AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 2011
1933 Act No. 333-_________
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM N-14
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Pre-Effective Amendment No. [ ]
Post-Effective Amendment No. [ ]
(Check appropriate box or boxes)
WELLS FARGO VARIABLE TRUST
(Exact Name of Registrant as Specified in Charter)
525 Market Street
San Francisco, California 94105
(Address of Principal Executive Offices)
(800) 222-8222
(Registrant's Telephone Number)
C. David Messman
Wells Fargo Funds Management, LLC
525 Market Street, 12th Floor
San Francisco, California 94105
(Name and Address of Agent for Service)
With a copy to:
Marco E. Adelfio, Esq.
Goodwin Procter LLP
901 New York Avenue, N.W.
Washington, D.C. 20001
It is proposed that this filing will become effective on June 27, 2011 pursuant to Rule 488.
No filing fee is required under the Securities Act of 1933 because an indefinite number of shares of beneficial interest in the Registrant has previously been registered pursuant to Rule 24f-2 under the Investment Company Act of 1940, as amended.
WELLS FARGO VARIABLE TRUST
PART A
PROSPECTUS/PROXY STATEMENT
WELLS FARGO VARIABLE TRUST
525 Market Street, 12th Floor
San Francisco, CA 94105
1.800.222.8222
July 1, 2011
Dear Investor,
On May 18, 2011, the investment adviser to the Wells Fargo Advantage Funds®, Wells Fargo Funds Management, LLC ("Funds Management"), proposed to the Board of Trustees of Wells Fargo Variable Trust the merger outlined in the table below. The Board of Trustees approved the proposed merger and the related Agreement and Plan of Reorganization, subject to the approval by shareholders of the Wells Fargo Advantage VT Core Equity Fund (the "Target Fund") shown in the table below.
As a result, you are invited to vote on a proposal to merge the Target Fund into the Wells Fargo Advantage VT Opportunity Fund (the "Acquiring Fund") as shown in the table below (the "Merger"). The Board of Trustees has unanimously approved the Merger and recommends that you vote FOR this proposal.
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
If approved by shareholders, this is a general summary of how the Merger will work:
The Target Fund will transfer all of its assets to the Acquiring Fund.
The Acquiring Fund will assume all of the liabilities of the Target Fund.
The Acquiring Fund will issue new shares that will be distributed to each shareholder in an amount equal to that shareholder's value of Target Fund shares.
Each Target Fund shareholder will become a shareholder of the Acquiring Fund and will have his or her investment managed in accordance with the Acquiring Fund's investment strategies.
You will not incur any sales charges or similar transaction charges as a result of the Merger.
It is expected that the Merger will not be taxable to the Target Fund or its shareholders for U.S. federal income tax purposes.
Details about the Target Fund's and Acquiring Fund's investment goals, principal investment strategies, management, past performance, principal risks, fees, and expenses, along with additional information about the Merger, are contained in the attached prospectus/proxy statement. Please read it carefully.
A special meeting of the Target Fund's shareholders will be held on August 19, 2011. Although you are welcome to attend the meeting in person, you do not need to do so in order to vote your shares. If you do not expect to attend the meeting, please complete, date, sign and return the enclosed proxy card/voting instruction card in the postage-paid envelope provided. You may also vote by other means, such as by telephone, by following the voting instructions as outlined in your proxy card/voting instruction card. If the Target Fund does not receive your vote after several weeks, you may receive a telephone call from the Altman Group requesting your vote. The Altman Group has been retained to act as our proxy solicitor and will receive approximately _____ as compensation for seeking shareholder votes and answering shareholder questions. That cost and any other expenses of the Merger will be paid by Funds Management or one of its affiliates and so will not be borne by shareholders of either the Target Fund or the Acquiring Fund. If you have any questions about the Merger or the proxy card/voting instruction card, please call the Altman Group at (866) 406-2287 (toll-free).
Remember, your vote is important to us, no matter how many shares you own. Please take this opportunity to vote. Thank you for taking this matter seriously and participating in this important process.
Sincerely,
Karla Rabusch
President
Wells Fargo Funds Management, LLC
WELLS FARGO VARIABLE TRUST
525 Market Street, 12th Floor
San Francisco, CA 94105
1.800.222.8222
July 1, 2011
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS TO BE HELD ON AUGUST 19, 2011
A Special Meeting (the "Meeting") of Shareholders of the Wells Fargo Advantage VT Core Equity Fund (the "Target Fund"), a series of Wells Fargo Variable Trust (the "Trust"), as set forth in the table below, will be held at the offices of Wells Fargo Advantage Funds®, 525 Market Street, San Francisco, California 94105 on August 19, 2011 at 10:00 a.m., Pacific time.
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Meeting is being held for the following purposes:
To consider and act upon an Agreement and Plan of Reorganization (the "Plan") dated as of [July __, 2011], providing for the reorganization of the Target Fund, including the acquisition of all of the assets of the Target Fund by the Acquiring Fund in exchange for shares of the Acquiring Fund (the "Acquisition Shares") and the assumption by the Acquiring Fund of all of the liabilities of the Target Fund. The Plan also provides for distribution of the Acquisition Shares to shareholders of the Target Fund in liquidation of the Target Fund.
To transact any other business which may properly come before the Meeting or any adjournment(s) thereof.
Any adjournment(s) of the Meeting will be held at the above address. The Board of Trustees of the Trust has fixed the close of business on May 26, 2011 as the record date (the "Record Date") for the Meeting. Only shareholders of record as of the close of business on the Record Date will be entitled to this notice, and to vote at the Meeting or any adjournment(s) therof.
IT IS IMPORTANT THAT PROXY CARDS OR VOTING INSTRUCTION CARDS BE RETURNED PROMPTLY. ALL SHAREHOLDERS AND CONTRACT OWNERS ARE URGED TO COMPLETE, DATE, SIGN WITHOUT DELAY AND RETURN THEIR PROXY CARD OR VOTING INSTRUCTION CARD, AS APPLICABLE, IN THE ENCLOSED POSTAGE-PAID ENVELOPE, OR TO PROVIDE INSTRUCTIONS USING ONE OF THE OTHER METHODS DESCRIBED AT THE END OF THE PROSPECTUS/PROXY STATEMENT SO THAT YOUR VIEWS MAY BE REPRESENTED AT THE MEETING. YOUR PROMPT ATTENTION TO THE PROXY CARD OR VOTING INSTRUCTION CARD WILL HELP TO AVOID THE EXPENSE OF FURTHER SOLICITATION.
By order of the Board of Trustees,
C. DAVID MESSMAN
Secretary
WELLS FARGO VARIABLE TRUST
525 Market Street, 12th Floor
San Francisco, CA 94105
1.800.222.8222
July 1, 2011
PROSPECTUS/PROXY STATEMENT
This prospectus/proxy statement contains information you should know before voting your proxy or providing voting instructions on the proposed merger (the "Merger") of the Wells Fargo Advantage VT Core Equity Fund (the "Target Fund") into the Wells Fargo Advantage VT Opportunity Fund (the "Acquiring Fund") as set forth and defined in the table below, each of which is a series of Wells Fargo Variable Trust (the "Trust") a registered open-end management investment company. The Target Fund serves as an underlying investment option for certain variable annuity contracts and variable life insurance policies (collectively, the "Variable Contracts"). You are receiving this prospectus/proxy statement because you have selected the Target Fund as an investment option for your Variable Contract. Although insurance company separate accounts are the record owners of the Target Fund's shares, the insurance companies that offer Variable Contracts for which the Target Fund is an investment option are required to solicit voting instructions from owners of the Variable Contracts issued by those insurance companies ("Contract Owners"), and generally vote all of the Fund shares they hold in proportion to the timely instructions they receive. As a result, if you are a contract owner of a Variable Contract, you are being asked to provide voting instructions to your insurance company on the Merger. If approved, the Merger will result in the insurance companies receiving shares of the Acquiring Fund in exchange for shares of the Target Fund.
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Target Fund and the Acquiring Fund listed above are collectively referred to as the "Funds."
Please read this prospectus/proxy statement carefully and retain it for future reference. Additional information concerning each Fund and the Merger has been filed with the Securities and Exchange Commission ("SEC"). The prospectuses of the Target Fund and the Acquiring Fund are incorporated into this document by reference and are legally deemed to be part of this prospectus/proxy statement. The statement of additional information ("SAI") relating to this prospectus/proxy statement (the "Merger SAI"), dated the same date as this prospectus/proxy statement, is also incorporated by reference into this document and is legally deemed to be part of this prospectus/proxy statement. The SAI and the annual reports of the Target Fund and the Acquiring Fund are incorporated into the Merger SAI by reference and are legally deemed to be part of the Merger SAI. Copies of these documents pertaining to either the Target Fund or the Acquiring Fund are available upon request without charge by writing to Wells Fargo Advantage Funds®, P.O. Box 8266, Boston, MA 02266-8266, calling 1.800.222.8222 or visiting the Wells Fargo Advantage Funds Web site at www.wellsfargo.com/advantagefunds.
You may also view or obtain these documents from the SEC: by phone at 1.800.SEC.0330 (duplicating fee required); in person or by mail at Public Reference Section, Securities and Exchange Commission, 100 F Street, N.E., Washington, D.C. 20549-0213 (duplicating fee required); by email at publicinfo@sec.gov (duplicating fee required); or by internet at www.sec.gov.
The SEC has not approved or disapproved these securities or determined if this prospectus/proxy statement is truthful or complete. Any representation to the contrary is a criminal offense.
The shares offered by this prospectus/proxy statement are not deposits of a bank, and are not insured, endorsed or guaranteed by the FDIC or any government agency and involve investment risk, including possible loss of your original investment.
Table of Contents
OVERVIEW
The Funds are underlying investment vehicles for certain variable annuity contracts and/or variable life insurance policies offered through separate accounts of participating insurance companies. References to "you" or "your" in this summary refer either to the holder of a Variable Contract who selected Fund shares to fund his or her investment in the Variable Contract or to the insurance company that issues the contract or policy. Throughout this summary, references to a Fund "shareholder" refer only to the insurance company investing in the Fund through a separate account, and not to a holder of a variable annuity contract or variable insurance policy.
Information in this prospectus/proxy statement regarding the expected practices of insurance companies, including regarding the solicitation of voting instructions, the revocation of voting instructions and the voting of proxies in accordance with voting instructions, reflects Funds Management's understanding of insurance companies' general practices. Your insurance company's practices may be different and they may affect or limit your ability to provide effective voting instructions with respect to the Merger. Please contact your insurance company for information regarding its specific practices, including in respect of the Meeting and this prospectus/proxy statement.
This section summarizes the primary features and consequences of the Merger. This summary is qualified in its entirety by reference to the information contained elsewhere in this prospectus/proxy statement, in the Merger SAI, in each Fund's prospectus, in each Fund's financial statements contained in the annual and semi-annual reports, in each Fund's SAI, and in the Agreement and Plan of Reorganization (the "Plan"), a copy of which is attached as Exhibit A hereto. Class 1 of the Wells Fargo Advantage VT Opportunity Fund has not yet been registered and does not yet have a separate prospectus, annual and semi-annual reports or SAI.
Key Features of the Merger
The Plan sets forth the key features of the Merger and generally provides for the following:
the transfer of all of the assets of the Target Fund to the Acquiring Fund in exchange for shares of the Acquiring Fund;
the assumption by the Acquiring Fund of all of the liabilities of the Target Fund;
the liquidation of the Target Fund by distributing the shares of the Acquiring Fund to the Target Fund's shareholders; and
the assumption of the costs of the Merger (other than costs incurred from securities transactions in connection with the Merger) by Wells Fargo Funds Management, LLC ("Funds Management") or one of its affiliates.
The Merger is scheduled to take place on or about August 26, 2011. For a more complete description of the Merger, see the section entitled "Agreement and Plan of Reorganization," as well as Exhibit A.
Board of Trustees Recommendation
At a meeting held on May 18, 2011, the Board of Trustees of the Trust, including a majority of the Trustees who are not "interested persons" of the Target Fund, as that term is defined in the Investment Company Act of 1940, as amended (the "1940 Act") (the "Independent Trustees"), considered and unanimously approved the Merger.
Prior to approving the Merger, the Board received the recommendation that the Merger be approved from Funds Management. In recommending the approval of the Merger to the Board, Funds Management noted that the long-term portfolio management team of the Target Fund recently departed Wells Capital Management Incorporated, the Target Fund's sub-adviser, and that in light of such departure, Funds Management considered various alternatives with respect to the management and viability of the Target Fund and determined to recommend the Merger. Funds Management indicated to the Board that the proposal to merge the Target Fund into the Acquiring Fund is intended to further rationalize the product offerings of the fund family by combining funds with identical investment objectives and similar principal investment strategies into a single combined Fund under the current portfolio management team.
Before approving the Merger, the Trustees reviewed, among other things, information about the Funds and the Merger. This included, among other things, a comparison of various factors, such as the relative sizes of the Funds, the performance records of the Funds, and the expenses of the Funds (including pro forma expense information of the Acquiring Fund following the Merger), as well as the similarities and differences between the Funds' investment goals, principal investment strategies and specific portfolio characteristics.
The Board of Trustees of the Trust, including all of the Independent Trustees, has concluded that the Merger would be in the best interests of the Target Fund, and that existing shareholders' interests will not be diluted as a result of the Merger. Accordingly, the Trustees have submitted the Plan to the Target Fund's shareholders and unanimously recommended its approval. The Board of Trustees of the Trust has also approved the Plan on behalf of the Acquiring Fund.
For further information about the considerations of the Board of Trustees, please see the section entitled "Board Considerations."
Merger Summary (Goals, Strategies, Risks, Performance, Expense, Management and Tax Information)
The following section provides a comparison between the Funds with respect to their investment goals, principal investment strategies, fundamental investment policies, risks, performance records, sales charges and expenses. It also provides information about what the management and share class structure of the Acquiring Fund will be after the Merger. The information below is only a summary; for more detailed information, please see the rest of this prospectus/proxy statement and each Fund's prospectus and SAI (other than Class 1 of the Wells Fargo Advantage VT Opportunity Fund, for which certain information can be found in Exhibit D of this prospectus/proxy statement and the Merger SAI). In this section, percentages of a Fund's "net assets" are measured as percentages of net assets plus borrowings for investment purposes. References to "we" in the principal investment strategy discussion for a Fund generally refer to Funds Management, a sub-adviser or the portfolio manager(s).
WELLS FARGO ADVANTAGE VT CORE EQUITY FUND INTO WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND
Share Class Information
The following table illustrates the share class of the Acquiring Fund that shareholders will receive as a result of the Merger in exchange for their shares in the Target Fund.
A shareholder who owns this class of shares of Wells Fargo Advantage VT Core Equity Fund: | Will receive this class of shares of Wells Fargo Advantage VT Opportunity Fund: | ||||
Class 1 | Class 11 | ||||
Class 2 | Class 2 |
1 | Class will be created to receive the assets of the corresponding share class set forth above. |
The Acquiring Fund shares that shareholders receive as a result of the Merger will have the same total value as the total value of their Target Fund shares as of the close of business on the business day immediately prior to the Merger.
The procedures for buying, selling and exchanging shares of the Funds are identical. For additional information, see the section entitled "Buying, Selling and Exchanging Fund Shares."
Investment Goal and Strategy Comparison
The following section compares the investment goals, principal investment strategies and fundamental investment policies of the Funds. The investment goals of the Funds may be changed without shareholder approval.
The Funds' investment goals are identical in that both Funds seek long-term capital appreciation. The Funds principal investments strategies are similar in that both Funds invest at least 80% of their assets in equity securities. Although the Wells Fargo Advantage VT Core Equity Fund invests principally in securities of large-capitalization companies defined as companies with market capitalizations within the range of the S&P 500® Index while the Wells Fargo Advantage VT Opportunity Fund invests principally in securities of medium-capitalization companies defined as companies with market capitalizations within the range of the Russell Mid Cap® Index, there is nonetheless significant overlap amongst the market capitalizations of the securities held by both Funds due to the overlap of the market capitalization ranges of the S&P 500® Index and the Russell Mid Cap® Index. The Wells Fargo Advantage VT Core Equity Fund may invest up to 20% of its net assets in equity securities of foreign issuers while the Wells Fargo Advantage VT Opportunity Fund may invest up to 25% of its net assets in equity securities of foreign issuers.
A more complete description of each Fund's investment goals and strategies is below.
WELLS FARGO ADVANTAGE VT CORE EQUITY FUND | WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND | ||||
INVESTMENT GOAL | |||||
The Fund seeks long-term capital appreciation. | The Fund seeks long-term capital appreciation. | ||||
PRINCIPAL INVESTMENT STRATEGIES | |||||
Under normal circumstances, we invest at least 80% of the Fund's net assets in equity securities of large-capitalization companies, and may invest up to 20% of the Fund's assets in equity securities of foreign issuers, including ADRs and similar investments. | Under normal circumstances, we invest at least 80% of the Fund's total assets in equity securities and up to 25% of the Fund's total assets in equity securities of foreign issuers, including ADRs and similar investments. | ||||
This strategy is not included in the Fund?s principal investment strategy. | We reserve the right to hedge the portfolio's foreign currency exposure by purchasing or selling currency futures and foreign currency forward contracts. However, under normal circumstances, we will not engage in extensive foreign currency hedging. | ||||
We invest principally in equity securities of large capitalization companies, which we define as companies with market capitalizations within the range of the S&P 500® Index. The market capitalization range of the S&P 500® Index was $1.5 billion to $364.2 billion, as of December 20, 2010, and is expected to change frequently. | We invest principally in equity securities of medium-capitalization companies, which we define as those within the range of market capitalizations of companies in the Russell Midcap® Index. The range of the Russell Midcap® Index was from approximately $348 million to $14.2 billion as of June 28, 2010, and is expected to change frequently. | ||||
Furthermore, we may use futures, options, or swap agreements, as well as other derivatives, to manage risk or to enhance return. | Furthermore, we may use futures, options, repurchase or reverse repurchase agreements or swap agreements, as well as other derivatives, to manage risk or to enhance return. | ||||
We invest in equity securities of large-capitalization companies that we believe are underpriced yet have attractive growth prospects. Our analysis is based on the determination of a company's "private market value," which is the price an investor would be willing to pay for the entire company. We determine a company's private market value based upon several types of analysis. We carry out a fundamental analysis of a company's cash flows, asset valuations, competitive situation and industry specific factors. We also gauge the company's management strength, financial health, and growth potential in determining a company's private market value. We place an emphasis on a company's management, even meeting with management in certain situations. Finally, we focus on the long-term strategic direction of a company. We then compare the private market value as determined by these factors to the company's public market capitalization, and invest in the equity securities of those companies where we believe there is a significant gap between the two. | We invest in equity securities of medium-capitalization companies that we believe are underpriced yet have attractive growth prospects. Our analysis is based on the determination of a company's "private market value," which is the price an investor would be willing to pay for the entire company. We determine a company's private market value based upon several types of analysis. We carry out a fundamental analysis of a company's cash flows, asset valuations, competitive situation and industry specific factors. We also gauge the company's management strength, financial health, and growth potential in determining a company's private market value. We place an emphasis on a company's management, even meeting with management in certain situations. Finally, we focus on the long-term strategic direction of a company. We then compare the private market value as determined by these factors to the company's public market capitalization, and invest in the equity securities of those companies where we believe there is a significant gap between the two. | ||||
We may sell an investment when its market price no longer compares favorably with the company's private market value. In addition, we may choose to sell an investment where the fundamentals deteriorate or the strategy of the management or the management itself changes. | We may sell an investment when its market price no longer compares favorably with the company's private market value. In addition, we may choose to sell an investment where the fundamentals deteriorate or the strategy of the management or the management itself changes. |
The fundamental investment policies of the Funds are identical. For a comparative chart of fundamental investment policies, please see Exhibit B.
Principal Risk Comparison
The principal risks of the Target Fund are substantially similar, but not identical, to those of the Acquiring Fund due to the similarity of the Target Fund's and the Acquiring Fund's investment goals and strategies. Although each of the Funds may be subject to all or substantially all of the risks listed below, they may be subject to a particular risk to different degrees or not at all. For example, because the Target Fund does not invest in smaller company securities as part of its principal investment strategy, the Target Fund is not subject to smaller company securities risk as a principal investment risk. Additionally, since the Target Fund does not engage in foreign currency hedging as part of its principal investment strategy, the Target Fund is not subject to foreign currency transactions risk as a principal risk. In addition, there may be differences in risk disclosure in the Funds' prospectuses that do not necessarily correspond to actual differences in strategies.
The below table compares the principal risks factors of the Target Fund with those of the Acquiring Fund. These risks are described in the section entitled "Risk Descriptions."
WELLS FARGO ADVANTAGE VT CORE EQUITY FUND (Target Fund) | WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND (Acquiring Fund) | ||||
Counter-Party Risk | Counter-Party Risk | ||||
Derivatives Risk | Derivatives Risk | ||||
Not subject to Foreign Currency Transactions Risk | Foreign Currency Transactions Risk | ||||
Foreign Investment Risk | Foreign Investment Risk | ||||
Growth Style Investment Risk | Growth Style Investment Risk | ||||
Issuer Risk | Issuer Risk | ||||
Larger Company Securities Risk | Not subject to Larger Company Securities Risk | ||||
Leverage Risk | Leverage Risk | ||||
Liquidity Risk | Liquidity Risk | ||||
Management Risk | Management Risk | ||||
Market Risk | Market Risk | ||||
Regulatory Risk | Regulatory Risk | ||||
Not subject to Smaller Company Securities Risk | Smaller Company Securities Risk | ||||
Value Style Investment Risk | Value Style Investment Risk |
In addition, each Fund has other investment policies, practices and restrictions which, together with the Fund's related risks, are set forth in the Fund's prospectus and SAI.
Fund Performance Comparison
The following bar charts and tables illustrate how the Funds' returns have varied from year to year and compare the Funds' returns with those of one or more broad-based securities indexes. Past performance (before and after taxes) is not necessarily an indication of future results. To obtain performance information current to the most recent month-end, please call 1.866.765.0778. The bar charts and tables do not reflect contract, policy, separate account or other charges assessed by the insurance companies through which you purchased your Variable Contract; if they did, returns would be lower than those shown.
For additional information about the performance history of the Funds, please see Exhibit C.
Calendar Year Total Returns for Class 2 Shares of Wells Fargo Advantage VT Core Equity Fund as of 12/31 each year
Highest Quarter: | 2nd Quarter 2009 | +18.12% |
Lowest Quarter: | 4th Quarter 2008 | -21.65% |
Year-to-date total return as of 3/31/2011 is +6.18% |
Calendar Year Total Returns for Class 2 Shares of Wells Fargo Advantage VT Opportunity Fund as of 12/31 each year
Highest Quarter: | 2nd Quarter 2009 | +23.22% |
Lowest Quarter: | 4th Quarter 2008 | -29.15% |
Year-to-date total return as of 3/31/2011 is +7.06% |
Average Annual Total Returns for the periods ended 12/31/2010 | ||||||||||
Wells Fargo Advantage VT Core Equity Fund | Inception Date of Share Class | 1 Year | 5 Year | 10 Year | ||||||
Class 1 | 3/1/1996 | 16.46% | 5.36% | 4.10% | ||||||
Class 2 | 7/31/2002 | 16.18% | 5.10% | 3.89% | ||||||
S&P 500 Index (reflects no deduction for fees, expenses, or taxes) | 15.06% | 2.29% | 1.41% |
Average Annual Total Returns for the periods ended 12/31/2010 | ||||||||||
Wells Fargo Advantage VT Opportunity Fund | Inception Date of Share Class | 1 Year | 5 Year | 10 Year | ||||||
Class 1 | 8/26/2011 | 23.76% | 5.56% | 4.90% | ||||||
Class 2 | 5/8/1992 | 23.76% | 5.56% | 4.90% | ||||||
Russell Midcap® Index (reflects no deduction for fees, expenses, or taxes) | 25.48% | 4.66% | 6.54% |
Shareholder Fee and Fund Expense Comparison
The expenses for each class of shares of the Target Fund may be different from those of the corresponding class of shares of the Acquiring Fund.
With respect to both Funds, no sales charges are imposed on either purchases or sales of fund shares.
The following tables entitled "Annual Fund Operating Expenses" allow you to compare the annual operating expenses of the Funds. The total annual fund operating expenses for both Funds set forth in the following tables are based on the actual expenses incurred for each Fund's most recent fiscal year ended December 31, 2010. The pro forma expense table shows you what the total annual fund operating expenses (before and after waiver) would have been for the Acquiring Fund for the twelve-month period ended December 31, 2010, assuming the Merger had taken place at the beginning of that period.
THE TABLES BELOW DO NOT REFLECT THE CHARGES AND FEES ASSESSED BY THE PARTICIPATING INSURANCE COMPANY UNDER YOUR VARIABLE CONTRACT. IF THESE CHARGES WERE REFLECTED, THE EXPENSES SHOWN BELOW WOULD BE HIGHER. PLEASE REFER TO THE PROSPECTUS FOR THE VARIABLE CONTRACT FOR INFORMATION REGARDING SUCH CHARGES. THE MERGER WILL NOT AFFECT THESE FEES AND CHARGES.
Annual Fund Operating Expenses (expenses that you pay each year as a percentage of the value of your investment)
Wells Fargo Advantage VT Core Equity Fund | ||||||||||||||
Management Fees | Distribu- | Other Expenses | Acquired Fund Fees and Expenses | Total Annual Fund Operating Expenses | Waiver of Fund Expenses | Total Annual Fund Operating Expenses After Fee Waiver2 | ||||||||
Class 1 | 0.55% | 0.00% | 0.21% | 0.01% | 0.77% | 0.01% | 0.76% | |||||||
Class 2 | 0.55% | 0.25% | 0.21% | 0.01% | 1.02% | 0.01% | 1.01% |
1 | Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses. |
2 | Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's Total Annual Fund Operating Expenses After Fee Waiver, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed 0.75% for Class 1 and 1.00% for Class 2. After this time, the Total Annual Fund Operating Expenses After Fee Waiver may be increased or the commitment to maintain the same may be terminated only with the approval of the Board of Trustees. |
Wells Fargo Advantage VT Opportunity Fund (Pre-Merger) | ||||||||||||||
Management Fees | Distribu- | Other Expenses | Acquired Fund Fees and Expenses | Total Annual Fund Operating Expenses | Waiver of Fund Expenses | Total Annual Fund Operating Expenses After Fee Waiver2 | ||||||||
Class 2 | 0.65% | 0.25% | 0.21% | 0.01% | 1.12% | 0.04% | 1.08% |
1 | Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses. |
2 | Funds Management has committed through April 30, 2012 to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's Total Annual Fund Operating Expenses After Fee Waiver, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed 1.07% for Class 2. After this time, the Total Annual Fund Operating Expenses After Fee Waiver may be increased or the commitment to maintain the same may be terminated only with the approval of the Board of Trustees. |
Wells Fargo Advantage VT Opportunity Fund (Pro Forma) | ||||||||||||||
Management Fees | Distribu- | Other Expenses | Acquired Fund Fees and Expenses | Total Annual Fund Operating Expenses | Waiver of Fund Expenses | Total Annual Fund Operating Expenses After Fee Waiver2 | ||||||||
Class 1 | 0.65% | 0.00% | 0.20% | 0.01% | 0.86% | 0.10% | 0.76% | |||||||
Class 2 | 0.65% | 0.25% | 0.20% | 0.01% | 1.11% | 0.10% | 1.01% |
1 | Expenses have been adjusted as necessary from amounts incurred during the Fund's most recent fiscal year to reflect current fees and expenses. |
2 | Funds Management has committed from the date of the Merger through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to ensure that the Fund's Total Annual Fund Operating Expenses After Fee Waiver, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the Fund, do not exceed 0.75% for Class 1 and 1.00% for Class 2. After this time, the Total Annual Fund Operating Expenses After Fee Waiver may be increased or the commitment to maintain the same may be terminated only with the approval of the Board of Trustees. |
The example below is intended to help you compare the costs of investing in the Fund with the costs of investing in other mutual funds. The example assumes a $10,000 initial investment, 5% annual total return, and that operating expenses remain the same as in the tables above. The fee waiver in the Total Annual Fund Operating Expenses After Fee Waiver is only reflected for the length of the waiver commitment in each of the following time periods. Expenses that may be charged in connection with variable life insurance policies or Variable Contracts are not included in this Example of Expenses. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
Wells Fargo Advantage VT Core Equity Fund | ||||||
After: | Class 1 | Class 2 | ||||
1 Year | $78 | $103 | ||||
3 Years | $244 | $323 | ||||
5 Years | $426 | $561 | ||||
10 Years | $952 | $1,246 |
Wells Fargo Advantage VT Opportunity Fund (Pre Merger) | ||||
After: | Class 2 | |||
1 Year | $110 | |||
3 Years | $352 | |||
5 Years | $613 | |||
10 Years | $1,360 |
Wells Fargo Advantage VT Opportunity Fund (Pro Forma) | ||||||
After: | Class 1 | Class 2 | ||||
1 Year | $78 | $103 | ||||
3 Years | $254 | $333 | ||||
5 Years | $457 | $592 | ||||
10 Years | $1,042 | $1,333 |
The Wells Fargo Advantage VT Core Equity Fund and the Wells Fargo Advantage VT Opportunity Fund have each adopted a distribution plan pursuant to Rule 12b-1 under the 1940 Act (a "Distribution Plan") for Class 2 shares.
Portfolio Turnover. The Target and Acquiring Funds pay transaction costs, such as commissions or dealer mark-ups, when each buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs. These costs, which are not reflected in the annual fund operating expenses or in the example, affect each Fund's performance. During the most recent fiscal year, the Wells Fargo Advantage VT Core Equity Fund's portfolio turnover rate was 28% of the average value of its portfolio and the Wells Fargo Advantage VT Opportunity Fund's portfolio turnover rate was 40% of the average value of its portfolio.
Fund Management Information
The following table identifies the investment adviser, investment sub-adviser and portfolio manager(s) for the Acquiring Fund. Further information about the management of the Acquiring Fund can be found under the section entitled "Management of the Funds."
Acquiring Fund | ||
Investment Adviser | Funds Management | |
Investment Sub-Adviser | Wells Capital Management Incorporated | |
Portfolio Manager, Title/Managed Since | Ann M. Miletti, Portfolio Manager/2005 |
Tax Information
It is expected that the Merger will be tax-free to shareholders for U.S. federal income tax purposes, and receipt of an opinion substantially to that effect from Proskauer Rose LLP, special tax counsel to the Acquiring Fund, is a condition to the obligation of the Funds to consummate the Merger. This means that neither shareholders nor the Target Fund or the Acquiring Fund will recognize a gain or loss for U.S. federal income tax purposes directly as a result of the Merger.
Certain other U.S. federal income tax consequences are discussed below under "Material U.S. Federal Income Tax Consequences of the Mergers."
RISK DESCRIPTIONS
An investment in each Fund is subject to certain risks. There is no assurance that the return of a Fund will be positive or that a Fund will meet its investment goal. An investment in a Fund is not a deposit of Wells Fargo Bank, N.A. or its affiliates; is not insured, or guaranteed by the Federal Deposit Insurance Corporation or any other government agency; and is subject to investment risks, including possible loss of your original investment. Like most investments, your investment in a Fund could result in a loss of money. The following provides additional information regarding the various risks referenced in the section entitled "Merger Summary."
Counter-Party Risk
When a Fund enters into an investment contract, such as a derivative or a repurchase or reverse repurchase agreement, the Fund is exposed to the risk that the other party will not fulfill its contractual obligation. For example, in a repurchase agreement, there exists the risk that where the Fund buys a security from a seller that agrees to repurchase the security at an agreed upon price and time, the seller will not repurchase the security. Similarly, the Fund is exposed to counter-party risk if it engages in a reverse repurchase agreement where a broker-dealer agrees to buy securities and the Fund agrees to repurchase them at a later date.
Derivatives Risk
The term "derivatives" covers a broad range of investments, including futures, options and swap agreements. In general, a derivative refers to any financial instrument whose value is derived, at least in part, from the price of another security or a specified index, asset or rate. For example, a swap agreement is a commitment to make or receive payments based on agreed upon terms, and whose value and payments are derived by changes in the value of an underlying financial instrument. The use of derivatives presents risks different from, and possibly greater than, the risks associated with investing directly in traditional securities. The use of derivatives can lead to losses because of adverse movements in the price or value of the underlying asset, index or rate, which may be magnified by certain features of the derivatives. These risks are heightened when the portfolio manager uses derivatives to enhance a Fund's return or as a substitute for a position or security, rather than solely to hedge (or offset) the risk of a position or security held by the Fund. The success of management's derivatives strategies will also be affected by its ability to assess and predict the impact of market or economic developments on the underlying asset, index or rate and the derivative itself, without the benefit of observing the performance of the derivative under all possible market conditions. Certain derivative positions may be difficult to close out when a Fund's portfolio manager may believe it would be appropriate to do so. Certain derivative positions (e.g., over-the-counter swaps) are subject to counterparty risk.
Foreign Currency Transactions Risk
Foreign securities are often denominated in foreign currencies. As a result, the value of a Fund's shares is affected by changes in exchange rates. To manage this risk, a Fund may enter into foreign currency futures contracts and foreign currency exchange contracts to hedge against a decline in the U.S. dollar value of a security it already owns or against an increase in the value of an asset it expects to purchase. Use of hedging techniques cannot protect against exchange rate risk perfectly. If a Fund's investment advisor is incorrect in its judgment of future exchange rate relationships, a Fund could be in a less advantageous position than if such a hedge had not been established. Losses on foreign currency transactions used for hedging purposes may be reduced by gains on the assets that are the subject of a hedge. A Fund may also purchase a foreign currency on a spot or forward basis in order to benefit from potential appreciation of such currency relative to the U.S. dollar or to other currencies in which a Fund's holdings are denominated. Losses on such transactions may not be reduced by gains from other Fund assets. A Fund's gains from its positions in foreign currencies may accelerate and/or recharacterize the Fund's income or gains and its distributions to shareholders. The Fund's losses from such positions may also recharacterize the Fund's income and its distributions to shareholders and may cause a return of capital to Fund shareholders.
Foreign Investment Risk
Foreign investments, including American Depositary Receipts (ADRs) and similar investments, are subject to more risks than U.S. domestic investments. These additional risks may potentially include lower liquidity, greater price volatility and risks related to adverse political, regulatory, market or economic developments. Foreign companies also may be subject to significantly higher levels of taxation than U.S. companies, including potentially confiscatory levels of taxation, thereby reducing the earnings potential of such foreign companies. In addition, amounts realized on sales or distributions of foreign securities may be subject to high and potentially confiscatory levels of foreign taxation and withholding when compared to comparable transactions in U.S. securities. Investments in foreign securities involve exposure to changes in foreign currency exchange rates. Such changes may reduce the U.S. dollar value of the investment. Foreign investments are also subject to risks including potentially higher withholding and other taxes, trade settlement, custodial, and other operational risks and less stringent investor protection and disclosure standards in certain foreign markets. In addition, foreign markets can and often do perform differently from U.S. markets.
Growth Style Investment Risk
Growth stocks can perform differently from the market as a whole and from other types of stocks. Growth stocks may be designated as such and purchased based on the premise that the market will eventually reward a given company's long-term earnings growth with a higher stock price when that company's earnings grow faster than both inflation and the economy in general. Thus a growth style investment strategy attempts to identify companies whose earnings may or are growing at a rate faster than inflation and the economy. While growth stocks may react differently to issuer, political, market and economic developments than the market as a whole and other types of stocks by rising in price in certain environments, growth stocks also tend to be sensitive to changes in the earnings of their underlying companies and more volatile than other types of stocks, particularly over the short term. Furthermore, growth stocks may be more expensive relative to their current earnings or assets compared to the values of other stocks, and if earnings growth expectations moderate, their valuations may return to more typical norms, causing their stock prices to fall. Finally, during periods of adverse economic and market conditions, the stock prices of growth stocks may fall despite favorable earnings trends.
Issuer Risk
The value of a security may decline for a number of reasons that directly relate to the issuer or an entity providing credit support or liquidity support, such as management performance, financial leverage, and reduced demand for the issuer's goods, services or securities.
Larger Company Securities Risk
Securities of companies with larger market capitalizations may underperform securities of companies with smaller and mid-sized market capitalizations in certain economic environments. Larger, more established companies might be unable to react as quickly to new competitive challenges, such as changes in technology and consumer tastes. Some larger companies may be unable to grow at rates higher than the fastest growing smaller companies, especially during extended periods of economic expansion.
Leverage Risk
Certain transactions may give rise to a form of leverage. Such transactions may include, among others, reverse repurchase agreements, loans of portfolio securities, and the use of when-issued, delayed delivery or forward commitment transactions. Certain derivatives may also create leverage. The use of leverage may cause a Fund to liquidate portfolio positions when it may not be advantageous to do so. Leveraging, including borrowing, may cause a Fund to be more volatile than if the Fund had not been leveraged. This is because leverage tends to increase a Fund's exposure to market risk, interest rate risk or other risks by, in effect, increasing assets available for investment.
Liquidity Risk
A security may not be able to be sold at the time desired or without adversely affecting the price.
Management Risk
We cannot guarantee that a Fund will meet its investment objective. We do not guarantee the performance of a Fund, nor can we assure you that the market value of your investment will not decline. We will not "make good" on any investment loss you may suffer, nor does anyone we contract with to provide services promise to make good on any such losses.
Market Risk
The market price of securities owned by a Fund may go up or down, sometimes rapidly or unpredictably. Securities may decline in value or become illiquid due to factors affecting securities markets generally or particular industries represented in the securities markets, such as labor shortages or increased production costs and competitive conditions within an industry. A security may decline in value or become illiquid due to general market conditions which are not specifically related to a particular company, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in interest or currency rates, or adverse investor sentiment generally. During a general downturn in the securities markets, multiple asset classes may decline in value or become illiquid simultaneously. Equity securities generally have greater price volatility than debt securities.
Regulatory Risk
Changes in government regulations may adversely affect the value of a security. An insufficiently regulated industry or market might also permit inappropriate practices that adversely affect an investment.
Smaller Company Securities Risk
Securities of companies with smaller market capitalizations tend to be more volatile and less liquid than larger company stocks. Smaller companies may have no or relatively short operating histories, or be newly public companies. Some of these companies have aggressive capital structures, including high debt levels, or are involved in rapidly growing or changing industries and/or new technologies, which pose additional risks.
Value Style Investment Risk
Value stocks can perform differently from the market as a whole and from other types of stocks. Value stocks may be purchased based upon the belief that a given security may be out of favor. Value investing seeks to identify stocks that have depressed valuations, based upon a number of factors which are thought to be temporary in nature, and to sell them at superior profits when their prices rise in response to resolution of the issues which caused the valuation of the stock to be depressed. While certain value stocks may increase in value more quickly during periods of anticipated economic upturn, they may also lose value more quickly in periods of anticipated economic downturn. Furthermore, there is the risk that the factors which caused the depressed valuations are longer term or even permanent in nature, and that there will not be any rise in valuation. Finally, there is the increased risk in such situations that such companies may not have sufficient resources to continue as ongoing businesses, which would result in the stock of such companies potentially becoming worthless.
MANAGEMENT OF THE FUNDS
The following provides additional information regarding the investment adviser and investment sub-adviser of the Acquiring Fund as referenced in the section entitled "Merger Summary" and expenses related to the operation of the Funds.
Investment Adviser
Funds Management is the investment adviser to the Acquiring Fund.
The following are some key facts about Funds Management:
Funds Management is an indirect, wholly-owned subsidiary of Wells Fargo & Company ("Wells Fargo").
Funds Management was created to assume the mutual fund advisory responsibilities of Wells Fargo Bank, N.A. ("Wells Fargo Bank") and is an affiliate of Wells Fargo Bank, which was founded in 1852 and is the oldest bank in the western United States and is one of the largest banks in the United States.
Funds Management is located at 525 Market Street, San Francisco, California 94105, and Wells Fargo is located at 420 Montgomery Street, San Francisco, California 94163.
Sub-Adviser
Wells Capital Management Incorporated ("Wells Capital"), an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, located at 525 Market Street, San Francisco, California 94105, is the sub-adviser for the Acquiring Fund. Wells Capital is responsible for the day-to-day investment management activities of the Acquiring Fund. Wells Capital is a registered investment adviser that provides investment advisory services for registered mutual funds, company retirement plans, foundations, endowments, trust companies, and high net-worth individuals.
Advisory and Sub-Advisory Fees
As compensation for its advisory services to the Acquiring Fund, Funds Management is entitled to receive a monthly fee at the annual rates indicated below, as a percentage of the Acquiring Fund's average daily net assets.
Fund | Fee | |||
VT Opportunity Fund | First $500 million | 0.650% | ||
Next $500 million | 0.625% | |||
Next $1 billion | 0.600% | |||
Next $2 bilion | 0.575% | |||
Over $4 billion | 0.550% |
For providing investment sub-advisory services to the Acquiring Fund, Wells Capital is entitled to receive monthly fees at the annual rates indicated below as a percentage of the Fund's average daily net assets. These fees may be paid by Funds Management or directly by the Fund. If a sub-advisory fee is paid directly by the Fund, the compensation paid to Funds Management for advisory fees will be reduced accordingly so that the Fund will not pay, in the aggregate, more than the amounts shown above as being due to Funds Management.
Fund | Sub-Adviser | Fee | ||||
VT Opportunity Fund | Wells Capital | First $100 million | 0.45% | |||
Next $100 million | 0.40% | |||||
Over $200 million | 0.30% |
For the Acquiring Fund's most recent fiscal year, the aggregate advisory fee paid to Funds Management was as follows:
Advisory Fees Paid | |
As a % of average daily net assets | |
VT Opportunity Fund | 0.59% |
For a discussion regarding the basis for the approval of the Acquiring Fund's investment advisory and sub-advisory agreements by its Board of Trustees, please see the Acquiring Fund's shareholder report for the fiscal half-year ended June 30, 2010.
Additional Information Regarding the Expenses of the Funds
As a result of the Merger, the annual operating expenses you bear as a shareholder may change. Although the gross annual operating expenses for a particular share class may increase as a result of the Merger, the share classes of the Acquiring Fund are subject to expense caps that after the date of the Merger will have the effect of reducing or eliminating those increases until at least July 18, 2013. See the pro forma information in the section entitled "Shareholder Fee and Fund Expense Comparison" for information concerning such expense caps.
Portfolio Managers
Ann M. Miletti. Ms. Miletti is jointly responsible for managing the Wells Fargo Advantage VT Opportunity Fund, which she has managed since 2005. Ms. Miletti joined Wells Capital in 2005 as a portfolio manager. Prior to joining Wells Capital, she was with Strong Capital Management, Inc. since 1991. From August 1998 to September 2001, Ms. Miletti was an associate manager of equity accounts. Education: B.S., Education, University of Wisconsin - Milwaukee.
Thomas D. Wooden, CFA. Mr. Wooden is jointly responsible for managing the Wells Fargo Advantage VT Opportunity Fund, which he has managed since 2011. He is a portfolio manager on the Core Equity team at Wells Capital. Prior to joining Wells Capital in 2008, Mr. Wooden was an associate portfolio manager for Artisans Partners, LLC, where he began his investment industry career in 1999. Earlier, he was an F-15C Squadron Assistant Operations Officer, Weapons Officer and Instructor Pilot for the United States Air Force. Education: bachelor's degree in business management, United States Air Force Academy. Mr. Wooden has been awarded the use of the Chartered Financial Analyst (CFA) designation by the CFA Institute.
The Acquiring Fund's Statement of Additional Information (or, in the case of Class 1 of the Acquiring Fund, the Merger SAI) contains additional information about the Acquiring Fund's portfolio managers, including other accounts managed, ownership of Acquiring Fund shares and elements of compensation.
MERGER INFORMATION
Board Considerations
At a regular Board meeting on May 17-18, 2011, the Board of Trustees of the Wells Fargo Advantage Funds considered the proposed Merger of the Wells Fargo Advantage VT Core Equity Fund into the Wells Fargo Advantage VT Opportunity Fund. In connection with the Board meeting, Funds Management provided extensive background materials and analyses to the Board. These materials included information on the investment objectives and principal investment strategies of the Target Fund and the Acquiring Fund, comparative operating expense ratios, certain tax information, asset size, risk profile and investment performance information, and an analysis of the projected benefits of the Merger. Funds Management responded to questions and requests for additional information at these meetings and throughout the course of the Board's consideration of these matters.
After reviewing and discussing these materials and analyses, among the Board members, with management, and with its legal advisers, the Board unanimously approved the Plan. In its deliberations, the Board recognized that some of the projected benefits of the Plan would accrue to Funds Management and its affiliates rather than Target Fund shareholders. In this regard, the Board noted that Funds Management and its affiliates are likely to benefit from the elimination of duplicative Funds and expenses, and from other cost savings resulting from the rationalization of the product line, among other things. The Board recognized this sharing of benefits in the context of evaluating the Plan overall and determining that the Merger of the Target Fund into the Acquiring Fund would be in the best interests of the Target Fund. The Board further determined that the interests of existing shareholders of the Target Fund would not be diluted as a result of the Merger.
Accordingly, the Board unanimously recommends that shareholders of the Target Fund vote to approve the Merger for the following reasons:
OVERALL PRODUCT LINE AND FUND VIABILITY
The Board noted that the long-term portfolio management team of the Target Fund departed Wells Capital in December 2010, and that in light of such departures, Funds Management considered various alternatives with respect to the management of the Target Fund and determined to recommend the Merger. As a result, the Board noted that the Merger is intended to combine two funds with identical investment objectives and similar principal investment strategies that are currently managed by the same portfolio management team. The Board noted that this Merger can enable management, distribution and other resources to be more effectively concentrated on a more focused group of portfolios.
The Merger is expected to enhance the viability of the combined Acquiring Fund. By combining compatible funds, the Wells Fargo Advantage Funds complex is also able to take steps towards eliminating duplicative costs and improving potential shareholder returns. The Board determined that the elimination of duplicative costs and the spreading of certain costs across a larger asset base can benefit shareholders of the combined fund over time by facilitating potential reductions in operating expense ratios. Moreover, the Board noted Funds Management's view that the demand for the active core strategy used by both Funds has waned somewhat and that the Merger would result in an Acquiring Fund that, as a combined offering, is more viable in various asset allocation strategies.
PORTFOLIO MANAGEMENT
The Board considered the investment strategy similarities and differences and determined that the investment strategies of the Acquiring Fund are similar to those of the Target Fund, allowing shareholders to continue to own a similar fund. To the extent the investment strategies of the Acquiring Fund differ from those of the Target Fund, the Board considered those differences as part of its overall determination that the Merger would be in the best interests of the Target Fund. The Board considered that the Merger would result in the Target Fund maintaining significant diversification and being in a position to take advantage of the greater purchasing power that is derived from having significantly more assets. The Board also received information about the portfolio managers who would be managing the VT Opportunity Fund going forward and satisfied itself as to the nature and quality of advisory services expected to be provided to the portfolio for the benefit of the Acquiring Fund's shareholders.
GREATER POTENTIAL ECONOMIES OF SCALE IN THE FUTURE
The Board also considered that the Target Fund may benefit from the potential for greater economies of scale in the future by combining two relatively equal sized funds into a single larger fund with greater assets and greater potential for growth, thereby potentially reducing certain fixed costs (such as legal, compliance and audit expenses) as a percentage of fund assets.
COMPATIBLE OBJECTIVES AND INVESTMENT STRATEGIES
As discussed further in the section entitled "Investment Goal and Strategy Comparison," the Acquiring Fund and the Target Fund have identical investment goals and similar principal investment strategies. The Board also considered the number of holdings of each of the Target Fund and the Acquiring Fund and the overlap of their respective portfolios. In this regard, the Board considered the expected portfolio turnover and transaction expenses associated with transitioning the Target Fund's portfolio towards the portfolio of the Acquiring Fund.
In considering the Merger, the Board noted that the VT Core Equity Fund has a policy of investing at least 80% of its net assets in equity securities of large-capitalization companies, while the VT Opportunity Fund has a policy of investing at least 80% of its net assets in equity securities and principally invests in securities of medium-capitalization companies. The Board further considered that the VT Core Equity Fund defines large-capitalization companies as those with market capitalizations with the range of the S&P 500 Index (between $1.5 billion and $364.2 billion as of December 20, 2010), while the VT Opportunities Fund defines medium-capitalization companies as those with market capitalizations within the range of the Russell Mid Cap Index (between $348 million and $14.2 billion as of June 28, 2010). The Board further noted that the portfolio of the VT Core Equity Fund has an overlap of the S&P 500 Index of 77%, and the VT Opportunities Fund has an overlap of the S&P 500 Index of 62%.
The Board noted that the Board also considered that the two Funds have different potential foreign exposure, with the VT Core Equity Fund having a policy that limits its investments in equity securities of foreign issuers to up to 20% of its total assets, whereas the VT Opportunity Fund may invest up to 25% of its total assets in such securities. The Board considered, however, management's representation that the Merger is not expected to significantly alter the risk/potential return profile of the Target Fund's shareholders' investments.
COMPARATIVE PERFORMANCE
The Board reviewed the Target Fund's and the Acquiring Fund's absolute performance, as well as the performance of each compared to a relevant universe of comparable funds identified by an independent data provider, and noted that (1) the Acquiring Fund has achieved better investment performance over all measurement periods than the Target Fund, and (2) each Fund has achieved strong performance relative to the universe of comparable funds. Shareholders should consult the chart in the section entitled "Fund Performance Comparison" for Fund-specific, calendar year performance information. Of course, past performance is not predictive of future results.
GROSS AND NET OPERATING EXPENSE RATIOS OF THE FUNDS
The Board noted that, in large part due to higher advisory fee schedules, the Acquiring Fund's gross operating expense ratios based on data for the 6 months ended March 31, 2011 are higher than those of the Target Fund based on data for the same period. The Board specifically considered the higher advisory fee schedule of the Acquiring Fund versus that of the Target Fund in the context of the medium capitalization strategy of the Acquiring Fund versus the large capitalization strategy of the Target Fund. The Board further noted that although data for the six months ended March 31, 2011 reflected higher gross expense ratios for the Acquiring Fund, a comparison of expenses over other time periods may show different results.
The Board noted, however, that the net operating expense ratio of the Acquiring Fund will be identical to the Target Fund due to waivers and expense reimbursements and that Funds Management has committed to establish the Acquiring Fund's pro forma net operating expense ratio cap for approximately a two-year period from the Closing Date of the Merger (until July 18, 2013), and that, thereafter, the cap cannot be raised without Board approval. Thus, Target Fund shareholders will not experience an increase in their current net operating expense ratios above the cap until July 2013 at the earliest. Shareholders should consult the section entitled "Shareholder Fee and Fund Expense Comparison" for Fund-specific gross and net operating expense ratio information.
EXPECTED TAX-FREE CONVERSION OF THE TARGET FUND SHARES
The Board also considered the expectation that the Merger will be treated as a "reorganization" for U.S. federal income tax purposes. By participating in the Merger, it is expected that: (1) shareholders will not recognize a taxable gain or a loss on the exchange of Target Fund shares for shares of the same class of the Acquiring Fund; (2) shareholders will have the same tax basis in Acquiring Fund shares as in Target Fund shares; and (3) assuming that shareholders hold Target Fund shares as a capital asset, the holding period for the Acquiring Fund shares will include the period for which the shareholder held Target Fund shares. Shareholders will continue to have the right to redeem any or all shares at net asset value, net of any applicable contingent deferred sales charges, at any time, at which time, a shareholder holding shares in a taxable account generally would recognize a gain or loss for U.S. federal income tax purposes.
The Board also noted that Target Fund shares are predominantly owned by Contract Owners through insurance company separate accounts and that the Merger should have no U.S. federal income tax consequences on such Contract Owners even if it does not qualify as a "reorganization" as described above. The Board also considered potential limitations on the use of losses of the Target Fund and/or the Acquiring Fund as result of the Merger. Shareholders should review the section entitled "Material U.S. Federal Income Tax Consequences of the Mergers" for a description of the material U.S. federal income tax consequences of the Merger.
EXPENSES OF THE MERGER
Funds Management has agreed to bear all expenses incurred in connection with the Merger (other than any brokerage or other transaction costs associated with the sale or purchase of portfolio securities in connection with the Merger), whether or not the Merger is consummated.
Agreement and Plan of Reorganization
The Target Fund will be reorganized into the Acquiring Fund pursuant to the Plan, a form of which is attached as Exhibit A. The following summary of the Plan is qualified in its entirety by reference to Exhibit A attached hereto.
The Plan provides that the Acquiring Fund will acquire all of the assets of the Target Fund in exchange for shares of equal value of the Acquiring Fund (measured on the business day immediately preceding the Merger) and the assumption by the Acquiring Fund of all of the liabilities of the Target Fund, at 9:00 a.m. Eastern Time on a particular Merger date (the "Effective Time").
The number of full and fractional shares of each class of the Acquiring Fund to be received by each class of the Target Fund will be determined by dividing the value of assets net of known liabilities attributable to such Target Fund class by the net asset value ("NAV") of one share of the applicable Acquiring Fund class. The Plan specifies that the method of determining the value of the assets net of liabilities and the NAV of each class of the Acquiring Fund shall be the same method used in determining the NAV of the Acquiring Fund in the ordinary course. The valuation will be conducted on the business day immediately preceding the Effective Time or upon such other date as the parties may agree, as of the last time that the Acquiring Fund ordinarily calculates its NAV, or as of such other time as the parties may agree (the "Valuation Date").
Prior to the Closing Date, the Target Fund will declare a distribution which, together with all previous distributions, shall have the effect of distributing to the Target Fund's shareholders (in shares of the Target Fund, or in cash, as the shareholder has previously elected) substantially all of the Target Fund's undistributed investment company taxable income (computed without regard to any deduction for dividends paid) for all taxable periods ending on or prior to the Closing Date, and all of its undistributed net capital gains realized in all taxable periods ending on or prior to the Closing Date (after reduction by any available capital loss carryforwards).
At the Effective Time or as soon as reasonably practicable thereafter, the Target Fund will liquidate and distribute pro rata to the Target Fund shareholders of record of each class as of the close of business on the Valuation Date the full and fractional shares of the corresponding class of the Acquiring Fund received by the Target Fund based on the shares of the Target Fund class owned by such shareholders. After these distributions and the winding up of its affairs, the Target Fund will be terminated as a series of the Target Trust in accordance with applicable law and its Amended and Restated Declaration of Trust (the "Declaration of Trust").
Although not expressly provided for in the Plan, in connection with the Merger of the Target Fund into the Acquiring Fund and after proper disclosure, Funds Management anticipates that Wells Capital, the sub-adviser to the Target Fund, will begin aligning the Target Fund's portfolio holdings to be consistent with the investment objective, principal investments and principal investment strategies of the Acquiring Fund some time after any shareholder approval of the Merger but in advance of the Effective Time. During the period of time of such portfolio repositioning, the Target Fund may not achieve its investment objective and may deviate from its principal investments and principal investment strategies.
A majority of the Board of Trustees may terminate the Plan on behalf of the Target Fund or the Acquiring Fund under certain circumstances. In addition, completion of a Merger is subject to numerous conditions set forth in the Plan, including approval by Target Fund shareholders, the accuracy of various representations and warranties, and receipt of a tax opinion generally to the effect that the Merger will qualify as a tax-free "reorganization" for U.S. federal income tax purposes.
Whether or not the Merger is consummated, Funds Management or one of its affiliates will pay all expenses incurred by the Target Fund and the Acquiring Fund in connection with the Merger (including the cost of any proxy solicitor), except portfolio transaction costs incurred in purchasing or disposing of securities. If the Target Fund's shareholders do not approve the Merger, the Board of Trustees on behalf of the Target Fund may consider other possible courses of action with respect to the Target Fund, including without limitation, a merger with another fund or liquidation of the Target Fund.
Material U.S. Federal Income Tax Consequences of the Merger
The following discussion summarizes certain material U.S. federal income tax consequences of the Merger, including an investment in Acquiring Fund shares, that are applicable to you as a Target Fund shareholder. It is based on the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), applicable U.S. Treasury regulations, judicial authority and administrative rulings and practice, all as of the date of this prospectus/proxy statement and all of which are subject to change, including changes with retroactive effect. The discussion below does not address any state, local or foreign tax consequences of the Merger or of holding Acquiring Fund shares. Your tax treatment may vary depending upon your particular situation. You also may be subject to special rules not discussed below if you are a certain kind of Target Fund shareholder, including, but not limited to: an insurance company; a tax-exempt organization; a financial institution or broker-dealer; a person who is neither a citizen nor resident of the United States or entity that is not organized under the laws of the United States or political subdivision thereof; a shareholder who holds Target Fund shares as part of a hedge, straddle or conversion transaction; a person that does not hold Target Fund shares as a capital asset at the time of the Merger; or an entity taxable as a partnership for U.S. federal income tax purposes.
We have not requested and will not request an advance ruling from the Internal Revenue Service ("IRS") as to the U.S. federal income tax consequences of the Merger or any related transaction. The IRS could adopt positions contrary to those discussed below and such positions could be sustained. You are urged to consult with your own tax advisors and financial planners as to the particular tax consequences of the Merger and of holding Acquiring Fund shares to you, including the applicability and effect of any state, local or foreign laws and the effect of possible changes in applicable tax laws.
Qualification of the Merger as a Tax-Free "Reorganization" Under the Internal Revenue Code
The obligation of the Funds to consummate the Merger is contingent upon their receipt of an opinion from Proskauer Rose LLP, special tax counsel to the Acquiring Fund, generally to the effect that the Merger will qualify as a "reorganization" under Section 368(a) of the Internal Revenue Code with respect to the Acquiring Fund and the Target Fund, and therefore generally:
no gain or loss will be recognized by the Acquiring Fund upon receipt of the Target Fund's assets in exchange for the Acquiring Fund shares and the assumption by the Acquiring Fund of the liabilities of the Target Fund;
the Acquiring Fund's tax basis in the assets of the Target Fund transferred to the Acquiring Fund in the Merger will be the same as the Target Fund's tax basis in the assets immediately prior to the transfer;
the Acquiring Fund's holding periods for the assets of the Target Fund will include the periods during which such assets were held by the Target Fund;
no gain or loss will be recognized by the Target Fund upon the transfer of the Target Fund's assets to the Acquiring Fund in exchange for Acquiring Fund shares and the assumption by the Acquiring Fund of the liabilities of the Target Fund, or upon distribution of Acquiring Fund shares by the Target Fund to its shareholders in liquidation;
no gain or loss will be recognized by the Target Fund's shareholders upon the exchange of their Target Fund shares for Acquiring Fund shares;
the tax basis of Acquiring Fund shares a Target Fund shareholder receives in connection with the Merger will be the same as the tax basis of his or her Target Fund shares exchanged therefor;
a Target Fund shareholder's holding period for his or her Acquiring Fund shares will include the period for which he or she held the Target Fund shares exchanged therefor; and
the Acquiring Fund will succeed to, and take into account the items of the Target Fund described in Section 381(c) of the Internal Revenue Code, subject to the conditions and limitations specified in the Internal Revenue Code and the U.S. Treasury regulations thereunder.
The tax opinion described above will be based on then-existing law, will be subject to certain assumptions, qualifications and exclusions and will be based in part on the truth and accuracy of certain representations by us on behalf of the Acquiring Fund and the Target Fund. If you hold Target Fund shares through a Variable Contract, you should not be affected even if your Merger does not qualify as a "reorganization" as described above.
Status as a Regulated Investment Company
Since its formation, each Fund has elected and believes it has qualified to be treated as a separate "regulated investment company," or "RIC," under Subchapter M of the Internal Revenue Code. Accordingly, each Fund believes that it has been, and expects to continue to be relieved of U.S. federal income tax liability to the extent that it makes distributions of its income and gains to its shareholders.
U.S. Federal Income Taxation of an Investment in the Acquiring Fund
The following discussion summarizes certain material U.S. federal income tax consequences of an investment in the Acquiring Fund. This discussion is not intended as a substitute for careful tax planning. You should consult your tax adviser about your specific tax situation. Please see the prospectuses and statement of additional information for the Acquiring Fund (or, in the case of Class 1 of the Acquiring Fund, this prospectus/proxy statement and the Merger SAI) for additional U.S. federal income tax information.
Qualification as a Regulated Investment Company. It is intended that the Acquiring Fund will qualify as a RIC under Subchapter M of Subtitle A, Chapter 1 of the Internal Revenue Code. The Acquiring Fund will be treated as a separate entity for U.S. federal income tax purposes. Thus, the provisions of the Internal Revenue Code applicable to RICs generally will apply separately to the Acquiring Fund even though the Acquiring Fund is a series of the Trust. Furthermore, the Acquiring Fund will separately determine its income, gains, losses and expenses for U.S. federal income tax purposes.
In order to qualify as a RIC under the Internal Revenue Code, the Acquiring Fund must, among other things, derive at least 90% of its gross income each taxable year generally from (i) dividends, interest, certain payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, and other income attributable to its business of investing in such stock, securities or foreign currencies (including, but not limited to, gains from options, futures or forward contracts) and (ii) net income derived from an interest in a qualified publicly traded partnership, as defined in the Internal Revenue Code. Future U.S. Treasury regulations may (possibly retroactively) exclude from qualifying income foreign currency gains that are not directly related to the Acquiring Fund's principal business of investing in stock, securities or options and futures with respect to stock or securities. In general, for purposes of this 90% gross income requirement, income derived from a partnership, except a qualified publicly traded partnership, will be treated as qualifying income only to the extent such income is attributable to items of income of the partnership which would be qualifying income if realized by the RIC.
The Acquiring Fund must also diversify its holdings so that, at the end of each quarter of the Acquiring Fund's taxable year: (i) at least 50% of the fair market value of its assets consists of (A) cash and cash items (including receivables), U.S. government securities and securities of other RICs, and (B) securities of any one issuer (other than those described in clause (A)) to the extent such securities do not exceed 5% of the value of the Acquiring Fund's total assets and do not exceed 10% of the outstanding voting securities of such issuer, and (ii) not more than 25% of the value of the Acquiring Fund's total assets consists of the securities of any one issuer (other than those described in clause (i)(A)), the securities of two or more issuers the Acquiring Fund controls and which are engaged in the same, similar or related trades or businesses, or the securities of one or more qualified publicly traded partnerships. In addition, for purposes of meeting this diversification requirement, the term "outstanding voting securities of such issuer" includes the equity securities of a qualified publicly traded partnership. The qualifying income and diversification requirements applicable to the Acquiring Fund may limit the extent to which it can engage in transactions in options, futures contracts, forward contracts and swap agreements.
If the Acquiring Fund fails to satisfy the qualifying income or diversification requirements in any taxable year, the Acquiring Fund may be eligible for relief provisions if the failures are due to reasonable cause and not willful neglect and if a penalty tax is paid with respect to each failure to satisfy the applicable requirements. Additionally, relief is provided for certain de minimis failures of the diversification requirements where the Acquiring Fund corrects the failure within a specified period. If the applicable relief provisions are not available or cannot be met, the Acquiring Fund will be taxed in the same manner as an ordinary corporation, described below.
In addition, with respect to each taxable year, the Acquiring Fund generally must distribute to its shareholders at least 90% of its investment company taxable income, which generally includes its ordinary income and the excess of any net short-term capital gain over net long-term capital loss, and at least 90% of its net tax-exempt interest income earned for the taxable year. If the Acquiring Fund meets all of the RIC qualification requirements, it generally will not be subject to U.S. federal income tax on any of the investment company taxable income and net capital gain (i.e., the excess of net long-term capital gain over net short-term capital loss) it distributes to its shareholders. For this purpose, the Acquiring Fund generally must make the distributions in the same year that it realizes the income and gain, although in certain circumstances, the Acquiring Fund may make the distributions in the following taxable year. Shareholders generally are taxed on any distributions from the Acquiring Fund in the year they are actually distributed. However, if the Acquiring Fund declares a distribution to shareholders of record in October, November or December of one year and pays the distribution by January 31 of the following year, the Acquiring Fund and its shareholders will be treated as if the Acquiring Fund paid the distribution by December 31 of the first taxable year. The Acquiring Fund intends to distribute its net income and gain in a timely manner to maintain its status as a RIC and eliminate fund-level U.S. federal income taxation of such income and gain. However, no assurance can be given that the Acquiring Fund will not be subject to U.S. federal income taxation.
Moreover, the Acquiring Fund may retain for investment all or a portion of its net capital gain. If the Acquiring Fund retains any net capital gain, it will be subject to a tax at regular corporate rates on the amount retained, but may designate the retained amount as undistributed capital gain in a written statement furnished to its shareholders, who (i) will be required to include in income for U.S. federal income tax purposes, as long- term capital gain, their shares of such undistributed amount, and (ii) will be entitled to credit their proportionate shares of the tax paid by the Acquiring Fund on such undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent the credit exceeds such liabilities. For U.S. federal income tax purposes, the tax basis of shares owned by a shareholder of the Acquiring Fund will be increased by an amount equal to the difference between the amount of undistributed capital gain included in the shareholder's gross income and the tax deemed paid by the shareholder under clause (ii) of the preceding sentence. The Acquiring Fund is not required to, and there can be no assurance that it will, make this designation if it retains all or a portion of its net capital gain in a taxable year.
If, for any taxable year, the Acquiring Fund fails to qualify as a RIC under the Internal Revenue Code and is not eligible for relief as described above, (i) it will be taxed in the same manner as an ordinary corporation without any deduction for its distributions to shareholders, and (ii) each insurance company separate account invested in the Fund could fail to satisfy the diversification requirements described below (under Taxation of a Separate Account of a Participating Insurance Company), with the result that the Variable Contracts supported by that account would no longer be eligible for tax deferral. To re-qualify to be taxed as a RIC in a subsequent year, the Acquiring Fund may be required to distribute to its shareholders its earnings and profits attributable to non-RIC years reduced by an interest charge on 50% of such earnings and profits payable by the Acquiring Fund to the IRS. In addition, if an Acquiring Fund initially qualifies as a RIC but subsequently fails to qualify as a RIC for a period greater than two taxable years, the Acquiring Fund generally would be required to recognize and pay tax on any net unrealized gain (the excess of aggregate gain, including items of income, over aggregate loss that would have been realized if the Acquiring Fund had been liquidated) or, alternatively, to be subject to tax on such unrealized gain recognized for a period of ten years, in order to re-qualify as a RIC in a subsequent year.
Excise Tax. If the Acquiring Fund fails to distribute by December 31 of each calendar year at least the sum of 98% of its ordinary income for that year (excluding capital gains and losses), 98.2% of its capital gain net income (adjusted for certain net ordinary losses) for the 12-month period ending on October 31 of that year, and any of its ordinary income and capital gain net income from previous years that was not distributed during such years, the Acquiring Fund will be subject to a nondeductible 4% U.S. federal excise tax on the undistributed amounts (other than to the extent of its tax-exempt interest income, if any). For these purposes, the Acquiring Fund will be treated as having distributed any amount on which it is subject to corporate-level U.S. federal income tax for the taxable year ending within the calendar year. The Acquiring Fund generally intends to actually distribute or be deemed to have distributed substantially all of its ordinary income and capital gain net income, if any, by the end of each calendar year and thus expect not to be subject to the excise tax. However, no assurance can be given that the Acquiring Fund will not be subject to the excise tax. Moreover, the Acquiring Fund reserves the right to pay an excise tax rather than make an additional distribution when circumstances warrant (for example, the amount of excise tax to be paid by the Acquiring Fund is determined to be de minimis). This U.S. federal excise tax, however, is inapplicable to any RIC whose shareholders consist solely of insurance company separate accounts supporting Variable Contracts, and/or qualified pension and retirement plans.
Equalization Accounting. The Acquiring Fund may use the so-called "equalization method" of accounting to allocate a portion of its "earnings and profits," which generally equals the Acquiring Fund's undistributed investment company taxable income and net capital gain, with certain adjustments, to redemption proceeds. This method permits the Acquiring Fund to achieve more balanced distributions for both continuing and redeeming shareholders. Although using this method generally will not affect the Acquiring Fund's total returns, it may reduce the amount that the Acquiring Fund would otherwise distribute to continuing shareholders by reducing the effect of redemptions of Acquiring Fund shares on Acquiring Fund distributions to shareholders. However, the IRS may not have expressly sanctioned the particular equalization methods used by the Acquiring Fund, and thus the Acquiring Fund's use of these methods may be subject to IRS scrutiny.
Taxation of Acquiring Fund Investments. If you hold Acquiring Fund shares through a Variable Contract, you should generally not be affected by the character of the Acquiring Fund's investments.
"Passive foreign investment companies" ("PFICs") are generally defined as foreign corporations with respect to which at least 75% of their gross income for their taxable year is income from passive sources (such as interest, dividends, certain rents and royalties, or capital gains) or at least 50% of their assets on average produce such passive income. If the Acquiring Fund acquires any equity interest in a PFIC, the Acquiring Fund could be subject to U.S. federal income tax and interest charges on "excess distributions" received from the PFIC or on gain from the sale of such equity interest in the PFIC, even if all income or gain actually received by the Acquiring Fund is timely distributed to its shareholders.
Elections may be available that would ameliorate these adverse tax consequences, but such elections could require the Acquiring Fund to recognize taxable income or gain without the concurrent receipt of cash. The Acquiring Fund may attempt to limit and/or manage its holdings in PFICs to minimize their tax liability or maximize their returns from these investments but there can be no assurance that they will be able to do so. Moreover, because it is not always possible to identify a foreign corporation as a PFIC in advance of acquiring shares in the corporation, the Acquiring Fund may incur the tax and interest charges described above in some instances.
Some regulated futures contracts, certain foreign currency contracts, and non-equity, listed options used by the Acquiring Fund will be deemed "Section 1256 contracts." The Acquiring Fund will be required to "mark to market" any such contracts held at the end of the taxable year by treating them as if they had been sold on the last day of that year at market value. Sixty percent of any net gain or loss realized on all dispositions of Section 1256 contracts, including deemed dispositions under the "mark-to-market" rule, generally will be treated as long-term capital gain or loss, and the remaining 40% will be treated as short-term capital gain or loss, although certain foreign currency gains and losses from such contracts may be treated as ordinary income or loss. These provisions may require the Acquiring Fund to recognize income or gains without a concurrent receipt of cash. Transactions that qualify as designated hedges are exempt from the mark-to-market rule and the "60%/40%" rule and may require the Acquiring Fund to defer the recognition of losses on certain futures contracts, foreign currency contracts and non-equity options.
Taxation of a Separate Account of a Participating Insurance Company. Under the Internal Revenue Code, if the investments of a segregated asset account, such as the separate accounts of participating insurance companies, are "adequately diversified," a holder of a Variable Contract supported by the account will receive favorable U.S. federal income tax treatment in the form of tax deferral.
In general, pursuant to the U.S. Treasury regulations promulgated under Section 817(h) of the Internal Revenue Code, the investments of a segregated asset account are considered to be "adequately diversified" only if: (i) no more than 55% of the value of the total assets of the account is represented by any one investment; (ii) no more than 70% of the value of the total assets of the account is represented by any two investments; (iii) no more than 80% of the value of the total assets of the account is represented by any three investments; and (iv) no more than 90% of the value of the total assets of the account is represented by any four investments. Section 817(h) provides as a safe harbor that a segregated asset account is also considered to be "adequately diversified" if it meets the RIC diversification tests described earlier and no more than 55% of the value of the total assets of the account is attributable to cash, cash items (including receivables), U.S. government securities, and securities of other RICs.
In general, all securities of the same issuer are treated as a single investment for such purposes, and each U.S. government agency and instrumentality is considered a separate issuer. However, U.S. Treasury regulations provide a "look-through rule" with respect to a segregated asset account's investments in a RIC for purposes of the applicable diversification requirements, provided certain conditions are satisfied by the RIC. In particular, (i) if the beneficial interests in the RIC are held by one or more segregated asset accounts of one or more insurance companies, and (ii) if public access to such RIC is available exclusively through the purchase of a Variable Contract or through certain qualified pension or retirement plans, then a segregated asset account's beneficial interest in the RIC is not treated as a single investment. Instead, a pro rata portion of each asset of the RIC is treated as an asset of the segregated asset account. Look-through treatment is also available if the two requirements above are met, notwithstanding the fact that beneficial interests in the RIC are also held by certain other permitted investors, including certain pension or retirement plans, certain qualified tuition programs, or certain Puerto Rican segregated asset accounts.
Failure by the Acquiring Fund to satisfy the Section 817(h) requirements could cause the Variable Contracts to lose their favorable tax status and require a Variable Contract holder to include in ordinary income any income accrued under the Variable Contracts for the current and all prior taxable years. Under certain circumstances described in the applicable U.S. Treasury regulations, inadvertent failure to satisfy the applicable diversification requirements may be corrected, but such a correction would require a payment to the IRS based on the tax Variable Contract holders would have incurred if they were treated as receiving the income on the contract for the period during which the diversification requirements were not satisfied. Any such failure may also result in adverse U.S. federal income tax consequences for the insurance company issuing the Variable Contracts.
As indicated above, the Trust intends that the Acquiring Fund will continue to qualify as a RIC under the Internal Revenue Code. The Trust also intends to cause the Acquiring Fund to continue to satisfy the separate requirements imposed by Section 817(h) of the Internal Revenue Code and the regulations thereunder at all times to enable the corresponding separate accounts to be "adequately diversified." Accordingly, the Trust intends that each participating insurance company, through its separate accounts, will be able to treat its interests in the Acquiring Fund as ownership of a pro rata portion of each asset of the Acquiring Fund, so that individual holders of the Variable Contracts underlying the separate account will qualify for favorable federal income tax treatment under the Internal Revenue Code. However, no assurance can be made in that regard.
The IRS or Treasury Department may issue additional rulings or regulations that will address the circumstances in which a Variable Contract holder's control of the investments of a separate account may cause such holder, rather than the insurance company, to be treated as the owner of the assets of a separate account. If the holder is considered the owner of the securities underlying the separate account, income and gain produced by those securities would be included currently in the holder's gross income. It is not known what standards will be set forth in the regulations or rulings or whether any such standards will apply retroactively. In the event that rulings or regulations are issued, there can be no assurance that the Acquiring Fund will be able to operate as currently described, or that the Trust will not have to change the Acquiring Fund's investment objective.
Tax Shelter Reporting Regulations. Generally, under U.S. Treasury regulations, if an individual shareholder recognizes a loss of $2 million or more or if a corporate shareholder recognizes a loss of $10 million or more, the shareholder must file with the IRS a disclosure statement on Form 8886. Direct shareholders of securities are in many cases exempt from this reporting requirement, but under current guidance, shareholders of a RIC are not exempt. Future guidance may extend the current exemption from this reporting requirement to shareholders of most or all RICs. The fact that a loss is reportable under these regulations does not affect the legal determination of whether the taxpayer's treatment of the loss is proper. Shareholders should consult their own tax advisors to determine the applicability of these regulations in light of their individual circumstances.
Legislative Proposals. Prospective shareholders should recognize that the present U.S. federal income tax treatment of the Acquiring Fund and its shareholders may be modified by legislative, judicial or administrative actions at any time, which may be retroactive in effect. The rules dealing with U.S. federal income taxation are constantly under review by Congress, the IRS and the Treasury Department, and statutory changes as well as promulgation of new regulations, revisions to existing statutes, and revised interpretations of established concepts occur frequently. You should consult your own tax advisors and financial planners concerning the status of legislative proposals that may pertain to holding Acquiring Fund shares.
General Tax Consequences to Holders of Variable Contracts. For information concerning the U.S. federal income tax consequences to the holders of Variable Contracts, such holders should consult the prospectuses and other materials used in connection with the issuance of their particular contracts or policies. Variable Contracts purchased through insurance company separate accounts should provide for the accumulation of all earnings from interest, dividends and capital appreciation without current U.S. federal income tax liability to the contract or policy holder. Depending on the Variable Contract, distributions from the contract or policy may be subject to ordinary income tax and, in addition, a 10% penalty tax on distributions before age 59 1/2. Only the portion of a distribution attributable to income on the investment in the contract is subject to U.S. federal income tax. Contract or policy holders should consult with competent tax advisors for a more complete discussion of possible tax consequences in a particular situation.
Buying, Selling and Exchanging Fund Shares
Purchase and Redemption Procedures
Shares of the Trust are not offered directly to the general public. The Trust currently offers Fund shares to separate accounts of various life insurance companies as funding vehicles for certain Variable Contracts issued through the separate accounts by such life insurance companies. Many of the separate accounts are registered as investment companies with the Securities and Exchange Commission. When shares of the Funds are offered as a funding vehicle for Variable Contracts issued through such a separate account, a separate prospectus describing the separate account and the Variable Contracts being offered through it will accompany the Fund's prospectus. When the Trust offers Fund shares as funding vehicles for Variable Contracts issued through a separate account that is not registered as an investment company, a separate disclosure document (rather than a prospectus) describing the separate account and the Variable Contracts being offered through it will accompany the Fund's prospectus. In the future, the Trust may offer its Fund shares directly to qualified pension and retirement plans.
The Trust has entered into an agreement with the life insurance company sponsor of each separate account (a participation agreement) setting forth the terms and conditions pursuant to which the insurer will purchase and redeem shares of the Funds. In the event that the Trust offers shares of one or more Funds to a qualified pension or retirement plan, it likely will enter into a similar participation agreement. The discussion that follows reflects the terms of the Trust's current participation agreements (which do not differ materially from one another).
Shares of the Funds are sold in a continuous offering to the separate accounts to support the Variable Contracts. Net purchase payments under the Variable Contracts are placed in one or more sub-accounts of the separate accounts and the assets of each such sub-account are invested in the shares of the Fund corresponding to that sub-account. The separate accounts purchase and redeem shares of the Funds for their sub-accounts at each share's NAV without sales or redemption charges.
For each day on which a Fund's net asset value is calculated, the separate accounts transmit to the Trust any orders to purchase or redeem shares of the Fund based on the net purchase payments, redemption (surrender) requests, and transfer requests from Variable Contract owners that have been processed on that day. The separate account purchases and redeems shares of each Fund at the Fund's NAV per share calculated as of that day (i.e., the day the separate account processes contract owner transactions), although such purchases and redemptions may be executed the next morning. Payment for shares redeemed is made within seven days after receipt of a proper redemption order, except that the right of redemption may be suspended or payments postponed when permitted by applicable laws and regulations.
Share Class Information
The following is a description of the charges and fees applicable to the various classes of the Target and Acquiring Funds.
Class 1 shares of the Funds do not pay a 12b-1 fee.
With respect to Class 2 shares, the Funds have each adopted a distribution plan (the "Plan") pursuant to Rule 12b-1 under the 1940 Act. The Plan authorizes the payment of all or part of the cost of preparing and distributing prospectuses, annual and semi-annual reports, and other materials to prospective beneficial owners of each Fund's shares, and the payment of compensation to Participating Insurance Companies. For these services, Class 2 shares bear an annual fee of up to 0.25% of their average daily net assets. These fees are paid out of each Fund's assets on an ongoing basis. Over time, these fees will increase the cost of your investment and may cost you more than paying other types of sales charges.
Payments to Insurers, and Broker-Dealers and Other Financial Intermediaries
Fund shares are generally available only through variable annuity contracts or variable life insurance policies offered through separate accounts of participating insurance companies. The Fund and its related companies may make payments to insurance companies, broker-dealers and other financial intermediaries for distribution and/or other services. These payments may be a factor that an insurance company considers in including the Fund as an underlying investment option in a variable contract. Payments to a broker-dealer and/or other financial intermediary may create a conflict of interest by influencing the broker-dealer and/or other financial intermediary to recommend a variable product and the Fund over another investment. Ask your financial advisor or a representative from your financial intermediary or consult the Fund and contract prospectus for more information.
Fund Policies and Procedures
Frequent Purchases and Redemptions of Fund Shares
Excessive trading by Fund shareholders can negatively impact a Fund and its long-term shareholders in several ways, including by disrupting Fund investment strategies, increasing transaction costs, decreasing tax efficiency and diluting the value of shares held by long-term shareholders. Excessive trading in Fund shares can negatively impact a Fund's long-term performance by requiring it to maintain more assets in cash or to liquidate portfolio holdings at a disadvantageous time. Certain Funds may be more susceptible than others to these negative effects. For example, Funds that have a greater percentage of their investments in non-U.S. securities may be more susceptible than other Funds to arbitrage opportunities resulting from pricing variations due to time zone differences across international financial markets. Similarly, Funds that have a greater percentage of their investments in small company securities may be more susceptible than other Funds to arbitrage opportunities due to the less liquid nature of small company securities. Both types of Funds also may incur higher transaction costs in liquidating portfolio holdings to meet excessive redemption levels. Fair value pricing may reduce these arbitrage opportunities, thereby reducing excessive trading risks.
The Funds actively discourage and take steps to prevent the portfolio disruption and negative effects on long-term shareholders that can result from excessive trading activity by Fund shareholders. The Board has approved the Funds' policies and procedures, which provide, among other things, that Funds Management may deem trading activity to be excessive if it determines that such trading activity would likely be disruptive to a Fund by increasing expenses or lowering returns. In this regard, Funds Management takes steps to avoid accommodating frequent purchases and redemptions of shares by contract owners. Funds Management monitors available contract owner trading information across all Funds on a daily basis. Funds Management will temporarily suspend the purchase and exchange privileges of a contract owner who completes a purchase and redemption in a Fund within 30 calendar days. Such contract owner will be precluded from investing in the Fund for a period of 30 calendar days.
Excessive trading may give rise to conflicts of interest between owners of different types of variable contracts and/or owners of variable contracts issued by different insurance companies that offer the Funds as investment options under their contracts.
An insurance company sponsor through whom variable contract owners may purchase shares of a Fund may independently attempt to identify excessive trading and take steps to deter such activity. As a result, an insurance company may on its own limit or permit trading activity of its variable contract owners that invest in shares using standards different from the standards used by the Fund and discussed above. A Fund may permit an insurance company to enforce its own internal policies and procedures concerning frequent trading in instances where the Fund reasonably believes that the company's policies and procedures effectively discourage disruptive trading activity. If a variable contract owner purchases shares through an insurance company sponsor, it should contact the company for more information about whether and how restrictions or limitations on trading activity will be applied to the separate account.
Dividend Policy
Each Fund is treated separately in determining the amounts of distributions of any net investment income and realized net capital gains payable to its shareholders. A distribution is automatically reinvested on the payment date in additional Fund shares at NAV or paid in cash at the election of the Participating Insurance Company.
The Target Fund and the Acquiring Fund each generally declare and make distributions of any net investment income annually and make any realized net capital gain distributions at least annually.
Pricing Fund Shares
The following describes how the Funds price their shares.
The share price (net asset value per share or NAV) for the Fund is calculated each business day as of the close of trading on the New York Stock Exchange (NYSE) (generally 4 p.m. ET). To calculate a share's NAV, the Fund's assets are valued and totaled, liabilities are subtracted, and the balance, called net assets, is divided by the number of shares outstanding. The NAV of each share class is calculated separately. The price at which a purchase or redemption of Fund shares is effected is based on the next calculation of NAV after the order is placed. A Fund does not calculate its NAV on days the NYSE is closed for trading, which include New Year's Day, Martin Luther King, Jr. Day, Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
With respect to any portion of a Fund's assets that may be invested in other mutual funds, the Fund's NAV is calculated based upon the reported net asset values of the other mutual funds in which the Fund invests, and the prospectuses for those companies explain the circumstances under which those companies will use fair value pricing and the effects of using fair value pricing.
With respect to any portion of a Fund's assets invested directly in securities, the Fund's investments are generally valued at current market prices. Securities are generally valued based on the last sale price during the regular trading session if the security trades on an exchange (closing price). Securities that are not traded primarily on an exchange generally are valued using latest quoted bid prices obtained by an independent pricing service. Securities listed on the Nasdaq Stock Market, Inc., however, are valued at the Nasdaq Official Closing Price (NOCP), and if no NOCP is available, then at the last reported sales price.
We are required to depart from these general valuation methods and use fair value pricing methods to determine the values of certain investments if we believe that the closing price or the latest quoted bid price of a security, including securities that trade primarily on a foreign exchange, does not accurately reflect its current value when the Fund calculates its NAV. In addition, we use fair value pricing to determine the value of investments in securities and other assets, including illiquid securities, for which current market quotations are not readily available. The closing price or the latest quoted bid price of a security may not reflect its current value if, among other things, a significant event occurs after the closing price or latest quoted bid price is established but before a Fund calculates its NAV that materially affects the value of the security. We use various criteria, including a systematic evaluation of U.S. market moves after the close of foreign markets, in deciding whether a foreign security's market price is still reliable and, if not, what fair market value to assign to the security.
In light of the judgment involved in fair value decisions, there can be no assurance that a fair value assigned to a particular security is accurate or that it reflects the price that the Fund could obtain for such security if it were to sell the security as of the time of fair value pricing. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. See the Target and Acquiring Fund's Statement of Additional Information, or in the case of Class 1 of the Acquring Fund, the Merger SAI, for additional details regarding the pricing of Fund shares.
INFORMATION ON SHAREHOLDERS' RIGHTS
Form of Organization
The Target Fund and the Acquiring Fund are series of the Trust. The Trust is an open-end management investment company registered with the SEC under the 1940 Act, which continuously offers shares to the public. The Trust is organized as a Delaware statutory trust and is governed by its Declaration of Trust and applicable state and federal law.
Capitalization
The beneficial interests in the Target Fund and the Acquiring Fund are represented by an unlimited number of transferable shares of beneficial interest. The Target Fund's and the Acquiring Fund's governing documents permit the Trustees to allocate shares into an unlimited number of series, and classes thereof, with rights determined by the Trustees, all without shareholder approval. Fractional shares may be issued by both the Target Fund and the Acquiring Fund. The Target Fund and the Acquiring Fund shares represent equal proportionate interests in the assets belonging to the shares of the same class of that Fund. Except as otherwise required by the 1940 Act or other applicable law, shareholders of each Fund are entitled to receive dividends and other amounts as determined by the Trustees. Shareholders of the Target Fund and the Acquiring Fund vote separately, by class, as to matters that affect only their particular class and, by Fund, as to matters, such as approval of or amendments to investment advisory agreements or proposed mergers, that affect only their particular Fund.
Further Information on Shareholder Rights
Since each Fund is a series of the Trust, the rights of shareholders of the Funds are identical. For further information, please see the section entitled "Capital Stock" in the Acquiring Fund's SAI (or the Merger SAI, as applicable).
VOTING INFORMATION CONCERNING THE MEETING
Shareholder/Contract Owner Information
This prospectus/proxy statement is being sent to shareholders of the Target Fund and contract owners of Variable Contracts with an interest in the Target Fund in connection with the solicitation of proxies by the Trustees of the Target Fund, to be used at the Meeting to be held at 10:00 a.m., Pacific time, on August 19, 2011 at the offices of Wells Fargo Advantage Funds, 525 Market Street, San Francisco, California, 94105, and at any adjournments thereof. This prospectus/proxy statement, along with a Notice of the Meeting and a proxy card/voting instruction card, is first being mailed to shareholders/contract owners of the Target Fund on or about July 1, 2011. Only shareholders of record as of the close of business on May 26, 2011 (the "Record Date") are entitled to notice of, and to vote at, the Meeting or any adjournment(s) thereof. Shareholders who intend on attending the Meeting should call (866) 406-2287 to obtain important information regarding attendance at the Meeting, including directions.
As shares of the Target Fund are available only to separate accounts funding Variable Contracts and variable life insurance policies issued by certain life insurance companies (each, an "Insurance Company" and collectively, the "Insurance Companies"), all shareholders of the Target Fund are Insurance Companies. Each Insurance Company will vote shares of the Target Fund in accordance with timely voting instructions received from variable annuity contract and variable life insurance policy owners (collectively, the "Contract Owners") for whose accounts the shares are held. An Insurance Company may determine what it deems to be timely voting instructions and, accordingly, may establish cut-off times for submitting voting instructions that are earlier than the date and time of the Meeting. This prospectus/proxy statement is intended to be used by each Insurance Company in obtaining voting instructions from Contract Owners. Except as noted below, in the event that a Contract Owner does not sign or return a voting instructions card specifying a choice, the relevant Insurance Company will generally vote the shares of the Target Fund attributable to the Contract Owner in the same proportion as shares of that Target Fund for which it has received instructions. Your insurance company's policies may be different from those discussed herein. One effect of this system of proportional voting is that, if only a small number of Contract Owners provide voting instructions, this small number of Contract Owners may determine the outcome of a vote for the Target Fund. Another effect of this system of proportional voting is that a small number of insurance companies or in some cases, a single insurance company, may be sufficient to constitute a quorum for the meeting.
A Contract Owner can provide voting instructions by returning his/her properly executed voting instructions card in the envelope provided or by submitting voting instructions by telephone or the internet. When a Contract Owner completes and signs his/her voting instructions card, the applicable Insurance Company will vote on his/her behalf at the Meeting (or any adjournments thereof) exactly as the Contract Owner has indicated. If any other matters are properly presented at the Meeting for action, the persons named as proxies will vote in accordance with the views of management of the Target Fund.
If you execute, date and submit a voting instruction card in respect of a Fund, you may revoke that voting instruction or change it by written notice to your Insurance Company, by submitting a subsequently executed and dated voting instruction card or by submitting a subsequent voting instruction by telephone or Internet at a later date. If you submit your voting instruction by telephone or through the Internet, you may revoke it by submitting a subsequent voting instruction by telephone or Internet by completing, signing and returning a voting instruction card dated as of a date that is later than your last telephone or internet voting instruction.
If you are a shareholder, you can vote by returning your properly executed proxy card in the envelope provided. When you complete and sign your proxy card, the proxies named will vote on your behalf at the Meeting (or any adjournments thereof) as you have indicated. If you return a properly executed proxy card, but no choice is specified, your shares will be voted FOR approval of the Plan. If any other matters are properly presented at the Meeting for action, the persons named as proxies will vote in accordance with the views of management of the Target Fund. If any other matters about which the Target Fund did not have timely notice properly come before the meeting, authorization is given to the proxy holders to vote in accordance with the views of management of the Target Fund. Abstentions and "broker non-votes" (i.e., shares held by brokers or nominees as to which (i) instructions have not been received from the beneficial owners or the persons entitled to vote and (ii) the broker or nominee does not have discretionary voting power on a particular matter) will be counted as shares that are present and entitled to vote for purposes of determining the presence of a quorum, and will have the effect of a vote against the Plan. Any proposal for which sufficient favorable votes have been received by the time of the Meeting may be acted upon and considered final regardless of whether the Meeting is adjourned to permit additional solicitation with respect to any other proposal. In certain circumstances in which the Target Fund has received sufficient votes to approve a matter being recommended for approval by the Board of Trustees, the Target Fund may request that brokers and nominees, in their discretion, withhold submission of broker non-votes in order to avoid the need for solicitation of additional votes in favor of the proposal. Shares attributable to amounts retained by each Insurance Company will be voted in the same proportion as voting instructions received from Contract Owners. Accordingly, there are not expected to be any broker non-votes.
Shareholders may revoke prior proxy instructions by providing superseding proxy instructions by written notice to that Fund, by submitting a subsequently executed and dated proxy card, by authorizing their proxy by telephone or Internet or by attending the Meeting and casting their vote in person.
The Trust's Declaration of Trust states that thirty-three and one-third percent (33 1/3%) of the issued and outstanding shares of the Target Fund entitled to vote in person or by proxy at the Meeting shall constitute a quorum for the transaction of business at the Meeting. However, as explained below, approval of a Merger requires that a majority of the outstanding voting securities (as defined below) of the Fund entitled to vote on the Merger be present or represented at the Meeting.
Approval of each Merger requires the affirmative vote of the holders of a "majority of the outstanding voting securities" (as defined in the 1940 Act) of your Target Fund. A vote of the majority of the outstanding voting securities is defined in the 1940 Act as the lesser of (i) 67% or more of the voting securities present at the Meeting, if the holders of more than 50% of the outstanding voting securities of your Target Fund are present or represented by proxy, or (ii) more than 50% of the outstanding voting securities of your Target Fund. The outcome of the vote for the Merger will not affect the outcome of the vote for any other proposal.
In voting on the Plan, all classes of the Target Fund will vote together as if they were a single class. Each whole share of the Target Fund will be entitled to one vote, and each fractional share will be entitled to a proportionate fractional vote. The number of shares of the Target Fund for which a Contract Owner may give voting instructions is based on the number of shares, including fractional shares, held in the separate account attributable to the Contract Owner's Variable Contract.
Voting instruction and proxy solicitations will be made primarily by mail, but voting instructions and proxy solicitations may also be made by telephone, through the Internet or personal solicitations conducted by officers and employees of Wells Fargo, its affiliates or other representatives of the Target Fund (who will not be paid for their soliciting activities). In addition, the Altman Group, the Fund's proxy solicitor, may make proxy and voting instruction solicitations and will receive compensation for seeking shareholder votes/contract owner instructions and answering shareholder/contract owner questions in an amount estimated to be $[_______] with respect to the proposals covered by this prospectus/proxy statement. That cost and other expenses of the Meeting and the Merger will be paid by Funds Management or one of its affiliates.
A shareholder who objects to the proposed Merger will not be entitled under either Delaware law or the Declaration of Trust to demand payment for, or an appraisal of, his or her shares. However, shareholders/Contract Owners should be aware that each Merger as proposed is not expected to result in recognition of gain or loss to shareholders/Contract Owners for U.S. federal income tax purposes and that, if a Merger is consummated, shareholders/Contract Owners will be free to redeem the shares of the Acquiring Fund which they receive in the transaction at their then-current net asset value. Shares of the Target Fund may be redeemed at any time prior to the consummation of the Merger. Shareholders/Contract Owners of the Target Fund may wish to consult their tax advisors as to any differing consequences of redeeming Fund shares prior to the Merger or exchanging such shares in the Merger.
The votes of the shareholders of the Acquiring Funds are not being solicited by this prospectus/proxy statement and are not required to carry out the Merger.
Information in this prospectus/proxy statement regarding the expected practices of insurance companies, including regarding the solicitation of voting instructions, the revocation of voting instructions and the voting of proxies in accordance with voting instructions, reflects Funds Management's understanding of insurance companies' general practices. Your insurance company's practices may be different and they may affect or limit your ability to provide effective voting instructions with respect to the Merger. Please contact your insurance company for information regarding their specific practices, including in respect of the Meeting and this prospectus/proxy statement.
NOTICE TO BANKS, BROKER-DEALERS AND VOTING TRUSTEES AND THEIR NOMINEES. Please advise the Target Fund whether other persons are beneficial owners of shares for which proxies are being solicited and, if so, the number of copies of this prospectus/proxy statement needed to supply copies to the beneficial owners of the respective shares.
The number of shares of the Target Fund outstanding as of the Record Date was as follows:
Classes of Shares | Number of Shares Outstanding and Entitled to Vote | |
Wells Fargo Advantage VT Core Equity Fund | ||
Class 1 | ||
Class 2 | ||
All Classes |
As of the Record Date, the officers and Trustees of the Trust owned as a group less than 1% of the outstanding shares of any class of each Fund. Except as noted below in the table, to each Fund's knowledge, no persons owned of record 5% or more of any class of shares of the Fund. Any shareholder who holds beneficially 25% or more of the outstanding common shares of a Fund may be deemed to control the Fund until such time as it holds beneficially less than 25% of the outstanding common shares of the Fund. Any shareholder controlling a Fund may be able to determine the outcome of issues that are submitted to shareholders for vote, including the vote to approve the Plan, and may be able to take action regarding the Fund without the consent or approval of the other shareholders.
[Table(s) to be added.]
FINANCIAL STATEMENTS
The audited financial highlights of the Target Fund and the Acquiring Fund (other than Class 1 of the Acquiring Fund which has not yet commenced operation) for the last five fiscal years are incorporated by reference from the applicable Fund's prospectus.
The Merger SAI incorporates by reference the following financial statements, including the financial highlights for the periods indicated therein and the reports of KPMG LLP, independent registered public accounting firm to the Target Fund and Acquiring Fund, thereon.
Class 1 of the Wells Fargo Advantage VT Opportunity Fund has not yet commenced operations and therefore, financial statements for that class are not yet available.
Fund Name | Financial Statements | Audited or | |
Wells Fargo Advantage VT Core Equity Fund - Class 1 and Class 2 | 12/31/2010 | Audited | |
Wells Fargo Advantage VT Opportunity Fund - Class 2 | 12/31/2010 | Audited |
Pro Forma Capitalization
The following table sets forth the capitalizations of each of the Target Fund and the Acquiring Fund as of December 31, 2010, and the capitalization of the Acquiring Fund on a pro forma basis as of that date after giving effect to the proposed acquisition of assets at net asset value. The pro forma data reflects an exchange ratio of approximately 1.08 for each Class 1 share of the Acquiring Fund issued for each Class 1 share of the Target Fund and an exchange ratio of approximately 1.07 for each Class 2 share of the Acquiring Fund issued for each Class 2 share of the Target Fund. The Wells Fargo Advantage VT Opportunity Fund will be the accounting survivor following the Merger.
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund | Adjustments | Wells Fargo Advantage VT Opportunity Fund Pro Forma | |
Total Net Assets | ||||
Class 1 | $54,604,794 | N/A | N/A | $54,604,794 |
Class 2 | $87,745,853 | $168,307,098 | N/A | $256,052,951 |
Total | $142,350,647 | $168,307,098 | N/A | $310,657,745 |
Net Asset Value per Share | ||||
Class 1 | $19.82 | N/A | $18.42 | |
Class 2 | $19.72 | $18.42 | $18.42 | |
Total Shares Outstanding | ||||
Class 1 | 2,754,835 | N/A | 208,800 | 2,963,635 |
Class 2 | 4,448,498 | 9,134,752 | 313,847 | 13,897,097 |
Total | 7,203,333 | 9,134,752 | 522,647 | 16,860,732 |
ADDITIONAL INFORMATION
The Target Fund and the Acquiring Fund are subject to the informational requirements of the Securities Exchange Act of 1934 and the 1940 Act, and in accordance therewith files reports and other information with the SEC.
These items can be inspected and copies may be obtained at prescribed rates at the Public Reference Facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of such filings may be available at the following Commission regional offices: 3 World Financial Center, Suite 400, New York, NY 10281-1022; 33 Arch Street, 23rd Floor, Boston, MA 02110-1424; 701 Market Street, Philadelphia, PA 19106-1532; 801 Brickell Ave., Suite 1800, Miami, FL 33131; 3475 Lenox Road, N.E., Suite 1000, Atlanta, GA 30326-1232; 175 W. Jackson Boulevard, Suite 900, Chicago, IL 60604; 1801 California Street, Suite 1500, Denver, CO 80202-2656; Burnett Plaza, Suite 1900, 801 Cherry Street, Unit 18, Fort Worth, TX 76102; 15 W. South Temple Street, Suite 1800, Salt Lake City, UT 84101; 5670 Wilshire Boulevard, 11th Floor, Los Angeles, CA 90036-3648; and 44 Montgomery Street, Suite 2600, San Francisco, CA 94104.
Copies of such materials can also be obtained by mail from the Public Reference Branch, Office of Consumer Affairs and Informational Services, SEC, Washington, D.C. 20549 at prescribed rates or by calling 1-202-551-8090.
OTHER BUSINESS
The Trustees of the Target Fund do not intend to present any other business at the Meeting. If any other matters are properly presented at the Meeting for action by shareholders of the Target Fund, the persons named as proxies will vote in accordance with the views of management of the Target Fund.
THE TRUSTEES OF THE TRUST RECOMMEND APPROVAL OF THE PLAN WITH RESPECT TO THE TARGET FUND. ANY PROPERLY EXECUTED PROXY CARDS RECEIVED WITHOUT INSTRUCTIONS WILL BE VOTED IN FAVOR OF APPROVAL OF THE PLAN.
July 1, 2011
Instructions for Executing Proxy Card/Voting Instructions Card
The following general rules for signing proxy cards and voting instructions cards may be of assistance to you and may help to avoid the time and expense involved in validating your input if you fail to sign your proxy card or voting instructions card properly.
1. INDIVIDUAL ACCOUNTS: Sign your name exactly as it appears in the Registration on the proxy card/voting instructions card.
2. JOINT ACCOUNTS: Either party may sign, but the name of the party signing should conform exactly to a name shown in the Registration on the proxy card/voting instructions card.
3. ALL OTHER ACCOUNTS: The capacity of the individual signing the proxy card/voting instructions card should be indicated unless it is reflected in the form of Registration. For example:
REGISTRATION CORPORATE ACCOUNTS | VALID SIGNATURE |
(1) ABC Corp. | ABC Corp. |
(2) ABC Corp. | John Doe, Treasurer |
(3) ABC Corp. c/o John Doe, Treasurer | John Doe |
(4) ABC Corp. Profit Sharing Plan | John Doe, Trustee |
TRUST ACCOUNTS | |
(1) ABC Trust | Jane B. Doe, Trustee |
(2) Jane B. Doe, Trustee u/t/d 12/28/78 | Jane B. Doe, Trustee |
CUSTODIAL OR ESTATE ACCOUNTS | |
(1) John B. Smith, Cust. f/b/o John B. Smith, Jr. UGMA | John B. Smith |
(2) John B. Smith | John B. Smith, Jr., Executor |
After completing your proxy card/voting instructions card, return it in the enclosed postage-paid envelope.
OTHER WAYS TO PROVIDE YOUR INPUT
BY TELEPHONE:
1. Read the prospectus/proxy statement and have your proxy card/voting instuctions card at hand.
2. Call the toll-free number on your proxy card/voting instructions card.
BY INTERNET:
1. Read the prospectus/proxy statement and have your proxy card/voting instructions card at hand.
2. Go to the Web site indicated on your proxy card/voting instructions card and follow the instructions.
The Internet and telephone voting procedures are designed to authenticate shareholder and Contract Owner identities, to allow shareholders and Contract Owners to give instructions, and to confirm that such instructions have been recorded properly. Please note that, although there is no charge to you for providing input by telephone or electronically through the Internet associated with this prospectus/proxy statement, there may be costs associated with electronic access, such as usage charges from Internet service providers and telephone companies, that must be borne by the shareholders/Contract Owners.
Telephone or Internet service is generally available 24 hours a day. Do not mail the proxy card/voting instructions card if you are using the telephone or Internet.
If you are a shareholder and have any questions about voting, please call the Altman Group, our proxy solicitor, at (___) ___-____ (toll-free). If you are a Contract Owner and have any questions about voting, please contact your Insurance Company.
Exhibit A
Form of Agreement and Plan of Reorganization
WELLS FARGO FUNDS TRUST
WELLS FARGO VARIABLE TRUST
AGREEMENT AND PLAN OF REORGANIZATION
Dated as of ________, 2011
This AGREEMENT AND PLAN OF REORGANIZATION (the "Plan") is made as of this [insert date], 2011, by Wells Fargo Funds Trust and Wells Fargo Variable Trust (each a "Trust"), a Delaware statutory trust, for itself and on behalf of its respective Acquiring Fund(s) and its respective Target Fund(s), as indicated in the chart below.
Target Fund | Acquiring Fund | |
Core Equity Fund | Opportunity Fund | |
Disciplined Global Equity Fund | Intrinsic World Equity Fund | |
Disciplined Value Fund | Large Company Value Fund | |
Growth Opportunities Fund | Discovery Fund | |
Mid Cap Growth Fund | Enterprise Fund | |
VT Core Equity Fund | VT Opportunity Fund |
WHEREAS, each Trust is an open-end management investment company registered with the Securities and Exchange Commission (the "SEC") under the Investment Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the parties desire that each Acquiring Fund acquire the assets and assume the liabilities of its corresponding Target Fund ("Corresponding Target Fund", as set forth opposite a corresponding Acquiring Fund "Corresponding Acquiring Fund" in the table above) in exchange for shares of equal value of the Acquiring Fund and the distribution of the shares of the Acquiring Fund to the shareholders of the Target Fund in connection with the liquidation and termination of the Target Fund (the "Reorganization");
WHEREAS, the parties desire that the Plan govern, in a single combined document for convenience, the Reorganization involving each Trust and each Target Fund and its Corresponding Acquiring Fund as a separate and independent transaction, and that all references herein to the Reorganization or a Trust or Fund, be interpreted consistent with the transactions being separate and independent; and
WHEREAS, the parties intend that the Reorganization qualify as a "reorganization," within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended (the "Code"), and that each Fund will be a "party to a reorganization," within the meaning of Section 368(b) of the Code, with respect to the Reorganization;
NOW, THEREFORE, in accordance with the mutual promises described herein, the parties agree as follows:
1. Definitions.
The following terms shall have the following meanings:
1933 Act | The Securities Act of 1933, as amended. |
1934 Act | The Securities Exchange Act of 1934, as amended. |
Acquiring Class | The class of the Acquiring Fund's shares that each Trust will issue to the shareholders of the Target Fund Class, as set forth above. |
Acquiring Fund Financial Statements | The audited financial statements of the Acquiring Fund for its most recently completed fiscal year and the unaudited financial statements of the Acquiring Fund for its most recently completed semi-annual period. |
Assets | All property and assets of any kind and all interests, rights, privileges and powers of or attributable to a Fund, whether or not determinable at the appropriate Effective Time and wherever located. Assets include all cash, cash equivalents, securities, claims (whether absolute or contingent, Known or unknown, accrued or unaccrued or conditional or unmatured), contract rights and receivables (including dividend and interest receivables) owned by a Fund and any deferred or prepaid expense shown as an asset on such Fund's books. |
Assets List | A list of securities and other Assets and Known Liabilities of or attributable to the Target Fund as of the date provided. |
Board | The Board of Trustees of each Trust. |
Closing Date | August 26, 2011 or such other date as the parties may agree to in writing with respect to the Reorganization. |
Corresponding Target Class | The Target share class set forth opposite an Acquiring Class in the chart on the first page of this Plan. |
Effective Time | 9:00 a.m. Eastern Time on the first business day following the Closing Date of the Reorganization, or such other time and date as the parties may agree to in writing. |
Fund | The Acquiring Fund or the Target Fund. |
Know, Known or Knowledge | Known after reasonable inquiry. |
Liabilities | All liabilities of, allocated or attributable to, a Fund, whether Known or unknown, accrued or unaccrued, absolute or contingent or conditional or unmatured. |
Material Agreements | The agreements to which a Trust is a party that are filed, or are required to be filed, as an exhibit to the Registration Statement. |
Registration Statement | The Trust's registration statement on Form N-1A, as filed with the SEC and in effect from time to time. |
Reorganization Documents | Such bills of sale, assignments, and other instruments of transfer as each Trust deems desirable for the Target Fund to transfer to the Acquiring Fund all rights and title to and interest in the Target Fund's Assets and Liabilities and for the Acquiring Fund to assume the Target Fund's Assets and Liabilities. |
Target Fund Financial Statements | The audited financial statements of the Target Fund for its most recently completed fiscal year and the unaudited financial statements of the Target Fund for its most recently completed semi-annual period. |
Valuation Time | The time on the Reorganization's Closing Date, the business day immediately preceding the Closing Date if the Closing Date is not a business day or such other time as the parties may agree to in writing, that each Trust determines the net asset value of the shares of the Acquiring Fund and determines the value of the Assets of or attributable to the Target Fund, net of known Liabilities. Unless otherwise agreed to in writing, the Valuation Time of a Reorganization shall be the time of day then set forth in the Acquiring Fund's and Target Fund's Registration Statement as the time of day at which net asset value is calculated. |
2. Regulatory Filings. Each Trust shall prepare and file any required filings including, without limitation, filings with state or foreign securities regulatory authorities necessary to consummate the Reorganization.
3. Transfer of Target Fund Assets. Each Trust shall take the following steps with respect to the Reorganization:
(a) At the Effective Time, each Trust with respect to each of its series that is a Target Fund shall assign, transfer, deliver and convey all of such Target Fund's Assets to its Corresponding Acquiring Fund on the bases described in Subsection 3(c) of this Plan. Each Trust with respect to each of its series that is a Acquiring Fund shall then accept its Corresponding Target Fund's Assets and assume its Corresponding Target Fund's Liabilities such that at and after the Effective Time (i) all of the Corresponding Target Fund's Assets at or after the Effective Time shall become and be the Assets of its Corresponding Acquiring Fund and (ii) all of the Corresponding Target Fund's Liabilities at the Effective Time shall attach to its Corresponding Acquiring Fund, and be enforceable against the Acquiring Fund to the same extent as if initially incurred by the Acquiring Fund.
(b) Within a reasonable time prior to the Closing Date, each Target Fund shall provide, if requested, its Assets List to its Corresponding Acquiring Fund. The Target Fund may sell any investment on the Assets List prior to the Target Fund's Valuation Time. After the Target Fund provides the Assets List, the Target Fund will notify its Corresponding Acquiring Fund of its purchase or incurrence of additional investments or of any additional encumbrances, rights, restrictions or claims not reflected on the Assets List, within a reasonable time period after such purchase or incurrence. Within a reasonable time after receipt of the Assets List and prior to the Closing Date, the Acquiring Fund will advise its Corresponding Target Fund in writing of any investments shown on the Assets List that the Acquiring Fund has reasonably determined to be impermissible or inconsistent with the investment objective, policies and restrictions of the Acquiring Fund.
(c) Each Trust shall assign, transfer, deliver and convey the Assets of each of its series that is a Target Fund to its Corresponding Acquiring Fund at the Reorganization's Effective Time on the following bases:
(1) In exchange for the transfer of the Assets, each Trust shall simultaneously issue and deliver to the Target Fund full and fractional shares of beneficial interest of each Acquiring Class of the Corresponding Acquiring Fund. Each Trust shall determine the number of shares of each Acquiring Class to issue by dividing the value of the Assets net of Known Liabilities attributable to the Corresponding Target Class by the net asset value of one Acquiring Class share. Based on this calculation, each Trust shall issue shares of beneficial interest of each Acquiring Class with an aggregate net asset value equal to the value of the Assets net of Known Liabilities of the Corresponding Target Class.
(2) The parties shall determine the net asset value of the Acquiring Fund shares to be delivered, and the value of the Assets to be conveyed net of Known Liabilities, as of the Valuation Time substantially in accordance with each Trust's current valuation procedures. The parties shall make all computations to the fourth decimal place or such other decimal place as the parties may agree to in writing.
(3) Each Trust shall cause its custodian to transfer the Target Fund's Assets with good and marketable title to the account of the Acquiring Fund. Each Trust shall cause its custodian to transfer all cash in the form of immediately available funds. Each Trust shall cause its custodian to transfer any Assets that were not transferred to the Acquiring Fund's account at the Effective Time to the Acquiring Fund's account at the earliest practicable date thereafter.
4. Liquidation and Termination of each Target Fund and Registration of Shares. Each Trust also shall take the following steps for the Reorganization:
(a) At or as soon as reasonably practical after the Effective Time, each Trust shall dissolve and liquidate the Target Fund, and terminate the Target Fund as an authorized series of the Trust, in accordance with applicable law and its Declaration of Trust by transferring to shareholders of record of each Corresponding Target Class full and fractional shares of beneficial interest of the Acquiring Class equal in value to the shares of the Corresponding Target Class held by the shareholder. Each shareholder also shall have the right to receive any unpaid dividends or other distributions that each Trust declared with respect to the shareholder's Corresponding Target Class shares before the Effective Time. Each Trust shall record on its books the ownership by the shareholders of the Acquiring Fund shares; each Trust shall simultaneously redeem and cancel on its books all of the issued and outstanding shares of each Corresponding Target Class. Each Trust does not issue certificates representing Fund shares, and shall not be responsible for issuing certificates to shareholders of the Target Funds. Each Trust shall wind up the affairs of its Target Fund(s) and shall take all steps as are necessary and proper to dissolve, liquidate and terminate the Target Fund(s) in accordance with applicable law and regulations and its Declaration of Trust, as soon as is reasonably practicable after the Effective Time.
(b) If a Target Fund shareholder requests a change in the registration of the shareholder's Acquiring Fund shares to a person other than the shareholder, each Trust shall require the shareholder to (i) furnish each Trust an instrument of transfer properly endorsed, accompanied by any required signature guarantees and otherwise in proper form for transfer; and (ii) pay to the Acquiring Fund any transfer or other taxes required by reason of such registration or establish to the reasonable satisfaction of each Trust that such tax has been paid or does not apply.
5. Representations, Warranties and Agreements of Each Trust. Each Trust, on behalf of itself and, as appropriate, each Target Fund and each Acquiring Fund, represents and warrants to, and agrees with, each Acquiring Fund and each Target Fund, respectively as follows:
(a) Each Trust is a statutory trust duly created, validly existing and in good standing under the laws of the State of Delaware. The Board duly established and designated each Fund as a series of each Trust and each Acquiring Class as a class of the Acquiring Fund. Each Trust is an open-end management investment company registered with the SEC under the 1940 Act.
(b) Each Trust has the power and all necessary federal, state and local qualifications and authorizations to own all of its properties and Assets, to carry on its business as described in its Registration Statement, to enter into this Plan and to consummate the transactions contemplated herein.
(c) The Board has duly authorized the execution and delivery of the Plan and the transactions contemplated herein. Duly authorized officers of each Trust have executed and delivered the Plan. The Plan represents a valid and binding contract, enforceable in accordance with its terms, subject as to enforcement to bankruptcy, insolvency, reorganization, arrangement, moratorium and other similar laws of general applicability relating to or affecting creditors' rights and to general equity principles. The execution and delivery of this Plan does not, and the consummation of the transactions contemplated by this Plan will not, violate the Declaration of Trust of each Trust or any Material Agreement. Each Trust does not need to take any other action to authorize its officers to effectuate the Plan and the transactions contemplated herein.
(d) Each Fund has qualified as a "regulated investment company" under Part I of Subchapter M of Subtitle A, Chapter 1, of the Code in respect of each taxable year since the commencement of its operations, and will continue to so qualify until the Effective Time and has computed its federal income tax liability, if any, under Sections 852 and 4982 of the Code.
(e) Each Trust has duly authorized the Acquiring Fund shares to be issued and delivered to the Target Fund as of the Target Fund's Effective Time. When issued and delivered, the Acquiring Fund shares shall have been registered for sale under the 1933 Act and shall be duly and validly issued, fully paid and non-assessable, and no shareholder of the Acquiring Fund shall have any preemptive right of subscription or purchase in respect of them. There are no outstanding options, warrants or other rights to subscribe for or purchase any Acquiring Fund shares, nor are there any securities convertible into Acquiring Fund shares.
(f) Each Fund is in compliance in all material respects with all applicable laws, rules and regulations, including, without limitation, the 1940 Act, the 1933 Act, the 1934 Act and all applicable state securities laws. Each Fund is in compliance in all material respects with the investment policies and restrictions applicable to it set forth in the Registration Statement currently in effect. The value of the Assets net of Known Liabilities of the Acquiring Fund has been determined using portfolio valuation methods that comply in all material respects with the requirements of the 1940 Act and the policies of such Acquiring Fund.
(g) Each Trust does not Know of any claims, actions, suits, investigations or proceedings of any type pending or threatened against it or any of its series that is a Fund or its Assets or businesses. There are no facts that each Trust currently has reason to believe are likely to form the basis for the institution of any such claim, action, suit, investigation or proceeding against it or any of its series that is a Fund. For purposes of this provision, investment underperformance or negative investment performance shall not be deemed to constitute such facts, provided all required performance disclosures have been made. Neither each Trust nor any Fund is a party to or subject to the provisions of any order, decree or judgment of any court or governmental body that adversely affects, or is reasonably likely to adversely affect, its financial condition, results of operations, business, properties or Assets or its ability to consummate the transactions contemplated by this Plan.
(h) No material default has occurred and is continuing in respect of any Fund under any Material Agreement.
(i) Each Trust has timely filed all tax returns for each of its series that is a Fund for all of its taxable years to and including its most recent taxable year required to be filed on or before the date of this Plan, and has paid all taxes payable pursuant to such returns. To the Knowledge of each Trust, no such tax return has been or is currently under audit and no assessment has been asserted with respect to any return. Each Trust will file all of the tax returns for each of its series that is a Fund for all of its taxable periods ending on or before the Closing Date not previously filed on or before their due dates (taking account of any valid extensions thereof).
(j) Since the date of the Target Fund Financial Statements and the Acquiring Fund Financial Statements, there has been no material adverse change in the financial condition, business, properties or Assets of the Target Fund or Acquiring Fund, respectively. For purposes of this provision, investment underperformance, negative investment performance or net redemptions shall not be deemed to constitute such facts, provided all customary performance disclosures have been made.
(k) The Target Fund Financial Statements and the Acquiring Fund Financial Statements, fairly present the financial position of the Acquiring Fund as of the Fund's most recent fiscal year-end and the results of the Fund's operations and changes in the Fund's net assets for the periods indicated. The Target Fund Financial Statements and the Acquiring Fund Financial Statements have been prepared in accordance with generally accepted accounting principles consistently applied.
(l) To the Knowledge of each Trust, neither any of its series that is a Target Fund or an Acquiring Fund has any Liabilities, whether or not determined or determinable, other than Liabilities disclosed or provided for in the Target Fund Financial Statements and the Acquiring Fund Financial Statements, respectively, or Liabilities incurred in subsequent to the date thereof in the ordinary course of business.
(m) Except as otherwise provided herein, each Trust shall operate the business of each of its series that is a Fund in the ordinary course between the date hereof and the Effective Time, it being agreed that such ordinary course of business will include the declaration and payment of dividends and distributions approved by the Board in anticipation of the Reorganization. Notwithstanding the foregoing, each Fund shall (i) complete all measures prior to the Effective Time to ensure that the Reorganization qualifies as a "reorganization" within the meaning of Section 368(a) of the Code; and (ii) take all other appropriate action necessary to ensure satisfaction of representations in certificates to be provided to Proskauer Rose in connection with their opinion described in Section 6(d), regardless of whether any measures or actions described in this sentence are in the ordinary course.
6. Conditions to Each Trust's Obligations. The obligations of each Trust with respect to the Reorganization shall be subject to the following conditions precedent:
(a) Each Trust shall have duly executed and delivered the Target Fund Reorganization Documents.
(b) All representations and warranties of each Trust made in this Plan that apply to the Reorganization shall be true and correct in all material respects as if made at and as of the Valuation Time and the Effective Time.
(c) Each Trust shall have delivered a certificate dated as of the Closing Date and executed in its name by its Treasurer or Secretary stating that the representations and warranties of such Trust in this Plan that apply to the Reorganization are true and correct at and as of the Valuation Time.
(d) Each Trust shall have received an opinion dated as of the Closing Date in a form reasonably satisfactory to it of Proskauer Rose, upon which each Fund and its shareholders may rely, based upon representations reasonably acceptable to Proskauer Rose made in certificates provided by each Trust, on behalf of itself and each Fund, the Funds' affiliates and/or principal shareholders, substantially to the effect that the Reorganization will qualify as a "reorganization" within the meaning of Section 368(a) of the Code, and each Fund will be a "party to a reorganization," within the meaning of Section 368(b) of the Code, with respect to the Reorganization.
(e) No action, suit or other proceeding shall be threatened or pending before any court or governmental agency in which it is sought to restrain or prohibit or obtain damages or other relief in connection with the Reorganization.
(f) The SEC shall not have issued any unfavorable advisory report under Section 25(b) of the 1940 Act nor instituted any proceeding seeking to enjoin consummation of the Reorganization under Section 25(c) of the 1940 Act.
(g) Each Trust shall have performed and complied in all material respects with each of its agreements and covenants required by this Plan to be performed or complied with by it prior to or at the Reorganization's Valuation Time and Effective Time.
(h) Except to the extent prohibited by Rule 19b-1 under the 1940 Act, prior to the Valuation Time, the Target Fund shall have declared a dividend or dividends, with a record date and ex-dividend date prior to the Valuation Time, which, together with all previous dividends, shall have the effect of distributing to the Target Fund shareholders all of its previously undistributed (i) "investment company taxable income" within the meaning of Section 852(b) of the Code (determined without regard to Section 852(b)(2)(D) of the Code, (ii) amounts equal to the excess of (A) the amount specified in Section 852(a)(1)(B)(i) of the Code over (B) the amount specified in Section 852(a)(1)(B)(ii) of the Code, and (iii) net capital gain (within the meaning of Section 1222(11) of the Code), if any, realized in taxable periods or years ending on or before the Effective Time.
(i) The Board of each Trust shall not have terminated this Plan with respect to the Reorganization pursuant to Section 8 of this Plan.
7. Tax Matters. Except where otherwise required by law, each Trust shall not take a position on any tax returns inconsistent with the treatment of the Reorganization for tax purposes as a "reorganization", within the meaning of Section 368(a) of the Code and each Acquiring Fund and the Corresponding Target Fund will comply with the record keeping and information filing requirements of Section 1.368-3 of the Treasury Regulation in accordance therewith.
8. Survival of Representations and Warranties. The representations and warranties of each Trust shall survive the completion of the transactions contemplated herein.
9. Termination of Plan. The Board may terminate this Plan with respect to the Acquiring Fund or Target Fund, as appropriate, by majority vote, if: (i) the conditions precedent set forth in Section 6, are not satisfied on the Closing Date; or (ii) it becomes reasonably apparent to the Board that such conditions precedent will not be satisfied on the Closing Date; or (iii) the Board makes a good faith determination that it is not in the best interest of the Fund or its shareholders to consummate the Plan.
10. Governing Law. This Plan and the transactions contemplated hereby shall be governed, construed and enforced in accordance with the laws of the State of Delaware, except to the extent preempted by federal law, without regard to conflicts of law principles.
11. Amendments. The Reorganization of the Target Funds requires shareholder approval. Each Trust may, by agreement in writing authorized by the Board, amend this Plan with respect to the Reorganization at any time, including, with respect to any Target Fund whose shareholders are being asked to approve the Reorganization, before or after such Target Fund's shareholders approve of the Reorganization. After a Target Fund's shareholders approve a Reorganization, however, each Trust may not amend this Plan in a manner that materially adversely affects the interests of the Target Fund's shareholders with respect to that Reorganization. This Section shall not preclude each Trust from changing the Closing Date or the Effective Time of a Reorganization.
12. Waivers. At any time prior to the Closing Date, each Trust may by written instrument signed by it (i) waive the effect of any inaccuracies in the representations and warranties made to it contained herein and (ii) waive compliance with any of the agreements, covenants or conditions made for its benefit contained herein. Each Trust agrees that any waiver shall apply only to the particular inaccuracy or requirement for compliance waived, and not any other or future inaccuracy or lack of compliance.
13. Limitation on Liabilities. The obligations of each Trust and each Fund shall not bind any of the Trustees, shareholders, nominees, officers, agents, or employees of each Trust personally, but shall bind only the Assets and property of the particular Fund. The execution and delivery of this Plan by the officers of each Trust shall not be deemed to have been made by any of them individually or to impose any liability on any of them personally, but shall bind only the Assets and the property of the Acquiring Fund or the Target Fund, as appropriate.
14. General. This Plan supersedes all prior agreements between the parties (written or oral), is intended as a complete and exclusive statement of the terms of the agreement between the parties and may not be changed or terminated orally. The headings contained in this Plan are for reference only and shall not affect in any way the meaning or interpretation of this Plan. Nothing in this Plan, expressed or implied, confers upon any other person any rights or remedies under or by reason of this Plan. Neither party may assign or transfer any right or obligation under this Plan without the written consent of the other party.
IN WITNESS WHEREOF, the parties hereto have caused their duly authorized officers designated below to execute this Plan as of the date first written above.
WELLS FARGO FUNDS TRUST
for itself and on behalf of its Target Funds
and on behalf of its Acquiring Funds
ATTEST:
By: _________________________
Name: C. David Messman
Title: Secretary
By: __________________________
Name: Kasey Phillips
Title: Treasurer
WELLS FARGO VARIABLE TRUST
for itself and on behalf of its Target Fund
and on behalf of its Acquiring Fund
ATTEST:
By: __________________________
Name: C. David Messman
Title: Secretary
By: ___________________________
Name: Kasey Phillips
Title: Treasurer
Exhibit B
Comparison of the Funds' Fundamental Investment Policies
Borrowing | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not borrow money, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder. | The Fund may not borrow money, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder. |
Commodities | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not purchase or sell commodities, provided that (i) currency will not be deemed to be a commodity for purposes of this restriction, (ii) this restriction does not limit the purchase or sale of futures contracts, forward contracts or options, and (iii) this restriction does not limit the purchase or sale of securities or other instruments backed by commodities or the purchase or sale of commodities acquired as a result of ownership of securities or other instruments. | The Fund may not purchase or sell commodities, provided that (i) currency will not be deemed to be a commodity for purposes of this restriction, (ii) this restriction does not limit the purchase or sale of futures contracts, forward contracts or options, and (iii) this restriction does not limit the purchase or sale of securities or other instruments backed by commodities or the purchase or sale of commodities acquired as a result of ownership of securities or other instruments. |
Concentration | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of a Fund's investments in that industry would equal 25% of the current value of the Fund's total assets, provided that there is no limitation with respect to investment in (i) securities issued or guaranteed by the United States Government, its agencies or instrumentalities, and (ii) in municipal securities. | The Fund may not purchase the securities of issuers conducting their principal business activity in the same industry if, immediately after the purchase and as a result thereof, the value of a Fund's investments in that industry would equal 25% of the current value of the Fund's total assets, provided that there is no limitation with respect to investment in (i) securities issued or guaranteed by the United States Government, its agencies or instrumentalities, and (ii) in municipal securities. |
Diversification | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not purchase the securities of any issuer if, as a result, with respect to 75% of the Fund's total assets, more than 5% of the value of its total assets would be invested in the securities of any one issuer or the Fund's ownership would be more than 10% of the outstanding voting securities of such issuer, provided that this restriction does not limit a Fund's investments in securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or investments in securities of other investment companies. | The Fund may not purchase the securities of any issuer if, as a result, with respect to 75% of the Fund's total assets, more than 5% of the value of its total assets would be invested in the securities of any one issuer or the Fund's ownership would be more than 10% of the outstanding voting securities of such issuer, provided that this restriction does not limit a Fund's investments in securities issued or guaranteed by the U.S. Government, its agencies and instrumentalities, or investments in securities of other investment companies. |
Issuing Senior Securities | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not issue senior securities, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder. | The Fund may not issue senior securities, except to the extent permitted under the 1940 Act, including the rules, regulations and any exemptive orders obtained thereunder. |
Lending | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Core Equity Fund |
The Fund may not make loans to other parties if, as a result, the aggregate value of such loans would exceed one-third of the Fund's total assets. For the purposes of this limitation, entering into repurchase agreements, lending securities and acquiring any debt securities are not deemed to be the making of loans. | The Fund may not make loans to other parties if, as a result, the aggregate value of such loans would exceed one-third of the Fund's total assets. For the purposes of this limitation, entering into repurchase agreements, lending securities and acquiring any debt securities are not deemed to be the making of loans. |
Real Estate | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not purchase or sell real estate unless acquired as a result of ownership of securities or other investments (but this shall not prevent a Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business). | The Fund may not purchase or sell real estate unless acquired as a result of ownership of securities or other investments (but this shall not prevent a Fund from investing in securities or other instruments backed by real estate or securities of companies engaged in the real estate business). |
Underwriting | |
Target Fund | Acquiring Fund |
Wells Fargo Advantage VT Core Equity Fund | Wells Fargo Advantage VT Opportunity Fund |
The Fund may not underwrite securities of other issuers, except to the extent that the purchase of permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with a Fund's investment program may be deemed to be an underwriting. | The Fund may not underwrite securities of other issuers, except to the extent that the purchase of permitted investments directly from the issuer thereof or from an underwriter for an issuer and the later disposition of such securities in accordance with a Fund's investment program may be deemed to be an underwriting. |
Exhibit C
Additional Performance Information
This section contains additional information regarding performance of the Target Fund and the Acquiring Fund.
Share Class Performance
The following provides additional information about the performance history of the Target Fund and the Acquiring Fund, including information regarding predecessor funds, if any, and whether performance information presented is based on the history of an older share class.
Wells Fargo Advantage VT Core Equity Fund - Historical performance shown for Class 2 shares prior to their inception reflects the performance of Class 1 shares, adjusted to reflect the higher expenses applicable to Class 2 shares. Historical performance shown for all classes of Wells Fargo Advantage VT Core Equity Fund prior to July 19, 2010 is based on the performance of the fund's predecessor, Evergreen VA Fundamental Large Cap Fund.
Wells Fargo Advantage VT Opportunity Fund - Historical performance shown for Class 1 shares reflects the performance of Class 2 shares, and includes the higher expenses applicable to Class 2 shares. The Class 2 annual returns are substantially similar to what the Class 1 annual returns would be because the Class 2 and Class 1 shares are invested in the same portfolio and their returns differ only to the extent that they do not have the same expenses.
Exhibit D
ADDITIONAL ACQUIRING FUND INFORMATION WITH RESPECT TO CLASS 1 SHARES OF WELLS FARGO ADVANTAGE VT OPPORTUNITY FUND
Dormant Multi-Manager Disclosure
The Board has a adopted a "multi-manager" arrangement. Under this arrangement, each Fund and Funds Management may engage one or more sub-advisers to make day-to-day investment decisions for the Fund's assets. Funds Management would retain ultimate responsibility (subject to oversight of the Board) for overseeing the sub-advisers and may, at times, recommend to the Board that the Fund: (1) change, add or terminate one or more sub-advisers; (2) continue to retain a sub-adviser even though the sub-adviser's ownership or corporate structure has changed; or (3) materially change a sub-advisory agreement with a sub-adviser.
Applicable law generally requires a Fund to obtain shareholder approval for most of these types of recommendations, even if the Board approves the proposed action. Under the "multi-manager" arrangement approved by the Board, the Fund will seek exemptive relief, if necessary, from the SEC to permit Funds Management (subject to the Board's oversight and approval) to make decisions about the Fund's sub-advisory arrangements without obtaining shareholder approval. The Fund will continue to submit matters to shareholders for their approval to the extent required by applicable law. Meanwhile, this multi-manager arrangement will remain dormant and will not be implemented until shareholders are further notified.
The Administrator
Funds Management provides the Funds with administrative services, including general supervision of each Fund's operation, coordination of the other services provided to each Fund, compilation of information for reports to the SEC and state securities commissions, preparation of proxy statements and shareholder reports, and general supervision of data compilation in connection with preparing periodic reports to Wells Fargo Variable Trust's ("WFVT") Trustees and officers. Funds Management also furnishes office space and certain facilities to conduct each Fund's business.
The Transfer Agent
Boston Financial Data Services, Inc. provides transfer agency and distribution disbursing services to the Funds.
Additional Payments to Dealers
In addition to dealer reallowances and payments made by each Fund for distribution and shareholder servicing, the Fund's adviser, the distributor or their affiliates make additional payments ("Additional Payments") to certain selling or shareholder servicing agents for the Fund, which include broker-dealers. These Additional Payments are made in connection with the sale and distribution of shares of the Fund or for services to the Fund and its shareholders. These Additional Payments, which may be significant, are paid by the Fund's adviser, the distributor or their affiliates, out of their revenues, which generally come directly or indirectly from fees paid by the entire Fund complex.
In return for these Additional Payments, the Fund's adviser and distributor expect to receive certain marketing or servicing advantages that are not generally available to mutual funds that do not make such payments. Such advantages are expected to include, without limitation, placement of the Fund on a list of mutual funds offered as investment options to the selling agent's clients (sometimes referred to as "Shelf Space"); access to the selling agent's registered representatives; and/or ability to assist in training and educating the selling agent's registered representatives.
Certain selling or shareholder servicing agents receive these Additional Payments to supplement amounts payable by the Fund under the shareholder servicing plans. In exchange, these agents provide services including, but not limited to, establishing and maintaining accounts and records; answering inquiries regarding purchases, exchanges and redemptions; processing and verifying purchase, redemption and exchange transactions; furnishing account statements and confirmations of transactions; processing and mailing monthly statements, prospectuses, shareholder reports and other SEC-required communications; and providing the types of services that might typically be provided by each Fund's transfer agent (e.g., the maintenance of omnibus or omnibus-like accounts, the use of the National Securities Clearing Corporation for the transmission of transaction information and the transmission of shareholder mailings).
The Additional Payments may create potential conflicts of interests between an investor and a selling agent who is recommending a particular mutual fund over other mutual funds. Before investing, you should consult with your financial consultant and review carefully any disclosure by the selling agent as to what monies they receive from mutual fund advisers and distributors, as well as how your financial consultant is compensated.
The Additional Payments are typically paid in fixed dollar amounts, or based on the number of customer accounts maintained by the selling or shareholder servicing agent, or based on a percentage of sales and/or assets under management, or a combination of the above. The Additional Payments are either up-front or ongoing or both. The Additional Payments differ among selling and shareholder servicing agents. Additional Payments to a selling agent that is compensated based on its customers' assets typically range between 0.05% and 0.30% in a given year of assets invested in the Fund by the selling agent's customers. Additional Payments to a selling agent that is compensated based on a percentage of sales typically range between 0.10% and 0.15% of the gross sales of the Fund attributable to the selling agent. In addition, representatives of the Fund's distributor visit selling agents on a regular basis to educate their registered representatives and to encourage the sale of Fund shares. The costs associated with such visits may be paid for by the Fund's adviser, distributor, or their affiliates, subject to applicable Financial Industry Regulatory Authority ("FINRA") regulations.
More information on the FINRA member firms that have received the Additional Payments described in this section is available in the Statement of Additional Information, which is on file with the SEC and is also available on the Wells Fargo Advantage Funds website at www.wellsfargo.com/advantagefunds.
Investing in the Funds
Shares of the Trust are not offered directly to the general public. The Trust currently offers its Fund shares to separate accounts of various life insurance companies as funding vehicles for certain VA Contracts and VLI Policies (variable contracts) issued through the separate accounts by such life insurance companies. Many of the separate accounts are registered as investment companies with the SEC. When shares of the Trust are offered as a funding vehicle for variable contracts issued through such a separate account, a separate prospectus describing the separate account and the variable contracts being offered through it will accompany this prospectus. When the Trust offers Fund shares as funding vehicles for variable contracts issued through a separate account that is not registered as an investment company, a separate disclosure document (rather than a prospectus) describing the separate account and the variable contracts being offered through it will accompany this prospectus. In the future, the Trust may offer its Fund shares directly to qualified pension and retirement plans.
The Trust has entered into an agreement with the life insurance company sponsor of each separate account (a participation agreement) setting forth the terms and conditions pursuant to which the insurer will purchase and redeem shares of the Funds. In the event that the Trust offers shares of one or more Funds to a qualified pension or retirement plan, it likely will enter into a similar participation agreement. The discussion that follows reflects the terms of the Trust's current participation agreements (which do not differ materially from one another).
Shares of the Funds are sold in a continuous offering to the separate accounts to support the variable contracts. Net purchase payments under the variable contracts are placed in one or more sub-accounts of the separate accounts and the assets of each such sub-account are invested in the shares of the Fund corresponding to that sub-account. The separate accounts purchase and redeem shares of the Funds for their sub-accounts at each share's NAV without sales or redemption charges.
For each day on which a Fund's net asset value is calculated, the separate accounts transmit to the Trust any orders to purchase or redeem shares of the Fund based on the net purchase payments, redemption (surrender) requests, and transfer requests from variable contract owners that have been processed on that day. The separate account purchases and redeems shares of each Fund at the Fund's NAV per share calculated as of that day (i.e., the day the separate account processes contract owner transactions), although such purchases and redemptions may be executed the next morning. Payment for shares redeemed is made within seven days after receipt of a proper redemption order, except that the right of redemption may be suspended or payments postponed when permitted by applicable laws and regulations.
Potential for Conflict of Interest
A potential for certain conflicts exists between the interests of variable annuity contract owners and variable life insurance contract owners, or between the interests of owners of variable contracts issued by different insurance companies or through different separate accounts. A potential for certain conflicts exists between the interests of variable contract owners and participants in a qualified pension or retirement plan that might invest in the Funds. To the extent that such classes of investors are invested in the same Fund when a conflict of interest arises that might involve the Fund, one or more such classes of investors could be disadvantaged. The Trust currently does not foresee any such disadvantage to owners of variable contracts. Nonetheless, the Board of Trustees of the Trust will monitor the Funds for the existence of any irreconcilable material conflicts of interest. If such a conflict affecting owners of variable contracts is determined to exist, then each life insurance company sponsoring a separate account investing the Fund will, to the extent reasonably practicable, take such action as is necessary to remedy the conflict or eliminate the conflict as it affects owners of variable contracts it has issued. If such a conflict were to occur in connection with a Fund, one or more insurance companies might be required to withdraw the investments of one or more of its separate accounts from the Fund or to substitute shares of another mutual fund (including another Fund) for those it holds of the Fund. This might force the Fund to sell portfolio securities at a disadvantageous price.
How Your Vote Would Count
With regard to Fund matters for which the 1940 Act requires a shareholder vote, insurance companies sponsoring a separate account holding shares of a Fund vote such shares in accordance with instructions received from owners of variable contracts (or annuitants or beneficiaries thereunder) having a voting interest in that separate account. Each share has one vote and votes are counted on an aggregate basis except as to matters where the interests of one Fund may differ from another (such as approval of an investment advisory agreement or a change in a Fund's fundamental policies). In such a case, the voting is on a Fund-by-Fund basis. Fractional shares are counted. Shares held by a separate account for which no instructions are received are voted by the insurance company sponsor of the account, for or against any propositions, or in abstention, in the same proportion as the shares for which instructions have been received. Due to proportional voting, the disposition of a particular proposition could be determined by a small number of contract owners.