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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-09255
Wells Fargo Variable Trust
(Exact name of registrant as specified in charter)
525 Market St., San Francisco, CA 94105
(Address of principal executive offices) (Zip code)
C. David Messman
Wells Fargo Funds Management, LLC
525 Market St., San Francisco, CA 94105
(Name and address of agent for service)
Registrant’s telephone number, including area code: 800-222-8222
Date of fiscal year end: December 31, 2012
Date of reporting period: December 31, 2012
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ITEM 1. REPORT TO SHAREHOLDERS
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Wells Fargo Advantage VT Discovery FundSM
Annual Report
December 31, 2012
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Discovery Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Discovery Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, offset by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy. Small-cap stocks modestly outperformed large-cap stocks during the period as investors bid up stocks with greater sensitivity to economic growth.
Macroeconomic optimism faded as global growth slowed and worries rose.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to Spain’s weak economy and depressed property sector, and Spanish bond prices declined. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do whatever it takes to preserve the euro boosted investor confidence. In addition, the ECB announced in September that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
U.S. stocks gained as the U.S. economy reported relatively solid news.
For most of the period, U.S. economic data remained moderately positive. Reported gross domestic product (GDP) growth came in at a 2.0% annualized rate in the first quarter of 2012, slower than the pace in the fourth quarter of 2011 but in positive territory. Reported GDP growth slowed to a 1.3% annualized rate in the second quarter of 2012, only to reaccelerate to 3.1% annualized in the third quarter. Continued economic growth in the U.S. contrasted with the more
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Discovery Fund | 3 |
uncertain picture in Europe. The unemployment rate was a notable exception to generally positive U.S. economic news. Although the unemployment rate declined—from 8.3% in January 2012 to 7.8% in December 2012—at least part of the decline could be attributed to a decline in the labor force. (People are only counted as unemployed if they are officially looking for work.)
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period. Toward the end of 2012, however, widespread uncertainty about the fiscal cliff—a combination of expiring tax breaks, tax increases, and spending cuts originally scheduled to take effect on January 1, 2013—dampened U.S. stock market performance. Small-cap stocks gained 16.35% for the period as measured by the Russell 2000® Index1, approximately in line with a 16.00% return for large-cap stocks as measured by the S&P 500 Index2 for the same period. Value stocks outperformed growth stocks across all market capitalizations, aided by continued strength in financials.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period.
| 1. | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index. |
| 2. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| 4 | Wells Fargo Advantage VT Discovery Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Thomas J. Pence, CFA
Michael T. Smith, CFA
Chris Warner, CFA
Average annual total returns (%) as of December 31, 2012
| Expense ratios1 (%) | ||||||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
| Class 2 | 5-8-1992 | 17.74 | 4.58 | 11.85 | 1.18 | 1.15 | ||||||||||||||||
| Russell 2500TM Growth Index3 | – | 16.13 | 4.07 | 10.55 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Discovery Fund | 5 |
| Growth of $10,000 investment4 as of December 31, 2012 | ||
| ||
| 1. | Reflects the expense ratio as stated in the most recent prospectus. |
| 2. | The Adviser has committed through April 30, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at the amount shown. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 3. | The Russell 2500™ Growth Index measures the performance of those Russell 2500 companies with higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index. |
| 4. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Russell 2500™ Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 5. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 6. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
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| 6 | Wells Fargo Advantage VT Discovery Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
| n | The Fund outperformed its benchmark, the Russell 2500™ Growth Index, over the 12-month period that ended December 31, 2012. |
| n | Effective stock selection in the industrials and health care sectors contributed to performance, while positioning in the consumer discretionary and information technology (IT) sectors and a lack of exposure to the materials sector were slight headwinds. |
| n | Equity prices ebbed and flowed throughout the year, driven largely by investors’ reactions to the news flow out of Europe, U.S. political and fiscal uncertainty, and choppy economic data both domestically and in China. |
| n | While the current macroeconomic environment continues to challenge bottom-up stock pickers, we remain committed to our fundamental “surround the company” research process, in which we survey a company’s vendors, distributors, competitors, and customers to obtain multiple perspectives that help us make better investment decisions. We also remain committed to maintaining an appropriate balance between risk and return. |
2012 was defined by a volatile market environment.
The clouds of uncertainty that lingered over the U.S. equity market in 2011 appeared to disperse early in 2012 as the year began with a sharply positive first quarter. As the year progressed, however, a familiar pattern began to emerge as the market once again displayed a volatile mentality. Investor risk tolerances and, consequently, equity returns varied significantly from quarter to quarter during the year. Europe’s continued struggles with crippling debt, U.S. political and fiscal uncertainty, and choppy economic data both domestically and in China were among the chief drivers of this volatility. Although the equity market was quite volatile in 2012, it was not irrational. Secular earnings growth was handsomely rewarded, and double-digit returns were visible across major equity indexes.
| Ten largest equity holdings5 (%) as of December 31, 2012 | ||||
Kansas City Southern | 3.23 | |||
SBA Communications Corporation Class A | 2.96 | |||
Aspen Technology Incorporated | 2.11 | |||
TransDigm Group Incorporated | 1.97 | |||
Alliance Data Systems Corporation | 1.96 | |||
Affiliated Managers Group Incorporated | 1.93 | |||
Copa Holdings SA Class A | 1.72 | |||
Panera Bread Company | 1.69 | |||
PVH Corporation | 1.66 | |||
CommVault Systems Incorporated | 1.58 | |||
Effective stock selection enabled the Fund to outperform its benchmark.
Effective stock selection in the industrials, health care, telecommunication services, and consumer staples sectors contributed significantly to the Fund’s performance during the period. In industrials, top-10 holding TransDigm Group Incorporated—an aerospace component supplier with tremendous visibility into future revenue—generated strong growth as only a small dent was made in the multi-year backlog for new planes. In health care, athenahealth Incorporated—a cloud-based health IT provider to physicians’ offices and hospitals—announced a plan to grow sales at a 30% annual rate over the next five years, at a time when investors were worried that athenahealth’s end market
was slowing. The company also announced some new enterprise client wins, which greatly increased visibility on 2013 revenue. Telecommunication services sector outperformance was driven by top-10 holding SBA Communications Corporation, a leading owner and operator of wireless communications towers.The company continues to benefit from the strain that smartphone and tablet usage is putting on existing cellular data networks thus driving additional infrastructure investment by the major telecom carriers. Although consumer staples was a small portion of the portfolio, one stock in particular, The Hain Celestial Group Incorporated, which we no longer hold, grew faster than the market as a leading supplier of organic and natural foods and consumer products.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Discovery Fund | 7 |
Stock selection in the consumer discretionary was the primary performance headwind. In consumer discretionary, Vera Bradley Incorporated, experienced higher-than-expected expenses and more sales of its travel bags and accessories through its outlet channel, affecting the company’s outlook for growth.
| Sector distribution6 as of December 31, 2012 | ||
| ||
We are optimistic about U.S. equities in 2013 but remain diligent in our investment approach in order to mitigate outstanding risks and uncertainty.
There are a number of reasons we remain squarely constructive on the U.S. equity market as we enter 2013. Valuations are compelling, the housing market appears to be rebounding, and monetary policies remain highly accommodative. The market, however, is not without risks in 2013. Long-term solutions to structural deficits, fiscal drag, political stalemates, and high unemployment are still elusive. This macro uncertainty, coupled with lackluster economic growth and tepid levels of business spending, forces us to remain cautious about risks that could affect the Fund.
We attempt to mitigate this uncertainty by constructing a portfolio that thoughtfully balances risk and return. As was the case for most of 2012, our investments remain skewed toward higher-quality core holdings. A number of encouraging signs, however, give us the confidence to barbell portfolios with developing situations. Ultimately, the Fund primarily consists of holdings with the following traits: companies with superior earnings growth that is driven by secular growing end markets, companies investing in true empowering innovation that will drive long-term returns, and companies with abundant free cash flow that allows for financial flexibility.
Uncertainty with the global macro environment is high, but we feel confident about the current execution of our investment process and the positive company-specific fundamentals we are able to uncover. This unwavering dedication to a durable, institutional investment process allowed the Fund to outperform in 2012.
Please see footnotes on page 5.
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| 8 | Wells Fargo Advantage VT Discovery Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other
Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,052.28 | $ | 5.93 | 1.15 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.36 | $ | 5.84 | 1.15 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
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| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Discovery Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 98.25% | ||||||||||||
Consumer Discretionary: 20.77% | ||||||||||||
| Auto Components: 0.80% | ||||||||||||
BorgWarner Incorporated Ǡ | 12,400 | $ | 888,088 | |||||||||
|
| |||||||||||
| Automobiles: 1.33% | ||||||||||||
Tesla Motors Incorporated Ǡ | 43,688 | 1,479,713 | ||||||||||
|
| |||||||||||
| Hotels, Restaurants & Leisure: 1.69% | ||||||||||||
Panera Bread Company Ǡ | 11,888 | 1,888,171 | ||||||||||
|
| |||||||||||
| Household Durables: 1.80% | ||||||||||||
Jarden Corporation « | 15,400 | 796,180 | ||||||||||
SodaStream International Limited Ǡ | 27,100 | 1,216,519 | ||||||||||
| 2,012,699 | ||||||||||||
|
| |||||||||||
| Internet & Catalog Retail: 1.26% | ||||||||||||
Expedia Incorporated | 22,800 | 1,401,060 | ||||||||||
|
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| Leisure Equipment & Products: 1.04% | ||||||||||||
LeapFrog Enterprises Incorporated Ǡ | 134,800 | 1,163,324 | ||||||||||
|
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| Media: 1.30% | ||||||||||||
Virgin Media Incorporated « | 39,400 | 1,447,950 | ||||||||||
|
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| Specialty Retail: 8.66% | ||||||||||||
Chico’s FAS Incorporated | 65,700 | 1,212,822 | ||||||||||
DSW Incorporated Class A | 23,793 | 1,562,962 | ||||||||||
GNC Holdings Incorporated Class A « | 49,319 | 1,641,336 | ||||||||||
Hibbett Sports Incorporated Ǡ | 21,600 | 1,138,320 | ||||||||||
Lumber Liquidators Holdings Incorporated † | 20,400 | 1,077,732 | ||||||||||
Ulta Salon Cosmetics & Fragrance Incorporated | 15,513 | 1,524,307 | ||||||||||
Williams-Sonoma Incorporated « | 34,100 | 1,492,557 | ||||||||||
| 9,650,036 | ||||||||||||
|
| |||||||||||
| Textiles, Apparel & Luxury Goods: 2.89% | ||||||||||||
PVH Corporation | 16,700 | 1,853,867 | ||||||||||
Under Armour Incorporated Class A Ǡ | 28,100 | 1,363,693 | ||||||||||
| 3,217,560 | ||||||||||||
|
| |||||||||||
Consumer Staples: 3.58% | ||||||||||||
| Beverages: 1.06% | ||||||||||||
Constellation Brands Incorporated Class A † | 33,300 | 1,178,487 | ||||||||||
|
| |||||||||||
| Food & Staples Retailing: 1.00% | ||||||||||||
The Fresh Market Incorporated Ǡ | 23,200 | 1,115,688 | ||||||||||
|
| |||||||||||
| Food Products: 1.52% | ||||||||||||
Annie’s Incorporated «† | 29,484 | 985,650 | ||||||||||
Boulder Brands Incorporated † | 55,500 | 715,950 | ||||||||||
| 1,701,600 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Discovery Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
Energy: 4.22% | ||||||||||||
| Energy Equipment & Services: 1.58% | ||||||||||||
GulfMark Offshore Incorporated Class A « | 20,951 | $ | 721,762 | |||||||||
Oil States International Incorporated † | 14,500 | 1,037,330 | ||||||||||
| 1,759,092 | ||||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 2.64% | ||||||||||||
Approach Resources Incorporated Ǡ | 36,841 | 921,393 | ||||||||||
Cabot Oil & Gas Corporation | 18,000 | 895,320 | ||||||||||
PDC Energy Incorporated Ǡ | 34,100 | 1,132,461 | ||||||||||
| 2,949,174 | ||||||||||||
|
| |||||||||||
Financials: 4.80% | ||||||||||||
| Capital Markets: 2.90% | ||||||||||||
Affiliated Managers Group Incorporated † | 16,500 | 2,147,475 | ||||||||||
Stifel Financial Corporation Ǡ | 33,900 | 1,083,783 | ||||||||||
| 3,231,258 | ||||||||||||
|
| |||||||||||
| Real Estate Management & Development: 1.90% | ||||||||||||
CBRE Group Incorporated † | 73,700 | 1,466,630 | ||||||||||
Zillow Incorporated Class A Ǡ | 23,500 | 652,125 | ||||||||||
| 2,118,755 | ||||||||||||
|
| |||||||||||
Health Care: 15.95% | ||||||||||||
| Biotechnology: 5.06% | ||||||||||||
Achillion Pharmaceuticals Incorporated Ǡ | 35,200 | 282,304 | ||||||||||
BioMarin Pharmaceutical Incorporated Ǡ | 31,557 | 1,554,182 | ||||||||||
Cepheid Incorporated Ǡ | 25,800 | 872,298 | ||||||||||
Cubist Pharmaceuticals Incorporated † | 32,000 | 1,345,920 | ||||||||||
Onyx Pharmaceuticals Incorporated † | 14,500 | 1,095,185 | ||||||||||
Orexigen Therapeutics Incorporated Ǡ | 93,900 | 494,853 | ||||||||||
| 5,644,742 | ||||||||||||
|
| |||||||||||
| Health Care Equipment & Supplies: 3.39% | ||||||||||||
Align Technology Incorporated Ǡ | 32,400 | 899,100 | ||||||||||
Sirona Dental Systems Incorporated † | 22,300 | 1,437,458 | ||||||||||
Thoratec Corporation † | 38,400 | 1,440,768 | ||||||||||
| 3,777,326 | ||||||||||||
|
| |||||||||||
| Health Care Providers & Services: 4.37% | ||||||||||||
Catamaran Corporation † | 31,400 | 1,479,254 | ||||||||||
Hanger Incorporated Ǡ | 45,381 | 1,241,624 | ||||||||||
Laboratory Corporation of America Holdings † | 6,400 | 554,368 | ||||||||||
Team Health Holdings Incorporated † | 55,300 | 1,590,981 | ||||||||||
| 4,866,227 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Discovery Fund | 11 |
| Security name | Shares | Value | ||||||||||
| Health Care Technology: 0.94% | ||||||||||||
athenahealth Incorporated Ǡ | 14,200 | $ | 1,042,990 | |||||||||
|
| |||||||||||
| Life Sciences Tools & Services: 1.00% | ||||||||||||
Bruker BioSciences Corporation † | 73,400 | 1,120,818 | ||||||||||
|
| |||||||||||
| Pharmaceuticals: 1.19% | ||||||||||||
Impax Laboratories Incorporated Ǡ | 64,600 | 1,323,654 | ||||||||||
|
| |||||||||||
Industrials: 19.69% | ||||||||||||
| Aerospace & Defense: 3.50% | ||||||||||||
TransDigm Group Incorporated | 16,100 | 2,195,396 | ||||||||||
Triumph Group Incorporated « | 26,100 | 1,704,330 | ||||||||||
| 3,899,726 | ||||||||||||
|
| |||||||||||
| Airlines: 1.72% | ||||||||||||
Copa Holdings SA Class A | 19,300 | 1,919,385 | ||||||||||
|
| |||||||||||
| Electrical Equipment: 1.01% | ||||||||||||
Regal-Beloit Corporation | 15,900 | 1,120,473 | ||||||||||
|
| |||||||||||
| Machinery: 5.01% | ||||||||||||
Chart Industries Incorporated Ǡ | 17,100 | 1,140,057 | ||||||||||
Colfax Corporation Ǡ | 30,018 | 1,211,226 | ||||||||||
Graco Incorporated | 30,900 | 1,591,041 | ||||||||||
Wabtec Corporation | 18,800 | 1,645,752 | ||||||||||
| 5,588,076 | ||||||||||||
|
| |||||||||||
| Professional Services: 2.60% | ||||||||||||
Advisory Board Company Ǡ | 26,800 | 1,253,972 | ||||||||||
Verisk Analytics Incorporated Class A † | 32,200 | 1,642,200 | ||||||||||
| 2,896,172 | ||||||||||||
|
| |||||||||||
| Road & Rail: 4.75% | ||||||||||||
Hertz Global Holdings Incorporated Ǡ | 104,300 | 1,696,961 | ||||||||||
Kansas City Southern | 43,100 | 3,597,988 | ||||||||||
| 5,294,949 | ||||||||||||
|
| |||||||||||
| Trading Companies & Distributors: 1.10% | ||||||||||||
WESCO International Incorporated Ǡ | 18,200 | 1,227,226 | ||||||||||
|
| |||||||||||
Information Technology: 23.95% | ||||||||||||
| Computers & Peripherals: 0.98% | ||||||||||||
Stratasys Limited Ǡ | 13,600 | 1,090,040 | ||||||||||
|
| |||||||||||
| Electronic Equipment, Instruments & Components: 1.69% | ||||||||||||
FEI Company « | 23,600 | 1,308,856 | ||||||||||
IPG Photonics Corporation « | 8,600 | 573,190 | ||||||||||
| 1,882,046 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Discovery Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Internet Software & Services: 5.13% | ||||||||||||
Angie’s List Incorporated «† | 48,179 | $ | 577,666 | |||||||||
CoStar Group Incorporated Ǡ | 14,500 | 1,295,865 | ||||||||||
ExactTarget Incorporated Ǡ | 62,176 | 1,243,520 | ||||||||||
Mercadolibre Incorporated « | 14,800 | 1,162,836 | ||||||||||
Rackspace Hosting Incorporated Ǡ | 19,400 | 1,440,838 | ||||||||||
| 5,720,725 | ||||||||||||
|
| |||||||||||
| IT Services: 4.77% | ||||||||||||
Alliance Data Systems Corporation Ǡ | 15,100 | 2,185,876 | ||||||||||
Corelogic Incorporated † | 46,533 | 1,252,668 | ||||||||||
Gartner Incorporated † | 23,200 | 1,067,664 | ||||||||||
Vantiv Incorporated Class A † | 39,703 | 810,735 | ||||||||||
| 5,316,943 | ||||||||||||
|
| |||||||||||
| Semiconductors & Semiconductor Equipment: 1.78% | ||||||||||||
EZchip Semiconductor Limited Ǡ | 29,200 | 965,644 | ||||||||||
Skyworks Solutions Incorporated † | 50,100 | 1,017,030 | ||||||||||
| 1,982,674 | ||||||||||||
|
| |||||||||||
| Software: 9.60% | ||||||||||||
ACI Worldwide Incorporated † | 35,900 | 1,568,471 | ||||||||||
Aspen Technology Incorporated † | 85,100 | 2,352,164 | ||||||||||
Broadsoft Incorporated † | 43,416 | 1,577,303 | ||||||||||
CommVault Systems Incorporated † | 25,300 | 1,763,663 | ||||||||||
Fortinet Incorporated † | 68,134 | 1,435,583 | ||||||||||
Guidewire Software Incorporated Ǡ | 44,900 | 1,334,428 | ||||||||||
ServiceNow Incorporated Ǡ | 22,286 | 669,249 | ||||||||||
| 10,700,861 | ||||||||||||
|
| |||||||||||
Materials: 1.51% | ||||||||||||
| Chemicals: 1.51% | ||||||||||||
Airgas Incorporated « | 18,500 | 1,688,865 | ||||||||||
|
| |||||||||||
Telecommunication Services: 3.78% | ||||||||||||
| Diversified Telecommunication Services: 0.82% | ||||||||||||
Iridium Communications Incorporated Ǡ | 135,600 | 913,944 | ||||||||||
|
| |||||||||||
| Wireless Telecommunication Services: 2.96% | ||||||||||||
SBA Communications Corporation Class A Ǡ | 46,384 | 3,294,194 | ||||||||||
|
| |||||||||||
Total Common Stocks (Cost $97,361,308) | 109,514,711 | |||||||||||
|
| |||||||||||
| Principal | ||||||||||||
Other: 0.17% | ||||||||||||
Gryphon Funding Limited, Pass-Through Entity (a)(i)(v) | $ | 579,580 | 191,261 | |||||||||
Total Other (Cost $52,519) | 191,261 | |||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Discovery Fund | 13 |
| Security name | Yield | Shares | Value | |||||||||||
Short-Term Investments: 41.85% | ||||||||||||||
| Investment Companies: 41.85% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.14 | % | 1,775,970 | $ | 1,775,970 | |||||||||
Wells Fargo Securities Lending Cash Investments, LLC (v)(l)(u)(r) | 0.20 | 44,866,058 | 44,866,058 | |||||||||||
Total Short-Term Investments (Cost $46,642,028) | 46,642,028 | |||||||||||||
|
| |||||||||||||
| Total investments in securities | ||||||||
| (Cost $144,055,855)* | 140.27 | % | 156,348,000 | |||||
Other assets and liabilities, net | (40.27 | ) | (44,889,555 | ) | ||||
|
|
|
| |||||
| Total net assets | 100.00 | % | $ | 111,458,445 | ||||
|
|
|
|
| « | All or a portion of this security is on loan. |
| † | Non-income-earning security |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited. |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| * | Cost for federal income tax purposes is $144,826,437 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 15,504,320 | ||
Gross unrealized depreciation | (3,982,757 | ) | ||
|
| |||
Net unrealized appreciation | $ | 11,521,563 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Discovery Fund | Statement of assets and liabilities—December 31, 2012 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 109,705,972 | ||
In affiliated securities, at value (see cost below) | 46,642,028 | |||
|
| |||
Total investments, at value (see cost below) | 156,348,000 | |||
Receivable for investments sold | 63,831 | |||
Receivable for Fund shares sold | 231,950 | |||
Receivable for dividends | 5,949 | |||
Receivable for securities lending income | 48,621 | |||
Prepaid expenses and other assets | 893 | |||
|
| |||
Total assets | 156,699,244 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 19,621 | |||
Payable for Fund shares redeemed | 140,337 | |||
Payable upon receipt of securities loaned | 44,918,577 | |||
Advisory fee payable | 59,898 | |||
Distribution fees payable | 24,052 | |||
Due to other related parties | 11,689 | |||
Accrued expenses and other liabilities | 66,625 | |||
|
| |||
Total liabilities | 45,240,799 | |||
|
| |||
Total net assets | $ | 111,458,445 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 96,216,271 | ||
Accumulated net realized gains on investments | 2,950,029 | |||
Net unrealized gains on investments | 12,292,145 | |||
|
| |||
Total net assets | $ | 111,458,445 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 2 | $ | 111,458,445 | ||
Shares outstanding – Class 2 | 4,430,824 | |||
Net asset value per share – Class 2 | $25.16 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 97,413,827 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 46,642,028 | ||
|
| |||
Total investments, at cost | $ | 144,055,855 | ||
|
| |||
Securities on loan, at value | $ | 44,742,823 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of operations—year ended December 31, 2012 | Wells Fargo Advantage VT Discovery Fund | 15 |
Investment income | ||||
Dividends | $ | 662,533 | ||
Securities lending income, net | 541,733 | |||
Income from affiliated securities | 3,265 | |||
|
| |||
Total investment income | 1,207,531 | |||
|
| |||
Expenses | ||||
Advisory fee | 755,572 | |||
Administration fees | ||||
Fund level | 53,969 | |||
Class 2 | 86,351 | |||
Distribution fees | ||||
Class 2 | 269,847 | |||
Custody and accounting fees | 24,676 | |||
Professional fees | 26,777 | |||
Shareholder report expenses | 64,948 | |||
Trustees’ fees and expenses | 20,004 | |||
Other fees and expenses | 2,559 | |||
|
| |||
Total expenses | 1,304,703 | |||
Less: Fee waivers and/or expense reimbursements | (63,406 | ) | ||
|
| |||
Net expenses | 1,241,297 | |||
|
| |||
Net investment loss | (33,766 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 8,609,836 | |||
Net change in unrealized gains (losses) on investments | 8,243,827 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 16,853,663 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 16,819,897 | ||
|
| |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Discovery Fund | Statement of changes in net assets |
| Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (33,766 | ) | $ | (812,220 | ) | ||||||||||
Net realized gains on investments | 8,609,836 | 27,863,306 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 8,243,827 | (26,402,344 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 16,819,897 | 648,742 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
| Shares | Shares | |||||||||||||||
Capital share transactions | ||||||||||||||||
Proceeds from shares sold – Class 2 | 769,807 | 18,739,662 | 665,598 | 14,494,199 | ||||||||||||
Payment for shares redeemed – Class 2 | (929,140 | ) | (22,200,607 | ) | (1,279,927 | ) | (27,798,666 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets resulting from capital share transactions | (3,460,945 | ) | (13,304,467 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) in net assets | 13,358,952 | (12,655,725 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 98,099,493 | 110,755,218 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $ | 111,458,445 | $ | 98,099,493 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment income | $ | 0 | $ | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Financial highlights | Wells Fargo Advantage VT Discovery Fund | 17 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 21.37 | $ | 21.28 | $ | 15.70 | $ | 11.19 | $ | 20.11 | ||||||||||
Net investment loss | (0.01 | ) | (0.18 | ) | (0.13 | ) | (0.11 | ) | (0.11 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 3.80 | 0.27 | 5.71 | 4.62 | (8.81 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 3.79 | 0.09 | 5.58 | 4.51 | (8.92 | ) | ||||||||||||||
Net asset value, end of period | $ | 25.16 | $ | 21.37 | $ | 21.28 | $ | 15.70 | $ | 11.19 | ||||||||||
Total return | 17.74 | % | 0.42 | % | 35.54 | % | 40.30 | % | (44.36 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.21 | % | 1.18 | % | 1.26 | % | 1.35 | % | 1.27 | % | ||||||||||
Net expenses | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | ||||||||||
Net investment loss | (0.03 | )% | (0.75 | )% | (0.71 | )% | (0.61 | )% | (0.63 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 98 | % | 113 | % | 101 | % | 208 | % | 166 | % | ||||||||||
Net assets, end of period (000s omitted) | $ | 111,458 | $ | 98,099 | $ | 110,755 | $ | 86,125 | $ | 113,149 | ||||||||||
| 1. | After the close of business of July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 18 | Wells Fargo Advantage VT Discovery Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Discovery Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT Discovery Fund | 19 |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost. Dividend income is recognized on the ex-dividend date.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
| Paid-in capital | Undistributed net investment loss | Accumulated net realized gains on investments | ||
| $(6,921) | $33,766 | $(26,845) |
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
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| 20 | Wells Fargo Advantage VT Discovery Fund | Notes to financial statements |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 109,514,711 | $ | 0 | $ | 0 | $ | 109,514,711 | ||||||||
Other | 0 | 0 | 191,261 | 191,261 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,775,970 | 44,866,058 | 0 | 46,642,028 | ||||||||||||
| $ | 111,290,681 | $ | 44,866,058 | $ | 191,261 | $ | 156,348,000 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.70% and declining to 0.55% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.70% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.35% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and for Class 2 shares, a class level administration fee of 0.08% which is calculated based on the average daily net assets of Class 2 shares.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain the net operating expense ratio for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.15% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of its average daily net assets.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $103,630,048 and $106,466,282, respectively.
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| Notes to financial statements | Wells Fargo Advantage VT Discovery Fund | 21 |
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $191 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
For the years ended December 31, 2012 and December 31, 2011, the Fund did not have any distributions paid to shareholders.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
| Undistributed long-term gain | Unrealized gains | |
$3,720,611 | $11,521,563 |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| 22 | Wells Fargo Advantage VT Discovery Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Discovery Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Discovery Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| Other information (unaudited) | Wells Fargo Advantage VT Discovery Fund | 23 |
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 24 | Wells Fargo Advantage VT Discovery Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
| Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT Discovery Fund | 25 |
| Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
| Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available,without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 26 | Wells Fargo Advantage VT Discovery Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214180 02-13 AVT1/AR147 12-12 |
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Wells Fargo Advantage VT Index Asset Allocation Fund
Annual Report
December 31, 2012
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Index Asset Allocation Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, characterized by improvements in the U.S. housing sector and employment situation.
Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Index Asset Allocation Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, characterized by improvements in the U.S. housing sector and employment situation. Some of this momentum was offset by concerns about the ongoing European sovereign debt crisis and the potential effects that U.S. fiscal and monetary actions would have on the pace of economic growth.
Macroeconomic optimism faded early in the year but improved by the end of summer.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt obligations, which could result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult to meet its austerity targets. Consequently, analysts began openly discussing the possibility of a crisis within the European banking system, the future of the euro, and the potential effect on the U.S. economy—worries that remained near the forefront of the markets throughout the spring and into the summer. In September and October 2012, however, the European Central Bank (ECB) and several key members of the eurozone, including France and Germany, announced their commitment to maintaining the integrity of the single currency.
Central banks continued to provide stimulus to support the U.S. and avert a crisis in the eurozone.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the ECB, continued to inject liquidity into banks and the market through various quantitative policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. In September 2012, the Fed responded to the stagnant U.S. labor market by announcing its third round of quantitative easing, which included an open-ended program to purchase mortgage-backed securities in an effort to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it had raised from its previous level of 1.25% in an attempt to keep inflation in check. During the first half of 2012, however, the ECB lowered its key rate to a historic low of 0.75% in hopes of offering relief to the eurozone’s fragile and sluggish economy. In September 2012, the ECB announced that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had applied for a formal bailout.
Investor attention shifted from the eurozone credit crisis to U.S. political and fiscal uncertainties.
Real gross domestic product (GDP) growth for the U.S. was positive in the first quarter of 2012, with GDP increasing by 2.0% on an annualized basis. However, the rate of GDP growth slowed in the second quarter, with data showing a 1.3%
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 3 |
annualized growth rate. By the end of the year, third-quarter GDP data showed that U.S. economic growth reaccelerated to a 3.1% annualized rate, lending evidence that the U.S. economy may finally have reached a sustainable growth pattern. Further bolstering the U.S. economic picture, the U.S. unemployment rate continued to trend downward throughout the period from 8.3% in January 2012 to 7.8% in December 2012. The U.S. housing sector also strengthened over the 12-month period, with new housing activity and existing home sales trending higher.
While the U.S. economy, in particular, continued to show signs of life, there remained uncertainty during the period ahead of the U.S. presidential election and the possibility of a fiscal cliff, which included a series of automatic federal budget cuts and the expiration of several tax cut programs at the onset of 2013. The U.S. election was decided without incident, and Washington was able to strike a compromise to avoid the full impact of the U.S. fiscal cliff, which provided some stability to the markets. Looking ahead, however, several other fiscal policy decisions will be made during the first few months of 2013 that potentially could affect market sentiment and the pace of U.S. economic growth.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the eurozone credit crisis remains unknown. Elevated U.S. unemployment rates, a tepid housing market, and fiscal uncertainties will continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole,
Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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| 4 | Wells Fargo Advantage VT Index Asset Allocation Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term total return, consisting of capital appreciation and current income.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Petros Bocray, CFA
Jeffrey P. Mellas, CAIA
Average annual total returns (%) as of December 31, 2012
| Expense ratios1 (%) | ||||||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
| Class 2 | 4-15-1994 | 13.03 | 2.22 | 6.56 | 1.06 | 1.00 | ||||||||||||||||
| Index Asset Allocation Composite Index3 | – | 11.36 | 5.86 | 8.07 | – | – | ||||||||||||||||
| S&P 500 Index4 | – | 16.00 | 1.66 | 7.10 | – | – | ||||||||||||||||
| Barclays U.S. Treasury 20+ Year Index5 | – | 3.36 | 9.72 | 7.85 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Balanced funds may invest in stocks and bonds. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond values fall and investors may lose principal value. The use of derivatives may reduce returns and/or increase volatility. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 5 |
| Growth of $10,000 investment6 as of December 31, 2012 | ||
| ||
| 1. | Reflects the expense ratio as stated in the most recent prospectus. |
| 2. | The Adviser has committed through April 30, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at the amount shown. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 3. | The Index Asset Allocation Composite Index is weighted 60% in the S&P 500 Index and 40% in the Barclays U.S. Treasury 20+ Year Index. You cannot invest directly in an index. |
| 4. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
| 5. | The Barclays U.S. Treasury 20+ Year Index is an unmanaged index composed of securities in the U.S. Treasury Index with maturities of 20 years or greater. You cannot invest directly in an index. |
| 6. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the S&P 500 Index, the Barclays U.S. Treasury 20+ Year Index, and the Index Asset Allocation Composite Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 7. | The ten largest holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 8. | Portfolio allocations are subject to change. Cash and cash equivalents are not reflected in the calculations of portfolio allocations. Neutral target allocation is the target allocation of the Fund as stated in the Fund’s prospectus. Current target allocation is the current allocation of the Fund based on the Tactical Asset Allocation (TAA) Model as of the date specified and is subject to change. |
| 9. | Equity sector distribution is subject to change and is calculated based on the total long-term equity investments of the Fund. |
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| 6 | Wells Fargo Advantage VT Index Asset Allocation Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
| n | The Fund outperformed its composite benchmark, which is weighted 60% in the S&P 500 Index and 40% in the Barclays U.S. Treasury 20+ Year Index, for the 12-month period that ended December 31, 2012. Although the Fund outperformed the Barclays U.S. Treasury 20+ Year Index, it underperformed the S&P 500 Index as stocks rallied for much of the year. |
| n | As of December 31, 2012, the Fund had a current target allocation of 85% stocks and 15% bonds. |
| n | The Fund’s tactical overweight to stocks contributed positively to the performance of the Fund as the S&P 500 Index outperformed long-term U.S. Treasury bonds. |
Renewed optimism drove stocks higher during the year.
The past year was characterized by improved investor confidence, as strong actions by central banks buoyed investors and alleviated fears that have been prevalent in the years since the financial crisis. During the first half of 2012, the probability of a eurozone breakup diminished as the European Central Bank (ECB) decided to inject liquidity into the financial system by providing inexpensive loans to European banks. Markets received further affirmation of the ECB’s willingness to resolve the crisis when, in mid-summer, it vowed to use all necessary means to preserve the common currency. Accommodative monetary policy was pursued domestically as well. Toward the end of the third quarter, the Federal Reserve announced plans to implement a third round of quantitative easing in order to keep interest rates low for the next couple years.
| Ten largest holdings7 (%) as of December 31, 2012 | ||||
U.S. Treasury Bond, 4.38%, 5-15-2040 | 2.99 | |||
U.S. Treasury Bond, 3.75%, 8-15-2041 | 2.92 | |||
U.S. Treasury Bond, 4.25%, 11-15-2040 | 2.90 | |||
U.S. Treasury Bond, 4.63%, 2-15-2040 | 2.83 | |||
U.S. Treasury Bond, 4.38%, 11-15-2039 | 2.65 | |||
U.S. Treasury Bond, 3.88%, 8-15-2040 | 2.43 | |||
U.S. Treasury Bond, 4.38%, 5-15-2041 | 2.42 | |||
Apple Incorporated | 2.34 | |||
U.S. Treasury Bond, 4.75, 2-15-2041 | 2.25 | |||
U.S. Treasury Bond, 3.13%, 11-15-2041 | 2.13 | |||
| Neutral target allocation8 as of December 31, 2012 | ||
| ||
As fears of another global financial crisis abated, the U.S. equity market rose sharply. Although the gains were broad-based, it was the riskier segments of the market that led the way. This was particularly evident in fixed-income markets where lower-rated debt such as high-yield bonds and emerging markets bonds outperformed U.S. Treasury securities by a wide margin. For the 12-month period, the S&P 500 Index posted a return of 16%, while long-term Treasury bonds, as measured by the Barclays U.S. Treasury 20+ Year Index, gained 3.4%. The Fund maintained its maximum overweight in stocks throughout the period and was well positioned to capture the resulting spread between stocks and bonds.
The tactical shift toward stocks contributed positively to performance.
The Fund employs a Tactical Asset Allocation (TAA) Model, which seeks to enhance returns by shifting the effective allocations based on the relative attractiveness of stocks and bonds. The Fund’s stock holdings seek to replicate the holdings of the S&P 500 Index, and its bond holdings seek to replicate the holdings of the Barclays U.S. Treasury 20+ Year Index. During the entire 12-month period, the Fund maintained its maximum equity overweight, resulting in a target allocation of 85% stocks and 15% bonds. Because of price fluctuations, the Fund’s
actual allocation on a particular day may differ slightly from the target allocation. The emphasis on stocks contributed positively to the relative performance in 2012, as U.S. stocks handsomely outperformed U.S. Treasury bonds. The Fund’s neutral target allocation is 60% stocks and 40% bonds. Although there were no changes to the Fund’s tactical allocation during the year, we made adjustments to the portfolio throughout the year in order to ensure that its holdings properly aligned with the composition of the S&P 500 Index as well as the Barclays U.S. Treasury 20+ Year Index.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 7 |
| Current target allocation8 as of December 31, 2012 | ||
 | ||
| Equity sector distribution9 as of December 31, 2012 | ||
 | ||
The TAA Model continues to favor stocks relative to bonds.
It is our view that the economic recovery is on a sustainable path. However, this is not to say that it will be a smooth ride in 2013. Uncertainties regarding the ongoing fiscal debate in Washington will no doubt continue into the new year and may introduce a certain level of volatility into financial markets. Also, notwithstanding measures taken by the ECB to prevent a worst-case scenario, the eurozone remains mired in a recession.
That being said, as fears of macro-based events and systemic risks recede, investors should be able to shift their focus to the underlying economic fundamentals. The U.S. unemployment rate has inched downward, and a recovery in the housing sector seems to be underway as prices have risen steadily over the past year. While demand from the eurozone may be sluggish as it works its way out of the economic doldrums, it may be offset by stronger growth in emerging markets economies. According to the International Monetary Fund, growth in emerging markets countries is forecast at 5.5%, contrasted with a 0.2% growth forecast for the eurozone.
Although corporate earnings growth may weaken in the months to come, valuations could still expand as an improvement in confidence may lead to a reassessment of risk among investors. With price/earnings multiples below their historic levels, stocks continue to remain attractively priced. Meanwhile, bond yields continue to hover near record lows, indicating that bond prices remain dangerously exposed to a sudden rise in interest rates. Our TAA Model will continue to recommend an overweight toward stocks until the relative valuation between stocks and bonds returns to a more normal level.
Please see footnotes on page 5.
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| 8 | Wells Fargo Advantage VT Index Asset Allocation Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,040.70 | $ | 5.13 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
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| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 59.34% | ||||||||||||
Consumer Discretionary: 6.88% | ||||||||||||
| Auto Components: 0.20% | ||||||||||||
BorgWarner Incorporated Ǡ | 462 | $ | 33,088 | |||||||||
Delphi Automotive plc † | 1,166 | 44,600 | ||||||||||
Johnson Controls Incorporated | 2,700 | 82,890 | ||||||||||
The Goodyear Tire & Rubber Company † | 967 | 13,354 | ||||||||||
| 173,932 | ||||||||||||
|
| |||||||||||
| Automobiles: 0.28% | ||||||||||||
Ford Motor Company | 15,056 | 194,975 | ||||||||||
Harley-Davidson Incorporated | 893 | 43,614 | ||||||||||
| 238,589 | ||||||||||||
|
| |||||||||||
| Distributors: 0.05% | ||||||||||||
Genuine Parts Company « | 613 | 38,975 | ||||||||||
|
| |||||||||||
| Diversified Consumer Services: 0.03% | ||||||||||||
Apollo Group Incorporated Class A † | 395 | 8,263 | ||||||||||
H&R Block Incorporated | 1,071 | 19,888 | ||||||||||
| 28,151 | ||||||||||||
|
| |||||||||||
| Hotels, Restaurants & Leisure: 1.07% | ||||||||||||
Carnival Corporation « | 1,761 | 64,752 | ||||||||||
Chipotle Mexican Grill Incorporated Ǡ | 124 | 36,885 | ||||||||||
Darden Restaurants Incorporated | 508 | 22,896 | ||||||||||
International Game Technology | 1,051 | 14,893 | ||||||||||
Marriott International Incorporated Class A « | 972 | 36,226 | ||||||||||
McDonald’s Corporation | 3,964 | 349,664 | ||||||||||
Starbucks Corporation | 2,937 | 157,482 | ||||||||||
Starwood Hotels & Resorts Worldwide Incorporated | 774 | 44,397 | ||||||||||
Wyndham Worldwide Corporation | 554 | 29,478 | ||||||||||
Wynn Resorts Limited | 314 | 35,322 | ||||||||||
Yum! Brands Incorporated | 1,784 | 118,458 | ||||||||||
| 910,453 | ||||||||||||
|
| |||||||||||
| Household Durables: 0.26% | ||||||||||||
D.R. Horton Incorporated « | 1,103 | 21,817 | ||||||||||
Garmin Limited | 431 | 17,593 | ||||||||||
Harman International Industries Incorporated | 268 | 11,964 | ||||||||||
Leggett & Platt Incorporated | 558 | 15,189 | ||||||||||
Lennar Corporation | 648 | 25,058 | ||||||||||
Newell Rubbermaid Incorporated | 1,136 | 25,299 | ||||||||||
Pulte Homes Incorporated Ǡ | 1,342 | 24,371 | ||||||||||
Stanley Black & Decker Incorporated | 666 | 49,264 | ||||||||||
Whirlpool Corporation « | 308 | 31,339 | ||||||||||
| 221,894 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
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| 10 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Internet & Catalog Retail: 0.64% | ||||||||||||
Amazon.com Incorporated † | 1,431 | $ | 359,381 | |||||||||
Expedia Incorporated | 367 | 22,552 | ||||||||||
Netflix Incorporated † | 219 | 20,319 | ||||||||||
priceline.com Incorporated † | 197 | 122,376 | ||||||||||
TripAdvisor Incorporated † | 433 | 18,169 | ||||||||||
| 542,797 | ||||||||||||
|
| |||||||||||
| Leisure Equipment & Products: 0.08% | ||||||||||||
Hasbro Incorporated | 457 | 16,406 | ||||||||||
Mattel Incorporated | 1,355 | 49,620 | ||||||||||
| 66,026 | ||||||||||||
|
| |||||||||||
| Media: 2.11% | ||||||||||||
Cablevision Systems Corporation New York Group Class A | 852 | 12,729 | ||||||||||
CBS Corporation Class B | 2,334 | 88,809 | ||||||||||
Comcast Corporation Class A | 10,493 | 392,228 | ||||||||||
DIRECTV Group Incorporated † | 2,386 | 119,682 | ||||||||||
Discovery Communications Incorporated Class A Ǡ | 943 | 59,862 | ||||||||||
Gannett Company Incorporated | 908 | 16,353 | ||||||||||
Interpublic Group of Companies Incorporated | 1,703 | 18,767 | ||||||||||
McGraw-Hill Companies Incorporated | 1,097 | 59,973 | ||||||||||
News Corporation Class A | 7,962 | 203,349 | ||||||||||
Omnicom Group Incorporated « | 1,043 | 52,108 | ||||||||||
Scripps Networks Interactive Incorporated | 343 | 19,867 | ||||||||||
Time Warner Cable Incorporated | 1,191 | 115,753 | ||||||||||
Time Warner Incorporated | 3,739 | 178,836 | ||||||||||
Viacom Incorporated Class B | 1,824 | 96,198 | ||||||||||
Walt Disney Company | 6,998 | 348,430 | ||||||||||
Washington Post Company Class B | 18 | 6,574 | ||||||||||
| 1,789,518 | ||||||||||||
|
| |||||||||||
| Multiline Retail: 0.48% | ||||||||||||
Big Lots Incorporated † | 229 | 6,517 | ||||||||||
Dollar General Corporation † | 1,037 | 45,721 | ||||||||||
Dollar Tree Incorporated † | 897 | 36,382 | ||||||||||
Family Dollar Stores Incorporated | 378 | 23,969 | ||||||||||
JCPenney Company Incorporated « | 563 | 11,097 | ||||||||||
Kohl’s Corporation « | 836 | 35,931 | ||||||||||
Macy’s Incorporated | 1,561 | 60,910 | ||||||||||
Nordstrom Incorporated | 600 | 32,100 | ||||||||||
Target Corporation | 2,570 | 152,067 | ||||||||||
| 404,694 | ||||||||||||
|
| |||||||||||
| Specialty Retail: 1.30% | ||||||||||||
Abercrombie & Fitch Company Class A | 314 | 15,063 | ||||||||||
AutoNation Incorporated † | 154 | 6,114 | ||||||||||
AutoZone Incorporated † | 146 | 51,747 | ||||||||||
Bed Bath & Beyond Incorporated † | 905 | 50,599 | ||||||||||
Best Buy Company Incorporated | 1,055 | 12,502 | ||||||||||
The accompanying notes are an integral part of these financial statements.
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| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 11 |
| Security name | Shares | Value | ||||||||||
| Specialty Retail (continued) | ||||||||||||
CarMax Incorporated Ǡ | 904 | $ | 33,936 | |||||||||
GameStop Corporation Class A | 479 | 12,018 | ||||||||||
Gap Incorporated | 1,174 | 36,441 | ||||||||||
Home Depot Incorporated | 5,904 | 365,162 | ||||||||||
Limited Brands Incorporated « | 945 | 44,472 | ||||||||||
Lowe’s Companies Incorporated | 4,441 | 157,744 | ||||||||||
O’Reilly Automotive Incorporated † | 453 | 40,507 | ||||||||||
PetSmart Incorporated | 424 | 28,976 | ||||||||||
Ross Stores Incorporated | 878 | 47,544 | ||||||||||
Staples Incorporated « | 2,661 | 30,335 | ||||||||||
Tiffany & Company « | 471 | 27,007 | ||||||||||
TJX Companies Incorporated | 2,880 | 122,256 | ||||||||||
Urban Outfitters Incorporated † | 432 | 17,004 | ||||||||||
| 1,099,427 | ||||||||||||
|
| |||||||||||
| Textiles, Apparel & Luxury Goods: 0.38% | ||||||||||||
Coach Incorporated | 1,120 | 62,171 | ||||||||||
Fossil Incorporated † | 213 | 19,830 | ||||||||||
Nike Incorporated Class B | 2,890 | 149,124 | ||||||||||
Ralph Lauren Corporation | 242 | 36,281 | ||||||||||
VF Corporation « | 348 | 52,538 | ||||||||||
| 319,944 | ||||||||||||
|
| |||||||||||
Consumer Staples: 6.30% | ||||||||||||
| Beverages: 1.41% | ||||||||||||
Beam Incorporated | 628 | 38,365 | ||||||||||
Brown-Forman Corporation Class B « | 598 | 37,824 | ||||||||||
Coca-Cola Enterprises Incorporated | 1,066 | 33,824 | ||||||||||
Constellation Brands Incorporated Class A † | 598 | 21,163 | ||||||||||
Dr Pepper Snapple Group Incorporated « | 822 | 36,316 | ||||||||||
Molson Coors Brewing Company | 616 | 26,359 | ||||||||||
Monster Beverage Corporation † | 589 | 31,146 | ||||||||||
PepsiCo Incorporated | 6,108 | 417,970 | ||||||||||
The Coca-Cola Company | 15,232 | 552,160 | ||||||||||
| 1,195,127 | ||||||||||||
|
| |||||||||||
| Food & Staples Retailing: 1.40% | ||||||||||||
Costco Wholesale Corporation | 1,707 | 168,600 | ||||||||||
CVS Caremark Corporation | 4,923 | 238,027 | ||||||||||
Kroger Company « | 2,029 | 52,795 | ||||||||||
Safeway Incorporated « | 946 | 17,113 | ||||||||||
Sysco Corporation « | 2,321 | 73,483 | ||||||||||
Wal-Mart Stores Incorporated | 6,605 | 450,659 | ||||||||||
Walgreen Company | 3,393 | 125,575 | ||||||||||
Whole Foods Market Incorporated | 682 | 62,287 | ||||||||||
| 1,188,539 | ||||||||||||
|
| |||||||||||
| Food Products: 1.03% | ||||||||||||
Archer Daniels Midland Company | 2,601 | 71,241 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Food Products (continued) | ||||||||||||
Campbell Soup Company « | 708 | $ | 24,702 | |||||||||
ConAgra Foods Incorporated | 1,609 | 47,466 | ||||||||||
Dean Foods Company † | 731 | 12,069 | ||||||||||
General Mills Incorporated | 2,548 | 102,965 | ||||||||||
H.J. Heinz Company « | 1,266 | 73,023 | ||||||||||
Hormel Foods Corporation « | 530 | 16,541 | ||||||||||
JM Smucker Company « | 428 | 36,911 | ||||||||||
Kellogg Company | 976 | 54,510 | ||||||||||
Kraft Foods Group Incorporated | 2,341 | 106,445 | ||||||||||
McCormick & Company Incorporated « | 523 | 33,226 | ||||||||||
Mead Johnson Nutrition Company | 802 | 52,844 | ||||||||||
Mondelez International Incorporated Class A | 7,018 | 178,748 | ||||||||||
The Hershey Company « | 590 | 42,610 | ||||||||||
Tyson Foods Incorporated Class A | 1,134 | 22,000 | ||||||||||
| 875,301 | ||||||||||||
|
| |||||||||||
| Household Products: 1.28% | ||||||||||||
Clorox Company « | 515 | 37,708 | ||||||||||
Colgate-Palmolive Company | 1,754 | 183,363 | ||||||||||
Kimberly-Clark Corporation | 1,545 | 130,444 | ||||||||||
Procter & Gamble Company | 10,797 | 733,008 | ||||||||||
| 1,084,523 | ||||||||||||
|
| |||||||||||
| Personal Products: 0.10% | ||||||||||||
Avon Products Incorporated « | 1,706 | 24,498 | ||||||||||
Estee Lauder Companies Incorporated Class A | 948 | 56,747 | ||||||||||
| 81,245 | ||||||||||||
|
| |||||||||||
| Tobacco: 1.08% | ||||||||||||
Altria Group Incorporated | 7,997 | 251,266 | ||||||||||
Lorillard Incorporated | 511 | 59,618 | ||||||||||
Philip Morris International | 6,597 | 551,773 | ||||||||||
Reynolds American Incorporated | 1,280 | 53,030 | ||||||||||
| 915,687 | ||||||||||||
|
| |||||||||||
Energy: 6.52% | ||||||||||||
| Energy Equipment & Services: 1.10% | ||||||||||||
Baker Hughes Incorporated | 1,736 | 70,898 | ||||||||||
Cameron International Corporation † | 974 | 54,992 | ||||||||||
Diamond Offshore Drilling Incorporated « | 274 | 18,621 | ||||||||||
Ensco plc Class A | 917 | 54,360 | ||||||||||
FMC Technologies Incorporated Ǡ | 939 | 40,217 | ||||||||||
Halliburton Company | 3,664 | 127,104 | ||||||||||
Helmerich & Payne Incorporated | 417 | 23,356 | ||||||||||
Nabors Industries Limited † | 1,147 | 16,574 | ||||||||||
National Oilwell Varco Incorporated | 1,686 | 115,238 | ||||||||||
Noble Corporation | 998 | 34,750 | ||||||||||
Rowan Companies plc † | 490 | 15,322 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 13 |
| Security name | Shares | Value | ||||||||||
| Energy Equipment & Services (continued) | ||||||||||||
Schlumberger Limited | 5,242 | $ | 363,218 | |||||||||
| 934,650 | ||||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 5.42% | ||||||||||||
Anadarko Petroleum Corporation | 1,974 | 146,688 | ||||||||||
Apache Corporation | 1,545 | 121,283 | ||||||||||
Cabot Oil & Gas Corporation | 829 | 41,234 | ||||||||||
Chesapeake Energy Corporation « | 2,047 | 34,021 | ||||||||||
Chevron Corporation | 7,728 | 835,706 | ||||||||||
ConocoPhillips Company | 4,793 | 277,946 | ||||||||||
CONSOL Energy Incorporated « | 899 | 28,858 | ||||||||||
Denbury Resources Incorporated Ǡ | 1,528 | 24,754 | ||||||||||
Devon Energy Corporation | 1,487 | 77,383 | ||||||||||
EOG Resources Incorporated | 1,070 | 129,245 | ||||||||||
EQT Corporation | 591 | 34,857 | ||||||||||
Exxon Mobil Corporation | 18,004 | 1,558,246 | ||||||||||
Hess Corporation | 1,173 | 62,122 | ||||||||||
Kinder Morgan Incorporated | 2,497 | 88,219 | ||||||||||
Marathon Oil Corporation | 2,790 | 85,541 | ||||||||||
Marathon Petroleum Corporation | 1,339 | 84,357 | ||||||||||
Murphy Oil Corporation | 729 | 43,412 | ||||||||||
Newfield Exploration Company † | 534 | 14,301 | ||||||||||
Noble Energy Incorporated | 703 | 71,523 | ||||||||||
Occidental Petroleum Corporation | 3,199 | 245,075 | ||||||||||
Peabody Energy Corporation « | 1,060 | 28,207 | ||||||||||
Phillips 66 Incorporated | 2,471 | 131,210 | ||||||||||
Pioneer Natural Resources Company « | 487 | 51,909 | ||||||||||
QEP Resources Incorporated | 703 | 21,280 | ||||||||||
Range Resources Corporation « | 642 | 40,337 | ||||||||||
Southwestern Energy Company Ǡ | 1,380 | 46,106 | ||||||||||
Spectra Energy Corporation | 2,629 | 71,982 | ||||||||||
Tesoro Corporation | 555 | 24,448 | ||||||||||
The Williams Companies Incorporated | 2,661 | 87,121 | ||||||||||
Valero Energy Corporation | 2,186 | 74,586 | ||||||||||
WPX Energy Incorporated † | 787 | 11,711 | ||||||||||
| 4,593,668 | ||||||||||||
|
| |||||||||||
Financials: 9.26% | ||||||||||||
| Capital Markets: 1.18% | ||||||||||||
Ameriprise Financial Incorporated | 813 | 50,918 | ||||||||||
Bank of New York Mellon Corporation | 4,615 | 118,606 | ||||||||||
BlackRock Incorporated « | 495 | 102,321 | ||||||||||
Charles Schwab Corporation « | 4,330 | 62,179 | ||||||||||
E*TRADE Financial Corporation † | 1,017 | 9,102 | ||||||||||
Federated Investors Incorporated Class B | 369 | 7,465 | ||||||||||
Franklin Resources Incorporated | 545 | 68,507 | ||||||||||
Goldman Sachs Group Incorporated | 1,745 | 222,592 | ||||||||||
Invesco Limited | 1,754 | 45,762 | ||||||||||
Legg Mason Incorporated « | 463 | 11,908 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Capital Markets (continued) | ||||||||||||
Morgan Stanley | 5,457 | $ | 104,338 | |||||||||
Northern Trust Corporation « | 862 | 43,238 | ||||||||||
State Street Corporation | 1,836 | 86,310 | ||||||||||
T. Rowe Price Group Incorporated | 1,006 | 65,521 | ||||||||||
| 998,767 | ||||||||||||
|
| |||||||||||
| Commercial Banks: 1.65% | ||||||||||||
Branch Banking & Trust Corporation | 2,763 | 80,431 | ||||||||||
Comerica Incorporated « | 752 | 22,816 | ||||||||||
Fifth Third Bancorp « | 3,544 | 53,833 | ||||||||||
First Horizon National Corporation | 976 | 9,672 | ||||||||||
Huntington Bancshares Incorporated | 3,378 | 21,585 | ||||||||||
KeyCorp | 3,687 | 31,045 | ||||||||||
M&T Bank Corporation « | 480 | 47,266 | ||||||||||
PNC Financial Services Group Incorporated | 2,088 | 121,751 | ||||||||||
Regions Financial Corporation | 5,580 | 39,730 | ||||||||||
SunTrust Banks Incorporated | 2,128 | 60,329 | ||||||||||
US Bancorp | 7,425 | 237,155 | ||||||||||
Wells Fargo & Company (l) | 19,333 | 660,802 | ||||||||||
Zions Bancorporation | 727 | 15,558 | ||||||||||
| 1,401,973 | ||||||||||||
|
| |||||||||||
| Consumer Finance: 0.54% | ||||||||||||
American Express Company | 3,845 | 221,011 | ||||||||||
Capital One Financial Corporation | 2,297 | 133,065 | ||||||||||
Discover Financial Services | 1,993 | 76,830 | ||||||||||
SLM Corporation | 1,825 | 31,262 | ||||||||||
| 462,168 | ||||||||||||
|
| |||||||||||
| Diversified Financial Services: 2.89% | ||||||||||||
Bank of America Corporation | 42,561 | 493,708 | ||||||||||
Berkshire Hathaway Incorporated Class B † | 7,203 | 646,109 | ||||||||||
Citigroup Incorporated | 11,580 | 458,105 | ||||||||||
CME Group Incorporated | 1,211 | 61,410 | ||||||||||
InterContinental Exchange Incorporated † | 287 | 35,533 | ||||||||||
JPMorgan Chase & Company | 15,011 | 660,034 | ||||||||||
Leucadia National Corporation | 782 | 18,604 | ||||||||||
Moody’s Corporation « | 766 | 38,545 | ||||||||||
NASDAQ Stock Market Incorporated | 463 | 11,580 | ||||||||||
NYSE Euronext Incorporated | 959 | 30,247 | ||||||||||
| 2,453,875 | ||||||||||||
|
| |||||||||||
| Insurance: 1.62% | ||||||||||||
ACE Limited | 1,342 | 107,092 | ||||||||||
AFLAC Incorporated « | 1,852 | 98,378 | ||||||||||
Allstate Corporation | 1,903 | 76,444 | ||||||||||
American International Group Incorporated † | 5,830 | 205,799 | ||||||||||
Aon plc | 1,258 | 69,945 | ||||||||||
Assurant Incorporated | 311 | 10,792 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 15 |
| Security name | Shares | Value | ||||||||||
| Insurance (continued) | ||||||||||||
Chubb Corporation | 1,034 | $ | 77,881 | |||||||||
Cincinnati Financial Corporation | 578 | 22,634 | ||||||||||
Genworth Financial Incorporated † | 1,942 | 14,584 | ||||||||||
Lincoln National Corporation | 1,086 | 28,127 | ||||||||||
Loews Corporation | 1,228 | 50,041 | ||||||||||
Marsh & McLennan Companies Incorporated | 2,150 | 74,111 | ||||||||||
MetLife Incorporated | 4,308 | 141,906 | ||||||||||
Principal Financial Group Incorporated « | 1,090 | 31,087 | ||||||||||
Prudential Financial Incorporated | 1,832 | 97,701 | ||||||||||
The Hartford Financial Services Group Incorporated | 1,723 | 38,664 | ||||||||||
The Progressive Corporation « | 2,197 | 46,357 | ||||||||||
The Travelers Companies Incorporated | 1,507 | 108,233 | ||||||||||
Torchmark Corporation | 375 | 19,376 | ||||||||||
UnumProvident Corporation | 1,086 | 22,611 | ||||||||||
XL Group plc | 1,187 | 29,746 | ||||||||||
| 1,371,509 | ||||||||||||
|
| |||||||||||
| Real Estate Management & Development: 0.03% | ||||||||||||
CBRE Group Incorporated † | 1,191 | 23,701 | ||||||||||
|
| |||||||||||
| REITs: 1.31% | ||||||||||||
American Tower Corporation | 1,561 | 120,618 | ||||||||||
Apartment Investment & Management Company Class A | 575 | 15,560 | ||||||||||
AvalonBay Communities Incorporated | 452 | 61,287 | ||||||||||
Boston Properties Incorporated « | 596 | 63,063 | ||||||||||
Equity Residential Corporation | 1,270 | 71,971 | ||||||||||
HCP Incorporated | 1,785 | 80,646 | ||||||||||
Health Care REIT Incorporated | 1,025 | 62,822 | ||||||||||
Host Hotels & Resorts Incorporated « | 2,862 | 44,848 | ||||||||||
Kimco Realty Corporation « | 1,610 | 31,105 | ||||||||||
Plum Creek Timber Company « | 638 | 28,308 | ||||||||||
Prologis Incorporated | 1,820 | 66,412 | ||||||||||
Public Storage Incorporated | 569 | 82,482 | ||||||||||
Simon Property Group Incorporated | 1,222 | 193,186 | ||||||||||
Ventas Incorporated « | 1,167 | 75,528 | ||||||||||
Vornado Realty Trust | 669 | 53,574 | ||||||||||
Weyerhaeuser Company | 2,138 | 59,479 | ||||||||||
| 1,110,889 | ||||||||||||
|
| |||||||||||
| Thrifts & Mortgage Finance: 0.04% | ||||||||||||
Hudson City Bancorp Incorporated | 1,877 | 15,260 | ||||||||||
People’s United Financial Incorporated | 1,373 | 16,600 | ||||||||||
| 31,860 | ||||||||||||
|
| |||||||||||
Health Care: 7.13% | ||||||||||||
| Biotechnology: 0.97% | ||||||||||||
Alexion Pharmaceuticals Incorporated † | 767 | 71,952 | ||||||||||
Amgen Incorporated | 3,030 | 261,550 | ||||||||||
Biogen Idec Incorporated † | 934 | 136,990 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Biotechnology (continued) | ||||||||||||
Celgene Corporation † | 1,670 | $ | 131,462 | |||||||||
Gilead Sciences Incorporated † | 2,992 | 219,762 | ||||||||||
| 821,716 | ||||||||||||
|
| |||||||||||
| Health Care Equipment & Supplies: 1.05% | ||||||||||||
Baxter International Incorporated | 2,169 | 144,586 | ||||||||||
Becton Dickinson & Company « | 778 | 60,832 | ||||||||||
Boston Scientific Corporation † | 5,422 | 31,068 | ||||||||||
C.R. Bard Incorporated | 303 | 29,615 | ||||||||||
CareFusion Corporation † | 876 | 25,036 | ||||||||||
Covidien plc | 1,869 | 107,916 | ||||||||||
DENTSPLY International Incorporated « | 560 | 22,182 | ||||||||||
Edwards Lifesciences Corporation Ǡ | 456 | 41,118 | ||||||||||
Intuitive Surgical Incorporated Ǡ | 157 | 76,988 | ||||||||||
Medtronic Incorporated | 3,994 | 163,834 | ||||||||||
St. Jude Medical Incorporated | 1,217 | 43,982 | ||||||||||
Stryker Corporation « | 1,141 | 62,550 | ||||||||||
Varian Medical Systems Incorporated † | 432 | 30,344 | ||||||||||
Zimmer Holdings Incorporated | 685 | 45,662 | ||||||||||
| 885,713 | ||||||||||||
|
| |||||||||||
| Health Care Providers & Services: 1.14% | ||||||||||||
Aetna Incorporated | 1,321 | 61,162 | ||||||||||
AmerisourceBergen Corporation « | 930 | 40,157 | ||||||||||
Cardinal Health Incorporated | 1,342 | 55,264 | ||||||||||
CIGNA Corporation | 1,129 | 60,356 | ||||||||||
Coventry Health Care Incorporated | 531 | 23,805 | ||||||||||
DaVita Incorporated † | 331 | 36,585 | ||||||||||
Express Scripts Holding Corporation † | 3,224 | 174,096 | ||||||||||
Humana Incorporated | 625 | 42,894 | ||||||||||
Laboratory Corporation of America Holdings † | 373 | 32,309 | ||||||||||
McKesson Corporation | 932 | 90,367 | ||||||||||
Patterson Companies Incorporated | 330 | 11,296 | ||||||||||
Quest Diagnostics Incorporated « | 628 | 36,594 | ||||||||||
Tenet Healthcare Corporation † | 420 | 13,637 | ||||||||||
UnitedHealth Group Incorporated | 4,034 | 218,804 | ||||||||||
WellPoint Incorporated | 1,199 | 73,043 | ||||||||||
| 970,369 | ||||||||||||
|
| |||||||||||
| Health Care Technology: 0.05% | ||||||||||||
Cerner Corporation Ǡ | 576 | 44,721 | ||||||||||
|
| |||||||||||
| Life Sciences Tools & Services: 0.27% | ||||||||||||
Agilent Technologies Incorporated | 1,376 | 56,333 | ||||||||||
Life Technologies Corporation † | 680 | 33,374 | ||||||||||
PerkinElmer Incorporated | 453 | 14,378 | ||||||||||
Thermo Fisher Scientific Incorporated | 1,422 | 90,695 | ||||||||||
Waters Corporation Ǡ | 343 | 29,882 | ||||||||||
| 224,662 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 17 |
| Security name | Shares | Value | ||||||||||
| Pharmaceuticals: 3.65% | ||||||||||||
Abbott Laboratories | 6,242 | $ | 408,851 | |||||||||
Allergan Incorporated | 1,215 | 111,452 | ||||||||||
Bristol-Myers Squibb Company | 6,518 | 212,422 | ||||||||||
Eli Lilly & Company | 4,033 | 198,908 | ||||||||||
Forest Laboratories Incorporated Ǡ | 925 | 32,671 | ||||||||||
Hospira Incorporated † | 652 | 20,368 | ||||||||||
Johnson & Johnson Services Incorporated | 10,943 | 767,104 | ||||||||||
Merck & Company Incorporated | 12,005 | 491,485 | ||||||||||
Mylan Laboratories Incorporated † | 1,609 | 44,215 | ||||||||||
Perrigo Company | 348 | 36,202 | ||||||||||
Pfizer Incorporated | 29,074 | 729,176 | ||||||||||
Watson Pharmaceuticals Incorporated † | 504 | 43,344 | ||||||||||
| 3,096,198 | ||||||||||||
|
| |||||||||||
Industrials: 5.95% | ||||||||||||
| Aerospace & Defense: 1.38% | ||||||||||||
Boeing Company | 2,680 | 201,965 | ||||||||||
General Dynamics Corporation | 1,311 | 90,813 | ||||||||||
Honeywell International Incorporated | 3,094 | 196,376 | ||||||||||
L-3 Communications Holdings Incorporated | 371 | 28,426 | ||||||||||
Lockheed Martin Corporation | 1,061 | 97,920 | ||||||||||
Northrop Grumman Corporation « | 969 | 65,485 | ||||||||||
Precision Castparts Corporation | 575 | 108,917 | ||||||||||
Raytheon Company | 1,303 | 75,001 | ||||||||||
Rockwell Collins Incorporated « | 554 | 32,226 | ||||||||||
United Technologies Corporation | 3,330 | 273,093 | ||||||||||
| 1,170,222 | ||||||||||||
|
| |||||||||||
| Air Freight & Logistics: 0.46% | ||||||||||||
C.H. Robinson Worldwide Incorporated « | 637 | 40,271 | ||||||||||
Expeditors International of Washington Incorporated | 825 | 32,629 | ||||||||||
FedEx Corporation | 1,154 | 105,845 | ||||||||||
United Parcel Service Incorporated Class B | 2,825 | 208,287 | ||||||||||
| 387,032 | ||||||||||||
|
| |||||||||||
| Airlines: 0.04% | ||||||||||||
Southwest Airlines Company | 2,914 | 29,839 | ||||||||||
|
| |||||||||||
| Building Products: 0.03% | ||||||||||||
Masco Corporation | 1,410 | 23,491 | ||||||||||
|
| |||||||||||
| Commercial Services & Supplies: 0.33% | ||||||||||||
Avery Dennison Corporation | 393 | 13,724 | ||||||||||
Cintas Corporation | 419 | 17,137 | ||||||||||
Dun & Bradstreet Corporation « | 176 | 13,842 | ||||||||||
Equifax Incorporated | 472 | 25,545 | ||||||||||
Iron Mountain Incorporated | 659 | 20,456 | ||||||||||
Pitney Bowes Incorporated | 793 | 8,438 | ||||||||||
Republic Services Incorporated | 1,181 | 34,639 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 18 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Commercial Services & Supplies (continued) | ||||||||||||
Robert Half International Incorporated | 556 | $ | 17,692 | |||||||||
Stericycle Incorporated † | 339 | 31,619 | ||||||||||
The ADT Corporation | 918 | 42,678 | ||||||||||
Waste Management Incorporated | 1,722 | 58,100 | ||||||||||
| 283,870 | ||||||||||||
|
| |||||||||||
| Construction & Engineering: 0.10% | ||||||||||||
Fluor Corporation | 657 | 38,592 | ||||||||||
Jacobs Engineering Group Incorporated † | 513 | 21,838 | ||||||||||
Quanta Services Incorporated † | 842 | 22,978 | ||||||||||
| 83,408 | ||||||||||||
|
| |||||||||||
| Electrical Equipment: 0.40% | ||||||||||||
Eaton Corporation plc | 1,824 | 98,861 | ||||||||||
Emerson Electric Company | 2,860 | 151,466 | ||||||||||
Rockwell Automation Incorporated | 550 | 46,195 | ||||||||||
Roper Industries Incorporated | 389 | 43,366 | ||||||||||
| 339,888 | ||||||||||||
|
| |||||||||||
| Industrial Conglomerates: 1.55% | ||||||||||||
3M Company | �� | 2,514 | 233,425 | |||||||||
Danaher Corporation | 2,298 | 128,458 | ||||||||||
General Electric Company | 41,409 | 869,175 | ||||||||||
Textron Incorporated | 1,113 | 27,591 | ||||||||||
Tyco International Limited | 1,839 | 53,791 | ||||||||||
| 1,312,440 | ||||||||||||
|
| |||||||||||
| Machinery: 1.08% | ||||||||||||
Caterpillar Incorporated | 2,582 | 231,296 | ||||||||||
Cummins Incorporated « | 698 | 75,628 | ||||||||||
Deere & Company | 1,547 | 133,692 | ||||||||||
Dover Corporation « | 707 | 46,457 | ||||||||||
Flowserve Corporation | 197 | 28,920 | ||||||||||
Illinois Tool Works Incorporated « | 1,684 | 102,404 | ||||||||||
Ingersoll-Rand plc | 1,105 | 52,996 | ||||||||||
Joy Global Incorporated « | 418 | 26,660 | ||||||||||
Paccar Incorporated « | 1,394 | 63,023 | ||||||||||
Pall Corporation « | 439 | 26,454 | ||||||||||
Parker Hannifin Corporation | 589 | 50,100 | ||||||||||
Pentair Limited | 831 | 40,844 | ||||||||||
Snap-On Incorporated | 230 | 18,168 | ||||||||||
Xylem Incorporated | 734 | 19,891 | ||||||||||
| 916,533 | ||||||||||||
|
| |||||||||||
| Road & Rail: 0.47% | ||||||||||||
CSX Corporation | 4,073 | 80,360 | ||||||||||
Norfolk Southern Corporation | 1,248 | 77,176 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 19 |
| Security name | Shares | Value | ||||||||||
| Road & Rail (continued) | ||||||||||||
Ryder System Incorporated | 202 | $ | 10,086 | |||||||||
Union Pacific Corporation | 1,857 | 233,462 | ||||||||||
| 401,084 | ||||||||||||
|
| |||||||||||
| Trading Companies & Distributors: 0.11% | ||||||||||||
Fastenal Company « | 1,065 | 49,725 | ||||||||||
W.W. Grainger Incorporated | 236 | 47,759 | ||||||||||
| 97,484 | ||||||||||||
|
| |||||||||||
Information Technology: 11.30% | ||||||||||||
| Communications Equipment: 1.17% | ||||||||||||
Cisco Systems Incorporated | 20,965 | 411,962 | ||||||||||
F5 Networks Incorporated † | 312 | 30,311 | ||||||||||
Harris Corporation | 448 | 21,934 | ||||||||||
JDS Uniphase Corporation † | 924 | 12,511 | ||||||||||
Juniper Networks Incorporated † | 2,036 | 40,048 | ||||||||||
Motorola Solutions Incorporated | 1,108 | 61,693 | ||||||||||
QUALCOMM Incorporated | 6,729 | 417,333 | ||||||||||
| 995,792 | ||||||||||||
|
| |||||||||||
| Computers & Peripherals: 2.98% | ||||||||||||
Apple Incorporated | 3,715 | 1,980,206 | ||||||||||
Dell Incorporated | 5,763 | 58,379 | ||||||||||
EMC Corporation † | 8,319 | 210,471 | ||||||||||
Hewlett-Packard Company | 7,764 | 110,637 | ||||||||||
NetApp Incorporated † | 1,415 | 47,473 | ||||||||||
SanDisk Corporation † | 955 | 41,600 | ||||||||||
Seagate Technology plc | 1,327 | 40,447 | ||||||||||
Western Digital Corporation « | 866 | 36,796 | ||||||||||
| 2,526,009 | ||||||||||||
|
| |||||||||||
| Electronic Equipment, Instruments & Components: 0.26% | ||||||||||||
Amphenol Corporation Class A « | 633 | 40,955 | ||||||||||
Corning Incorporated | 5,836 | 73,650 | ||||||||||
FLIR Systems Incorporated | 592 | 13,208 | ||||||||||
Jabil Circuit Incorporated | 738 | 14,236 | ||||||||||
Molex Incorporated | 546 | 14,922 | ||||||||||
TE Connectivity Limited « | 1,669 | 61,953 | ||||||||||
| 218,924 | ||||||||||||
|
| |||||||||||
| Internet Software & Services: 1.31% | ||||||||||||
Akamai Technologies Incorporated † | 701 | 28,678 | ||||||||||
eBay Incorporated † | 4,599 | 234,641 | ||||||||||
Google Incorporated Class A † | 1,051 | 745,548 | ||||||||||
VeriSign Incorporated † | 613 | 23,797 | ||||||||||
Yahoo! Incorporated † | 4,110 | 81,789 | ||||||||||
| 1,114,453 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 20 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| IT Services: 2.27% | ||||||||||||
Accenture plc | 2,521 | $ | 167,647 | |||||||||
Automatic Data Processing Incorporated « | 1,917 | 109,288 | ||||||||||
Cognizant Technology Solutions Corporation Class A † | 1,185 | 87,749 | ||||||||||
Computer Sciences Corporation | 614 | 24,591 | ||||||||||
Fidelity National Information Services Incorporated | 984 | 34,253 | ||||||||||
Fiserv Incorporated Ǡ | 527 | 41,649 | ||||||||||
International Business Machines Corporation | 4,194 | 803,361 | ||||||||||
MasterCard Incorporated Class A | 422 | 207,320 | ||||||||||
Paychex Incorporated « | 1,277 | 39,766 | ||||||||||
SAIC Incorporated | 1,120 | 12,678 | ||||||||||
Teradata Corporation † | 668 | 41,343 | ||||||||||
Total System Services Incorporated | 635 | 13,602 | ||||||||||
Visa Incorporated Class A « | 2,059 | 312,103 | ||||||||||
Western Union Company « | 2,356 | 32,065 | ||||||||||
| 1,927,415 | ||||||||||||
|
| |||||||||||
| Office Electronics: 0.04% | ||||||||||||
Xerox Corporation | 4,990 | 34,032 | ||||||||||
|
| |||||||||||
| Semiconductors & Semiconductor Equipment: 1.19% | ||||||||||||
Advanced Micro Devices Incorporated † | 2,390 | 5,736 | ||||||||||
Altera Corporation | 1,266 | 43,601 | ||||||||||
Analog Devices Incorporated | 1,190 | 50,051 | ||||||||||
Applied Materials Incorporated | 4,729 | 54,100 | ||||||||||
Broadcom Corporation Class A | 2,049 | 68,047 | ||||||||||
First Solar Incorporated † | 237 | 7,319 | ||||||||||
Intel Corporation | 19,650 | 405,380 | ||||||||||
KLA-Tencor Corporation | 657 | 31,378 | ||||||||||
Lam Research Corporation † | 677 | 24,460 | ||||||||||
Linear Technology Corporation « | 914 | 31,350 | ||||||||||
LSI Corporation † | 2,186 | 15,477 | ||||||||||
Microchip Technology Incorporated « | 769 | 25,062 | ||||||||||
Micron Technology Incorporated † | 4,018 | 25,514 | ||||||||||
NVIDIA Corporation | 2,467 | 30,319 | ||||||||||
Teradyne Incorporated Ǡ | 742 | 12,532 | ||||||||||
Texas Instruments Incorporated | 4,426 | 136,940 | ||||||||||
Xilinx Incorporated | 1,030 | 36,977 | ||||||||||
| 1,004,243 | ||||||||||||
|
| |||||||||||
| Software: 2.08% | ||||||||||||
Adobe Systems Incorporated † | 1,955 | 73,664 | ||||||||||
Autodesk Incorporated † | 887 | 31,355 | ||||||||||
BMC Software Incorporated † | 563 | 22,329 | ||||||||||
CA Incorporated | 1,324 | 29,102 | ||||||||||
Citrix Systems Incorporated † | 737 | 48,458 | ||||||||||
Electronic Arts Incorporated † | 1,205 | 17,509 | ||||||||||
Intuit Incorporated | 1,099 | 65,391 | ||||||||||
Microsoft Corporation | 29,912 | 799,548 | ||||||||||
Oracle Corporation | 14,843 | 494,569 | ||||||||||
Red Hat Incorporated † | 764 | 40,461 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 21 |
| Security name | Shares | Value | ||||||||||
| Software (continued) | ||||||||||||
Salesforce.com Incorporated Ǡ | 516 | $ | 86,740 | |||||||||
Symantec Corporation † | 2,740 | 51,539 | ||||||||||
| 1,760,665 | ||||||||||||
|
| |||||||||||
Materials: 2.15% | ||||||||||||
| Chemicals: 1.51% | ||||||||||||
Air Products & Chemicals Incorporated | 841 | 70,661 | ||||||||||
Airgas Incorporated | 277 | 25,287 | ||||||||||
CF Industries Holdings Incorporated | 248 | 50,384 | ||||||||||
Dow Chemical Company | 4,736 | 153,068 | ||||||||||
E.I. du Pont de Nemours & Company | 3,682 | 165,580 | ||||||||||
Eastman Chemical Company | 606 | 41,238 | ||||||||||
Ecolab Incorporated | 1,041 | 74,848 | ||||||||||
FMC Corporation | 543 | 31,776 | ||||||||||
International Flavors & Fragrances Incorporated | 322 | 21,426 | ||||||||||
LyondellBasell Industries NV Class A | 1,499 | 85,578 | ||||||||||
Monsanto Company | 2,111 | 199,806 | ||||||||||
Mosaic Company | 1,093 | 61,897 | ||||||||||
PPG Industries Incorporated | 606 | 82,022 | ||||||||||
Praxair Incorporated | 1,173 | 128,385 | ||||||||||
Sherwin-Williams Company | 338 | 51,991 | ||||||||||
Sigma-Aldrich Corporation « | 475 | 34,951 | ||||||||||
| 1,278,898 | ||||||||||||
|
| |||||||||||
| Construction Materials: 0.03% | ||||||||||||
Vulcan Materials Company « | 512 | 26,650 | ||||||||||
|
| |||||||||||
| Containers & Packaging: 0.08% | ||||||||||||
Ball Corporation « | 608 | 27,208 | ||||||||||
Bemis Company Incorporated | 408 | 13,652 | ||||||||||
Owens-Illinois Incorporated † | 650 | 13,826 | ||||||||||
Sealed Air Corporation | 768 | 13,448 | ||||||||||
| 68,134 | ||||||||||||
|
| |||||||||||
| Metals & Mining: 0.42% | ||||||||||||
Alcoa Incorporated « | 4,214 | 36,578 | ||||||||||
Allegheny Technologies Incorporated | 424 | 12,873 | ||||||||||
Cliffs Natural Resources Incorporated « | 563 | 21,709 | ||||||||||
Freeport-McMoRan Copper & Gold Incorporated Class B | 3,749 | 128,216 | ||||||||||
Newmont Mining Corporation | 1,961 | 91,069 | ||||||||||
Nucor Corporation | 1,254 | 54,148 | ||||||||||
United States Steel Corporation | 570 | 13,606 | ||||||||||
| 358,199 | ||||||||||||
|
| |||||||||||
| Paper & Forest Products: 0.11% | ||||||||||||
International Paper Company | 1,734 | 69,083 | ||||||||||
MeadWestvaco Corporation | 690 | 21,990 | ||||||||||
| 91,073 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 22 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
Telecommunication Services: 1.81% | ||||||||||||
| Diversified Telecommunication Services: 1.62% | ||||||||||||
AT&T Incorporated | 22,430 | $ | 756,115 | |||||||||
CenturyTel Incorporated « | 2,465 | 96,431 | ||||||||||
Frontier Communications Corporation « | 3,943 | 16,876 | ||||||||||
Verizon Communications Incorporated | 11,270 | 487,653 | ||||||||||
Windstream Corporation « | 2,322 | 19,226 | ||||||||||
| 1,376,301 | ||||||||||||
|
| |||||||||||
| Wireless Telecommunication Services: 0.19% | ||||||||||||
Crown Castle International Corporation † | 1,158 | 83,561 | ||||||||||
MetroPCS Communications Incorporated † | 1,251 | 12,435 | ||||||||||
Sprint Nextel Corporation † | 11,865 | 67,275 | ||||||||||
| 163,271 | ||||||||||||
|
| |||||||||||
Utilities: 2.04% | ||||||||||||
| Electric Utilities: 1.19% | ||||||||||||
American Electric Power Company Incorporated | 1,916 | 81,775 | ||||||||||
Consolidated Edison Incorporated | 1,157 | 64,260 | ||||||||||
Duke Energy Corporation | 2,781 | 177,428 | ||||||||||
Edison International | 1,287 | 58,160 | ||||||||||
Entergy Corporation | 702 | 44,753 | ||||||||||
Exelon Corporation | 3,373 | 100,313 | ||||||||||
FirstEnergy Corporation | 1,651 | 68,946 | ||||||||||
Nextera Energy Incorporated | 1,671 | 115,616 | ||||||||||
Northeast Utilities « | 1,240 | 48,459 | ||||||||||
Pepco Holdings Incorporated « | 906 | 17,767 | ||||||||||
Pinnacle West Capital Corporation | 433 | 22,074 | ||||||||||
PPL Corporation « | 2,297 | 65,763 | ||||||||||
The Southern Company | 3,452 | 147,780 | ||||||||||
| 1,013,094 | ||||||||||||
|
| |||||||||||
| Gas Utilities: 0.06% | ||||||||||||
AGL Resources Incorporated | 465 | 18,586 | ||||||||||
ONEOK Incorporated | 808 | 34,542 | ||||||||||
| 53,128 | ||||||||||||
|
| |||||||||||
| Independent Power Producers & Energy Traders: 0.07% | ||||||||||||
AES Corporation | 2,438 | 26,087 | ||||||||||
NRG Energy Incorporated « | 1,272 | 29,243 | ||||||||||
| 55,330 | ||||||||||||
|
| |||||||||||
| Multi-Utilities: 0.72% | ||||||||||||
Ameren Corporation | 958 | 29,430 | ||||||||||
CenterPoint Energy Incorporated | 1,688 | 32,494 | ||||||||||
CMS Energy Corporation « | 1,042 | 25,404 | ||||||||||
Dominion Resources Incorporated | 2,269 | 117,534 | ||||||||||
DTE Energy Company | 680 | 40,834 | ||||||||||
Integrys Energy Group Incorporated | 308 | 16,084 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 23 |
| Security name | Shares | Value | ||||||||||||||
| Multi-Utilities (continued) | ||||||||||||||||
NiSource Incorporated « | 1,223 | $ | 30,440 | |||||||||||||
PG&E Corporation | 1,698 | 68,226 | ||||||||||||||
Public Service Enterprise Group Incorporated « | 1,998 | 61,139 | ||||||||||||||
SCANA Corporation « | 520 | 23,733 | ||||||||||||||
Sempra Energy « | 888 | 62,995 | ||||||||||||||
TECO Energy Incorporated « | 804 | 13,475 | ||||||||||||||
Wisconsin Energy Corporation | 909 | 33,497 | ||||||||||||||
Xcel Energy Incorporated | 1,925 | 51,407 | ||||||||||||||
| 606,692 | ||||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $39,114,306) | 50,318,855 | |||||||||||||||
|
| |||||||||||||||
| Interest rate | Maturity date | Principal | ||||||||||||||
U.S. Treasury Securities: 35.96% | ||||||||||||||||
U.S. Treasury Bond | 2.75 | % | 8-15-2042 | $ | 250,000 | 240,508 | ||||||||||
U.S. Treasury Bond | 3.00 | 5-15-2042 | 660,000 | 669,900 | ||||||||||||
U.S. Treasury Bond | 3.13 | 11-15-2041 | 1,729,000 | 1,803,022 | ||||||||||||
U.S. Treasury Bond | 3.13 | 2-15-2042 | 828,000 | 862,673 | ||||||||||||
U.S. Treasury Bond | 3.50 | 2-15-2039 | 1,216,000 | 1,369,710 | ||||||||||||
U.S. Treasury Bond | 3.75 | 8-15-2041 | 2,115,000 | 2,477,194 | ||||||||||||
U.S. Treasury Bond | 3.88 | 8-15-2040 | 1,718,000 | 2,057,841 | ||||||||||||
U.S. Treasury Bond | 4.25 | 5-15-2039 | 1,241,000 | 1,577,815 | ||||||||||||
U.S. Treasury Bond | 4.25 | 11-15-2040 | 1,930,000 | 2,456,226 | ||||||||||||
U.S. Treasury Bond | 4.38 | 2-15-2038 | 688,000 | 889,240 | ||||||||||||
U.S. Treasury Bond | 4.38 | 11-15-2039 | 1,734,000 | 2,248,239 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2040 | 1,951,000 | 2,531,118 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2041 | 1,580,000 | 2,051,779 | ||||||||||||
U.S. Treasury Bond | 4.50 | 2-15-2036 | 916,000 | 1,201,248 | ||||||||||||
U.S. Treasury Bond | 4.50 | 5-15-2038 | 872,000 | 1,148,042 | ||||||||||||
U.S. Treasury Bond | 4.50 | 8-15-2039 | 1,098,000 | 1,450,046 | ||||||||||||
U.S. Treasury Bond | 4.63 | 2-15-2040 | 1,785,000 | 2,403,613 | ||||||||||||
U.S. Treasury Bond | 4.75 | 2-15-2037 | 404,000 | 549,251 | ||||||||||||
U.S. Treasury Bond | 4.75 | 2-15-2041 | 1,390,000 | 1,909,729 | ||||||||||||
U.S. Treasury Bond | 5.00 | 5-15-2037 | 421,000 | 591,897 | ||||||||||||
Total U.S. Treasury Securities (Cost $25,022,035) | 30,489,091 | |||||||||||||||
|
| |||||||||||||||
Other: 0.15% | ||||||||||||||||
Gryphon Funding Limited, Pass-Through Entity (a)(i)(v) | 376,091 | 124,110 | ||||||||||||||
|
| |||||||||||||||
Total Other (Cost $34,080) | 124,110 | |||||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 24 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2012 |
| Yield | Maturity date | Shares | Value | |||||||||||||
| Short-Term Investments: 8.52% | ||||||||||||||||
| Investment Companies: 5.78% | ||||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.14 | % | 730,594 | $ | 730,594 | |||||||||||
Wells Fargo Securities Lending Cash Investments, LLC (l)(u)(r)(v) | 0.20 | 4,172,814 | 4,172,814 | |||||||||||||
| 4,903,408 | ||||||||||||||||
|
| |||||||||||||||
| Principal | ||||||||||||||||
| U.S. Treasury Securities: 2.74% | ||||||||||||||||
U.S. Treasury Bill #(z) | 0.02 | 1-17-2013 | $ | 1,480,000 | 1,479,987 | |||||||||||
U.S. Treasury Bill #(z) | 0.02 | 1-24-2013 | 840,000 | 839,990 | ||||||||||||
| 2,319,977 | ||||||||||||||||
|
| |||||||||||||||
Total Short-Term Investments (Cost $7,223,370) | 7,223,385 | |||||||||||||||
|
| |||||||||||||||
| Total investments in securities | ||||||||||||||||
| (Cost $71,393,791) * | 103.97 | % | 88,155,441 | |||||||||||||
Other assets and liabilities, net | (3.97 | ) | (3,364,115 | ) | ||||||||||||
|
|
|
| |||||||||||||
| Total net assets | 100.00 | % | $ | 84,791,326 | ||||||||||||
|
|
|
| |||||||||||||
| « | All or a portion of this security is on loan. |
| † | Non-income-earning security |
| (l) | Investment in an affiliate |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited. |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| (z) | Zero coupon security. Rate represents yield to maturity at time of purchase. |
| # | All or a portion of this security is segregated as collateral for investments in derivative instruments. |
| * | Cost for federal income tax purposes is $74,460,065 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 24,415,295 | ||
Gross unrealized depreciation | (10,719,919 | ) | ||
|
| |||
Net unrealized appreciation | $ | 13,695,376 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of assets and liabilities—December 31, 2012 | Wells Fargo Advantage VT Index Asset Allocation Fund | 25 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 82,591,231 | ||
In affiliated securities, at value (see cost below) | 5,564,210 | |||
|
| |||
Total investments, at value (see cost below) | 88,155,441 | |||
Receivable for Fund shares sold | 2,457 | |||
Receivable for dividends and interest | 315,857 | |||
Receivable for daily variation margin on open futures contracts | 688,515 | |||
Receivable for securities lending income | 847 | |||
Prepaid expenses and other assets | 11,418 | |||
|
| |||
Total assets | 89,174,535 | |||
|
| |||
Liabilities | ||||
Payable for Fund shares redeemed | 38,149 | |||
Payable upon receipt of securities loaned | 4,206,894 | |||
Advisory fee payable | 27,225 | |||
Distribution fees payable | 18,591 | |||
Due to other related parties | 9,753 | |||
Accrued expenses and other liabilities | 82,597 | |||
|
| |||
Total liabilities | 4,383,209 | |||
|
| |||
Total net assets | $ | 84,791,326 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 92,984,958 | ||
Undistributed net investment income | 137,973 | |||
Accumulated net realized losses on investments | (25,365,858 | ) | ||
Net unrealized gains on investments | 17,034,253 | |||
|
| |||
Total net assets | $ | 84,791,326 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 2 | $ | 84,791,326 | ||
Shares outstanding – Class 2 | 6,295,789 | |||
Net asset value per share – Class 2 | $13.47 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 65,712,587 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 5,681,204 | ||
|
| |||
Total investments, at cost | $ | 71,393,791 | ||
|
| |||
Securities on loan, at value | $ | 4,179,545 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 26 | Wells Fargo Advantage VT Index Asset Allocation Fund | Statement of operations—year ended December 31, 2012 |
Investment income | ||||
Dividends* | $ | 1,231,577 | ||
Interest | 1,017,730 | |||
Securities lending income, net | 16,721 | |||
Income from affiliated securities | 22,056 | |||
|
| |||
Total investment income | 2,288,084 | |||
|
| |||
Expenses | ||||
Advisory fee | 488,423 | |||
Administration fees | ||||
Fund level | 44,402 | |||
Class 2 | 71,044 | |||
Distribution fees | ||||
Class 2 | 222,011 | |||
Custody and accounting fees | 44,642 | |||
Professional fees | 33,588 | |||
Shareholder report expenses | 70,890 | |||
Trustees’ fees and expenses | 13,612 | |||
Other fees and expenses | 15,120 | |||
|
| |||
Total expenses | 1,003,732 | |||
Less: Fee waivers and/or expense reimbursements | (115,690 | ) | ||
|
| |||
Net expenses | 888,042 | |||
|
| |||
Net investment income | 1,400,042 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: | ||||
Unaffiliated securities | 3,367,075 | |||
Affiliated securities | (61,757 | ) | ||
Futures transactions | 3,131,193 | |||
|
| |||
Net realized gains on investments | 6,436,511 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 3,203,658 | |||
Affiliated securities | 214,525 | |||
Futures transactions | (216,367 | ) | ||
|
| |||
Net change in unrealized gains (losses) on investments | 3,201,816 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 9,638,327 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 11,038,369 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $648 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of changes in net assets | Wells Fargo Advantage VT Index Asset Allocation Fund | 27 |
Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 1,400,042 | $ | 1,618,433 | ||||||||||||
Net realized gains on investments | 6,436,511 | 257,523 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 3,201,816 | 4,099,372 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 11,038,369 | 5,975,328 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (1,279,304 | ) | (2,862,036 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| Shares | Shares | |||||||||||||||
Capital share transactions | ||||||||||||||||
Proceeds from shares sold – Class 2 | 246,140 | 3,219,986 | 112,473 | 1,333,493 | ||||||||||||
Reinvestment of distributions – Class 2 | 96,440 | 1,279,304 | 242,703 | 2,862,036 | ||||||||||||
Payment for shares redeemed – Class 2 | (1,443,157 | ) | (18,869,318 | ) | (1,742,779 | ) | (20,852,107 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets resulting from capital share transactions | (14,370,028 | ) | (16,656,578 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total decrease in net assets | (4,610,963 | ) | (13,543,286 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 89,402,289 | 102,945,575 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $ | 84,791,326 | $ | 89,402,289 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment income | $ | 137,973 | $ | 0 | ||||||||||||
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|
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| |||||||||
The accompanying notes are an integral part of these financial statements.
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| 28 | Wells Fargo Advantage VT Index Asset Allocation Fund | Financial highlights |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 12.09 | $ | 11.72 | $ | 10.53 | $ | 9.31 | $ | 14.64 | ||||||||||
Net investment income | 0.21 | 0.21 | 0.20 | 0.19 | 0.30 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 1.36 | 0.54 | 1.18 | 1.22 | (4.32) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.57 | 0.75 | 1.38 | 1.41 | (4.02) | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.19) | (0.38) | (0.19) | (0.19) | (0.30) | |||||||||||||||
Net realized gains | 0.00 | 0.00 | 0.00 | 0.00 | (1.01) | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.19) | (0.38) | (0.19) | (0.19) | (1.31) | |||||||||||||||
Net asset value, end of period | $13.47 | $12.09 | $11.72 | $10.53 | $9.31 | |||||||||||||||
Total return | 13.03 | % | 6.48 | % | 13.29 | % | 15.46 | % | (29.11 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.13 | % | 1.06 | % | 1.10 | % | 1.07 | % | 1.07 | % | ||||||||||
Net expenses | 1.00 | % | 0.99 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||
Net investment income | 1.58 | % | 1.70 | % | 1.76 | % | 2.01 | % | 2.37 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 8 | % | 17 | % | 25 | % | 43 | % | 21 | % | ||||||||||
Net assets, end of period (000s omitted) | $84,791 | $89,402 | $102,946 | $113,271 | $125,958 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT Index Asset Allocation Fund | 29 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Index Asset Allocation Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Fixed income securities acquired with maturities exceeding 60 days are valued based on evaluated bid prices received from an independent pricing service which may utilize both transaction data and market information such as yield, prices of securities of comparable quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If valuations are not available from the independent pricing service or values received are deemed not representative of market value, values will be obtained from a broker-dealer or otherwise determined based on the Fund’s Valuation Procedures.
Debt securities of sufficient credit quality acquired with maturities of 60 days or less generally are valued at amortized cost which approximates fair value. The amortized cost method involves valuing a security at its cost, plus accretion of discount or minus amortization of premium over the period until maturity.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary in determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
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| 30 | Wells Fargo Advantage VT Index Asset Allocation Fund | Notes to financial statements |
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Futures contracts
The Fund may be subject to interest rate risk and equity price risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in security values and interest rates. The primary risks associated with the use of futures contracts are the imperfect correlation between changes in market values of securities held by the Fund and the prices of futures contracts, and the possibility of an illiquid market.
Futures contracts are valued based upon their quoted daily settlement prices when available. The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
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| Notes to financial statements | Wells Fargo Advantage VT Index Asset Allocation Fund | 31 |
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized losses on investments | |
| $17,235 | $(17,235) |
As of December 31, 2012, the Fund had net capital loss carryforwards, which are available to offset future net realized capital gains, in the amount of $17,436,089 with $13,711,522 expiring in 2016, $3,724,567 expiring in 2017.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investment in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other observable Inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 50,318,855 | $ | 0 | $ | 0 | $ | 50,318,855 | ||||||||
U.S. Treasury securities | 30,489,091 | 0 | 0 | 30,489,091 | ||||||||||||
Other | 0 | 0 | 124,110 | 124,110 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 730,594 | 4,172,814 | 0 | 4,903,408 | ||||||||||||
U.S. Treasury securities | 2,319,977 | 0 | 0 | 2,319,977 | ||||||||||||
| $ | 83,858,517 | $ | 4,172,814 | $ | 124,110 | $ | 88,155,441 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
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| 32 | Wells Fargo Advantage VT Index Asset Allocation Fund | Notes to financial statements |
As of December 31, 2012, the inputs used in valuing the Fund’s other financial instruments, which are carried at fair value, were as follows:
| Other financial instruments | Quoted prices (Level 1) | Significant other observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Futures contracts+ | $ | 272,603 | $ | 0 | $ | 0 | $ | 272,603 | ||||||||
| + | Futures contracts are presented at the unrealized gains or losses on the instrument. |
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.55% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.15% and declining to 0.10% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and, for Class 2 shares, a class level administration fee of 0.08% of its average daily net assets.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through April 30, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.00% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2012 were as follows:
Purchases at cost | Sales proceeds | |||||||||||
| U.S. Government | Non-U.S. Government | U.S. Government | Non-U.S. Government | |||||||||
| $3,913,675 | $ | 2,985,032 | $ | 5,964,047 | $ | 9,801,499 | ||||||
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2012, the Fund entered into futures contracts to gain market exposure to certain asset classes consistent with an active asset allocation strategy.
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| Notes to financial statements | Wells Fargo Advantage VT Index Asset Allocation Fund | 33 |
At December 31, 2012, the Fund had long and short futures contracts outstanding as follows:
| Expiration date | Contracts | Type | Contract value at December 31, 2012 | Unrealized gains (losses) | ||||
| 3-14-2013 | 62 Long | S&P 500 Index | $22,011,550 | $(15,779) | ||||
| 3-19-2013 | 2 Long | 30-Year U.S. Treasury Bonds | 295,000 | (4,115) | ||||
| 3-19-2013 | 142 Short | 30-Year U.S. Treasury Bonds | 20,945,000 | 292,497 |
The Fund had average notional amounts of $24,206,447 and $21,813,939 in long and short futures contracts, respectively, during the year ended December 31, 2012.
A summary of derivative instruments by primary risk exposure is outlined in the following tables.
The fair value of derivative instruments as of December 31, 2012 was as follows for the Fund:
Asset derivatives | Liability derivatives | |||||||||||
| Balance sheet location | Fair value | Balance sheet location | Fair value | |||||||||
Interest rate contracts | Net assets –Net unrealized gains on investments | $ | 292,497 | * | Net assets – Net unrealized gains on investments | $ | 4,115 | * | ||||
Equity contracts | Net assets – Net unrealized gains on investments | 0 | * | Net assets – Net unrealized gains on investments | 15,779 | * | ||||||
| $ | 292,497 | $ | 19,894 | |||||||||
| * | Amount represents cumulative unrealized gains (losses) on futures contracts. Only the variation margin as of December 31, 2012 is reported separately on the Statement of Assets and Liabilities. |
The effect of derivative instruments on the Statement of Operations for the year ended December 31, 2012 was as follows for the Fund:
| Amount of realized gains (losses) on derivatives | Change in unrealized gains (losses) on derivatives | |||||||
Interest rate contacts | $ | (1,061,734 | ) | $ | 234,437 | |||
Equity contracts | 4,192,927 | (450,804 | ) | |||||
| $ | 3,131,193 | $ | (216,367 | ) | ||||
7. BANK BORROWINGS
The Trust and the Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $163 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $1,279,304 and $2,862,036 of ordinary income for the years ended December 31, 2012 and December 31, 2011, respectively.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
| $137,973 | $9,104,484 | $(17,436,089) |
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| 34 | Wells Fargo Advantage VT Index Asset Allocation Fund | Notes to financial statements |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| Report of independent registered public accounting firm | Wells Fargo Advantage VT Index Asset Allocation Fund | 35 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Index Asset Allocation Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Index Asset Allocation Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| 36 | Wells Fargo Advantage VT Index Asset Allocation Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 68.08% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2012.
For the fiscal year ended December 31, 2012, 44.98% of the dividends distributed was derived from interest on U.S. government securities.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| Other information (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 37 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| 38 | Wells Fargo Advantage VT Index Asset Allocation Fund | Other information (unaudited) |
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available,without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| List of abbreviations | Wells Fargo Advantage VT Index Asset Allocation Fund | 39 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214181 02-13 AVT2/AR148 12-12 |
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Wells Fargo Advantage
VT International Equity Fund
Annual Report
December 31, 2012
Table of Contents
Reduce clutter. Save trees.
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Income Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT International Equity Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on other economies—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT International Equity Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy, though aggressive action by central banks eventually calmed investor concerns. Emerging markets stocks outperformed both developed market international stocks and U.S. large-cap stocks.
Macroeconomic optimism faded as debt worries resurfaced.
Toward the beginning of the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis. Investors were also concerned that an economic slowdown in Europe might dampen economic growth in emerging economies, many of which rely upon Europe as an export market and as a source of funding.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to the ongoing problems in southern Europe. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on other economies—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do “whatever it takes” to preserve the euro boosted investor confidence. In addition, the ECB announced in September 2012 that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT International Equity Fund | 3 |
Aggressive central bank actions helped support asset prices in both developed and emerging economies, even as the European economic picture remained unclear.
Foreign stocks posted only moderate gains in an eventful period.
Aggressive central bank actions helped support asset prices in both developed and emerging economies, even as the European economic picture remained unclear. Southern European countries such as Greece, Italy, and Spain continued to grapple with high debt levels, government austerity programs aimed at paying down the debt, and slower economic growth. Because southern European countries are a source of demand for exporters, even stronger, export-driven economies such as Germany were affected by southern Europe’s weakness. By contrast, the U.S. generally reported stronger gross domestic product growth numbers over the reporting period, with a continued high unemployment rate the main negative piece of U.S. economic data.
Within emerging markets, slowing industrial production in China, which relies upon Europe as a major export market, resulted in a stagnant stock market for commodity exporter Brazil, which in turn relies upon China. China’s stock market, however, outperformed after the country received new leaders in November 2012. Investors were hopeful that the new leadership would continue efforts to move China’s economy away from an export focus to more of a balance between exports and consumption.
International stocks, as measured by the MSCI EAFE® Index1, returned 13.55% for the 12-month period, and emerging markets stocks, as measured by the MSCI Emerging Markets Index2, returned 18.22%. U.S. large-cap stocks, as measured by the S&P 500 Index3, gained 16.00% for the 12-month period.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
| 1. | The Morgan Stanley Capital International Europe, Australasia, and Far East (“MSCI EAFE”) Index is an unmanaged group of securities widely regarded by investors to be representations of the stock markets of Europe, Australasia, and the Far East. You cannot invest directly in an index. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
| 2. | The Morgan Stanley Capital International Emerging Markets (MSCI Emerging Markets) Index is a free float-adjusted market capitalization index designed to measure the equity market performance in the global emerging markets. The index is currently composed of 21 emerging markets country indexes. You cannot invest directly in an index. |
| 3. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT International Equity Fund | 4 |
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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| 6 | Wells Fargo Advantage VT International Equity Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Jeffrey Everett, CFA
Dale A. Winner, CFA
Average annual total returns1 (%) as of December 31, 2012
|
|
| Expense ratios2 (%) | |||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
| Class 1 | 8-17-1998 | 13.68 | (4.71 | ) | 7.29 | 0.98 | 0.70 | |||||||||||||||
| Class 2 | 7-31-2002 | 13.48 | (4.93 | ) | 7.03 | 1.23 | 0.95 | |||||||||||||||
| MSCI ACWI Ex. USA Index (Net)4,6 | – | 16.83 | (2.89 | ) | 9.74 | – | – | |||||||||||||||
| MSCI EAFE Free Index (Net)5,6 | – | 17.32 | (3.69 | ) | 8.21 | – | – | |||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. These risks are generally intensified in emerging markets. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to smaller-company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 7.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT International Equity Fund | 7 |
| Growth of $10,000 investment7 as of December 31, 2012 | ||
| ||
| 1. | Performance shown for Class 2 shares prior to its 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 the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen VA International Equity Fund. Effective July 16, 2010, the Fund changed its name from Wells Fargo Advantage VT International Core Fund to Wells Fargo Advantage VT International Equity Fund. |
| 2. | Reflects the expense ratio as stated in the most recent prospectuses. |
| 3. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at 0.69% for Class 1 and 0.94% for Class 2. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 4. | The Morgan Stanley Capital International All Country World Ex. USA (MSCI ACWI Ex. USA) Index (Net) is a free float-adjusted market capitalization weighted index that is designed to measure the equity market performance of developed and emerging markets excluding the United States. You cannot invest directly in an index. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. |
| 5. | The Morgan Stanley Capital International Europe, Australasia, and Far East Free (MSCI EAFE Free) Index (Net) is an unmanaged group of securities widely regarded by investors to be representative of the stock markets of Europe, Australasia, and the Far East. MSCI Free Indexes (Net) are constructed to reflect investment opportunities for global investors to account for local market restrictions on stock ownership by international investors. You cannot invest directly in an index. |
| 6. | The Fund has changed its benchmark from the MSCI EAFE Free Index (Net) to the MSCI ACWI Ex. USA Index (Net) because the Fund’s adviser believes that the MSCI ACWI Ex. USA Index (Net) is a more appropriate index in light of the Fund’s increased ability to invest in emerging markets. |
| 7. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the MSCI ACWI Ex. USA Index (Net) and MSCI EAFE Free Index (Net). The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 8. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 9. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
Table of Contents
| 8 | Wells Fargo Advantage VT International Equity Fund | Performance highlights (unaudited) |
MANAGER'S DISCUSSION
Fund highlights
| n | The Fund lagged its benchmark, the MSCI ACWI Ex. USA. Index (Net), for the 12-month period that ended December 31, 2012, largely due to positions within information technology (IT), financials, and industrials. |
| n | Sector allocations—which are the byproduct of our bottom-up stock selection—collectively detracted from relative results. The Fund has overweights in the industrials, consumer discretionary, and telecommunication services sectors at the expense of allocations in the financials, materials, and consumer staples sectors. |
| n | Stock selection also detracted. Although we saw positive performance within the materials, consumer discretionary, utilities, and telecommunication services sectors, those contributions were more than offset by holdings in the IT, financials, and industrials sectors. |
In a volatile year, markets started and finished with surprising strength.
At the beginning of 2012, the MSCI ACWI Ex-U.S. Index (Net) return was boosted initially by hopes of economic recovery in Asia and economic stabilization in Europe after the launch of the bank liquidity support scheme by the European Central Bank (ECB) in late 2011. Initial optimism gave way to fears of a Greek exit from the eurozone in the second quarter and the risk of contagion across peripheral Europe via its fragile, interlinked banking system. However, positive statements and action from the ECB reassured investors, reducing fears of a eurozone breakup. Finally, in the fourth quarter of 2012, the market rallied in part on hopes of truly synchronized global central bank easing after a change of government in Japan.
Generally, the portfolio was underweight to Asia excluding Japan. Specific underweights in Australia and Taiwan detracted from returns relative to the benchmark. In Australia, we believed that the local market was dominated by fully valued banks that had already benefited from a long property and credit cycle and materials companies that, in our view, looked expensive when compared with regional peers. In Taiwan, we believed that valuations were generally not compelling and that cheaper opportunities existed in China. In Asia, we also experienced stock-specific underperformance at Taiwanese mobile handset company HTC Corporation, Chinese solar wafer manufacturer LDK Solar Company Limited, and Japanese gaming company Capcom Company Limited.
| Ten largest equity holdings8 (%) as of December 31, 2012 | ||||
China Everbright Limited | 3.01 | |||
Akzo Nobel NV | 2.62 | |||
BP plc | 2.50 | |||
Toyota Motor Corporation | 2.49 | |||
Intesa Sanpaolo SpA | 2.38 | |||
Vodafone Group plc ADR | 2.33 | |||
Zurich Financial Services AG | 2.32 | |||
Metro AG | 2.30 | |||
ABB Limited | 2.26 | |||
Volvo AB Class B | 2.23 | |||
During 2012, we positioned the portfolio on the assumption that an adequate policy response would prevent a breakup of the eurozone, but that peripheral countries would experience severe recessions and that European markets would likely see spikes in volatility. We remained overweight to industrials firms with cheap valuations and high dividend yields but underweight to European financials on structural and regulatory concerns. The portfolio was generally overweight to Europe, with performance detractors coming from the underweight banks as well as several stock-specific issues. Despite relatively low bank valuations, we believed that bank returns on equity would be constrained by deleveraging, low economic growth, and increased regulation. We also experienced stock-specific problems at U.K. defense company Chemring Group plc, German retailer Metro AG, and U.K.-based asset manager Man Group plc.
Please see footnotes on page 7.
Table of Contents
| Performance highlights (unaudited) | Wells Fargo Advantage VT International Equity Fund | 9 |
We remained underweight in emerging markets partly because of economic weakness in the U.S. and Europe, key sources of demand for emerging economies. We remained overweight in Japan because of what we saw as compelling valuation as the country continued to recover from the devastating 2011 earthquake and tsunami. Toward the end of the reporting period, a change of leadership in Japan caused weakness in the yen, providing a boost to the country’s exporters.
| Sector distribution9 as of December 31, 2012 | ||
| ||
Our outlook for 2013 is for low growth and low interest rates.
Our base case for the global economy is subdued growth in fiscally constrained developed market economies and a slow revival in emerging markets, driven primarily by China. Continued central bank intervention is likely to contain outside risks such as a breakup of the eurozone or another U.S. recession.
We remain overweight in Japan as we believe the country’s stock market is undervalued. The newly elected government has promised to put a greater focus on fiscal and quantitative stimulus via higher inflation targeting and more aggressive quantitative easing by the Bank of Japan. Such actions could weaken the yen, a positive for Japan’s exporters. In the Fund, we have exposure to companies that we believe are undervalued and whose earnings are highly sensitive to the yen.
We remain overweight in Europe, which remains out of favor because of investor concerns about sovereign debt levels and structural growth. However, we take comfort in the policy response, especially from the ECB, which we believe will help reduce the risk that any major country would exit the eurozone. We are positioned in undervalued European companies that we believe have growth catalysts from restructuring or exposure to emerging markets, as well as in stocks with high dividend yields.
We ended the year underweight in emerging markets, but this positioning is likely to change given their underperformance and what we believe are compelling valuations. Economic data seems to have stabilized in China, and synchronized quantitative easing by global central banks should assist the worldwide economic recovery. Consequently, we anticipate that our emerging markets weighting will increase over the next few months.
Please see footnotes on page 7.
Table of Contents
| 10 | Wells Fargo Advantage VT International Equity Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual Expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,132.07 | $ | 3.70 | 0.69 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.67 | $ | 3.51 | 0.69 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,130.08 | $ | 5.03 | 0.94 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.41 | $ | 4.77 | 0.94 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT International Equity Fund | 11 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 94.34% | ||||||||||||
| Argentina: 0.04% | ||||||||||||
IRSA Inversiones y Representaciones SA ADR (Financials, Real Estate Management & Development) | 21,579 | $ | 150,406 | |||||||||
|
| |||||||||||
| Australia: 1.80% | ||||||||||||
BHP Billiton Limited (Materials, Metals & Mining) | 156,408 | 6,106,235 | ||||||||||
|
| |||||||||||
| Brazil: 0.89% | ||||||||||||
Cosan Limited Class A (Energy, Oil, Gas & Consumable Fuels) « | 174,067 | 3,013,100 | ||||||||||
|
| |||||||||||
| Canada: 4.47% | ||||||||||||
Barrick Gold Corporation (Materials, Metals & Mining) | 95,154 | 3,330,916 | ||||||||||
Cenovus Energy Incorporated (Energy, Oil, Gas & Consumable Fuels) | 136,171 | 4,567,175 | ||||||||||
Suncor Energy Incorporated (Energy, Oil, Gas & Consumable Fuels) | 56,756 | 1,866,381 | ||||||||||
Valeant Pharmaceuticals International Incorporated (Health Care, Pharmaceuticals) Ǡ | 90,967 | 5,437,098 | ||||||||||
| 15,201,570 | ||||||||||||
|
| |||||||||||
| China: 2.43% | ||||||||||||
AutoNavi Holdings Limited ADR (Information Technology, Software) † | 104,951 | 1,191,194 | ||||||||||
Biostime International Holding Limited (Consumer Staples, Food Products) « | 368,000 | 1,158,888 | ||||||||||
Industrial & Commercial Bank of China Class H (Financials, Commercial Banks) | 5,547,000 | 4,003,693 | ||||||||||
Shenguan Holdings Group Limited (Consumer Staples, Food Products) | 2,300,000 | 1,252,422 | ||||||||||
Xtep International Holdings Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods) | 1,506,178 | 656,775 | ||||||||||
| 8,262,972 | ||||||||||||
|
| |||||||||||
| Finland: 1.00% | ||||||||||||
Metso Oyj (Industrials, Machinery) | 79,216 | 3,381,871 | ||||||||||
|
| |||||||||||
| France: 1.65% | ||||||||||||
Total SA (Energy, Oil, Gas & Consumable Fuels) | 107,950 | 5,616,953 | ||||||||||
|
| |||||||||||
| Germany: 8.02% | ||||||||||||
Allianz AG (Financials, Insurance) | 38,253 | 5,332,352 | ||||||||||
Bayer AG (Health Care, Pharmaceuticals) | 57,674 | 5,499,898 | ||||||||||
Metro AG (Consumer Staples, Food & Staples Retailing) | 281,453 | 7,819,132 | ||||||||||
SAP AG (Information Technology, Software) | 25,173 | 2,024,227 | ||||||||||
Siemens AG (Industrials, Industrial Conglomerates) | 60,278 | 6,591,435 | ||||||||||
| 27,267,044 | ||||||||||||
|
| |||||||||||
| Hong Kong: 7.98% | ||||||||||||
China Everbright Limited (Financials, Capital Markets) | 5,196,000 | 10,238,222 | ||||||||||
China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services) | 571,000 | 6,719,353 | ||||||||||
Hengdeli Holdings Limited (Consumer Discretionary, Specialty Retail) | 14,977,103 | 5,493,932 | ||||||||||
Jardine Matheson Holdings Limited (Industrials, Industrial Conglomerates) | 74,800 | 4,667,281 | ||||||||||
| 27,118,788 | ||||||||||||
|
| |||||||||||
| Italy: 4.27% | ||||||||||||
ENI SpA (Energy, Oil, Gas & Consumable Fuels) | 262,122 | 6,421,339 | ||||||||||
Intesa Sanpaolo SpA (Financials, Commercial Banks) | 4,672,620 | 8,080,414 | ||||||||||
| 14,501,753 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT International Equity Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Japan: 17.13% | ||||||||||||
Asahi Glass Company Limited (Industrials, Building Products) « | 890,000 | $ | 6,498,419 | |||||||||
Canon Incorporated (Information Technology, Office Electronics) « | 180,500 | 6,996,131 | ||||||||||
Capcom Company Limited (Information Technology, Software) | 285,600 | 4,366,402 | ||||||||||
Itochu Corporation (Industrials, Trading Companies & Distributors) | 530,400 | 5,605,849 | ||||||||||
Mitsubishi UFJ Financial Group Incorporated (Financials, Commercial Banks) | 1,169,600 | 6,328,838 | ||||||||||
Mitsui OSK Lines Limited (Industrials, Marine) | 2,481,000 | 7,390,773 | ||||||||||
Nitto Denko Corporation (Materials, Chemicals) | 95,982 | 4,726,983 | ||||||||||
Toyota Motor Corporation (Consumer Discretionary, Automobiles) | 181,500 | 8,475,346 | ||||||||||
USS Company Limited (Consumer Discretionary, Specialty Retail) | 35,490 | 3,695,556 | ||||||||||
Yamada Denki Company Limited (Consumer Discretionary, Specialty Retail) « | 106,630 | 4,121,354 | ||||||||||
| 58,205,651 | ||||||||||||
|
| |||||||||||
| Netherlands: 2.62% | ||||||||||||
Akzo Nobel NV (Materials, Chemicals) | 134,733 | 8,918,886 | ||||||||||
|
| |||||||||||
| Norway: 3.44% | ||||||||||||
Marine Harvest ASA (Consumer Staples, Food Products) † | 6,375,218 | 5,938,912 | ||||||||||
Statoil ASA (Energy, Oil, Gas & Consumable Fuels) | 228,054 | 5,748,010 | ||||||||||
| 11,686,922 | ||||||||||||
|
| |||||||||||
| Russia: 1.60% | ||||||||||||
Mobile Telesystems ADR (Telecommunication Services, Wireless Telecommunication Services) | 192,481 | 3,589,771 | ||||||||||
Sberbank of Russia (Financials, Commercial Banks) | 591,243 | 1,843,142 | ||||||||||
| 5,432,913 | ||||||||||||
|
| |||||||||||
| South Korea: 4.76% | ||||||||||||
Hana Financial Group Incorporated (Financials, Commercial Banks) | 114,420 | 3,740,509 | ||||||||||
Samsung Electronics Company Limited GDR (Information Technology, Semiconductors & Semiconductor Equipment) | 9,445 | 6,779,661 | ||||||||||
SK Telecom Company Limited (Telecommunication Services, Wireless Telecommunication Services) | 39,629 | 5,650,388 | ||||||||||
| 16,170,558 | ||||||||||||
|
| |||||||||||
| Sweden: 2.23% | ||||||||||||
Volvo AB Class B (Industrials, Machinery) | 548,864 | 7,568,352 | ||||||||||
|
| |||||||||||
| Switzerland: 8.80% | ||||||||||||
ABB Limited (Industrials, Electrical Equipment) | 370,654 | 7,686,446 | ||||||||||
Compagnie Financiere Richemont SA (Consumer Discretionary, Textiles, Apparel & Luxury Goods) | 43,714 | 3,431,352 | ||||||||||
Novartis AG (Health Care, Pharmaceuticals) | 118,887 | 7,510,480 | ||||||||||
Swatch Group AG Class B (Consumer Discretionary, Textiles, Apparel & Luxury Goods) | 6,655 | 3,374,778 | ||||||||||
Zurich Financial Services AG (Financials, Insurance) | 29,442 | 7,889,218 | ||||||||||
| 29,892,274 | ||||||||||||
|
| |||||||||||
| Taiwan: 1.20% | ||||||||||||
Taiwan Semiconductor Manufacturing Company Limited ADR (Information Technology, Semiconductors & Semiconductor Equipment) | 237,670 | 4,078,417 | ||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT International Equity Fund | 13 |
| Security name | Shares | Value | ||||||||||||
| United Kingdom: 15.75% | ||||||||||||||
BP plc (Energy, Oil, Gas & Consumable Fuels) | 1,223,128 | $ | 8,504,295 | |||||||||||
Capita plc (Industrials, Professional Services) | 559,053 | 6,908,162 | ||||||||||||
Chemring Group plc (Industrials, Aerospace & Defense) | 1,177,726 | 4,392,608 | ||||||||||||
Debenhams plc (Consumer Discretionary, Multiline Retail) | 2,015,729 | 3,763,339 | ||||||||||||
Man Group plc (Financials, Capital Markets) | 3,893,987 | 5,340,592 | ||||||||||||
Reckitt Benckiser Group plc (Consumer Staples, Household Products) | 74,786 | 4,747,384 | ||||||||||||
Smiths Group plc (Industrials, Industrial Conglomerates) | 267,560 | 5,240,860 | ||||||||||||
Vodafone Group plc ADR (Telecommunication Services, Wireless Telecommunication Services) | 313,699 | 7,902,078 | ||||||||||||
Wolseley plc (Industrials, Trading Companies & Distributors) | 140,477 | 6,717,413 | ||||||||||||
| 53,516,731 | ||||||||||||||
|
| |||||||||||||
| United States: 4.26% | ||||||||||||||
Apple Incorporated (Information Technology, Computers & Peripherals) | 5,259 | 2,803,205 | ||||||||||||
Bank of America Corporation (Financials, Diversified Financial Services) | 258,913 | 3,003,391 | ||||||||||||
KKR & Co. LP (Financials, Capital Markets) | 182,546 | 2,780,176 | ||||||||||||
QUALCOMM Incorporated (Information Technology, Communications Equipment) | 94,748 | 5,876,270 | ||||||||||||
| 14,463,042 | ||||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $302,023,210) | 320,554,438 | |||||||||||||
|
| |||||||||||||
| Yield | ||||||||||||||
| Short-Term Investments: 8.01% | ||||||||||||||
| Investment Companies: 8.01% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (u)(l) | 0.14 | % | 14,186,974 | 14,186,974 | ||||||||||
Wells Fargo Securities Lending Cash Investments, LLC (u)(l)(r)(v) | 0.20 | 13,044,069 | 13,044,069 | |||||||||||
Total Short-Term Investments (Cost $27,231,043) | 27,231,043 | |||||||||||||
|
| |||||||||||||
Total investments in securities (Cost $329,254,253) * | 102.35 | % | 347,785,481 | |||||
Other assets and liabilities, net | (2.35 | ) | (7,991,526 | ) | ||||
|
|
|
| |||||
| Total net assets | 100.00 | % | $ | 339,793,955 | ||||
|
|
|
|
| « | All or a portion of this security is on loan. |
| † | Non-income-earning security |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (l) | Investment in an affiliate |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| * | Cost for federal income tax purposses is $330,342,053 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 31,295,904 | ||
Gross unrealized depreciation | (13,852,476 | ) | ||
|
| |||
Net unrealized appreciation | $ | 17,443,428 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT International Equity Fund | Statement of assets and liabilities—December 31, 2012 |
Assets |
| |||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 320,554,438 | ||
In affiliated securities, at value (see cost below) | 27,231,043 | |||
|
| |||
Total investments, at value (see cost below) | 347,785,481 | |||
Foreign currency, at value (see cost below) | 3,470,624 | |||
Receivable for Fund shares sold | 581,946 | |||
Receivable for dividends | 1,500,620 | |||
Receivable for securities lending income | 19,639 | |||
Prepaid expenses and other assets | 1,979 | |||
|
| |||
Total assets | 353,360,289 | |||
|
| |||
Liabilities | ||||
Payable for Fund shares redeemed | 167,909 | |||
Payable upon receipt of securities loaned | 13,044,069 | |||
Advisory fee payable | 145,320 | |||
Distribution fees payable | 63,910 | |||
Due to other related parties | 38,024 | |||
Accrued expenses and other liabilities | 107,102 | |||
|
| |||
Total liabilities | 13,566,334 | |||
|
| |||
Total net assets | $ | 339,793,955 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 301,158,029 | ||
Undistributed net investment income | 7,413,514 | |||
Accumulated net realized gains on investments | 12,595,495 | |||
Net unrealized gains on investments | 18,626,917 | |||
|
| |||
Total net assets | $ | 339,793,955 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 1 | $ | 43,089,409 | ||
Shares outstanding – Class 1 | 8,725,882 | |||
Net asset value per share – Class 1 | $4.94 | |||
Net assets – Class 2 | $ | 296,704,546 | ||
Shares outstanding – Class 2 | 59,872,145 | |||
Net asset value per share – Class 2 | $4.96 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 302,023,210 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 27,231,043 | ||
|
| |||
Total investments, at cost | $ | 329,254,253 | ||
|
| |||
Securities on loan, at value | $ | 12,553,355 | ||
|
| |||
Foreign currency, at cost | $ | 3,458,967 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of operations—year ended December 31, 2012 | Wells Fargo Advantage VT International Equity Fund | 15 |
Investment income | ||||
Dividends * | $ | 9,890,928 | ||
Securities lending income, net | 554,214 | |||
Income from affiliated securities | 25,201 | |||
Interest | 135 | |||
|
| |||
Total investment income | 10,470,478 | |||
|
| |||
Expenses | ||||
Advisory fee | 2,339,162 | |||
Administration fees | ||||
Fund level | 155,944 | |||
Class 1 | 35,024 | |||
Class 2 | 214,487 | |||
Distribution fees | ||||
Class 2 | 670,270 | |||
Custody and accounting fees | 129,352 | |||
Professional fees | 48,950 | |||
Shareholder report expenses | 71,628 | |||
Trustees’ fees and expenses | 12,304 | |||
Other fees and expenses | 41,413 | |||
|
| |||
Total expenses | 3,718,534 | |||
Less: Fee waivers and/or expense reimbursements | (896,235 | ) | ||
|
| |||
Net expenses | 2,822,299 | |||
|
| |||
Net investment income | 7,648,179 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: | ||||
Unaffiliated securities | 17,675,279 | |||
Forward foreign currency contract transactions | (2,242 | ) | ||
|
| |||
Net realized gains on investments | 17,673,037 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 13,463,037 | |||
Forward foreign currency contract transactions | 133,104 | |||
|
| |||
Net change in unrealized gains (losses) on investments | 13,596,141 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 31,269,178 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 38,917,357 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $903,368 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT International Equity Fund | Statement of changes in net assets |
| Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 7,648,179 | $ | 5,097,236 | ||||||||||||
Net realized gains on investments | 17,673,037 | 22,276,161 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 13,596,141 | (65,432,308 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from operations | 38,917,357 | (38,058,911 | ) | |||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (710,713 | ) | (366,876 | ) | ||||||||||||
Class 2 | (3,679,763 | ) | (233,091 | ) | ||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (2,880,130 | ) | (2,581,647 | ) | ||||||||||||
Class 2 | (18,350,536 | ) | (9,844,118 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (25,621,142 | ) | (13,025,732 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 523,466 | 2,529,203 | 745,197 | 4,050,134 | ||||||||||||
Class 2 | 12,377,052 | 61,174,208 | 13,140,189 | 69,270,290 | ||||||||||||
|
| |||||||||||||||
| 63,703,411 | 73,320,424 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 850,911 | 3,590,843 | 533,187 | 2,948,523 | ||||||||||||
Class 2 | 5,195,825 | 22,030,299 | 1,815,713 | 10,077,209 | ||||||||||||
|
| |||||||||||||||
| 25,621,142 | 13,025,732 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (2,295,613 | ) | (10,998,255 | ) | (3,400,121 | ) | (18,259,790 | ) | ||||||||
Class 2 | (5,325,814 | ) | (25,537,835 | ) | (5,339,924 | ) | (29,300,042 | ) | ||||||||
|
| |||||||||||||||
| (36,536,090 | ) | (47,559,832 | ) | |||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from capital share transactions | 52,788,463 | 38,786,324 | ||||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | 66,084,678 | (12,298,319 | ) | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 273,709,277 | 286,007,596 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 339,793,955 | $ | 273,709,277 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 7,413,514 | $ | 4,511,173 | ||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Financial highlights | Wells Fargo Advantage VT International Equity Fund | 17 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||||
| CLASS 1 | 2012 | 2011 | 20101 | 20091 | 20081 | |||||||||||||||||
Net asset value, beginning of period | $ | 4.77 | $ | 5.75 | $ | 5.15 | $ | 4.64 | $ | 8.14 | ||||||||||||
Net investment income | 0.13 | 2 | 0.11 | 2 | 0.05 | 2 | 0.11 | 2 | 0.20 | 2 | ||||||||||||
Net realized and unrealized gains (losses) on investments | 0.45 | (0.80 | ) | 0.78 | 0.55 | (3.52 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Total from investment operations | 0.58 | (0.69 | ) | 0.83 | 0.66 | (3.32 | ) | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||||
Net investment income | (0.08 | ) | (0.04 | ) | (0.05 | ) | (0.15 | ) | 0.00 | |||||||||||||
Net realized gains | (0.33 | ) | (0.25 | ) | (0.18 | ) | 0.00 | (0.18 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Total distributions to shareholders | (0.41 | ) | (0.29 | ) | (0.23 | ) | (0.15 | ) | (0.18 | ) | ||||||||||||
Net asset value, end of period | $ | 4.94 | $ | 4.77 | $ | 5.75 | $ | 5.15 | $ | 4.64 | ||||||||||||
Total return | 13.68 | % | (12.79 | )% | 16.79 | % | 15.95 | % | (41.49 | )% | ||||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||||
Gross expenses | 0.98 | % | 0.97 | % | 0.85 | % | 0.68 | % | 0.67 | % | ||||||||||||
Net expenses | 0.69 | % | 0.69 | % | 0.66 | % | 0.68 | % | 0.67 | % | ||||||||||||
Net investment income | 2.68 | % | 2.06 | % | 1.04 | % | 2.31 | % | 3.02 | % | ||||||||||||
Supplemental data | ||||||||||||||||||||||
Portfolio turnover rate | 140 | % | 66 | % | 60 | % | 205 | % | 127 | % | ||||||||||||
Net assets, end of period (000s omitted) | $43,089 | $46,017 | $67,659 | $69,407 | $71,286 | |||||||||||||||||
| 1. | After the close of business on July 16, 2010, the Fund acquired the net assets of Evergreen VA International Equity Fund which became the accounting and performance survivor in the transaction. The information for the periods prior to July 19, 2010 is that of Class 1 of Evergreen VA International Equity Fund. The per share information has been adjusted to give effect to this transaction. |
| 2. | Calculated based upon average shares outstanding |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 18 | Wells Fargo Advantage VT International Equity Fund | Financial highlights |
| Year ended December 31 | ||||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 20091 | 20081 | |||||||||||||||||
Net asset value, beginning of period | $ | 4.78 | $ | 5.74 | $ | 5.15 | $ | 4.64 | $ | 8.15 | ||||||||||||
Net investment income | 0.11 | 0.09 | 2 | 0.06 | 2 | 0.04 | 2 | 0.18 | 2 | |||||||||||||
Net realized and unrealized gains (losses) on investments | 0.47 | (0.79 | ) | 0.75 | 0.62 | (3.51 | ) | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
| ||||||||||||
Total from investment operations | 0.58 | (0.70 | ) | 0.81 | 0.66 | (3.33 | ) | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||||
Net investment income | (0.07 | ) | (0.01 | ) | (0.04 | ) | (0.15 | ) | 0.00 | |||||||||||||
Net realized gains | (0.33 | ) | (0.25 | ) | (0.18 | ) | 0.00 | (0.18 | ) | |||||||||||||
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| ||||||||||||
Total distributions to shareholders | (0.40 | ) | (0.26 | ) | (0.22 | ) | (0.15 | ) | (0.18 | ) | ||||||||||||
Net asset value, end of period | $ | 4.96 | $ | 4.78 | $ | 5.74 | $ | 5.15 | $ | 4.64 | ||||||||||||
Total return | 13.48 | % | (12.91 | )% | 16.50 | % | 15.47 | % | (41.60 | )% | ||||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||||
Gross expenses | 1.23 | % | 1.22 | % | 0.97 | % | 0.89 | % | 0.92 | % | ||||||||||||
Net expenses | 0.94 | % | 0.94 | % | 0.89 | % | 0.89 | % | 0.92 | % | ||||||||||||
Net investment income | 2.41 | % | 1.75 | % | 1.22 | % | 0.70 | % | 2.74 | % | ||||||||||||
Supplemental data | ||||||||||||||||||||||
Portfolio turnover rate | 140 | % | 66 | % | 60 | % | 205 | % | 127 | % | ||||||||||||
Net assets, end of period (000s omitted) | $ | 296,705 | $ | 227,692 | $ | 218,348 | $ | 891,137 | $ | 56,692 | ||||||||||||
| 1. | After the close of business on July 16, 2010, the Fund acquired the net assets of Evergreen VA International Equity Fund which became the accounting and performance survivor in the transaction. The information for the periods prior to July 19, 2010 is that of Class 2 of Evergreen VA International Equity Fund. The per share information has been adjusted to give effect to this transaction. |
| 2 | Calculated based upon average shares outstanding |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 19 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT International Equity Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Securities denominated in foreign currencies are translated into U.S. dollars using the rates of exchange in effect on the day of valuation at a time specified by the Management Valuation Team of Wells Fargo Funds Management, LLC ("Funds Management").
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the last reported sales price or latest quoted bid price. On December 31, 2012, fair value pricing was used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Table of Contents
| 20 | Wells Fargo Advantage VT International Equity Fund | Notes to financial statements |
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. Assets, including investment securities, and liabilities denominated in foreign currency are translated into U.S. dollars at the rates of exchange at a time specified by the Management Valuation Team on the date of valuation. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting in changes in exchange rates.
The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are recorded with net realized and unrealized gains or losses from investments. Gains and losses from certain foreign currency transactions are treated as ordinary income for U.S. federal income tax purposes.
Forward foreign currency contracts
The Fund may be subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on foreign currency related transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains or losses on the contracts. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 21 |
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to foreign currency transactions. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized gains on investments | |
| $(355,362) | $355,362 |
As of December 31, 2012, the Fund had net capital loss carryforwards, which are available to offset future net realized capital gains, in the amount of $3,336,320 expiring in 2017.
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Shareholders of each class bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund, earn income from the portfolio, and are allocated any unrealized gains and losses pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains and losses are allocated to each class pro rata based upon the net assets of each class on the date realized. Differences in per share dividend rates generally result from the relative weightings of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution fees.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
Table of Contents
| 22 | Wells Fargo Advantage VT International Equity Fund | Notes to financial statements |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 53,982,184 | $ | 266,572,254 | $ | 0 | $ | 320,554,438 | ||||||||
Short-term investments | ||||||||||||||||
Investment companies | 14,186,974 | 13,044,069 | 0 | 27,231,043 | ||||||||||||
| $ | 68,169,158 | $ | 279,616,323 | $ | 0 | $ | 347,785,481 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.75% and declining to 0.60% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.75% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and a class level administration fee of 0.08% which is calculated based on the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.69% for Class 1 and 0.94% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 23 |
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $429,435,185 and $404,040,719, respectively.
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2012, the Fund entered into forward foreign currency exchange contracts for economic hedging purposes.
As of December 31, 2012, the Fund did not have any open forward foreign currency contracts but had average contract amounts of $555,148 and $974,074 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended December 31, 2012.
The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate financial statements.
7. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $670 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2012 and December 31, 2011 were as follows:
| Year ended December, | ||||
| 2012 | 2011 | |||
Ordinary income | $4,390,476 | $2,217,673 | ||
Long-term capital gain | 21,230,666 | 10,808,059 | ||
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | Capital loss carryforward | |||
| $7,423,172 | $17,019,612 | $17,539,117 | ($3,336,320) |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENTS
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
Table of Contents
| 24 | Wells Fargo Advantage VT International Equity Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT International Equity Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT International Equity Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
Table of Contents
| Other information (unaudited) | Wells Fargo Advantage VT International Equity Fund | 25 |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $21,230,666 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2012.
Pursuant to Section 853 of the Internal Revenue Code, the following amounts have been designated as foreign taxes paid for the fiscal year ended December 31, 2012. These amounts may be less than the actual foreign taxes paid for financial statement purposes. Foreign taxes paid or withheld should be included in taxable income with an offsetting deduction from gross income or as a credit for taxes paid to foreign governments. None of the income was derived from ineligible foreign sources as defined under Section 901(j) of the Internal Revenue Code.
Creditable foreign taxes paid | Per share amount | Foreign income as % of ordinary income | ||
$391,031 | $0.0057 | 96.60% |
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 26 | Wells Fargo Advantage VT International Equity Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT International Equity Fund | 27 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 28 | Wells Fargo Advantage VT International Equity Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214182 02-13 AVT3/AR149 12-12 |
Table of Contents
Wells Fargo Advantage
VT Intrinsic Value Fund
Annual Report
December 31, 2012
Table of Contents
Reduce clutter. Save trees.
Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Table of Contents
Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
Table of Contents
Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Intrinsic Value Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Intrinsic Value Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, offset by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy. Small-cap stocks modestly outperformed large-cap stocks during the period as investors bid up stocks with greater sensitivity to economic growth.
Macroeconomic optimism faded as global growth slowed and worries rose.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to Spain’s weak economy and depressed property sector, and Spanish bond prices declined. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do whatever it takes to preserve the euro boosted investor confidence. In addition, the ECB announced in September that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
U.S. stocks gained as the U.S. economy reported relatively solid news.
For most of the period, U.S. economic data remained moderately positive. Reported gross domestic product (GDP) growth came in at a 2.0% annualized rate in the first quarter of 2012, slower than the pace in the fourth quarter of 2011 but in positive territory. Reported GDP growth slowed to a 1.3% annualized rate in the second quarter of 2012, only to reaccelerate to 3.1% annualized in the third quarter. Continued economic growth in the U.S. contrasted with the more
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 3 |
uncertain picture in Europe. The unemployment rate was a notable exception to generally positive U.S. economic news. Although the unemployment rate declined—from 8.3% in January 2012 to 7.8% in December 2012—at least part of the decline could be attributed to a decline in the labor force. (People are only counted as unemployed if they are officially looking for work.)
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period. Toward the end of 2012, however, widespread uncertainty about the fiscal cliff—a combination of expiring tax breaks, tax increases, and spending cuts originally scheduled to take effect on January 1, 2013—dampened U.S. stock market performance. Small-cap stocks gained 16.35% for the period as measured by the Russell 2000® Index1, approximately in line with a 16.00% return for large-cap stocks as measured by the S&P 500 Index2 for the same period. Value stocks outperformed growth stocks across all market capitalizations, aided by continued strength in financials.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period.
| 1. | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index. |
| 2. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| 4 | Wells Fargo Advantage VT Intrinsic Value Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Metropolitan West Capital Management, LLC
Portfolio managers
Gary Lisenbee
Jeffrey Peck
Average annual total returns1 (%) as of December 31, 2012
|
|
| Expense ratios2 (%) | |||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
| Class 2 | 5-6-1996 | 19.47 | (0.24 | ) | 5.93 | 1.18 | 1.01 | |||||||||||||||
| Russell 1000® Value Index4 | – | 17.51 | 0.59 | 7.38 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
Table of Contents
| Performance highlights (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 5 |
| Growth of $10,000 investment5 as of December 31, 2012 | ||
| ||
| 1. | Historical performance shown for Class 2 of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Wells Fargo Advantage VT Equity Income Fund. |
| 2. | Reflects the expense ratio as stated in the most recent prospectus. |
| 3. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at 1.00% for Class 2. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 4. | The Russell 1000® Value Index measures the performance of those Russell 1000 companies with lower price-to-book ratios and lower forecasted growth values. You cannot invest directly in an index. |
| 5. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Russell 1000 Value Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 6. | Alpha measures the excess return of an investment vehicle, such as a mutual fund, relative to the return of its benchmark, given its level of risk (as measured by beta). Alpha is based on historical performance and does not represent future results. |
| 7. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 8. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
Table of Contents
| 6 | Wells Fargo Advantage VT Intrinsic Value Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
| n | For the 12-month period that ended December 31, 2012, the Fund outperformed its benchmark, the Russell 1000® Value Index. |
| n | Stock selection in the information technology (IT), consumer discretionary, utilities, and health care sectors enhanced relative returns. An underweight in the worst-performing utilities sector contributed additional value, while an overweight in IT partially offset strong security selection in that sector. Stock selection in the industrials and telecommunication services sectors detracted from relative performance. |
| n | We believe the current environment favors our bottom-up, research-intensive stock selection process, which is based on the premise that we are acquiring the entirety of a business rather than just shares of stock. In effect, we view ourselves as partial owners of each one of the Fund’s holdings. Our research team therefore devotes the majority of its resources to building on our knowledge of these companies and monitoring their value drivers. |
| Ten largest equity holdings7 (%) as of December 31, 2012 | ||||
Time Warner Incorporated | 3.23 | |||
Home Depot Incorporated | 3.12 | |||
Nextera Energy Incorporated | 3.12 | |||
CIGNA Corporation | 2.99 | |||
Zions Bancorporation | 2.96 | |||
Abbott Laboratories | 2.94 | |||
Unilever NV | 2.80 | |||
PepsiCo Incorporated | 2.79 | |||
Oracle Corporation | 2.67 | |||
EMC Corporation | 2.66 | |||
Stock selection was the sole source of alpha6 during the 12-month period.
During the period, security selection in IT, consumer discretionary, utilities, and health care contributed to relative outperformance. An underweight in the worst-performing utilities sector further augmented relative performance, while an overweight in IT partially offset strong stock selection in that sector. (Sector weights are purely the result of our bottom-up stock selection process.) Top contributors across the portfolio included online commerce and payment provider eBay Incorporated and consumer electronics firm Apple Incorporated in IT; home improvement retailer The Home Depot Incorporated in the consumer discretionary sector;
electric power producer NextEra Energy Incorporated in
utilities; and diversified medical products company Baxter International Incorporated in health care.
On the negative side, stock selection in industrials and telecommunication services detracted from relative returns. An underweight to the second best-performing financials sector also subtracted value from relative performance; however, this was mostly offset by strong security selection in the sector. Primary detractors within the Fund included aircraft developer and manufacturer The Boeing Company in the industrials sector and mobile telecommunication services provider Vodafone Group plc in telecommunication services. We sold Vodafone in late 2012.
Some of the Fund’s non-U.S. holdings detracted value relative to the Russell 1000 Value Index over the past 12 months. However, we continue to maintain our global research perspective, which we believe allows us to better understand the companies in which we invest by providing context on their worldwide competitors, suppliers, and customers.
Please see footnotes on page 5.
Table of Contents
| Performance highlights (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 7 |
| Sector distribution8 as of December 31, 2012 | ||
| ||
During the past 12 months, we added a few high-quality investments to the Fund’s holdings and divested a few positions according to our disciplined sale criteria.
Consistent with our long-term investment perspective, annual portfolio turnover remained less than 20%, and the Fund’s positioning relative to the benchmark shifted modestly. The Fund’s overweight in the consumer discretionary sector increased with new investments in automotive systems and components provider TRW Automotive Holdings Corporation, entertainment company The Walt Disney Company, and fine jewelry retailer Tiffany & Company. The increased allocation to this sector was moderated by sales of luxury designer Polo Ralph Lauren Corporation and specialty retailer
Nordstrom Inc. With the sale of mobile telecommunication services provider Vodafone, the Fund’s exposure to the telecommunication services sector was reduced to zero. The Fund’s underweight in the utilities sector narrowed with a new investment in public utility holding company Northeast Utilities and an addition to the existing position in NextEra Energy Incorporated; these moves were partially offset by the sale of integrated natural gas company Questar Corporation. Meanwhile, the Fund remained significantly overweight in IT and meaningfully underweight in financials.
We believe individual company fundamentals will ultimately determine security performance.
In 2012, investors were bombarded with news regarding the European debt crisis, the U.S. presidential election, new quantitative easing programs, and sluggish global economies. Toward the end of 2012, investors were in constant suspense regarding the outcome of the looming fiscal cliff. Peering over the cliff, investors saw: political machinations that seemed unsolvable, Federal Reserve meetings promising easy money, unemployment figures skewed by seasonal adjustments, lackluster gross domestic product growth around the globe, final retail sales not as strong as Black Friday indicated, and stock prices trading below their 50-day and 200-day moving averages. These visions affected investor sentiment to varying degrees, both positively and negatively, in the final months of 2012.
We think that when viewed over a three- to five-year time horizon, most of these issues will be resolved and individual company fundamentals will ultimately determine security performance. Notwithstanding the strong equity market performance over the past year, we continue to see value in the Fund’s portfolio of high-quality businesses. We believe these attractive valuation levels should provide some downside protection in volatile markets and enable us to continue to add value relative to relevant benchmarks over a complete market cycle.
Please see footnotes on page 5.
Table of Contents
| 8 | Wells Fargo Advantage VT Intrinsic Value Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,079.13 | $ | 5.23 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Intrinsic Value Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 96.03% | ||||||||||||
Consumer Discretionary: 12.32% | ||||||||||||
| Auto Components: 2.52% | ||||||||||||
TRW Automotive Holdings Corporation † | 21,900 | $ | 1,174,059 | |||||||||
|
| |||||||||||
| Media: 5.79% | ||||||||||||
Time Warner Incorporated | 31,400 | 1,501,862 | ||||||||||
Walt Disney Company | 24,000 | 1,194,960 | ||||||||||
| 2,696,822 | ||||||||||||
|
| |||||||||||
| Specialty Retail: 4.01% | ||||||||||||
Home Depot Incorporated | 23,500 | 1,453,475 | ||||||||||
Tiffany & Company « | 7,200 | 412,848 | ||||||||||
| 1,866,323 | ||||||||||||
|
| |||||||||||
Consumer Staples: 12.20% | ||||||||||||
| Beverages: 5.02% | ||||||||||||
Diageo plc ADR « | 8,900 | 1,037,562 | ||||||||||
PepsiCo Incorporated | 19,000 | 1,300,170 | ||||||||||
| 2,337,732 | ||||||||||||
|
| |||||||||||
| Food Products: 7.18% | ||||||||||||
H.J. Heinz Company « | 17,800 | 1,026,704 | ||||||||||
The Hershey Company « | 14,000 | 1,011,080 | ||||||||||
Unilever NV « | 34,000 | 1,302,200 | ||||||||||
| 3,339,984 | ||||||||||||
|
| |||||||||||
Energy: 8.36% | ||||||||||||
| Energy Equipment & Services: 1.89% | ||||||||||||
Schlumberger Limited | 12,700 | 879,983 | ||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 6.47% | ||||||||||||
Hess Corporation | 20,900 | 1,106,864 | ||||||||||
Occidental Petroleum Corporation | 16,000 | 1,225,760 | ||||||||||
QEP Resources Incorporated | 22,500 | 681,075 | ||||||||||
| 3,013,699 | ||||||||||||
|
| |||||||||||
Financials: 17.24% | ||||||||||||
| Capital Markets: 7.10% | ||||||||||||
Charles Schwab Corporation | 80,600 | 1,157,416 | ||||||||||
Franklin Resources Incorporated | 7,900 | 993,030 | ||||||||||
Northern Trust Corporation « | 23,000 | 1,153,680 | ||||||||||
| 3,304,126 | ||||||||||||
|
| |||||||||||
| Commercial Banks: 7.61% | ||||||||||||
M&T Bank Corporation « | 10,500 | 1,033,935 | ||||||||||
SunTrust Banks Incorporated | 40,000 | 1,134,000 | ||||||||||
Zions Bancorporation « | 64,390 | 1,377,946 | ||||||||||
| 3,545,881 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Intrinsic Value Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Diversified Financial Services: 2.53% | ||||||||||||
JPMorgan Chase & Company | 26,800 | $ | 1,178,396 | |||||||||
|
| |||||||||||
Health Care: 9.52% | ||||||||||||
| Health Care Equipment & Supplies: 2.52% | ||||||||||||
Baxter International Incorporated | 17,600 | 1,173,216 | ||||||||||
|
| |||||||||||
| Health Care Providers & Services: 2.99% | ||||||||||||
CIGNA Corporation | 26,000 | 1,389,960 | ||||||||||
|
| |||||||||||
| Pharmaceuticals: 4.01% | ||||||||||||
Abbott Laboratories | 20,900 | 1,368,950 | ||||||||||
Hospira Incorporated † | 16,000 | 499,840 | ||||||||||
| 1,868,790 | ||||||||||||
|
| |||||||||||
Industrials: 11.93% | ||||||||||||
| Aerospace & Defense: 5.76% | ||||||||||||
Boeing Company | 14,100 | 1,062,576 | ||||||||||
Huntington Ingalls Industries Incorporated | 10,400 | 450,736 | ||||||||||
Northrop Grumman Corporation « | 17,300 | 1,169,134 | ||||||||||
| 2,682,446 | ||||||||||||
|
| |||||||||||
| Air Freight & Logistics: 2.20% | ||||||||||||
United Parcel Service Incorporated Class B | 13,900 | 1,024,847 | ||||||||||
|
| |||||||||||
| Machinery: 3.97% | ||||||||||||
Deere & Company | 11,800 | 1,019,756 | ||||||||||
SPX Corporation | 11,800 | 827,770 | ||||||||||
| 1,847,526 | ||||||||||||
|
| |||||||||||
Information Technology: 18.57% | ||||||||||||
| Communications Equipment: 2.13% | ||||||||||||
QUALCOMM Incorporated | 16,000 | 992,320 | ||||||||||
|
| |||||||||||
| Computers & Peripherals: 5.12% | ||||||||||||
Apple Incorporated | 2,150 | 1,146,015 | ||||||||||
EMC Corporation † | 48,900 | 1,237,170 | ||||||||||
| 2,383,185 | ||||||||||||
|
| |||||||||||
| Internet Software & Services: 1.75% | ||||||||||||
eBay Incorporated † | 16,000 | 816,320 | ||||||||||
|
| |||||||||||
| IT Services: 2.61% | ||||||||||||
International Business Machines Corporation | 6,350 | 1,216,343 | ||||||||||
|
| |||||||||||
| Semiconductors & Semiconductor Equipment: 1.71% | ||||||||||||
Texas Instruments Incorporated | 25,700 | 795,158 | ||||||||||
|
| |||||||||||
| Software: 5.25% | ||||||||||||
Intuit Incorporated | 20,200 | 1,201,900 | ||||||||||
Oracle Corporation | 37,300 | 1,242,836 | ||||||||||
| 2,444,736 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Intrinsic Value Fund | 11 |
| Security name | Shares | Value | ||||||||||||
Materials: 1.76% | ||||||||||||||
| Chemicals: 1.76% | ||||||||||||||
Air Products & Chemicals Incorporated | 9,770 | $ | 820,874 | |||||||||||
|
| |||||||||||||
Utilities: 4.13% | ||||||||||||||
| Electric Utilities: 4.13% | ||||||||||||||
Nextera Energy Incorporated | 21,000 | 1,452,990 | ||||||||||||
Northeast Utilities « | 12,000 | 468,960 | ||||||||||||
| 1,921,950 | ||||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $36,263,325) | 44,714,676 | |||||||||||||
|
| |||||||||||||
| Principal | ||||||||||||||
Other: 0.02% | ||||||||||||||
Gryphon Funding Limited, Pass-Through Entity (a)(i)(v) | $ | 30,452 | 10,049 | |||||||||||
|
| |||||||||||||
Total Other (Cost $2,759) | 10,049 | |||||||||||||
|
| |||||||||||||
| Yield | Shares | |||||||||||||
| Short-Term Investments: 19.95% | ||||||||||||||
| Investment Companies: 19.95% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.14 | % | 1,654,360 | 1,654,360 | ||||||||||
Wells Fargo Securities Lending Cash Investments, LLC (v)(r)(l)(u) | 0.20 | 7,634,541 | 7,634,541 | |||||||||||
Total Short-Term Investments (Cost $9,288,901) | 9,288,901 | |||||||||||||
|
| |||||||||||||
Total investments in securities (Cost $45,554,985) * | 116.00 | % | 54,013,626 | |||||
Other assets and liabilities, net | (16.00 | ) | (7,450,582 | ) | ||||
|
|
|
| |||||
| Total net assets | 100.00 | % | $ | 46,563,044 | ||||
|
|
|
|
| † | Non-income-earning security |
| « | All or a portion of this security is on loan. |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited. |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| * | Cost for federal income tax purposes is $45,620,781 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 9,195,104 | ||
Gross unrealized depreciation | (802,259 | ) | ||
|
| |||
Net unrealized appreciation | $ | 8,392,845 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Intrinsic Value Fund | Statement of assets and liabilities—December 31, 2012 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 44,724,725 | ||
In affiliated securities, at value (see cost below) | 9,288,901 | |||
|
| |||
Total investments, at value (see cost below) | 54,013,626 | |||
Receivable for investments sold | 253,903 | |||
Receivable for Fund shares sold | 1,600 | |||
Receivable for dividends | 54,267 | |||
Receivable for securities lending income | 770 | |||
Prepaid expenses and other assets | 955 | |||
|
| |||
Total assets | 54,325,121 | |||
|
| |||
Liabilities | ||||
Payable for Fund shares redeemed | 30,925 | |||
Payable upon receipt of securities loaned | 7,637,300 | |||
Advisory fee payable | 16,189 | |||
Distribution fees payable | 10,171 | |||
Due to other related parties | 5,288 | |||
Accrued expenses and other liabilities | 62,204 | |||
|
| |||
Total liabilities | 7,762,077 | |||
|
| |||
Total net assets | $ | 46,563,044 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 44,255,580 | ||
Undistributed net investment income | 510,501 | |||
Accumulated net realized losses on investments | (6,661,678 | ) | ||
Net unrealized gains on investments | 8,458,641 | |||
|
| |||
Total net assets | $ | 46,563,044 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 2 | $ | 46,563,044 | ||
Shares outstanding – Class 2 | 3,181,697 | |||
Net asset value per share – Class 2 | $14.63 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 36,266,084 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 9,288,901 | ||
|
| |||
Total investments, at cost | $ | 45,554,985 | ||
|
| |||
Securities on loan, at value | $ | 7,536,358 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of operations—year ended December 31, 2012 | Wells Fargo Advantage VT Intrinsic Value Fund | 13 |
Investment income | ||||
Dividends * | $ | 969,373 | ||
Securities lending income, net | 11,617 | |||
Income from affiliated securities | 3,062 | |||
|
| |||
Total investment income | 984,052 | |||
|
| |||
Expenses | ||||
Advisory fee | 261,233 | |||
Administration fees | ||||
Fund level | 23,749 | |||
Class 2 | 37,998 | |||
Distribution fees | ||||
Class 2 | 118,742 | |||
Custody and accounting fees | 8,965 | |||
Professional fees | 41,413 | |||
Shareholder report expenses | 34,438 | |||
Trustees’ fees and expenses | 11,337 | |||
Other fees and expenses | 2,518 | |||
|
| |||
Total expenses | 540,393 | |||
Less: Fee waivers and/or expense reimbursements | (65,423 | ) | ||
|
| |||
Net expenses | 474,970 | |||
|
| |||
Net investment income | 509,082 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 4,170,986 | |||
Net change in unrealized gains (losses) on investments | 3,804,036 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 7,975,022 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 8,484,104 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $6,046 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Intrinsic Value Fund | Statement of changes in net assets |
Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 509,082 | $ | 637,465 | ||||||||||||
Net realized gains on investments | 4,170,986 | 1,243,561 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 3,804,036 | (2,810,230 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | 8,484,104 | (929,204 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (637,443 | ) | (287,742 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| Shares | Shares | |||||||||||||||
Capital share transactions | ||||||||||||||||
Proceeds from shares sold – Class 2 | 137,805 | 1,899,069 | 404,649 | 5,353,142 | ||||||||||||
Reinvestment of distributions – Class 2 | 48,255 | 637,443 | 21,619 | 287,742 | ||||||||||||
Payment for shares redeemed – Class 2 | (730,691 | ) | (10,104,674 | ) | (1,311,539 | ) | (16,971,260 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets resulting from capital share transactions | (7,568,162 | ) | (11,330,376 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) in net assets | 278,499 | (12,547,322 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 46,284,545 | 58,831,867 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $ | 46,563,044 | $ | 46,284,545 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment income | $ | 510,501 | $ | 637,451 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Financial highlights | Wells Fargo Advantage VT Intrinsic Value Fund | 15 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101,2 | 20092 | 20082 | |||||||||||||||
Net asset value, beginning of period | $ | 12.42 | $ | 12.76 | $ | 11.31 | $ | 9.88 | $ | 18.74 | ||||||||||
Net investment income | 0.18 | 0.18 | 0.16 | 0.19 | 0.30 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 2.22 | (0.45 | ) | 1.39 | 1.44 | (6.46 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.40 | (0.27 | ) | 1.55 | 1.63 | (6.16 | ) | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.19 | ) | (0.07 | ) | (0.10 | ) | (0.20 | ) | (0.28 | ) | ||||||||||
Net realized gains | 0.00 | 0.00 | 0.00 | 0.00 | (2.42 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.19 | ) | (0.07 | ) | (0.10 | ) | (0.20 | ) | (2.70 | ) | ||||||||||
Net asset value, end of period | $ | 14.63 | $ | 12.42 | $ | 12.76 | $ | 11.31 | $ | 9.88 | ||||||||||
Total return | 19.47 | % | (2.15 | )% | 13.83 | % | 16.86 | % | (36.47 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.14 | % | 1.17 | % | 1.10 | % | 1.18 | % | 1.15 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||
Net investment income | 1.07 | % | 1.17 | % | 1.29 | % | 1.94 | % | 1.95 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 22 | % | 26 | % | 72 | % | 16 | % | 9 | % | ||||||||||
Net assets, end of period (000s omitted) | $46,563 | $46,285 | $58,832 | $54,441 | $43,452 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, existing shares of Wells Fargo Advantage VT Equity Income Fund were renamed Class 2 shares. |
| 2. | After the close of business on July 16, 2010, the Fund acquired the net assets of Wells Fargo Advantage VT Equity Income Fund and Wells Fargo Advantage VT C&B Large Cap Value Fund. Wells Fargo Advantage VT Equity Income Fund became the accounting and performance survivor in the transaction. The information for the periods prior to July 19, 2010 is that of Wells Fargo Advantage VT Equity Income Fund. |
The accompanying notes are an integral part of these financial statements.
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| 16 | Wells Fargo Advantage VT Intrinsic Value Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Intrinsic Value Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
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| Notes to financial statements | Wells Fargo Advantage VT Intrinsic Value Fund | 17 |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized losses on investments | |
| $1,411 | $(1,411) |
As of December 31, 2012, the Fund had net capital loss carryforwards, which are available to offset future net realized capital gains, in the amount of $6,595,880 with $2,611,727 expiring in 2016, $3,984,153 expiring in 2017.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
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| 18 | Wells Fargo Advantage VT Intrinsic Value Fund | Notes to financial statements |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 44,714,676 | $ | 0 | $ | 0 | $ | 44,714,676 | ||||||||
Other | 0 | 0 | 10,049 | 10,049 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,654,360 | 7,634,541 | 0 | 9,288,901 | ||||||||||||
| $ | 46,369,036 | $ | 7,634,541 | $ | 10,049 | $ | 54,013,626 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.55% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Metropolitan West Capital Management, LLC, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.35% and declining to 0.25% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and, for Class 2 shares, a class level administration fee of 0.08% of its average daily net assets.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.00% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $10,078,138 and $17,873,982, respectively.
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| Notes to financial statements | Wells Fargo Advantage VT Intrinsic Value Fund | 19 |
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $86 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $637,443 and $287,742 of ordinary income for the years ended December 31, 2012 and December 31, 2011, respectively.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
| $510,499 | $8,392,845 | $(6,595,880) |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| 20 | Wells Fargo Advantage VT Intrinsic Value Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Intrinsic Value Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Intrinsic Value Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| Other information (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 21 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2012.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 22 | Wells Fargo Advantage VT Intrinsic Value Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 23 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 24 | Wells Fargo Advantage VT Intrinsic Value Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214183 02-13 AVT4/AR150 12-12 |
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Wells Fargo Advantage
VT Omega Growth Fund
Annual Report
December 31, 2012
Table of Contents
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Contents
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Omega Growth Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Omega Growth Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, offset by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy. Small-cap stocks modestly outperformed large-cap stocks during the period as investors bid up stocks with greater sensitivity to economic growth.
Macroeconomic optimism faded as global growth slowed and worries rose.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to Spain’s weak economy and depressed property sector, and Spanish bond prices declined. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do whatever it takes to preserve the euro boosted investor confidence. In addition, the ECB announced in September that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
U.S. stocks gained as the U.S. economy reported relatively solid news.
For most of the period, U.S. economic data remained moderately positive. Reported gross domestic product (GDP) growth came in at a 2.0% annualized rate in the first quarter of 2012, slower than the pace in the fourth quarter of 2011 but in positive territory. Reported GDP growth slowed to a 1.3% annualized rate in the second quarter of 2012, only to reaccelerate to 3.1% annualized in the third quarter. Continued economic growth in the U.S. contrasted with the more
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 3 |
uncertain picture in Europe. The unemployment rate was a notable exception to generally positive U.S. economic news. Although the unemployment rate declined—from 8.3% in January 2012 to 7.8% in December 2012—at least part of the decline could be attributed to a decline in the labor force. (People are only counted as unemployed if they are officially looking for work.)
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period. Toward the end of 2012, however, widespread uncertainty about the fiscal cliff—a combination of expiring tax breaks, tax increases, and spending cuts originally scheduled to take effect on January 1, 2013—dampened U.S. stock market performance. Small-cap stocks gained 16.35% for the period as measured by the Russell 2000® Index1 approximately in line with a 16.00% return for large-cap stocks as measured by the S&P 500 Index2 for the same period. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. . Value stocks outperformed growth stocks across all market capitalizations, aided by continued strength in financials.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period.
| 1. | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index. |
| 2. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| 4 | Wells Fargo Advantage VT Omega Growth Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Thomas J. Pence, CFA
Michael T. Smith, CFA
Average annual total returns1 (%) as of December 31, 2012
|
|
| Expense ratios2 (%) | |||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
| Class 1 | 3-6-1997 | 20.76 | 7.49 | 10.26 | 0.80 | 0.75 | ||||||||||||||||
| Class 2 | 7-31-2002 | 20.39 | 7.21 | 9.97 | 1.05 | 1.00 | ||||||||||||||||
| Russell 3000® Growth Index4 | – | 15.21 | 3.15 | 7.69 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to smaller company securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 5 |
| Growth of $10,000 investment5 as of December 31, 2012 | ||
| ||
| 1. | Performance shown for Class 2 shares prior to its 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 the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen VA Omega Fund. |
| 2. | Reflects the expense ratio as stated in the most recent prospectuses. |
| 3. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at the amounts shown. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 4. | The Russell 3000® Growth Index measures the performance of those Russell 3000 Index companies with higher price-to-book ratios and higher forecasted growth values. The stocks in this index are also members of either the Russell 1000® Growth Index or the Russell 2000® Growth Index. You cannot invest directly in an index. |
| 5. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Russell 3000 Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 6. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 7. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
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| 6 | Wells Fargo Advantage VT Omega Growth Fund | Performance highlights (unaudited) |
MANAGER'S DISCUSSION
Fund highlights
| n | The Fund outperformed its benchmark, the Russell 3000® Growth Index, for the 12-month period that ended December 31, 2012. |
| n | Stock selection primarily in the information technology (IT), consumer discretionary, and telecommunication services sectors was additive to performance during the period. Stock selection in the health care sector provided the most significant headwind for relative performance. |
| n | Equity prices ebbed and flowed with a risk-on/risk-off mentality throughout the year, driven largely by investors’ reactions to the news flow out of Europe, U.S. political and fiscal uncertainty, and choppy economic data both domestically and in China. |
| n | While the current macroeconomic environment continues to challenge bottom-up stock pickers, we remain committed to our fundamental surround the company research process and to maintaining an appropriate balance between risk and return. |
2012 was defined by a volatile market environment.
The clouds of uncertainty that lingered over the U.S. equity market in 2011 appeared to disperse early in 2012 as the year began with a sharply positive first quarter. As the year progressed, however, a familiar pattern began to emerge as the market once again displayed a volatile mentality. Investor risk tolerances and, consequently, equity returns varied significantly from quarter to quarter during the year. Europe’s continued struggles with crippling debt, U.S. political and fiscal uncertainty, and choppy economic data both domestically and in China were among the chief drivers of this volatility. Although the equity market was quite volatile in 2012, it was not irrational. Secular earnings growth was handsomely rewarded, and double-digit returns were visible across major equity indexes.
| Ten largest equity holdings6 (%) as of December 31, 2012 | ||||
Apple Incorporated | 6.72 | |||
Google Incorporated Class A | 3.28 | |||
Kansas City Southern | 2.85 | |||
Visa Incorporated Class A | 2.84 | |||
eBay Incorporated | 2.65 | |||
Monsanto Company | 2.32 | |||
Gilead Sciences Incorporated | 2.02 | |||
Precision Castparts Corporation | 1.96 | |||
Dollar General Corporation | 1.93 | |||
SBA Communications Corporation Class A | 1.89 | |||
Effective stock selection enabled the Fund to outperform its benchmark.
Effective security selection in the IT sector was additive to returns in 2012. Apple Incorporated posted a very strong annual return, making it one of the largest contributors to the Fund’s performance. We had a larger weight, relative to the benchmark, in the stock early during the year, as we felt investors did not appreciate the company’s ability to gain market share in smartphones and tablets as well as personal computers. We trimmed our position later in the year as future growth catalysts were called into question. Additionally within the sector, our conviction in the transformation of eBay Incorporated was rewarded in 2012. Finally, as internet-connected devices are expected to grow
nearly 40% annually over the next few years, the need for data storage and analysis has, and will continue to, grow briskly. Benefiting from this growth expectation, shares of CommVault Systems Incorporated performed well in 2012.
Positioning in the consumer discretionary space is currently biased toward companies with strong global brands, especially those with the ability to gain market share and increase the number or size of their stores lululemon athletica Incorporated is one example of a company that exhibits these characteristics. The company is a specialty retailer of high-end athletic apparel and has the unique position of controlling the development, distribution, and marketing of its brand.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 7 |
Security selection within the health care sector weighed on the Fund’s relative returns in 2012. Managed care provider Humana Incorporated proved to be the largest detractor within the sector, and pharmaceutical company Shire plc was a large detractor as well. Within the consumer staples sector, Monster Beverage Corporation detracted from returns as it underperformed due to increased regulatory scrutiny, prompting us to sell the stock in lieu of better opportunities.
| Sector distribution7 as of December 31, 2012 | ||
| ||
We are optimistic about U.S. equities in 2013 but remain diligent in our investment approach in order to help mitigate outstanding risks and uncertainty.
There are a number of reasons we remain squarely constructive on the U.S. equity market as we enter 2013. Valuations are compelling, the housing market is clearly rebounding, and monetary policies remain highly accommodative. The market, however, is not without risks. Long-term solutions to structural deficits, fiscal drag, political stalemates, and high unemployment are still elusive. This macro uncertainty, coupled with lackluster economic growth and tepid levels of business spending, force us to remain cautious about risks that could affect the Fund.
We attempt to mitigate this uncertainty by constructing a portfolio that thoughtfully balances risk and return. As was the case for most of 2012, our investments remain skewed toward higher-quality core holdings. A number of encouraging signs, however, give us the confidence to barbell portfolios with developing situations. Ultimately, the Fund primarily consists of holdings with the following traits: companies with superior earnings growth that is driven by secular growing end markets, companies investing in true empowering innovation that will drive long-term returns, and companies with abundant free cash flow that allows for financial flexibility.
Uncertainty with the global macro environment is high, but we remain confident in the current execution of our investment process and the positive company-specific fundamentals we are able to uncover. This unwavering dedication to a durable, institutional investment process allowed the Fund to outperform in 2012.
Please see footnotes on page 5.
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| 8 | Wells Fargo Advantage VT Omega Growth Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical
examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any
separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different
funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,068.23 | $ | 3.90 | 0.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.37 | $ | 3.81 | 0.75 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,066.76 | $ | 5.20 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
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| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Omega Growth Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 100.65% | ||||||||||||
Consumer Discretionary: 22.88% | ||||||||||||
| Auto Components: 1.56% | ||||||||||||
Delphi Automotive plc † | 45,220 | $ | 1,729,665 | |||||||||
|
| |||||||||||
| Automobiles: 1.08% | ||||||||||||
Tesla Motors Incorporated Ǡ | 35,200 | 1,192,224 | ||||||||||
|
| |||||||||||
| Hotels, Restaurants & Leisure: 1.54% | ||||||||||||
Starbucks Corporation | 31,847 | 1,707,636 | ||||||||||
|
| |||||||||||
| Internet & Catalog Retail: 2.59% | ||||||||||||
Amazon.com Incorporated † | 5,200 | 1,305,928 | ||||||||||
Expedia Incorporated | 11,100 | 682,095 | ||||||||||
Priceline.com Incorporated † | 1,400 | 869,680 | ||||||||||
| 2,857,703 | ||||||||||||
|
| |||||||||||
| Media: 5.24% | ||||||||||||
CBS Corporation Class B | 31,650 | 1,204,283 | ||||||||||
Discovery Communications Incorporated † | 24,446 | 1,430,091 | ||||||||||
Liberty Media Corporation † | 13,388 | 1,553,142 | ||||||||||
Virgin Media Incorporated « | 43,600 | 1,602,300 | ||||||||||
| 5,789,816 | ||||||||||||
|
| |||||||||||
| Multiline Retail: 3.14% | ||||||||||||
Dollar General Corporation † | 48,295 | 2,129,327 | ||||||||||
Nordstrom Incorporated | 25,000 | 1,337,500 | ||||||||||
| 3,466,827 | ||||||||||||
|
| |||||||||||
| Specialty Retail: 5.60% | ||||||||||||
GNC Holdings Incorporated Class A « | 46,300 | 1,540,864 | ||||||||||
Limited Brands Incorporated « | 43,955 | 2,068,522 | ||||||||||
TJX Companies Incorporated | 38,900 | 1,651,305 | ||||||||||
Ulta Salon Cosmetics & Fragrance Incorporated | 9,375 | 921,188 | ||||||||||
| 6,181,879 | ||||||||||||
|
| |||||||||||
| Textiles, Apparel & Luxury Goods: 2.13% | ||||||||||||
lululemon athletica incorporated Ǡ | 15,985 | 1,218,537 | ||||||||||
Under Armour Incorporated Class A Ǡ | 23,300 | 1,130,749 | ||||||||||
| 2,349,286 | ||||||||||||
|
| |||||||||||
Consumer Staples: 4.83% | ||||||||||||
| Beverages: 1.09% | ||||||||||||
Constellation Brands Incorporated Class A † | 34,000 | 1,203,260 | ||||||||||
|
| |||||||||||
| Food & Staples Retailing: 1.71% | ||||||||||||
Whole Foods Market Incorporated | 20,700 | 1,890,531 | ||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Omega Growth Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Food Products: 2.03% | ||||||||||||
Boulder Brands Incorporated Ǡ | 63,700 | $ | 821,730 | |||||||||
The Hershey Company | 19,600 | 1,415,512 | ||||||||||
| 2,237,242 | ||||||||||||
|
| |||||||||||
Energy: 3.52% | ||||||||||||
| Energy Equipment & Services: 1.01% | ||||||||||||
Schlumberger Limited | 16,140 | 1,118,341 | ||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 2.51% | ||||||||||||
Pioneer Natural Resources Company | 13,175 | 1,404,323 | ||||||||||
The Williams Companies Incorporated | 41,670 | 1,364,276 | ||||||||||
| 2,768,599 | ||||||||||||
|
| |||||||||||
Financials: 3.98% | ||||||||||||
| Capital Markets: 1.18% | ||||||||||||
Affiliated Managers Group Incorporated † | 9,999 | 1,301,370 | ||||||||||
|
| |||||||||||
| Consumer Finance: 1.27% | ||||||||||||
Capital One Financial Corporation | 24,215 | 1,402,775 | ||||||||||
|
| |||||||||||
| Real Estate Management & Development: 1.53% | ||||||||||||
CBRE Group Incorporated † | 84,790 | 1,687,321 | ||||||||||
|
| |||||||||||
Health Care: 14.73% | ||||||||||||
| Biotechnology: 6.40% | ||||||||||||
Alexion Pharmaceuticals Incorporated † | 14,092 | 1,321,971 | ||||||||||
BioMarin Pharmaceutical Incorporated Ǡ | 22,325 | 1,099,506 | ||||||||||
Celgene Corporation † | 19,000 | 1,495,680 | ||||||||||
Cubist Pharmaceuticals Incorporated Ǡ | 21,800 | 916,908 | ||||||||||
Gilead Sciences Incorporated † | 30,380 | 2,231,411 | ||||||||||
| 7,065,476 | ||||||||||||
|
| |||||||||||
| Health Care Equipment & Supplies: 1.33% | ||||||||||||
Intuitive Surgical Incorporated † | 3,000 | 1,471,110 | ||||||||||
|
| |||||||||||
| Health Care Providers & Services: 2.08% | ||||||||||||
Team Health Holdings Incorporated † | 33,100 | 952,287 | ||||||||||
UnitedHealth Group Incorporated | 24,700 | 1,339,728 | ||||||||||
| 2,292,015 | ||||||||||||
|
| |||||||||||
| Health Care Technology: 1.07% | ||||||||||||
Cerner Corporation Ǡ | 15,250 | 1,184,010 | ||||||||||
|
| |||||||||||
| Pharmaceuticals: 3.85% | ||||||||||||
Abbott Laboratories | 21,975 | 1,439,363 | ||||||||||
Allergan Incorporated | 17,300 | 1,586,929 | ||||||||||
Sanofi-Aventis ADR | 25,900 | 1,227,142 | ||||||||||
| 4,253,434 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Omega Growth Fund | 11 |
| Security name | Shares | Value | ||||||||||
Industrials: 12.35% | ||||||||||||
| Aerospace & Defense: 3.41% | ||||||||||||
Precision Castparts Corporation | 11,400 | $ | 2,159,388 | |||||||||
TransDigm Group Incorporated | 11,780 | 1,606,321 | ||||||||||
| 3,765,709 | ||||||||||||
|
| |||||||||||
| Airlines: 1.57% | ||||||||||||
Copa Holdings SA Class A | 17,400 | 1,730,430 | ||||||||||
|
| |||||||||||
| Machinery: 1.56% | ||||||||||||
Cummins Incorporated | 15,964 | 1,729,699 | ||||||||||
|
| |||||||||||
| Professional Services: 1.44% | ||||||||||||
Verisk Analytics Incorporated Class A † | 31,100 | 1,586,100 | ||||||||||
|
| |||||||||||
| Road & Rail: 4.37% | ||||||||||||
Hertz Global Holdings Incorporated Ǡ | 103,100 | 1,677,437 | ||||||||||
Kansas City Southern | 37,675 | 3,145,109 | ||||||||||
| 4,822,546 | ||||||||||||
|
| |||||||||||
Information Technology: 30.73% | ||||||||||||
| Communications Equipment: 1.41% | ||||||||||||
QUALCOMM Incorporated | 25,170 | 1,561,043 | ||||||||||
|
| |||||||||||
| Computers & Peripherals: 7.58% | ||||||||||||
Apple Incorporated | 13,930 | 7,425,106 | ||||||||||
Stratasys Limited † | 11,800 | 945,770 | ||||||||||
| 8,370,876 | ||||||||||||
|
| |||||||||||
| Internet Software & Services: 9.93% | ||||||||||||
eBay Incorporated † | 57,450 | 2,931,099 | ||||||||||
ExactTarget Incorporated Ǡ | 40,396 | 807,920 | ||||||||||
Google Incorporated Class A † | 5,100 | 3,617,787 | ||||||||||
LinkedIn Corporation † | 12,500 | 1,435,250 | ||||||||||
Mercadolibre Incorporated « | 16,300 | 1,280,691 | ||||||||||
Rackspace Hosting Incorporated Ǡ | 12,000 | 891,240 | ||||||||||
| 10,963,987 | ||||||||||||
|
| |||||||||||
| IT Services: 3.34% | ||||||||||||
Teradata Corporation † | 9,000 | 557,010 | ||||||||||
Visa Incorporated Class A | 20,690 | 3,136,190 | ||||||||||
| 3,693,200 | ||||||||||||
|
| |||||||||||
| Semiconductors & Semiconductor Equipment: 1.18% | ||||||||||||
Broadcom Corporation Class A | 39,200 | 1,301,832 | ||||||||||
|
| |||||||||||
| Software: 7.29% | ||||||||||||
Broadsoft Incorporated † | 32,689 | 1,187,591 | ||||||||||
CommVault Systems Incorporated † | 20,300 | 1,415,113 | ||||||||||
Fortinet Incorporated † | 55,856 | 1,176,886 | ||||||||||
Red Hat Incorporated † | 16,900 | 895,024 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Omega Growth Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||||
| Software (continued) | ||||||||||||||
Salesforce.com Incorporated Ǡ | 9,600 | $ | 1,613,760 | |||||||||||
VMware Incorporated Ǡ | 18,700 | 1,760,418 | ||||||||||||
| 8,048,792 | ||||||||||||||
|
| |||||||||||||
Materials: 3.95% | ||||||||||||||
| Chemicals: 3.95% | ||||||||||||||
Airgas Incorporated « | 19,700 | 1,798,413 | ||||||||||||
Monsanto Company | 27,115 | 2,566,435 | ||||||||||||
| 4,364,848 | ||||||||||||||
|
| |||||||||||||
Telecommunication Services: 3.68% | ||||||||||||||
| Wireless Telecommunication Services: 3.68% | ||||||||||||||
Crown Castle International Corporation † | 27,445 | 1,980,431 | ||||||||||||
SBA Communications Corporation Class A Ǡ | 29,360 | 2,085,147 | ||||||||||||
| 4,065,578 | ||||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $88,424,444) | 111,155,160 | |||||||||||||
|
| |||||||||||||
| Principal | ||||||||||||||
Other: 0.05% | ||||||||||||||
Gryphon Funding Limited, Pass-Through Entity (v)(a)(i) | $ | 174,361 | 57,539 | |||||||||||
|
| |||||||||||||
Total Other (Cost $15,800) | 57,539 | |||||||||||||
|
| |||||||||||||
| Yield | Shares | |||||||||||||
Short-Term Investments: 19.09% | ||||||||||||||
| Investment Companies: 19.09% | ||||||||||||||
Wells Fargo Securities Lending Cash Investments, LLC (v)(l)(u)(r) | 0.20 | % | 21,084,825 | 21,084,825 | ||||||||||
|
| |||||||||||||
Total Short-Term Investments (Cost $21,084,825) | 21,084,825 | |||||||||||||
|
|
|
|
|
|
| ||||||||
Total investments in securities (Cost $109,525,069) * | 119.79 | % | 132,297,524 | |||||
Other assets and liabilities, net | (19.79 | ) | (21,856,438 | ) | ||||
|
|
|
| |||||
| Total net assets | 100.00 | % | $ | 110,441,086 | ||||
|
|
|
|
| † | Non-income-earning security |
| « | All or a portion of this security is on loan. |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| * | Cost for federal income tax purposes is $109,738,608 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 23,608,342 | ||
Gross unrealized depreciation | (1,049,426 | ) | ||
|
| |||
Net unrealized appreciation | $ | 22,558,916 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of assets and liabilities—December 31, 2012 | Wells Fargo Advantage VT Omega Growth Fund | 13 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 111,212,699 | ||
In affiliated securities, at value (see cost below) | 21,084,825 | |||
|
| |||
Total investments, at value (see cost below) | 132,297,524 | |||
Receivable for investments sold | 594,799 | |||
Receivable for Fund shares sold | 79,001 | |||
Receivable for dividends | 10,888 | |||
Receivable for securities lending income | 29,212 | |||
Prepaid expenses and other assets | 1,417 | |||
|
| |||
Total assets | 133,012,841 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 810,225 | |||
Payable for Fund shares redeemed | 446,818 | |||
Payable upon receipt of securities loaned | 21,100,625 | |||
Due to custodian bank | 51,362 | |||
Advisory fee payable | 50,327 | |||
Distribution fees payable | 13,603 | |||
Due to other related parties | 13,098 | |||
Accrued expenses and other liabilities | 85,697 | |||
|
| |||
Total liabilities | 22,571,755 | |||
|
| |||
Total net assets | $ | 110,441,086 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 85,955,166 | ||
Undistributed net investment income | 284,645 | |||
Accumulated net realized gains on investments | 1,428,820 | |||
Net unrealized gains on investments | 22,772,455 | |||
|
| |||
Total net assets | $ | 110,441,086 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 1 | $ | 47,842,067 | ||
Shares outstanding – Class 1 | 1,871,763 | |||
Net asset value per share – Class 1 | $25.56 | |||
Net assets – Class 2 | $ | 62,599,019 | ||
Shares outstanding – Class 2 | 2,490,639 | |||
Net asset value per share – Class 2 | $25.13 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 88,440,244 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 21,084,825 | ||
|
| |||
Total investments, at cost | $ | 109,525,069 | ||
|
| |||
Securities on loan, at value | $ | 20,994,347 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Omega Growth Fund | Statement of operations—year ended December 31, 2012 |
Investment income | ||||
Dividends* | $ | 1,177,428 | ||
Securities lending income, net | 138,762 | |||
Income from affiliated securities | 2,587 | |||
|
| |||
Total investment income | 1,318,777 | |||
|
| |||
Expenses | ||||
Advisory fee | 640,091 | |||
Administration fees | ||||
Fund level | 58,190 | |||
Class 1 | 39,704 | |||
Class 2 | 53,400 | |||
Distribution fees | ||||
Class 2 | 166,874 | |||
Custody and accounting fees | 17,015 | |||
Professional fees | 41,782 | |||
Shareholder report expenses | 64,886 | |||
Trustees’ fees and expenses | 13,903 | |||
Other fees and expenses | 4,445 | |||
|
| |||
Total expenses | 1,100,290 | |||
Less: Fee waivers and/or expense reimbursements | (60,565 | ) | ||
|
| |||
Net expenses | 1,039,725 | |||
|
| |||
Net investment income | 279,052 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 11,580,769 | |||
Net change in unrealized gains (losses) on investments | 10,238,012 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 21,818,781 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 22,097,833 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $552 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of changes in net assets | Wells Fargo Advantage VT Omega Growth Fund | 15 |
Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income (loss) | $ | 279,052 | $ | (537,404 | ) | |||||||||||
Net realized gains on investments | 11,580,769 | 10,208,867 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 10,238,012 | (16,548,843 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | 22,097,833 | (6,877,380 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to shareholders from | ||||||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (3,345,101 | ) | (478,304 | ) | ||||||||||||
Class 2 | (4,403,530 | ) | (638,543 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total distributions to shareholders | (7,748,631 | ) | (1,116,847 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 365,607 | 9,240,721 | 475,258 | 11,982,674 | ||||||||||||
Class 2 | 230,521 | 5,691,316 | 258,675 | 6,051,791 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 14,932,037 | 18,034,465 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 143,752 | 3,345,101 | 18,928 | 478,304 | ||||||||||||
Class 2 | 192,210 | 4,403,530 | 25,582 | 638,543 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 7,748,631 | 1,116,847 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (626,300 | ) | (15,863,600 | ) | (741,540 | ) | (17,562,839 | ) | ||||||||
Class 2 | (902,122 | ) | (22,774,558 | ) | (782,129 | ) | (19,014,915 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
| (38,638,158 | ) | (36,577,754 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets resulting from capital share transactions | (15,957,490 | ) | (17,426,442 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total decrease in net assets | (1,608,288 | ) | (25,420,669 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 112,049,374 | 137,470,043 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $110,441,086 | $112,049,374 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment income (loss) | $ | 284,645 | $ | (2,483 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Omega Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 1 | 2012 | 2011 | 20101 | 20091 | 20081 | |||||||||||||||
Net asset value, beginning of period | $ | 22.78 | $ | 24.26 | $ | 20.42 | $ | 14.43 | $ | 19.82 | ||||||||||
Net investment income (loss) | 0.11 | (0.06 | ) | 0.03 | 0.13 | 0.23 | ||||||||||||||
Net realized and unrealized gains (losses) on investments | 4.43 | (1.21 | ) | 3.98 | 6.09 | (5.62 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 4.54 | (1.27 | ) | 4.01 | 6.22 | (5.39 | ) | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | 0.00 | 0.00 | (0.17 | ) | (0.23 | ) | 0.00 | |||||||||||||
Net realized gains | (1.76 | ) | (0.21 | ) | 0.00 | 0.00 | 0.00 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (1.76 | ) | (0.21 | ) | (0.17 | ) | (0.23 | ) | 0.00 | |||||||||||
Net asset value, end of period | $ | 25.56 | $ | 22.78 | $ | 24.26 | $ | 20.42 | $ | 14.43 | ||||||||||
Total return | 20.76 | % | (5.36 | )% | 19.79 | % | 43.97 | % | (27.19 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.80 | % | 0.80 | % | 0.75 | % | 0.76 | % | 0.72 | % | ||||||||||
Net expenses | 0.75 | % | 0.75 | % | 0.74 | % | 0.76 | % | 0.72 | % | ||||||||||
Net investment income (loss) | 0.40 | % | (0.27 | )% | 0.01 | % | 0.86 | % | 1.11 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 93 | % | 110 | % | 160 | % | 28 | % | 46 | % | ||||||||||
Net assets, end of period (000s omitted) | $47,842 | $45,293 | $54,246 | $59,807 | $35,952 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, the Fund acquired the net assets of Evergreen VA Omega Fund and Wells Fargo Advantage VT Large Company Growth Fund. Evergreen VA Omega Fund became the accounting and performance survivor in the transaction. The information for the periods prior to July 19, 2010 is that of Class 1 of Evergreen VA Omega Fund. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Financial highlights | Wells Fargo Advantage VT Omega Growth Fund | 17 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 20091 | 20081 | |||||||||||||||
Net asset value, beginning of period | $ | 22.48 | $ | 24.00 | $ | 20.19 | $ | 14.25 | $ | 19.63 | ||||||||||
Net investment income (loss) | 0.02 | (0.14 | ) | (0.07 | )2 | 0.11 | 0.15 | |||||||||||||
Net realized and unrealized gains (losses) on investments | 4.39 | (1.17 | ) | 3.99 | 6.00 | (5.53 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 4.41 | (1.31 | ) | 3.92 | 6.11 | (5.38 | ) | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | 0.00 | 0.00 | (0.11 | ) | (0.17 | ) | 0.00 | |||||||||||||
Net realized gains | (1.76 | ) | (0.21 | ) | 0.00 | 0.00 | 0.00 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (1.76 | ) | (0.21 | ) | (0.11 | ) | (0.17 | ) | 0.00 | |||||||||||
Net asset value, end of period | $ | 25.13 | $ | 22.48 | $ | 24.00 | $ | 20.19 | $ | 14.25 | ||||||||||
Total return | 20.39 | % | (5.54 | )% | 19.48 | % | 43.58 | % | (27.41 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.05 | % | 1.05 | % | 1.01 | % | 1.00 | % | 0.97 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 0.97 | % | ||||||||||
Net investment income (loss) | 0.12 | % | (0.52 | )% | (0.34 | )% | 0.63 | % | 0.86 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 93 | % | 110 | % | 160 | % | 28 | % | 46 | % | ||||||||||
Net assets, end of period (000s omitted) | $62,599 | $66,756 | $83,224 | $33,196 | $22,910 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, the Fund acquired the net assets of Evergreen VA Omega Fund and Wells Fargo Advantage VT Large Company Growth Fund. Evergreen VA Omega Fund became the accounting and performance survivor in the transaction. The information for the periods prior to July 19, 2010 is that of Class 2 of Evergreen VA Omega Fund. |
| 2. | Calculated based upon average shares outstanding |
The accompanying notes are an integral part of these financial statements.
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| 18 | Wells Fargo Advantage VT Omega Growth Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Omega Growth Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
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| Notes to financial statements | Wells Fargo Advantage VT Omega Growth Fund | 19 |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
| Undistributed net investment income | Accumulated net realized gains on investments | |
| $8,076 | $(8,076) |
At December 31, 2012, net capital loss carryforwards, which are available to offset future net realized capital gains, were as follows:
Pre-enactment capital loss expiration* | ||||||
| 2013 | 2015 | 2016 | 2017 | |||
| $745,554 | $4,132,177 | $2,303,740 | $771,379 | |||
| * | Losses incurred in taxable years beginning before December 22, 2010. |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Shareholders of each class bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund, earn income from the portfolio, and are allocated any unrealized gains and losses pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains and losses are allocated to each class pro rata based upon the net assets of
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| 20 | Wells Fargo Advantage VT Omega Growth Fund | Notes to financial statements |
each class on the date realized. Differences in per share dividend rates generally result from the relative weightings of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution fees.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 111,155,160 | $ | 0 | $ | 0 | $ | 111,155,160 | ||||||||
Other | 0 | 0 | 57,539 | 57,539 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 0 | 21,084,825 | 0 | 21,084,825 | ||||||||||||
| $ | 111,155,160 | $ | 21,084,825 | $ | 57,539 | $ | 132,297,524 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.55% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.35% and declining to 0.15% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and a class level administration fee of 0.08% which is calculated based on the average daily net assets of each class.
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| Notes to financial statements | Wells Fargo Advantage VT Omega Growth Fund | 21 |
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.75% for Class 1 and 1.00% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $106,837,046 and $126,866,025, respectively.
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $213 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2012 and December 31, 2011 were as follows:
| Year ended December 31, | ||||
| 2012 | 2011 | |||
Short-term capital gain | $2,432,943 | $ 0 | ||
Long-term capital gain | 5,315,688 | 1,116,847 | ||
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | Capital loss carryforward | |||
| $286,889 | $9,595,209 | $22,558,916 | ($7,952,850) |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| 22 | Wells Fargo Advantage VT Omega Growth Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Omega Growth Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Omega Growth Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| Other information (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 23 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 15.45% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2012.
Pursuant to Section 852 of the Internal Revenue Code, $5,315,688 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2012.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 24 | Wells Fargo Advantage VT Omega Growth Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 25 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 26 | Wells Fargo Advantage VT Omega Growth Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
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This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214184 02-13 AVT5/AR151 12-12 |
Table of Contents
Wells Fargo Advantage VT Opportunity FundSM
Annual Report
December 31, 2012
Table of Contents
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Contents
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Table of Contents
Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
Table of Contents
Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Opportunity Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Opportunity Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, offset by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy. Small-cap stocks modestly outperformed large-cap stocks during the period as investors bid up stocks with greater sensitivity to economic growth.
Macroeconomic optimism faded as global growth slowed and worries rose.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to Spain’s weak economy and depressed property sector, and Spanish bond prices declined. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do whatever it takes to preserve the euro boosted investor confidence. In addition, the ECB announced in September that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
U.S. stocks gained as the U.S. economy reported relatively solid news.
For most of the period, U.S. economic data remained moderately positive. Reported gross domestic product (GDP) growth came in at a 2.0% annualized rate in the first quarter of 2012, slower than the pace in the fourth quarter of 2011 but in positive territory. Reported GDP growth slowed to a 1.3% annualized rate in the second quarter of 2012, only to reaccelerate to 3.1% annualized in the third quarter. Continued economic growth in the U.S. contrasted with the more
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 3 |
uncertain picture in Europe. The unemployment rate was a notable exception to generally positive U.S. economic news. Although the unemployment rate declined—from 8.3% in January 2012 to 7.8% in December 2012—at least part of the decline could be attributed to a decline in the labor force. (People are only counted as unemployed if they are officially looking for work.)
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period. Toward the end of 2012, however, widespread uncertainty about the fiscal cliff—a combination of expiring tax breaks, tax increases, and spending cuts originally scheduled to take effect on January 1, 2013—dampened U.S. stock market performance. Small-cap stocks gained 16.35% for the period as measured by the Russell 2000® Index1, approximately in line with a 16.00% return for large-cap stocks as measured by the S&P 500 Index2 for the same period. Value stocks outperformed growth stocks across all market capitalizations, aided by continued strength in financials.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period.
| 1. | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index. |
| 2. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| 4 | Wells Fargo Advantage VT Opportunity Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Ann M. Miletti
Thomas D. Wooden, CFA
Average annual total returns1 (%) as of December 31, 2012
| Expense ratios2 (%) | ||||||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
| Class 1 | 8-26-2011 | 15.80 | 3.71 | 9.63 | 0.82 | 0.75 | ||||||||||||||||
| Class 2 | 5-8-1992 | 15.52 | 3.63 | 9.59 | 1.07 | 1.00 | ||||||||||||||||
| Russell Midcap® Index4,6 | – | 17.28 | 3.57 | 10.65 | – | – | ||||||||||||||||
| Russell 3000® Index5,6 | – | 16.42 | 2.04 | 7.68 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). This Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 5 |
| Growth of $10,000 investment7 as of December 31, 2012 | ||
| ||
| 1. | Historical performance shown for Class 1 shares prior to their inception reflects the performance of Class 2 shares, and includes the higher expenses applicable to Class 2 shares. If these expenses had not been included, returns would be higher. |
| 2. | Reflects the expense ratio as stated in the most recent prospectuses. |
| 3. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at the amounts shown. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 4. | The Russell Midcap® Index measures the performance of the 800 smallest companies in the Russell 1000® Index, which represent approximately 25 of the total market capitalization of the Russell 1000 Index. You cannot invest directly in an index. |
| 5. | The Russell 3000® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. You cannot invest directly in an index. |
| 6. | Effective January 1, 2013, the Fund changed its benchmark from the Russell MidCap Index to the Russell 3000 Index to better align with its new strategy to invest in equity securities of companies of all market capitalizations. |
| 7. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Russell Midcap Index and Russell 3000 Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 8. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 9. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
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| 6 | Wells Fargo Advantage VT Opportunity Fund | Performance highlights (unaudited) |
MANAGER'S DISCUSSION
Fund highlights
| n | The Fund underperformed its benchmark, the Russell Midcap Index, during the 12-month period that ended December 31, 2012. |
| n | Holdings in the consumer discretionary and energy space detracted from relative returns, more than offsetting positive stock selection in the information technology (IT), industrials, and health care sectors. |
| n | Uncertainty about the fiscal cliff in the U.S. and general global debt concerns fostered stock market volatility in 2012. However, continued monetary easing by central banks helped reduce investor concerns, leading to positive stock market returns around the world. We continued to look for well-positioned companies with solid business models, strong management teams, and favorable trends that trade at attractive discounts to our estimated private market price (PMP) discipline. |
| Ten largest equity holdings8 (%) as of December 31, 2012 | ||||
ACE Limited | 2.10 | |||
Praxair Incorporated | 1.87 | |||
Agilent Technologies Incorporated | 1.67 | |||
Kroger Company | 1.62 | |||
Covance Incorporated | 1.59 | |||
K12 Incorporated | 1.56 | |||
Cognizant Technology Solutions Corporation Class A | 1.55 | |||
Republic Services Incorporated | 1.51 | |||
Owens-Illinois Incorporated | 1.51 | |||
ON Semiconductor Corporation | 1.50 | |||
Stock selection and sector weights both contributed to the Fund’s investment results.
The Fund’s consumer discretionary holdings detracted from overall results, with mixed performance in the retail group. In particular, retailers with more exposure to middle-income buyers, such as Kohl’s Corporation and Target Corporation, suffered from stunted consumer spending amid uneven economic and consumer confidence readings. Whirlpool Corporation was one of the Fund’s bright spots in the consumer discretionary sector. Whirlpool issued better-than-expected earnings guidance in 2012 and showed an ability to sell appliances at higher prices, causing its stock price to more than double. Recovery in the housing market also boosted Whirlpool’s stock price because consumers tend to purchase new appliances when they buy a new or existing home.
The IT sector was again a steady contributor to relative performance during the 12-month period. Stock selection—especially in areas related to the emerging trends of digital mobility, storage, and cloud computing—aided results. Key holdings in companies that focus on data processing also added value. For example, Alliance Data Systems Corporation surged more than 39% during the year as it benefited from increased usage of credit and debit payments in lieu of cash.
In the industrials sector, steady yet modest economic growth supported a number of our holdings. Hertz Global Holdings, Incorporated, returned nearly 39% as the market recognized the company’s growing business of renting equipment for new construction. The equipment rental business capitalizes on a trend of companies renting instead of owning construction equipment. Many firms liquidated their equipment inventories during the last economic downturn and are not yet ready to commit long-term capital for repurchases. Transportation companies also performed well. Fund holdings Delta Air Lines, Incorporated, and J.B. Hunt Transport Services, Incorporated, rose 47% and 34%, respectively, as enhanced efficiencies and industry consolidation led to greater profitability for both companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 7 |
| Sector distribution9 as of December 31, 2012 | ||
| ||
Our methodology of buying stocks that are selling at a discount to their private market prices (PMPs) and selling stocks that approach their PMPs continues.
The PMP is the price that a private investor would be willing to pay for the entire company. Our discipline allows us to be patient with stocks that are out of favor with the market. When we entered 2012, we believed that we would see a slow-growth economic environment and that the market would appreciate if individual companies could grow revenues and improve earnings. That scenario largely came to pass, and, in fact, forecasted growth in gross domestic product for 2012 is slightly better than we would have expected at the beginning of the year. Nevertheless, we would not have anticipated the extreme market movements that happened during the year. It seemed that the market was driven less by fundamentals and more by varying perceptions of global central bank easing.
Uncertainty remains, but opportunities remain as well.
Looking ahead, we remain cautiously optimistic. Based on our 2013 assessment of PMPs for the companies we own, the Fund appears attractively positioned.
Going forward in 2013 and beyond, we have decided to change the Fund’s primary benchmark from the Russell Midcap Index to the broader Russell 3000 Index. This is not a change in the portfolio management of the Fund, as the investment team, decision-making process, and portfolio characteristics will remain the same. Rather, this is a recognition that the Fund has historically tended to have a higher weighted average market capitalization than the more-narrow Russell Midcap Index. We believe that the Russell 3000 Index—with its mix of large-, mid-, and small-size companies—is a better fit for the Fund. We plan to maintain the Fund’s historical emphasis on mid-sized and larger companies and to avoid significant positions in mega-cap companies.
Ongoing market volatility could reappear because of investor uneasiness with the need for U.S. debt refinancing, possible additional downgrades by rating agencies, and continued political bickering in the U.S. and abroad. Nevertheless, we believe that stocks are attractively valued, and if earnings results remain positive, at some point the market should reward growth through higher stock prices. We look forward to 2013 with the knowledge that most of the Fund’s holdings have attractive balance sheets, solid earnings, and meaningfully improved cost structures.
Please see footnotes on page 5.
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| 8 | Wells Fargo Advantage VT Opportunity Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,092.13 | $ | 3.94 | 0.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.37 | $ | 3.81 | 0.75 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,090.59 | $ | 5.26 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.11 | $ | 5.08 | 1.00 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
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| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Opportunity Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 94.35% | ||||||||||||
Consumer Discretionary: 18.30% | ||||||||||||
| Diversified Consumer Services: 1.56% | ||||||||||||
K12 Incorporated † | 174,493 | $ | 3,566,637 | |||||||||
|
| |||||||||||
| Hotels, Restaurants & Leisure: 1.18% | ||||||||||||
Carnival Corporation « | 73,316 | 2,695,829 | ||||||||||
|
| |||||||||||
| Household Durables: 2.03% | ||||||||||||
Harman International Industries Incorporated | 38,198 | 1,705,159 | ||||||||||
Whirlpool Corporation « | 29,109 | 2,961,841 | ||||||||||
| 4,667,000 | ||||||||||||
|
| |||||||||||
| Media: 5.44% | ||||||||||||
Cablevision Systems Corporation New York Group Class A « | 131,501 | 1,964,625 | ||||||||||
Comcast Corporation Class A | 53,274 | 1,915,200 | ||||||||||
Discovery Communications Incorporated Ǡ | 43,793 | 2,561,891 | ||||||||||
Liberty Global Incorporated Class A † | 46,484 | 2,928,027 | ||||||||||
Omnicom Group Incorporated « | 62,098 | 3,102,416 | ||||||||||
| 12,472,159 | ||||||||||||
|
| |||||||||||
| Multiline Retail: 5.22% | ||||||||||||
Dollar General Corporation † | 43,561 | 1,920,604 | ||||||||||
Family Dollar Stores Incorporated | 24,102 | 1,528,308 | ||||||||||
Kohl's Corporation « | 67,196 | 2,888,084 | ||||||||||
Macy's Incorporated | 67,768 | 2,644,307 | ||||||||||
Nordstrom Incorporated | 55,997 | 2,995,840 | ||||||||||
| 11,977,143 | ||||||||||||
|
| |||||||||||
| Specialty Retail: 2.87% | ||||||||||||
CarMax Incorporated † | 76,822 | 2,883,898 | ||||||||||
Dick's Sporting Goods Incorporated « | 21,347 | 971,075 | ||||||||||
Express Incorporated Ǡ | 180,960 | 2,730,686 | ||||||||||
| 6,585,659 | ||||||||||||
|
| |||||||||||
Consumer Staples: 5.14% | ||||||||||||
| Food & Staples Retailing: 1.62% | ||||||||||||
Kroger Company « | 142,502 | 3,707,902 | ||||||||||
|
| |||||||||||
| Food Products: 2.60% | ||||||||||||
General Mills Incorporated | 81,866 | 3,308,205 | ||||||||||
Mead Johnson Nutrition Company | 40,265 | 2,653,061 | ||||||||||
| 5,961,266 | ||||||||||||
|
| |||||||||||
| Household Products: 0.92% | ||||||||||||
Church & Dwight Company Incorporated | 39,452 | 2,113,444 | ||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Opportunity Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
Energy: 9.63% | ||||||||||||
| Energy Equipment & Services: 5.04% | ||||||||||||
McDermott International Incorporated Ǡ | 272,671 | $ | 3,004,834 | |||||||||
National Oilwell Varco Incorporated | 40,244 | 2,750,677 | ||||||||||
Superior Energy Services Incorporated † | 144,200 | 2,987,824 | ||||||||||
Weatherford International Limited † | 251,613 | 2,815,549 | ||||||||||
| 11,558,884 | ||||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 4.59% | ||||||||||||
Cabot Oil & Gas Corporation | 36,192 | 1,800,190 | ||||||||||
Denbury Resources Incorporated Ǡ | 197,910 | 3,206,142 | ||||||||||
Newfield Exploration Company Ǡ | 103,169 | 2,762,866 | ||||||||||
Peabody Energy Corporation | 103,192 | 2,745,939 | ||||||||||
| 10,515,137 | ||||||||||||
|
| |||||||||||
Financials: 14.20% | ||||||||||||
| Capital Markets: 2.61% | ||||||||||||
Invesco Limited | 104,933 | 2,737,702 | ||||||||||
TD Ameritrade Holding Corporation « | 192,939 | 3,243,305 | ||||||||||
| 5,981,007 | ||||||||||||
|
| |||||||||||
| Commercial Banks: 3.39% | ||||||||||||
Branch Banking & Trust Corporation | 66,313 | 1,930,371 | ||||||||||
Fifth Third Bancorp | 189,332 | 2,875,953 | ||||||||||
PNC Financial Services Group Incorporated | 50,837 | 2,964,305 | ||||||||||
| 7,770,629 | ||||||||||||
|
| |||||||||||
| Diversified Financial Services: 1.20% | ||||||||||||
InterContinental Exchange Incorporated † | 22,293 | 2,760,096 | ||||||||||
|
| |||||||||||
| Insurance: 4.51% | ||||||||||||
ACE Limited | 60,229 | 4,806,274 | ||||||||||
Reinsurance Group of America Incorporated | 46,298 | 2,477,869 | ||||||||||
RenaissanceRe Holdings Limited | 37,526 | 3,049,363 | ||||||||||
| 10,333,506 | ||||||||||||
|
| |||||||||||
| REITs: 2.49% | ||||||||||||
American Tower Corporation | 35,400 | 2,735,358 | ||||||||||
BioMed Realty Trust Incorporated « | 153,816 | 2,973,263 | ||||||||||
| 5,708,621 | ||||||||||||
|
| |||||||||||
Health Care: 11.20% | ||||||||||||
| Health Care Equipment & Supplies: 3.81% | ||||||||||||
C.R. Bard Incorporated | 27,224 | 2,660,874 | ||||||||||
Covidien plc | 50,262 | 2,902,128 | ||||||||||
Zimmer Holdings Incorporated | 47,545 | 3,169,350 | ||||||||||
| 8,732,352 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Opportunity Fund | 11 |
| Security name | Shares | Value | ||||||||||
| Health Care Providers & Services: 1.49% | ||||||||||||
Health Management Associates Incorporated Class A † | 365,961 | $ | 3,410,757 | |||||||||
|
| |||||||||||
| Life Sciences Tools & Services: 5.90% | ||||||||||||
Agilent Technologies Incorporated | 93,718 | 3,836,815 | ||||||||||
Covance Incorporated Ǡ | 63,072 | 3,643,669 | ||||||||||
Thermo Fisher Scientific Incorporated | 48,938 | 3,121,266 | ||||||||||
Waters Corporation Ǡ | 33,765 | 2,941,607 | ||||||||||
| 13,543,357 | ||||||||||||
|
| |||||||||||
Industrials: 13.20% | ||||||||||||
| Aerospace & Defense: 1.43% | ||||||||||||
B/E Aerospace Incorporated † | 66,162 | 3,268,403 | ||||||||||
|
| |||||||||||
| Airlines: 1.54% | ||||||||||||
Delta Air Lines Incorporated † | 156,704 | 1,860,076 | ||||||||||
United Continental Holdings Incorporated Ǡ | 71,357 | 1,668,327 | ||||||||||
| 3,528,403 | ||||||||||||
|
| |||||||||||
| Commercial Services & Supplies: 1.51% | ||||||||||||
Republic Services Incorporated | 118,354 | 3,471,323 | ||||||||||
|
| |||||||||||
| Construction & Engineering: 0.71% | ||||||||||||
Quanta Services Incorporated † | 60,010 | 1,637,673 | ||||||||||
|
| |||||||||||
| Electrical Equipment: 3.08% | ||||||||||||
AMETEK Incorporated | 54,999 | 2,066,312 | ||||||||||
Babcock & Wilcox Company | 81,964 | 2,147,457 | ||||||||||
Regal-Beloit Corporation | 40,507 | 2,854,528 | ||||||||||
| 7,068,297 | ||||||||||||
|
| |||||||||||
| Machinery: 2.33% | ||||||||||||
Dover Corporation « | 38,273 | 2,514,919 | ||||||||||
Gardner Denver Incorporated | 17,743 | 1,215,396 | ||||||||||
SPX Corporation | 22,788 | 1,598,578 | ||||||||||
| 5,328,893 | ||||||||||||
|
| |||||||||||
| Road & Rail: 2.60% | ||||||||||||
Hertz Global Holdings Incorporated Ǡ | 194,487 | 3,164,303 | ||||||||||
J.B. Hunt Transport Services Incorporated « | 46,889 | 2,799,742 | ||||||||||
| 5,964,045 | ||||||||||||
|
| |||||||||||
Information Technology: 16.67% | ||||||||||||
| Communications Equipment: 1.33% | ||||||||||||
Riverbed Technology Incorporated † | 154,522 | 3,047,174 | ||||||||||
|
| |||||||||||
| Computers & Peripherals: 1.44% | ||||||||||||
NetApp Incorporated † | 98,180 | 3,293,939 | ||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Opportunity Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Electronic Equipment, Instruments & Components: 1.34% | ||||||||||||
Amphenol Corporation Class A « | 47,366 | $ | 3,064,580 | |||||||||
|
| |||||||||||
| IT Services: 3.95% | ||||||||||||
Alliance Data Systems Corporation Ǡ | 16,028 | 2,320,213 | ||||||||||
Cognizant Technology Solutions Corporation Class A † | 48,038 | 3,557,214 | ||||||||||
Global Payments Incorporated | 70,481 | 3,192,789 | ||||||||||
| 9,070,216 | ||||||||||||
|
| |||||||||||
| Semiconductors & Semiconductor Equipment: 4.87% | ||||||||||||
Altera Corporation | 76,814 | 2,645,474 | ||||||||||
ARM Holdings plc | 197,487 | 2,494,012 | ||||||||||
Avago Technologies Limited | 81,896 | 2,592,827 | ||||||||||
ON Semiconductor Corporation † | 486,804 | 3,431,968 | ||||||||||
| 11,164,281 | ||||||||||||
|
| |||||||||||
| Software: 3.74% | ||||||||||||
Autodesk Incorporated † | 67,666 | 2,391,993 | ||||||||||
Check Point Software Technologies Limited Ǡ | 65,412 | 3,116,228 | ||||||||||
Red Hat Incorporated † | 57,969 | 3,070,038 | ||||||||||
| 8,578,259 | ||||||||||||
|
| |||||||||||
Materials: 6.01% | ||||||||||||
| Chemicals: 1.87% | ||||||||||||
Praxair Incorporated | 39,132 | 4,282,997 | ||||||||||
|
| |||||||||||
| Containers & Packaging: 4.14% | ||||||||||||
Bemis Company Incorporated | 90,192 | 3,017,824 | ||||||||||
Crown Holdings Incorporated † | 81,963 | 3,017,058 | ||||||||||
Owens-Illinois Incorporated † | 162,387 | 3,453,974 | ||||||||||
| 9,488,856 | ||||||||||||
|
| |||||||||||
Total Common Stocks (Cost $193,702,617) | 216,318,724 | |||||||||||
|
| |||||||||||
Investment Companies: 0.31% | ||||||||||||
SPDR S&P Biotech ETF « | 7,983 | 701,786 | ||||||||||
|
| |||||||||||
Total Investment Companies (Cost $654,925) | 701,786 | |||||||||||
|
| |||||||||||
| Principal | ||||||||||||
Other: 0.27% | ||||||||||||
Gryphon Funding Limited, Pass-Through Entity (a)(i)(v) | $ | 1,859,351 | 613,586 | |||||||||
|
| |||||||||||
Total Other (Cost $168,486) | 613,586 | |||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Opportunity Fund | 13 |
| Yield | Shares | Value | ||||||||||||
| Short-Term Investments: 25.23% | ||||||||||||||
| Investment Companies: 25.23% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market, Select Class (l)(u) | 0.14 | % | 12,058,442 | $ | 12,058,442 | |||||||||
Wells Fargo Securities Lending Cash Investments, LLC (l)(r)(u)(v) | 0.20 | 45,795,164 | 45,795,164 | |||||||||||
Total Short-Term Investments (Cost $57,853,606) | 57,853,606 | |||||||||||||
|
| |||||||||||||
| Total investments in securities | ||||||||
| (Cost $252,379,634) * | 120.16 | % | 275,487,702 | |||||
Other assets and liabilities, net | (20.16 | ) | (46,224,919 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 229,262,783 | ||||
|
|
|
|
| † | Non-income-earning security |
| « | All or a portion of this security is on loan. |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited. |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| * | Cost for federal income tax purposes is $255,162,017 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 31,062,178 | ||
Gross unrealized depreciation | (10,736,493 | ) | ||
|
| |||
Net unrealized appreciation | $ | 20,325,685 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Opportunity Fund | Statement of assets and liabilities—December 31, 2012 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 217,634,096 | ||
In affiliated securities, at value (see cost below) | 57,853,606 | |||
|
| |||
Total investments, at value (see cost below) | 275,487,702 | |||
Receivable for investments sold | 498,005 | |||
Receivable for Fund shares sold | 11,573 | |||
Receivable for dividends | 149,996 | |||
Receivable for securities lending income | 4,126 | |||
Prepaid expenses and other assets | 1,663 | |||
|
| |||
Total assets | 276,153,065 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 115,188 | |||
Payable for Fund shares redeemed | 536,034 | |||
Payable upon receipt of securities loaned | 45,963,650 | |||
Advisory fee payable | 117,240 | |||
Distribution fees payable | 40,989 | |||
Due to other related parties | 25,936 | |||
Accrued expenses and other liabilities | 91,245 | |||
|
| |||
Total liabilities | 46,890,282 | |||
|
| |||
Total net assets | $ | 229,262,783 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 238,370,083 | ||
Undistributed net investment income | 525,265 | |||
Accumulated net realized losses on investments | (32,740,633 | ) | ||
Net unrealized gains on investments | 23,108,068 | |||
|
| |||
Total net assets | $ | 229,262,783 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 1 | $ | 40,950,161 | ||
Shares outstanding – Class 1 | 2,045,851 | |||
Net asset value per share – Class 1 | $20.02 | |||
Net assets – Class 2 | $ | 188,312,622 | ||
Shares outstanding – Class 2 | 9,392,050 | |||
Net asset value per share – Class 2 | $20.05 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 194,526,028 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 57,853,606 | ||
|
| |||
Total investments, at cost | $ | 252,379,634 | ||
|
| |||
Securities on loan, at value | $ | 45,717,254 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of operations—year ended December 31, 2012 | Wells Fargo Advantage VT Opportunity Fund | 15 |
Investment income | ||||
Dividends* | $ | 2,834,789 | ||
Securities lending income, net | 55,803 | |||
Income from affiliated securities | 13,357 | |||
|
| |||
Total investment income | 2,903,949 | |||
|
| |||
Expenses | ||||
Advisory fee | 1,557,445 | |||
Administration fees | ||||
Fund level | 119,803 | |||
Class 1 | 33,598 | |||
Class 2 | 158,088 | |||
Distribution fees | ||||
Class 2 | 494,024 | |||
Custody and accounting fees | 21,747 | |||
Professional fees | 43,443 | |||
Shareholder report expenses | 93,571 | |||
Trustees' fees and expenses | 15,962 | |||
Other fees and expenses | 4,500 | |||
|
| |||
Total expenses | 2,542,181 | |||
Less: Fee waivers and/or expense reimbursements | (251,106 | ) | ||
|
| |||
Net expenses | 2,291,075 | |||
|
| |||
Net investment income | 612,874 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 23,332,288 | |||
Net change in unrealized gains (losses) on investments | 10,878,070 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 34,210,358 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 34,823,232 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $1,251 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Opportunity Fund | Statement of changes in net assets |
| Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 612,874 | $ | 415,644 | ||||||||||||
Net realized gains on investments | 23,332,288 | 12,647,751 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 10,878,070 | (16,138,693 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | 34,823,232 | (3,075,298 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (242,059 | ) | 0 | 1 | ||||||||||||
Class 2 | (185,335 | ) | (228,148 | ) | ||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (14,605 | ) | 0 | 1 | ||||||||||||
Class 2 | (67,973 | ) | 0 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total distributions to shareholders | (509,972 | ) | (228,148 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 47,802 | 900,770 | 78,783 | 1 | 1,305,075 | 1 | ||||||||||
Class 2 | 360,780 | 6,908,697 | 721,399 | 13,833,446 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 7,809,467 | 15,138,521 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 13,970 | 256,664 | 0 | 1 | 0 | 1 | ||||||||||
Class 2 | 14,191 | 253,308 | 11,742 | 228,148 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 509,972 | 228,148 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (436,470 | ) | (8,299,876 | ) | (201,134 | )1 | (3,415,950 | )1 | ||||||||
Class 2 | (2,575,878 | ) | (48,721,763 | ) | (2,739,789 | ) | (49,078,548 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
| (57,021,639 | ) | (52,494,498 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net asset value of shares issued in acquisition | ||||||||||||||||
Class 1 | 0 | 0 | 2,542,900 | 1 | 42,011,395 | 1 | ||||||||||
Class 2 | 0 | 0 | 4,464,853 | 73,764,505 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 0 | 115,775,900 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from capital share transactions | (48,702,200 | ) | 78,648,071 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase (decrease) in net assets | (14,388,940 | ) | 75,344,625 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 243,651,723 | 168,307,098 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $ | 229,262,783 | $ | 243,651,723 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment income | $ | 525,265 | $ | 331,116 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 1. | For the period from August 26, 2011 (commencement of class operations) to December 31, 2011. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Financial highlights | Wells Fargo Advantage VT Opportunity Fund | 17 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||
| CLASS 1 | 2012 | 20111 | ||||||
Net asset value, beginning of period | $ | 17.40 | $ | 16.52 | ||||
Net investment income | 0.10 | 0.04 | ||||||
Net realized and unrealized gains (losses) on investments | 2.64 | 0.84 | ||||||
|
|
|
| |||||
Total from investment operations | 2.74 | 0.88 | ||||||
Distributions to shareholders from | ||||||||
Net investment income | (0.11 | ) | 0.00 | |||||
Net realized gains | (0.01 | ) | 0.00 | |||||
|
|
|
| |||||
Total distributions to shareholders | (0.12 | ) | 0.00 | |||||
Net asset value, end of period | $ | 20.02 | $ | 17.40 | ||||
Total return2 | 15.80 | % | 5.33 | % | ||||
Ratios to average net assets (annualized) | ||||||||
Gross expenses | 0.86 | % | 0.83 | % | ||||
Net expenses | 0.75 | % | 0.75 | % | ||||
Net investment income | 0.46 | % | 0.61 | % | ||||
Supplemental data | ||||||||
Portfolio turnover rate | 36 | % | 35 | % | ||||
Net assets, end of period (000s omitted) | $ | 40,950 | $ | 42,116 | ||||
| 1. | For the period from August 26, 2011 (commencement of class operations) to December 31, 2011. |
| 2. | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 18 | Wells Fargo Advantage VT Opportunity Fund | Financial highlights |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 17.38 | $ | 18.42 | $ | 15.01 | $ | 10.16 | $ | 22.03 | ||||||||||
Net investment income | 0.05 | 0.03 | 0.02 | 0.11 | 0.12 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 2.65 | (1.04 | ) | 3.51 | 4.74 | (7.30 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.70 | (1.01 | ) | 3.53 | 4.85 | (7.18 | ) | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.02 | ) | (0.03 | ) | (0.12 | ) | 0.00 | (0.37 | ) | |||||||||||
Net realized gains | (0.01 | ) | 0.00 | 0.00 | 0.00 | (4.32 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.03 | ) | (0.03 | ) | (0.12 | ) | 0.00 | (4.69 | ) | |||||||||||
Net asset value, end of period | $ | 20.05 | $ | 17.38 | $ | 18.42 | $ | 15.01 | $ | 10.16 | ||||||||||
Total return | 15.52 | % | (5.52 | )% | 23.76 | % | 47.74 | % | (40.10 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.10 | % | 1.07 | % | 1.18 | % | 1.32 | % | 1.21 | % | ||||||||||
Net expenses | 1.00 | % | 1.04 | % | 1.07 | % | 1.07 | % | 1.07 | % | ||||||||||
Net investment income | 0.21 | % | 0.18 | % | 0.08 | % | 0.39 | % | 0.47 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 36 | % | 35 | % | 40 | % | 50 | % | 70 | % | ||||||||||
Net assets, end of period (000s omitted) | $188,313 | $201,535 | $168,307 | $154,782 | $378,197 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
The accompanying notes are an integral part of these financial statements.
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| Notes to financial statements | Wells Fargo Advantage VT Opportunity Fund | 19 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Opportunity Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Securities denominated in foreign currencies are translated into U.S. dollars using the rates of exchange in effect on the day of valuation at a time specified by the Management Valuation Team of Wells Fargo Funds Management, LLC ("Funds Management").
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the last reported sales price or latest quoted bid price. On December 31, 2012, fair value pricing was used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary in determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
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| 20 | Wells Fargo Advantage VT Opportunity Fund | Notes to financial statements |
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. Assets, including investment securities, and liabilities denominated in foreign currency are translated into U.S. dollars at the rates of exchange at a time specified by the Management Valuation Team on the date of valuation. Purchases and sales of securities, and income and expenses are translated at the rate of exchange on the respective dates of such transactions. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting in changes in exchange rates.
The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are recorded with net realized and unrealized gains or losses from investments. Gains and losses from certain foreign currency transactions are treated as ordinary income for U.S. federal income tax purposes.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
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| Notes to financial statements | Wells Fargo Advantage VT Opportunity Fund | 21 |
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to certain distributions paid and recognition of partnership income. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
| Paid-in capital | Undistributed net investment income | Accumulated net realized losses on investments | ||
| $(16,241) | $8,669 | $7,572 |
At December 31, 2012, net capital loss carryforwards, which were available to offset future net realized capital gains, were as follows:
Pre-enactment capital loss expiration* | Post-enactment capital losses** | |||||||
| 2015 | 2016 | 2017 | Short-term | Long-term | ||||
| $1,568,195 | $360,675 | $27,843,563 | $57,006 | $128,811 | ||||
| * | Losses incurred in taxable years beginning before December 22, 2010. |
| ** | Losses incurred in taxable years which began after December 22, 2010 are carried forward for an unlimited period. |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Shareholders of each class bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund, earn income from the portfolio, and are allocated any unrealized gains and losses pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains and losses are allocated to each class pro rata based upon the net assets of each class on the date realized. Differences in per share dividend rates generally result from the relative weightings of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution fees.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
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| 22 | Wells Fargo Advantage VT Opportunity Fund | Notes to financial statements |
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 213,824,712 | $ | 2,494,012 | $ | 0 | $ | 216,318,724 | ||||||||
Investment companies | 701,786 | 0 | 0 | 701,786 | ||||||||||||
Other | 0 | 0 | 613,586 | 613,586 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 12,058,442 | 45,795,164 | 0 | 57,853,606 | ||||||||||||
| $ | 226,584,940 | $ | 48,289,176 | $ | 613,586 | $ | 275,487,702 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.65% and declining to 0.55% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.65% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.30% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and a class level administration fee of 0.08% which is calculated based on the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.75% for Class 1 and 1.00% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $82,863,716 and $136,303,819, respectively.
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| Notes to financial statements | Wells Fargo Advantage VT Opportunity Fund | 23 |
6. ACQUISITION
After the close of business on August 26, 2011, the Fund acquired the net assets of Wells Fargo Advantage VT Core Equity Fund. The purpose of the transaction was to combine two funds with similar investment objectives and strategies. Shareholders holding Class 1 and Class 2 shares of Wells Fargo Advantage VT Core Equity Fund received Class 1 and Class 2 shares, respectively, of the Fund in the reorganization. The acquisition was accomplished by a tax-free exchange of all of the shares of Wells Fargo Advantage VT Core Equity Fund for 7,007,753 shares of the Fund valued at $115,775,900 at an exchange ratio of 0.77 and 0.76 for Class 1 and Class 2 shares, respectively. The investment portfolio of Wells Fargo Advantage VT Core Equity Fund with a fair value of $115,698,003, identified cost of $130,800,975 and unrealized losses of $15,102,972 at August 26, 2011 were the principal assets acquired by the Fund. The aggregate net assets of Wells Fargo Advantage VT Core Equity Fund and the Fund immediately prior to the acquisition were $115,775,900 and $138,830,614, respectively. The aggregate net assets of the Fund immediately after the acquisition were $254,606,514. For financial reporting purposes, assets received and shares issued by the Fund were recorded at fair value; however, the cost basis of the investments received from Wells Fargo Advantage VT Core Equity Fund was carried forward to align ongoing reporting of the Fund’s realized and unrealized gains and losses with amounts distributable to shareholders for tax purposes.
Assuming the acquisition had been completed January 1, 2011, the beginning of the annual reporting period for the Fund, the pro forma results of operations for the year ended December 31, 2011 would have been:
Net investment income | $ | 1,159,297 | ||
Net realized and unrealized losses on investments | $ | (2,976,757 | ) | |
Net decrease in net assets resulting from operations | $ | (1,817,460 | ) |
7. BANK BORROWINGS
The Trust and the Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $448 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $509,972 and $228,148 of ordinary income for the years ended December 31, 2012 and December 31, 2011, respectively.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
| $534,431 | $20,325,685 | $(29,958,250) |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| 24 | Wells Fargo Advantage VT Opportunity Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Opportunity Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Opportunity Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| Other information (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 25 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 100% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2012.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 26 | Wells Fargo Advantage VT Opportunity Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
| Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 27 |
| Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
| Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available,without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 28 | Wells Fargo Advantage VT Opportunity Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214185 02-13 AVT6/AR152 12-12 |
Table of Contents
Wells Fargo Advantage
VT Small Cap Growth Fund
Annual Report
December 31, 2012
Table of Contents
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo���s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Small Cap Growth Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Small Cap Growth Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, offset by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy. Small-cap stocks modestly outperformed large-cap stocks during the period as investors bid up stocks with greater sensitivity to economic growth.
Macroeconomic optimism faded as global growth slowed and worries rose.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to Spain’s weak economy and depressed property sector, and Spanish bond prices declined. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do whatever it takes to preserve the euro boosted investor confidence. In addition, the ECB announced in September that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
U.S. stocks gained as the U.S. economy reported relatively solid news.
For most of the period, U.S. economic data remained moderately positive. Reported gross domestic product (GDP) growth came in at a 2.0% annualized rate in the first quarter of 2012, slower than the pace in the fourth quarter of 2011 but in positive territory. Reported GDP growth slowed to a 1.3% annualized rate in the second quarter of 2012, only to reaccelerate to 3.1% annualized in the third quarter. Continued economic growth in the U.S. contrasted with the more
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 3 |
uncertain picture in Europe. The unemployment rate was a notable exception to generally positive U.S. economic news. Although the unemployment rate declined—from 8.3% in January 2012 to 7.8% in December 2012—at least part of the decline could be attributed to a decline in the labor force. (People are only counted as unemployed if they are officially looking for work.)
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period. Toward the end of 2012, however, widespread uncertainty about the fiscal cliff—a combination of expiring tax breaks, tax increases, and spending cuts originally scheduled to take effect on January 1, 2013—dampened U.S. stock market performance. Small-cap stocks gained 16.35% for the period as measured by the Russell 2000® Index1 , approximately in line with a 16.00% return for large-cap stocks as measured by the S&P 500 Index2 for the same period. Value stocks outperformed growth stocks across all market capitalizations, aided by continued strength in financials.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period.
| 1. | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index. |
| 2. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| 4 | Wells Fargo Advantage VT Small Cap Growth Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Joseph M. Eberhardy, CFA, CFP
Thomas C. Ognar, CFA
Bruce C. Olson, CFA
Average annual total returns1 (%) as of December 31, 2012
|
|
| Expense ratios2 (%) | |||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
| Class 1 | 7-16-2010 | 8.11 | 3.26 | 10.92 | 0.96 | 0.96 | ||||||||||||||||
| Class 2 | 5-1-1995 | 7.87 | 3.13 | 10.85 | 1.21 | 1.21 | ||||||||||||||||
| Russell 2000® Growth Index4 | – | 14.59 | 3.49 | 9.80 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller company stocks tend to be more volatile and less liquid than those of larger companies. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 5 |
| Growth of $10,000 investment5 as of December 31, 2012 | ||
| ||
| 1. | Historical performance shown for Class 1 shares prior to their inception reflects the performance of Class 2 shares, and includes the higher expenses applicable to Class 2 shares. If these expenses had not been included, returns would be higher. |
| 2. | Reflects the expense ratio as stated in the most recent prospectuses. |
| 3. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at 0.95% for Class 1 and 1.20% for Class 2. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 4. | Russell 2000® Growth Index measures the performance of those Russell 2000 companies with higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index. |
| 5. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Russell 2000 Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 6. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 7. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
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| 6 | Wells Fargo Advantage VT Small Cap Growth Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
| n | The Fund underperformed its benchmark, the Russell 2000® Growth Index, for the 12-month period that ended December 31, 2012. |
| n | An overweight of the information technology (IT) sector coupled with poor stock selection, namely in the health care sector, were the primary detractors from relative performance. Favorable stock selection in the industrials and consumer staples sectors aided performance. |
| n | During a period when the markets fluctuated between a risk-on/risk-off environment, we continued to employ our well-defined, bottom-up investment process that is based on individual company fundamentals rather than top-down trends when making portfolio decisions. |
Good year overall for equity market returns but affected by volatility.
2012 proved to be a year of Jekyll and Hyde for many investors in the equity markets. The first quarter exemplified strong growth and corporate confidence, while the second quarter encompassed fear in the marketplace rewarding value-driven investors over growth investors. Much like the first quarter, the third quarter produced strong results as a volatile environment reemerged. Finally, the fourth quarter generated relatively flat results for the equity markets as investors wrestled with political and fiscal uncertainties in the U.S. The year concluded with an uneventful presidential election and ongoing congressional negotiations over what became known as the fiscal cliff. Soon after the end of the reporting period, many of the scheduled tax increases and automatic budget cuts, which were likely to have a negative impact on the U.S. economy, were ultimately averted with a compromise. Despite coming to an agreement, many issues such as the debt ceiling were postponed and left for a new Congress to address in 2013.
| Ten largest equity holdings6 (%) as of December 31, 2012 | ||||
Genesee & Wyoming Incorporated | 2.98 | |||
Endologix Incorporated | 2.86 | |||
Akorn Incorporated | 2.81 | |||
Financial Engines Incorporated | 2.75 | |||
Broadsoft Incorporated | 2.19 | |||
On Assignment Incorporated | 2.16 | |||
Ixia | 2.08 | |||
Solarwinds Incorporated | 1.99 | |||
DXP Enterprises Incorporated | 1.93 | |||
DSW Incorporated Class A | 1.92 | |||
Portfolio results varied by sector.
Throughout 2012, favorable stock selection was particularly evident in the industrials sector. Staffing company On Assignment Incorporated, surpassed many analysts’ expectations and delivered robust earnings growth throughout the year. Genesee & Wyoming Incorporated, a company that operates short-line and regional freight railroads, experienced share price appreciation supported by solid sales growth in 2012.
Consumer staples, a sector that has traditionally been a smaller exposure within the growth space, aided the overall results for the 12-month period. United Natural Foods Incorporated, a distributor of natural and organic foods, and The Fresh Market Incorporated, a specialty retailer that
focuses on perishable fresh products, both benefited from the expanding healthy living trend in the U.S. during the year.
Stock selection in the IT sector was a source of weakness for the Fund in 2012. LogMeIn Incorporated, a cloud-based remote access service, delivered disappointing second quarter results and then later released guidance that was below investor expectations. Its deteriorating fundamental profile, coupled with patent litigation, forced us to question the sustainability of the company’s growth profile. This, in turn, required us to sell our position in the stock as its attributes did not meet our rigid discipline. Synchronoss Technologies Incorporated, a company that provides activations for mobile phones, endured pricing pressure as one of its largest customers experienced a decline in its number of activations. Our belief is that growth with other carriers will reignite robust revenue and earnings growth in the future. On the positive side, SolarWinds Incorporated, and Kenexa Corporation surprised investors with strong earnings. Both companies enjoyed a rally during the period. SolarWinds, an IT software company, continued to surprise analysts by generating solid revenue and earnings growth in 2012. Kenexa, a software service company, also benefited after it was acquired by International Business Machines Corporation for a substantial premium later in the year.
The health care sector was another detractor for the Fund for the 12-month period. NxStage Medical Incorporated, a company that designs medical devices for the treatment of kidney failure, suffered share price compression as concerns
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 7 |
over reimbursement issues frustrated investors. Nevertheless, we believe the market underappreciates the company’s position in the underpenetrated home dialysis market. With our investment thesis intact, we continue to hold the stock within our portfolio.
| Sector distribution7 as of December 31, 2012 | ||
| ||
We are confident in our companies’ growth prospects for 2013.
In conjunction with our view in 2012, our outlook for the coming year remains cautiously optimistic. The uncertainty concerning the effects of the fiscal cliff agreement may influence investors in the near term and may lead to more restrictive fiscal conditions going forward. Nevertheless, significant economic factors tied to improving trends in unemployment, housing, and auto sales reinforce our optimism. Our discussions with management teams at our companies suggest that domestic fiscal challenges will not inhibit business conditions in the coming year, especially since many corporations have been conservative in their capital spending plans and have maintained a disciplined hiring
approach given the recent ambiguity on regulatory and tax policies. We believe that many companies may increase spending and move forward with implementing business strategies in 2013 as greater clarity is achieved on taxes and regulations.
In our opinion, the equity market continues to offer attractively valued growth opportunities. In particular, our portfolio consists of growth stocks trading at valuations near or below their historic averages. We believe that valuations will improve as investor confidence is restored within our markets. Our bottom-up stock selection of companies whose growth is robust, sustainable, and underappreciated by the market navigates us toward firms with strong business models, innovative products and services, and an ability to grow organically. These attributes are often accompanied by strong secular tailwinds that enable our companies to succeed in many different market environments. We believe that our investment style, which focuses on these rapidly growing firms, may be rewarded in the midst of a relatively low growth environment.
Please see footnotes on page 5.
Table of Contents
| 8 | Wells Fargo Advantage VT Small Cap Growth Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual Expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical Example for Comparison Purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,000.66 | $ | 4.73 | 0.94 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.41 | $ | 4.77 | 0.94 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 999.34 | $ | 5.98 | 1.19 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.15 | $ | 6.04 | 1.19 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Small Cap Growth Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 99.48% | ||||||||||||
Consumer Discretionary: 14.03% | ||||||||||||
| Hotels, Restaurants & Leisure: 3.31% | ||||||||||||
Ignite Restaurant Group Incorporated † | 80,638 | $ | 1,048,296 | |||||||||
Life Time Fitness Incorporated Ǡ | 80,100 | 3,941,721 | ||||||||||
SHFL entertainment Incorporated † | 130,542 | 1,892,859 | ||||||||||
| 6,882,876 | ||||||||||||
|
| |||||||||||
| Household Durables: 0.64% | ||||||||||||
SodaStream International Limited Ǡ | 29,700 | 1,333,233 | ||||||||||
|
| |||||||||||
| Internet & Catalog Retail: 3.15% | ||||||||||||
HomeAway Incorporated Ǡ | 127,954 | 2,814,988 | ||||||||||
Shutterfly Incorporated † | 125,153 | 3,738,320 | ||||||||||
| 6,553,308 | ||||||||||||
|
| |||||||||||
| Media: 1.64% | ||||||||||||
IMAX Corporation Ǡ | 151,600 | 3,407,968 | ||||||||||
|
| |||||||||||
| Specialty Retail: 5.29% | ||||||||||||
Asbury Automotive Group Incorporated † | 73,700 | 2,360,611 | ||||||||||
DSW Incorporated Class A | 60,800 | 3,993,952 | ||||||||||
Hibbett Sports Incorporated Ǡ | 15,800 | 832,660 | ||||||||||
Vitamin Shoppe Incorporated Ǡ | 66,300 | 3,802,968 | ||||||||||
| 10,990,191 | ||||||||||||
|
| |||||||||||
Consumer Staples: 2.21% | ||||||||||||
| Food & Staples Retailing: 2.21% | ||||||||||||
The Fresh Market Incorporated Ǡ | 71,500 | 3,438,435 | ||||||||||
United Natural Foods Incorporated † | 21,500 | 1,152,185 | ||||||||||
| 4,590,620 | ||||||||||||
|
| |||||||||||
Energy: 6.37% | ||||||||||||
| Energy Equipment & Services: 0.62% | ||||||||||||
Forum Energy Technologies Incorporated Ǡ | 52,046 | 1,288,139 | ||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 5.75% | ||||||||||||
Approach Resources Incorporated Ǡ | 151,200 | 3,781,512 | ||||||||||
Carrizo Oil & Gas Incorporated Ǡ | 35,856 | 750,108 | ||||||||||
Diamondback Energy Incorporated † | 50,987 | 974,871 | ||||||||||
Kodiak Oil & Gas Corporation † | 183,700 | 1,625,745 | ||||||||||
Laredo Petroleum Holdings Incorporated Ǡ | 112,459 | 2,042,255 | ||||||||||
Oasis Petroleum Incorporated † | 87,300 | 2,776,140 | ||||||||||
| 11,950,631 | ||||||||||||
|
| |||||||||||
Financials: 3.00% | ||||||||||||
| Capital Markets: 2.75% | ||||||||||||
Financial Engines Incorporated Ǡ | 206,100 | 5,719,275 | ||||||||||
|
| |||||||||||
| Insurance: 0.25% | ||||||||||||
eHealth Incorporated † | 19,200 | 527,616 | ||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Small Cap Growth Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
Health Care: 20.42% | ||||||||||||
| Biotechnology: 1.90% | ||||||||||||
Cepheid Incorporated Ǡ | 34,900 | $ | 1,179,969 | |||||||||
Exact Sciences Corporation Ǡ | 53,120 | 562,541 | ||||||||||
Genomic Health Incorporated Ǡ | 21,600 | 588,816 | ||||||||||
Infinity Pharmaceuticals Incorporated Ǡ | 15,900 | 556,500 | ||||||||||
NPS Pharmaceuticals Incorporated Ǡ | 72,800 | 662,480 | ||||||||||
Raptor Pharmaceutical Corporation Ǡ | 68,600 | 401,310 | ||||||||||
| 3,951,616 | ||||||||||||
|
| |||||||||||
| Health Care Equipment & Supplies: 11.29% | ||||||||||||
Abiomed Incorporated Ǡ | 46,800 | 629,928 | ||||||||||
Align Technology Incorporated Ǡ | 142,000 | 3,940,500 | ||||||||||
Cynosure Incorporated Class A † | 88,777 | 2,140,413 | ||||||||||
DexCom Incorporated Ǡ | 133,600 | 1,818,296 | ||||||||||
Endologix Incorporated Ǡ | 416,899 | 5,936,642 | ||||||||||
HeartWare International Incorporated Ǡ | 16,900 | 1,418,755 | ||||||||||
Masimo Corporation | 94,640 | 1,988,386 | ||||||||||
Novadaq Technologies Incorporated † | 120,600 | 1,070,928 | ||||||||||
NxStage Medical Incorporated Ǡ | 273,020 | 3,071,475 | ||||||||||
Volcano Corporation † | 61,900 | 1,461,459 | ||||||||||
| 23,476,782 | ||||||||||||
|
| |||||||||||
| Health Care Providers & Services: 1.37% | ||||||||||||
MWI Veterinary Supply Incorporated Ǡ | 18,800 | 2,068,000 | ||||||||||
Team Health Holdings Incorporated † | 26,800 | 771,036 | ||||||||||
| 2,839,036 | ||||||||||||
|
| |||||||||||
| Health Care Technology: 0.62% | ||||||||||||
Healthstream Incorporated † | 53,000 | 1,288,430 | ||||||||||
|
| |||||||||||
| Pharmaceuticals: 5.24% | ||||||||||||
Akorn Incorporated Ǡ | 437,315 | 5,842,528 | ||||||||||
Impax Laboratories Incorporated Ǡ | 85,000 | 1,741,650 | ||||||||||
Jazz Pharmaceuticals plc † | 62,400 | 3,319,680 | ||||||||||
| 10,903,858 | ||||||||||||
|
| |||||||||||
Industrials: 16.96% | ||||||||||||
| Commercial Services & Supplies: 1.72% | ||||||||||||
InnerWorkings Incorporated † | 259,989 | 3,582,648 | ||||||||||
|
| |||||||||||
| Electrical Equipment: 0.62% | ||||||||||||
Thermon Group Holdings Incorporated † | 57,225 | 1,289,279 | ||||||||||
|
| |||||||||||
| Machinery: 3.40% | ||||||||||||
Chart Industries Incorporated Ǡ | 37,192 | 2,479,591 | ||||||||||
Proto Labs Incorporated Ǡ | 36,255 | 1,429,172 | ||||||||||
The Middleby Corporation Ǡ | 24,599 | 3,153,838 | ||||||||||
| 7,062,601 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Small Cap Growth Fund | 11 |
| Security name | Shares | Value | ||||||||||
| Professional Services: 5.55% | ||||||||||||
Advisory Board Company † | 69,800 | $ | 3,265,942 | |||||||||
Corporate Executive Board Company | 43,400 | 2,059,764 | ||||||||||
Mistras Group Incorporated Ǡ | 69,568 | 1,717,634 | ||||||||||
On Assignment Incorporated † | 221,681 | 4,495,691 | ||||||||||
| 11,539,031 | ||||||||||||
|
| |||||||||||
| Road & Rail: 2.98% | ||||||||||||
Genesee & Wyoming Incorporated Ǡ | 81,400 | 6,192,912 | ||||||||||
|
| |||||||||||
| Trading Companies & Distributors: 2.69% | ||||||||||||
DXP Enterprises Incorporated † | 81,697 | 4,008,872 | ||||||||||
Titan Machinery Incorporated Ǡ | 64,673 | 1,597,423 | ||||||||||
| 5,606,295 | ||||||||||||
|
| |||||||||||
Information Technology: 36.30% | ||||||||||||
| Communications Equipment: 3.36% | ||||||||||||
Aruba Networks Incorporated † | 57,800 | 1,199,350 | ||||||||||
Ixia Ǡ | 254,111 | 4,314,805 | ||||||||||
Procera Networks Incorporated Ǡ | 79,335 | 1,471,664 | ||||||||||
| 6,985,819 | ||||||||||||
|
| |||||||||||
| Computers & Peripherals: 0.37% | ||||||||||||
Stratasys Limited † | 9,500 | 761,425 | ||||||||||
|
| |||||||||||
| Electronic Equipment, Instruments & Components: 1.77% | ||||||||||||
OSI Systems Incorporated † | 57,600 | 3,688,704 | ||||||||||
|
| |||||||||||
| Internet Software & Services: 9.11% | ||||||||||||
Brightcove Incorporated Ǡ | 230,179 | 2,080,818 | ||||||||||
Envestnet Incorporated † | 235,500 | 3,285,225 | ||||||||||
Liquidity Services Incorporated Ǡ | 71,000 | 2,901,060 | ||||||||||
Mercadolibre Incorporated « | 38,500 | 3,024,945 | ||||||||||
OpenTable Incorporated Ǡ | 39,000 | 1,903,200 | ||||||||||
SciQuest Incorporated † | 221,354 | 3,510,674 | ||||||||||
SPS Commerce Incorporated Ǡ | 60,200 | 2,243,654 | ||||||||||
| 18,949,576 | ||||||||||||
|
| |||||||||||
| IT Services: 4.77% | ||||||||||||
Gartner Incorporated † | 35,794 | 1,647,240 | ||||||||||
MarketAxess Holdings Incorporated « | 98,078 | 3,462,153 | ||||||||||
Maximus Incorporated | 22,800 | 1,441,416 | ||||||||||
ServiceSource International Incorporated Ǡ | 36,700 | 214,695 | ||||||||||
Wex Incorporated † | 41,794 | 3,150,014 | ||||||||||
| 9,915,518 | ||||||||||||
|
| |||||||||||
| Semiconductors & Semiconductor Equipment: 1.65% | ||||||||||||
Cavium Incorporated Ǡ | 37,500 | 1,170,375 | ||||||||||
Entegris Incorporated † | 245,800 | 2,256,444 | ||||||||||
| 3,426,819 | ||||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Small Cap Growth Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||||
| Software: 15.27% | ||||||||||||||
Allot Communications Limited Ǡ | 101,594 | $ | 1,810,405 | |||||||||||
Aspen Technology Incorporated † | 47,100 | 1,301,844 | ||||||||||||
Broadsoft Incorporated Ǡ | 125,276 | 4,551,277 | ||||||||||||
Fleetmatics Group plc Ǡ | 93,709 | 2,357,718 | ||||||||||||
Fortinet Incorporated † | 140,200 | 2,954,014 | ||||||||||||
Guidewire Software Incorporated Ǡ | 55,500 | 1,649,460 | ||||||||||||
Imperva Incorporated Ǡ | 61,036 | 1,924,465 | ||||||||||||
Infoblox Incorporated † | 28,700 | 515,739 | ||||||||||||
PROS Holdings Incorporated † | 98,427 | 1,800,230 | ||||||||||||
Solarwinds Incorporated † | 78,806 | 4,133,375 | ||||||||||||
Sourcefire Incorporated Ǡ | 67,000 | 3,163,740 | ||||||||||||
Synchronoss Technologies Incorporated † | 141,958 | 2,993,894 | ||||||||||||
Ultimate Software Group Incorporated Ǡ | 27,500 | 2,596,275 | ||||||||||||
| 31,752,436 | ||||||||||||||
|
| |||||||||||||
Materials: 0.19% | ||||||||||||||
| Chemicals: 0.19% | ||||||||||||||
Landec Corporation † | 40,900 | 388,141 | ||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $187,737,287) | 206,844,783 | |||||||||||||
|
| |||||||||||||
| Principal | ||||||||||||||
| Other: 0.13% | ||||||||||||||
Gryphon Funding Limited Pass-Through Entity (a)(i)(v) | $ | 804,192 | 265,383 | |||||||||||
|
| |||||||||||||
Total Other (Cost $72,872) | 265,383 | |||||||||||||
|
| |||||||||||||
| Yield | Shares | |||||||||||||
| Short-Term Investments: 40.26% | ||||||||||||||
| Investment Companies: 40.26% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.14 | % | 1,348,487 | 1,348,487 | ||||||||||
Wells Fargo Securities Lending Cash Investments, LLC (l)(r)(u)(v) | 0.20 | 82,354,528 | 82,354,528 | |||||||||||
Total Short-Term Investments (Cost $83,703,015) | 83,703,015 | |||||||||||||
|
| |||||||||||||
Total investments in securities (Cost $271,513,174) * | 139.87 | % | 290,813,181 | |||||
Other assets and liabilities, net | (39.87 | ) | (82,901,150 | ) | ||||
|
|
|
| |||||
| Total net assets | 100.00 | % | $ | 207,912,031 | ||||
|
|
|
|
| † | Non-income-earning security |
| « | All or a portion of this security is on loan. |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| * | Cost for federal income tax purposes is $272,841,136 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 29,021,532 | ||
Gross unrealized depreciation | (11,049,487 | ) | ||
|
| |||
Net unrealized appreciation | $ | 17,972,045 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of assets and liabilities—December 31, 2012 | Wells Fargo Advantage VT Small Cap Growth Fund | 13 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 207,110,166 | ||
In affiliated securities, at value (see cost below) | 83,703,015 | |||
|
| |||
Total investments, at value (see cost below) | 290,813,181 | |||
Receivable for Fund shares sold | 71,044 | |||
Receivable for dividends | 4,590 | |||
Receivable for securities lending income | 18,467 | |||
Prepaid expenses and other assets | 1,030 | |||
|
| |||
Total assets | 290,908,312 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 77,141 | |||
Payable for Fund shares redeemed | 185,274 | |||
Payable upon receipt of securities loaned | 82,427,400 | |||
Advisory fee payable | 153,494 | |||
Distribution fees payable | 45,298 | |||
Due to other related parties | 26,445 | |||
Accrued expenses and other liabilities | 81,229 | |||
|
| |||
Total liabilities | 82,996,281 | |||
|
| |||
Total net assets | $ | 207,912,031 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 177,579,180 | ||
Undistributed net investment loss | (1,481 | ) | ||
Accumulated net realized gains on investments | 11,034,325 | |||
Net unrealized gains on investments | 19,300,007 | |||
|
| |||
Total net assets | $ | 207,912,031 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 1 | $ | 25,699,325 | ||
Shares outstanding – Class 1 | 3,240,801 | |||
Net asset value per share – Class 1 | $7.93 | |||
Net assets – Class 2 | $ | 182,212,706 | ||
Shares outstanding – Class 2 | 23,115,199 | |||
Net asset value per share – Class 2 | $7.88 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 187,810,159 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 83,703,015 | ||
|
| |||
Total investments, at cost | $ | 271,513,174 | ||
|
| |||
Securities on loan, at value | $ | 82,068,672 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Small Cap Growth Fund | Statement of operations—year ended December 31, 2012 |
Investment income | ||||
Dividends* | $ | 523,494 | ||
Securities lending income, net | 352,192 | |||
Income from affiliated securities | 5,747 | |||
|
| |||
Total investment income | 881,433 | |||
|
| |||
Expenses | ||||
Advisory fee | 1,727,760 | |||
Administration fees | ||||
Fund level | 115,184 | |||
Class 1 | 23,084 | |||
Class 2 | 161,210 | |||
Distribution fees | ||||
Class 2 | 503,783 | |||
Custody and accounting fees | 41,574 | |||
Professional fees | 34,018 | |||
Shareholder report expenses | 46,465 | |||
Trustees’ fees and expenses | 11,720 | |||
Other fees and expenses | 14,053 | |||
|
| |||
Total expenses | 2,678,851 | |||
Less: Fee waivers and/or expense reimbursements | (366 | ) | ||
|
| |||
Net expenses | 2,678,485 | |||
|
| |||
Net investment loss | (1,797,052 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 14,377,310 | |||
Net change in unrealized gains (losses) on investments | 5,912,918 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 20,290,228 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 18,493,176 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $4,907 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of changes in net assets | Wells Fargo Advantage VT Small Cap Growth Fund | 15 |
Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (1,797,052 | ) | $ | (2,498,473 | ) | ||||||||||
Net realized gains on investments | 14,377,310 | 19,985,502 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 5,912,918 | (30,858,077 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase (decrease) in net assets resulting from operations | 18,493,176 | (13,371,048 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to shareholders from | ||||||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (1,349,821 | ) | 0 | |||||||||||||
Class 2 | (9,513,837 | ) | 0 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total distributions to shareholders | (10,863,658 | ) | 0 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 270,958 | 2,233,411 | 392,602 | 3,135,719 | ||||||||||||
Class 2 | 1,774,193 | 14,784,083 | 8,793,012 | 69,683,930 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 17,017,494 | 72,819,649 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 175,758 | 1,349,821 | 0 | 0 | ||||||||||||
Class 2 | 1,243,639 | 9,513,837 | 0 | 0 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
| 10,863,658 | 0 | |||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (1,014,442 | ) | (8,307,110 | ) | (1,848,297 | ) | (14,311,440 | ) | ||||||||
Class 2 | (6,374,673 | ) | (51,990,507 | ) | (13,028,327 | ) | (102,117,549 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
| (60,297,617 | ) | (116,428,989 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net decrease in net assets resulting from capital share transactions | (32,416,465 | ) | (43,609,340 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total decrease in net assets | (24,786,947 | ) | (56,980,388 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 232,698,978 | 289,679,366 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $ | 207,912,031 | $ | 232,698,978 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment loss | $ | (1,481 | ) | $ | (1,639 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Small Cap Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||
| CLASS 1 | 2012 | 2011 | 20101 | |||||||||
Net asset value, beginning of period | $ | 7.71 | $ | 8.06 | $ | 6.26 | ||||||
Net investment loss | (0.04 | ) | (0.06 | ) | (0.02 | ) | ||||||
Net realized and unrealized gains (losses) on investments | 0.65 | (0.29 | ) | 1.82 | ||||||||
|
|
|
|
|
| |||||||
Total from investment operations | 0.61 | (0.35 | ) | 1.80 | ||||||||
Distributions to shareholders from | ||||||||||||
Net realized gains | (0.39 | ) | 0.00 | 0.00 | ||||||||
Net asset value, end of period | $ | 7.93 | $ | 7.71 | $ | 8.06 | ||||||
Total return2 | 8.11 | % | (4.34 | )% | 26.93 | % | ||||||
Ratios to average net assets (annualized) | ||||||||||||
Gross expenses | 0.94 | % | 0.94 | % | 0.95 | % | ||||||
Net expenses | 0.94 | % | 0.94 | % | 0.95 | % | ||||||
Net investment loss | (0.56 | )% | (0.73 | )% | (0.58 | )% | ||||||
Supplemental data | ||||||||||||
Portfolio turnover rate | 65 | % | 118 | % | 71 | % | ||||||
Net assets, end of period (000s omitted) | $25,699 | $29,351 | $42,434 | |||||||||
| 1. | For the period from July 16, 2010 (commencement of class operations) to December 31, 2010. |
| 2. | Returns for periods of less than one year are not annualized |
The accompanying notes are an integral part of these financial statements.
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| Financial highlights | Wells Fargo Advantage VT Small Cap Growth Fund | 17 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 7.68 | $ | 8.05 | $ | 6.35 | $ | 4.16 | $ | 9.69 | ||||||||||
Net investment loss | (0.07 | ) | (0.09 | ) | (0.06 | ) | (0.03 | ) | (0.05 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 0.66 | (0.28 | ) | 1.76 | 2.22 | (3.31 | ) | |||||||||||||
|
|
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|
|
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| |||||||||||
Total from investment operations | 0.59 | (0.37 | ) | 1.70 | 2.19 | (3.36 | ) | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net realized gains | (0.39 | ) | 0.00 | 0.00 | 0.00 | (2.17 | ) | |||||||||||||
Net asset value, end of period | $ | 7.88 | $ | 7.68 | $ | 8.05 | $ | 6.35 | $ | 4.16 | ||||||||||
Total return | 7.87 | % | (4.60 | )% | 26.77 | % | 52.64 | % | (41.42 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.19 | % | 1.20 | % | 1.22 | % | 1.26 | % | 1.26 | % | ||||||||||
Net expenses | 1.19 | % | 1.19 | % | 1.20 | % | 1.20 | % | 1.20 | % | ||||||||||
Net investment loss | (0.81 | )% | (0.98 | )% | (0.82 | )% | (0.69 | )% | (0.73 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 65 | % | 118 | % | 71 | % | 75 | % | 76 | % | ||||||||||
Net assets, end of period (000s omitted) | $182,213 | $203,348 | $247,246 | $185,345 | $109,996 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
The accompanying notes are an integral part of these financial statements.
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| 18 | Wells Fargo Advantage VT Small Cap Growth Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Small Cap Growth Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
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| Notes to financial statements | Wells Fargo Advantage VT Small Cap Growth Fund | 19 |
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to net operating losses. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
| Paid-in capital | Undistributed net investment loss | Accumulated net realized gains on investments | ||
| $(1,759,963) | $1,797,210 | $(37,247) |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Shareholders of each class bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund, earn income from the portfolio, and are allocated any unrealized gains and losses pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains and losses are allocated to each class pro rata based upon the net assets of each class on the date realized. Differences in per share dividend rates generally result from the relative weightings of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution fees.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the
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| 20 | Wells Fargo Advantage VT Small Cap Growth Fund | Notes to financial statements |
lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 206,844,783 | $ | 0 | $ | 0 | $ | 206,844,783 | ||||||||
Other | 0 | 0 | 265,383 | 265,383 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,348,487 | 82,354,528 | 0 | 83,703,015 | ||||||||||||
| $ | 208,193,270 | $ | 82,354,528 | $ | 265,383 | $ | 290,813,181 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.75% and declining to 0.60% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.75% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and a class level administration fee of 0.08% of the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.95% for Class 1 shares and 1.20% for Class 2 shares.
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| Notes to financial statements | Wells Fargo Advantage VT Small Cap Growth Fund | 21 |
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $145,921,900 and $173,771,832, respectively.
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $539 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid for the year ended December 31, 2012 was $10,863,658 of long-term capital gains. For the year ended December 31, 2011, the Fund did not pay any distributions to shareholders.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Undistributed long-term gain | Unrealized gains | |
| $12,362,287 | $17,972,045 |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| 22 | Wells Fargo Advantage VT Small Cap Growth Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Small Cap Growth Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Small Cap Growth Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| Other information (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 23 |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $10,863,658 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2012.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 24 | Wells Fargo Advantage VT Small Cap Growth Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007 President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at the Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 25 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available, without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 26 | Wells Fargo Advantage VT Small Cap Growth Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214186 02-13 AVT7/AR153 12-12 |
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Wells Fargo Advantage VT Small Cap Value Fund
Annual Report
December 31, 2012
Table of Contents
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
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| 2 | Wells Fargo Advantage VT Small Cap Value Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Small Cap Value Fund for the 12-month period that ended December 31, 2012. Much of the period was marked by increased confidence that the U.S. economy was staging a fragile recovery, offset by continued concerns about the possible effects that the ongoing European sovereign debt crisis would have on the global economy. Small-cap stocks modestly outperformed large-cap stocks during the period as investors bid up stocks with greater sensitivity to economic growth.
Macroeconomic optimism faded as global growth slowed and worries rose.
Prior to the 12-month period, global economic numbers supported the case for a gradual recovery. However, concerns about the eurozone sovereign debt situation soon returned to center stage as investors became increasingly concerned that Greece would default on its debt. Because many eurozone banks owned Greek debt and many U.S. banks had financial ties to eurozone banks, investors worried that a Greek default would result in another global financial crisis.
In March 2012, the Greek government came to an agreement with its creditors, allowing it to write down the principal on most of its bonds in exchange for increased financial austerity. Yet, ongoing weakness in the Greek economy made it difficult for the country to meet its austerity targets. Even more worrisome, in May 2012, Spain nationalized Bankia, its fourth-largest bank, after it suffered heavy losses from property loans. The move refocused investor attention to Spain’s weak economy and depressed property sector, and Spanish bond prices declined. Analysts began discussing the possibility of a crisis within the European banking system and its possible effect on the U.S. economy—worries that only subsided near the end of the reporting period.
Central banks continued to provide stimulus.
Major central banks, including the U.S. Federal Reserve Board (Fed) and the European Central Bank (ECB) continued to inject liquidity into the banks and the market through various quantitative easing policies. Throughout the reporting period, the Federal Open Market Committee (FOMC) kept its key interest rates effectively at zero in order to support the economy and the financial system. After its September 2012 meeting, the FOMC announced its intention to keep interest rates low until at least mid-2015 and to make open-ended purchases of $40 billion per month in mortgage-backed securities to support the housing market.
At the beginning of the period, the ECB had a key rate of 1.50%, which it soon lowered twice in response to weakness in the southern European economies. A third cut in July 2012 put the ECB’s key rate at a historic low of 0.75%. A pledge by ECB President Mario Draghi to do whatever it takes to preserve the euro boosted investor confidence. In addition, the ECB announced in September that it would purchase an unlimited amount of one- to three-year sovereign debt from countries that had formally applied for a bailout. The ECB’s aggressive actions eventually eased investor worries about a eurozone default.
U.S. stocks gained as the U.S. economy reported relatively solid news.
For most of the period, U.S. economic data remained moderately positive. Reported gross domestic product (GDP) growth came in at a 2.0% annualized rate in the first quarter of 2012, slower than the pace in the fourth quarter of 2011 but in positive territory. Reported GDP growth slowed to a 1.3% annualized rate in the second quarter of 2012, only to reaccelerate to 3.1% annualized in the third quarter. Continued economic growth in the U.S. contrasted with the more uncertain picture in Europe. The unemployment rate was a notable exception to
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Small Cap Value Fund | 3 |
generally positive U.S. economic news. Although the unemployment rate declined—from 8.3% in January 2012 to 7.8% in December 2012—at least part of the decline could be attributed to a decline in the labor force. (People are only counted as unemployed if they are officially looking for work.)
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period. Toward the end of 2012, however, widespread uncertainty about the fiscal cliff—a combination of expiring tax breaks, tax increases, and spending cuts originally scheduled to take effect on January 1, 2013—dampened U.S. stock market performance. Small-cap stocks gained 16.35% for the period as measured by the Russell 2000® Index1, approximately in line with a 16.00% return for large-cap stocks as measured by the S&P 500 Index2 for the same period. Value stocks outperformed growth stocks across all market capitalizations, aided by continued strength in financials.
We use time-tested investment strategies, even as many variables are at work in the market.
The full effect of the European credit crisis remains unknown. Elevated unemployment and debt defaults continue to pressure consumers and businesses alike. In our experience, strict adherence to time-tested investment strategies has its rewards. As a whole, Wells Fargo Advantage Funds represents investments across a range of asset classes and investment styles, giving you an opportunity to create a diversified investment portfolio. While diversification may not prevent losses in a downturn, we believe it helps manage risk.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
The relatively positive outlook for the U.S. economy contributed to a strong domestic stock market for much of the reporting period.
| 1. | The Russell 2000® Index measures the performance of the 2,000 smallest companies in the Russell 3000® Index, which represents approximately 8% of the total market capitalization of the Russell 3000 Index. You cannot invest directly in an index. |
| 2. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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| 4 | Wells Fargo Advantage VT Small Cap Value Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks long-term capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Erik Asthelmer
I. Charles Rinaldi
Michael Schneider, CFA
Average annual total returns1 (%) as of December 31, 2012
| Expense ratios2 (%) | ||||||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
| Class 1 | 7-16-2010 | 14.33 | 2.07 | 9.14 | 1.15 | 0.90 | ||||||||||||||||
| Class 2 | 10-10-1997 | 14.00 | 1.94 | 9.07 | 1.40 | 1.15 | ||||||||||||||||
| Russell 2000® Value Index4 | – | 18.05 | 3.55 | 9.50 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller company stocks tend to be more volatile and less liquid than those of larger companies. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Small Cap Value Fund | 5 |
| Growth of $10,000 investment5 as of December 31, 2012 | ||
| ||
| 1. | Historical performance shown for Class 1 shares prior to their inception reflects the performance of Class 2 shares, and includes the higher expenses applicable to Class 2 shares. If these expenses had not been included, returns would be higher. |
| 2. | Reflects the expense ratio as stated in the most recent prospectuses. |
| 3. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at 0.89% for Class 1 and 1.14% for Class 2. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 4. | The Russell 2000® Value Index measures the performance of those Russell 2000 companies with lower price-to-book ratios and lower forecasted growth values. You cannot invest directly in an index. |
| 5. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Russell 2000 Value Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 6. | The ten largest equity holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 7. | Sector distribution is subject to change and is calculated based on the total long-term investments of the Fund. |
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| 6 | Wells Fargo Advantage VT Small Cap Value Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
| n | The Fund underperformed its benchmark, the Russell 2000® Value Index, for the 12-month period that ended December 31, 2012. |
| n | Weak performance from energy and health care stocks were primary detractors. The Fund’s gold-mining holdings also detracted as mining equities dramatically underperformed the physical gold. |
| n | Strong stock selection in the information technology (IT) sector partially offset some areas of weakness. |
Despite intense investor focus on the fiscal cliff, a last-minute deal led to a significant rally at year-end and capped a strong year for equity investors.
In spite of various hurdles throughout the year, equities performed well, led by strong performance from consumer discretionary and financials stocks. The Fund’s underweight in consumer discretionary led to some relative underperformance. Within financials, the Fund’s holdings outperformed, but again the underweight in regional banks and equity (or brick and mortar) real estate investment trusts detracted from performance.
| Ten largest equity holdings6 (%) as of December 31, 2012 | ||||
InterOil Corporation | 7.70 | |||
Randgold Resources Limited ADR | 7.36 | |||
Chimera Investment Corporation | 3.27 | |||
Chicago Bridge & Iron Company NV | 2.69 | |||
United Continental Holdings Incorporated | 2.38 | |||
Range Resources Corporation | 2.31 | |||
Agnico-Eagle Mines Limited | 1.99 | |||
Argo Group International Holdings Limited | 1.98 | |||
Trilogy Energy Corporation | 1.98 | |||
OraSure Technologies Incorporated | 1.81 | |||
The Fund’s overweight in energy stocks was the most significant detractor. Smaller-cap energy companies tend to be more natural gas-oriented and thus were disproportionately affected by low natural gas prices. Even though natural gas prices rebounded off of decade-low levels, they remain under pressure because prolific production from shales and other unconventional resources has resulted in a glut of natural gas. The price decline has led many natural gas producers to curtail spending and redirect budgets toward more economic wells targeting oil and liquids. The slowdown in activity in turn had an adverse effect on many of the onshore energy service companies and therefore pressured their margins.
Our largest holding, InterOil Corporation, rose 9% during the period, but many of the gas-oriented producers, such as Trilogy Energy Corporation, had weak performance. Despite the negative short-term sentiment, our long-term view remains positive as global energy demand should continue to increase in the coming decades. Given the positive demand trends, we believe the energy sector continues to provide a constructive backdrop for equity investment, though stock selection will most likely determine investment success more than in the previous decade. In our view, valuations in the sector remain reasonable and, in many instances, well below the broad market.
Although health care is a relatively small sector at 8% of the Fund, it detracted from performance due to weakness with our largest holding in the sector, OraSure Technologies Incorporated. The stock declined 21% even though the company gained approval to distribute its oral fluid-based HIV test kit over the counter. The product was launched in October 2012 but got off to a slow start due to various weather-related events at year-end. Longer-term, we believe that OraSure has the right operational focus given that it has recently hired an experienced executive to oversee the HIV test kit launch. OraSure Technologies has other products focused on Hepatitis C, a part of the market that is several times larger than that of HIV. With several new Hepatitis C drugs on the market, we believe that OraSure is evolving into a secular growth story.
Please see footnotes on page 5.
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| Performance highlights (unaudited) | Wells Fargo Advantage VT Small Cap Value Fund | 7 |
| Sector distribution7 as of December 31, 2012 | ||||||
| ||||||
The IT sector trailed most other sectors in the benchmark with a modest 7% return during the period, but our holdings rose 20%. Cray Incorporated, a maker of high performance supercomputers, gained 147% during the period. The company reported strong earnings and sold a business for $140 million in cash (more than $3 per share) in order to focus on new markets. The computer maker is leveraging its core competencies into the faster-growing markets of storage and large, complex data sets (big data). Previous Fund holding Intermec Incorporated, a maker of auto identification and data capture products, was acquired by Honeywell International Incorporated for $10 per share in cash in December 2012. The stock rose 44% during the reporting period.
Even with equities trending well, we remain vigilant about risk management as risks abound in the current market.
The market overcame considerable hurdles in 2012 to finish the year with strong gains. While economic growth remained uneven, gross domestic product did increase in 2012 and unemployment steadily improved. Following the pattern of the past several years, a new round of monetary stimulus in the fall boosted the stock market. Corporate profits are generally solid and profit margins are near all-time highs. While these data points present clear reasons for optimism, they are also reasons to be cautious. For example, a decline in profit margins could quickly change the picture on stock market valuations. Moreover, the initial agreement on the fiscal cliff only addressed the tax portion of reducing the U.S. deficit, while the spending portion is yet to be negotiated. The bottom line is that investors must continue to be vigilant about risks. To that end, our exposure to gold miners may prove to be critical during these turbulent times because gold often holds up relatively well in volatile periods.
Although we are disappointed with how we finished the fiscal year, we have unwavering confidence in our positioning and our core holdings. We believe our company-specific investment approach, combined with low portfolio turnover and an emphasis on diversification, should allow the Fund to deliver strong results regardless of macroeconomic and market conditions.
Please see footnotes on page 5.
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| 8 | Wells Fargo Advantage VT Small Cap Value Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,076.16 | $ | 4.64 | 0.89 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.66 | $ | 4.52 | 0.89 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,074.11 | $ | 5.94 | 1.14 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.41 | $ | 5.79 | 1.14 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio of each class multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Small Cap Value Fund | 9 |
| Security name | Shares | Value | ||||||||||
Common Stocks: 94.47% | ||||||||||||
Consumer Discretionary: 4.87% | ||||||||||||
| Auto Components: 0.34% | ||||||||||||
Gentex Corporation | 9,900 | $ | 186,318 | |||||||||
|
| |||||||||||
| Diversified Consumer Services: 0.42% | ||||||||||||
Cambium Learning Group Incorporated † | 22,100 | 24,531 | ||||||||||
Corinthian Colleges Incorporated † | 83,400 | 203,496 | ||||||||||
| 228,027 | ||||||||||||
|
| |||||||||||
| Hotels, Restaurants & Leisure: 2.10% | ||||||||||||
Denny’s Corporation † | 48,000 | 234,240 | ||||||||||
Scientific Games Corporation Class A † | 50,400 | 436,968 | ||||||||||
The Wendy’s Company | 100,400 | 471,880 | ||||||||||
| 1,143,088 | ||||||||||||
|
| |||||||||||
| Household Durables: 0.98% | ||||||||||||
Cavco Industries Incorporated † | 8,200 | 409,836 | ||||||||||
KB Home Incorporated | 2,700 | 42,660 | ||||||||||
Skyline Corporation † | 19,600 | 79,576 | ||||||||||
| 532,072 | ||||||||||||
|
| |||||||||||
| Internet & Catalog Retail: 0.07% | ||||||||||||
dELiA*s Incorporated † | 31,460 | 36,808 | ||||||||||
|
| |||||||||||
| Media: 0.31% | ||||||||||||
Discovery Communications Incorporated † | 2,900 | 169,650 | ||||||||||
|
| |||||||||||
| Multiline Retail: 0.14% | ||||||||||||
Saks Incorporated † | 7,400 | 77,774 | ||||||||||
|
| |||||||||||
| Specialty Retail: 0.51% | ||||||||||||
GameStop Corporation Class A # | 6,300 | 158,067 | ||||||||||
rue21 Incorporated † | 4,100 | 116,399 | ||||||||||
| 274,466 | ||||||||||||
|
| |||||||||||
Consumer Staples: 0.75% | ||||||||||||
| Personal Products: 0.75% | ||||||||||||
Prestige Brands Holdings Incorporated † | 20,300 | 406,609 | ||||||||||
|
| |||||||||||
Energy: 20.41% | ||||||||||||
| Energy Equipment & Services: 7.62% | ||||||||||||
Ensco plc Class A | 2,800 | 165,984 | ||||||||||
Helix Energy Solutions Group Incorporated † | 17,900 | 369,456 | ||||||||||
Helmerich & Payne Incorporated | 9,700 | 543,297 | ||||||||||
ION Geophysical Corporation † | 99,700 | 649,047 | ||||||||||
Key Energy Services Incorporated † | 33,500 | 232,825 | ||||||||||
Newpark Resources Incorporated † | 110,000 | 863,500 | ||||||||||
Oceaneering International Incorporated | 7,600 | 408,804 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Small Cap Value Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Energy Equipment & Services (continued) | ||||||||||||
Parker Drilling Company † | 46,200 | $ | 212,520 | |||||||||
PHI Incorporated (non-voting) † | 10,428 | 349,234 | ||||||||||
PHI Incorporated (voting) † | 2,400 | 75,600 | ||||||||||
Vantage Drilling Company † | 54,300 | 99,369 | ||||||||||
Willbros Group Incorporated † | 31,800 | 170,448 | ||||||||||
| 4,140,084 | ||||||||||||
|
| |||||||||||
| Oil, Gas & Consumable Fuels: 12.79% | ||||||||||||
Clean Energy Fuels Corporation † | 4,400 | 54,780 | ||||||||||
Forest Oil Corporation † | 28,800 | 192,672 | ||||||||||
InterOil Corporation † | 75,400 | 4,186,962 | ||||||||||
Newfield Exploration Company † | 6,100 | 163,358 | ||||||||||
PetroQuest Energy Incorporated † | 4,700 | 23,265 | ||||||||||
Range Resources Corporation | 20,000 | 1,256,600 | ||||||||||
Trilogy Energy Corporation | 36,800 | 1,076,956 | ||||||||||
| 6,954,593 | ||||||||||||
|
| |||||||||||
Financials: 18.31% | ||||||||||||
| Commercial Banks: 3.66% | ||||||||||||
Ameris Bancorp † | 5,600 | 69,944 | ||||||||||
Associated Banc-Corp | 5,400 | 70,848 | ||||||||||
Bancorp Incorporated † | 21,800 | 239,146 | ||||||||||
BBCN Bancorp Incorporated | 11,688 | 135,230 | ||||||||||
CenterState Banks Incorporated | 17,800 | 151,834 | ||||||||||
City National Corporation | 4,100 | 203,032 | ||||||||||
First Horizon National Corporation | 23,600 | 233,876 | ||||||||||
First Niagara Financial Group Incorporated | 36,100 | 286,273 | ||||||||||
IBERIABANK Corporation | 5,100 | 250,512 | ||||||||||
NBH Holdings Corporation †144A(a) | 11,400 | 216,486 | ||||||||||
Park Sterling Corporation † | 14,900 | 77,927 | ||||||||||
Sandy Spring Bancorp Incorporated | 2,794 | 54,259 | ||||||||||
Western Alliance Bancorp † | 200 | 2,106 | ||||||||||
| 1,991,473 | ||||||||||||
|
| |||||||||||
| Consumer Finance: 0.20% | ||||||||||||
Green Dot Corporation Class A † | 9,000 | 109,800 | ||||||||||
|
| |||||||||||
| Insurance: 3.53% | ||||||||||||
Argo Group International Holdings Limited | 32,100 | 1,078,239 | ||||||||||
Hilltop Holdings Incorporated † | 26,300 | 356,102 | ||||||||||
Mercury General Corporation | 7,300 | 289,737 | ||||||||||
OneBeacon Insurance Group Limited | 14,000 | 194,600 | ||||||||||
| 1,918,678 | ||||||||||||
|
| |||||||||||
| REITs: 10.80% | ||||||||||||
Anworth Mortgage Asset Corporation | 35,900 | 207,502 | ||||||||||
Capstead Mortgage Corporation | 46,000 | 527,620 | ||||||||||
Chimera Investment Corporation | 682,000 | 1,780,020 | ||||||||||
Crexus Investment Corporation | 60,700 | 743,575 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Small Cap Value Fund | 11 |
| Security name | Shares | Value | ||||||||||
| REITs (continued) | ||||||||||||
Hatteras Financial Corporation | 13,100 | $ | 325,011 | |||||||||
Invesco Mortgage Capital Incorporated | 39,500 | 778,545 | ||||||||||
MFA Mortgage Investments Incorporated | 68,300 | 553,913 | ||||||||||
Redwood Trust Incorporated | 31,300 | 528,657 | ||||||||||
Sun Communities Incorporated | 10,600 | 422,834 | ||||||||||
| 5,867,677 | ||||||||||||
|
| |||||||||||
| Thrifts & Mortgage Finance: 0.12% | ||||||||||||
Northwest Bancshares Incorporated | 5,300 | 64,342 | ||||||||||
|
| |||||||||||
Health Care: 7.31% | ||||||||||||
| Biotechnology: 0.36% | ||||||||||||
Amarin Corporation plc ADR †# | 24,100 | 194,969 | ||||||||||
|
| |||||||||||
| Health Care Equipment & Supplies: 3.61% | ||||||||||||
Hologic Incorporated † | 14,300 | 286,429 | ||||||||||
Invacare Corporation | 9,300 | 151,590 | ||||||||||
OraSure Technologies Incorporated † | 137,100 | 984,378 | ||||||||||
Symmetry Medical Incorporated † | 14,100 | 148,332 | ||||||||||
Thoratec Corporation † | 6,200 | 232,624 | ||||||||||
Varian Medical Systems Incorporated † | 2,300 | 161,552 | ||||||||||
| 1,964,905 | ||||||||||||
|
| |||||||||||
| Health Care Providers & Services: 2.13% | ||||||||||||
Amedisys Incorporated † | 19,200 | 216,384 | ||||||||||
Community Health Systems Incorporated | 4,700 | 144,478 | ||||||||||
Cross Country Healthcare Incorporated † | 38,937 | 186,897 | ||||||||||
Gentiva Health Services Incorporated † | 37,700 | 378,885 | ||||||||||
Healthways Incorporated † | 21,500 | 230,050 | ||||||||||
| 1,156,694 | ||||||||||||
|
| |||||||||||
| Health Care Technology: 0.51% | ||||||||||||
Allscripts Healthcare Solutions Incorporated † | 19,800 | 186,516 | ||||||||||
Medidata Solutions Incorporated † | 2,300 | 90,137 | ||||||||||
| 276,653 | ||||||||||||
|
| |||||||||||
| Life Sciences Tools & Services: 0.70% | ||||||||||||
Nordion Incorporated | 22,500 | 145,125 | ||||||||||
Parexel International Corporation † | 7,900 | 233,761 | ||||||||||
| 378,886 | ||||||||||||
|
| |||||||||||
Industrials: 14.51% | ||||||||||||
| Aerospace & Defense: 0.05% | ||||||||||||
Spirit AeroSystems Holdings Incorporated † | 1,800 | 30,546 | ||||||||||
|
| |||||||||||
| Airlines: 5.17% | ||||||||||||
Alaska Air Group Incorporated † | 12,200 | 525,698 | ||||||||||
Delta Air Lines Incorporated † | 75,700 | 898,559 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Small Cap Value Fund | Portfolio of investments—December 31, 2012 |
| Security name | Shares | Value | ||||||||||
| Airlines (continued) | ||||||||||||
LATAM Airlines Group SP ADR | 3,800 | $ | 89,528 | |||||||||
United Continental Holdings Incorporated † | 55,400 | 1,295,252 | ||||||||||
| 2,809,037 | ||||||||||||
|
| |||||||||||
| Commercial Services & Supplies: 4.28% | ||||||||||||
ABM Industries Incorporated | 36,000 | 718,200 | ||||||||||
ACCO Brands Corporation † | 99,800 | 732,532 | ||||||||||
GEO Group Incorporated | 21,003 | 592,285 | ||||||||||
Healthcare Services Group Incorporated | 12,200 | 283,406 | ||||||||||
| 2,326,423 | ||||||||||||
|
| |||||||||||
| Construction & Engineering: 3.38% | ||||||||||||
Chicago Bridge & Iron Company NV # | 31,500 | 1,460,025 | ||||||||||
Primoris Services Corporation | 25,100 | 377,504 | ||||||||||
| 1,837,529 | ||||||||||||
|
| |||||||||||
| Electrical Equipment: 0.71% | ||||||||||||
GrafTech International Limited † | 41,400 | 388,746 | ||||||||||
|
| |||||||||||
| Professional Services: 0.48% | ||||||||||||
Hill International Incorporated † | 42,300 | 154,818 | ||||||||||
Kforce Incorporated | 7,400 | 106,042 | ||||||||||
| 260,860 | ||||||||||||
|
| |||||||||||
| Road & Rail: 0.22% | ||||||||||||
Covenant Transport Incorporated Class A † | 21,700 | 120,001 | ||||||||||
|
| |||||||||||
| Trading Companies & Distributors: 0.22% | ||||||||||||
Applied Industrial Technologies Incorporated | 2,800 | 117,628 | ||||||||||
|
| |||||||||||
Information Technology: 9.14% | ||||||||||||
| Communications Equipment: 0.95% | ||||||||||||
Brocade Communications Systems Incorporated † | 53,100 | 283,023 | ||||||||||
Harmonic Incorporated † | 43,700 | 221,559 | ||||||||||
MRV Communications Incorporated | 1,250 | 12,875 | ||||||||||
| 517,457 | ||||||||||||
|
| |||||||||||
| Computers & Peripherals: 3.17% | ||||||||||||
Cray Incorporated † | 50,440 | 804,518 | ||||||||||
Intermec Incorporated † | 54,500 | 537,370 | ||||||||||
Lexmark International Incorporated | 10,200 | 236,538 | ||||||||||
Quantum Corporation † | 116,600 | 144,584 | ||||||||||
| 1,723,010 | ||||||||||||
|
| |||||||||||
| Electronic Equipment, Instruments & Components: 4.19% | ||||||||||||
Checkpoint Systems Incorporated † | 27,200 | 292,128 | ||||||||||
Cognex Corporation | 10,200 | 375,564 | ||||||||||
Coherent Incorporated | 13,300 | 673,246 | ||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Small Cap Value Fund | 13 |
| Security name | Shares | Value | ||||||||||
| Electronic Equipment, Instruments & Components (continued) | ||||||||||||
OSI Systems Incorporated † | 11,800 | $ | 755,672 | |||||||||
Power One Incorporated † | 43,300 | 177,963 | ||||||||||
| 2,274,573 | ||||||||||||
|
| |||||||||||
| Internet Software & Services: 0.26% | ||||||||||||
Monster Worldwide Incorporated † | 25,300 | 142,186 | ||||||||||
| Office Electronics: 0.12% | ||||||||||||
Zebra Technologies Corporation † | 1,600 | 62,848 | ||||||||||
|
| |||||||||||
| Software: 0.45% | ||||||||||||
Accelrys Incorporated † | 27,300 | 247,065 | ||||||||||
|
| |||||||||||
Materials: 17.79% | ||||||||||||
| Chemicals: 0.45% | ||||||||||||
Calgon Carbon Corporation † | 17,200 | 243,896 | ||||||||||
|
| |||||||||||
| Containers & Packaging: 0.29% | ||||||||||||
Intertape Polymer Group Incorporated | 19,400 | 155,588 | ||||||||||
|
| |||||||||||
| Metals & Mining: 16.65% | ||||||||||||
Agnico-Eagle Mines Limited | 20,600 | 1,080,676 | ||||||||||
Carpenter Technology Corporation # | 13,500 | 697,005 | ||||||||||
Eldorado Gold Corporation | 22,600 | 291,088 | ||||||||||
Great Basin Gold Limited †(a)(i) | 113,800 | 0 | ||||||||||
Harry Winston Diamond Corporation † | 7,800 | 109,746 | ||||||||||
Randgold Resources Limited ADR | 40,300 | 3,999,775 | ||||||||||
Royal Gold Incorporated | 10,900 | 886,279 | ||||||||||
Sandstorm Gold Limited †(i) | 19,150 | 225,249 | ||||||||||
Sandstorm Gold Limited † | 18,050 | 212,129 | ||||||||||
Silver Standard Resources Incorporated † | 44,100 | 656,649 | ||||||||||
Steel Dynamics Incorporated | 35,200 | 483,296 | ||||||||||
United States Steel Corporation | 10,600 | 253,022 | ||||||||||
Webco Industries Incorporated †(i) | 1,400 | 156,800 | ||||||||||
| 9,051,714 | ||||||||||||
|
| |||||||||||
| Paper & Forest Products: 0.40% | ||||||||||||
Wausau Paper Corporation | 25,400 | 219,964 | ||||||||||
|
| |||||||||||
Telecommunication Services: 1.38% | ||||||||||||
| Diversified Telecommunication Services: 1.38% | ||||||||||||
Cincinnati Bell Incorporated † | 136,800 | 749,664 | ||||||||||
|
| |||||||||||
Total Common Stocks (Cost $45,848,339) | 51,352,301 | |||||||||||
|
| |||||||||||
Investment Companies: 1.16% | ||||||||||||
KBW Regional Banking ETF | 3,260 | 91,182 | ||||||||||
Market Vectors Gold Miners ETF | 11,644 | 540,165 | ||||||||||
Total Investment Companies (Cost $651,307) | 631,347 | |||||||||||
|
| |||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Small Cap Value Fund | Portfolio of investments—December 31, 2012 |
| Security name | Yield | Shares | Value | |||||||||||
| Short-Term Investments: 4.36% | ||||||||||||||
| Investment Companies: 4.36% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.14 | % | 2,366,525 | $ | 2,366,525 | |||||||||
|
| |||||||||||||
Total Short-Term Investments (Cost $2,366,525) | 2,366,525 | |||||||||||||
|
| |||||||||||||
Total investments in securities (Cost $48,866,171) * | 99.99 | % | 54,350,173 | |||||||||
Other assets and liabilities, net | 0.01 | 7,257 | ||||||||||
|
|
|
| |||||||||
| Total net assets | 100.00 | % | $ | 54,357,430 | ||||||||
|
|
|
| |||||||||
| † | Non-income-earning security |
| # | All or a portion of this security is segregated as collateral for investments in derivative instruments. |
| 144A | Security that may be resold to “qualified institutional buyers” under Rule 144A or security offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| (i) | Illiquid security for which the designation as illiquid is unaudited. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
* Cost for federal income tax purposes is $49,220,376 and unrealized appreciation (depreciation) consists of: | ||
Gross unrealized appreciation | $ | 9,300,336 | ||
Gross unrealized depreciation | (4,170,539 | ) | ||
|
| |||
Net unrealized appreciation | $ | 5,129,797 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of assets and liabilities—December 31, 2012 | Wells Fargo Advantage VT Small Cap Value Fund | 15 |
Assets | ||||
Investments | ||||
In unaffiliated securities, at value (see cost below) | $ | 51,983,648 | ||
In affiliated securities, at value (see cost below) | 2,366,525 | |||
|
| |||
Total investments, at value (see cost below) | 54,350,173 | |||
Receivable for investments sold | 22,703 | |||
Receivable for Fund shares sold | 37,668 | |||
Receivable for dividends | 188,862 | |||
Prepaid expenses and other assets | 2,308 | |||
|
| |||
Total assets | 54,601,714 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 4,710 | |||
Payable for Fund shares redeemed | 39,095 | |||
Written options, at value | 7,334 | |||
Due to custodian bank | 108,488 | |||
Advisory fee payable | 23,044 | |||
Distribution fees payable | 3,482 | |||
Due to other related parties | 6,121 | |||
Shareholder report expenses payable | 14,816 | |||
Professional fees payable | 32,935 | |||
Accrued expenses and other liabilities | 4,259 | |||
|
| |||
Total liabilities | 244,284 | |||
|
| |||
Total net assets | $ | 54,357,430 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 61,803,631 | ||
Undistributed net investment income | 456,843 | |||
Accumulated net realized losses on investments | (13,387,524 | ) | ||
Net unrealized gains on investments | 5,484,480 | |||
|
| |||
Total net assets | $ | 54,357,430 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 1 | $ | 38,112,809 | ||
Shares outstanding – Class 1 | 4,052,044 | |||
Net asset value per share – Class 1 | $9.41 | |||
Net assets – Class 2 | $ | 16,244,621 | ||
Shares outstanding – Class 2 | 1,728,557 | |||
Net asset value per share – Class 2 | $9.40 | |||
Investments in unaffiliated securities, at cost | $ | 46,499,646 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 2,366,525 | ||
|
| |||
Total investments, at cost | $ | 48,866,171 | ||
|
| |||
Premiums received on written options | $ | 7,812 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Small Cap Value Fund | Statement of operations—year ended December 31, 2012 |
Investment income | ||||
Dividends* | $ | 1,136,414 | ||
Income from affiliated securities | 2,286 | |||
|
| |||
Total investment income | 1,138,700 | |||
|
| |||
Expenses | ||||
Advisory fee | 425,680 | |||
Administration fees | ||||
Fund level | 28,379 | |||
Class 1 | 32,907 | |||
Class 2 | 12,499 | |||
Distribution fees | ||||
Class 2 | 39,060 | |||
Custody and accounting fees | 22,270 | |||
Professional fees | 39,939 | |||
Shareholder report expenses | 35,758 | |||
Trustees’ fees and expenses | 15,491 | |||
Other fees and expenses | 4,014 | |||
|
| |||
Total expenses | 655,997 | |||
Less: Fee waivers and/or expense reimbursements | (111,797 | ) | ||
|
| |||
Net expenses | 544,200 | |||
|
| |||
Net investment income | 594,500 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on: | ||||
Unaffiliated securities | 4,282,499 | |||
Written options | 17,732 | |||
|
| |||
Net realized gains on investments | 4,300,231 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 2,731,871 | |||
Written options | 478 | |||
|
| |||
Net change in unrealized gains (losses) on investments | 2,732,349 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 7,032,580 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 7,627,080 | ||
|
| |||
* Net of foreign dividend withholding taxes in the amount of | $9,054 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of changes in net assets | Wells Fargo Advantage VT Small Cap Value Fund | 17 |
Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 594,500 | $ | 674,545 | ||||||||||||
Net realized gains on investments | 4,300,231 | 4,495,887 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 2,732,349 | (10,006,816 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from operations | 7,627,080 | (4,836,384 | ) | |||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (471,550 | ) | (440,656 | ) | ||||||||||||
Class 2 | (129,769 | ) | (112,333 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (601,319 | ) | (552,989 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 95,290 | 840,792 | 177,977 | 1,478,858 | ||||||||||||
Class 2 | 461,355 | 4,135,688 | 100,076 | 880,176 | ||||||||||||
|
| |||||||||||||||
| 4,976,480 | 2,359,034 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 54,578 | 471,550 | 49,071 | 440,656 | ||||||||||||
Class 2 | 15,020 | 129,769 | 12,509 | 112,333 | ||||||||||||
|
| |||||||||||||||
| 601,319 | 552,989 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (1,277,277 | ) | (11,503,307 | ) | (1,488,987 | ) | (13,002,318 | ) | ||||||||
Class 2 | (512,519 | ) | (4,578,968 | ) | (518,177 | ) | (4,544,639 | ) | ||||||||
|
| |||||||||||||||
| (16,082,275 | ) | (17,546,957 | ) | |||||||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (10,504,476 | ) | (14,634,934 | ) | ||||||||||||
|
| |||||||||||||||
Total decrease in net assets | (3,478,715 | ) | (20,024,307 | ) | ||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 57,836,145 | 77,860,452 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 54,357,430 | $ | 57,836,145 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 456,843 | $ | 548,784 | ||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
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| 18 | Wells Fargo Advantage VT Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||
| CLASS 1 | 2012 | 2011 | 20101 | |||||||||
Net asset value, beginning of period | $ | 8.33 | $ | 9.04 | $ | 7.36 | ||||||
Net investment income | 0.12 | 0.11 | 0.05 | 2 | ||||||||
Net realized and unrealized gains (losses) on investments | 1.06 | (0.74 | ) | 1.63 | ||||||||
|
|
|
|
|
| |||||||
Total from investment operations | 1.18 | (0.63 | ) | 1.68 | ||||||||
Distributions to shareholders from | ||||||||||||
Net investment income | (0.10 | ) | (0.08 | ) | 0.00 | |||||||
Net asset value, end of period | $ | 9.41 | $ | 8.33 | $ | 9.04 | ||||||
Total return3 | 14.33 | % | (7.06 | )% | 22.83 | % | ||||||
Ratios to average net assets (annualized) | ||||||||||||
Gross expenses | 1.09 | % | 1.14 | % | 0.96 | % | ||||||
Net expenses | 0.89 | % | 0.89 | % | 0.89 | % | ||||||
Net investment income | 1.10 | % | 1.07 | % | 1.43 | % | ||||||
Supplemental data | ||||||||||||
Portfolio turnover rate | 17 | % | 16 | % | 61 | % | ||||||
Net assets, end of period (000s omitted) | $38,113 | $43,155 | $58,255 | |||||||||
| 1. | For the period from July 16, 2010 (commencement of class operations) to December 31, 2010. |
| 2. | Calculated based upon average shares outstanding |
| 3. | Returns for periods of less than one year are not annualized. |
The accompanying notes are an integral part of these financial statements.
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| Financial highlights | Wells Fargo Advantage VT Small Cap Value Fund | 19 |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 8.32 | $ | 9.03 | $ | 7.83 | $ | 4.95 | $ | 11.08 | ||||||||||
Net investment income | 0.09 | 0.09 | 0.12 | 0.08 | 0.09 | 2 | ||||||||||||||
Net realized and unrealized gains (losses) on investments | 1.07 | (0.74 | ) | 1.20 | 2.87 | (4.21 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.16 | (0.65 | ) | 1.32 | 2.95 | (4.12 | ) | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.08 | ) | (0.06 | ) | (0.12 | ) | (0.07 | ) | 0.00 | |||||||||||
Net realized gains | 0.00 | 0.00 | 0.00 | 0.00 | (2.01 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.08 | ) | (0.06 | ) | (0.12 | ) | (0.07 | ) | (2.01 | ) | ||||||||||
Net asset value, end of period | $ | 9.40 | $ | 8.32 | $ | 9.03 | $ | 7.83 | $ | 4.95 | ||||||||||
Total return | 14.00 | % | (7.26 | )% | 17.25 | % | 60.18 | % | (44.55 | )% | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.34 | % | 1.39 | % | 1.52 | % | 2.56 | % | 1.69 | % | ||||||||||
Net expenses | 1.14 | % | 1.14 | % | 1.14 | % | 1.14 | % | 1.14 | % | ||||||||||
Net investment income | 0.90 | % | 0.82 | % | 1.06 | % | 1.39 | % | 1.18 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 17 | % | 16 | % | 61 | % | 45 | % | 39 | % | ||||||||||
Net assets, end of period (000s omitted) | $16,245 | $14,681 | $19,606 | $12,018 | $7,928 | |||||||||||||||
| 1. | After the close of business on July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
| 2. | Calculated based upon average shares outstanding |
The accompanying notes are an integral part of these financial statements.
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| 20 | Wells Fargo Advantage VT Small Cap Value Fund | Notes to financial statements |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Small Cap Value Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange, except for The Nasdaq Stock Market, Inc. (“Nasdaq”), are valued at the official closing price or, if none, the last sales price. Securities listed on Nasdaq are valued at the Nasdaq Official Closing Price (“NOCP”). If no NOCP is available, securities are valued at the last prior sales price. If no sales price is shown on the Nasdaq, the bid price will be used. If no sale occurs on the primary exchange or market for the security that day or if no sale occurs and no bid price is shown on Nasdaq, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
Securities denominated in foreign currencies are translated into U.S. dollars using the rates of exchange in effect on the day of valuation at a time specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the last reported sales price or latest quoted bid price. On December 31, 2012, fair value pricing was not used in pricing foreign securities.
Investments in registered open-end investment companies are valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. Assets, including investment securities, and liabilities denominated in foreign currency are translated into U.S. dollars at the rates of exchange at a time specified by the Management Valuation Team on the date of valuation. Purchases and sales of securities, and income and expenses are translated at the rate
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| Notes to financial statements | Wells Fargo Advantage VT Small Cap Value Fund | 21 |
of exchange on the respective dates of such transactions. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting in changes in exchange rates.
The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are recorded with net realized and unrealized gains or losses from investments. Gains and losses from certain foreign currency transactions are treated as ordinary income for U.S. federal income tax purposes.
Options
The Fund may be subject to equity price risk in the normal course of pursuing its investment objectives. The Fund may write covered call options or secured put options on individual securities. When the Fund writes an option, an amount equal to the premium received is recorded as a liability and is subsequently adjusted to the current market value of the written option. Premiums received from written options that expire unexercised are recognized as realized gains from investments on the expiration date. The difference between the premium received and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is treated as a realized gain or loss. If a call option is exercised, the premium is added to the proceeds from the sale of the underlying security in calculating the realized gain or loss on the sale. If a put option is exercised, the premium reduces the cost of the security purchased. The Fund, as a writer of an option, bears the market risk of an unfavorable change in the price of the security underlying the written option.
The Fund may also purchase call or put options. The premium is included in the Statement of Assets and Liabilities as an investment, the value of which is subsequently adjusted based on to the current market value of the option. Premiums paid for purchased options that expire are recognized as realized losses from investments on the expiration date. Premiums paid for purchased options that are exercised or closed are added to the amount paid or offset against the proceeds received for the underlying security to determine the realized gain or loss. The risk of loss associated with purchased options is limited to the premium paid.
Options traded on an exchange are regulated and terms of the options are standardized. Options traded over the counter expose the Fund to counterparty risk in the event the counterparty does not perform. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty and by having the counterparty post collateral to cover the Fund’s exposure to the counterparty.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent
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| 22 | Wells Fargo Advantage VT Small Cap Value Fund | Notes to financial statements |
differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to dividends from certain securities and passive foreign investment companies. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Undistributed net investment income | Accumulated net realized losses on investments | |
| $(85,122) | $85,122 |
As of December 31, 2012, the Fund had net capital loss carryforwards, which are available to offset future net realized capital gains, in the amount of $13,052,503 expiring in 2017.
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Shareholders of each class bear certain expenses that pertain to that particular class. All shareholders bear the common expenses of the Fund, earn income from the portfolio, and are allocated any unrealized gains and losses pro rata based on the average daily net assets of each class, without distinction between share classes. Dividends are determined separately for each class based on income and expenses allocable to each class. Realized gains and losses are allocated to each class pro rata based upon the net assets of each class on the date realized. Differences in per share dividend rates generally result from the relative weightings of pro rata income and realized gain allocations and from differences in separate class expenses, including distribution fees.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Equity securities | ||||||||||||||||
Common stocks | $ | 50,979,015 | $ | 373,286 | $ | 0 | $ | 51,352,301 | ||||||||
Investment companies | 631,347 | 0 | 0 | 631,347 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 2,366,525 | 0 | 0 | 2,366,525 | ||||||||||||
| $ | 53,976,887 | $ | 373,286 | $ | 0 | $ | 54,350,173 | |||||||||
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| Notes to financial statements | Wells Fargo Advantage VT Small Cap Value Fund | 23 |
Further details on the major security types listed above can be found in the Portfolio of Investments.
As of December 31, 2012, the inputs used in valuing the Fund’s other financial instruments, which are carried at fair value, were as follows:
| Other financial instruments | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Written options | $ | 0 | $ | (7,334 | ) | $ | 0 | $ | (7,334 | ) | ||||||
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.75% and declining to 0.60% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.75% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and a class level administration fee of 0.08% of the average daily net assets of each class.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.89% for Class 1 and 1.14% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding U.S. government obligations (if any) and short-term securities, for the year ended December 31, 2012 were $9,564,587 and $21,082,408, respectively.
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2012, the Fund entered into written options for economic hedging purposes.
During the year ended December 31, 2012, the Fund had written call option activities as follows:
Number of contracts | Premiums received | |||||||
Options outstanding at December 31, 2011 | 0 | $ | 0 | |||||
Options written | 609 | 143,396 | ||||||
Options expired | (72 | ) | (10,381 | ) | ||||
Options terminated in closing purchase transactions | (471 | ) | (122,943 | ) | ||||
Options exercised | (6 | ) | (2,260 | ) | ||||
Options outstanding at December 31, 2012 | 60 | $ | 7,812 | |||||
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| 24 | Wells Fargo Advantage VT Small Cap Value Fund | Notes to financial statements |
Open call options written at December 31, 2012 were as follow for the Fund:
| Expiration date | Number of contracts | Strike Price | Value | |||||||||
1/19/2013 | Amarin Corporation plc ADR | 14 | $ | 11 | $ | (210 | ) | |||||
1/19/2013 | Carpenter Technology Corporation | 2 | 50 | (336 | ) | |||||||
1/19/2013 | Chicago Bridge & Iron Company NV | 2 | 46 | (260 | ) | |||||||
1/19/2013 | GameStop Corporation Class A | 20 | 25 | (1,980 | ) | |||||||
2/16/2013 | Carpenter Technology Corporation | 2 | 50 | (528 | ) | |||||||
2/16/2013 | GameStop Corporation Class A | 20 | 24 | (4,020 | ) | |||||||
The Fund had outstanding written options with total premiums received that averaged $9,787 during the year ended December 31, 2012.
The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate financial statements.
7. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $132 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $601,319 and $552,989 of ordinary income for the years ended December 31, 2012 and December 31, 2011, respectively.
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
| $477,961 | $5,130,275 | ($13,052,503) |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
10. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
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| Report of independent registered public accounting firm | Wells Fargo Advantage VT Small Cap Value Fund | 25 |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Small Cap Value Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Small Cap Value Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
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| 26 | Wells Fargo Advantage VT Small Cap Value Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 44.70% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2012.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| Other information (unaudited) | Wells Fargo Advantage VT Small Cap Value Fund | 27 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees. Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during past five years | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/13/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
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| 28 | Wells Fargo Advantage VT Small Cap Value Fund | Other information (unaudited) |
Officer
Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available,without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
Table of Contents
| List of abbreviations | Wells Fargo Advantage VT Small Cap Value Fund | 29 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214187 02-13 AVT8/AR154 12-12 |
Table of Contents
Wells Fargo Advantage
VT Total Return Bond Fund
Annual Report
December 31, 2012
Table of Contents
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The views expressed and any forward-looking statements are as of December 31, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Table of Contents
Wells Fargo investment history
| 1932 | Keystone creates one of the first mutual fund families. | |
| 1971 | Wells Fargo & Company introduces one of the first institutional index funds. | |
| 1978 | Wells Fargo applies Markowitz and Sharpe’s research on Modern Portfolio Theory to introduce one of the industry’s first tactical asset allocation models in institutional separately managed accounts. | |
| 1984 | Wells Fargo Stagecoach Funds launches its first asset allocation fund. | |
| 1989 | The Tactical Asset Allocation (TAA) Model is first applied to Wells Fargo’s asset allocation mutual funds. | |
| 1994 | Wells Fargo introduces the LifePath Funds, one of the first suites of target date funds (now the Wells Fargo Advantage Dow Jones Target Date FundsSM). | |
| 1996 | Evergreen Investments and Keystone Funds merge. | |
| 1997 | Wells Fargo launches the Wells Fargo Advantage WealthBuilder PortfoliosSM, a fund-of-funds suite of products that includes the use of quantitative models to shift assets among investment styles. | |
| 1999 | Norwest Advantage Funds and Stagecoach Funds are reorganized into Wells Fargo Funds after the merger of Norwest and Wells Fargo. | |
| 2002 | Evergreen Retail and Evergreen Institutional companies form the umbrella asset management company, Evergreen Investments. | |
| 2005 | The integration of Strong Funds with Wells Fargo Funds creates Wells Fargo Advantage Funds, resulting in one of the top 20 mutual fund companies in the United States. | |
| 2006 | Wells Fargo Advantage Funds relaunches the target date product line as Wells Fargo Advantage Dow Jones Target Date Funds. | |
| 2010 | The mergers and reorganizations of Evergreen and Wells Fargo Advantage mutual funds are completed, unifying the families under the brand of Wells Fargo Advantage Funds. |
Wells Fargo Advantage Funds®
Wells Fargo Advantage Funds skillfully guides institutions, financial advisors, and individuals through the investment terrain to help them reach their financial objectives. Everything we do on behalf of investors is backed by our unique combination of qualifications.
Strength
Our organization is built on the standards of integrity and service established by our parent company—Wells Fargo & Company—more than 150 years ago. And, because we’re part of a highly diversified financial enterprise, we offer the depth of resources to help investors succeed.
Expertise
Our multi-boutique model offers investors access to the independent thinking of premier investment managers that have been chosen for their time-tested strategies. While each team specializes in a specific investment strategy, collectively they provide investors a wide choice of distinct investment styles. Our dedication to investment excellence doesn’t end with our expertise in manager selection—risk management, analysis, and rigorous ongoing review seek to ensure each manager’s investment process remains consistent.
Partnership
Our collaborative approach is built around understanding the needs and goals of our clients. By adhering to core principles of sound judgment and steady guidance, we support you through every stage of the investment decision process.
Carefully consider the investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, for Wells Fargo Advantage Funds, containing this and other information, visit wellsfargoadvantagefunds.com. Read it carefully before investing.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
“Dow Jones®” and “Dow Jones Target Date IndexesSM” are service marks of Dow Jones Trademark Holdings LLC (“Dow Jones”); have been licensed to CME Group Index Services LLC (“CME Indexes”); and have been sublicensed for use for certain purposes by Global Index Advisors, Inc., and Wells Fargo Funds Management, LLC. The Wells Fargo Advantage Dow Jones Target Date FundsSM, based on the Dow Jones Target Date Indexes, are not sponsored, endorsed, sold, or promoted by Dow Jones, CME Indexes, or their respective affiliates, and none of them makes any representation regarding the advisability of investing in such product(s).
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
Not part of the annual report.
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Wells Fargo Advantage Funds offers more than 110 mutual funds across a wide range of asset classes, representing over $217 billion in assets under management, as of December 31, 2012.
| Equity funds | ||||
Asia Pacific Fund | Enterprise Fund† | Opportunity Fund† | ||
C&B Large Cap Value Fund | Equity Value Fund | Precious Metals Fund | ||
C&B Mid Cap Value Fund | Global Opportunities Fund | Premier Large Company Growth Fund | ||
Capital Growth Fund | Growth Fund | Small Cap Opportunities Fund | ||
Common Stock Fund | Index Fund | Small Cap Value Fund | ||
Disciplined U.S. Core Fund | International Equity Fund | Small Company Growth Fund | ||
Discovery Fund† | International Value Fund | Small Company Value Fund | ||
Diversified Equity Fund | Intrinsic Small Cap Value Fund | Small/Mid Cap Core Fund | ||
Diversified International Fund | Intrinsic Value Fund | Small/Mid Cap Value Fund | ||
Diversified Small Cap Fund | Intrinsic World Equity Fund | Special Mid Cap Value Fund | ||
Emerging Growth Fund | Large Cap Core Fund | Special Small Cap Value Fund | ||
Emerging Markets Equity Fund | Large Cap Growth Fund | Specialized Technology Fund | ||
Emerging Markets Equity Income Fund | Large Company Value Fund | Traditional Small Cap Growth Fund | ||
Endeavor Select Fund† | Omega Growth Fund | Utility and Telecommunications Fund | ||
| Bond funds | ||||
Adjustable Rate Government Fund | High Yield Municipal Bond Fund | Short Duration Government Bond Fund | ||
California Limited-Term Tax-Free Fund | Income Plus Fund | Short-Term Bond Fund | ||
California Tax-Free Fund | Inflation-Protected Bond Fund | Short-Term High Yield Bond Fund | ||
Colorado Tax-Free Fund | Intermediate Tax/AMT-Free Fund | Short-Term Municipal Bond Fund | ||
Core Bond Fund | International Bond Fund | Strategic Income Fund | ||
Emerging Markets Local Bond Fund | Minnesota Tax-Free Fund | Strategic Municipal Bond Fund | ||
Government Securities Fund | Municipal Bond Fund | Ultra Short-Term Income Fund | ||
High Income Fund | North Carolina Tax-Free Fund | Ultra Short-Term Municipal Income Fund | ||
High Yield Bond Fund | Pennsylvania Tax-Free Fund | Wisconsin Tax-Free Fund | ||
| Asset allocation funds | ||||
Absolute Return Fund | WealthBuilder Equity Portfolio† | Target 2020 Fund† | ||
Asset Allocation Fund | WealthBuilder Growth Allocation Portfolio† | Target 2025 Fund† | ||
Conservative Allocation Fund | WealthBuilder Growth Balanced Portfolio† | Target 2030 Fund† | ||
Diversified Capital Builder Fund | WealthBuilder Moderate Balanced Portfolio† | Target 2035 Fund† | ||
Diversified Income Builder Fund | WealthBuilder Tactical Equity Portfolio† | Target 2040 Fund† | ||
Growth Balanced Fund | Target Today Fund† | Target 2045 Fund† | ||
Index Asset Allocation Fund | Target 2010 Fund† | Target 2050 Fund† | ||
Moderate Balanced Fund | Target 2015 Fund† | Target 2055 Fund† | ||
WealthBuilder Conservative Allocation Portfolio† | ||||
| Money market funds | ||||
100% Treasury Money Market Fund | Heritage Money Market Fund† | National Tax-Free Money Market Fund | ||
California Municipal Money Market Fund | Money Market Fund | Prime Investment Money Market Fund | ||
Cash Investment Money Market Fund | Municipal Cash Management Money Market Fund | Treasury Plus Money Market Fund | ||
Government Money Market Fund | Municipal Money Market Fund | |||
| Variable trust funds1 | ||||
VT Discovery Fund† | VT Intrinsic Value Fund | VT Small Cap Growth Fund | ||
VT Index Asset Allocation Fund | VT Omega Growth Fund | VT Small Cap Value Fund | ||
VT International Equity Fund | VT Opportunity Fund† | VT Total Return Bond Fund |
An investment in a money market fund is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the Wells Fargo Advantage Money Market Funds seek to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in a money market fund.
| 1. | The variable trust funds are generally available only through insurance company variable contracts. |
| † | In this report, the Wells Fargo Advantage Discovery FundSM, Wells Fargo Advantage Endeavor Select FundSM, Wells Fargo Advantage Enterprise FundSM, Wells Fargo Advantage Opportunity FundSM, Wells Fargo Advantage WealthBuilder Conservative Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Equity PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Allocation PortfolioSM, Wells Fargo Advantage WealthBuilder Growth Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Moderate Balanced PortfolioSM, Wells Fargo Advantage WealthBuilder Tactical Equity PortfolioSM, Wells Fargo Advantage Dow Jones Target Today FundSM, Wells Fargo Advantage Dow Jones Target 2010 FundSM, Wells Fargo Advantage Dow Jones Target 2015 FundSM, Wells Fargo Advantage Dow Jones Target 2020 FundSM, Wells Fargo Advantage Dow Jones Target 2025 FundSM, Wells Fargo Advantage Dow Jones Target 2030 FundSM, Wells Fargo Advantage Dow Jones Target 2035 FundSM, Wells Fargo Advantage Dow Jones Target 2040 FundSM, Wells Fargo Advantage Dow Jones Target 2045 FundSM, Wells Fargo Advantage Dow Jones Target 2050 FundSM, Wells Fargo Advantage Dow Jones Target 2055 FundSM, Wells Fargo Advantage Heritage Money Market FundSM, Wells Fargo Advantage VT Discovery FundSM, and Wells Fargo Advantage VT Opportunity FundSM are referred to as the Discovery Fund, Endeavor Select Fund, Enterprise Fund, Opportunity Fund, WealthBuilder Conservative Allocation Portfolio, WealthBuilder Equity Portfolio, WealthBuilder Growth Allocation Portfolio, WealthBuilder Growth Balanced Portfolio, WealthBuilder Moderate Balanced Portfolio, WealthBuilder Tactical Equity Portfolio, Target Today Fund, Target 2010 Fund, Target 2015 Fund, Target 2020 Fund, Target 2025 Fund, Target 2030 Fund, Target 2035 Fund, Target 2040 Fund, Target 2045 Fund, Target 2050 Fund, Target 2055 Fund, Heritage Money Market Fund, VT Discovery Fund, and VT Opportunity Fund, respectively. |
Not part of the annual report.
Table of Contents
| 2 | Wells Fargo Advantage VT Total Return Bond Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Fixed-incomeperformance was best among corporate bonds and commercial mortgage-backed securities (CMBS), as continued monetary accommodation from the U.S. Federal Reserve (Fed) strengthened the demand for securities with higher yields.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Total Return Bond Fund, which covers the 12-month period that ended December 31, 2012. During the period, fixed-income performance was best among corporate bonds and commercial mortgage-backed securities (CMBS), as continued monetary accommodation from the U.S. Federal Reserve (Fed) strengthened the demand for securities with higher yields. The lower-rated credit tiers and longest-maturity segments of the fixed-income market outperformed the higher-quality and shorter-maturity segments.
Improving economic trends in the U.S. were once again undermined by the European sovereign debt crisis.
The first two months of 2012 continued the trends that started in December 2011; investor confidence strengthened as the U.S. economy demonstrated signs of sustainable growth, and U.S. credit markets began to show some resistance to the credit problems of Europe. During these months, the lowest-rated credit tiers of the U.S. domestic fixed-income markets generally performed best while inflation expectations once again began to increase. During this time, it looked as though the U.S. economy would continue to strengthen throughout much of 2012 and that lower-rated corporate bonds were poised to provide some of the best returns. Extraordinarily low interest rates made debt refinancing fluid for bond issuers while at the same time corporate earnings and balance sheet fundamentals continued to strengthen. Thus, lower-rated credit tiers outperformed each respectively higher-rated credit tier during these months.
But, these trends would be undermined by the woes of Europe and would not last. By early May, the viability of the euro was being debated as Greece neared default on its sovereign debt and hinted at the possibility of exiting the euro. Consequently, global investors rallied to the U.S. Treasury market, driving long-term yields to some of their lowest levels on record in May and early June 2012. Suddenly, the highest-rated credit tiers were the best performers while the lower-rated credit tiers were out of favor.
For several weeks, it appeared that investors would continue to prefer higher quality over the riskier asset classes as long as the problems in Europe persisted, but by mid-June 2012, these trends began to reverse as credit market confidence refortified in the U.S. The second half of June 2012 and the entire month of July 2012 saw some of the strongest performance in the lower-rated and longer-maturity segments of the fixed-income markets from all of 2012. The A-rated, BBB-rated, and BB-rated1 segments of the markets performed best, as investors rallied to the higher yield and more moderate credit risk of those mid-grade credit tiers.
Credit sectors rallied for much of the second half of 2012, outperforming U.S. Treasuries.
As policymaking in Europe during the summer months of 2012 began to reassure global credit markets that the euro was irreversible and that all appropriate measures would be taken to bolster European debt markets, lower-rated securities in the U.S. once again rallied in price, significantly outpacing the returns from U.S. Treasuries. Corporate bonds and CMBS were once again the best-performing sectors of the core fixed-income markets throughout most of the second half of 2012.
| 1. | The ratings indicated are from Standard & Poor’s. Credit-quality ratings apply to the underlying holdings of the Fund and not the Fund itself. Standard & Poor’s rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). We generally define higher-quality (investment grade) bonds as bonds having a rating above BBB/Baa and lower-quality bonds as bonds having a rating below BBB/Baa. |
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| Letter to shareholders (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 3 |
In December 2012, the Fed reaffirmed its commitment to highly accommodative monetary policy, citing its dual mandate of fostering maximum employment and price stability. For the first time since the financial crisis began in 2008, the Fed formally announced specific target ranges that could trigger a change to its highly accommodative monetary policy, most notably that exceptionally low interest rates would be appropriate at least as long as the unemployment rate remained above 6.5% and inflation expectations were no more than half a percentage point above its 2.0% inflation target. These thresholds were the first official measures of when and how a change to monetary policy may take effect.
Overall, the theme for the 12-month period in the U.S. fixed-income markets was a continued rally of mid-grade and lower-rated debt securities despite intermittent escalations in risk aversion that temporarily interrupted those trends, most notably in April, May, and June 2012. On the whole, most credit-related sectors generated relatively generous returns during the 12-month period considering the extraordinarily low level of interest rates. Corporate bonds and CMBS generally performed exceedingly well, followed by asset-backed securities and mortgage-backed securities. Additionally, longer-maturity securities performed the best, with each respectively longer-maturity range outperforming the one shorter than it. Thus, investment strategies that focused on mid-rated credit tiers and longer-maturity securities generally saw the strongest returns during the period.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining a long-term investment strategy based on individual goals and risk tolerance can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 110 mutual funds and other investments spanning a wide range of asset classes and investment styles. Although diversification cannot guarantee an investment profit or prevent losses, we believe it can be an effective way to manage investment risk and potentially smooth out overall portfolio performance.
Thank you for choosing to invest with Wells Fargo Advantage Funds. We appreciate your confidence in us and remain committed to helping you meet your financial needs. For current information about your fund investments, contact your investment professional, visit our website at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.
Sincerely,
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Most credit-related sectors generated relatively generous returns during the 12-month period considering the extraordinarily low level of interest rates.
Table of Contents
| 4 | Wells Fargo Advantage VT Total Return Bond Fund | Performance highlights (unaudited) |
Investment objective
The Fund seeks total return, consisting of income and capital appreciation.
Adviser
Wells Fargo Funds Management, LLC
Subadviser
Wells Capital Management Incorporated
Portfolio managers
Troy Ludgood
Thomas O’Connor, CFA
Average annual total returns (%) as of December 31, 2012
| Expense ratios1 (%) | ||||||||||||||||||||||
| Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
| Class 2 | 9-20-1999 | 6.10 | 7.12 | 6.01 | 0.92 | 0.91 | ||||||||||||||||
| Barclays U.S. Aggregate Bond Index3 | – | 4.21 | 5.95 | 5.18 | – | – | ||||||||||||||||
Figures quoted represent past performance, which is no guarantee of future results and do not reflect the deduction of taxes that a shareholder may pay on fund distributions or the redemption of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available by calling 1-800-222-8222. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. If sales loads or charges had been reflected, performance would have been lower.
Index returns do not include transaction costs associated with buying and selling securities, any mutual fund fees or expenses, or any taxes. It is not possible to invest directly in an index.
Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond values fall and investors may lose principal value. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). The Fund is exposed to foreign investment risk and mortgage- and asset-backed securities risk. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
Table of Contents
| Performance highlights (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 5 |
| Growth of $10,000 investment4 as of December 31, 2012 | ||
| ||
| 1. | Reflects the expense ratio as stated in the most recent prospectus. |
| 2. | The Adviser has committed through July 18, 2013, to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s Total Annual Fund Operating Expenses After Fee Waiver, excluding certain expenses, at 0.90% for Class 2. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
| 3. | The Barclays U.S. Aggregate Bond Index is composed of the Barclays U.S. Government/Credit Index and the Barclays U.S. Mortgage-Backed Securities Index and includes U.S. Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index. |
| 4. | The chart compares the performance of Class 2 shares for the most recent ten years of the Fund with the Barclays U.S. Aggregate Bond Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
| 5. | The ten largest long-term holdings are calculated based on the value of the securities divided by total net assets of the Fund. Holdings are subject to change and may have changed since the date specified. |
| 6. | Portfolio allocation is subject to change and is calculated based on the total long-term investments of the Fund. |
Table of Contents
| 6 | Wells Fargo Advantage VT Total Return Bond Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
| n | The Fund outperformed the Barclays U.S. Aggregate Bond Index for the 12-month period that ended December 31, 2012, primarily benefiting from sector overweights and specific security selections in agency mortgages, corporate bonds, commercial mortgage-backed securities (CMBS), and asset-backed securities (ABS). |
| n | Specific securities within the structured product sectors added excess returns throughout the period, most notably agency mortgage pools, collateralized mortgage obligations, to-be-announced mortgage-backed securities, and hybrid adjustable-rate mortgages. |
| n | Our overweight in 2006 and 2007 vintage 30% credit-enhanced CMBS contributed to performance, as did our overweight in FFELP (Family Federal Education Loan Program) student loan floating-rate securities. Detracting from performance was our overweight in new issue CMBS 3.0% coupon bonds, which did not appreciate in price as significantly as the CMBS sector within the index. |
| n | In the corporate/credit sector, overweight positions in The Goldman Sachs Group, Incorporated, Lazard Limited, and Petrobras contributed while overweight positions in the Inter-American Development Bank, Pernod-Ricard, and the New Jersey Transportation Trust Fund Authority detracted. |
Despite intermittent volatility, lower-rated core bonds outperformed U.S. Treasuries during the period.
The period began with strong performance from the credit and structured product spread sectors, driven by the European Central Bank’s liquidity operations, stronger-than-expected U.S. employment data, and prospects for further rounds of quantitative easing in the U.S. from the Federal Reserve (Fed). However, these sentiments shifted in the second quarter of 2012 as uncertainty about the economic recovery in the U.S. returned and the credit crisis in Europe resurfaced. Consequently, lower-rated fixed income securities that had performed well in the opening months of the year suddenly went out of favor in April, May, and June while investors once again rallied to U.S. Treasuries.
Credit market confidence refortified in the second half of June 2012 and through July 2012 as central bank stimulus measures in both the U.S. and Europe bolstered investor sentiments. The Fed embarked on its third attempt at reviving economic growth by expanding the monetary base through quantitative easing (QE3), announcing intentions to purchase $40 billion per month of mortgage debt to support the housing recovery, boost growth, and reduce unemployment. Lower-rated securities rallied strongly in the third quarter, outperforming U.S. Treasuries.
Monetary policy continued to support technical pricing in the fixed-income markets into the fourth quarter of the year, benefiting the lower-rated credits tiers the most, while U.S. Treasuries continued to underperform. Low levels of supply in the structured product sectors combined with strong global demand for higher-yielding spreads continued to support lower-rated security prices through the end of the year.
| Ten largest long-term holdings5 (%) as of December 31, 2012 | ||||
FNMA, 2.50%, 2/08/2028 | 2.50 | |||
U.S. Treasury Note, 0.38%,11/15/2015 | 2.48 | |||
U.S. Treasury Note, 0.38%, 4/15/2015 | 2.35 | |||
U.S. Treasury Note, 0.25%,12/15/2015 | 2.04 | |||
FNMA, 3.00%, 3/07/2043 | 1.70 | |||
FNMA, 4.00%, 9/01/2042 | 1.55 | |||
U.S. Treasury Note, 0.25%,10/15/2015 | 1.48 | |||
FHLMC, 4.00%, 6/01/2042 | 1.45 | |||
U.S. Treasury Note, 0.63%, 12/31/2017 | 1.43 | |||
Chase Issuance Trust Series 2012-A6 Class A, | 1.40 | |||
We remained overweight in structured products and corporate bonds while making tactical shifts throughout the period.
During the period, the Fund benefited from various tactical shifts in specific securities within our structured product and corporate/credit sectors. We maintained an overweight in agency mortgages on a risk-adjusted basis throughout 2012, finding many relative-value trading opportunities within the sector. We reduced our overweight in the third quarter as mortgages tightened on the heels of the Fed’s QE3 announcement, but increased the overweight in the fourth quarter as technicals remained strong for lower coupons.
Please see footnotes on page 5.
Table of Contents
| Performance highlights (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 7 |
We remained overweight in the CMBS and ABS sectors throughout the year. In the first half of 2012, we reduced exposure to 2004–2006 vintage CMBS bonds while adding exposure to 2007 vintage and new issue CMBS, both of which underperformed the index on a risk-adjusted basis. During the third and fourth quarters, we increased our overweight in new issue seven- to 10-year CMBS and also sold some on strong relative performance.
In corporate/credit, we increased our allocation from a slight underweight at the end of 2011 to an overweight position in the first quarter of 2012. We maintained a modest overweight throughout the rest of the year. At year-end, our largest overweight positions were real estate investment trusts, local government issues, and financial sector bonds. We were generally underweight in information technology and telecommunication services at year-end because we believed those sectors to be overpriced.
| Portfolio allocation6 as of December 31, 2012 | ||
| ||
We believe that significant monetary accommodation is likely to continue in 2013.
In our view, the global economy appears to be improving from a low base. Manufacturing activity appears to be rising in the U.S. and most emerging markets, while stabilizing in Europe. Credit conditions continue to strengthen domestically and appear to have turned the corner abroad. Consumer confidence is also rising, supporting the housing and auto sectors. The wildcard that remains is any lagged effect of fiscal tightening in the U.S. and Europe, which could be a drag against the underlying momentum.
In our view, the Fed and most central banks around the world are likely to continue providing highly accommodative monetary policy in 2013, preserving an extraordinarily low interest-rate environment and potentially favorable conditions for fixed-income securities. As the year progresses, we anticipate heightened sensitivity to the potential timing of when accommodative monetary policy may begin to shift.
In light of these conditions, we intend to continue overweighting the spread sectors at the outset of 2013 while watching for any significant indications that monetary accommodation may change. Guided by our strategy of trading in specific security selections, we continue to be positioned with modest overweights to CMBS, ABS, agency mortgages, and corporate securities and an underweight in U.S. Treasuries. We continue to maintain a neutral duration going into the next year and are focused on security selection as the primary driver of returns. We believe the Fund has ample capacity to execute our strategy of trading for relative-value opportunities as they arise.
Please see footnotes on page 5.
Table of Contents
| 8 | Wells Fargo Advantage VT Total Return Bond Fund | Fund expenses (unaudited) |
As a shareholder of the Fund, you incur ongoing costs, including management fees, distribution (12b-1) fees, and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
The example is based on an investment of $1,000 invested at the beginning of the six-month period and held for the
entire period from July 1, 2012 to December 31, 2012.
Actual expenses
The “Actual” line of the table below provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the “Actual” line under the heading entitled “Expenses Paid During Period” for your applicable class of shares to estimate the expenses you paid on your account during this period.
Hypothetical example for comparison purposes
The “Hypothetical” line of the table below provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds.
Please note that the expenses shown in the table are meant to highlight your ongoing costs only and do not reflect any separate account charges assessed by participating insurance companies. Therefore, the “Hypothetical” line of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. In addition, if these separate account charges assessed by participating insurance companies were included, your costs would have been higher.
| Beginning account value 7-1-2012 | Ending account value 12-31-2012 | Expenses paid during the period1 | Net annual expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,028.22 | $ | 4.59 | 0.90 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.61 | $ | 4.57 | 0.90 | % | ||||||||
| 1. | Expenses paid is equal to the annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year divided by the number of days in the fiscal year (to reflect the one-half year period). |
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 9 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities: 34.70% | ||||||||||||||||
FHLMC %% | 2.50 | % | 2-1-2028 | $ | 700,000 | $ | 729,422 | |||||||||
FHLMC %% | 2.50 | 3-1-2028 | 800,000 | 832,125 | ||||||||||||
FHLMC | 3.00 | 7-1-2032 | 40,382 | 42,725 | ||||||||||||
FHLMC | 3.00 | 9-1-2032 | 107,991 | 114,256 | ||||||||||||
FHLMC | 3.00 | 8-1-2042 | 74,484 | 78,107 | ||||||||||||
FHLMC | 3.00 | 10-1-2042 | 28,907 | 30,313 | ||||||||||||
FHLMC %% | 3.00 | 2-1-2043 | 300,000 | 312,984 | ||||||||||||
FHLMC %% | 3.00 | 3-1-2043 | 200,000 | 208,219 | ||||||||||||
FHLMC | 3.50 | 8-1-2032 | 68,446 | 74,441 | ||||||||||||
FHLMC | 3.50 | 9-1-2032 | 175,438 | 190,103 | ||||||||||||
FHLMC | 3.50 | 12-1-2032 | 88,000 | 96,030 | ||||||||||||
FHLMC | 4.00 | 11-15-2037 | 79,195 | 81,368 | ||||||||||||
FHLMC | 4.00 | 4-1-2042 | 444,590 | 491,881 | ||||||||||||
FHLMC | 4.00 | 6-1-2042 | 93,927 | 104,293 | ||||||||||||
FHLMC | 4.00 | 6-1-2042 | 198,006 | 219,860 | ||||||||||||
FHLMC | 4.00 | 6-1-2042 | 1,206,292 | 1,334,605 | ||||||||||||
FHLMC | 4.00 | 11-1-2042 | 72,898 | 80,944 | ||||||||||||
FHLMC | 4.00 | 12-1-2042 | 170,845 | 189,701 | ||||||||||||
FHLMC | 4.50 | 9-1-2042 | 90,410 | 101,482 | ||||||||||||
FHLMC | 5.00 | 8-1-2039 | 545,795 | 614,598 | ||||||||||||
FHLMC | 5.00 | 4-1-2041 | 78,789 | 88,746 | ||||||||||||
FHLMC | 5.00 | 5-1-2041 | 68,659 | 77,336 | ||||||||||||
FHLMC | 5.00 | 7-1-2041 | 266,226 | 299,869 | ||||||||||||
FHLMC | 5.00 | 8-1-2041 | 593,711 | 668,740 | ||||||||||||
FHLMC | 5.00 | 4-1-2042 | 69,397 | 78,146 | ||||||||||||
FHLMC | 5.50 | 7-1-2038 | 229,351 | 258,729 | ||||||||||||
FHLMC ± | 5.58 | 10-1-2038 | 24,060 | 26,023 | ||||||||||||
FHLMC ± | 5.72 | 11-1-2037 | 1,249 | 1,349 | ||||||||||||
FHLMC ± | 5.89 | 3-1-2037 | 4,522 | 4,907 | ||||||||||||
FHLMC | 6.00 | 3-1-2034 | 30,739 | 34,182 | ||||||||||||
FHLMC | 6.00 | 2-1-2035 | 26,188 | 29,121 | ||||||||||||
FHLMC | 6.00 | 12-1-2035 | 384,901 | 428,009 | ||||||||||||
FHLMC Series 2980 Class QA | 6.00 | 5-15-2035 | 552,385 | 621,672 | ||||||||||||
FHLMC Series 3529 Class AG | 6.50 | 4-15-2039 | 260,973 | 294,635 | ||||||||||||
FHLMC Series 3622 Class WA | 5.50 | 9-15-2039 | 177,517 | 194,886 | ||||||||||||
FHLMC Series K003 Class AAB | 4.77 | 5-25-2018 | 151,000 | 168,890 | ||||||||||||
FHLMC Series K005 Class A2 | 4.32 | 11-25-2019 | 127,000 | 147,599 | ||||||||||||
FHLMC Series T-48 Class 1A3 ± | 6.16 | 7-25-2033 | 2,790 | 3,308 | ||||||||||||
FHLMC Series T-57 Class 1A3 | 7.50 | 7-25-2043 | 30,416 | 35,210 | ||||||||||||
FHLMC Series T-59 Class 1A3 | 7.50 | 10-25-2043 | 41,559 | 47,686 | ||||||||||||
FHLMC Series T-60 Class 1A3 | 7.50 | 3-25-2044 | 43,154 | 51,578 | ||||||||||||
FNMA %% | 2.50 | 2-1-2028 | 2,200,000 | 2,296,938 | ||||||||||||
FNMA %% | 2.50 | 3-1-2028 | 1,100,000 | 1,146,406 | ||||||||||||
FNMA | 3.00 | 6-1-2032 | 73,235 | 76,923 | ||||||||||||
FNMA | �� | 3.00 | 7-1-2032 | 46,321 | 48,654 | |||||||||||
FNMA | 3.00 | 8-1-2032 | 66,189 | 69,522 | ||||||||||||
FNMA | 3.00 | 12-25-2042 | 981,606 | 1,026,276 | ||||||||||||
FNMA | 3.00 | 12-25-2042 | 89,876 | 93,636 | ||||||||||||
FNMA %% | 3.00 | 2-1-2043 | 900,000 | 941,063 | ||||||||||||
FNMA %% | 3.00 | 3-1-2043 | 1,500,000 | 1,564,922 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 10 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities (continued) | ||||||||||||||||
FNMA | 3.50 | % | 4-1-2032 | $ | 186,361 | $ | 200,768 | |||||||||
FNMA | 3.50 | 8-1-2032 | 166,413 | 180,370 | ||||||||||||
FNMA | 3.50 | 9-1-2032 | 243,316 | 261,518 | ||||||||||||
FNMA | 3.50 | 9-1-2032 | 118,035 | 127,935 | ||||||||||||
FNMA | 3.50 | 11-1-2032 | 24,800 | 26,880 | ||||||||||||
FNMA | 3.50 | 11-1-2032 | 58,807 | 63,739 | ||||||||||||
FNMA | 3.50 | 11-1-2032 | 36,874 | 39,967 | ||||||||||||
FNMA | 3.50 | 12-1-2042 | 195,689 | 211,673 | ||||||||||||
FNMA | 3.50 | 12-1-2042 | 225,591 | 244,018 | ||||||||||||
FNMA | 4.00 | 7-1-2042 | 486,674 | 540,936 | ||||||||||||
FNMA | 4.00 | 7-1-2042 | 223,282 | 248,177 | ||||||||||||
FNMA | 4.00 | 8-1-2042 | 1,052,725 | 1,170,100 | ||||||||||||
FNMA | 4.00 | 9-1-2042 | 1,279,994 | 1,422,709 | ||||||||||||
FNMA | 4.00 | 10-1-2042 | 660,687 | 734,351 | ||||||||||||
FNMA | 4.00 | 11-1-2042 | 394,717 | 438,727 | ||||||||||||
FNMA | 4.00 | 11-1-2042 | 100,843 | 112,087 | ||||||||||||
FNMA (a) | 4.00 | 1-14-2043 | 204,000 | 226,745 | ||||||||||||
FNMA (a) | 4.00 | 1-25-2043 | 71,000 | 78,916 | ||||||||||||
FNMA | 5.00 | 4-1-2040 | 420,977 | 458,127 | ||||||||||||
FNMA | 5.00 | 3-1-2041 | 24,365 | 27,566 | ||||||||||||
FNMA | 5.00 | 5-1-2041 | 100,941 | 113,761 | ||||||||||||
FNMA | 5.00 | 6-1-2041 | 59,373 | 66,914 | ||||||||||||
FNMA | 5.00 | 6-1-2041 | 88,689 | 100,340 | ||||||||||||
FNMA | 5.00 | 6-1-2041 | 75,821 | 85,450 | ||||||||||||
FNMA | 5.00 | 7-1-2041 | 23,872 | 26,904 | ||||||||||||
FNMA | 5.00 | 7-1-2041 | 719,877 | 815,350 | ||||||||||||
FNMA | 5.00 | 7-1-2041 | 44,350 | 48,416 | ||||||||||||
FNMA | 5.00 | 8-1-2041 | 103,837 | 117,478 | ||||||||||||
FNMA | 5.00 | 8-1-2041 | 57,666 | 64,989 | ||||||||||||
FNMA | 5.00 | 8-1-2041 | 60,259 | 67,912 | ||||||||||||
FNMA | 5.00 | 8-1-2041 | 281,585 | 318,578 | ||||||||||||
FNMA | 5.00 | 8-1-2041 | 58,629 | 66,405 | ||||||||||||
FNMA | 5.00 | 9-1-2041 | 139,870 | 157,634 | ||||||||||||
FNMA | 5.00 | 9-1-2041 | 76,510 | 86,562 | ||||||||||||
FNMA ± | 5.19 | 1-1-2036 | 69,496 | 73,382 | ||||||||||||
FNMA | 5.50 | 9-1-2034 | 43,066 | 46,603 | ||||||||||||
FNMA | 5.50 | 4-1-2036 | 38,521 | 41,890 | ||||||||||||
FNMA | 5.50 | 1-15-2038 | 101,278 | 109,441 | ||||||||||||
FNMA | 5.50 | 7-1-2039 | 46,691 | 53,518 | ||||||||||||
FNMA ± | 5.96 | 9-1-2037 | 14,093 | 15,388 | ||||||||||||
FNMA | 6.00 | 3-1-2034 | 563,556 | 628,289 | ||||||||||||
FNMA | 6.00 | 8-1-2034 | 35,054 | 39,155 | ||||||||||||
FNMA | 6.00 | 8-1-2034 | 50,704 | 56,511 | ||||||||||||
FNMA | 6.00 | 11-1-2034 | 54,352 | 60,439 | ||||||||||||
FNMA | 6.00 | 4-1-2035 | 168,813 | 187,719 | ||||||||||||
FNMA | 6.00 | 4-1-2035 | 18,229 | 20,318 | ||||||||||||
FNMA | 6.00 | 4-1-2035 | 16,904 | 18,882 | ||||||||||||
FNMA | 6.00 | 12-1-2035 | 130,595 | 145,875 | ||||||||||||
FNMA | 6.00 | 8-1-2036 | 187,104 | 208,060 | ||||||||||||
FNMA | 6.00 | 7-1-2037 | 330,908 | 367,953 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 11 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities (continued) | ||||||||||||||||
FNMA | 6.00 | % | 7-1-2037 | $ | 53,218 | $ | 59,445 | |||||||||
FNMA | 6.00 | 10-1-2038 | 199,028 | 217,898 | ||||||||||||
FNMA ± | 6.27 | 9-1-2037 | 163,922 | 179,689 | ||||||||||||
FNMA | 7.00 | 2-25-2042 | 165,278 | 183,725 | ||||||||||||
FNMA Series 2002-33 Class A2 | 7.50 | 6-25-2032 | 32,702 | 40,008 | ||||||||||||
FNMA Series 2003-W17 Class 1A7 | 5.75 | 8-25-2033 | 85,000 | 98,949 | ||||||||||||
FNMA Series 2005-5 Class PA | 5.00 | 1-25-2035 | 50,428 | 54,761 | ||||||||||||
FNMA Series 2006-56 Class CA | 6.00 | 7-25-2036 | 29,102 | 32,267 | ||||||||||||
FNMA Series 2009-30 Class AD | 6.50 | 4-25-2039 | 159,051 | 173,059 | ||||||||||||
FNMA Series 2009-93 Class PD | 4.50 | 9-25-2039 | 67,461 | 73,456 | ||||||||||||
FNMA Series 2009-M01 Class A2 | 4.29 | 7-25-2019 | 135,000 | 155,825 | ||||||||||||
FNMA Series 2009-M02 Class A3 | 4.00 | 1-25-2019 | 232,000 | 263,131 | ||||||||||||
FNMA Series 2010-054 Class EA | 4.50 | 6-25-2040 | 242,685 | 265,066 | ||||||||||||
FNMA Series 2010-M01 Class A2 | 4.45 | 9-25-2019 | 82,000 | 93,404 | ||||||||||||
FNMA Series 2010-M03 Class A3 ± | 4.33 | 3-25-2020 | 499,000 | 575,711 | ||||||||||||
FNMA Series 2011-53 Class DT | 4.50 | 6-25-2041 | 153,512 | 163,949 | ||||||||||||
FNMA Series 2011-53 Class TN | 4.00 | 6-25-2041 | 823,876 | 868,442 | ||||||||||||
GNMA | 6.00 | 1-15-2040 | 398,013 | 444,318 | ||||||||||||
GNMA Series 2002-95 Class DB | 6.00 | 1-25-2033 | 140,000 | 157,989 | ||||||||||||
Total Agency Securities (Cost $31,148,894) | 31,878,935 | |||||||||||||||
|
| |||||||||||||||
Asset-Backed Securities: 13.66% | ||||||||||||||||
Ally Auto Receivables Trust Series 2010-5 Class A4 | 1.75 | 3-15-2016 | 245,000 | 248,737 | ||||||||||||
Ally Auto Receivables Trust Series 2011-1 Class A4 | 2.23 | 3-15-2016 | 302,000 | 308,787 | ||||||||||||
Ally Auto Receivables Trust Series 2011-4 Class A2 | 0.65 | 3-17-2014 | 11,614 | 11,616 | ||||||||||||
Ally Auto Receivables Trust Series 2012-4 Class A2 | 0.48 | 5-15-2015 | 303,000 | 303,044 | ||||||||||||
Ally Master Owner Trust Series 2012-1 Class A1 ± | 1.01 | 2-15-2017 | 195,000 | 196,674 | ||||||||||||
Ally Master Owner Trust Series 2012-3 Class A1 ± | 0.91 | 6-15-2017 | 148,000 | 148,913 | ||||||||||||
Ally Master Owner Trust Series 2012-5 Class A | 1.54 | 9-15-2019 | 114,000 | 114,369 | ||||||||||||
American Express Credit Account Master Trust Series 2009-2 Class A ± | 1.46 | 3-15-2017 | 110,000 | 112,205 | ||||||||||||
American Express Credit Account Master Trust Series 2012-4 Class A ± | 0.45 | 5-15-2020 | 330,000 | 330,635 | ||||||||||||
AmeriCredit Automobile Receivables Trust Series 2012-4 Class A2 | 0.49 | 4-8-2016 | 126,000 | 126,059 | ||||||||||||
AmeriCredit Automobile Receivables Trust Series 2012-4 Class A3 | 0.67 | 6-8-2017 | 102,000 | 102,038 | ||||||||||||
BMW Floorplan Master Owner Trust Series 2012-1A Class A ±144A | 0.61 | 9-15-2017 | 250,000 | 250,433 | ||||||||||||
Chase Issuance Trust Series 2008-A13 Class A13 ± | 1.81 | 9-15-2015 | 275,000 | 277,964 | ||||||||||||
Chase Issuance Trust Series 2011-A2 Class A2 ± | 0.30 | 5-15-2015 | 637,000 | 637,143 | ||||||||||||
Chase Issuance Trust Series 2012-A10 Class A10 ± | 0.47 | 12-16-2019 | 204,000 | 204,063 | ||||||||||||
Chase Issuance Trust Series 2012-A6 Class A ± | 0.34 | 8-15-2017 | 1,287,000 | 1,288,024 | ||||||||||||
Chase Issuance Trust Series 2012-A8 Class A8 | 0.54 | 10-16-2017 | 224,000 | 223,791 | ||||||||||||
Developers Diversified Realty Corporation Trust Series 2009-DDR1 Class A 144A | 3.81 | 10-14-2022 | 255,506 | 266,596 | ||||||||||||
Ford Credit Floorplan Master Trust Series 2012-4 Class A2 ± | 0.56 | 9-15-2016 | 360,000 | 360,124 | ||||||||||||
GE Capital Credit Card Master Note Trust Series 2011-1 Class A ± | 0.76 | 1-15-2017 | 100,000 | 100,502 | ||||||||||||
Honda Auto Receivables Owner Trust Series 2010-3 Class A4 | 0.94 | 12-21-2016 | 230,000 | 231,017 | ||||||||||||
Honda Auto Receivables Owner Trust Series 2012-3 Class A2 | 0.46 | 12-15-2014 | 90,000 | 90,067 | ||||||||||||
MMCA Automobile Trust Series 2011-A Class A4 144A | 2.02 | 10-17-2016 | 116,000 | 118,054 | ||||||||||||
Nelnet Student Loan Trust Series 2005-1 Class A5 ± | 0.43 | 10-25-2033 | 293,000 | 272,520 | ||||||||||||
Nelnet Student Loan Trust Series 2005-2 Class A5 ± | 0.41 | 3-23-2037 | 396,000 | 371,019 | ||||||||||||
Nelnet Student Loan Trust Series 2006-1 Class A4 ± | 0.40 | 11-23-2022 | 412,004 | 410,898 | ||||||||||||
Nelnet Student Loan Trust Series 2006-2 Class A4 ± | 0.40 | 10-26-2026 | 504,909 | 504,399 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 12 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency-Backed Securities (continued) | ||||||||||||||||
Nelnet Student Loan Trust Series 2007-1 Class A3 ± | 0.38 | % | 5-27-2025 | $ | 153,000 | $ | 144,378 | |||||||||
Nelnet Student Loan Trust Series 2007-2A Class A3L ±144A | 0.66 | 3-25-2026 | 526,000 | 512,114 | ||||||||||||
Nelnet Student Loan Trust Series 2012-5 Class A ±144A | 0.81 | 10-27-2036 | 237,802 | 236,229 | ||||||||||||
Nissan Master Owner Trust Receivables Series 2012-A Class A ± | 0.68 | 5-15-2017 | 84,000 | 84,200 | ||||||||||||
Santander Drive Auto Receivables Series 2012-3 Class A2 | 0.83 | 4-15-2015 | 89,820 | 90,004 | ||||||||||||
Santander Drive Auto Receivables Series 2012-5 Class A2 | 0.57 | 12-15-2015 | 78,000 | 78,076 | ||||||||||||
Santander Drive Auto Receivables Series 2012-5 Class A3 | 0.83 | 12-15-2016 | 51,000 | 51,266 | ||||||||||||
Santander Drive Auto Receivables Series 2012-6 Class A3 | 0.62 | 7-15-2016 | 56,000 | 56,006 | ||||||||||||
SLM Student Loan Trust Series 2003-12 Class A5 ±144A | 0.59 | 9-15-2022 | 183,613 | 183,633 | ||||||||||||
SLM Student Loan Trust Series 2004-5A Class A5 ±144A | 0.92 | 10-25-2023 | 251,000 | 252,499 | ||||||||||||
SLM Student Loan Trust Series 2005-6 Class A5 ± | 1.52 | 7-27-2026 | 100,000 | 102,580 | ||||||||||||
SLM Student Loan Trust Series 2005-9 Class A4 ± | 0.42 | 1-25-2023 | 53,391 | 53,409 | ||||||||||||
SLM Student Loan Trust Series 2006-6 Class A2 ± | 0.40 | 10-25-2022 | 99,113 | 98,988 | ||||||||||||
SLM Student Loan Trust Series 2006-8 Class A4 ± | 0.40 | 10-25-2021 | 248,563 | 247,728 | ||||||||||||
SLM Student Loan Trust Series 2007-2 Class A2 ± | 0.32 | 7-25-2017 | 87,970 | 87,840 | ||||||||||||
SLM Student Loan Trust Series 2007-4 Class A3 ± | 0.38 | 1-25-2022 | 348,000 | 347,869 | ||||||||||||
SLM Student Loan Trust Series 2011-C Class A1 ±144A | 1.61 | 12-15-2023 | 288,104 | 290,903 | ||||||||||||
SLM Student Loan Trust Series 2012-2 Class A ± | 0.91 | 1-25-2029 | 269,350 | 272,831 | ||||||||||||
SLM Student Loan Trust Series 2012-3 Class A ± | 0.86 | 12-26-2025 | 213,338 | 215,600 | ||||||||||||
SLM Student Loan Trust Series 2012-A Class A1 ±144A | 1.61 | 8-15-2025 | 286,237 | 290,095 | ||||||||||||
SLM Student Loan Trust Series 2012-B Class A1 ±144A | 1.31 | 12-15-2021 | 270,430 | 272,502 | ||||||||||||
SLM Student Loan Trust Series 2012-C Class A1 ±144A | 1.31 | 8-15-2023 | 231,010 | 232,949 | ||||||||||||
SLM Student Loan Trust Series 2012-E Class A1 ±144A | 0.96 | 10-16-2023 | 309,241 | 310,372 | ||||||||||||
SLM Student Loan Trust Series 2012-E Class A2 ±144A | 1.96 | 6-15-2045 | 233,000 | 233,483 | ||||||||||||
SMS Student Loan Trust Series 2000-A Class A2 ± | 0.50 | 10-28-2028 | 95,784 | 95,551 | ||||||||||||
SMS Student Loan Trust Series 2000-B Class A2 ± | 0.51 | 4-28-2029 | 93,972 | 93,282 | ||||||||||||
Total Asset-Backed Securities (Cost $12,478,027) | 12,544,078 | |||||||||||||||
|
| |||||||||||||||
Corporate Bonds and Notes: 19.61% | ||||||||||||||||
Consumer Discretionary: 1.61% | ||||||||||||||||
| Automobiles: 0.51% | ||||||||||||||||
Daimler Finance North America LLC 144A | 1.30 | 7-31-2015 | 215,000 | 216,232 | ||||||||||||
Daimler Finance North America LLC 144A | 1.88 | 9-15-2014 | 245,000 | 249,016 | ||||||||||||
| 465,248 | ||||||||||||||||
|
| |||||||||||||||
| Diversified Consumer Services: 0.08% | ||||||||||||||||
University of Pennsylvania | 4.67 | 9-1-2112 | 70,000 | 78,135 | ||||||||||||
|
| |||||||||||||||
| Hotels, Restaurants & Leisure: 0.12% | ||||||||||||||||
Wyndham Worldwide Corporation | 2.95 | 3-1-2017 | 55,000 | 56,224 | ||||||||||||
Wyndham Worldwide Corporation | 4.25 | 3-1-2022 | 55,000 | 56,730 | ||||||||||||
| 112,954 | ||||||||||||||||
|
| |||||||||||||||
| Media: 0.70% | ||||||||||||||||
CC Holdings GS V LLC 144A | 3.85 | 4-15-2023 | 100,000 | 101,611 | ||||||||||||
DIRECTV Holdings LLC | 3.80 | 3-15-2022 | 70,000 | 72,138 | ||||||||||||
DIRECTV Holdings LLC | 5.15 | 3-15-2042 | 25,000 | 25,213 | ||||||||||||
NBCUniversal Media LLC | 2.88 | 1-15-2023 | 111,000 | 111,337 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 13 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
| Media (continued) | ||||||||||||||||
NBCUniversal Media LLC | 4.45 | % | 1-15-2043 | $ | 79,000 | $ | 79,747 | |||||||||
News America Incorporated | 6.15 | 3-1-2037 | 55,000 | 67,325 | ||||||||||||
News America Incorporated | 6.15 | 2-15-2041 | 41,000 | 51,783 | ||||||||||||
Omnicom Group Incorporated | 3.63 | 5-1-2022 | 55,000 | 57,231 | ||||||||||||
Time Warner Cable Incorporated | 4.50 | 9-15-2042 | 75,000 | 72,920 | ||||||||||||
| 639,305 | ||||||||||||||||
|
| |||||||||||||||
| Specialty Retail: 0.20% | ||||||||||||||||
Gap Incorporated | 5.95 | 4-12-2021 | 161,000 | 184,018 | ||||||||||||
|
| |||||||||||||||
Consumer Staples: 1.70% | ||||||||||||||||
| Beverages: 1.13% | ||||||||||||||||
Anheuser Busch InBev Worldwide Incorporated | 0.80 | 7-15-2015 | 310,000 | 310,787 | ||||||||||||
Anheuser Busch InBev Worldwide Incorporated | 1.38 | 7-15-2017 | 255,000 | 257,595 | ||||||||||||
PepsiCo Incorporated | 1.25 | 8-13-2017 | 181,000 | 181,615 | ||||||||||||
PepsiCo Incorporated | 2.50 | 5-10-2016 | 105,000 | 110,557 | ||||||||||||
The Coca-Cola Company | 1.80 | 9-1-2016 | 170,000 | 175,535 | ||||||||||||
| 1,036,089 | ||||||||||||||||
|
| |||||||||||||||
| Food & Staples Retailing: 0.06% | ||||||||||||||||
Wal-Mart Stores Incorporated | 5.63 | 4-15-2041 | 45,000 | 58,753 | ||||||||||||
|
| |||||||||||||||
| Food Products: 0.37% | ||||||||||||||||
ConAgra Foods Incorporated | 1.35 | 9-10-2015 | 70,000 | 69,992 | ||||||||||||
Kraft Foods Incorporated 144A | 6.50 | 2-9-2040 | 95,000 | 124,521 | ||||||||||||
Tyson Foods Incorporated | 4.50 | 6-15-2022 | 130,000 | 140,578 | ||||||||||||
| 335,091 | ||||||||||||||||
|
| |||||||||||||||
| Tobacco: 0.14% | ||||||||||||||||
Philip Morris International Incorporated | 1.13 | 8-21-2017 | 131,000 | 130,535 | ||||||||||||
|
| |||||||||||||||
Energy: 1.61% | ||||||||||||||||
| Oil, Gas & Consumable Fuels: 1.61% | ||||||||||||||||
Apache Corporation | 2.63 | 1-15-2023 | 125,000 | 124,612 | ||||||||||||
Apache Corporation | 4.25 | 1-15-2044 | 70,000 | 71,285 | ||||||||||||
DCP Midstream Operating Company | 2.50 | 12-1-2017 | 160,000 | 159,089 | ||||||||||||
DCP Midstream Operating Company | 4.95 | 4-1-2022 | 134,000 | 142,047 | ||||||||||||
El Paso Pipeline Partners Operating LLC | 4.10 | 11-15-2015 | 110,000 | 117,981 | ||||||||||||
El Paso Pipeline Partners Operating LLC | 4.70 | 11-1-2042 | 50,000 | 48,875 | ||||||||||||
Energen Corporation | 4.63 | 9-1-2021 | 110,000 | 114,495 | ||||||||||||
Energy Transfer Partners LP | 6.50 | 2-1-2042 | 38,000 | 46,398 | ||||||||||||
EOG Resources Incorporated | 2.63 | 3-15-2023 | 33,000 | 33,191 | ||||||||||||
Kerr-McGee Corporation | 6.95 | 7-1-2024 | 150,000 | 189,820 | ||||||||||||
Kinder Morgan Energy Partners LP | 5.00 | 8-15-2042 | 40,000 | 42,265 | ||||||||||||
Marathon Petroleum Corporation | 6.50 | 3-1-2041 | 48,000 | 60,653 | ||||||||||||
MidAmerican Energy Holdings Company | 6.50 | 9-15-2037 | 30,000 | 39,742 | ||||||||||||
Murphy Oil Corporation | 3.70 | 12-1-2022 | 100,000 | 99,505 | ||||||||||||
Murphy Oil Corporation | 5.13 | 12-1-2042 | 25,000 | 24,262 | ||||||||||||
Rowan Companies Incorporated | 5.40 | 12-1-2042 | 75,000 | 75,740 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 14 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
| Oil, Gas & Consumable Fuels (continued) | ||||||||||||||||
Western Gas Partners | 4.00 | % | 7-1-2022 | $ | 52,000 | $ | 54,729 | |||||||||
Western Gas Partners | 5.38 | 6-1-2021 | 30,000 | 34,302 | ||||||||||||
| 1,478,991 | ||||||||||||||||
|
| |||||||||||||||
Financials: 8.78% | ||||||||||||||||
| Capital Markets: 0.90% | ||||||||||||||||
Goldman Sachs Group Incorporated | 5.75 | 1-24-2022 | 45,000 | 53,146 | ||||||||||||
Goldman Sachs Group Incorporated | 6.15 | 4-1-2018 | 120,000 | 140,921 | ||||||||||||
Goldman Sachs Group Incorporated | 6.25 | 2-1-2041 | 45,000 | 55,059 | ||||||||||||
Goldman Sachs Group Incorporated | 6.75 | 10-1-2037 | 25,000 | 28,265 | ||||||||||||
Lazard Group LLC | 6.85 | 6-15-2017 | 215,000 | 248,423 | ||||||||||||
Lazard Group LLC | 7.13 | 5-15-2015 | 150,000 | 166,741 | ||||||||||||
Morgan Stanley | 5.50 | 7-28-2021 | 115,000 | 130,441 | ||||||||||||
| 822,996 | ||||||||||||||||
|
| |||||||||||||||
| Commercial Banks: 0.54% | ||||||||||||||||
BB&T Corporation | 1.45 | 1-12-2018 | 205,000 | 205,838 | ||||||||||||
HSBC USA Incorporated | 2.38 | 2-13-2015 | 140,000 | 143,999 | ||||||||||||
Inter-American Development Bank Series EMTN | 3.88 | 10-28-2041 | 116,000 | 126,333 | ||||||||||||
PNC Financial Services Group Incorporated | 2.85 | 11-9-2022 | 24,000 | 24,111 | ||||||||||||
| 500,281 | ||||||||||||||||
|
| |||||||||||||||
| Consumer Finance: 0.77% | ||||||||||||||||
American Express Credit Corporation | 1.75 | 6-12-2015 | 235,000 | 239,905 | ||||||||||||
Ford Motor Credit Company LLC | 2.75 | 5-15-2015 | 230,000 | 234,715 | ||||||||||||
Ford Motor Credit Company LLC | 5.88 | 8-2-2021 | 200,000 | 232,683 | ||||||||||||
| 707,303 | ||||||||||||||||
|
| |||||||||||||||
| Diversified Financial Services: 3.99% | ||||||||||||||||
Bank of America Corporation | 1.50 | 10-9-2015 | 360,000 | 361,811 | ||||||||||||
Bank of America Corporation | 5.70 | 1-24-2022 | 25,000 | 30,033 | ||||||||||||
Bank of America Corporation | 5.88 | 1-5-2021 | 45,000 | 53,828 | ||||||||||||
Bank of America Corporation | 6.00 | 9-1-2017 | 125,000 | 146,328 | ||||||||||||
Citigroup Incorporated | 2.65 | 3-2-2015 | 74,000 | 76,198 | ||||||||||||
Citigroup Incorporated | 4.45 | 1-10-2017 | 156,000 | 172,765 | ||||||||||||
Citigroup Incorporated | 4.50 | 1-14-2022 | 198,000 | 220,677 | ||||||||||||
Citigroup Incorporated | 5.88 | 1-30-2042 | 25,000 | 30,764 | ||||||||||||
Citigroup Incorporated | 6.13 | 5-15-2018 | 22,000 | 26,355 | ||||||||||||
General Electric Capital Corporation | 1.00 | 12-11-2015 | 110,000 | 110,433 | ||||||||||||
General Electric Capital Corporation | 1.63 | 7-2-2015 | 145,000 | 147,395 | ||||||||||||
General Electric Capital Corporation | 2.10 | 12-11-2019 | 45,000 | 45,087 | ||||||||||||
General Electric Capital Corporation | 3.15 | 9-7-2022 | 231,000 | 235,737 | ||||||||||||
General Electric Capital Corporation | 5.55 | 5-4-2020 | 115,000 | 136,592 | ||||||||||||
General Electric Capital Corporation | 5.88 | 1-14-2038 | 45,000 | 54,136 | ||||||||||||
General Electric Capital Corporation | 6.88 | 1-10-2039 | 50,000 | 67,785 | ||||||||||||
JPMorgan Chase & Company | 1.10 | 10-15-2015 | 158,000 | 157,982 | ||||||||||||
JPMorgan Chase & Company | 2.00 | 8-15-2017 | 182,000 | 185,847 | ||||||||||||
JPMorgan Chase & Company | 3.25 | 9-23-2022 | 47,000 | 48,343 | ||||||||||||
JPMorgan Chase & Company | 4.50 | 1-24-2022 | 45,000 | 50,852 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 15 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
| Diversified Financial Services (continued) | ||||||||||||||||
JPMorgan Chase & Company | 4.65 | % | 6-1-2014 | $ | 142,000 | $ | 149,612 | |||||||||
JPMorgan Chase & Company | 5.40 | 1-6-2042 | 49,000 | 58,872 | ||||||||||||
Murray Street Investment Trust I | 4.65 | 3-9-2017 | 345,000 | 373,054 | ||||||||||||
Private Export Funding | 1.45 | 8-15-2019 | 230,000 | 231,815 | ||||||||||||
Private Export Funding | 2.05 | 11-15-2022 | 220,000 | 219,370 | ||||||||||||
Private Export Funding | 2.45 | 7-15-2024 | 185,000 | 188,131 | ||||||||||||
Safina Limited | 1.55 | 1-15-2022 | 88,741 | 88,690 | ||||||||||||
| 3,668,492 | ||||||||||||||||
|
| |||||||||||||||
| Insurance: 1.31% | ||||||||||||||||
American International Group Incorporated | 4.88 | 6-1-2022 | 91,000 | 103,776 | ||||||||||||
American International Group Incorporated | 6.40 | 12-15-2020 | 70,000 | 86,777 | ||||||||||||
Berkshire Hathaway Financial Incorporated | 4.40 | 5-15-2042 | 35,000 | 36,095 | ||||||||||||
Liberty Mutual Group Incorporated 144A | 6.50 | 5-1-2042 | 61,000 | 68,446 | ||||||||||||
Markel Corporation | 4.90 | 7-1-2022 | 65,000 | 70,600 | ||||||||||||
MetLife Global Funding I ±144A | 0.66 | 3-19-2014 | 485,000 | 485,464 | ||||||||||||
MetLife Incorporated | 4.13 | 8-13-2042 | 36,000 | 35,889 | ||||||||||||
OneBeacon US Holdings Incorporated | 4.60 | 11-9-2022 | 55,000 | 56,489 | ||||||||||||
Prudential Financial Incorporated | 5.63 | 5-12-2041 | 30,000 | 34,100 | ||||||||||||
Prudential Financial Incorporated ± | 5.63 | 6-15-2043 | 55,000 | 56,997 | ||||||||||||
Swiss Re Treasury US Corporation 144A | 2.88 | 12-6-2022 | 55,000 | 54,976 | ||||||||||||
Swiss Re Treasury US Corporation 144A | 4.25 | 12-6-2042 | 55,000 | 54,328 | ||||||||||||
WR Berkley Corporation | 4.63 | 3-15-2022 | 56,000 | 59,960 | ||||||||||||
| 1,203,897 | ||||||||||||||||
|
| |||||||||||||||
| REITs: 1.27% | ||||||||||||||||
Boston Properties LP | 3.85 | 2-1-2023 | 115,000 | 120,667 | ||||||||||||
DDR Corporation | 4.63 | 7-15-2022 | 105,000 | 114,470 | ||||||||||||
Equity One Incorporated | 3.75 | 11-15-2022 | 46,000 | 45,392 | ||||||||||||
Federal Realty Investment Trust | 3.00 | 8-1-2022 | 55,000 | 54,380 | ||||||||||||
HCP Incorporated | 2.63 | 2-1-2020 | 45,000 | 44,784 | ||||||||||||
HCP Incorporated | 3.75 | 2-1-2019 | 160,000 | 168,731 | ||||||||||||
HCP Incorporated | 5.65 | 12-15-2013 | 150,000 | 156,899 | ||||||||||||
Simon Property Group LP 144A | 1.50 | 2-1-2018 | 170,000 | 168,975 | ||||||||||||
Simon Property Group LP | 2.75 | 2-1-2023 | 90,000 | 89,839 | ||||||||||||
Ventas Realty LP | 2.00 | 2-15-2018 | 100,000 | 100,026 | ||||||||||||
Ventas Realty LP | 3.25 | 8-15-2022 | 100,000 | 97,939 | ||||||||||||
| 1,162,102 | ||||||||||||||||
|
| |||||||||||||||
Health Care: 1.92% | ||||||||||||||||
| Biotechnology: 0.49% | ||||||||||||||||
Amgen Incorporated | 5.15 | 11-15-2041 | 25,000 | 28,051 | ||||||||||||
Amgen Incorporated | 5.38 | 5-15-2043 | 120,000 | 141,055 | ||||||||||||
Celgene Corporation | 3.25 | 8-15-2022 | 185,000 | 188,369 | ||||||||||||
Gilead Sciences Incorporated | 4.50 | 4-1-2021 | 85,000 | 97,048 | ||||||||||||
| 454,523 | ||||||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 16 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
| Health Care Equipment & Supplies: 0.11% | ||||||||||||||||
Boston Scientific Corporation | 6.40 | % | 6-15-2016 | $ | 90,000 | $ | 103,426 | |||||||||
|
| |||||||||||||||
| Health Care Providers & Services: 0.66% | ||||||||||||||||
Coventry Health Care Incorporated | 5.95 | 3-15-2017 | 130,000 | 151,073 | ||||||||||||
Express Scripts Holding Company 144A | 2.10 | 2-12-2015 | 200,000 | 203,718 | ||||||||||||
Express Scripts Holding Company 144A | 2.65 | 2-15-2017 | 35,000 | 36,367 | ||||||||||||
UnitedHealth Group Incorporated | 2.75 | 2-15-2023 | 5,000 | 5,039 | ||||||||||||
UnitedHealth Group Incorporated | 3.95 | 10-15-2042 | 28,000 | 27,790 | ||||||||||||
WellPoint Incorporated | 1.25 | 9-10-2015 | 35,000 | 35,274 | ||||||||||||
WellPoint Incorporated | 1.88 | 1-15-2018 | 50,000 | 50,602 | ||||||||||||
WellPoint Incorporated | 3.13 | 5-15-2022 | 47,000 | 47,437 | ||||||||||||
WellPoint Incorporated | 4.63 | 5-15-2042 | 45,000 | 46,334 | ||||||||||||
| 603,634 | ||||||||||||||||
|
| |||||||||||||||
| Life Sciences Tools & Services: 0.09% | ||||||||||||||||
Life Technologies Corporation | 5.00 | 1-15-2021 | 70,000 | 78,810 | ||||||||||||
|
| |||||||||||||||
| Pharmaceuticals: 0.57% | ||||||||||||||||
AbbVie Incorporated 144A | 1.20 | 11-6-2015 | 240,000 | 241,583 | ||||||||||||
AbbVie Incorporated 144A | 2.00 | 11-6-2018 | 110,000 | 111,373 | ||||||||||||
Teva Pharma Finance Investment LLC | 2.25 | 3-18-2020 | 88,000 | 88,703 | ||||||||||||
Watson Pharmaceuticals Incorporated | 1.88 | 10-1-2017 | 83,000 | 84,061 | ||||||||||||
| 525,720 | ||||||||||||||||
|
| |||||||||||||||
Industrials: 0.70% | ||||||||||||||||
| Aerospace & Defense: 0.16% | ||||||||||||||||
Precision Castparts Corporation | 2.50 | 1-15-2023 | 99,000 | 99,514 | ||||||||||||
Precision Castparts Corporation | 3.90 | 1-15-2043 | 49,000 | 50,100 | ||||||||||||
| 149,614 | ||||||||||||||||
|
| |||||||||||||||
| Building Products: 0.08% | ||||||||||||||||
Owens Corning Incorporated | 4.20 | 12-15-2022 | 68,000 | 69,078 | ||||||||||||
|
| |||||||||||||||
| Electrical Equipment: 0.29% | ||||||||||||||||
Eaton Corporation 144A | 0.95 | 11-2-2015 | 130,000 | 130,385 | ||||||||||||
Eaton Corporation 144A | 2.75 | 11-2-2022 | 105,000 | 104,551 | ||||||||||||
Eaton Corporation 144A | 4.00 | 11-2-2032 | 35,000 | 35,904 | ||||||||||||
| 270,840 | ||||||||||||||||
|
| |||||||||||||||
| Road & Rail: 0.17% | ||||||||||||||||
ERAC USA Finance LLC 144A | 3.30 | 10-15-2022 | 35,000 | 35,394 | ||||||||||||
ERAC USA Finance LLC 144A | 5.63 | 3-15-2042 | 107,000 | 118,207 | ||||||||||||
| 153,601 | ||||||||||||||||
|
| |||||||||||||||
Information Technology: 0.52% | ||||||||||||||||
| Semiconductors & Semiconductor Equipment: 0.27% | ||||||||||||||||
Intel Corporation | 2.70 | 12-15-2022 | 150,000 | 149,609 | ||||||||||||
Intel Corporation | 4.00 | 12-15-2032 | 100,000 | 99,142 | ||||||||||||
| 248,751 | ||||||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 17 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
| Software: 0.25% | ||||||||||||||||
Oracle Corporation | 1.20 | % | 10-15-2017 | $ | 159,000 | $ | 159,413 | |||||||||
Oracle Corporation | 2.50 | 10-15-2022 | 68,000 | 68,530 | ||||||||||||
| 227,943 | ||||||||||||||||
|
| |||||||||||||||
Materials: 0.08% | ||||||||||||||||
| Chemicals: 0.08% | ||||||||||||||||
Dow Chemical Company | 5.25 | 11-15-2041 | 65,000 | 72,283 | ||||||||||||
|
| |||||||||||||||
Telecommunication Services: 0.98% | ||||||||||||||||
| Diversified Telecommunication Services: 0.75% | ||||||||||||||||
AT&T Incorporated | 0.80 | 12-1-2015 | 225,000 | 224,974 | ||||||||||||
AT&T Incorporated | 1.60 | 2-15-2017 | 140,000 | 141,599 | ||||||||||||
AT&T Incorporated | 2.63 | 12-1-2022 | 135,000 | 135,058 | ||||||||||||
AT&T Incorporated | 5.55 | 8-15-2041 | 115,000 | 137,608 | ||||||||||||
CenturyLink Incorporated | 7.65 | 3-15-2042 | 50,000 | 52,137 | ||||||||||||
| 691,376 | ||||||||||||||||
|
| |||||||||||||||
| Wireless Telecommunication Services: 0.23% | ||||||||||||||||
American Tower Corporation | 4.50 | 1-15-2018 | 145,000 | 158,893 | ||||||||||||
American Tower Corporation | 5.05 | 9-1-2020 | 43,000 | 48,179 | ||||||||||||
| 207,072 | ||||||||||||||||
|
| |||||||||||||||
Utilities: 1.71% | ||||||||||||||||
| Electric Utilities: 1.21% | ||||||||||||||||
Alabama Power Company | 3.85 | 12-1-2042 | 65,000 | 63,830 | ||||||||||||
Ameren Corporation | 2.70 | 9-1-2022 | 140,000 | 139,878 | ||||||||||||
Ameren Corporation | 8.88 | 5-15-2014 | 110,000 | 120,375 | ||||||||||||
American Electric Power Company | 1.65 | 12-15-2017 | 135,000 | 135,422 | ||||||||||||
Arizona Public Service Company | 4.50 | 4-1-2042 | 65,000 | 68,909 | ||||||||||||
Duke Energy Indiana Incorporated | 1.63 | 8-15-2017 | 70,000 | 70,158 | ||||||||||||
Duke Energy Indiana Incorporated | 4.20 | 3-15-2042 | 115,000 | 117,080 | ||||||||||||
Niagara Mohawk Power Incorporated 144A | 4.12 | 11-28-2042 | 55,000 | 53,667 | ||||||||||||
PPL Capital Funding Incorporated | 3.50 | 12-1-2022 | 75,000 | 76,253 | ||||||||||||
Progress Energy Incorporated | 3.15 | 4-1-2022 | 49,000 | 49,549 | ||||||||||||
Progress Energy Incorporated | 4.10 | 5-15-2042 | 55,000 | 56,106 | ||||||||||||
Southwestern Electric Power Company | 3.55 | 2-15-2022 | 150,000 | 158,251 | ||||||||||||
| 1,109,478 | ||||||||||||||||
|
| |||||||||||||||
| Gas Utilities: 0.14% | ||||||||||||||||
ONEOK Partners LP | 2.00 | 10-1-2017 | 80,000 | 80,636 | ||||||||||||
ONEOK Partners LP | 6.13 | 2-1-2041 | 40,000 | 47,824 | ||||||||||||
| 128,460 | ||||||||||||||||
|
| |||||||||||||||
| Multi-Utilities: 0.36% | ||||||||||||||||
CMS Energy Corporation | 2.75 | 5-15-2014 | 65,000 | 65,917 | ||||||||||||
Dominion Resources Incorporated | 8.88 | 1-15-2019 | 115,000 | 157,289 | ||||||||||||
Public Service Colorado | 3.60 | 9-15-2042 | 115,000 | 111,260 | ||||||||||||
| 334,466 | ||||||||||||||||
|
| |||||||||||||||
Total Corporate Bonds and Notes (Cost $17,443,767) | 18,013,265 | |||||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 18 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Municipal Obligations: 1.11% | ||||||||||||||||
| California: 0.27% | ||||||||||||||||
California Build America Bonds (Miscellaneous Revenue) | 7.60 | % | 11-1-2040 | $ | 80,000 | $ | 116,956 | |||||||||
Los Angeles CA Community College District Build America Bonds (GO) | 6.75 | 8-1-2049 | 95,000 | 130,483 | ||||||||||||
| 247,439 | ||||||||||||||||
|
| |||||||||||||||
| Illinois: 0.19% | ||||||||||||||||
Illinois Finance Authority (Tax Revenue) | 5.37 | 3-1-2017 | 55,000 | 61,598 | ||||||||||||
Illinois Finance Authority (Tax Revenue) | 5.67 | 3-1-2018 | 50,000 | 56,824 | ||||||||||||
Illinois Finance Authority (Tax Revenue) | 5.88 | 3-1-2019 | 45,000 | 51,628 | ||||||||||||
| 170,050 | ||||||||||||||||
|
| |||||||||||||||
| Nevada: 0.15% | ||||||||||||||||
Clark County NV Airport Authority (Airport Revenue) | 6.82 | 7-1-2045 | 95,000 | 134,764 | ||||||||||||
|
| |||||||||||||||
| New Jersey: 0.18% | ||||||||||||||||
New Jersey State Turnpike Authority (Transportation Revenue) | 7.10 | 1-1-2041 | 119,000 | 168,748 | ||||||||||||
|
| |||||||||||||||
| New York : 0.13% | ||||||||||||||||
Port Authority of New York and New Jersey Consolidated Bonds Series 174 (Airport Revenue) | 4.46 | 10-1-2062 | 125,000 | 122,653 | ||||||||||||
|
| |||||||||||||||
| Ohio : 0.04% | ||||||||||||||||
Ohio State University Taxable Series A (Education Revenue) | 4.80 | 6-1-2111 | 35,000 | 38,918 | ||||||||||||
|
| |||||||||||||||
| Texas : 0.15% | ||||||||||||||||
North Texas Tollway Authority (Transportation Revenue) | 6.72 | 1-1-2049 | 103,000 | 137,357 | ||||||||||||
|
| |||||||||||||||
Total Municipal Obligations (Cost $837,159) | 1,019,929 | |||||||||||||||
|
| |||||||||||||||
Non-Agency Mortgage Backed Securities: 6.76% | ||||||||||||||||
Banc of America Commercial Mortgage Trust Series 2004-6 Class A3 | 4.51 | 12-10-2042 | 9,696 | 9,810 | ||||||||||||
Banc of America Commercial Mortgage Trust Series 2007-1 Class A4 | 5.45 | 1-15-2049 | 102,000 | 117,983 | ||||||||||||
Bear Stearns Commercial Mortgage Securities Incorporated Series 2005-PWR7 Class A | 4.95 | 2-11-2041 | 5,033 | 5,043 | ||||||||||||
CFCRE Commercial Mortgage Trust Series 2011-C2 Class A4 | 3.83 | 12-15-2047 | 86,000 | 94,938 | ||||||||||||
Citigroup Mortgage Loan Trust Incorporated Series 2005-C3 Class A4 | 4.86 | 5-15-2043 | 115,000 | 123,924 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2001-J2 Class B 144A | 6.30 | 7-16-2034 | 151,000 | 150,964 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2012-CR1 Class A3 | 3.39 | 5-15-2045 | 153,000 | 164,691 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2012-CR2 Class ASB | 2.75 | 8-15-2045 | 115,000 | 120,323 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2012-CR3 Class A3 | 2.82 | 11-15-2045 | 181,000 | 185,705 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2012-CR3 Class ASB | 2.37 | 11-15-2045 | 100,000 | 102,318 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2012-LC4 Class A4 | 3.29 | 12-10-2044 | 169,000 | 180,962 | ||||||||||||
Credit Suisse First Boston Mortgage Securities Corporation Series 2005-C1 Class A3 | 4.81 | 2-15-2038 | 33,486 | 34,305 | ||||||||||||
Credit Suisse First Boston Mortgage Securities Corporation Series 2005-C2 Class A4 | 4.83 | 4-15-2037 | 157,000 | 168,777 | ||||||||||||
Credit Suisse Mortgage Capital Certificates Series 2006-C5 Class A3 | 5.31 | 12-15-2039 | 463,000 | 525,604 | ||||||||||||
Deutsche Bank UBS Securities Mortgage Trust Series 2011-LC2A Class A4 144A | 4.54 | 7-10-2044 | 203,000 | 234,444 | ||||||||||||
Discover Card Master Trust I Series 2011-A1 Class A1 ± | 0.56 | 8-15-2016 | 453,000 | 454,217 | ||||||||||||
GMAC Commercial Mortgage Securities Incorporated Series 2006-C1 Class AM ± | 5.29 | 11-10-2045 | 88,000 | 94,823 | ||||||||||||
Greenwich Capital Commercial Funding Corporation Series 2004-GG1 Class A7 ± | 5.32 | 6-10-2036 | 73,612 | 76,717 | ||||||||||||
Greenwich Capital Commercial Funding Corporation Series 2005-GG5 Class A5 ± | 5.22 | 4-10-2037 | 276,000 | 304,941 | ||||||||||||
Greenwich Capital Commercial Funding Corporation Series 2006-GG7 Class A4 ± | 5.87 | 7-10-2038 | 150,000 | 172,244 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 19 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Non-Agency Mortgage Backed Securities (continued) | ||||||||||||||||
GS Mortgage Securities Trust Corporation Series 2010-C1 Class A2 144A | 4.59 | % | 8-10-2043 | $ | 100,000 | $ | 116,717 | |||||||||
GS Mortgage Securities Trust Corporation Series 2012 Class A3 | 2.77 | 11-10-2045 | 68,000 | 69,560 | ||||||||||||
Impact Funding LLC Series 2010-1 Class A1 144A | 5.31 | 1-25-2051 | 268,925 | 303,817 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 6.85 | 4-15-2035 | 59,000 | 59,799 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 5.12 | 7-15-2041 | 186,000 | 196,367 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 5.13 | 5-15-2047 | 30,377 | 32,025 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 5.72 | 2-15-2051 | 48,000 | 56,862 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 3.30 | 8-5-2032 | 82,506 | 88,362 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 4.72 | 2-15-2046 | 100,000 | 117,027 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation | 2.38 | 10-15-2045 | 91,000 | 93,257 | ||||||||||||
Lehman Brothers UBS Commercial Mortgage Trust Series 2004-C7 Class A5 | 4.63 | 10-15-2029 | 18,744 | 19,076 | ||||||||||||
Lehman Brothers UBS Commercial Mortgage Trust Series 2004-C8 Class A6 ± | 4.80 | 12-15-2029 | 19,234 | 20,285 | ||||||||||||
Lehman Brothers UBS Commercial Mortgage Trust Series 2007-C3 Class A3 ± | 5.88 | 7-15-2044 | 53,000 | 55,609 | ||||||||||||
Merrill Lynch Mortgage Trust Series 2005-CIP1 Class A3A ± | 4.95 | 7-12-2038 | 76,000 | 79,918 | ||||||||||||
Merrill Lynch Mortgage Trust Series 2007-C1 Class A4 ± | 5.85 | 6-12-2050 | 72,000 | 82,807 | ||||||||||||
ML-CFC Commercial Mortgage Trust Series 2006-4 Class A3 ± | 5.17 | 12-12-2049 | 215,000 | 244,593 | ||||||||||||
Morgan Stanley Bank Trust Series 2012-C5 Class A3 | 2.83 | 8-15-2045 | 68,000 | 71,386 | ||||||||||||
Morgan Stanley Bank Trust Series 2012-C6 Class A3 | 2.51 | 11-15-2045 | 162,000 | 166,426 | ||||||||||||
Morgan Stanley Capital I Trust Series 2004-TP13 Class A3 | 4.39 | 9-13-2045 | 7,096 | 7,115 | ||||||||||||
Morgan Stanley Capital I Trust Series 2005-HQ6 Class A4 | 4.99 | 8-13-2042 | 25,000 | 27,313 | ||||||||||||
Morgan Stanley Capital I Trust Series 2012-C4 Class A4 | 3.24 | 3-15-2045 | 227,000 | 242,861 | ||||||||||||
Morgan Stanley Dean Witter Capital I Trust Series 2001-TOP3 Class A4 | 6.39 | 7-15-2033 | 2,462 | 2,469 | ||||||||||||
Morgan Stanley Mortgage Loan Trust Series 2007-6XS Class 2A1S ± | 0.32 | 2-25-2047 | 12,040 | 10,709 | ||||||||||||
Motel 6 Trust Series 2012-MTL6 Class A2 144A | 1.95 | 10-5-2025 | 191,000 | 192,363 | ||||||||||||
Sequoia Mortgage Trust Series 2010-H1 Class A1 ± | 3.75 | 2-25-2040 | 10,363 | 10,458 | ||||||||||||
Sequoia Mortgage Trust Series 2011-1 Class A1 ± | 4.13 | 2-25-2041 | 16,903 | 17,173 | ||||||||||||
UBS Barclays Commercial Mortgage Trust Series 2012- C3 Class A3 | 2.73 | 8-10-2049 | 96,000 | 100,206 | ||||||||||||
UBS Barclays Commercial Mortgage Trust Series 2012- C4 Class AAB | 2.46 | 12-10-2045 | 210,000 | 213,139 | ||||||||||||
UBS Commercial Mortgage Trust Series 2005-C3 Class A | 4.79 | 7-15-2040 | 148,000 | 159,383 | ||||||||||||
Wachovia Bank Commercial Mortgage Trust Series 2003-C7 Class A1 144A | 4.24 | 10-15-2035 | 922 | 925 | ||||||||||||
Wachovia Bank Commercial Mortgage Trust Series 2003-C8 Class A3 | 4.45 | 11-15-2035 | 29,086 | 29,357 | ||||||||||||
|
| |||||||||||||||
Total Non-Agency Mortgage Backed Securities (Cost $6,059,017) | 6,210,097 | |||||||||||||||
|
| |||||||||||||||
U.S. Treasury Securities: 20.15% | ||||||||||||||||
U.S. Treasury Bond | 2.75 | 8-15-2042 | 211,000 | 202,989 | ||||||||||||
U.S. Treasury Bond | 2.75 | 11-15-2042 | 149,000 | 143,086 | ||||||||||||
U.S. Treasury Bond | 3.00 | 5-15-2042 | 325,000 | 329,875 | ||||||||||||
U.S. Treasury Bond | 3.13 | 11-15-2041 | 857,000 | 893,690 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2041 | 72,000 | 93,499 | ||||||||||||
U.S. Treasury Bond | 4.50 | 5-15-2038 | 614,000 | 808,369 | ||||||||||||
U.S. Treasury Note | 0.25 | 1-31-2014 | 851,000 | 851,532 | ||||||||||||
U.S. Treasury Note | 0.25 | 9-15-2015 | 1,152,000 | 1,149,479 | ||||||||||||
U.S. Treasury Note | 0.25 | 10-15-2015 | 1,365,000 | 1,361,694 | ||||||||||||
U.S. Treasury Note ## | 0.25 | 12-15-2015 | 1,880,000 | 1,874,272 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 20 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) | ||||||||||||||||
U.S. Treasury Note ## « | 0.38 | % | 4-15-2015 | $ | 2,153,000 | $ | 2,157,037 | |||||||||
U.S. Treasury Note ## | 0.38 | 11-15-2015 | 2,273,000 | 2,274,953 | ||||||||||||
U.S. Treasury Note | 0.63 | 11-30-2017 | 1,136,000 | 1,131,740 | ||||||||||||
U.S. Treasury Note | 0.63 | 12-31-2017 | 1,316,000 | 1,317,645 | ||||||||||||
U.S. Treasury Note | 1.00 | 3-31-2017 | 913,000 | 929,049 | ||||||||||||
U.S. Treasury Note « | 1.00 | 11-30-2019 | 346,000 | 342,324 | ||||||||||||
U.S. Treasury Note | 1.13 | 12-31-2019 | 131,000 | 130,509 | ||||||||||||
U.S. Treasury Note | 1.63 | 11-15-2022 | 1,026,000 | 1,013,495 | ||||||||||||
U.S. Treasury Note | 1.75 | 3-31-2014 | 627,000 | 638,903 | ||||||||||||
U.S. Treasury Note | 3.00 | 9-30-2016 | 794,000 | 867,693 | ||||||||||||
|
| |||||||||||||||
Total U.S. Treasury Securities (Cost $18,478,598) | 18,511,833 | |||||||||||||||
|
| |||||||||||||||
Yankee Corporate Bonds and Notes: 6.67% | ||||||||||||||||
Consumer Discretionary: 0.21% | ||||||||||||||||
| Media: 0.02% | ||||||||||||||||
WPP Finance 2010 Company | 5.13 | 9-7-2042 | 22,000 | 21,448 | ||||||||||||
|
| |||||||||||||||
| Textiles, Apparel & Luxury Goods: 0.19% | ||||||||||||||||
LVMH Moet Hennessy Louis 144A | 1.63 | 6-29-2017 | 168,000 | 170,712 | ||||||||||||
|
| |||||||||||||||
Consumer Staples : 0.21% | ||||||||||||||||
| Beverages: 0.21% | ||||||||||||||||
Pernod Ricard SA 144A | 5.75 | 4-7-2021 | 160,000 | 191,200 | ||||||||||||
|
| |||||||||||||||
Energy : 1.83% | ||||||||||||||||
| Oil, Gas & Consumable Fuels: 1.83% | ||||||||||||||||
APT Pipelines Limited 144A | 3.88 | 10-11-2022 | 126,000 | 125,335 | ||||||||||||
BP Capital Markets plc | 1.38 | 11-6-2017 | 40,000 | 40,020 | ||||||||||||
BP Capital Markets plc | 2.50 | 11-6-2022 | 90,000 | 89,067 | ||||||||||||
Canadian Oil Sands Trust Limited 144A | 6.00 | 4-1-2042 | 104,000 | 121,796 | ||||||||||||
Husky Energy Incorporated | 7.25 | 12-15-2019 | 37,000 | 48,011 | ||||||||||||
Petrobras International Finance Company | 2.88 | 2-6-2015 | 90,000 | 92,343 | ||||||||||||
Petrobras International Finance Company | 3.50 | 2-6-2017 | 240,000 | 251,622 | ||||||||||||
Petroleos Mexicanos Company | 1.70 | 12-20-2022 | 140,000 | 140,958 | ||||||||||||
Petroleos Mexicanos Company | 1.95 | 12-20-2022 | 182,000 | 185,516 | ||||||||||||
Petroleos Mexicanos Company | 2.00 | 12-20-2022 | 64,000 | 65,396 | ||||||||||||
Petroleos Mexicanos Company 144A | 5.50 | 6-27-2044 | 45,000 | 49,500 | ||||||||||||
Statoil ASA | 1.20 | 1-17-2018 | 145,000 | 144,970 | ||||||||||||
Talisman Energy Incorporated | 7.75 | 6-1-2019 | 75,000 | 96,595 | ||||||||||||
Total Capital International SA | 1.55 | 6-28-2017 | 52,000 | 52,783 | ||||||||||||
Transocean Incorporated | 6.38 | 12-15-2021 | 145,000 | 176,046 | ||||||||||||
| 1,679,958 | ||||||||||||||||
|
| |||||||||||||||
Financials: 2.97% | ||||||||||||||||
| Commercial Banks: 2.43% | ||||||||||||||||
Banco Santander SA 144A | 4.13 | 11-9-2022 | 150,000 | 152,625 | ||||||||||||
Experian Finance plc 144A | 2.38 | 6-15-2017 | 200,000 | 203,400 | ||||||||||||
NIBC Bank NV 144A | 2.80 | 12-2-2014 | 125,000 | 129,782 | ||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Portfolio of investments—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 21 |
| Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
| Commercial Banks (continued) | ||||||||||||||||
Nordea Bank AB 144A | 2.25 | % | 3-20-2015 | $ | 200,000 | $ | 204,867 | |||||||||
Rabobank Nederland | 3.95 | 11-9-2022 | 250,000 | 255,718 | ||||||||||||
Royal Bank of Scotland Group plc | 2.55 | 9-18-2015 | 407,000 | 416,495 | ||||||||||||
Royal Bank of Scotland Group plc | 6.13 | 12-15-2022 | 125,000 | 131,797 | ||||||||||||
Sparebank 1 Boligkreditt 144A | 1.75 | 11-15-2019 | 205,000 | 202,317 | ||||||||||||
Swedbank AB 144A | 2.13 | 9-29-2017 | 201,000 | 205,296 | ||||||||||||
Swedish Export Credit Corporation | 1.75 | 5-30-2017 | 95,000 | 97,475 | ||||||||||||
Westpac Banking Corporation 144A | 1.25 | 12-15-2017 | 235,000 | 234,605 | ||||||||||||
| 2,234,377 | ||||||||||||||||
|
| |||||||||||||||
| Thrifts & Mortgage Finance: 0.54% | ||||||||||||||||
Achmea Hypotheekbank NV 144A | 3.20 | 11-3-2014 | 235,000 | 246,348 | ||||||||||||
Stadshypotek AB 144A | 1.88 | 10-2-2019 | 250,000 | 249,679 | ||||||||||||
| 496,027 | ||||||||||||||||
|
| |||||||||||||||
Health Care: 0.35% | ||||||||||||||||
| Pharmaceuticals: 0.35% | ||||||||||||||||
Astrazeneca plc | 1.95 | 9-18-2019 | 95,000 | 96,198 | ||||||||||||
Teva Pharmaceut Finance BV | 2.95 | 12-18-2022 | 220,000 | 222,275 | ||||||||||||
| 318,473 | ||||||||||||||||
|
| |||||||||||||||
Materials: 0.72% | ||||||||||||||||
| Metals & Mining : 0.72% | ||||||||||||||||
Barrick Gold Corporation | 3.85 | 4-1-2022 | 50,000 | 52,869 | ||||||||||||
Teck Resources Limited | 6.25 | 7-15-2041 | 57,000 | 66,864 | ||||||||||||
Vale SA | 5.63 | 9-11-2042 | 69,000 | 74,694 | ||||||||||||
Xstrata Finance Canada 144A | 1.80 | 10-23-2015 | 206,000 | 207,102 | ||||||||||||
Xstrata Finance Canada 144A | 2.45 | 10-25-2017 | 136,000 | 137,269 | ||||||||||||
Xstrata Finance Canada 144A | 4.00 | 10-25-2022 | 118,000 | 119,141 | ||||||||||||
| 657,939 | ||||||||||||||||
|
| |||||||||||||||
Telecommunication Services: 0.38% | ||||||||||||||||
| Wireless Telecommunication Services: 0.38% | ||||||||||||||||
America Movil SAB de CV | 3.13 | 7-16-2022 | 235,000 | 238,591 | ||||||||||||
Vodafone Group plc | 1.25 | 9-26-2017 | 115,000 | 114,610 | ||||||||||||
| 353,201 | ||||||||||||||||
|
| |||||||||||||||
Total Yankee Corporate Bonds and Notes (Cost $5,974,438) | 6,123,335 | |||||||||||||||
|
| |||||||||||||||
| Yankee Government Bonds: 1.06% | ||||||||||||||||
Province of Ontario | 1.65 | 9-27-2019 | 275,000 | 274,591 | ||||||||||||
Slovak Republic 144A | 4.38 | 5-21-2022 | 375,000 | 408,495 | ||||||||||||
Tunisia | 1.69 | 7-16-2019 | 161,000 | 160,195 | ||||||||||||
United Mexican States | 5.75 | 10-12-2049 | 111,000 | 133,478 | ||||||||||||
|
| |||||||||||||||
Total Yankee Government Bonds (Cost $928,443) | 976,759 | |||||||||||||||
|
| |||||||||||||||
Other: 0.08% | ||||||||||||||||
Gryphon Funding Limited, Pass-Through Entity (a)(i)(v) | 214,974 | 70,941 | ||||||||||||||
|
| |||||||||||||||
Total Other (Cost $19,480) | 70,941 | |||||||||||||||
|
| |||||||||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 22 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2012 |
| Security name | Yield | Shares | Value | |||||||||||
Short-Term Investments: 7.00% | ||||||||||||||
| Investment Companies: 7.00% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u)## | 0.14 | % | 3,911,686 | $ | 3,911,686 | |||||||||
Wells Fargo Securities Lending Cash Investments, LLC (l)(u)(v)(r) | 0.20 | 2,514,829 | 2,514,829 | |||||||||||
Total Short-Term Investments (Cost $6,426,515) | 6,426,515 | |||||||||||||
|
| |||||||||||||
| Total investments in securities | ||||||||
| (Cost $99,794,338) * | 110.80 | % | 101,775,687 | |||||
Other assets and liabilities, net | (10.80 | ) | (9,918,178 | ) | ||||
|
|
|
| |||||
| Total net assets | 100.00 | % | $ | 91,857,509 | ||||
|
|
|
|
| %% | Security issued on a when-issued basis. |
| ± | Variable rate investment |
| (a) | Security is fair valued by the Management Valuation Team, and in certain instances by the Board of Trustees, in accordance with procedures approved by the Board of Trustees. |
| 144A | Security that may be resold to “qualified institutional buyers” under Rule 144A or security offered pursuant to Section 4(2) of the Securities Act of 1933, as amended. |
| ## | All or a portion of this security has been segregated for when-issued securities. |
| « | All or a portion of this security is on loan. |
| (i) | Illiquid security for which the designation as illiquid is unaudited |
| (v) | Security represents investment of cash collateral received from securities on loan. |
| (l) | Investment in an affiliate |
| (u) | Rate shown is the 7-day annualized yield at period end. |
| (r) | The investment company is exempt from registration under Section 3(c)(7) of the Investment Company Act of 1940, as amended. |
| * | Cost for federal income tax purposes is $100,045,333 and unrealized appreciation (depreciation) consists of: |
Gross unrealized appreciation | $ | 2,085,788 | ||
Gross unrealized depreciation | (355,434 | ) | ||
|
| |||
Net unrealized appreciation | $ | 1,730,354 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of assets and liabilities—December 31, 2012 | Wells Fargo Advantage VT Total Return Bond Fund | 23 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including securities on loan), at value (see cost below) | $ | 95,349,172 | ||
In affiliated securities, at value (see cost below) | 6,426,515 | |||
|
| |||
Total investments, at value (see cost below) | 101,775,687 | |||
Receivable for investments sold | 15,189,513 | |||
Principal paydown receivable | 211 | |||
Receivable for Fund shares sold | 162,934 | |||
Receivable for interest | 357,608 | |||
Prepaid expenses and other assets | 1,394 | |||
|
| |||
Total assets | 117,487,347 | |||
|
| |||
Liabilities | ||||
Dividends payable | 3,793 | |||
Payable for investments purchased | 22,909,080 | |||
Payable for Fund shares redeemed | 38,698 | |||
Payable upon receipt of securities loaned | 2,534,309 | |||
Advisory fee payable | 27,985 | |||
Distribution fees payable | 20,085 | |||
Due to other related parties | 10,444 | |||
Accrued expenses and other liabilities | 85,444 | |||
|
| |||
Total liabilities | 25,629,838 | |||
|
| |||
Total net assets | $ | 91,857,509 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 91,323,848 | ||
Undistributed net investment income | 53,377 | |||
Accumulated net realized losses on investments | (1,501,065 | ) | ||
Net unrealized gains on investments | 1,981,349 | |||
|
| |||
Total net assets | $ | 91,857,509 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE1 | ||||
Net assets – Class 2 | $ | 91,857,509 | ||
Shares outstanding – Class 2 | 8,487,681 | |||
Net asset value per share – Class 2 | $10.82 | |||
Investments in unaffiliated securities (including securities on loan), at cost | $ | 93,367,823 | ||
|
| |||
Investments in affiliated securities, at cost | $ | 6,426,515 | ||
|
| |||
Total investments, at cost | $ | 99,794,338 | ||
|
| |||
Securities on loan, at value | $ | 2,484,012 | ||
|
| |||
| 1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 24 | Wells Fargo Advantage VT Total Return Bond Fund | Statement of Operations—year ended December 31, 2012 |
Investment income | ||||
Interest* | $ | 2,044,185 | ||
Income from affiliated securities | 5,417 | |||
Securities lending income, net | 2,500 | |||
|
| |||
Total investment income | 2,052,102 | |||
|
| |||
Expenses | ||||
Advisory fee | 361,235 | |||
Administration fees | ||||
Fund level | 45,154 | |||
Class 2 | 72,247 | |||
Distribution fees | ||||
Class 2 | 225,771 | |||
Custody and accounting fees | 39,386 | |||
Professional fees | 47,494 | |||
Shareholder report expenses | 38,150 | |||
Trustees’ fees and expenses | 14,709 | |||
Other fees and expenses | 5,559 | |||
|
| |||
Total expenses | 849,705 | |||
Less: Fee waivers and/or expense reimbursements | (36,927 | ) | ||
|
| |||
Net expenses | 812,778 | |||
|
| |||
Net investment income | 1,239,324 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: | ||||
Unaffiliated securities | 4,240,420 | |||
TBA sale commitments | (24,648 | ) | ||
|
| |||
Net realized gains on investments | 4,215,772 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | (68,684 | ) | ||
TBA sale commitments | 24,051 | |||
|
| |||
Net change in unrealized gains (losses) on investments | (44,633 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | 4,171,139 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 5,410,463 | ||
|
| |||
** Net of foreign interest withholding taxes in the amount of | $250 | |||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Statement of changes in net assets | Wells Fargo Advantage VT Total Return Bond Fund | 25 |
| Year ended December 31, 2012 | Year ended December 31, 2011 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 1,239,324 | $ | 1,753,279 | ||||||||||||
Net realized gains on investments | 4,215,772 | 3,765,571 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (44,633 | ) | 1,107,927 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase in net assets resulting from operations | 5,410,463 | 6,626,777 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (1,303,386 | ) | (2,244,747 | ) | ||||||||||||
Net realized gains – Class 2 | (1,654,708 | ) | (3,319,231 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total distributions to shareholders | (2,958,094 | ) | (5,563,978 | ) | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 1,636,835 | 17,513,595 | 1,837,013 | 19,239,066 | ||||||||||||
Reinvestment of distributions – Class 2 | 276,984 | 2,958,094 | 538,528 | 5,563,978 | ||||||||||||
Payment for shares redeemed – Class 2 | (1,696,755 | ) | (18,204,327 | ) | (2,306,909 | ) | (24,143,648 | ) | ||||||||
|
|
|
|
|
|
|
| |||||||||
Net increase in net assets resulting from capital share transactions | 2,267,362 | 659,396 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total increase in net assets | 4,719,731 | 1,722,195 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
Net assets | ||||||||||||||||
Beginning of period | 87,137,778 | 85,415,583 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||
End of period | $ | 91,857,509 | $ | 87,137,778 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Undistributed net investment income | $ | 53,377 | $ | 67,778 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
The accompanying notes are an integral part of these financial statements.
Table of Contents
| 26 | Wells Fargo Advantage VT Total Return Bond Fund | Financial highlights |
(For a share outstanding throughout each period)
| Year ended December 31 | ||||||||||||||||||||
| CLASS 2 | 2012 | 2011 | 20101 | 2009 | 2008 | |||||||||||||||
Net asset value, beginning of period | $ | 10.54 | $ | 10.41 | $ | 10.34 | $ | 9.70 | $ | 9.94 | ||||||||||
Net investment income | 0.15 | 0.22 | 0.29 | 0.42 | 0.44 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 0.48 | 0.62 | 0.43 | 0.72 | (0.21 | ) | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 0.63 | 0.84 | 0.72 | 1.14 | 0.23 | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.15 | ) | (0.28 | ) | (0.36 | ) | (0.46 | ) | (0.47 | ) | ||||||||||
Net realized gains | (0.20 | ) | (0.43 | ) | (0.29 | ) | (0.04 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.35 | ) | (0.71 | ) | (0.65 | ) | (0.50 | ) | (0.47 | ) | ||||||||||
Net asset value, end of period | $ | 10.82 | $ | 10.54 | $ | 10.41 | $ | 10.34 | $ | 9.70 | ||||||||||
Total return | 6.10 | % | 8.31 | % | 7.04 | % | 11.99 | % | 2.39 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.94 | % | 0.91 | % | 0.91 | % | 1.20 | % | 1.19 | % | ||||||||||
Net expenses | 0.90 | % | 0.88 | % | 0.86 | % | 0.85 | % | 0.90 | % | ||||||||||
Net investment income | 1.37 | % | 2.09 | % | 2.76 | % | 4.07 | % | 4.55 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 574 | % | 843 | % | 838 | % | 580 | % | 692 | % | ||||||||||
Net assets, end of period (000s omitted) | $ | 91,858 | $ | 87,138 | $ | 85,416 | $ | 95,134 | $ | 93,610 | ||||||||||
| 1. | After the close of business of July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT Total Return Bond Fund | 27 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). These financial statements report on Wells Fargo Advantage VT Total Return Bond Fund (the “Fund”) which is a diversified series of the Trust.
2. SIGNIFICANT ACCOUNTING POLICIES
The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Securities valuation
All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (normally 4 p.m. Eastern Time).
Fixed income securities acquired with maturities exceeding 60 days are valued based on evaluated bid prices received from an independent pricing service which may utilize both transaction data and market information such as yield, prices of securities of comparable quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If valuations are not available from the independent pricing service or values received are deemed not representative of market value, values will be obtained from a broker-dealer or otherwise determined based on the Fund’s Valuation Procedures.
Debt securities of sufficient credit quality acquired with maturities of 60 days or less generally are valued at amortized cost which approximates fair value. The amortized cost method involves valuing a security at its cost, plus accretion of discount or minus amortization of premium over the period until maturity.
Investments in registered open-end investment companies are valued at net asset value. Non-registered investment companies are fair valued at net asset value.
Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy
Table of Contents
| 28 | Wells Fargo Advantage VT Total Return Bond Fund | Notes to financial statements |
by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Wells Fargo Securities Lending Cash Investments, LLC (the “Cash Collateral Fund”). The Cash Collateral Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Cash Collateral Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Cash Collateral Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Cash Collateral Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Cash Collateral Fund is included in securities lending income on the Statement of Operations.
When-issued transactions
The Fund may purchase securities on a forward commitment or ‘when-issued’ basis. The Fund records a when-issued transaction on the trade date and will segregate assets in an amount at least equal in value to the Fund’s commitment to purchase when-issued securities. Securities purchased on a when-issued basis are marked-to-market daily and the Fund begins earning interest on the settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.
TBA sale commitments
The Fund may enter into To Be Announced (“TBA”) sale commitments to hedge its portfolio positions or to sell mortgage-backed securities it owns under delayed delivery arrangements. Proceeds of TBA sale commitments are not received until the contractual settlement date. During the time a TBA sale commitment is outstanding, equivalent deliverable securities or offsetting TBA purchase commitments, which are deliverable on or before the sale commitment date, are held as “cover” for the transaction. Unsettled TBA sale commitments are valued at the current market value of the underlying securities, according to the procedures described under “Securities valuation”. The contract is marked-to-market daily and the change in market value is recorded by the Fund as an unrealized gain or loss. If the TBA sale commitment is closed through the acquisition of an offsetting purchase commitment, the Fund realizes a gain or loss. If the Fund delivers securities under the commitment, the Fund realizes a gain or a loss from the sale of the securities based upon the unit price established at the date the commitment was entered into.
Mortgage dollar roll transactions
The Fund may engage in mortgage dollar roll transactions with respect to mortgage-backed securities issued by Government National Mortgage Association (GNMA), Federal National Mortgage Association (FNMA) and Federal Home Loan Mortgage Corporation (FHLMC). In a mortgage dollar roll transaction, the Fund sells a mortgage-backed security to a financial institution, such as a bank or broker-dealer and simultaneously agrees to repurchase a substantially similar security from the institution at a later date at an agreed upon price. The mortgage-backed securities that are repurchased will bear the same interest rate as those sold, but generally will be collateralized by different pools of mortgages with different pre-payment histories. During the roll period, the Fund foregoes principal and interest paid on the securities. The Fund is compensated by the difference between the current sales price and the forward price for the future purchase as well as by the earnings on the cash proceeds of the initial sale. Mortgage dollar rolls may be renewed without physical delivery of the securities subject to the contract. The Fund accounts for TBA dollar roll transactions as purchases and sales.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.
Income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT Total Return Bond Fund | 29 |
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to mortgage dollar roll transactions. At December 31, 2012, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
| Undistributed net investment income | Accumulated net realized losses on investments | |
$49,661 | $(49,661) |
As of December 31, 2012, the Fund had net capital loss carryforwards, which were available to offset future net realized capital gains, in the amount of $4,157,782 expiring in 2016.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
| n | Level 1 – quoted prices in active markets for identical securities |
| n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.) |
| n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
Table of Contents
| 30 | Wells Fargo Advantage VT Total Return Bond Fund | Notes to financial statements |
As of December 31, 2012, the inputs used in valuing investments in securities, which are carried at fair value, were as follows:
| Investments in securities | Quoted prices (Level 1) | Significant other (Level 2) | Significant unobservable inputs (Level 3) | Total | ||||||||||||
Agency securities | $ | 0 | $ | 31,878,935 | $ | 0 | $ | 31,878,935 | ||||||||
Asset-backed securities | 0 | 12,544,078 | 0 | 12,544,078 | ||||||||||||
Corporate bonds and notes | 0 | 18,013,265 | 0 | 18,013,265 | ||||||||||||
Municipal bonds and notes | 0 | 1,019,929 | 0 | 1,019,929 | ||||||||||||
Non-agency mortgage backed securities | 0 | 6,210,097 | 0 | 6,210,097 | ||||||||||||
U.S. Treasury securities | 18,511,833 | 0 | 0 | 18,511,833 | ||||||||||||
Yankee corporate bonds and notes | 0 | 6,123,335 | 0 | 6,123,335 | ||||||||||||
Yankee government bonds | 0 | 976,759 | 0 | 976,759 | ||||||||||||
Other | 0 | 0 | 70,941 | 70,941 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 3,911,686 | 2,514,829 | 0 | 6,426,515 | ||||||||||||
| $ | 22,423,519 | $ | 79,281,227 | $ | 70,941 | $ | 101,775,687 | |||||||||
Further details on the major security types listed above can be found in the Portfolio of Investments.
Transfers in and transfers out are recognized at the end of the reporting period. For the year ended December 31, 2012, the Fund did not have any transfers into/out of Level 1 or Level 2.
4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES
Advisory fee
The Trust has entered into an advisory contract with Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”). The adviser is responsible for implementing investment policies and guidelines and for supervising the subadviser, who is responsible for day-to-day portfolio management of the Fund.
Pursuant to the contract, Funds Management is entitled to receive an annual advisory fee starting at 0.40% and declining to 0.30% as the average daily net assets of the Fund increase. For the year ended December 31, 2012, the advisory fee was equivalent to an annual rate of 0.40% of the Fund’s average daily net assets.
Funds Management has retained the services of a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds Management. WellsCap, an affiliate of Funds Management, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.20% and declining to 0.10% as the average daily net assets of the Fund increase.
Administration and transfer agent fees
The Trust has entered into an administration agreement with Funds Management. Under this agreement, for providing administrative services, which includes paying fees and expenses for services provided by the transfer agent, sub-transfer agents, omnibus account servicers and record-keepers, Funds Management is entitled to receive from the Fund an annual fund level administration fee starting at 0.05% and declining to 0.03% as the average daily net assets of the Fund increase and for Class 2 shares, a class level administration fee of 0.08% of its average daily net assets.
Funds Management has contractually waived and/or reimbursed advisory and administration fees to the extent necessary to maintain certain net operating expense ratios for the Fund. Waiver of fees and/or reimbursement of expenses by Funds Management were made first from fund level expenses on a proportionate basis and then from class specific expenses. Funds Management has committed through July 18, 2013 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.90% for Class 2.
Distribution fees
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. Distribution fees are charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets.
Table of Contents
| Notes to financial statements | Wells Fargo Advantage VT Total Return Bond Fund | 31 |
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2012 were as follows:
Purchases at cost | Sales proceeds | |||||
U.S. Government | Non-U.S. Government | U.S. Government | Non-U.S. Government | |||
| $458,876,617 | $96,190,071 | $466,491,808 | $82,746,573 | |||
6. BANK BORROWINGS
The Trust and Wells Fargo Funds Trust (excluding the money market funds and certain other funds) are parties to a $150,000,000 revolving credit agreement with State Street Bank and Trust Company, whereby the Fund is permitted to use bank borrowings for temporary or emergency purposes, such as to fund shareholder redemption requests. Interest under the credit agreement is charged to the Fund based on a borrowing rate equal to the higher of the Federal Funds rate in effect on that day plus 1.25% or the overnight LIBOR rate in effect on that day plus 1.25%. In addition, an annual commitment fee equal to 0.10% of the unused balance is allocated to each participating fund. For the year ended December 31, 2012, the Fund paid $121 in commitment fees.
For the year ended December 31, 2012, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2012 and December 31, 2011 were as follows:
| Year Ended December 31, | ||||
| 2012 | 2011 | |||
Ordinary income | $2,000,489 | $4,856,163 | ||
Long-term capital gain | 957,605 | 707,815 | ||
As of December 31, 2012, the components of distributable earnings on a tax basis were as follows:
| Undistributed ordinary income | Undistributed long-Term gain | Unrealized gains | Capital loss carryforward | |||
| $1,848,982 | $1,116,818 | $1,730,354 | $(4,157,782) |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Trust. Additionally, in the normal course of business, the Trust may enter into contracts with service providers that contain a variety of indemnification clauses. The Trust’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.
9. NEW ACCOUNTING PRONOUNCEMENT
In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.
Table of Contents
| 32 | Wells Fargo Advantage VT Total Return Bond Fund | Report of independent registered public accounting firm |
BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO VARIABLE TRUST:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Wells Fargo Advantage VT Total Return Bond Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2012, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.
We conducted our audits in accordance with the Standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of December 31, 2012, by correspondence with the custodian and brokers, or other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage VT Total Return Bond Fund as of December 31, 2012, the results of its operations for the year then ended, changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 22, 2013
Table of Contents
| Other information (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 33 |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $957,605 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2012.
PROXY VOTING INFORMATION
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.
PORTFOLIO HOLDINGS INFORMATION
The complete portfolio holdings for the Fund are publicly available on the Fund’s website (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. In addition, top ten holdings information for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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| 34 | Wells Fargo Advantage VT Total Return Bond Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers listed in the table below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 140 funds1 comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during | |||
| Peter G. Gordon (Born 1942) | Trustee, since 1998; Chairman, since 2005 | Co-Founder, Retired Chairman, President and CEO of Crystal Geyser Water Company. Trustee Emeritus, Colby College. | ||||
| Isaiah Harris, Jr. (Born 1952) | Trustee, since 2009 | Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant. | CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust | |||
| Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
| Leroy Keith, Jr. (Born 1939) | Trustee, since 2010 | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services. | Trustee, Virtus Fund Complex (consisting of 48 portfolios as of 1/31/2013); Asset Allocation Trust | |||
| David F. Larcker (Born 1950) | Trustee, since 2009 | James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005. | Asset Allocation Trust | |||
| Olivia S. Mitchell (Born 1953) | Trustee, since 2006 | International Foundation of Employee Benefit Plans Professor, Wharton School of the University of Pennsylvania since 1993. Director of Wharton’s Pension Research Council and Boettner Center on Pensions & Retirement Research, and Research Associate at the National Bureau of Economic Research. Previously, Cornell University Professor from 1978 to 1993. | Asset Allocation Trust | |||
| Timothy J. Penny (Born 1951) | Trustee, since 1996 | President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007. | Asset Allocation Trust |
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| Other information (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 35 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years | Other directorships during | |||
| Michael S. Scofield (Born 1943) | Trustee, since 2010 | Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
| Donald C. Willeke (Born 1940) | Trustee, since 1996 | Principal of the law firm of Willeke & Daniels. General Counsel of the Minneapolis Employees Retirement Fund from 1984 until its consolidation into the Minnesota Public Employees Retirement Association on June 30, 2010. Director, General Counsel, and Vice Chair of The Tree Trust (non-profit corporation). Director and General Counsel of The American Chestnut Foundation (non-profit corporation). | Asset Allocation Trust |
| * | Length of service dates reflect the Trustee’s commencement of service with the Trust’s predecessor entities, where applicable. |
Officer
| Name and year of birth | Position held and length of service | Principal occupations during past five years | ||||
| Karla M. Rabusch (Born 1959) | President, since 2003 | Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. | ||||
| Jeremy DePalma1 (Born 1974) | Treasurer, since 2012 | Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010. | ||||
| C. David Messman (Born 1960) | Secretary, since 2000; Chief Legal Officer, since 2003 | Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Counsel of Wells Fargo Bank, N.A. since 1996. | ||||
| Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007. | ||||
| David Berardi (Born 1975) | Assistant Treasurer, since 2009 | Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010. |
| 1. | Jeremy DePalma acts as Treasurer of 61 funds and Assistant Treasurer of 79 funds in the Fund Complex. |
| 2. | The Statement of Additional Information includes additional information about the Trustees and is available,without charge, upon request, by calling 1-800-222-8222 or by visiting the website at wellsfargoadvantagefunds.com. |
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| 36 | Wells Fargo Advantage VT Total Return Bond Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
| ACB | — Agricultural Credit Bank |
| ADR | — American depositary receipt |
| ADS | — American depositary shares |
| AGC-ICC | — Assured Guaranty Corporation - Insured Custody Certificates |
| AGM | — Assured Guaranty Municipal |
| AMBAC | — American Municipal Bond Assurance Corporation |
| AMT | — Alternative minimum tax |
| AUD | — Australian dollar |
| BAN | — Bond anticipation notes |
| BHAC | — Berkshire Hathaway Assurance Corporation |
| BRL | — Brazilian real |
| CAB | — Capital appreciation bond |
| CAD | — Canadian dollar |
| CCAB | — Convertible capital appreciation bond |
| CDA | — Community Development Authority |
| CDO | — Collateralized debt obligation |
| CHF | — Swiss franc |
| COP | — Certificate of participation |
| CR | — Custody receipts |
| DKK | — Danish krone |
| DRIVER | — Derivative inverse tax-exempt receipts |
| DW&P | — Department of Water & Power |
| DWR | — Department of Water Resources |
| ECFA | — Educational & Cultural Facilities Authority |
| EDA | — Economic Development Authority |
| EDFA | — Economic Development Finance Authority |
| ETF | — Exchange-traded fund |
| EUR | — Euro |
| FDIC | — Federal Deposit Insurance Corporation |
| FFCB | — Federal Farm Credit Banks |
| FGIC | — Financial Guaranty Insurance Corporation |
| FGLMC | — Federal Government Loan Mortgage Corporation |
| FHA | — Federal Housing Administration |
| FHLB | — Federal Home Loan Bank |
| FHLMC | — Federal Home Loan Mortgage Corporation |
| FICO | — The Financing Corporation |
| FNMA | — Federal National Mortgage Association |
| FSA | — Farm Service Agency |
| GBP | — Great British pound |
| GDR | — Global depositary receipt |
| GNMA | — Government National Mortgage Association |
| GO | — General obligation |
| HCFR | — Healthcare facilities revenue |
| HEFA | — Health & Educational Facilities Authority |
| HEFAR | — Higher education facilities authority revenue |
| HFA | — Housing Finance Authority |
| HFFA | — Health Facilities Financing Authority |
| HKD | — Hong Kong dollar |
| HUF | — Hungarian forint |
| IBC | — Insured bond certificate |
| IDA | — Industrial Development Authority |
| IDAG | — Industrial Development Agency |
| IDR | — Industrial development revenue |
| IEP | — Irish pound |
| JPY | — Japanese yen |
| KRW | — Republic of Korea won |
| LIBOR | — London Interbank Offered Rate |
| LIQ | — Liquidity agreement |
| LLC | — Limited liability company |
| LLP | — Limited liability partnership |
| LOC | — Letter of credit |
| LP | — Limited partnership |
| MBIA | — Municipal Bond Insurance Association |
| MFHR | — Multifamily housing revenue |
| MSTR | — Municipal securities trust receipts |
| MTN | — Medium-term note |
| MUD | — Municipal Utility District |
| MXN | — Mexican peso |
| MYR | — Malaysian ringgit |
| NATL-RE | — National Public Finance Guarantee Corporation |
| NOK | — Norwegian krone |
| NZD | — New Zealand dollar |
| PCFA | — Pollution Control Financing Authority |
| PCL | — Public Company Limited |
| PCR | — Pollution control revenue |
| PFA | — Public Finance Authority |
| PFFA | — Public Facilities Financing Authority |
| PFOTER | — Puttable floating option tax-exempt receipts |
| plc | — Public limited company |
| PLN | — Polish zloty |
| PUTTER | — Puttable tax-exempt receipts |
| R&D | — Research & development |
| RDA | — Redevelopment Authority |
| RDFA | — Redevelopment Finance Authority |
| REIT | — Real estate investment trust |
| ROC | — Reset option certificates |
| SAVRS | — Select auction variable rate securities |
| SBA | — Small Business Authority |
| SEK | — Swedish krona |
| SFHR | — Single-family housing revenue |
| SFMR | — Single-family mortgage revenue |
| SGD | — Singapore dollar |
| SKK | — Slovakian koruna |
| SPA | — Standby purchase agreement |
| SPDR | — Standard & Poor’s Depositary Receipts |
| STRIPS | — Separate trading of registered interest and principal securities |
| TAN | — Tax anticipation notes |
| TBA | — To be announced |
| TIPS | — Treasury inflation-protected securities |
| TRAN | — Tax revenue anticipation notes |
| TCR | — Transferable custody receipts |
| TRY | — Turkish lira |
| TTFA | — Transportation Trust Fund Authority |
| TVA | — Tennessee Valley Authority |
| XLCA | — XL Capital Assurance |
| ZAR | — South African rand |
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For more information
More information about Wells Fargo Advantage Funds is available free upon request. To obtain literature, please write, email, visit the Fund’s website, or call:
Wells Fargo Advantage Funds
P.O. Box 8266
Boston, MA 02266-8266
Email: wfaf@wellsfargo.com
Website: wellsfargoadvantagefunds.com
Individual investors: 1-800-222-8222
Retail investment professionals: 1-888-877-9275
Institutional investment professionals: 1-866-765-0778
This report and the financial statements contained herein are submitted for the general information of the shareholders of Wells Fargo Advantage Funds. If this report is used for promotional purposes, distribution of the report must be accompanied or preceded by a current prospectus. For a current prospectus and, if available, a summary prospectus containing more complete information, including charges and expenses, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com . Please consider the investment objectives, risks, charges, and expenses of the investment carefully before investing. This and other information about Wells Fargo Advantage Funds can be found in the current prospectus. Read the prospectus carefully before you invest or send money.
Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Funds. The Funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
© 2013 Wells Fargo Funds Management, LLC. All rights reserved.
214188 02-13 AVT9/AR155 12-12 |
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ITEM 2. CODE OF ETHICS
As of the end of the period, December 31, 2012, Wells Fargo Variable Trust has adopted a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its President and Treasurer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT
The Board of Trustees of Wells Fargo Variable Trust has determined that Judith Johnson is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mrs. Johnson is independent for purposes of Item 3 of Form N-CSR.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES
| (a) |
Audit Fees - Provided below are the aggregate fees billed for the fiscal years ended December 31, 2011 and December 31, 2012 for professional services rendered by the principal accountant for the audit of the Registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements.
For the fiscal years ended December 31, 2011 and December 31, 2012, the Audit Fees were $553,779 and $259,114, respectively.
(b)
Audit-Related Fees – There were no audit-related fees incurred for the fiscal years ended December 31, 2011 and December 31, 2012 for assurance and related services by the principal accountant for the Registrant.
| (c) |
Tax Fees - Provided below are the aggregate fees billed for the fiscal years ended December 31, 2011 and December 31, 2012 for professional services rendered by the principal accountant for the Registrant for tax compliance, tax advice, and tax planning.
For the fiscal years ended December 31, 2011 and December 31, 2012, the Tax Fees were $21,560 and $20,110 respectively. The incurred Tax Fees are comprised of tax preparation and consulting services.
| (d) |
All Other Fees – There were no other fees incurred for the fiscal years ended December 31, 2011 and December 31, 2012.
(e)(1)
The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services to the mutual funds of Wells Fargo Variable Trust; (2) non-audit tax or compliance consulting or training services provided to the Funds by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.
(e)(2)
Not Applicable.
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(f)
Not Applicable.
(g)
Non-Audit Fees – There were no non-audit fees billed for the fiscal years ended December 31, 2011 and December 31, 2012, by the principal accountant for services rendered to the Registrant, and rendered to the Registrant’s investment adviser, and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the Registrant.
(h)
The Registrant’s audit committee of the board of directors has determined that non-audit services rendered to the registrant’s investment adviser, that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of the Regulation S-X, does not compromise the independence of the principal accountant.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS
Not applicable.
ITEM 6. PORTFOLIO OF INVESTMENTS
The Portfolio of investments is included as part of the report to shareholders filed under Item 1 of this Form.
| ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable.
| ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASES |
Not applicable.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Governance Committee (the “Committee”) of the Board of Trustees of the registrant (the “Trust”) has adopted procedures by which a shareholder of any series of the Trust may submit properly a nominee recommendation for the Committee’s consideration.
The shareholder must submit any such recommendation (a “Shareholder Recommendation”) in writing to the Trust, to the attention of the Trust’s Secretary, at the address of the principal executive offices of the Trust.
The Shareholder Recommendation must be delivered to, or mailed and received at, the principal executive offices of the Trust not less than forty-five (45) calendar days nor more than seventy-five (75) calendar days prior to the date of the Committee meeting at which the nominee would be considered.
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The Shareholder Recommendation must include: (i) a statement in writing setting forth (A) the name, age, date of birth, business address, residence address and nationality of the person recommended by the shareholder (the “candidate”); (B) the series (and, if applicable, class) and number of all shares of the Trust owned of record or beneficially by the candidate, as reported to such shareholder by the candidate; (C) any other information regarding the candidate called for with respect to director nominees by paragraphs (a), (d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation or rule subsequently adopted by the Securities and Exchange Commission or any successor agency applicable to the Trust); (D) any other information regarding the candidate that would be required to be disclosed if the candidate were a nominee in a proxy statement or other filing required to be made in connection with solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (E) whether the recommending shareholder believes that the candidate is or will be an “interested person” of the Trust (as defined in the Investment Company Act of 1940, as amended) and, if not an “interested person,” information regarding the candidate that will be sufficient for the Trust to make such determination; (ii) the written and signed consent of the candidate to be named as a nominee and to serve as a Trustee if elected; (iii) the recommending shareholder’s name as it appears on the Trust’s books; (iv) the series (and, if applicable, class) and number of all shares of the Trust owned beneficially and of record by the recommending shareholder; and (v) a description of all arrangements or understandings between the recommending shareholder and the candidate and any other person or persons (including their names) pursuant to which the recommendation is being made by the recommending shareholder. In addition, the Committee may require the candidate to interview in person and furnish such other information as it may reasonably require or deem necessary to determine the eligibility of such candidate to serve as a Trustee of the Trust.
ITEM 11. CONTROLS AND PROCEDURES
(a) The President and Treasurer have concluded that the Wells Fargo Variable Trust (the “Trust”) disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) provide reasonable assurances that material information relating to the Trust is made known to them by the appropriate persons based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.
(b) There were no significant changes in the Trust’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
ITEM 12. EXHIBITS
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as Exhibit 10a.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Wells Fargo Variable Trust | ||
| By: | ||
| /s/ Karla M. Rabusch | ||
| Karla M. Rabusch | ||
| President | ||
| Date: | February 22, 2013 | |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
By: | ||
| /s/ Karla M. Rabusch | ||
| Karla M. Rabusch | ||
| President | ||
Date: | February 22, 2013 | |
By: | ||
| /s/ Jeremy DePalma | ||
| Jeremy DePalma | ||
| Treasurer | ||
Date: | February 22, 2013 | |