||||||||||||
Pioneer Natural Resources Company | 3,900 | 674,115 | ||||||||||||||
|
| |||||||||||||||
Financials: 4.75% | ||||||||||||||||
Capital Markets: 3.25% | ||||||||||||||||
Intercontinental Exchange Incorporated | 22,600 | 1,594,656 | ||||||||||||||
Raymond James Financial Incorporated | 16,006 | 1,429,336 | ||||||||||||||
3,023,992 | ||||||||||||||||
|
| |||||||||||||||
Consumer Finance: 1.50% | ||||||||||||||||
SLM Corporation † | 123,500 | 1,395,550 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo VT Omega Growth Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Health Care: 11.17% | ||||||||||||||||
Biotechnology: 3.63% | ||||||||||||||||
Bioverativ Incorporated † | 13,700 | $ | 738,704 | |||||||||||||
Celgene Corporation † | 12,166 | 1,269,644 | ||||||||||||||
Exelixis Incorporated † | 19,500 | 592,800 | ||||||||||||||
Incyte Corporation † | 3,300 | 312,543 | ||||||||||||||
Puma Biotechnology Incorporated † | 4,700 | 464,595 | ||||||||||||||
3,378,286 | ||||||||||||||||
|
| |||||||||||||||
Health Care Equipment & Supplies: 3.33% | ||||||||||||||||
Baxter International Incorporated | 10,800 | 698,112 | ||||||||||||||
Edwards Lifesciences Corporation † | 7,500 | 845,325 | ||||||||||||||
Hologic Incorporated † | 36,300 | 1,551,825 | ||||||||||||||
3,095,262 | ||||||||||||||||
|
| |||||||||||||||
Health Care Providers & Services: 4.21% | ||||||||||||||||
Amedisys Incorporated † | 8,588 | 452,673 | ||||||||||||||
UnitedHealth Group Incorporated | 15,700 | 3,461,222 | ||||||||||||||
3,913,895 | ||||||||||||||||
|
| |||||||||||||||
Industrials: 13.63% | ||||||||||||||||
Aerospace & Defense: 3.87% | ||||||||||||||||
BWX Technologies Incorporated | 24,100 | 1,457,809 | ||||||||||||||
Harris Corporation | 5,000 | 708,250 | ||||||||||||||
Mercury Computer Systems Incorporated † | 28,000 | 1,437,800 | ||||||||||||||
3,603,859 | ||||||||||||||||
|
| |||||||||||||||
Airlines: 0.78% | ||||||||||||||||
Spirit Airlines Incorporated † | 16,100 | 722,085 | ||||||||||||||
|
| |||||||||||||||
Commercial Services & Supplies: 3.78% | ||||||||||||||||
Cintas Corporation | 9,600 | 1,495,968 | ||||||||||||||
Waste Connections Incorporated | 28,446 | 2,017,959 | ||||||||||||||
3,513,927 | ||||||||||||||||
|
| |||||||||||||||
Electrical Equipment: 0.89% | ||||||||||||||||
Rockwell Automation Incorporated | 4,200 | 824,670 | ||||||||||||||
|
| |||||||||||||||
Machinery: 1.86% | ||||||||||||||||
John Bean Technologies Corporation | 6,000 | 664,800 | ||||||||||||||
Nordson Corporation | 7,300 | 1,068,720 | ||||||||||||||
1,733,520 | ||||||||||||||||
|
| |||||||||||||||
Professional Services: 0.81% | ||||||||||||||||
TransUnion † | 13,694 | 752,622 | ||||||||||||||
|
| |||||||||||||||
Trading Companies & Distributors: 1.64% | ||||||||||||||||
Univar Incorporated † | 49,312 | 1,526,700 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Omega Growth Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Information Technology: 44.06% | ||||||||||||||||
Electronic Equipment, Instruments & Components: 0.79% | ||||||||||||||||
Littelfuse Incorporated | 3,700 | $ | 731,934 | |||||||||||||
|
| |||||||||||||||
Internet Software & Services: 12.88% | ||||||||||||||||
Alphabet Incorporated Class A † | 3,380 | 3,560,492 | ||||||||||||||
Alphabet Incorporated Class C † | 1,189 | 1,244,170 | ||||||||||||||
Box Incorporated Class A † | 68,500 | 1,446,720 | ||||||||||||||
Facebook Incorporated Class A † | 12,605 | 2,224,278 | ||||||||||||||
MercadoLibre Incorporated | 4,300 | 1,353,038 | ||||||||||||||
Tencent Holdings Limited ADR « | 27,400 | 1,422,608 | ||||||||||||||
Yandex NV Class A † | 22,200 | 727,050 | ||||||||||||||
11,978,356 | ||||||||||||||||
|
| |||||||||||||||
IT Services: 12.59% | ||||||||||||||||
EPAM Systems Incorporated † | 14,015 | 1,505,631 | ||||||||||||||
Euronet Worldwide Incorporated † | 15,700 | 1,323,039 | ||||||||||||||
Fidelity National Information Services Incorporated | 8,700 | 818,583 | ||||||||||||||
FleetCor Technologies Incorporated † | 4,700 | 904,421 | ||||||||||||||
PayPal Holdings Incorporated † | 6,900 | 507,978 | ||||||||||||||
Total System Services Incorporated | 18,900 | 1,494,801 | ||||||||||||||
Visa Incorporated Class A | 30,744 | 3,505,431 | ||||||||||||||
WEX Incorporated † | 11,712 | 1,654,086 | ||||||||||||||
11,713,970 | ||||||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment: 3.68% | ||||||||||||||||
Broadcom Limited | 5,300 | 1,361,570 | ||||||||||||||
Infineon Technologies AG ADR | 24,100 | 660,827 | ||||||||||||||
Teradyne Incorporated | 33,500 | 1,402,645 | ||||||||||||||
3,425,042 | ||||||||||||||||
|
| |||||||||||||||
Software: 12.78% | ||||||||||||||||
Activision Blizzard Incorporated | 14,300 | 905,476 | ||||||||||||||
Microsoft Corporation | 52,800 | 4,516,512 | ||||||||||||||
Nintendo Company Limited | 29,100 | 1,311,540 | ||||||||||||||
Salesforce.com Incorporated † | 17,300 | 1,768,579 | ||||||||||||||
ServiceNow Incorporated † | 6,850 | 893,172 | ||||||||||||||
Take-Two Interactive Software Incorporated † | 16,700 | 1,833,326 | ||||||||||||||
The Ultimate Software Group Incorporated † | 3,000 | 654,690 | ||||||||||||||
11,883,295 | ||||||||||||||||
|
| |||||||||||||||
Technology Hardware, Storage & Peripherals: 1.34% | ||||||||||||||||
NCR Corporation † | 36,700 | 1,247,433 | ||||||||||||||
|
| |||||||||||||||
Materials: 4.79% | ||||||||||||||||
Chemicals: 1.72% | ||||||||||||||||
The Sherwin-Williams Company | 3,900 | 1,599,156 | ||||||||||||||
|
| |||||||||||||||
Construction Materials: 1.64% | ||||||||||||||||
Vulcan Materials Company | 11,900 | 1,527,603 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo VT Omega Growth Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Containers & Packaging: 1.43% | ||||||||||||||||
Berry Plastics Group Incorporated † | 22,600 | $ | 1,325,942 | |||||||||||||
|
| |||||||||||||||
Real Estate: 0.47% | ||||||||||||||||
Equity REITs: 0.47% | ||||||||||||||||
SBA Communications Corporation † | 2,700 | 441,072 | ||||||||||||||
|
| |||||||||||||||
Utilities: 0.83% | ||||||||||||||||
Water Utilities: 0.83% | ||||||||||||||||
Evoqua Water Technologies Company † | 32,559 | 771,973 | ||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $62,943,379) | 92,085,046 | |||||||||||||||
|
| |||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 1.18% | ||||||||||||||||
Investment Companies: 1.18% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) | 1.57 | % | 551,145 | 551,200 | ||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) | 1.19 | 549,089 | 549,089 | |||||||||||||
Total Short-Term Investments (Cost $1,100,289) | 1,100,289 | |||||||||||||||
|
|
Total investments in securities (Cost $64,043,668) | 100.18 | % | 93,185,335 | |||||
Other assets and liabilities, net | (0.18 | ) | (164,663 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 93,020,672 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment company purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
Investments in Affiliates
An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:
Shares, beginning of period | Shares purchased | Shares sold | Shares, end of period | Net realized gains (losses) | Net change in unrealized gains (losses) | Income from affiliated securities | Value, end of period | % of net assets | ||||||||||||||||||||||||||||
Short-Term Investments | ||||||||||||||||||||||||||||||||||||
Investment Companies | ||||||||||||||||||||||||||||||||||||
Securities Lending Cash Investment LLC | 1,178,682 | 33,765,734 | 34,393,271 | 551,145 | $ | 0 | $ | 0 | $ | 6,418 | $ | 551,200 | ||||||||||||||||||||||||
Wells Fargo Government Money Market Fund Select Class | 1,242,926 | 30,463,912 | 31,157,749 | 549,089 | 0 | 0 | 9,243 | 549,089 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 0 | $ | 0 | $ | 15,661 | $ | 1,100,289 | 1.18 | % | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of assets and liabilities—December 31, 2017 | Wells Fargo VT Omega Growth Fund | 13 |
Assets | ||||
Investments in unaffiliated securities (including $540,135 of securities loaned), at value (cost $62,943,379) | $ | 92,085,046 | ||
Investments in affiliated securities, at value (cost $1,100,289) | 1,100,289 | |||
Cash | 14,660 | |||
Receivable for investments sold | 798,567 | |||
Receivable for Fund shares sold | 20,731 | |||
Receivable for dividends | 12,620 | |||
Receivable for securities lending income | 611 | |||
Prepaid expenses and other assets | 2,796 | |||
|
| |||
Total assets | 94,035,320 | |||
|
| |||
Liabilities | ||||
Payable upon receipt of securities loaned | 551,200 | |||
Payable for investments purchased | 281,709 | |||
Payable for Fund shares redeemed | 100,958 | |||
Management fee payable | 44,341 | |||
Distribution fee payable | 11,918 | |||
Administration fees payable | 6,534 | |||
Trustees’ fees and expenses payable | 2,438 | |||
Accrued expenses and other liabilities | 15,550 | |||
|
| |||
Total liabilities | 1,014,648 | |||
|
| |||
Total net assets | $ | 93,020,672 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 54,242,256 | ||
Accumulated net investment loss | (1,558 | ) | ||
Accumulated net realized gains on investments | 9,638,307 | |||
Net unrealized gains on investments | 29,141,667 | |||
|
| |||
Total net assets | $ | 93,020,672 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 38,686,872 | ||
Shares outstanding – Class 11 | 1,334,614 | |||
Net asset value per share – Class 1 | $28.99 | |||
Net assets – Class 2 | $ | 54,333,800 | ||
Shares outstanding – Class 21 | 1,946,948 | |||
Net asset value per share – Class 2 | $27.91 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo VT Omega Growth Fund | Statement of operations—year ended December 31, 2017 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $4,087) | $ | 570,879 | ||
Income from affiliated securities | 15,661 | |||
|
| |||
Total investment income | 586,540 | |||
|
| |||
Expenses | ||||
Management fee | 513,485 | |||
Administration fees | ||||
Class 1 | 29,331 | |||
Class 2 | 39,133 | |||
Distribution fee | ||||
Class 2 | 122,292 | |||
Custody and accounting fees | 18,623 | |||
Professional fees | 52,511 | |||
Shareholder report expenses | 21,474 | |||
Trustees’ fees and expenses | 20,350 | |||
Other fees and expenses | 5,158 | |||
|
| |||
Total expenses | 822,357 | |||
Less: Fee waivers and/or expense reimbursements | (58,208 | ) | ||
|
| |||
Net expenses | 764,149 | |||
|
| |||
Net investment loss | (177,609 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 10,095,655 | |||
Net change in unrealized gains (losses) on investments | 15,304,268 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 25,399,923 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 25,222,314 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of changes in net assets | Wells Fargo VT Omega Growth Fund | 15 |
Year ended December 31, 2017 | Year ended December 31, 2016 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income (loss) | $ | (177,609 | ) | $ | 95,150 | |||||||||||
Net realized gains on investments | 10,095,655 | 4,552,241 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 15,304,268 | (4,610,891 | ) | |||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 25,222,314 | 36,500 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (89,539 | ) | 0 | |||||||||||||
Class 2 | (5,604 | ) | 0 | |||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (1,142,282 | ) | (1,928,811 | ) | ||||||||||||
Class 2 | (1,424,939 | ) | (2,495,195 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (2,662,364 | ) | (4,424,006 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 120,268 | 3,106,930 | 88,558 | 1,932,932 | ||||||||||||
Class 2 | 281,240 | 7,004,117 | 73,250 | 1,553,214 | ||||||||||||
|
| |||||||||||||||
10,111,047 | 3,486,146 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 47,341 | 1,231,821 | 89,214 | 1,928,811 | ||||||||||||
Class 2 | 57,039 | 1,430,543 | 119,674 | 2,495,195 | ||||||||||||
|
| |||||||||||||||
2,662,364 | 4,424,006 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (336,089 | ) | (8,699,569 | ) | (406,707 | ) | (8,978,003 | ) | ||||||||
Class 2 | (387,758 | ) | (9,670,121 | ) | (413,059 | ) | (8,813,207 | ) | ||||||||
|
| |||||||||||||||
(18,369,690 | ) | (17,791,210 | ) | |||||||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (5,596,279 | ) | (9,881,058 | ) | ||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | 16,963,671 | (14,268,564 | ) | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 76,057,001 | 90,325,565 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 93,020,672 | $ | 76,057,001 | ||||||||||||
|
| |||||||||||||||
Undistributed (accumulated) net investment income (loss) | $ | (1,558 | ) | $ | 93,586 | |||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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16 | Wells Fargo VT Omega Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $22.20 | $23.30 | $27.57 | $32.78 | $25.56 | |||||||||||||||
Net investment income (loss) | (0.02 | )1 | 0.10 | (0.03 | ) | (0.03 | ) | (0.01 | ) | |||||||||||
Net realized and unrealized gains (losses) on investments | 7.68 | 0.05 | 0.52 | 1.22 | 9.81 | |||||||||||||||
|
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| |||||||||||
Total from investment operations | 7.66 | 0.15 | 0.49 | 1.19 | 9.80 | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.06 | ) | 0.00 | 0.00 | 0.00 | (0.12 | ) | |||||||||||||
Net realized gains | (0.81 | ) | (1.25 | ) | (4.76 | ) | (6.40 | ) | (2.46 | ) | ||||||||||
|
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| |||||||||||
Total distributions to shareholders | (0.87 | ) | (1.25 | ) | (4.76 | ) | (6.40 | ) | (2.58 | ) | ||||||||||
Net asset value, end of period | $28.99 | $22.20 | $23.30 | $27.57 | $32.78 | |||||||||||||||
Total return2 | 34.95 | % | 0.77 | % | 1.62 | % | 4.09 | % | 40.22 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.82 | % | 0.82 | % | 0.79 | % | 0.75 | % | 0.79 | % | ||||||||||
Net expenses | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||||||
Net investment income (loss) | (0.07 | )% | 0.26 | % | (0.11 | )% | (0.10 | )% | (0.12 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 67 | % | 90 | % | 101 | % | 88 | % | 95 | % | ||||||||||
Net assets, end of period (000s omitted) | $38,687 | $33,373 | $40,362 | $47,210 | $55,867 |
1 | Calculated based upon average shares outstanding |
2 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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Financial highlights | Wells Fargo VT Omega Growth Fund | 17 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $21.38 | $22.54 | $26.89 | $32.19 | $25.13 | |||||||||||||||
Net investment income (loss) | (0.08 | ) | 0.00 | 1,2 | (0.09 | ) | (0.10 | ) | (0.12 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 7.39 | 0.09 | 0.50 | 1.20 | 9.68 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 7.31 | 0.09 | 0.41 | 1.10 | 9.56 | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.00 | )2 | 0.00 | 0.00 | 0.00 | (0.04 | ) | |||||||||||||
Net realized gains | (0.78 | ) | (1.25 | ) | (4.76 | ) | (6.40 | ) | (2.46 | ) | ||||||||||
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|
|
|
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| |||||||||||
Total distributions to shareholders | (0.78 | ) | (1.25 | ) | (4.76 | ) | (6.40 | ) | (2.50 | ) | ||||||||||
Net asset value, end of period | $27.91 | $21.38 | $22.54 | $26.89 | $32.19 | |||||||||||||||
Total return3 | 34.60 | % | 0.52 | % | 1.34 | % | 3.86 | % | 39.88 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.07 | % | 1.07 | % | 1.04 | % | 1.00 | % | 1.04 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||
Net investment income (loss) | (0.31 | )% | 0.01 | % | (0.36 | )% | (0.35 | )% | (0.37 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 67 | % | 90 | % | 101 | % | 88 | % | 95 | % | ||||||||||
Net assets, end of period (000s omitted) | $54,334 | $42,684 | $49,963 | $59,035 | $68,658 |
1 | Calculated based upon average shares outstanding |
2 | Amount is less than $0.005. |
3 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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18 | Wells Fargo VT Omega Growth Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo VT Omega Growth Fund (the “Fund”) which is a diversified series of the Trust. The Trust offers shares of the Fund to separate accounts of various life insurance companies as funding vehicles for certain variable annuity contracts and variable life insurance policies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
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, a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally 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 of the Fund. 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 of Wells Fargo Funds Management, LLC (“Funds Management”). 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 manager 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.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
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Notes to financial statements | Wells Fargo VT Omega Growth Fund | 19 |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in income from affiliated securities on the Statement of Operations.
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. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital.
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.
As of December 31, 2017, the aggregate cost of all investments for federal income tax purposes was $64,171,318 and the unrealized gains (losses) consisted of:
Gross unrealized gains | $ | 29,888,446 | ||
Gross unrealized losses | (874,429 | ) | ||
Net unrealized gains | $ | 29,014,017 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassification is due to net operating losses. At December 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Accumulated net investment loss | Accumulated net realized gains on investments | |
$177,608 | $(177,608) |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
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20 | Wells Fargo VT Omega Growth Fund | Notes to financial statements |
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 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:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | 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 December 31, 2017:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 16,401,056 | $ | 0 | $ | 0 | $ | 16,401,056 | ||||||||
Consumer staples | 879,731 | 0 | 0 | 879,731 | ||||||||||||
Energy | 674,115 | 0 | 0 | 674,115 | ||||||||||||
Financials | 4,419,542 | 0 | 0 | 4,419,542 | ||||||||||||
Health care | 10,387,443 | 0 | 0 | 10,387,443 | ||||||||||||
Industrials | 11,969,133 | 0 | 0 | 11,969,133 | ||||||||||||
Information technology | 41,688,280 | 0 | 0 | 41,688,280 | ||||||||||||
Materials | 4,452,701 | 0 | 0 | 4,452,701 | ||||||||||||
Real estate | 441,072 | 0 | 0 | 441,072 | ||||||||||||
Utilities | 771,973 | 0 | 0 | 771,973 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 549,089 | 0 | 0 | 549,089 | ||||||||||||
Investments measured at net asset value* | 551,200 | |||||||||||||||
Total assets | $ | 92,634,135 | $ | 0 | $ | 0 | $ | 93,185,335 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $551,200 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At December 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds
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Notes to financial statements | Wells Fargo VT Omega Growth Fund | 21 |
Management is entitled to receive an annual management fee starting at 0.60% and declining to 0.43% as the average daily net assets of the Fund increase. For the year ended December 31, 2017, the management fee was equivalent to an annual rate of 0.60% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.30% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives a class level administration fee of 0.08% which is based on the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2018 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.75% for Class 1 shares and 1.00% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Out-of-pocket reimbursements
During the year ended December 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $71 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations.
Distribution fee
The Trust has adopted a distribution plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Interfund transactions
The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2017 were $57,064,514 and $65,450,741, respectively.
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 29, 2017, the revolving credit agreement amount was $250,000,000.
For the year ended December 31, 2017, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2017 and December 31, 2016 were as follows:
Year ended December 31 | ||||||||
2017 | 2016 | |||||||
Ordinary income | $ | 95,107 | $ | 0 | ||||
Long-term capital gain | 2,567,257 | 4,424,006 |
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22 | Wells Fargo VT Omega Growth Fund | Notes to financial statements |
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | ||
$2,890,041 | $6,875,916 | $29,014,017 |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’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 Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’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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Report of independent registered public accounting firm | Wells Fargo VT Omega Growth Fund | 23 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Wells Fargo VT Omega Growth Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, including the portfolio of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies, however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
February 26, 2018
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24 | Wells Fargo VT Omega Growth Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2017.
Pursuant to Section 852 of the Internal Revenue Code, $2,567,257 was designated as a 20% rate gain distribution for the fiscal year ended December 31, 2017.
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 1-800-260-5969, 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.
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. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more 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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Other information (unaudited) | Wells Fargo VT Omega Growth Fund | 25 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 153 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
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 | |||
William R. Ebsworth (Born 1957) | Trustee, since 2015 | Retired. From 1984 to 2013, equities analyst, portfolio manager, research director and chief investment 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 led 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. Board member of the Forté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder. | Asset Allocation Trust | |||
Jane A. Freeman** (Born 1953) | Trustee, since 2015; Chair Liaison, since 2018 | 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 a Board Member of Ruth Bancroft Garden (non-profit organization) and the Glimmerglass Festival. She is also an inactive Chartered Financial Analyst. | Asset Allocation Trust | |||
Peter G. Gordon*** (Born 1942) | Trustee, since 1998; Chairman, from 2005 to 2017 | 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 2009 | 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 2008; Audit Committee Chairman, since 2008 | 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 2009 | 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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26 | Wells Fargo VT Omega Growth Fund | Other information (unaudited) |
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | Current other public company or | |||
Olivia S. Mitchell**** (Born 1953) | Trustee, since 2006; Governance Committee Chairman, since 2018 | 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 1996; Chairman, since 2018; Vice Chairman, from 2017 to 2018 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
James G. Polisson****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | 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. 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 | |||
Pamela Wheelock****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Chief Operating Officer, Twin Cities Habitat for Humanity, since January, 2017. Vice President of University Services, University of Minnesota from 2012 to 2017. Prior thereto, Interim President and Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2010 to 2011, Chairman of the Board from 2009 to 2011 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently on the Board of Directors, Governance Committee and Finance Committee, for the Minnesota Philanthropy Partners (Saint Paul Foundation) since 2012 and Board Chair of the Minnesota Wild Foundation since 2010. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Jane Freeman became Chair Liaison effective January 1, 2018. |
*** | Peter Gordon retired on December 31, 2017. |
**** | Olivia Mitchell became Chairman of the Governance Committee effective January 1, 2018. |
***** | Timothy Penny became Chairman effective January 1, 2018. |
****** | James Polisson and Pamela Wheelock each became a Trustee effective January 1, 2018. |
Table of Contents
Other information (unaudited) | Wells Fargo VT Omega Growth Fund | 27 |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) | President, since 2017 | Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | 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. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | 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. | ||||
Michael H. Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016. | ||||
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. |
1 | Jeremy DePalma acts as Treasurer of 76 funds and Assistant Treasurer of 77 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-260-5969 or by visiting the website at wellsfargofunds.com. |
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28 | Wells Fargo VT Omega Growth Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
CLO | — Collateralized loan obligation |
CLP | — Chilean peso |
COP | — Colombian peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
INR | — Indian rupee |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
PJSC | — Public Joint Stock Company |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
Table of Contents
For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals:
1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-260-5969 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
308054 02-18 SAAVT5/AR151 12-17 |
Table of Contents
Annual Report
December 31, 2017
Wells Fargo VT Opportunity Fund
Table of Contents
Reduce clutter. Save trees.
Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2017, 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.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
Table of Contents
2 | Wells Fargo VT Opportunity Fund | Letter to shareholders (unaudited) |
Andrew Owen
President
Wells Fargo Funds
Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well.
Dear Shareholder:
We are pleased to offer you this annual report for the Wells Fargo VT Opportunity Fund for the 12-month period that ended December 31, 2017. Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well. U.S. and international stocks performed similarly overall with returns of 21.83% and 27.19%, respectively, for the 12-month period, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2, respectively. Within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 3.54% and the Bloomberg Barclays Municipal Bond Index4 returned 5.45% as interest rates gradually rose over the period.
Investment markets gained during the first two quarters of 2017 on positive economic data.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. In the U.S., hiring remained strong, and business and consumer sentiment improved. In March, the U.S. Federal Reserve (Fed) raised its target interest rate by a quarter percentage point to a range of 0.75% to 1.00%; with the Fed rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets because they benefited from both global economic growth and recent weakening of the U.S. dollar. Stocks in Asia, Europe, and Latin America also outperformed the U.S. market during the quarter.
Globally, stocks marked continued gains through the second quarter of 2017. Steady, albeit modest, economic growth both in the U.S. and abroad and generally favorable corporate earnings announcements supported higher valuations. U.S. inflation trended lower despite a continued decline in the unemployment rate. Ten-year U.S. Treasury yields declined, resulting in stronger prices for long-term bonds. As was widely expected, the Fed raised the target interest rate in June by a quarter percentage point to a range of 1.00% to 1.25%. In addition, the Fed indicated that it planned to start selling bonds accumulated on its balance sheet during quantitative easing programs conducted since 2008.
As global growth improved in the third quarter of 2017, investment markets generally advanced.
Most stock markets worldwide moved higher during the quarter and ended the period at or near all-time highs. Moderate acceleration in global economic growth was supported by improving corporate earnings, low inflation pressure, and still-low interest rates. While North Korea’s recent missile launches and nuclear testing raised serious concerns around the world, the heightened geopolitical risk had relatively minimal impact on the quarter’s stock returns. In the U.S., economic data released during the quarter reflected a generally healthy economy. Second-quarter economic output grew at a 3.1% annual rate, and consumers displayed more willingness to spend. Meanwhile, the Fed maintained the target range for the federal funds rate at 1.00% to 1.25%, noting that inflation had remained below the Fed’s 2.00% objective.
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 Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
4 | The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo VT Opportunity Fund | 3 |
However, Fed officials also stated the possibility of one more 0.25% increase in the federal funds rate by the end of 2017 and announced plans to begin the process of unwinding its $4.5 trillion portfolio of bonds and other assets in October. Outside the U.S., stocks in the Asia Pacific region benefited from solid earnings reports and investors’ willingness to take on risk despite the rising tensions between North Korea and the U.S. In Europe, markets were supported by better-than-expected economic growth, which led to narrowing of the gap between Europe’s growth rate and that of the U.S. In emerging markets, many countries benefited from stronger currencies versus the U.S. dollar.
Positive economic and market news continued through the fourth quarter.
During the fourth quarter, stock markets followed a steady, upward trajectory with no meaningful pullbacks, similar to their paths during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue surprises from many companies. Synchronous economic expansion worldwide with mild inflation provided a favorable environment for markets to rise with minimal volatility. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate. Hiring remained solid during the quarter; the hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Fed officials began unwinding the Fed’s $4.5 trillion portfolio of bonds and other assets in October as planned, and in December they raised the target for the federal funds rate to a range of 1.25% to 1.50%. As a result, long-term interest rates in the U.S. continued trending upward, although the 10-year rate remained below 2.5%. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for 2017. International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
Andrew Owen
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at
wellsfargofunds.com, or call us directly at 1-800-260-5969. We are available 24 hours a day, 7 days a week.
Table of Contents
4 | Wells Fargo VT Opportunity Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Ann M. Miletti
Christopher G. Miller, CFA®‡
Average annual total returns (%) as of December 31, 20171
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 8-26-2011 | 20.72 | 13.86 | 8.67 | 0.85 | 0.75 | ||||||||||||||||
Class 2 | 5-8-1992 | 20.44 | 13.58 | 8.49 | 1.10 | 1.00 | ||||||||||||||||
Russell 3000® Index4 | – | 21.13 | 15.58 | 8.60 | – | – |
Figures quoted represent past performance, which is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-260-5969. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If these charges had been reflected, performance would have been lower.
Shares are sold without a front-end sales charge or contingent deferred sales charge.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo VT Opportunity Fund | 5 |
Growth of $10,000 investment as of December 31, 20175 |
‡ | Mr. Miller became a portfolio manager of the Fund on March 1, 2017. |
1 | Historical performance shown for Class 1 shares prior to their inception reflects the performance of Class 2 shares, and includes the higher expenses applicable to Class 2 shares. If these expenses had not been included, returns for Class 1 shares would be higher. |
2 | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
3 | The manager has contractually committed through April 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at the amounts shown. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. You cannot invest directly in an index. |
5 | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 3000® Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6 | 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. |
7 | 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. |
* | This security was no longer held at the end of the reporting period. |
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6 | Wells Fargo VT Opportunity Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund underperformed its benchmark, the Russell 3000® Index, for the 12-month period that ended December 31, 2017. |
∎ | The Fund’s holdings within the consumer discretionary and health care sectors detracted from performance during the period. |
∎ | Stock selection in the information technology (IT) and real estate sectors contributed to Fund performance during the period. |
The U.S. stock market rallied and many stock market indices hit new all-time highs in each quarter of the reporting period. The Fund’s benchmark, the Russell 3000® Index, was no exception and had risen for nine straight quarters as of the end of the reporting period. Market volatility hit an all-time low during 2017, and larger-cap and growth stocks tended to outperform smaller-cap and value stocks.
A number of factors influenced the U.S. stock market during the period. From our perspective, the outcome of the November 2016 U.S. presidential election likely had the biggest impact; the U.S. stock market generally rallied from the last quarter of 2016 through the end of the reporting period as investors expected businesses to benefit from the new administration’s progrowth agenda of less regulation, lower taxes, and increased spending on infrastructure and defense. In December 2017, the U.S. Congress passed the Tax Cuts and Jobs Act of 2017 and President Trump signed it into law. The Fed raised its benchmark interest rate by 0.25% three times during the reporting period, most recently to a range of 1.25% to 1.50% at its December 2017 meeting. The Fed also released a fairly detailed outline of its plans to reduce the size of its $4.6 trillion balance sheet and began implementing the reduction.
Throughout all of the market and economic events that occurred during the reporting period and with our expectation of tighter U.S. monetary policy to come, we continued to seek well-positioned companies—those with good business models, strong management teams, and healthy cash flows—trading at attractive discounts to their private market valuations (PMVs). The PMV represents the expected price an investor would pay for the entire company as a stand-alone private entity.
Ten largest holdings (%) as of December 31, 20176 | ||||
Alphabet Incorporated Class C | 3.75 | |||
E*TRADE Financial Corporation | 2.86 | |||
Apple Incorporated | 2.50 | |||
EOG Resources Incorporated | 2.44 | |||
The Sherwin-Williams Company | 2.42 | |||
PNC Financial Services Group Incorporated | 2.30 | |||
Novartis AG ADR | 2.29 | |||
salesforce.com Incorporated | 2.25 | |||
KeyCorp | 2.13 | |||
Oracle Corporation | 2.12 |
Stock selection in the consumer discretionary and health care sectors negatively affected Fund performance.
The Fund’s consumer discretionary and health care holdings did not keep pace with their respective sectors within the Russell 3000® Index. In the consumer discretionary sector, an underexposure to the internet retailing group and allocation within multiline retail detracted from relative performance. Target Corporation* was a notable detractor within the Fund as the rising consumer preference for shopping online weighed on the retailer’s growth. Within the health care sector, holdings in biotechnology and health care services underperformed their peers within the index. Envision Healthcare Holdings, Incorporated—a provider of a
variety of health care services—suffered from a negative shift in its revenue mix and challenges in adjusting its cost structure. Celgene Corporation—a biotechnology company that focuses on cancer and inflammatory diseases—declined due to pricing pressures, increased competition, and the discontinuation or delay of certain therapeutics in its pipeline.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo VT Opportunity Fund | 7 |
Sector distribution as of December 31, 20177 |
Holdings within the IT and real estate sectors contributed to the Fund’s performance.
An overweight to and stock selection within the IT sector contributed to the Fund’s performance relative to the benchmark. The overweight proved beneficial as IT was the best-performing sector in the index for the period. A number of Fund holdings in the software and semiconductor industries delivered strong results. Red Hat, Incorporated, which provides open-source software that has benefited from the ongoing shift to cloud computing, rose 72% for the period on the continued strength of its core offerings and growth in its
emerging-product category. Customer relationship management software company salesforce.com, incorporated, outperformed its peers on strong revenue growth, improved margins, and continued high-growth outlook. Broadcom Limited benefited from exposure to the iPhone product cycle and the announced acquisition of Brocade Communications Systems, Incorporated. Within the real estate sector, American Tower Corporation—an operator of wireless and broadcast communication towers in the U.S., Europe, Asia, and Latin America—outperformed industry peers. The company has experienced an increase in business activity, and investors anticipate that it may benefit from a ramp-up in deployment of new communication technologies and protocols.
Our methodology includes buying stocks at a discount to their estimated PMV and selling stocks as they approach or exceed the upper end of their PMV range.
Our disciplined, bottom-up investment process leads us to be overweight or underweight certain sectors. This positioning changes over time based on macroeconomic and industry-specific factors. During the reporting period, our process led us to be overweight the IT, industrials, and financials sectors and underweight the utilities, consumer staples, and real estate sectors. Through our investment process, we remain keenly aware of both price and enterprise values on a company-by-company basis. Our proprietary database of company acquisitions across industries, sectors, and time frames enables us to maintain a steady foundation for assessing the PMV of companies compared with their public stock prices. We strive to take advantage of those price discrepancies for the benefit of Fund shareholders by purchasing stocks when we believe they are selling at a discount to their PMV.
These themes may prevail in 2018.
Looking ahead into 2018, interest rates, energy prices, the policies of the U.S. government, and the impact of tax reform likely may be themes that influence the overall market and the relative performance of the Fund. Now that tax reform has been accomplished, the U.S. administration may turn its sights to infrastructure spending, trade agreements, and further reduction of commercial business regulations. The Fed has signaled more rate hikes in 2018 if labor markets tighten further, global economic risks remain well balanced, and inflation measures hit the Fed’s target. Volatility in commodity prices and global currencies likely may continue to drive global stock markets.
Please see footnotes on page 5.
Table of Contents
8 | Wells Fargo VT Opportunity Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2017 to December 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2017 | Ending account value 12-31-2017 | Expenses paid during the period¹ | Annualized net expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,089.43 | $ | 3.95 | 0.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,087.96 | $ | 5.26 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Opportunity Fund | 9 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 99.52% | ||||||||||||||||
Consumer Discretionary: 10.09% | ||||||||||||||||
Hotels, Restaurants & Leisure: 2.09% | ||||||||||||||||
Starbucks Corporation | 72,721 | $ | 4,176,368 | |||||||||||||
|
| |||||||||||||||
Internet & Direct Marketing Retail: 1.31% | ||||||||||||||||
Amazon.com Incorporated † | 2,239 | 2,618,443 | ||||||||||||||
|
| |||||||||||||||
Media: 3.47% | ||||||||||||||||
Comcast Corporation Class A | 98,707 | 3,953,215 | ||||||||||||||
Twenty-First Century Fox Incorporated Class B | 87,318 | 2,979,290 | ||||||||||||||
6,932,505 | ||||||||||||||||
|
| |||||||||||||||
Multiline Retail: 1.76% | ||||||||||||||||
Dollar General Corporation | 37,934 | 3,528,241 | ||||||||||||||
|
| |||||||||||||||
Specialty Retail: 1.46% | ||||||||||||||||
L Brands Incorporated | 48,429 | 2,916,394 | ||||||||||||||
|
| |||||||||||||||
Consumer Staples: 3.72% | ||||||||||||||||
Food Products: 1.38% | ||||||||||||||||
The Hershey Company | 24,268 | 2,754,661 | ||||||||||||||
|
| |||||||||||||||
Household Products: 1.24% | ||||||||||||||||
Church & Dwight Company Incorporated | 49,192 | 2,467,963 | ||||||||||||||
|
| |||||||||||||||
Personal Products: 1.10% | ||||||||||||||||
The Estee Lauder Companies Incorporated Class A | 17,317 | 2,203,415 | ||||||||||||||
|
| |||||||||||||||
Energy: 7.58% | ||||||||||||||||
Oil, Gas & Consumable Fuels: 7.58% | ||||||||||||||||
Concho Resources Incorporated † | 18,208 | 2,735,206 | ||||||||||||||
EOG Resources Incorporated | 45,251 | 4,883,035 | ||||||||||||||
Noble Energy Incorporated | 82,960 | 2,417,454 | ||||||||||||||
Pioneer Natural Resources Company | 11,632 | 2,010,591 | ||||||||||||||
RSP Permian Incorporated † | 76,239 | 3,101,403 | ||||||||||||||
15,147,689 | ||||||||||||||||
|
| |||||||||||||||
Financials: 18.70% | ||||||||||||||||
Banks: 8.07% | ||||||||||||||||
KeyCorp | 210,690 | 4,249,617 | ||||||||||||||
Pinnacle Financial Partners Incorporated | 47,055 | 3,119,747 | ||||||||||||||
PNC Financial Services Group Incorporated | 31,870 | 4,598,522 | ||||||||||||||
Webster Financial Corporation | 74,198 | 4,166,960 | ||||||||||||||
16,134,846 | ||||||||||||||||
|
| |||||||||||||||
Capital Markets: 4.40% | ||||||||||||||||
E*TRADE Financial Corporation † | 115,257 | 5,713,289 | ||||||||||||||
Intercontinental Exchange Incorporated | 43,764 | 3,087,988 | ||||||||||||||
8,801,277 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo VT Opportunity Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Insurance: 6.23% | ||||||||||||||||
Chubb Limited | 27,929 | $ | 4,081,265 | |||||||||||||
Marsh & McLennan Companies Incorporated | 37,476 | 3,050,172 | ||||||||||||||
The Progressive Corporation | 41,389 | 2,331,028 | ||||||||||||||
Willis Towers Watson plc | 19,765 | 2,978,388 | ||||||||||||||
12,440,853 | ||||||||||||||||
|
| |||||||||||||||
Health Care: 15.92% | ||||||||||||||||
Biotechnology: 2.11% | ||||||||||||||||
Alexion Pharmaceuticals Incorporated † | 12,778 | 1,528,121 | ||||||||||||||
Celgene Corporation † | 25,729 | 2,685,078 | ||||||||||||||
4,213,199 | ||||||||||||||||
|
| |||||||||||||||
Health Care Equipment & Supplies: 2.75% | ||||||||||||||||
Medtronic plc | 36,830 | 2,974,023 | ||||||||||||||
Zimmer Biomet Holdings Incorporated | 20,825 | 2,512,953 | ||||||||||||||
5,486,976 | ||||||||||||||||
|
| |||||||||||||||
Health Care Providers & Services: 2.55% | ||||||||||||||||
Cigna Corporation | 14,867 | 3,019,339 | ||||||||||||||
Envision Healthcare Corporation † | 59,923 | 2,070,939 | ||||||||||||||
5,090,278 | ||||||||||||||||
|
| |||||||||||||||
Life Sciences Tools & Services: 4.59% | ||||||||||||||||
Agilent Technologies Incorporated | 41,786 | 2,798,408 | ||||||||||||||
Bio-Rad Laboratories Incorporated Class A † | 15,335 | 3,660,004 | ||||||||||||||
Thermo Fisher Scientific Incorporated | 14,335 | 2,721,930 | ||||||||||||||
9,180,342 | ||||||||||||||||
|
| |||||||||||||||
Pharmaceuticals: 3.92% | ||||||||||||||||
Mylan NV † | 77,169 | 3,265,020 | ||||||||||||||
Novartis AG ADR | 54,435 | 4,570,363 | ||||||||||||||
7,835,383 | ||||||||||||||||
|
| |||||||||||||||
Industrials: 13.08% | ||||||||||||||||
Aerospace & Defense: 3.36% | ||||||||||||||||
Airbus SE | 29,451 | 2,932,951 | ||||||||||||||
Lockheed Martin Corporation | 11,811 | 3,791,922 | ||||||||||||||
6,724,873 | ||||||||||||||||
|
| |||||||||||||||
Airlines: 1.32% | ||||||||||||||||
United Continental Holdings Incorporated † | 39,164 | 2,639,654 | ||||||||||||||
|
| |||||||||||||||
Building Products: 1.67% | ||||||||||||||||
Johnson Controls International plc | 87,663 | 3,340,836 | ||||||||||||||
|
| |||||||||||||||
Commercial Services & Supplies: 1.28% | ||||||||||||||||
Republic Services Incorporated | 37,858 | 2,559,579 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Opportunity Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Machinery: 4.53% | ||||||||||||||||
Colfax Corporation † | 83,261 | $ | 3,298,801 | |||||||||||||
Gardner Denver Holdings Incorporated † | 93,631 | 3,176,900 | ||||||||||||||
The Timken Company | 52,304 | 2,570,742 | ||||||||||||||
9,046,443 | ||||||||||||||||
|
| |||||||||||||||
Road & Rail: 0.92% | ||||||||||||||||
Hertz Global Holdings Incorporated Ǡ | 83,091 | 1,836,311 | ||||||||||||||
|
| |||||||||||||||
Information Technology: 23.82% | ||||||||||||||||
Electronic Equipment, Instruments & Components: 1.73% | ||||||||||||||||
Amphenol Corporation Class A | 39,444 | 3,463,183 | ||||||||||||||
|
| |||||||||||||||
Internet Software & Services: 5.50% | ||||||||||||||||
Alphabet Incorporated Class C † | 7,161 | 7,493,270 | ||||||||||||||
Facebook Incorporated Class A † | 19,785 | 3,491,261 | ||||||||||||||
10,984,531 | ||||||||||||||||
|
| |||||||||||||||
IT Services: 3.53% | ||||||||||||||||
Fidelity National Information Services Incorporated | 32,740 | 3,080,507 | ||||||||||||||
MasterCard Incorporated Class A | 26,292 | 3,979,557 | ||||||||||||||
7,060,064 | ||||||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment: 3.89% | ||||||||||||||||
Broadcom Limited | 14,022 | 3,602,252 | ||||||||||||||
Texas Instruments Incorporated | 39,950 | 4,172,378 | ||||||||||||||
7,774,630 | ||||||||||||||||
|
| |||||||||||||||
Software: 6.67% | ||||||||||||||||
Check Point Software Technologies Limited † | 19,004 | 1,969,194 | ||||||||||||||
Oracle Corporation | 89,670 | 4,239,598 | ||||||||||||||
Red Hat Incorporated † | 21,829 | 2,621,663 | ||||||||||||||
salesforce.com Incorporated † | 43,950 | 4,493,009 | ||||||||||||||
13,323,464 | ||||||||||||||||
|
| |||||||||||||||
Technology Hardware, Storage & Peripherals: 2.50% | ||||||||||||||||
Apple Incorporated | 29,462 | 4,985,854 | ||||||||||||||
|
| |||||||||||||||
Materials: 5.27% | ||||||||||||||||
Chemicals: 2.42% | ||||||||||||||||
The Sherwin-Williams Company | 11,805 | 4,840,522 | ||||||||||||||
|
| |||||||||||||||
Metals & Mining: 2.85% | ||||||||||||||||
Goldcorp Incorporated | 156,681 | 2,000,816 | ||||||||||||||
Steel Dynamics Incorporated | 85,584 | 3,691,238 | ||||||||||||||
5,692,054 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo VT Opportunity Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Real Estate: 1.34% | ||||||||||||||||
Equity REITs: 1.34% | ||||||||||||||||
American Tower Corporation |
| 18,702 | $ | 2,668,214 | ||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $146,239,001) |
| 198,869,045 | ||||||||||||||
|
| |||||||||||||||
Yield | ||||||||||||||||
Short-Term Investments: 1.56% | ||||||||||||||||
Investment Companies: 1.56% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) | 1.57 | % | 1,834,271 | 1,834,455 | ||||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) | 1.19 | 1,281,721 | 1,281,721 | |||||||||||||
Total Short-Term Investments (Cost $3,116,176) |
| 3,116,176 | ||||||||||||||
|
|
Total investments in securities (Cost $149,355,177) | 101.08 | % | 201,985,221 | |||||
Other assets and liabilities, net | (1.08 | ) | (2,150,391 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 199,834,830 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment company purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
Investments in Affiliates
An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:
Shares, beginning of period | Shares purchased | Shares sold | Shares, end of period | Net realized gains (losses) | Net change in unrealized gains (losses) | Income from affiliated securities | Value, end | % of net assets | ||||||||||||||||||||||||||||
Short-Term Investments | ||||||||||||||||||||||||||||||||||||
Investment Companies | ||||||||||||||||||||||||||||||||||||
Securities Lending Cash Investment LLC | 1,415,259 | 49,534,351 | 49,115,339 | 1,834,271 | $ | 30 | $ | 0 | $ | 11,404 | $ | 1,834,455 | ||||||||||||||||||||||||
Wells Fargo Government Money Market Fund Select Class | 3,604,061 | 38,546,971 | 40,869,311 | 1,281,721 | 0 | 0 | 19,342 | 1,281,721 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 30 | $ | 0 | $ | 30,746 | $ | 3,116,176 | 1.56 | % | |||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of assets and liabilities—December 31, 2017 | Wells Fargo VT Opportunity Fund | 13 |
Assets | ||||
Investments in unaffiliated securities (including $1,743,690 of securities loaned), at value (cost $146,239,001) | $ | 198,869,045 | ||
Investments in affiliated securities, at value (cost $3,116,176) | 3,116,176 | |||
Receivable for Fund shares sold | 14,271 | |||
Receivable for dividends | 152,643 | |||
Receivable for securities lending income | 763 | |||
Prepaid expenses and other assets | 2,863 | |||
|
| |||
Total assets | 202,155,761 | |||
|
| |||
Liabilities | ||||
Payable upon receipt of securities loaned | 1,834,244 | |||
Payable for Fund shares redeemed | 168,834 | |||
Due to custodian bank | 121,557 | |||
Management fee payable | 104,005 | |||
Distribution fee payable | 36,407 | |||
Administration fees payable | 14,030 | |||
Trustees’ fees and expenses payable | 2,486 | |||
Accrued expenses and other liabilities | 39,368 | |||
|
| |||
Total liabilities | 2,320,931 | |||
|
| |||
Total net assets | $ | 199,834,830 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 129,713,862 | ||
Undistributed net investment income | 432,141 | |||
Accumulated net realized gains on investments | 17,058,783 | |||
Net unrealized gains on investments | 52,630,044 | |||
|
| |||
Total net assets | $ | 199,834,830 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 33,843,059 | ||
Shares outstanding – Class 11 | 1,251,209 | |||
Net asset value per share – Class 1 | $27.05 | |||
Net assets – Class 2 | $ | 165,991,771 | ||
Shares outstanding – Class 21 | 6,116,401 | |||
Net asset value per share – Class 2 | $27.14 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo VT Opportunity Fund | Statement of operations—year ended December 31, 2017 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $17,033) | $ | 2,277,530 | ||
Income from affiliated securities | 30,746 | |||
|
| |||
Total investment income | 2,308,276 | |||
|
| |||
Expenses | ||||
Management fee | 1,365,754 | |||
Administration fees | ||||
Class 1 | 26,593 | |||
Class 2 | 129,493 | |||
Distribution fee | ||||
Class 2 | 404,666 | |||
Custody and accounting fees | 21,016 | |||
Professional fees | 47,359 | |||
Shareholder report expenses | 58,054 | |||
Trustees’ fees and expenses | 20,771 | |||
Other fees and expenses | 6,315 | |||
|
| |||
Total expenses | 2,080,021 | |||
Less: Fee waivers and/or expense reimbursements | (212,048 | ) | ||
|
| |||
Net expenses | 1,867,973 | |||
|
| |||
Net investment income | 440,303 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on: | ||||
Unaffiliated securities | 18,015,572 | |||
Affiliated securities | 30 | |||
|
| |||
Net realized gains on investments | 18,015,602 | |||
Net change in unrealized gains (losses) on investments | 18,001,678 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 36,017,280 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 36,457,583 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of changes in net assets | Wells Fargo VT Opportunity Fund | 15 |
Year ended December 31, 2017 | Year ended December 31, 2016 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 440,303 | $ | 842,470 | ||||||||||||
Net realized gains on investments | 18,015,602 | 16,133,502 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 18,001,678 | 5,589,001 | ||||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 36,457,583 | 22,564,973 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (307,324 | ) | (757,684 | ) | ||||||||||||
Class 2 | (1,087,465 | ) | (3,341,814 | ) | ||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (2,694,738 | ) | (3,290,345 | ) | ||||||||||||
Class 2 | (13,073,633 | ) | (16,591,308 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (17,163,160 | ) | (23,981,151 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 8,545 | 222,675 | 30,809 | 753,075 | ||||||||||||
Class 2 | 140,928 | 3,674,333 | 154,196 | 3,770,003 | ||||||||||||
|
| |||||||||||||||
3,897,008 | 4,523,078 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 120,130 | 3,002,062 | 180,958 | 4,048,029 | ||||||||||||
Class 2 | 564,187 | 14,161,098 | 887,494 | 19,933,122 | ||||||||||||
|
| |||||||||||||||
17,163,160 | 23,981,151 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (220,389 | ) | (5,708,178 | ) | (290,336 | ) | (7,094,764 | ) | ||||||||
Class 2 | (1,024,313 | ) | (26,629,848 | ) | (1,355,584 | ) | (32,803,808 | ) | ||||||||
|
| |||||||||||||||
(32,338,026 | ) | (39,898,572 | ) | |||||||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (11,277,858 | ) | (11,394,343 | ) | ||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | 8,016,565 | (12,810,521 | ) | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 191,818,265 | 204,628,786 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 199,834,830 | $ | 191,818,265 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 432,141 | $ | 1,388,525 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
16 | Wells Fargo VT Opportunity Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $24.60 | $25.00 | $28.82 | $26.11 | $20.02 | |||||||||||||||
Net investment income | 0.13 | 0.22 | 0.57 | 0.10 | 0.08 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 4.77 | 2.59 | (1.28 | ) | 2.69 | 6.11 | ||||||||||||||
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Total from investment operations | 4.90 | 2.81 | (0.71 | ) | 2.79 | 6.19 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.25 | ) | (0.60 | ) | (0.12 | ) | (0.08 | ) | (0.10 | ) | ||||||||||
Net realized gains | (2.20 | ) | (2.61 | ) | (2.99 | ) | 0.00 | 0.00 | ||||||||||||
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Total distributions to shareholders | (2.45 | ) | (3.21 | ) | (3.11 | ) | (0.08 | ) | (0.10 | ) | ||||||||||
Net asset value, end of period | $27.05 | $24.60 | $25.00 | $28.82 | $26.11 | |||||||||||||||
Total return1 | 20.72 | % | 12.52 | % | (2.85 | )% | 10.70 | % | 30.99 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.86 | % | 0.85 | % | 0.84 | % | 0.82 | % | 0.84 | % | ||||||||||
Net expenses | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||||||
Net investment income | 0.43 | % | 0.65 | % | 2.02 | % | 0.37 | % | 0.32 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 36 | % | 47 | % | 41 | % | 33 | % | 26 | % | ||||||||||
Net assets, end of period (000s omitted) | $33,843 | $33,035 | $35,539 | $42,178 | $44,636 |
1 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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Financial highlights | Wells Fargo VT Opportunity Fund | 17 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $24.67 | $25.05 | $28.86 | $26.15 | $20.05 | |||||||||||||||
Net investment income | 0.06 | 0.13 | 0.50 | 0.04 | 0.02 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 4.79 | 2.63 | (1.28 | ) | 2.69 | 6.13 | ||||||||||||||
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Total from investment operations | 4.85 | 2.76 | (0.78 | ) | 2.73 | 6.15 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.18 | ) | (0.53 | ) | (0.04 | ) | (0.02 | ) | (0.05 | ) | ||||||||||
Net realized gains | (2.20 | ) | (2.61 | ) | (2.99 | ) | 0.00 | 0.00 | ||||||||||||
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Total distributions to shareholders | (2.38 | ) | (3.14 | ) | (3.03 | ) | (0.02 | ) | (0.05 | ) | ||||||||||
Net asset value, end of period | $27.14 | $24.67 | $25.05 | $28.86 | $26.15 | |||||||||||||||
Total return1 | 20.44 | % | 12.23 | % | (3.08 | )% | 10.42 | % | 30.68 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.11 | % | 1.10 | % | 1.09 | % | 1.07 | % | 1.09 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||
Net investment income | 0.18 | % | 0.39 | % | 1.76 | % | 0.12 | % | 0.07 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 36 | % | 47 | % | 41 | % | 33 | % | 26 | % | ||||||||||
Net assets, end of period (000s omitted) | $165,992 | $158,783 | $169,090 | $201,347 | $211,077 |
1 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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18 | Wells Fargo VT Opportunity Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo VT Opportunity Fund (the “Fund”) which is a diversified series of the Trust. The Trust offers shares of the Fund to separate accounts of various life insurance companies as funding vehicles for certain variable annuity contracts and variable life insurance policies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
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, 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 December 31, 2017, such fair value pricing was not used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally 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 manager 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 | Wells Fargo VT Opportunity Fund | 19 |
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 of securities 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.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in income from affiliated securities on the Statement of Operations.
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.
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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital.
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.
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20 | Wells Fargo VT Opportunity Fund | Notes to financial statements |
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.
As of December 31, 2017, the aggregate cost of all investments for federal income tax purposes was $150,203,617 and the unrealized gains (losses) consisted of:
Gross unrealized gains | $ | 54,322,853 | ||
Gross unrealized losses | (2,541,249 | ) | ||
Net unrealized gains | $ | 51,781,604 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net | Accumulated net realized gains on investments | |
$(1,898) | $1,898 |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
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 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:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | 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.
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Notes to financial statements | Wells Fargo VT Opportunity Fund | 21 |
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2017:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 20,171,951 | $ | 0 | $ | 0 | $ | 20,171,951 | ||||||||
Consumer staples | 7,426,039 | 0 | 0 | 7,426,039 | ||||||||||||
Energy | 15,147,689 | 0 | 0 | 15,147,689 | ||||||||||||
Financials | 37,376,976 | 0 | 0 | 37,376,976 | ||||||||||||
Health care | 31,806,178 | 0 | 0 | 31,806,178 | ||||||||||||
Industrials | 26,147,696 | 0 | 0 | 26,147,696 | ||||||||||||
Information technology | 47,591,726 | 0 | 0 | 47,591,726 | ||||||||||||
Materials | 10,532,576 | 0 | 0 | 10,532,576 | ||||||||||||
Real estate | 2,668,214 | 0 | 0 | 2,668,214 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,281,721 | 0 | 0 | 1,281,721 | ||||||||||||
Investments measured at net asset value* | 1,834,455 | |||||||||||||||
Total assets | $ | 200,150,766 | $ | 0 | $ | 0 | $ | 201,985,221 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $1,834,455 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At December 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.70% and declining to 0.58% as the average daily net assets of the Fund increase. For the year ended December 31, 2017, the management fee was equivalent to an annual rate of 0.70% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.30% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives an annual fee of 0.08% which is calculated based on the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2018 to waive fees and/or reimburse expenses to
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22 | Wells Fargo VT Opportunity Fund | Notes to financial statements |
the extent necessary to cap the Fund’s expenses at 0.75% for Class 1 shares and 1.00% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Out-of-pocket reimbursements
During the year ended December 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $178 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations
Distribution fee
The Trust has adopted a distribution plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Interfund transactions
The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2017 were $70,149,778 and $96,056,178, respectively.
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 29, 2017, the revolving credit agreement amount was $250,000,000.
For the year ended December 31, 2017, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2017 and December 31, 2016 were as follows:
Year ended December 31 | ||||||||
2017 | 2016 | |||||||
Ordinary income | $ | 3,604,986 | $ | 4,099,498 | ||||
Long-term capital gain | 13,558,174 | 19,881,653 |
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | ||
$2,336,823 | $16,008,908 | $51,781,604 |
8. INDEMNIFICATION
Under the Trust’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 Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’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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Report of independent registered public accounting firm | Wells Fargo VT Opportunity Fund | 23 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Wells Fargo VT Opportunity Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, including the portfolio of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies, however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
February 26, 2018
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24 | Wells Fargo VT Opportunity Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 37.48% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2017.
Pursuant to Section 852 of the Internal Revenue Code, $13,558,174 was designated as a 20% rate gain distribution for the fiscal year ended December 31, 2017.
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 1-800-260-5969, 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.
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. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more 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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Other information (unaudited) | Wells Fargo VT Opportunity Fund | 25 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 153 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
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 investment 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 led 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. Board member of the Forté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder. | Asset Allocation Trust | |||
Jane A. Freeman** (Born 1953) | Trustee, since 2015; Chair Liaison, since 2018 | 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 a Board Member of Ruth Bancroft Garden (non-profit organization) and the Glimmerglass Festival. She is also an inactive Chartered Financial Analyst. | Asset Allocation Trust | |||
Peter G. Gordon*** (Born 1942) | Trustee, since 1998; Chairman, from 2005 to 2017 | 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 2009 | 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 2008; Audit Committee Chairman, since 2008 | 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 2009 | 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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26 | Wells Fargo VT Opportunity Fund | Other information (unaudited) |
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 2006; Governance Committee Chairman, since 2018 | 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 1996; Chairman, since 2018; Vice Chairman, from 2017 to 2018 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
James G. Polisson****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | 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. 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 | |||
Pamela Wheelock****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Chief Operating Officer, Twin Cities Habitat for Humanity, since January, 2017. Vice President of University Services, University of Minnesota from 2012 to 2017. Prior thereto, Interim President and Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2010 to 2011, Chairman of the Board from 2009 to 2011 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently on the Board of Directors, Governance Committee and Finance Committee, for the Minnesota Philanthropy Partners (Saint Paul Foundation) since 2012 and Board Chair of the Minnesota Wild Foundation since 2010. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Jane Freeman became Chair Liaison effective January 1, 2018. |
*** | Peter Gordon retired on December 31, 2017. |
**** | Olivia Mitchell became Chairman of the Governance Committee effective January 1, 2018. |
***** | Timothy Penny became Chairman effective January 1, 2018. |
****** | James Polisson and Pamela Wheelock each became a Trustee effective January 1, 2018. |
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Other information (unaudited) | Wells Fargo VT Opportunity Fund | 27 |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) | President, since 2017 | Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | 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. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | 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. | ||||
Michael H. Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016. | ||||
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. |
1 | Jeremy DePalma acts as Treasurer of 76 funds and Assistant Treasurer of 77 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-260-5969 or by visiting the website at wellsfargofunds.com. |
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28 | Wells Fargo VT Opportunity Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
CLO | — Collateralized loan obligation |
CLP | — Chilean peso |
COP | — Colombian peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
INR | — Indian rupee |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
PJSC | — Public Joint Stock Company |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
Table of Contents
For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-260-5969 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
308055 02-18 SAAVT6/AR152 12-17 |
Table of Contents
Annual Report
December 31, 2017
Wells Fargo VT Small Cap Growth Fund
Table of Contents
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2017, 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.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
Table of Contents
2 | Wells Fargo VT Small Cap Growth Fund | Letter to shareholders (unaudited) |
Andrew Owen
President
Wells Fargo Funds
Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well.
Dear Shareholder:
We are pleased to offer you this annual report for the Wells Fargo VT Small Cap Growth Fund for the 12-month period that ended December 31, 2017. Global stocks generally delivered double-digit results; bond markets had smaller but positive results as well. U.S. and international stocks performed similarly overall with returns of 21.83% and 27.19%, respectively, for the 12-month period, as measured by the S&P 500 Index1 and the MSCI ACWI ex USA Index (Net)2, respectively. Within fixed income, the Bloomberg Barclays U.S. Aggregate Bond Index3 returned 3.54% and the Bloomberg Barclays Municipal Bond Index4 returned 5.45% as interest rates gradually rose over the period.
Investment markets gained during the first two quarters of 2017 on positive economic data.
Stocks rallied globally through the first quarter of 2017, supported by signs of improvement in the U.S. and global economies. In the U.S., hiring remained strong, and business and consumer sentiment improved. In March, the U.S. Federal Reserve (Fed) raised its target interest rate by a quarter percentage point to a range of 0.75% to 1.00%; with the Fed rate increase, short-term bond yields rose during the quarter. Meanwhile, longer-term Treasury yields were little changed, leading to positive performance. Investment-grade and high-yield bonds benefited from strong demand. Municipal bond returns were positive in the quarter, helped by strong demand and constrained new-issue supply. Outside the U.S., stocks in emerging markets generally outperformed stocks in the U.S. and international developed markets because they benefited from both global economic growth and recent weakening of the U.S. dollar. Stocks in Asia, Europe, and Latin America also outperformed the U.S. market during the quarter.
Globally, stocks marked continued gains through the second quarter of 2017. Steady, albeit modest, economic growth both in the U.S. and abroad and generally favorable corporate earnings announcements supported higher valuations. U.S. inflation trended lower despite a continued decline in the unemployment rate. Ten-year U.S. Treasury yields declined, resulting in stronger prices for long-term bonds. As was widely expected, the Fed raised the target interest rate in June by a quarter percentage point to a range of 1.00% to 1.25%. In addition, the Fed indicated that it planned to start selling bonds accumulated on its balance sheet during quantitative easing programs conducted since 2008.
As global growth improved in the third quarter of 2017, investment markets generally advanced.
Most stock markets worldwide moved higher during the quarter and ended the period at or near all-time highs. Moderate acceleration in global economic growth was supported by improving corporate earnings, low inflation pressure, and still-low interest rates. While North Korea’s recent missile launches and nuclear testing raised serious concerns around the world, the heightened geopolitical risk had relatively minimal impact on the quarter’s stock returns. In the U.S., economic data released during the quarter reflected a generally healthy economy. Second-quarter economic output grew at a 3.1% annual rate, and consumers displayed more willingness to spend. Meanwhile, the Fed maintained the target range for the federal funds rate at 1.00% to 1.25%, noting that inflation had remained below the Fed’s 2.00% objective.
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 Morgan Stanley Capital International (MSCI) All Country World Index (ACWI) ex USA Index (Net) is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the United States and Canada. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indices or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. You cannot invest directly in an index. |
3 | The Bloomberg Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. You cannot invest directly in an index. |
4 | The Bloomberg Barclays Municipal Bond Index is an unmanaged index composed of long-term tax-exempt bonds with a minimum credit rating of Baa. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo VT Small Cap Growth Fund | 3 |
However, Fed officials also stated the possibility of one more 0.25% increase in the federal funds rate by the end of 2017 and announced plans to begin the process of unwinding its $4.5 trillion portfolio of bonds and other assets in October. Outside the U.S., stocks in the Asia Pacific region benefited from solid earnings reports and investors’ willingness to take on risk despite the rising tensions between North Korea and the U.S. In Europe, markets were supported by better-than-expected economic growth, which led to narrowing of the gap between Europe’s growth rate and that of the U.S. In emerging markets, many countries benefited from stronger currencies versus the U.S. dollar.
Positive economic and market news continued through the fourth quarter.
During the fourth quarter, stock markets followed a steady, upward trajectory with no meaningful pullbacks, similar to their paths during the previous three quarters of the year. The extended rally was driven largely by reports of strong earnings and revenue surprises from many companies. Synchronous economic expansion worldwide with mild inflation provided a favorable environment for markets to rise with minimal volatility. Data released during the quarter reflected a healthy U.S. economy. Third-quarter economic output grew at a 3.2% annual rate. Hiring remained solid during the quarter; the hiring pace pushed the unemployment rate down to a 17-year low of 4.1% in October, and it remained at 4.1% for both November and December. Fed officials began unwinding the Fed’s $4.5 trillion portfolio of bonds and other assets in October as planned, and in December they raised the target for the federal funds rate to a range of 1.25% to 1.50%. As a result, long-term interest rates in the U.S. continued trending upward, although the 10-year rate remained below 2.5%. Outside the U.S., economies continued to strengthen. In December, the Organisation for Economic Co-operation and Development (OECD) reported that the global economy has been expanding at its fastest rate since 2010; all 45 countries the OECD follows were on track to expand for 2017. International economies have benefited from catalysts such as economic stimulus, improving employment, increased investment, and accelerated trade growth.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of investment uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Funds offers more than 100 mutual funds spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs.
Sincerely,
Andrew Owen
President
Wells Fargo Funds
Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
For further information about your Fund, contact your investment professional, visit our website at wellsfargofunds.com, or call us directly at 1-800-260-5969. We are available 24 hours a day, 7 days a week.
Table of Contents
4 | Wells Fargo VT Small Cap Growth Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Manager
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Joseph M. Eberhardy, CFA®, CFP
Thomas C. Ognar, CFA®
Bruce C. Olson, CFA®‡
Average annual total returns (%) as of December 31, 20171
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 7-16-2010 | 26.14 | 14.47 | 8.72 | 0.94 | 0.94 | ||||||||||||||||
Class 2 | 5-1-1995 | 25.86 | 14.19 | 8.52 | 1.19 | 1.19 | ||||||||||||||||
Russell 2000® Growth Index4 | – | 22.17 | 15.21 | 9.19 | – | – |
Figures quoted represent past performance, which is no guarantee of future results. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-260-5969. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If these charges had been reflected, performance would have been lower.
Please keep in mind that high double-digit returns were primarily achieved during favorable market conditions. You should not expect that such favorable returns can be consistently achieved. A fund’s performance, especially for short time periods, should not be the sole factor in making your investment decision.
Shares are sold without a front-end sales charge or contingent deferred sales charge.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo VT Small Cap Growth Fund | 5 |
Growth of $10,000 investment as of December 31, 20175 |
‡ | Mr. Olson has announced his intention to retire from Wells Capital Management on April 30, 2018. |
1 | Historical performance shown for Class 1 shares prior to their inception reflects the performance of Class 2 shares, and includes the higher expenses applicable to Class 2 shares. If these expenses had not been included, returns for Class 1 shares would be higher. |
2 | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
3 | The manager has contractually committed through April 30, 2018, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waivers at 0.95% for Class 1 and 1.20% for Class 2. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the expense cap. Without this cap, the Fund’s returns would have been lower. The expense ratio paid by an investor is the net expense ratio or the Fund’s Total Annual Fund Operating Expenses After Fee Waivers, as stated in the prospectuses. |
4 | The Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index. |
5 | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 2000® Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6 | 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. |
7 | 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. |
8 | 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. |
Table of Contents
6 | Wells Fargo VT Small Cap Growth Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
∎ | The Fund outperformed its benchmark, the Russell 2000® Growth Index, for the 12-month period that ended December 31, 2017. |
∎ | Stock selection within the information technology (IT), consumer discretionary, and financials sectors contributed to results. |
∎ | Stock selection in the health care sector and an overweight to the energy sector detracted from relative performance. |
2017 was a great year for stock markets as investors appeared largely impervious to political discord and geopolitical unrest; the S&P 500 Index6 generated a total return of 21.83%, reflecting strong consistency and low volatility. Companies reporting robust earnings and favorable longer-term prospects rallied over the 12-month period in an environment of low interest rates and modest growth in the U.S. economy. Market dynamics were conducive to our emphasis on companies effectively positioned to potentially generate robust growth through company-specific catalysts. Coming into 2017, investors strongly preferred cyclically oriented and high-dividend-yielding stocks, as value stocks had outperformed growth stocks significantly in 2016. Nevertheless, we continued to emphasize companies that were demonstrating strong fundamentals and trading at valuations we viewed as attractive and consequently added to select positions that underperformed in 2016. As a result, the Fund achieved solid outperformance relative to its benchmark in 2017 in a more conducive environment for faster-growing companies.
Ten largest holdings (%) as of December 31, 20177 | ||||
InterXion Holding NV | 3.05 | |||
On Assignment Incorporated | 3.01 | |||
Q2 Holdings Incorporated | 2.91 | |||
Proofpoint Incorporated | 2.67 | |||
Ligand Pharmaceuticals Incorporated | 2.53 | |||
WageWorks Incorporated | 2.42 | |||
John Bean Technologies Corporation | 2.17 | |||
Envestnet Incorporated | 1.90 | |||
Repligen Corporation | 1.83 | |||
Lithia Motors Incorporated Class A | 1.82 |
The Fund benefited from stock selection within the IT, financials, and consumer discretionary sectors.
Within the IT sector, companies operating in faster-growing areas, such as cloud-computing services, continued to demonstrate strong business momentum. Proofpoint, Incorporated, and Five9, Incorporated, which offer subscription-based software solutions, performed well, driven by robust sales and improved profitability. Proofpoint potentially could benefit from the rise in phishing and malware through email and the continued transition from on-premises, legacy email-security solutions to more innovative, cloud-based versions. We believe Five9, a leading contact-center software provider, has strong growth potential as cloud services likely may become a more widely accepted solution in the contact-center market and as Five9 potentially gains share from legacy software providers.
Within financials, LendingTree, Incorporated, contributed to the Fund’s performance; the company benefited as a growing number of consumers used its online marketplace to comparison shop for loans and other credit offerings. Within consumer discretionary, the Fund benefited from our team’s emphases on companies in prime position to take advantage of the secular shift to online retail and companies effectively insulated from this trend in areas such as discount retail and consumer experiences. Ollie’s Bargain Outlet Holdings, Incorporated, and Camping World Holdings, Incorporated, fit this profile and performed well over the period, influenced by solid fundamentals.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo VT Small Cap Growth Fund | 7 |
Sector distribution as of December 31, 20178 |
|
Stock selection within health care and an overweight to energy hindered the Fund’s relative performance.
Underperformance in health care was largely driven by the Fund’s underweight to early-stage, unprofitable biotechnology stocks, which rallied in 2017, driven by merger and acquisition activity and favorable FDA approvals. Our investment process tends to lead us to companies with products that either are approved or are in later-stage pipeline development. An overweight to the energy sector also hindered relative returns as oil prices experienced significant volatility over the period.
Shares of holdings PDC Energy, Incorporated, and RSP Permian, Incorporated, fell during the period despite strong sales and production growth from both companies.
Going forward, we remain optimistic regarding the Fund’s portfolio.
In contrast to 2016, investors reshifted their focus in 2017 and rewarded many higher-growth companies for delivering solid fundamentals. Areas such as software-as-a-service, semiconductors, and financial technology companies performed strongly; as a result, many holdings increased their market shares and margins in their respective industries. Despite the strength from these areas, we believe investors likely may not fully appreciate the potential of many of the Fund’s holdings given the market backdrop. In an environment of improving, but still tepid, economic growth coupled with low interest rates, we believe robust growth is an attractive area because of its absence in the overall economy. Faster-growing stocks—an area of the market in which we typically focus—potentially remain attractive relative to their slower-growing counterparts. This dynamic, combined with the strong fundamentals that many Fund holdings have been delivering, may bode well for the Fund going forward.
Please see footnotes on page 5.
Table of Contents
8 | Wells Fargo VT Small Cap Growth Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2017 to December 31, 2017.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2017 | Ending account value 12-31-2017 | Expenses paid during the period¹ | Annualized net expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,151.59 | $ | 5.07 | 0.93 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.50 | $ | 4.76 | 0.93 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,151.26 | $ | 6.42 | 1.18 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.23 | $ | 6.03 | 1.18 | % |
1 | Expenses paid is equal to the annualized net expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Small Cap Growth Fund | 9 |
Security name | Shares | Value | ||||||||||||||
Common Stocks: 98.93% | ||||||||||||||||
Consumer Discretionary: 13.70% | ||||||||||||||||
Auto Components: 2.40% | ||||||||||||||||
Cooper-Standard Holdings Incorporated † | 29,790 | $ | 3,649,275 | |||||||||||||
LCI Industries | 20,020 | 2,602,600 | ||||||||||||||
6,251,875 | ||||||||||||||||
|
| |||||||||||||||
Diversified Consumer Services: 1.96% | ||||||||||||||||
Chegg Incorporated † | 149,586 | 2,441,244 | ||||||||||||||
Grand Canyon Education Incorporated † | 30,020 | 2,687,691 | ||||||||||||||
5,128,935 | ||||||||||||||||
|
| |||||||||||||||
Hotels, Restaurants & Leisure: 2.90% | ||||||||||||||||
Planet Fitness Incorporated Class A † | 117,226 | 4,059,536 | ||||||||||||||
Playa Hotels & Resorts NV † | 130,800 | 1,411,332 | ||||||||||||||
Wingstop Incorporated « | 53,949 | 2,102,932 | ||||||||||||||
7,573,800 | ||||||||||||||||
|
| |||||||||||||||
Leisure Products: 0.55% | ||||||||||||||||
MCBC Holdings Incorporated † | 64,912 | 1,442,345 | ||||||||||||||
|
| |||||||||||||||
Media: 1.46% | ||||||||||||||||
Nexstar Broadcasting Group Incorporated | 48,600 | 3,800,520 | ||||||||||||||
|
| |||||||||||||||
Multiline Retail: 1.41% | ||||||||||||||||
Ollie’s Bargain Outlet Holdings Incorporated † | 69,210 | 3,685,433 | ||||||||||||||
|
| |||||||||||||||
Specialty Retail: 3.02% | ||||||||||||||||
Camping World Holdings Incorporated Class A | 32,925 | 1,472,735 | ||||||||||||||
Five Below Incorporated † | 13,708 | 909,115 | ||||||||||||||
Lithia Motors Incorporated Class A | 41,920 | 4,761,693 | ||||||||||||||
National Vision Holdings Incorporated † | 18,436 | 748,686 | ||||||||||||||
7,892,229 | ||||||||||||||||
|
| |||||||||||||||
Energy: 1.75% | ||||||||||||||||
Oil, Gas & Consumable Fuels: 1.75% | ||||||||||||||||
Matador Resources Company † | 47,063 | 1,465,071 | ||||||||||||||
PDC Energy Incorporated † | 18,400 | 948,336 | ||||||||||||||
RSP Permian Incorporated † | 52,921 | 2,152,826 | ||||||||||||||
4,566,233 | ||||||||||||||||
|
| |||||||||||||||
Financials: 4.38% | ||||||||||||||||
Capital Markets: 1.88% | ||||||||||||||||
MarketAxess Holdings Incorporated | 4,178 | 842,912 | ||||||||||||||
Stifel Financial Corporation | 68,200 | 4,061,992 | ||||||||||||||
4,904,904 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo VT Small Cap Growth Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Insurance: 1.35% | ||||||||||||||||
Kinsale Capital Group Incorporated | 78,540 | $ | 3,534,300 | |||||||||||||
|
| |||||||||||||||
Thrifts & Mortgage Finance: 1.15% | ||||||||||||||||
LendingTree Incorporated Ǡ | 8,828 | 3,005,493 | ||||||||||||||
|
| |||||||||||||||
Health Care: 21.98% | ||||||||||||||||
Biotechnology: 7.25% | ||||||||||||||||
Clovis Oncology Incorporated † | 37,600 | 2,556,800 | ||||||||||||||
Exact Sciences Corporation † | 34,000 | 1,786,360 | ||||||||||||||
Ligand Pharmaceuticals Incorporated † | 48,238 | 6,605,229 | ||||||||||||||
Portola Pharmaceuticals Incorporated † | 29,100 | 1,416,588 | ||||||||||||||
Repligen Corporation † | 131,720 | 4,778,802 | ||||||||||||||
Sarepta Therapeutics Incorporated † | 21,569 | 1,200,099 | ||||||||||||||
Spark Therapeutics Incorporated Ǡ | 11,022 | 566,751 | ||||||||||||||
18,910,629 | ||||||||||||||||
|
| |||||||||||||||
Health Care Equipment & Supplies: 9.49% | ||||||||||||||||
Axogen Incorporated † | 66,410 | 1,879,403 | ||||||||||||||
Cantel Medical Corporation | 17,200 | 1,769,364 | ||||||||||||||
Glaukos Corporation Ǡ | 30,900 | 792,585 | ||||||||||||||
Heska Corporation † | 13,560 | 1,087,648 | ||||||||||||||
Inogen Incorporated † | 38,930 | 4,635,784 | ||||||||||||||
Integra LifeSciences Holdings Corporation † | 93,160 | 4,458,638 | ||||||||||||||
iRhythm Technologies Incorporated † | 49,976 | 2,801,155 | ||||||||||||||
Merit Medical Systems Incorporated † | 38,300 | 1,654,560 | ||||||||||||||
Nevro Corporation † | 53,849 | 3,717,735 | ||||||||||||||
NxStage Medical Incorporated † | 81,750 | 1,980,803 | ||||||||||||||
24,777,675 | ||||||||||||||||
|
| |||||||||||||||
Health Care Providers & Services: 2.54% | ||||||||||||||||
HealthEquity Incorporated † | 93,925 | 4,382,541 | ||||||||||||||
Teladoc Incorporated Ǡ | 64,546 | 2,249,428 | ||||||||||||||
6,631,969 | ||||||||||||||||
|
| |||||||||||||||
Health Care Technology: 0.66% | ||||||||||||||||
Vocera Communications Incorporated † | 56,900 | 1,719,518 | ||||||||||||||
|
| |||||||||||||||
Pharmaceuticals: 2.04% | ||||||||||||||||
Dova Pharmaceuticals Incorporated Ǡ | 52,645 | 1,516,176 | ||||||||||||||
Kala Pharmaceuticals Incorporated Ǡ | 45,908 | 848,839 | ||||||||||||||
Optinose Incorporated † | 47,770 | 902,853 | ||||||||||||||
Supernus Pharmaceuticals Incorporated † | 51,800 | 2,064,230 | ||||||||||||||
5,332,098 | ||||||||||||||||
|
| |||||||||||||||
Industrials: 21.78% | ||||||||||||||||
Aerospace & Defense: 1.62% | ||||||||||||||||
Mercury Computer Systems Incorporated † | 82,358 | 4,229,083 | ||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Small Cap Growth Fund | 11 |
Security name | Shares | Value | ||||||||||||||
Airlines: 1.02% | ||||||||||||||||
SkyWest Incorporated | 50,340 | $ | 2,673,054 | |||||||||||||
|
| |||||||||||||||
Building Products: 1.10% | ||||||||||||||||
Apogee Enterprises Incorporated | 37,590 | 1,718,991 | ||||||||||||||
JELD-WEN Holding Incorporated † | 28,910 | 1,138,187 | ||||||||||||||
2,857,178 | ||||||||||||||||
|
| |||||||||||||||
Commercial Services & Supplies: 1.37% | ||||||||||||||||
Advanced Disposal Services Incorporated † | 88,015 | 2,107,079 | ||||||||||||||
Healthcare Services Group Incorporated | 27,700 | 1,460,344 | ||||||||||||||
3,567,423 | ||||||||||||||||
|
| |||||||||||||||
Construction & Engineering: 3.65% | ||||||||||||||||
Dycom Industries Incorporated † | 28,910 | 3,221,441 | ||||||||||||||
Granite Construction Incorporated | 32,980 | 2,091,921 | ||||||||||||||
MasTec Incorporated † | 86,100 | 4,214,595 | ||||||||||||||
9,527,957 | ||||||||||||||||
|
| |||||||||||||||
Machinery: 5.88% | ||||||||||||||||
John Bean Technologies Corporation | 51,040 | 5,655,232 | ||||||||||||||
Milacron Holdings Corporation † | 160,457 | 3,071,147 | ||||||||||||||
Mueller Water Products Incorporated Class A | 122,360 | 1,533,171 | ||||||||||||||
REV Group Incorporated | 48,947 | 1,592,246 | ||||||||||||||
Rexnord Corporation † | 134,720 | 3,505,414 | ||||||||||||||
15,357,210 | ||||||||||||||||
|
| |||||||||||||||
Professional Services: 5.43% | ||||||||||||||||
On Assignment Incorporated † | 122,181 | 7,852,573 | ||||||||||||||
WageWorks Incorporated † | 102,047 | 6,326,914 | ||||||||||||||
14,179,487 | ||||||||||||||||
|
| |||||||||||||||
Road & Rail: 0.19% | ||||||||||||||||
Daseke Incorporated Ǡ | 34,724 | 496,206 | ||||||||||||||
|
| |||||||||||||||
Trading Companies & Distributors: 1.52% | ||||||||||||||||
Beacon Roofing Supply Incorporated † | 34,170 | 2,178,679 | ||||||||||||||
BMC Stock Holdings Incorporated † | 70,240 | 1,777,072 | ||||||||||||||
3,955,751 | ||||||||||||||||
|
| |||||||||||||||
Information Technology: 34.63% | ||||||||||||||||
Communications Equipment: 0.30% | ||||||||||||||||
Quantenna Communications Incorporated Ǡ | 63,757 | 777,835 | ||||||||||||||
|
| |||||||||||||||
Electronic Equipment, Instruments & Components: 1.88% | ||||||||||||||||
Littelfuse Incorporated | 18,940 | 3,746,711 | ||||||||||||||
Novanta Incorporated † | 23,100 | 1,155,000 | ||||||||||||||
4,901,711 | ||||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo VT Small Cap Growth Fund | Portfolio of investments—December 31, 2017 |
Security name | Shares | Value | ||||||||||||||
Internet Software & Services: 12.78% | ||||||||||||||||
2U Incorporated † | 53,560 | $ | 3,455,152 | |||||||||||||
Alarm.com Holdings Incorporated † | 40,800 | 1,540,200 | ||||||||||||||
Coupa Software Incorporated † | 39,631 | 1,237,280 | ||||||||||||||
Envestnet Incorporated † | 99,311 | 4,950,653 | ||||||||||||||
Five9 Incorporated † | 178,690 | 4,445,807 | ||||||||||||||
GrubHub Incorporated Ǡ | 17,500 | 1,256,500 | ||||||||||||||
LogMeIn Incorporated | 30,360 | 3,476,220 | ||||||||||||||
Q2 Holdings Incorporated † | 206,176 | 7,597,586 | ||||||||||||||
SendGrid Incorporated Ǡ | 63,142 | 1,513,514 | ||||||||||||||
SPS Commerce Incorporated † | 42,322 | 2,056,426 | ||||||||||||||
Wix.com Limited † | 31,900 | 1,835,845 | ||||||||||||||
33,365,183 | ||||||||||||||||
|
| |||||||||||||||
IT Services: 3.42% | ||||||||||||||||
InterXion Holding NV † | 134,990 | 7,954,961 | ||||||||||||||
Switch Incorporated « | 53,130 | 966,435 | ||||||||||||||
8,921,396 | ||||||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment: 4.22% | ||||||||||||||||
Aquantia Corporation Ǡ | 27,639 | 313,150 | ||||||||||||||
MaxLinear Incorporated Class A † | 83,810 | 2,214,260 | ||||||||||||||
Microsemi Corporation † | 44,690 | 2,308,239 | ||||||||||||||
Monolithic Power Systems Incorporated | 33,890 | 3,807,880 | ||||||||||||||
Semtech Corporation † | 69,200 | 2,366,640 | ||||||||||||||
11,010,169 | ||||||||||||||||
|
| |||||||||||||||
Software: 12.03% | ||||||||||||||||
Altair Engineering Incorporated Class A † | 54,883 | 1,312,801 | ||||||||||||||
BlackLine Incorporated † | 49,043 | 1,608,610 | ||||||||||||||
ForeScout Technologies Incorporated Ǡ | 10,597 | 337,938 | ||||||||||||||
HubSpot Incorporated † | 46,548 | 4,114,843 | ||||||||||||||
Paycom Software Incorporated Ǡ | 27,120 | 2,178,550 | ||||||||||||||
Paylocity Holding Corporation † | 28,777 | 1,357,123 | ||||||||||||||
Proofpoint Incorporated † | 78,380 | 6,960,928 | ||||||||||||||
Rapid7 Incorporated † | 41,293 | 770,527 | ||||||||||||||
RealPage Incorporated † | 84,400 | 3,738,920 | ||||||||||||||
RingCentral Incorporated Class A † | 69,330 | 3,355,572 | ||||||||||||||
SailPoint Technologies Holdings Incorporated † | 38,015 | 551,218 | ||||||||||||||
Talend SA ADR † | 78,029 | 2,924,527 | ||||||||||||||
Zendesk Incorporated † | 65,300 | 2,209,752 | ||||||||||||||
31,421,309 | ||||||||||||||||
|
| |||||||||||||||
Materials: 0.71% | ||||||||||||||||
Chemicals: 0.71% | ||||||||||||||||
Codexis Incorporated † | 88,600 | 739,810 | ||||||||||||||
PQ Group Holdings Incorporated † | 68,000 | 1,118,600 | ||||||||||||||
1,858,410 | ||||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $193,480,892) | 258,257,318 | |||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2017 | Wells Fargo VT Small Cap Growth Fund | 13 |
Security name | Yield | Shares | Value | |||||||||||||
Short-Term Investments: 7.04% | ||||||||||||||||
Investment Companies: 7.04% | ||||||||||||||||
Securities Lending Cash Investment LLC (l)(r)(u) | 1.57 | % | 15,127,864 | $ | 15,129,377 | |||||||||||
Wells Fargo Government Money Market Fund Select Class (l)(u) | 1.19 | 3,242,460 | 3,242,460 | |||||||||||||
Total Short-Term Investments (Cost $18,370,832) | 18,371,837 | |||||||||||||||
|
|
Total investments in securities (Cost $211,851,724) | 105.97 | % | 276,629,155 | |||||
Other assets and liabilities, net | (5.97 | ) | (15,578,557 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 261,050,598 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The issuer of the security is an affiliated person of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment company purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
Investments in Affiliates
An affiliated investment is an investment in which the Fund owns at least 5% of the outstanding voting shares of the issuer or as a result of other relationships, such as the Fund and the issuer having the same investment manager. Transactions with issuers that were either affiliated persons of the Fund at the beginning of the period or the end of the period were as follows:
Shares, beginning of period | Shares purchased | Shares sold | Shares, end of period | Net realized gains (losses) | Net change in unrealized gains (losses) | Income from affiliated securities | Value, end of period | % of net assets | ||||||||||||||||||||||||||||
Short-Term Investments | ||||||||||||||||||||||||||||||||||||
Investment Companies | ||||||||||||||||||||||||||||||||||||
Securities Lending Cash Investment LLC | 33,209,347 | 222,396,690 | 240,478,173 | 15,127,864 | $ | 1,918 | $ | (2,081 | ) | $ | 216,350 | $ | 15,129,377 | |||||||||||||||||||||||
Wells Fargo Government Money Market Fund Select Class | 3,848,343 | 101,399,231 | 102,005,114 | 3,242,460 | 0 | 0 | 37,272 | 3,242,460 | ||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | 1,918 | $ | (2,081 | ) | $ | 253,622 | $ | 18,371,837 | 7.04 | % | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo VT Small Cap Growth Fund | Statement of assets and liabilities—December 31, 2017 |
Assets | ||||
Investments in unaffiliated securities (including $14,859,432 of securities loaned), at value (cost $193,480,892) | $ | 258,257,318 | ||
Investments in affiliated securities, at value (cost $18,370,832) | 18,371,837 | |||
Receivable for Fund shares sold | 8,851 | |||
Receivable for dividends | 17,949 | |||
Receivable for securities lending income | 18,646 | |||
Prepaid expenses and other assets | 7,023 | |||
|
| |||
Total assets | 276,681,624 | |||
|
| |||
Liabilities | ||||
Payable upon receipt of securities loaned | 15,125,873 | |||
Management fee payable | 187,183 | |||
Payable for Fund shares redeemed | 168,755 | |||
Distribution fee payable | 53,540 | |||
Due to custodian bank | 21,116 | |||
Administration fees payable | 18,719 | |||
Trustees’ fees and expenses payable | 2,390 | |||
Accrued expenses and other liabilities | 53,450 | |||
|
| |||
Total liabilities | 15,631,026 | |||
|
| |||
Total net assets | $ | 261,050,598 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 167,295,320 | ||
Accumulated net investment loss | (1,028 | ) | ||
Accumulated net realized gains on investments | 28,978,875 | |||
Net unrealized gains on investments | 64,777,431 | |||
|
| |||
Total net assets | $ | 261,050,598 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 22,590,941 | ||
Shares outstanding – Class 11 | 2,165,977 | |||
Net asset value per share – Class 1 | $10.43 | |||
Net assets – Class 2 | $ | 238,459,657 | ||
Shares outstanding – Class 21 | 23,421,985 | |||
Net asset value per share – Class 2 | $10.18 |
1 | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of operations—year ended December 31, 2017 | Wells Fargo VT Small Cap Growth Fund | 15 |
Investment income | ||||
Dividends | $ | 455,237 | ||
Securities lending income from affiliates, net | 216,350 | |||
Income from affiliated securities | 37,272 | |||
|
| |||
Total investment income | 708,859 | |||
|
| |||
Expenses | ||||
Management fee | 1,974,598 | |||
Administration fees | ||||
Class 1 | 17,650 | |||
Class 2 | 179,809 | |||
Distribution fee | ||||
Class 2 | 561,904 | |||
Custody and accounting fees | 31,571 | |||
Professional fees | 41,657 | |||
Shareholder report expenses | 44,124 | |||
Trustees’ fees and expenses | 20,264 | |||
Other fees and expenses | 3,224 | |||
|
| |||
Total expenses | 2,874,801 | |||
|
| |||
Net investment loss | (2,165,942 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on: | ||||
Unaffiliated securities | 29,811,976 | |||
Affiliated securities | 1,918 | |||
|
| |||
Net realized gains on investments | 29,813,894 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 28,515,549 | |||
Affiliated securities | (2,081 | ) | ||
|
| |||
Net change in unrealized gains (losses) on investments | 28,513,468 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 58,327,362 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 56,161,420 | ||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
16 | Wells Fargo VT Small Cap Growth Fund | Statement of changes in net assets |
Year ended December 31, 2017 | Year ended December 31, 2016 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (2,165,942 | ) | $ | (726,892 | ) | ||||||||||
Net realized gains on investments | 29,813,894 | 6,026,826 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 28,513,468 | 9,699,962 | ||||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 56,161,420 | 14,999,896 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (638,351 | ) | (1,952,885 | ) | ||||||||||||
Class 2 | (6,508,667 | ) | (19,584,093 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (7,147,018 | ) | (21,536,978 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 164,104 | 1,539,941 | 225,807 | 1,843,852 | ||||||||||||
Class 2 | 3,302,688 | 31,270,811 | 1,939,958 | 15,546,526 | ||||||||||||
|
| |||||||||||||||
32,810,752 | 17,390,378 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 66,150 | 638,351 | 248,775 | 1,952,885 | ||||||||||||
Class 2 | 690,209 | 6,508,667 | 2,543,389 | 19,584,093 | ||||||||||||
|
| |||||||||||||||
7,147,018 | 21,536,978 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (479,821 | ) | (4,610,025 | ) | (633,474 | ) | (5,195,825 | ) | ||||||||
Class 2 | (4,899,352 | ) | (46,583,769 | ) | (6,663,346 | ) | (53,191,948 | ) | ||||||||
|
| |||||||||||||||
(51,193,794 | ) | (58,387,773 | ) | |||||||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (11,236,024 | ) | (19,460,417 | ) | ||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | 37,778,378 | (25,997,499 | ) | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 223,272,220 | 249,269,719 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 261,050,598 | $ | 223,272,220 | ||||||||||||
|
| |||||||||||||||
Accumulated net investment loss | $ | (1,028 | ) | $ | (1,004 | ) | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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Financial highlights | Wells Fargo VT Small Cap Growth Fund | 17 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $8.51 | $8.70 | $10.08 | $11.32 | $7.93 | |||||||||||||||
Net investment loss | (0.04 | ) | (0.01 | )1 | (0.06 | ) | (0.07 | ) | (0.07 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 2.24 | 0.65 | (0.02 | ) | (0.21 | ) | 3.98 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.20 | 0.64 | (0.08 | ) | (0.28 | ) | 3.91 | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net realized gains | (0.28 | ) | (0.83 | ) | (1.30 | ) | (0.96 | ) | (0.52 | ) | ||||||||||
Net asset value, end of period | $10.43 | $8.51 | $8.70 | $10.08 | $11.32 | |||||||||||||||
Total return2 | 26.14 | % | 8.10 | % | (2.63 | )% | (1.67 | )% | 50.55 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.94 | % | 0.94 | % | 0.93 | % | 0.93 | % | 0.93 | % | ||||||||||
Net expenses | 0.94 | % | 0.94 | % | 0.93 | % | 0.93 | % | 0.93 | % | ||||||||||
Net investment loss | (0.65 | )% | (0.10 | )% | (0.69 | )% | (0.75 | )% | (0.73 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 72 | % | 89 | % | 77 | % | 54 | % | 67 | % | ||||||||||
Net assets, end of period (000s omitted) | $22,591 | $20,554 | $22,402 | $28,121 | $35,192 |
1 | Calculated based upon average shares outstanding |
2 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
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18 | Wells Fargo VT Small Cap Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2017 | 2016 | 2015 | 2014 | 2013 | |||||||||||||||
Net asset value, beginning of period | $8.33 | $8.56 | $9.96 | $11.22 | $7.88 | |||||||||||||||
Net investment loss | (0.09 | ) | (0.03 | ) | (0.08 | ) | (0.10 | ) | (0.09 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 2.22 | 0.63 | (0.02 | ) | (0.20 | ) | 3.95 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.13 | 0.60 | (0.10 | ) | (0.30 | ) | 3.86 | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net realized gains | (0.28 | ) | (0.83 | ) | (1.30 | ) | (0.96 | ) | (0.52 | ) | ||||||||||
Net asset value, end of period | $10.18 | $8.33 | $8.56 | $9.96 | $11.22 | |||||||||||||||
Total return1 | 25.86 | % | 7.75 | % | (2.88 | )% | (1.88 | )% | 50.23 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.19 | % | 1.19 | % | 1.18 | % | 1.18 | % | 1.18 | % | ||||||||||
Net expenses | 1.19 | % | 1.19 | % | 1.18 | % | 1.18 | % | 1.18 | % | ||||||||||
Net investment loss | (0.90 | )% | (0.35 | )% | (0.93 | )% | (1.00 | )% | (0.98 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 72 | % | 89 | % | 77 | % | 54 | % | 67 | % | ||||||||||
Net assets, end of period (000s omitted) | $238,460 | $202,718 | $226,867 | $226,966 | $250,473 |
1 | Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Notes to financial statements | Wells Fargo VT Small Cap Growth Fund | 19 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in Financial Accounting Standards Board Accounting Standards Codification Topic 946, Financial Services – Investment Companies. These financial statements report on the Wells Fargo VT Small Cap Growth Fund (the “Fund”) which is a diversified series of the Trust. The Trust offers shares of the Fund to separate accounts of various life insurance companies as funding vehicles for certain variable annuity contracts and variable life insurance policies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
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, a fair value price will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Interests in non-registered investment companies that are redeemable at net asset value are fair valued normally 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 of the Fund. 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 of Wells Fargo Funds Management, LLC (“Funds Management”). 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 manager 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.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
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20 | Wells Fargo VT Small Cap Growth Fund | Notes to financial statements |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open Rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are valued at the evaluated bid price provided by an independent pricing service. Income earned from investment in the Securities Lending Fund is included in securities lending income from affiliates (net of fees and rebates) on the Statement of Operations.
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.
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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a tax return of capital.
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.
As of December 31, 2017, the aggregate cost of all investments for federal income tax purposes was $211,955,216 and the unrealized gains (losses) consisted of:
Gross unrealized gains | $ | 66,622,667 | ||
Gross unrealized losses | (1,948,728 | ) | ||
Net unrealized gains | $ | 64,673,939 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At December 31, 2017, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Paid-in capital | Accumulated net investment loss | |
$(2,165,918) | $2,165,918 |
Table of Contents
Notes to financial statements | Wells Fargo VT Small Cap Growth Fund | 21 |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
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 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:
∎ | Level 1 – quoted prices in active markets for identical securities |
∎ | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
∎ | 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 December 31, 2017:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 35,775,137 | $ | 0 | $ | 0 | $ | 35,775,137 | ||||||||
Energy | 4,566,233 | 0 | 0 | 4,566,233 | ||||||||||||
Financials | 11,444,697 | 0 | 0 | 11,444,697 | ||||||||||||
Health care | 57,371,889 | 0 | 0 | 57,371,889 | ||||||||||||
Industrials | 56,843,349 | 0 | 0 | 56,843,349 | ||||||||||||
Information technology | 90,397,603 | 0 | 0 | 90,397,603 | ||||||||||||
Materials | 1,858,410 | 0 | 0 | 1,858,410 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 3,242,460 | 0 | 0 | 3,242,460 | ||||||||||||
Investments measured at net asset value* | 15,129,377 | |||||||||||||||
Total assets | $ | 261,499,778 | $ | 0 | $ | 0 | $ | 276,629,155 |
* | Investments that are measured at fair value using the net asset value per share (or its equivalent) as a practical expedient have not been categorized in the fair value hierarchy. The fair value amount presented in the table is intended to permit reconciliation of the fair value hierarchy to the amounts presented in the Statement of Assets and Liabilities. The Fund’s investment in Securities Lending Cash Investments, LLC valued at $15,129,377 does not have a redemption period notice, can be redeemed daily and does not have any unfunded commitments. |
The Fund recognizes transfers between levels within the fair value hierarchy at the end of the reporting period. At December 31, 2017, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Management fee
Funds Management, an indirect wholly owned subsidiary of Wells Fargo, is the manager of the Fund and provides advisory and fund-level administrative services under an investment management agreement. Under the investment management agreement, Funds Management is responsible for, among other services, implementing the investment objectives and strategies of the Fund, supervising the subadviser, providing fund-level administrative services in connection with the
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22 | Wells Fargo VT Small Cap Growth Fund | Notes to financial statements |
Fund’s operations, and providing any other fund-level administrative services reasonably necessary for the operation of the Fund. As compensation for its services under the investment management agreement, Funds Management is entitled to receive an annual management fee starting at 0.80% and declining to 0.63% as the average daily net assets of the Fund increase. For the year ended December 31, 2017, the management fee was equivalent to an annual rate of 0.80% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
Under a class-level administration agreement, Funds Management provides class-level administrative services to the Fund, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers. As compensation for its services under the class-level administration agreement, Funds Management receives a class level administration fee of 0.08% which is calculated based on the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed management and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2018 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.95% for Class 1 shares and 1.20% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Out-of-pocket reimbursements
During the year ended December 31, 2017, State Street Bank and Trust Company, the Fund’s custodian, reimbursed the Fund $207 for certain out-of-pocket expenses that were billed to the Fund in error from 1998-2015. This amount is included in dividend income on the Statement of Operations.
Distribution fee
The Trust has adopted a distribution plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Interfund transactions
The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule 17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are effected at current market prices.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2017 were $175,537,756 and $190,933,720, respectively.
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $280,000,000 revolving credit agreement whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.25% of the unused balance is allocated to each participating fund. Prior to August 29, 2017, the revolving credit agreement amount was $250,000,000.
For the year ended December 31, 2017, there were no borrowings by the Fund under the agreement.
Table of Contents
Notes to financial statements | Wells Fargo VT Small Cap Growth Fund | 23 |
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $7,147,018 and $21,536,978 of long-term capital gains for the years ended December 31, 2017 and December 31, 2016, respectively.
As of December 31, 2017, the components of distributable earnings on a tax basis were as follows:
Undistributed long-term gain | Unrealized gains | |
$29,082,367 | $64,673,939 |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’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 Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’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 VT Small Cap Growth Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of the Wells Fargo VT Small Cap Growth Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, including the portfolio of investments, as of December 31, 2017, the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the “financial statements”) and the financial highlights for each of the years in the five-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of December 31, 2017, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of securities owned as of December 31, 2017, by correspondence with the custodian and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment companies, however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
February 26, 2018
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Other information (unaudited) | Wells Fargo VT Small Cap Growth Fund | 25 |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $7,147,018 was designated as a 20% rate gain distribution for the fiscal year ended December 31, 2017.
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 1-800-260-5969, 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.
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. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more 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 VT Small Cap Growth Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo family of funds, which consists of 153 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
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 investment 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 led 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. Board member of the Forté Foundation (non-profit organization) and the Vincent Memorial Hospital Endowment (non-profit organization), where he serves on the Investment Committee and as a Chair of the Audit Committee. Mr. Ebsworth is a CFA® charterholder. | Asset Allocation Trust | |||
Jane A. Freeman** (Born 1953) | Trustee, since 2015; Chair Liaison, since 2018 | 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 a Board Member of Ruth Bancroft Garden (non-profit organization) and the Glimmerglass Festival. She is also an inactive Chartered Financial Analyst. | Asset Allocation Trust | |||
Peter G. Gordon*** (Born 1942) | Trustee, since 1998; Chairman, from 2005 to 2017 | 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 2009 | 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 2008; Audit Committee Chairman, since 2008 | 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 2009 | 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 VT Small Cap Growth 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 2006; Governance Committee Chairman, since 2018 | 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 1996; Chairman, since 2018; Vice Chairman, from 2017 to 2018 | President and Chief Executive Officer of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
James G. Polisson****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Retired. Chief Marketing Officer, Source (ETF) UK Services, Ltd, from 2015 to 2017. From 2012 to 2015, Principal of The Polisson Group, LLC, a management consulting, corporate advisory and principal investing company. Chief Executive Officer and Managing Director at Russell Investments, Global Exchange Traded Funds from 2010 to 2012. Managing Director of Barclays Global Investors from 1998 to 2010 and Global Chief Marketing Officer for iShares and Barclays Global Investors from 2000 to 2010. Trustee of the San Francisco Mechanics’ Institute, a non-profit organization, from 2013 to 2015. Board member of the Russell Exchange Traded Fund Trust from 2011 to 2012. Director of Barclays Global Investors Holdings Deutschland GmbH from 2006 to 2009. Mr. Polisson is an attorney and has a retired status with the Massachusetts and District of Columbia Bar Associations. | Asset Allocation Trust | |||
Michael S. Scofield (Born 1943) | Trustee, since 2010 | 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. 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 | |||
Pamela Wheelock****** (Born 1959) | Trustee, since 2018; Advisory Board Member, from 2017 to 2018 | Chief Operating Officer, Twin Cities Habitat for Humanity, since January, 2017. Vice President of University Services, University of Minnesota from 2012 to 2017. Prior thereto, Interim President and Chief Executive Officer of Blue Cross Blue Shield of Minnesota from 2010 to 2011, Chairman of the Board from 2009 to 2011 and Board Director from 2003 to 2015. Vice President, Leadership and Community Engagement, Bush Foundation, Saint Paul, Minnesota (a private foundation) from 2009 to 2011. Executive Vice President and Chief Financial Officer, Minnesota Sports and Entertainment from 2004 to 2009 and Senior Vice President from 2002 to 2004. Commissioner of Finance, State of Minnesota, from 1999 to 2002. Currently on the Board of Directors, Governance Committee and Finance Committee, for the Minnesota Philanthropy Partners (Saint Paul Foundation) since 2012 and Board Chair of the Minnesota Wild Foundation since 2010. | Asset Allocation Trust |
* | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
** | Jane Freeman became Chair Liaison effective January 1, 2018. |
*** | Peter Gordon retired on December 31, 2017. |
**** | Olivia Mitchell became Chairman of the Governance Committee effective January 1, 2018. |
***** | Timothy Penny became Chairman effective January 1, 2018. |
****** | James Polisson and Pamela Wheelock each became a Trustee effective January 1, 2018. |
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28 | Wells Fargo VT Small Cap Growth Fund | Other information (unaudited) |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Andrew Owen (Born 1960) | President, since 2017 | Executive Vice President of Wells Fargo & Company and Head of Affiliated Managers, Wells Fargo Asset Management, since 2014. In addition, Mr. Owen is currently President, Chief Executive Officer and Director of Wells Fargo Funds Management, LLC since 2017. Prior thereto, Executive Vice President responsible for marketing, investments and product development for Wells Fargo Funds Management, LLC, from 2009 to 2014. | ||||
Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | 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. | ||||
C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | 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. | ||||
Michael H. Whitaker (Born 1967) | Chief Compliance Officer, since 2016 | Senior Vice President and Chief Compliance Officer since 2016. Senior Vice President and Chief Compliance Officer for Fidelity Investments from 2007 to 2016. | ||||
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. |
1 | Jeremy DePalma acts as Treasurer of 76 funds and Assistant Treasurer of 77 funds in the Fund Complex. |
2 | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-260-5969 or by visiting the website at wellsfargofunds.com. |
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List of abbreviations | Wells Fargo VT Small Cap Growth Fund | 29 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
CLO | — Collateralized loan obligation |
CLP | — Chilean peso |
COP | — Colombian peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
INR | — Indian rupee |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIFER | — Long Inverse Floating Exempt Receipts |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
PJSC | — Public Joint Stock Company |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SDR | — Swedish depositary receipt |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
SPEAR | — Short Puttable Exempt Adjustable Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: fundservice@wellsfargo.com
Website: wellsfargofunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals:
1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of the Fund. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-260-5969 or visit the Fund’s website at wellsfargofunds.com. Read the prospectus carefully before you invest or send money.
Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Distributor nor Wells Fargo Funds Management holds fund shareholder accounts or assets. This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
NOT FDIC INSURED ◾ NO BANK GUARANTEE ◾ MAY LOSE VALUE
© 2017 Wells Fargo Funds Management, LLC. All rights reserved.
308056 02-18 SAAVT7/AR153 12-17 |
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ITEM 2. CODE OF ETHICS
(a) As of the end of the period, covered by the report, Wells Fargo Variable Trust has adopted a code of ethics that applies to its President and Treasurer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
(c) During the period covered by this report, there were no amendments to the provisions of the code of ethics adopted in Item 2(a) above.
(d) During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of Wells Fargo Variable Trust has determined that Judith Johnson is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mrs. Johnson is independent for purposes of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
(a), (b), (c), (d) The following table presents aggregate fees billed in each of the last two fiscal years for services rendered to the Registrant by the Registrant’s principal accountant. These fees were billed to the registrant and were approved by the Registrant’s audit committee.
Fiscal year ended December 31, 2017 | Fiscal year ended December 31, 2016 | |||||||
Audit fees | $ | 179,741 | $ | 177,761 | ||||
Audit-related fees | — | — | ||||||
Tax fees (1) | 15,570 | 14,980 | ||||||
All other fees | — | — | ||||||
|
|
|
| |||||
$ | 195,311 | $ | 192,741 | |||||
|
|
|
|
(1) | Tax fees consist of fees for tax compliance, tax advice, tax planning and excise tax. |
(e) The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services to the mutual funds of Wells Fargo Variable Trust; (2) non-audit tax or compliance consulting or training services provided to the Funds by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.
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(f) Not applicable
(g) Not applicable
(h) Not applicable
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. INVESTMENTS
A Portfolio of Investments for each series of Wells Fargo Variable Trust is included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
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.
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ITEM 11. CONTROLS AND PROCEDURES
(a) The President and Treasurer have concluded that the Wells Fargo Variable Trust (the “Trust”) 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 Trust 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 Trust’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) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as Exhibit COE.
(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.
Wells Fargo Variable Trust | ||
By: | ||
/s/ Andrew Owen | ||
Andrew Owen | ||
President | ||
Date: | February 26, 2018 |
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.
Wells Fargo Variable Trust | ||
By: | ||
/s/ Andrew Owen | ||
Andrew Owen | ||
President | ||
Date: | February 26, 2018 | |
By: | ||
/s/ Jeremy DePalma | ||
Jeremy DePalma | ||
Treasurer | ||
Date: | February 26, 2018 |