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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: The following 9 series of Wells Fargo Variable Trust have a December 31 fiscal year end: Wells Fargo Advantage VT Discovery Fund, Wells Fargo Advantage VT Index Asset Allocation Fund, Wells Fargo Advantage VT International Equity Fund, Wells Fargo Advantage VT Intrinsic Value Fund, Wells Fargo Advantage VT Omega Growth Fund, Wells Fargo Advantage VT Opportunity Fund, Wells Fargo Advantage VT Small Cap Growth Fund, Wells Fargo Advantage VT Small Cap Value Fund, and Wells Fargo Advantage VT Total Return Bond Fund.
Date of reporting period: December 31, 2014
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ITEM 1. | REPORT TO STOCKHOLDERS |
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Wells Fargo Advantage VT Discovery FundSM
Annual Report
December 31, 2014
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Reduce clutter. Save trees.
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Discovery Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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, 2014. Improving U.S. economic data and strong corporate earnings helped drive positive returns for U.S. stocks overall in 2014. In contrast, many economies and markets elsewhere in the world faced significant ongoing challenges during the period.
2014’s fitful start gave way to a rally that carried through the second quarter of 2014.
Following a difficult first quarter for the U.S. economy—when unusually harsh weather kept consumers at home, disrupted business activities, and ultimately drove a 2.1% contraction in real gross domestic product (GDP)—the second quarter of 2014 brought warmer temperatures, and the U.S. economy picked up steam. Investors were heartened by encouraging economic data, driving stocks higher. In Europe, signs of economic improvement faded when GDP stagnated during the second quarter. Although select peripheral countries, such as Spain and Portugal, provided bright spots, some of Europe’s larger economies were pressured by weak economic growth and potential deflation. European stock returns generally were positive but lackluster.
U.S. Federal Reserve (Fed) officials continued winding down their bond-buying program during the second quarter, leaving it on pace to end in 2014. They also revisited the question of when to begin raising short-term interest rates from near zero and released new projections showing rates rising more than previously expected in 2015 and 2016; however, they slightly reduced their projections for rates over the longer term. The markets took this information in stride, with both U.S. stocks and bonds rallying.
Positive U.S. economic data—but increased tensions abroad—led to heightened volatility in the third quarter of 2014.
The third quarter brought a series of stock market surges that were interrupted by bouts of volatility as interest-rate concerns in the U.S. and increased tensions abroad triggered heightened investor uncertainty. In July, an escalating Russia/Ukraine situation and a growing perception that the Fed would raise short-term interest rates sooner than expected caused investors to pull back toward month-end; as a result, the S&P 500 Index1 dropped into negative territory for its overall monthly return. However, August brought a bounce-back—the S&P 500 Index delivered its largest monthly gain since February 2014 on a string of positive economic news, led by an upwardly revised 4.2% estimate of second-quarter 2014 GDP growth. Then, in September, stock market volatility rose as positive economic data became overshadowed at times by growing discomfort over escalating tensions in Ukraine and the Middle East. Signs of slowing growth in Europe and China also concerned investors. Ultimately, U.S. stocks ended the third quarter up slightly overall, buoyed largely by another upward revision of second-quarter GDP growth (to 4.6%). Strong corporate earnings also contributed to market gains, with a large number of U.S. companies exceeding consensus estimates for both revenues and earnings per share.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Discovery Fund | 3 |
The fourth quarter of 2014 brought continued improvement in the U.S.; international economies remained challenged.
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014. The last several, in December, were spurred by investor optimism following Fed Chair Janet Yellen’s comment that the Fed would be patient in its timing of an interest-rate increase. U.S. stocks also were boosted by positive data reflecting an economy continuing to strengthen. November’s 5.8% unemployment rate was down from 7.0% a year earlier, and the number of jobs being added continued to expand, keeping U.S. employers on pace to hire nearly three million workers during 2014—the most since 1999. In addition, the U.S. economy’s third-quarter growth rate was revised upward during the quarter, to 5.0%—its fastest pace in 11 years. Meanwhile, U.S. companies continued to report strong earnings during the quarter, providing an additional catalyst for stocks. The steadily brightening U.S. economy energized consumers, who were further buoyed by much lower prices at the gasoline pump. During the fourth quarter, gasoline prices fell to their lowest levels in five years, according to the American Automobile Association.
As the U.S. churned forward, major economies elsewhere in the world faced significant ongoing challenges. Growth in China continued to slow, Japan remained in a recession that had begun the previous quarter, and Russia’s economy contracted for the first time since 2009 as the country struggled under the weight of slumping oil prices, international sanctions, and massive outflows of capital. In the eurozone, growth remained sluggish as member countries faced an environment of low demand, high unemployment, and weak business investment.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014.
We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
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4 | Wells Fargo Advantage VT Discovery Fund | Performance highlights (unaudited) |
The Fund is currently closed to new insurance companies1.
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, 2014
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 2 | 5-8-1992 | 0.36 | 18.26 | 10.61 | 1.16 | 1.15 | ||||||||||||||||
Russell 2500TM Growth Index4 | – | 7.05 | 17.27 | 9.37 | – | – |
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, which 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 fees 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. 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 investment5 as of December 31, 2014 |
1. | Please see the Fund’s current Statement of Additional Information for further details. |
2. | Reflects the expense ratios as stated in the most recent prospectus. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
3. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
4. | The Russell 2500TM 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. |
5. | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 2500TM Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
7. | The ten largest 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. |
* | This security was not held in the Fund at the end of the reporting period. |
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6 | Wells Fargo Advantage VT Discovery Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
n | The Fund lagged its benchmark, the Russell 2500 Growth Index, for the 12-month period that ended December 31, 2014. |
n | Positioning in the information technology (IT) and industrials sectors was the most significant challenge to relative performance; effective stock selection in the health care sector contributed positively to the Fund’s results. |
Overall, 2014 was a good year for the U.S. economy and stock market.
Encouraging U.S. economic data, coupled with strong corporate earnings, drove positive U.S. stock returns for 2014 as measured by the S&P 500 Index6. U.S. stocks (led by larger caps) outperformed most international markets for the year despite near-constant market volatility driven by a series of geopolitical and macroeconomic issues, such as the potential for a U.S. interest-rate increase earlier than many investors had anticipated and the situation in Ukraine. The heightened uncertainty drove stock investors to at times seek the perceived safety of larger-cap stocks with lower relative valuations and higher dividend yields. This investor trend was especially evident during the two-month period from early March through early May 2014 when higher-valuation, higher-growth companies significantly underperformed slower-growing companies.
Ten largest equity holdings7 (%) as of December 31, 2014 | ||||
SBA Communications Corporation Class A | 2.33 | |||
Wabtec Corporation | 2.14 | |||
LKQ Corporation | 2.09 | |||
Old Dominion Freight Line Incorporated | 2.00 | |||
CoStar Group Incorporated | 1.93 | |||
Polaris Industries Incorporated | 1.87 | |||
SEI Investments Company | 1.84 | |||
Cooper Companies Incorporated | 1.78 | |||
Cinemark Holdings Incorporated | 1.73 | |||
Carlisle Companies Incorporated | 1.68 |
Portfolio construction is focused on three types of growth companies.
We believe that, in any market environment, a portfolio’s construction must balance risk and return. We strive to provide this balance through a portfolio composed of three distinct types of growth companies. Core growth holdings (typically 40%–50% of assets) are companies that we believe have stable growth records, proven management teams, and relatively low volatility. Developing situations (typically 40%–50% of assets) are firms we believe are entering a period of accelerated growth driven by a new product, business plan, or management team. The remainder of the portfolio (typically 5%–10% of assets) is dedicated to valuation opportunities—holdings we believe carry above-average
growth potential and relatively high volatility. Our conviction level drives each stock’s relative weight in the portfolio. This direct relationship helps us position our highest-conviction ideas to potentially make a significant impact on performance.
Positioning in the IT and industrials sectors challenged the Fund’s relative performance.
Positioning in the IT sector hindered performance. As investors shed higher-valuation stocks early in 2014, IT holdings suffered because the innovation implicit in these stocks often drives premium valuations. Cornerstone OnDemand Incorporated, a provider of talent and management software, declined after the company reported lower sales and earnings than expected. However, the revenue shortfall was due to timing rather than weakness in the core business; fundamentals remained strong, and the company’s revenue per user continued to grow along with the average number of products per client. ChannelAdvisor Corporation*, which works with small businesses to aggregate products on multiple online channels, also was pressured. Although the company beat guidance on all metrics, its shares declined in April 2014 when high-valuation stocks were out of favor.
Railroad company Kansas City Southern declined after the company’s results fell short of expectations. The company’s rail network was strategically positioned to participate in increasing trade between the U.S. and Mexico. However, regulatory concerns threatened the company’s exclusivity agreements within Mexico, and Kansas City Southern’s shares declined. With the increased uncertainty, we sold the position, consistent with our investment process. DigitalGlobe Incorporated, which provides satellite imagery to governments and private businesses, declined after geopolitical and currency factors hurt sales. Despite our expectations that the company would experience accelerating free cash flow in coming years, the timing of this acceleration became less clear; we sold the position, consistent with our investment process.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Discovery Fund | 7 |
Holdings in the health care sector contributed positively to results.
Within the health care sector, we tend to focus on two types of firms: those offering product-specific innovations capable of improving patient outcomes and those providing technology and infrastructure to improve the efficiency of health care systems. Biotechnology holdings, which represent our innovation theme, contributed positively to Fund performance in 2014. Shares of Puma Biotechnology Incorporated rose following the announcement of positive phase III data for the company’s breast cancer drug, Neratinib. Contact lens manufacturer The Cooper Companies Incorporated also benefited performance; the firm enjoys a strong market share and is a leader in the move toward daily silicone hydrogel lenses.
Sector distribution8 as of December 31, 2014 |
We look forward to 2015.
As 2014 ended, the U.S. economy clearly was moving forward. We believe falling gas prices, a healthier job market, stable home values, and a stronger U.S. dollar could lead U.S. consumers to increase spending in 2015, which could initiate a cycle of rising business investment. However, we are not certain the U.S. economy is ready to shift into high gear. Global deflation, the impact of a rising U.S. dollar on international economies, and the recent collapse in commodity prices are major unresolved concerns that may hamper the U.S. economy in 2015.
Despite the Fund’s relative underperformance in 2014, we remain committed to our investment process. Many
Fund holdings have continued to benefit from consolidation, have expanded capacity, and have taken market share. We have strong conviction in these holdings, and we believe a catalyst may eventually emerge that will lead investors to increasingly recognize the attractive valuations of high-growth companies and more consistently reward those offering strong, sustainable growth.
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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,016.26 | $ | 5.79 | 1.14 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.46 | $ | 5.80 | 1.14 | % |
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, 2014 | Wells Fargo Advantage VT Discovery Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 99.21% | ||||||||||||
Consumer Discretionary: 21.52% | ||||||||||||
Auto Components: 1.20% | ||||||||||||
Gentherm Incorporated † | 45,469 | $ | 1,665,075 | |||||||||
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Distributors: 2.09% | ||||||||||||
LKQ Corporation † | 103,124 | 2,899,847 | ||||||||||
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Diversified Consumer Services: 1.49% | ||||||||||||
Bright Horizons Family Solutions Incorporated † | 43,900 | 2,063,739 | ||||||||||
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Hotels, Restaurants & Leisure: 3.58% | ||||||||||||
Domino’s Pizza Incorporated | 24,700 | 2,325,999 | ||||||||||
Extended Stay America Incorporated | 50,550 | 976,121 | ||||||||||
Krispy Kreme Doughnuts Incorporated † | 84,100 | 1,660,134 | ||||||||||
4,962,254 | ||||||||||||
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Internet & Catalog Retail: 1.87% | ||||||||||||
MakeMyTrip Limited † | 52,214 | 1,357,042 | ||||||||||
Vipshop Holdings Limited ADS † | 63,019 | 1,231,391 | ||||||||||
2,588,433 | ||||||||||||
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Leisure Products: 1.87% | ||||||||||||
Polaris Industries Incorporated | 17,130 | 2,590,741 | ||||||||||
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Media: 1.73% | ||||||||||||
Cinemark Holdings Incorporated | 67,200 | 2,390,976 | ||||||||||
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Specialty Retail: 3.70% | ||||||||||||
Advance Auto Parts Incorporated | 10,089 | 1,606,976 | ||||||||||
Lithia Motors Incorporated Class A | 19,200 | 1,664,448 | ||||||||||
Restoration Hardware Holdings Incorporated †« | 19,345 | 1,857,313 | ||||||||||
5,128,737 | ||||||||||||
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Textiles, Apparel & Luxury Goods: 3.99% | ||||||||||||
Carter’s Incorporated | 26,000 | 2,270,060 | ||||||||||
Kate Spade & Company † | 53,102 | 1,699,795 | ||||||||||
Under Armour Incorporated Class A † | 22,800 | 1,548,120 | ||||||||||
5,517,975 | ||||||||||||
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Consumer Staples: 1.23% | ||||||||||||
Beverages: 1.23% | ||||||||||||
Constellation Brands Incorporated Class A † | 17,400 | 1,708,158 | ||||||||||
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Energy: 2.73% | ||||||||||||
Oil, Gas & Consumable Fuels: 2.73% | ||||||||||||
Delek US Holdings Incorporated | 32,600 | 889,328 | ||||||||||
Diamondback Energy Incorporated † | 30,400 | 1,817,312 |
The accompanying notes are an integral part of these financial statements.
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10 | Wells Fargo Advantage VT Discovery Fund | Portfolio of investments—December 31, 2014 |
Security name | Shares | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
Rice Energy Incorporated † | 26,800 | $ | 561,996 | |||||||||
Sanchez Energy Corporation †« | 55,222 | 513,012 | ||||||||||
3,781,648 | ||||||||||||
|
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Financials: 5.75% | ||||||||||||
Banks: 1.24% | ||||||||||||
Texas Capital Bancshares Incorporated † | 31,624 | 1,718,132 | ||||||||||
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Capital Markets: 4.22% | ||||||||||||
Affiliated Managers Group Incorporated † | 8,600 | 1,825,264 | ||||||||||
Raymond James Financial Incorporated | 25,500 | 1,460,895 | ||||||||||
SEI Investments Company | 63,700 | 2,550,548 | ||||||||||
5,836,707 | ||||||||||||
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Insurance: 0.17% | ||||||||||||
eHealth Incorporated † | 9,370 | 233,500 | ||||||||||
|
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REITs: 0.12% | ||||||||||||
OUTFRONT Media Incorporated | 6,355 | 170,568 | ||||||||||
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Health Care: 19.72% | ||||||||||||
Biotechnology: 8.39% | ||||||||||||
Alkermes plc † | 38,800 | 2,272,128 | ||||||||||
Alnylam Pharmaceuticals Incorporated † | 15,500 | 1,503,500 | ||||||||||
AMAG Pharmaceuticals Incorporated † | 18,900 | 805,518 | ||||||||||
BioMarin Pharmaceutical Incorporated † | 17,067 | 1,542,857 | ||||||||||
bluebird bio Incorporated † | 8,300 | 761,276 | ||||||||||
Cepheid Incorporated † | 36,465 | 1,974,215 | ||||||||||
Novavax Incorporated †« | 166,934 | 989,919 | ||||||||||
NPS Pharmaceuticals Incorporated † | 22,855 | 817,523 | ||||||||||
Puma Biotechnology Incorporated † | 5,000 | 946,350 | ||||||||||
11,613,286 | ||||||||||||
|
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Health Care Equipment & Supplies: 4.33% | ||||||||||||
Cooper Companies Incorporated | 15,200 | 2,463,768 | ||||||||||
DexCom Incorporated † | 27,381 | 1,507,324 | ||||||||||
IDEXX Laboratories Incorporated † | 13,700 | 2,031,299 | ||||||||||
6,002,391 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 3.83% | ||||||||||||
Community Health Systems Incorporated † | 26,400 | 1,423,488 | ||||||||||
Envision Healthcare Holdings Incorporated † | 56,858 | 1,972,404 | ||||||||||
VCA Antech Incorporated † | 39,200 | 1,911,784 | ||||||||||
5,307,676 | ||||||||||||
|
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Health Care Technology: 1.33% | ||||||||||||
athenahealth Incorporated †« | 12,600 | 1,835,820 | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Discovery Fund | 11 |
Security name | Shares | Value | ||||||||||
Pharmaceuticals: 1.84% | ||||||||||||
GW Pharmaceuticals plc ADR †« | 6,900 | $ | 466,992 | |||||||||
Jazz Pharmaceuticals plc † | 12,700 | 2,079,371 | ||||||||||
2,546,363 | ||||||||||||
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Industrials: 21.54% | ||||||||||||
Aerospace & Defense: 1.54% | ||||||||||||
TASER International Incorporated †« | 80,800 | 2,139,584 | ||||||||||
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Airlines: 1.67% | ||||||||||||
Spirit Airlines Incorporated † | 30,700 | 2,320,306 | ||||||||||
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Construction & Engineering: 0.81% | ||||||||||||
Quanta Services Incorporated † | 39,400 | 1,118,566 | ||||||||||
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Electrical Equipment: 2.93% | ||||||||||||
Acuity Brands Incorporated | 15,300 | 2,143,071 | ||||||||||
Sensata Technologies Holding NV † | 36,468 | 1,911,288 | ||||||||||
4,054,359 | ||||||||||||
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Industrial Conglomerates: 1.68% | ||||||||||||
Carlisle Companies Incorporated | 25,857 | 2,333,336 | ||||||||||
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Machinery: 7.25% | ||||||||||||
Allison Transmission Holdings Incorporated | 52,600 | 1,783,140 | ||||||||||
Graco Incorporated | 22,267 | 1,785,368 | ||||||||||
Proto Labs Incorporated †« | 22,900 | 1,537,964 | ||||||||||
Snap-on Incorporated | 14,372 | 1,965,227 | ||||||||||
Wabtec Corporation | 34,100 | 2,962,949 | ||||||||||
10,034,648 | ||||||||||||
|
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Professional Services: 1.20% | ||||||||||||
IHS Incorporated Class A † | 14,544 | 1,656,271 | ||||||||||
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Road & Rail: 3.36% | ||||||||||||
Old Dominion Freight Line Incorporated † | 35,700 | 2,771,748 | ||||||||||
Swift Transportation Company † | 65,598 | 1,878,071 | ||||||||||
4,649,819 | ||||||||||||
|
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Trading Companies & Distributors: 1.10% | ||||||||||||
United Rentals Incorporated † | 14,900 | 1,519,949 | ||||||||||
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Information Technology: 21.60% | ||||||||||||
Communications Equipment: 1.63% | ||||||||||||
Palo Alto Networks Incorporated † | 18,359 | 2,250,263 | ||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components: 2.67% | ||||||||||||
Cognex Corporation † | 49,800 | 2,058,234 | ||||||||||
FEI Company | 18,200 | 1,644,370 | ||||||||||
3,702,604 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||||
Internet Software & Services: 6.08% | ||||||||||||||
Cornerstone OnDemand Incorporated †« | 46,800 | $ | 1,647,360 | |||||||||||
CoStar Group Incorporated † | 14,579 | 2,677,142 | ||||||||||||
HomeAway Incorporated † | 31,066 | 925,145 | ||||||||||||
Shutterstock Incorporated † | 25,783 | 1,781,605 | ||||||||||||
Yelp Incorporated † | 25,418 | 1,391,127 | ||||||||||||
8,422,379 | ||||||||||||||
|
| |||||||||||||
IT Services: 2.60% | ||||||||||||||
Euronet Worldwide Incorporated † | 26,085 | 1,432,067 | ||||||||||||
Vantiv Incorporated Class A † | 63,953 | 2,169,286 | ||||||||||||
3,601,353 | ||||||||||||||
|
| |||||||||||||
Semiconductors & Semiconductor Equipment: 0.89% | ||||||||||||||
Veeco Instruments Incorporated † | 35,500 | 1,238,240 | ||||||||||||
|
| |||||||||||||
Software: 5.66% | ||||||||||||||
Fleetmatics Group plc †« | 43,204 | 1,533,310 | ||||||||||||
Guidewire Software Incorporated † | 38,100 | 1,929,003 | ||||||||||||
ServiceNow Incorporated † | 31,729 | 2,152,813 | ||||||||||||
Solera Holdings Incorporated | 10,138 | 518,863 | ||||||||||||
Tableau Software Incorporated Class A † | 20,092 | 1,702,998 | ||||||||||||
7,836,987 | ||||||||||||||
|
| |||||||||||||
Technology Hardware, Storage & Peripherals: 2.07% | ||||||||||||||
Nimble Storage Incorporated †« | 62,800 | 1,727,000 | ||||||||||||
Stratasys Limited †« | 13,728 | 1,140,934 | ||||||||||||
2,867,934 | ||||||||||||||
|
| |||||||||||||
Materials: 2.79% | ||||||||||||||
Chemicals: 2.79% | ||||||||||||||
Axalta Coating Systems Limited † | 64,683 | 1,683,052 | ||||||||||||
W.R. Grace & Company † | 22,900 | 2,184,431 | ||||||||||||
3,867,483 | ||||||||||||||
|
| |||||||||||||
Telecommunication Services: 2.33% | ||||||||||||||
Wireless Telecommunication Services: 2.33% | ||||||||||||||
SBA Communications Corporation Class A † | 29,084 | 3,221,343 | ||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $115,804,855) | 137,397,450 | |||||||||||||
|
| |||||||||||||
Yield | ||||||||||||||
Short-Term Investments: 8.42% | ||||||||||||||
Investment Companies: 8.42% | ||||||||||||||
Securities Lending Cash Investments, LLC (l)(r)(u) | 0.14 | % | 10,468,150 | 10,468,150 | ||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | 1,194,308 | 1,194,308 | |||||||||||
Total Short-Term Investments (Cost $11,662,458) | 11,662,458 | |||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Discovery Fund | 13 |
Value | ||||||||
Total investments in securities (Cost $127,467,313) * | 107.63 | % | $ | 149,059,908 | ||||
Other assets and liabilities, net | (7.63 | ) | (10,570,340 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 138,489,568 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $127,745,689 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 25,578,594 | ||
Gross unrealized losses | (4,264,375 | ) | ||
|
| |||
Net unrealized gains | $ | 21,314,219 |
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, 2014 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including $10,165,592 of securities loaned), at value (cost $115,804,855) | $ | 137,397,450 | ||
In affiliated securities, at value (cost $11,662,458) | 11,662,458 | |||
|
| |||
Total investments, at value (cost $127,467,313) | 149,059,908 | |||
Cash | 70,056 | |||
Receivable for investments sold | 1,122,946 | |||
Receivable for Fund shares sold | 122,775 | |||
Receivable for dividends | 20,584 | |||
Receivable for securities lending income | 4,876 | |||
Prepaid expenses and other assets | 8,409 | |||
|
| |||
Total assets | 150,409,554 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 1,241,328 | |||
Payable for Fund shares redeemed | 33,821 | |||
Payable upon receipt of securities loaned | 10,468,150 | |||
Advisory fee payable | 84,984 | |||
Distribution fee payable | 30,352 | |||
Administration fee payable | 15,783 | |||
Accrued expenses and other liabilities | 45,568 | |||
|
| |||
Total liabilities | 11,919,986 | |||
|
| |||
Total net assets | $ | 138,489,568 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 96,841,335 | ||
Accumulated net realized gains on investments | 20,055,638 | |||
Net unrealized gains on investments | 21,592,595 | |||
|
| |||
Total net assets | $ | 138,489,568 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 2 | $ | 138,489,568 | ||
Shares outstanding – Class 21 | 4,509,794 | |||
Net asset value per share – Class 2 | $30.71 |
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, 2014 | Wells Fargo Advantage VT Discovery Fund | 15 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $1,029) | $ | 615,671 | ||
Securities lending income, net | 45,869 | |||
Income from affiliated securities | 1,331 | |||
|
| |||
Total investment income | 662,871 | |||
|
| |||
Expenses | ||||
Advisory fee | 1,012,831 | |||
Administration fee | 188,097 | |||
Distribution fee | ||||
Class 2 | 361,725 | |||
Custody and accounting fees | 23,794 | |||
Professional fees | 37,135 | |||
Shareholder report expenses | 14,674 | |||
Trustees’ fees and expenses | 10,588 | |||
Other fees and expenses | 4,510 | |||
|
| |||
Total expenses | 1,653,354 | |||
Less: Fee waivers and/or expense reimbursements | (14 | ) | ||
|
| |||
Net expenses | 1,653,340 | |||
|
| |||
Net investment loss | (990,469 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 20,144,541 | |||
Net change in unrealized gains (losses) on investments | (19,385,645 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | 758,896 | |||
|
| |||
Net decrease in net assets resulting from operations | $ | (231,573 | ) | |
|
|
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, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (990,469 | ) | $ | (756,248 | ) | ||||||||||
Net realized gains on investments | 20,144,541 | 20,431,198 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (19,385,645 | ) | 28,686,095 | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from operations | (231,573 | ) | 48,361,045 | |||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | 0 | (9,591 | ) | |||||||||||||
Net realized gains – Class 2 | (18,974,676 | ) | (3,722,690 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (18,974,676 | ) | (3,732,281 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 363,614 | 11,794,023 | 727,800 | 22,421,892 | ||||||||||||
Reinvestment of distributions – Class 2 | 644,301 | 18,974,676 | 121,930 | 3,732,281 | ||||||||||||
Payment for shares redeemed – Class 2 | (999,205 | ) | (31,523,941 | ) | (779,470 | ) | (23,790,323 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions | (755,242 | ) | 2,363,850 | |||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | (19,961,491 | ) | 46,992,614 | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 158,451,059 | 111,458,445 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 138,489,568 | $ | 158,451,059 | ||||||||||||
|
| |||||||||||||||
Accumulated net investment loss | $ | 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 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $35.20 | $25.16 | $21.37 | $21.28 | $15.70 | |||||||||||||||
Net investment loss | (0.22 | ) | (0.17 | ) | (0.01 | ) | (0.18 | ) | (0.13 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | 0.16 | 11.06 | 3.80 | 0.27 | 5.71 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.06 | ) | 10.89 | 3.79 | 0.09 | 5.58 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | 0.00 | (0.00 | )2 | 0.00 | 0.00 | 0.00 | ||||||||||||||
Net realized gains | (4.43 | ) | (0.85 | ) | 0.00 | 0.00 | 0.00 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (4.43 | ) | (0.85 | ) | 0.00 | 0.00 | 0.00 | |||||||||||||
Net asset value, end of period | $30.71 | $35.20 | $25.16 | $21.37 | $21.28 | |||||||||||||||
Total return | 0.36 | % | 43.80 | % | 17.74 | % | 0.42 | % | 35.54 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.14 | % | 1.16 | % | 1.21 | % | 1.18 | % | 1.26 | % | ||||||||||
Net expenses | 1.14 | % | 1.15 | % | 1.15 | % | 1.15 | % | 1.15 | % | ||||||||||
Net investment loss | (0.68 | )% | (0.56 | )% | (0.03 | )% | (0.75 | )% | (0.71 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 79 | % | 88 | % | 98 | % | 113 | % | 101 | % | ||||||||||
Net assets, end of period (000s omitted) | $138,490 | $158,451 | $111,458 | $98,099 | $110,755 |
1. | After the close of business on July 16, 2010, existing shares of the Fund were renamed Class 2 shares. |
2. | Amount is less than $0.005 per share. |
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”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, 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 vehicles 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 in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the 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.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”).
Table of Contents
Notes to financial statements | Wells Fargo Advantage VT Discovery Fund | 19 |
The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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 require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At December 31, 2014, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Paid-in capital | Accumulated net investment loss | |
$(990,469) | $990,469 |
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
n | Level 1 – quoted prices in active markets for identical securities |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
Table of Contents
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.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in : | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 29,807,777 | $ | 0 | $ | 0 | $ | 29,807,777 | ||||||||
Consumer staples | 1,708,158 | 0 | 0 | 1,708,158 | ||||||||||||
Energy | 3,781,648 | 0 | 0 | 3,781,648 | ||||||||||||
Financials | 7,958,907 | 0 | 0 | 7,958,907 | ||||||||||||
Health care | 27,305,536 | 0 | 0 | 27,305,536 | ||||||||||||
Industrials | 29,826,838 | 0 | 0 | 29,826,838 | ||||||||||||
Information technology | 29,919,760 | 0 | 0 | 29,919,760 | ||||||||||||
Materials | 3,867,483 | 0 | 0 | 3,867,483 | ||||||||||||
Telecommunication services | 3,221,343 | 0 | 0 | 3,221,343 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 1,194,308 | 10,468,150 | 0 | 11,662,458 | ||||||||||||
Total assets | $ | 138,591,758 | $ | 10,468,150 | $ | 0 | $ | 149,059,908 |
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.35% as the average daily net assets of the Fund increase.
Administration fee
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 administration fee starting at 0.13% and declining to 0.11% as the average daily net assets of the Fund increase.
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, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.15% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Table of Contents
Notes to financial statements | Wells Fargo Advantage VT Discovery Fund | 21 |
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of 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, 2014 were $113,859,299 and $131,296,454, 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, 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, 2014, the Fund paid $226 in commitment fees.
For the year ended December 31, 2014, 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, 2014 and December 31, 2013 were as follows:
Year ended December 31 | ||||
2014 | 2013 | |||
Ordinary income | $ 6,355,354 | $ 9,591 | ||
Long-term capital gain | 12,619,322 | 3,722,690 |
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed long-term gain | Unrealized gains | |
$20,334,014 | $21,314,219 |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
Table of Contents
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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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Other information (unaudited) | Wells Fargo Advantage VT Discovery Fund | 23 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 8.75% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2014.
Pursuant to Section 852 of the Internal Revenue Code, $12,619,322 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2014.
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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24 | Wells Fargo Advantage VT Discovery Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management , LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230411 02-15 AVT1/AR147 12-14 |
Table of Contents
Wells Fargo Advantage
VT Index Asset Allocation Fund
Annual Report
December 31, 2014
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, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Index Asset Allocation Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
U.S. equity and fixed-income investments delivered positive returns amid strengthening economic trends, improving employment data, and continued low interest rates.
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, 2014. U.S. equity and fixed-income investments delivered positive returns amid strengthening economic trends, improving employment data, and continued low interest rates. International investments did not fare as well. Overseas investment markets struggled to perform well in U.S. dollar terms, in part, due to substantial strengthening of the dollar in comparison with other currencies.
U.S stocks and bonds gained on positive economic news and continued U.S. Federal Reserve (Fed) accommodation.
U.S. stocks, as measured by the S&P 500 Index1, recorded positive returns for the third consecutive year, gaining 13.7%. U.S. stocks overcame a sluggish start to 2014 that many attributed to a harsh winter. The Barclay’s U.S. Aggregate Bond Index2 returned almost 6.0% for the year. U.S. bonds benefited as money flowed to domestic credit markets in pursuit of higher yields.
Data indicated that the U.S. economic recovery was strengthening. Department of Labor reports showed that the unemployment rate declined from 6.7% in December 2013 to 5.6% by the end of 2014. In addition, gross domestic product (GDP) growth rates increased throughout the year. The Commerce Department reported that the economy grew at 5.0% on an annualized basis in the third quarter, compared with a 4.5% growth rate in the second quarter.
The Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate near zero. The FOMC, which began to reduce (or taper) its bond-buying program by $10 billion per month in January 2014, completed the tapering in October. Some anticipated this action would lead to broadly higher interest rates. While some shorter-term interest rates increased, the U.S. Treasury yield curve flattened because longer-term interest rates declined. After the FOMC’s December meeting, Fed Chair Janet Yellen said the Fed will be patient on the timing of interest-rate increases, which encouraged investors to expect that the continued low-interest-rate policy would benefit equities heading into 2015.
A stronger dollar, growing geopolitical tensions, and slowing growth restrained international markets.
The climate for international investing was less favorable. The return for the MSCI All Country World Index (ex USA)3 was -3.9%. The Barclays Global Aggregate ex-U.S. Dollar Bond Index4 was down 3.1%. Even investors in international markets who earned positive returns in local currency terms saw their returns for the year turn negative upon translation into U.S. dollars because the dollar strengthened substantially.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
2. | The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. You cannot invest directly in an index. |
3. | The MSCI All Country World Index (ex USA) includes large-, mid-, small-, and micro-cap segments for all developed markets countries in the index together with large-, mid-, and small-cap segments for the emerging markets countries. 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. |
4. | The Barclays Global Aggregate ex-U.S. Dollar Bond Index tracks an international basket of government, corporate, agency, and mortgage-related bonds. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 3 |
Geopolitical tensions also restrained investor sentiment in international markets. Internal strife in Syria, the pursuit of Islamic militants by the U.S. in Syria and Iraq, and the ongoing confrontation between Russia and Ukraine were among the most notable conflicts. As the year closed, elections in Greece and Japan reflected internal concerns in those countries over government economic policies.
Many investors were encouraged by indications from central banks in Japan, Europe, and China that they would initiate more accommodative monetary policies in response to economic slowdowns, similar to those employed by the Fed in the U.S. Nevertheless, the potential effects of declining energy prices on countries that depend on oil and gas revenues to support their government programs and national economies continue to engender uncertainty.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Many investors were encouraged by indications from central banks in Japan, Europe, and China that they would initiate more accommodative monetary policies in response to economic slowdowns, similar to those employed by the Fed in the U.S.
Notice to shareholders
At a meeting held on February 18-19, 2015, the Board of Trustees of the Fund approved the following changes to the Fund’s principal investment strategy:
n | Currently, under normal circumstances, the Fund invests at least 80% of its net assets in equity and fixed income securities designed to replicate the holdings and weightings of the securities comprising the S&P 500 Index and the Barclays 20+ Treasury Index. As of April 1, 2015, the underlying fixed income index that the fixed income sleeve seeks to replicate will change to the Barclays Treasury Index. |
n | In addition, the potential use of futures will be expanded to allow the Fund’s portfolio managers to make adjustments to the duration of the Fund’s fixed income sleeve. |
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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
Kandarp Acharya, CFA, FRM
Christian L. Chan, CFA
Average annual total returns (%) as of December 31, 2014
Expense ratios1 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
Class 2 | 4-15-1994 | 18.06 | 14.00 | 7.16 | 1.11 | 1.00 | ||||||||||||||||
Index Asset Allocation Composite Index3 | – | 19.20 | 14.27 | 8.36 | – | – | ||||||||||||||||
Barclays U.S. Treasury 20+ Year Index4 | – | 27.48 | 10.69 | 7.74 | – | – | ||||||||||||||||
S&P 500 Index5 | – | 13.69 | 15.45 | 7.67 | – | – |
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, which 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 fees 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. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. The use of derivatives may reduce returns and/or increase volatility. Consult the Fund’s prospectus for additional information on these and other risks.
Please refer to the prospectus provided by your participating insurance company for detailed information describing the separate accounts for information regarding surrender charges, mortality and expense risk fees, and other charges that may be assessed by the participating insurance companies.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 5 |
Growth of $10,000 investment6 as of December 31, 2014 |
1. | Reflects the expense ratios as stated in the most recent prospectus. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
2. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
3. | Source: Wells Fargo Funds Management, LLC. The Index Asset Allocation Composite Index is weighted 40% in the Barclays U.S. Treasury 20+ Year Index and 60% in the S&P 500 Index. You cannot invest directly in an index. |
4. | 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. |
5. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
6. | The chart compares the performance of Class 2 shares for the most recent ten years with the Index Asset Allocation Composite Index, the Barclays U.S. Treasury 20+ Year Index, and the S&P 500 Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
7. | The 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. | 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 our 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 underperformed the Index Asset Allocation Composite Index and the Barclays U.S. Treasury 20+ Year Index but outperformed the S&P 500 Index for the 12-month period that ended December 31, 2014. |
n | For the 12-month period, the S&P 500 Index rose by 13.7% while the Barclays U.S. Treasury 20+ Year Index gained 27.5%. |
n | The Fund’s tactical asset allocation shifts between stocks and bonds contributed positively to the performance of the Fund during the period as the portfolio management team dynamically adjusted the Fund’s exposure to stocks and bonds in response to varying market conditions. Meanwhile, a higher allocation to cash toward the end of the year detracted slightly from performance. |
Despite several turbulent periods, markets trended higher in 2014.
Equity markets rose sharply during the 12-month period, as strengthening economic conditions in the U.S. offset worries about weaker growth and deflationary pressures overseas. Better-than-expected employment data, coupled with exceptionally strong third-quarter gross domestic product growth, boosted sentiment among investors. As of year-end, the unemployment rate hovered near levels not seen since before the 2007–2008 financial crisis, while consumer confidence reached seven-year highs. Weaker economic growth overseas, however, led to several bouts of heightened volatility as fears of a global slowdown mounted. While stronger growth allowed the U.S. Federal Reserve to end its monthly bond-buying program, foreign central banks were forced to maintain accommodative policies in order to stimulate their respective economies. The divergent growth trajectories between the U.S. and its major trading partners led to a sharp rise in the value of the U.S. dollar, which reached multiyear highs compared with other developed markets currencies in 2014. Another factor that led to periods of volatility during the year was the price of oil, which tumbled by almost 50% in the second half of the year. Subdued growth in Europe and Japan, along with plunging oil prices, drove yields on government bonds globally to near-historic lows. Consequently, bond prices rallied sharply during the period.
Ten largest holdings7 (%) as of December 31, 2014 | ||||
U.S. Treasury Bond, 4.38%, 5-15-2040 | 2.79 | |||
U.S. Treasury Bond, 3.75%, 8-15-2041 | 2.77 | |||
U.S. Treasury Bond, 4.25%, 11-15-2040 | 2.71 | |||
U.S. Treasury Bond, 4.63%, 2-15-2040 | 2.63 | |||
U.S. Treasury Bond, 4.38%, 11-15-2039 | 2.47 | |||
U.S. Treasury Bond, 3.88%, 8-15-2040 | 2.28 | |||
U.S. Treasury Bond, 4.38%, 5-15-2041 | 2.28 | |||
U.S. Treasury Bond, 4.75%, 2-15-2041 | 2.11 | |||
Apple Incorporated | 2.09 | |||
U.S. Treasury Bond, 3.13%, 11-15-2041 | 2.03 |
The tactical shifts between stocks and bonds contributed positively to performance for the 12-month period that ended December 31, 2014.
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. The Fund’s neutral target allocation is 60% stocks and 40% bonds. As of year-end, the Fund had an effective target allocation of 67% stocks, 26% bonds, and 7% cash. Because of price fluctuations, the Fund’s actual allocation on a particular day may have differed slightly from the target allocation.
The Fund underperformed the Index Asset Allocation Composite Index due to a higher relative allocation to cash
during the fourth quarter. The Fund increased its cash allocation in order to manage potential risks associated with a possible increase in interest rates. Rates did not increase during the quarter. The higher cash allocation caused a drag on the Fund’s performance during the period, as U.S. Treasury bonds with longer maturities rallied. During the period, the Fund employed 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 allocation changes are implemented as an overlay with liquid futures contracts. While the S&P 500 Index futures contracts underperformed the U.S. Treasury bond futures contracts for the year, the adjustments in weightings made by the portfolio management team during the year managed to turn a potential negative into a positive: The net impact of the tactical futures overlay was positive.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 7 |
Neutral target allocation8 as of December 31, 2014 |
Current target allocation8 as of December 31, 2014 |
Equity sector distribution9 as of December 31, 2014 |
The TAA Model continued to favor stocks relative to bonds at the close of the period.
The TAA Model is a relative-value model, measuring the expected returns on stocks versus the expected returns on bonds. Given historically low yields on U.S. Treasury securities, the model continued to favor stocks at the close of the period. In addition, the portfolio management team may also consider other factors, such as monetary policy, growth prospects, valuations, and market sentiment.
Please see footnotes on page 5.
Table of Contents
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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,083.34 | $ | 5.20 | 0.99 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.21 | $ | 5.04 | 0.99 | % |
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, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 58.99% | ||||||||||||
Consumer Discretionary: 7.15% | ||||||||||||
Auto Components: 0.24% | ||||||||||||
BorgWarner Incorporated | 677 | $ | 37,201 | |||||||||
Delphi Automotive plc | 882 | 64,139 | ||||||||||
Johnson Controls Incorporated | 1,985 | 95,955 | ||||||||||
The Goodyear Tire & Rubber Company | 818 | 23,370 | ||||||||||
220,665 | ||||||||||||
|
| |||||||||||
Automobiles: 0.39% | ||||||||||||
Ford Motor Company | 11,471 | 177,801 | ||||||||||
General Motors Company | 4,022 | 140,408 | ||||||||||
Harley-Davidson Incorporated | 638 | 42,051 | ||||||||||
360,260 | ||||||||||||
|
| |||||||||||
Distributors: 0.05% | ||||||||||||
Genuine Parts Company | 455 | 48,489 | ||||||||||
|
| |||||||||||
Diversified Consumer Services: 0.03% | ||||||||||||
H&R Block Incorporated | 820 | 27,618 | ||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure: 0.97% | ||||||||||||
Carnival Corporation | 1,342 | 60,833 | ||||||||||
Chipotle Mexican Grill Incorporated † | 92 | 62,975 | ||||||||||
Darden Restaurants Incorporated | 395 | 23,159 | ||||||||||
Marriott International Incorporated Class A | 633 | 49,393 | ||||||||||
McDonald’s Corporation | 2,900 | 271,730 | ||||||||||
Royal Caribbean Cruises Limited | 497 | 40,968 | ||||||||||
Starbucks Corporation | 2,230 | 182,972 | ||||||||||
Starwood Hotels & Resorts Worldwide Incorporated | 531 | 43,048 | ||||||||||
Wyndham Worldwide Corporation | 367 | 31,474 | ||||||||||
Wynn Resorts Limited | 242 | 36,000 | ||||||||||
Yum! Brands Incorporated | 1,304 | 94,996 | ||||||||||
897,548 | ||||||||||||
|
| |||||||||||
Household Durables: 0.25% | ||||||||||||
D.R. Horton Incorporated | 988 | 24,987 | ||||||||||
Garmin Limited | 359 | 18,966 | ||||||||||
Harman International Industries Incorporated | 204 | 21,769 | ||||||||||
Leggett & Platt Incorporated | 410 | 17,470 | ||||||||||
Lennar Corporation | 531 | 23,794 | ||||||||||
Mohawk Industries Incorporated † | 184 | 28,586 | ||||||||||
Newell Rubbermaid Incorporated | 808 | 30,777 | ||||||||||
Pulte Homes Incorporated | 994 | 21,331 | ||||||||||
Whirlpool Corporation | 232 | 44,948 | ||||||||||
232,628 | ||||||||||||
|
| |||||||||||
Internet & Catalog Retail: 0.69% | ||||||||||||
Amazon.com Incorporated † | 1,131 | 351,006 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2014 |
Security name | Shares | Value | ||||||||||
Internet & Catalog Retail (continued) | ||||||||||||
Expedia Incorporated | 294 | $ | 25,096 | |||||||||
Netflix Incorporated † | 179 | 61,148 | ||||||||||
The Priceline Group Incorporated † | 155 | 176,733 | ||||||||||
TripAdvisor Incorporated † | 332 | 24,787 | ||||||||||
638,770 | ||||||||||||
|
| |||||||||||
Leisure Products: 0.05% | ||||||||||||
Hasbro Incorporated | 337 | 18,532 | ||||||||||
Mattel Incorporated | 1,009 | 31,224 | ||||||||||
49,756 | ||||||||||||
|
| |||||||||||
Media: 2.10% | ||||||||||||
Cablevision Systems Corporation New York Group Class A | 652 | 13,457 | ||||||||||
CBS Corporation Class B | 1,421 | 78,638 | ||||||||||
Comcast Corporation Class A | 7,678 | 445,401 | ||||||||||
DIRECTV Group Incorporated † | 1,496 | 129,703 | ||||||||||
Discovery Communications Incorporated Class A | 442 | 15,227 | ||||||||||
Discovery Communications Incorporated Class C † | 814 | 27,448 | ||||||||||
Gannett Company Incorporated | 672 | 21,457 | ||||||||||
Interpublic Group of Companies Incorporated | 1,247 | 25,900 | ||||||||||
News Corporation Class A † | 1,486 | 23,315 | ||||||||||
Omnicom Group Incorporated | 739 | 57,250 | ||||||||||
Scripps Networks Interactive Incorporated | 302 | 22,732 | ||||||||||
The Walt Disney Company | 4,649 | 437,889 | ||||||||||
Time Warner Cable Incorporated | 836 | 127,122 | ||||||||||
Time Warner Incorporated | 2,499 | 213,465 | ||||||||||
Twenty-First Century Fox Incorporated | 5,526 | 212,226 | ||||||||||
Viacom Incorporated Class B | 1,100 | 82,775 | ||||||||||
1,934,005 | ||||||||||||
|
| |||||||||||
Multiline Retail: 0.45% | ||||||||||||
Dollar General Corporation † | 904 | 63,913 | ||||||||||
Dollar Tree Incorporated † | 612 | 43,073 | ||||||||||
Family Dollar Stores Incorporated | 286 | 22,654 | ||||||||||
Kohl’s Corporation | 601 | 36,685 | ||||||||||
Macy’s Incorporated | 1,029 | 67,657 | ||||||||||
Nordstrom Incorporated | 419 | 33,264 | ||||||||||
Target Corporation | 1,898 | 144,077 | ||||||||||
411,323 | ||||||||||||
|
| |||||||||||
Specialty Retail: 1.42% | ||||||||||||
AutoNation Incorporated † | 222 | 13,411 | ||||||||||
AutoZone Incorporated † | 95 | 58,815 | ||||||||||
Bed Bath & Beyond Incorporated † | 552 | 42,046 | ||||||||||
Best Buy Company Incorporated | 867 | 33,796 | ||||||||||
CarMax Incorporated † | 641 | 42,678 | ||||||||||
GameStop Corporation Class A « | 323 | 10,917 | ||||||||||
Gap Incorporated | 795 | 33,477 | ||||||||||
L Brands Incorporated | 733 | 63,441 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 11 |
Security name | Shares | Value | ||||||||||
Specialty Retail (continued) | ||||||||||||
Lowe’s Companies Incorporated | 2,899 | $ | 199,451 | |||||||||
O’Reilly Automotive Incorporated † | 302 | 58,171 | ||||||||||
PetSmart Incorporated | 296 | 24,063 | ||||||||||
Ross Stores Incorporated | 624 | 58,818 | ||||||||||
Staples Incorporated | 1,906 | 34,537 | ||||||||||
The Home Depot Incorporated | 3,928 | 412,322 | ||||||||||
Tiffany & Company | 335 | 35,798 | ||||||||||
TJX Companies Incorporated | 2,052 | 140,726 | ||||||||||
Tractor Supply Company | 405 | 31,922 | ||||||||||
Urban Outfitters Incorporated † | 298 | 10,469 | ||||||||||
1,304,858 | ||||||||||||
|
| |||||||||||
Textiles, Apparel & Luxury Goods: 0.51% | ||||||||||||
Coach Incorporated | 821 | 30,837 | ||||||||||
Fossil Group Incorporated † | 133 | 14,728 | ||||||||||
Michael Kors Holdings Limited † | 613 | 46,036 | ||||||||||
Nike Incorporated Class B | 2,080 | 199,992 | ||||||||||
PVH Corporation | 245 | 31,402 | ||||||||||
Ralph Lauren Corporation | 180 | 33,329 | ||||||||||
Under Armour Incorporated Class A † | 496 | 33,678 | ||||||||||
VF Corporation | 1,029 | 77,072 | ||||||||||
467,074 | ||||||||||||
|
| |||||||||||
Consumer Staples: 5.78% | ||||||||||||
Beverages: 1.26% | ||||||||||||
Brown-Forman Corporation Class B | 466 | 40,933 | ||||||||||
Coca-Cola Enterprises Incorporated | 662 | 29,274 | ||||||||||
Constellation Brands Incorporated Class A † | 500 | 49,085 | ||||||||||
Dr Pepper Snapple Group Incorporated | 578 | 41,431 | ||||||||||
Molson Coors Brewing Company | 474 | 35,322 | ||||||||||
Monster Beverage Corporation † | 429 | 46,482 | ||||||||||
PepsiCo Incorporated | 4,460 | 421,738 | ||||||||||
The Coca-Cola Company | 11,749 | 496,043 | ||||||||||
1,160,308 | ||||||||||||
|
| |||||||||||
Food & Staples Retailing: 1.47% | ||||||||||||
Costco Wholesale Corporation | 1,305 | 184,984 | ||||||||||
CVS Health Corporation | 3,417 | 329,091 | ||||||||||
Safeway Incorporated | 687 | 24,127 | ||||||||||
Sysco Corporation | 1,752 | 69,537 | ||||||||||
The Kroger Company | 1,463 | 93,939 | ||||||||||
Wal-Mart Stores Incorporated | 4,707 | 404,237 | ||||||||||
Walgreens Boots Alliance Incorporated | 2,592 | 197,510 | ||||||||||
Whole Foods Market Incorporated | 1,071 | 54,000 | ||||||||||
1,357,425 | ||||||||||||
|
| |||||||||||
Food Products: 0.95% | ||||||||||||
Archer Daniels Midland Company | 1,918 | 99,736 |
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, 2014 |
Security name | Shares | Value | ||||||||||
Food Products (continued) | ||||||||||||
Campbell Soup Company | 534 | $ | 23,496 | |||||||||
ConAgra Foods Incorporated | 1,266 | 45,930 | ||||||||||
General Mills Incorporated | 1,799 | 95,941 | ||||||||||
Hormel Foods Corporation | 400 | 20,840 | ||||||||||
JM Smucker Company | 303 | 30,597 | ||||||||||
Kellogg Company | 751 | 49,145 | ||||||||||
Keurig Green Mountain Incorporated | 362 | 47,927 | ||||||||||
Kraft Foods Group Incorporated | 1,755 | 109,968 | ||||||||||
McCormick & Company Incorporated | 385 | 28,606 | ||||||||||
Mead Johnson Nutrition Company | 601 | 60,425 | ||||||||||
Mondelez International Incorporated Class A | 5,007 | 181,879 | ||||||||||
The Hershey Company | 440 | 45,729 | ||||||||||
Tyson Foods Incorporated Class A | 873 | 34,999 | ||||||||||
875,218 | ||||||||||||
|
| |||||||||||
Household Products: 1.17% | ||||||||||||
Clorox Company | 386 | 40,225 | ||||||||||
Colgate-Palmolive Company | 2,553 | 176,642 | ||||||||||
Kimberly-Clark Corporation | 1,109 | 128,134 | ||||||||||
The Procter & Gamble Company | 8,053 | 733,548 | ||||||||||
1,078,549 | ||||||||||||
|
| |||||||||||
Personal Products: 0.07% | ||||||||||||
Avon Products Incorporated | 1,295 | 12,160 | ||||||||||
Estee Lauder Companies Incorporated Class A | 667 | 50,825 | ||||||||||
62,985 | ||||||||||||
|
| |||||||||||
Tobacco: 0.86% | ||||||||||||
Altria Group Incorporated | 5,891 | 290,250 | ||||||||||
Lorillard Incorporated | 1,072 | 67,472 | ||||||||||
Philip Morris International | 4,630 | 377,114 | ||||||||||
Reynolds American Incorporated | 918 | 59,000 | ||||||||||
793,836 | ||||||||||||
|
| |||||||||||
Energy: 4.98% | ||||||||||||
Energy Equipment & Services: 0.80% | ||||||||||||
Baker Hughes Incorporated | 1,288 | 72,218 | ||||||||||
Cameron International Corporation † | 588 | 29,371 | ||||||||||
Diamond Offshore Drilling Incorporated « | 200 | 7,342 | ||||||||||
Ensco plc Class A | 698 | 20,905 | ||||||||||
FMC Technologies Incorporated † | 697 | 32,647 | ||||||||||
Halliburton Company | 2,526 | 99,348 | ||||||||||
Helmerich & Payne Incorporated | 323 | 21,777 | ||||||||||
Nabors Industries Limited | 862 | 11,189 | ||||||||||
National Oilwell Varco Incorporated | 1,283 | 84,075 | ||||||||||
Noble Corporation plc | 751 | 12,444 | ||||||||||
Schlumberger Limited | 3,835 | 327,547 | ||||||||||
Transocean Limited « | 1,014 | 18,587 | ||||||||||
737,450 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 13 |
Security name | Shares | Value | ||||||||||
Oil, Gas & Consumable Fuels: 4.18% | ||||||||||||
Anadarko Petroleum Corporation | 1,508 | $ | 124,410 | |||||||||
Apache Corporation | 1,121 | 70,253 | ||||||||||
Cabot Oil & Gas Corporation | 1,231 | 36,450 | ||||||||||
Chesapeake Energy Corporation | 1,545 | 30,236 | ||||||||||
Chevron Corporation | 5,634 | 632,022 | ||||||||||
Cimarex Energy Company | 260 | 27,560 | ||||||||||
ConocoPhillips Company | 3,668 | 253,312 | ||||||||||
CONSOL Energy Incorporated | 686 | 23,194 | ||||||||||
Denbury Resources Incorporated | 1,050 | 8,537 | ||||||||||
Devon Energy Corporation | 1,146 | 70,147 | ||||||||||
EOG Resources Incorporated | 1,633 | 150,350 | ||||||||||
EQT Corporation | 451 | 34,141 | ||||||||||
Exxon Mobil Corporation | 12,620 | 1,166,719 | ||||||||||
Hess Corporation | 757 | 55,882 | ||||||||||
Kinder Morgan Incorporated | 5,064 | 214,258 | ||||||||||
Marathon Oil Corporation | 2,011 | 56,891 | ||||||||||
Marathon Petroleum Corporation | 835 | 75,367 | ||||||||||
Murphy Oil Corporation | 497 | 25,108 | ||||||||||
Newfield Exploration Company † | 409 | 11,092 | ||||||||||
Noble Energy Incorporated | 1,073 | 50,892 | ||||||||||
Occidental Petroleum Corporation | 2,311 | 186,290 | ||||||||||
ONEOK Incorporated | 620 | 30,870 | ||||||||||
Phillips 66 | 1,650 | 118,305 | ||||||||||
Pioneer Natural Resources Company | 443 | 65,941 | ||||||||||
QEP Resources Incorporated | 494 | 9,989 | ||||||||||
Range Resources Corporation | 502 | 26,832 | ||||||||||
Southwestern Energy Company † | 1,052 | 28,709 | ||||||||||
Spectra Energy Corporation | 1,999 | 72,564 | ||||||||||
Tesoro Corporation | 376 | 27,956 | ||||||||||
The Williams Companies Incorporated | 2,004 | 90,060 | ||||||||||
Valero Energy Corporation | 1,553 | 76,874 | ||||||||||
3,851,211 | ||||||||||||
|
| |||||||||||
Financials: 9.82% | ||||||||||||
Banks: 3.58% | ||||||||||||
Bank of America Corporation | 31,345 | 560,762 | ||||||||||
Branch Banking & Trust Corporation | 2,146 | 83,458 | ||||||||||
Citigroup Incorporated | 9,029 | 488,559 | ||||||||||
Comerica Incorporated | 535 | 25,059 | ||||||||||
Fifth Third Bancorp | 2,455 | 50,021 | ||||||||||
Huntington Bancshares Incorporated | 2,427 | 25,532 | ||||||||||
JPMorgan Chase & Company | 11,141 | 697,204 | ||||||||||
KeyCorp | 2,582 | 35,890 | ||||||||||
M&T Bank Corporation | 393 | 49,369 | ||||||||||
PNC Financial Services Group Incorporated | 1,568 | 143,049 | ||||||||||
Regions Financial Corporation | 4,102 | 43,317 | ||||||||||
SunTrust Banks Incorporated | 1,553 | 65,071 | ||||||||||
US Bancorp | 5,332 | 239,673 | ||||||||||
Wells Fargo & Company (l) | 14,070 | 771,317 | ||||||||||
Zions Bancorporation | 604 | 17,220 | ||||||||||
3,295,501 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Capital Markets: 1.36% | ||||||||||||
Affiliated Managers Group Incorporated † | 165 | $ | 35,020 | |||||||||
Ameriprise Financial Incorporated | 549 | 72,605 | ||||||||||
Bank of New York Mellon Corporation | 3,354 | 136,072 | ||||||||||
BlackRock Incorporated | 380 | 135,873 | ||||||||||
Charles Schwab Corporation | 3,425 | 103,401 | ||||||||||
E*TRADE Financial Corporation † | 860 | 20,859 | ||||||||||
Franklin Resources Incorporated | 1,169 | 64,728 | ||||||||||
Goldman Sachs Group Incorporated | 1,207 | 233,953 | ||||||||||
Invesco Limited | 1,284 | 50,744 | ||||||||||
Legg Mason Incorporated | 299 | 15,958 | ||||||||||
Morgan Stanley | 4,550 | 176,540 | ||||||||||
Northern Trust Corporation | 659 | 44,417 | ||||||||||
State Street Corporation | 1,244 | 97,654 | ||||||||||
T. Rowe Price Group Incorporated | 773 | 66,370 | ||||||||||
1,254,194 | ||||||||||||
|
| |||||||||||
Consumer Finance: 0.54% | ||||||||||||
American Express Company | 2,652 | 246,742 | ||||||||||
Capital One Financial Corporation | 1,657 | 136,785 | ||||||||||
Discover Financial Services | 1,351 | 88,477 | ||||||||||
Navient Corporation | 1,222 | 26,407 | ||||||||||
498,411 | ||||||||||||
|
| |||||||||||
Diversified Financial Services: 1.23% | ||||||||||||
Berkshire Hathaway Incorporated Class B † | 5,435 | 816,065 | ||||||||||
CME Group Incorporated | 943 | 83,597 | ||||||||||
IntercontinentalExchange Group Incorporated | 336 | 73,681 | ||||||||||
Leucadia National Corporation | 944 | 21,164 | ||||||||||
McGraw Hill Financial Incorporated | 809 | 71,985 | ||||||||||
Moody’s Corporation | 547 | 52,408 | ||||||||||
The NASDAQ OMX Group Incorporated | 349 | 16,738 | ||||||||||
1,135,638 | ||||||||||||
|
| |||||||||||
Insurance: 1.65% | ||||||||||||
ACE Limited | 988 | 113,501 | ||||||||||
AFLAC Incorporated | 1,341 | 81,922 | ||||||||||
Allstate Corporation | 1,250 | 87,813 | ||||||||||
American International Group Incorporated | 4,172 | 233,674 | ||||||||||
Aon plc | 850 | 80,606 | ||||||||||
Assurant Incorporated | 209 | 14,302 | ||||||||||
Chubb Corporation | 703 | 72,739 | ||||||||||
Cincinnati Financial Corporation | 438 | 22,702 | ||||||||||
Genworth Financial Incorporated † | 1,479 | 12,572 | ||||||||||
Lincoln National Corporation | 774 | 44,637 | ||||||||||
Loews Corporation | 892 | 37,482 | ||||||||||
Marsh & McLennan Companies Incorporated | 1,611 | 92,214 | ||||||||||
MetLife Incorporated | 3,385 | 183,095 | ||||||||||
Principal Financial Group Incorporated | 814 | 42,279 | ||||||||||
Prudential Financial Incorporated | 1,364 | 123,387 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 15 |
Security name | Shares | Value | ||||||||||
Insurance (continued) | ||||||||||||
The Hartford Financial Services Group Incorporated | 1,285 | $ | 53,572 | |||||||||
The Progressive Corporation | 1,594 | 43,022 | ||||||||||
The Travelers Companies Incorporated | 987 | 104,474 | ||||||||||
Torchmark Corporation | 383 | 20,747 | ||||||||||
UnumProvident Corporation | 751 | 26,195 | ||||||||||
XL Group plc | 769 | 26,431 | ||||||||||
1,517,366 | ||||||||||||
|
| |||||||||||
Real Estate Management & Development: 0.03% | ||||||||||||
CBRE Group Incorporated † | 833 | 28,530 | ||||||||||
|
| |||||||||||
REITs: 1.40% | ||||||||||||
American Tower Corporation | 1,181 | 116,742 | ||||||||||
Apartment Investment & Management Company Class A | 435 | 16,160 | ||||||||||
AvalonBay Communities Incorporated | 393 | 64,212 | ||||||||||
Boston Properties Incorporated | 456 | 58,683 | ||||||||||
Crown Castle International Corporation | 994 | 78,228 | ||||||||||
Equity Residential | 1,079 | 77,515 | ||||||||||
Essex Property Trust Incorporated | 191 | 39,461 | ||||||||||
General Growth Properties Incorporated | 1,870 | 52,603 | ||||||||||
HCP Incorporated | 1,368 | 60,233 | ||||||||||
Health Care REIT Incorporated | 976 | 73,854 | ||||||||||
Host Hotels & Resorts Incorporated | 2,257 | 53,649 | ||||||||||
Iron Mountain Incorporated | 555 | 21,456 | ||||||||||
Kimco Realty Corporation | 1,226 | 30,822 | ||||||||||
Plum Creek Timber Company | 524 | 22,422 | ||||||||||
Prologis Incorporated | 1,489 | 64,072 | ||||||||||
Public Storage Incorporated | 432 | 79,855 | ||||||||||
Simon Property Group Incorporated | 926 | 168,634 | ||||||||||
The Macerich Company | 419 | 34,949 | ||||||||||
Ventas Incorporated | 877 | 62,881 | ||||||||||
Vornado Realty Trust | 520 | 61,209 | ||||||||||
Weyerhaeuser Company | 1,562 | 56,060 | ||||||||||
1,293,700 | ||||||||||||
|
| |||||||||||
Thrifts & Mortgage Finance: 0.03% | ||||||||||||
Hudson City Bancorp Incorporated | 1,433 | 14,502 | ||||||||||
People’s United Financial Incorporated | 917 | 13,920 | ||||||||||
28,422 | ||||||||||||
|
| |||||||||||
Health Care: 8.39% | ||||||||||||
Biotechnology: 1.71% | ||||||||||||
Alexion Pharmaceuticals Incorporated † | 590 | 109,168 | ||||||||||
Amgen Incorporated | 2,267 | 361,110 | ||||||||||
Biogen Idec Incorporated † | 704 | 238,973 | ||||||||||
Celgene Corporation † | 2,380 | 266,227 | ||||||||||
Gilead Sciences Incorporated † | 4,496 | 423,793 | ||||||||||
Regeneron Pharmaceuticals Incorporated † | 221 | 90,665 | ||||||||||
Vertex Pharmaceuticals Incorporated † | 717 | 85,180 | ||||||||||
1,575,116 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Health Care Equipment & Supplies: 1.32% | ||||||||||||
Abbott Laboratories | 4,488 | $ | 202,050 | |||||||||
Baxter International Incorporated | 1,615 | 118,363 | ||||||||||
Becton Dickinson & Company | 571 | 79,460 | ||||||||||
Boston Scientific Corporation † | 3,953 | 52,377 | ||||||||||
C.R. Bard Incorporated | 223 | 37,156 | ||||||||||
CareFusion Corporation † | 607 | 36,019 | ||||||||||
Covidien plc | 1,349 | 137,976 | ||||||||||
DENTSPLY International Incorporated | 421 | 22,427 | ||||||||||
Edwards Lifesciences Corporation † | 319 | 40,634 | ||||||||||
Intuitive Surgical Incorporated † | 107 | 56,597 | ||||||||||
Medtronic Incorporated | 2,933 | 211,763 | ||||||||||
St. Jude Medical Incorporated | 852 | 55,406 | ||||||||||
Stryker Corporation | 891 | 84,048 | ||||||||||
Varian Medical Systems Incorporated † | 298 | 25,780 | ||||||||||
Zimmer Holdings Incorporated | 504 | 57,164 | ||||||||||
1,217,220 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 1.35% | ||||||||||||
Aetna Incorporated | 1,047 | 93,005 | ||||||||||
AmerisourceBergen Corporation | 618 | 55,719 | ||||||||||
Anthem Incorporated | 804 | 101,039 | ||||||||||
Cardinal Health Incorporated | 986 | 79,600 | ||||||||||
Cigna Corporation | 779 | 80,167 | ||||||||||
DaVita HealthCare Partners Incorporated † | 512 | 38,779 | ||||||||||
Express Scripts Holding Company † | 2,187 | 185,173 | ||||||||||
Humana Incorporated | 456 | 65,495 | ||||||||||
Laboratory Corporation of America Holdings † | 252 | 27,191 | ||||||||||
McKesson Corporation | 691 | 143,438 | ||||||||||
Patterson Companies Incorporated | 255 | 12,266 | ||||||||||
Quest Diagnostics Incorporated | 431 | 28,903 | ||||||||||
Tenet Healthcare Corporation † | 293 | 14,846 | ||||||||||
UnitedHealth Group Incorporated | 2,860 | 289,117 | ||||||||||
Universal Health Services Incorporated Class B | 271 | 30,151 | ||||||||||
1,244,889 | ||||||||||||
|
| |||||||||||
Health Care Technology: 0.07% | ||||||||||||
Cerner Corporation † | 905 | 58,517 | ||||||||||
|
| |||||||||||
Life Sciences Tools & Services: 0.25% | ||||||||||||
Agilent Technologies Incorporated | 994 | 40,694 | ||||||||||
PerkinElmer Incorporated | 336 | 14,693 | ||||||||||
Thermo Fisher Scientific Incorporated | 1,192 | 149,346 | ||||||||||
Waters Corporation † | 248 | 27,955 | ||||||||||
232,688 | ||||||||||||
|
| |||||||||||
Pharmaceuticals: 3.69% | ||||||||||||
AbbVie Incorporated | 4,748 | 310,709 | ||||||||||
Actavis plc † | 790 | 203,354 | ||||||||||
Allergan Incorporated | 887 | 188,567 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 17 |
Security name | Shares | Value | ||||||||||
Pharmaceuticals (continued) | ||||||||||||
Bristol-Myers Squibb Company | 4,944 | $ | 291,844 | |||||||||
Eli Lilly & Company | 2,919 | 201,382 | ||||||||||
Hospira Incorporated † | 504 | 30,870 | ||||||||||
Johnson & Johnson | 8,342 | 872,323 | ||||||||||
Mallinckrodt plc † | 346 | 34,264 | ||||||||||
Merck & Company Incorporated | 8,497 | 482,545 | ||||||||||
Mylan Laboratories Incorporated † | 1,115 | 62,853 | ||||||||||
Perrigo Company plc | 419 | 70,040 | ||||||||||
Pfizer Incorporated | 18,779 | 584,966 | ||||||||||
Zoetis Incorporated | 1,494 | 64,287 | ||||||||||
3,398,004 | ||||||||||||
|
| |||||||||||
Industrials: 6.14% | ||||||||||||
Aerospace & Defense: 1.58% | ||||||||||||
General Dynamics Corporation | 938 | 129,088 | ||||||||||
Honeywell International Incorporated | 2,333 | 233,113 | ||||||||||
L-3 Communications Holdings Incorporated | 254 | 32,057 | ||||||||||
Lockheed Martin Corporation | 800 | 154,056 | ||||||||||
Northrop Grumman Corporation | 601 | 88,581 | ||||||||||
Precision Castparts Corporation | 425 | 102,374 | ||||||||||
Raytheon Company | 919 | 99,408 | ||||||||||
Rockwell Collins Incorporated | 396 | 33,454 | ||||||||||
Textron Incorporated | 823 | 34,657 | ||||||||||
The Boeing Company | 1,975 | 256,711 | ||||||||||
United Technologies Corporation | 2,527 | 290,605 | ||||||||||
1,454,104 | ||||||||||||
|
| |||||||||||
Air Freight & Logistics: 0.46% | ||||||||||||
C.H. Robinson Worldwide Incorporated | 435 | 32,577 | ||||||||||
Expeditors International of Washington Incorporated | 575 | 25,651 | ||||||||||
FedEx Corporation | 785 | 136,323 | ||||||||||
United Parcel Service Incorporated Class B | 2,077 | 230,900 | ||||||||||
425,451 | ||||||||||||
|
| |||||||||||
Airlines: 0.23% | ||||||||||||
Delta Air Lines Incorporated | 2,495 | 122,729 | ||||||||||
Southwest Airlines Company | 2,022 | 85,571 | ||||||||||
208,300 | ||||||||||||
|
| |||||||||||
Building Products: 0.05% | ||||||||||||
Allegion plc | 285 | 15,806 | ||||||||||
Masco Corporation | 1,061 | 26,737 | ||||||||||
42,543 | ||||||||||||
|
| |||||||||||
Commercial Services & Supplies: 0.26% | ||||||||||||
Cintas Corporation | 289 | 22,669 | ||||||||||
Pitney Bowes Incorporated | 598 | 14,573 | ||||||||||
Republic Services Incorporated | 752 | 30,268 | ||||||||||
Stericycle Incorporated † | 253 | 33,163 | ||||||||||
The ADT Corporation | 519 | 18,803 |
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, 2014 |
Security name | Shares | Value | ||||||||||
Commercial Services & Supplies (continued) | ||||||||||||
Tyco International plc | 1,247 | $ | 54,693 | |||||||||
Waste Management Incorporated | 1,269 | 65,125 | ||||||||||
239,294 | ||||||||||||
|
| |||||||||||
Construction & Engineering: 0.07% | ||||||||||||
Fluor Corporation | 465 | 28,193 | ||||||||||
Jacobs Engineering Group Incorporated † | 389 | 17,384 | ||||||||||
Quanta Services Incorporated † | 648 | 18,397 | ||||||||||
63,974 | ||||||||||||
|
| |||||||||||
Electrical Equipment: 0.33% | ||||||||||||
AMETEK Incorporated | 733 | 38,578 | ||||||||||
Eaton Corporation plc | 1,414 | 96,095 | ||||||||||
Emerson Electric Company | 2,067 | 127,596 | ||||||||||
Rockwell Automation Incorporated | 404 | 44,925 | ||||||||||
307,194 | ||||||||||||
|
| |||||||||||
Industrial Conglomerates: 1.38% | ||||||||||||
3M Company | 1,909 | 313,687 | ||||||||||
Danaher Corporation | 1,822 | 156,164 | ||||||||||
General Electric Company | 29,932 | 756,382 | ||||||||||
Roper Industries Incorporated | 299 | 46,749 | ||||||||||
1,272,982 | ||||||||||||
|
| |||||||||||
Machinery: 0.91% | ||||||||||||
Caterpillar Incorporated | 1,804 | 165,120 | ||||||||||
Cummins Incorporated | 506 | 72,950 | ||||||||||
Deere & Company | 1,068 | 94,486 | ||||||||||
Dover Corporation | 492 | 35,286 | ||||||||||
Flowserve Corporation | 406 | 24,291 | ||||||||||
Illinois Tool Works Incorporated | 1,071 | 101,424 | ||||||||||
Ingersoll-Rand plc | 791 | 50,141 | ||||||||||
Joy Global Incorporated | 292 | 13,584 | ||||||||||
Paccar Incorporated | 1,054 | 71,683 | ||||||||||
Pall Corporation | 317 | 32,084 | ||||||||||
Parker Hannifin Corporation | 443 | 57,125 | ||||||||||
Pentair plc | 556 | 36,930 | ||||||||||
Snap-on Incorporated | 172 | 23,519 | ||||||||||
Stanley Black & Decker Incorporated | 466 | 44,773 | ||||||||||
Xylem Incorporated | 541 | 20,596 | ||||||||||
843,992 | ||||||||||||
|
| |||||||||||
Professional Services: 0.12% | ||||||||||||
Dun & Bradstreet Corporation | 106 | 12,822 | ||||||||||
Equifax Incorporated | 359 | 29,032 | ||||||||||
Nielsen Holdings NV | 965 | 43,164 | ||||||||||
Robert Half International Incorporated | 405 | 23,644 | ||||||||||
108,662 | ||||||||||||
|
| |||||||||||
Road & Rail: 0.63% | ||||||||||||
CSX Corporation | 2,967 | 107,494 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 19 |
Security name | Shares | Value | ||||||||||
Road & Rail (continued) | ||||||||||||
Kansas City Southern | 329 | $ | 40,148 | |||||||||
Norfolk Southern Corporation | 922 | 101,060 | ||||||||||
Ryder System Incorporated | 157 | 14,577 | ||||||||||
Union Pacific Corporation | 2,650 | 315,695 | ||||||||||
578,974 | ||||||||||||
|
| |||||||||||
Trading Companies & Distributors: 0.12% | ||||||||||||
Fastenal Company | 813 | 38,666 | ||||||||||
United Rentals Incorporated † | 297 | 30,297 | ||||||||||
W.W. Grainger Incorporated | 180 | 45,880 | ||||||||||
114,843 | ||||||||||||
|
| |||||||||||
Information Technology: 11.60% | ||||||||||||
Communications Equipment: 0.99% | ||||||||||||
Cisco Systems Incorporated | 15,242 | 423,956 | ||||||||||
F5 Networks Incorporated † | 220 | 28,702 | ||||||||||
Harris Corporation | 312 | 22,408 | ||||||||||
Juniper Networks Incorporated | 1,147 | 25,601 | ||||||||||
Motorola Solutions Incorporated | 630 | 42,260 | ||||||||||
QUALCOMM Incorporated | 4,955 | 368,305 | ||||||||||
911,232 | ||||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components: 0.25% | ||||||||||||
Amphenol Corporation Class A | 922 | 49,613 | ||||||||||
Corning Incorporated | 3,820 | 87,593 | ||||||||||
FLIR Systems Incorporated | 420 | 13,570 | ||||||||||
TE Connectivity Limited | 1,211 | 76,596 | ||||||||||
227,372 | ||||||||||||
|
| |||||||||||
Internet Software & Services: 1.91% | ||||||||||||
Akamai Technologies Incorporated † | 530 | 33,369 | ||||||||||
eBay Incorporated † | 3,369 | 189,068 | ||||||||||
Facebook Incorporated Class A † | 6,232 | 486,221 | ||||||||||
Google Incorporated Class A † | 849 | 450,530 | ||||||||||
Google Incorporated Class C † | 848 | 446,387 | ||||||||||
VeriSign Incorporated † | 325 | 18,525 | ||||||||||
Yahoo! Incorporated † | 2,626 | 132,639 | ||||||||||
1,756,739 | ||||||||||||
|
| |||||||||||
IT Services: 1.95% | ||||||||||||
Accenture plc | 1,870 | 167,010 | ||||||||||
Alliance Data Systems Corporation † | 190 | 54,350 | ||||||||||
Automatic Data Processing Incorporated | 1,436 | 119,719 | ||||||||||
Cognizant Technology Solutions Corporation Class A † | 1,815 | 95,578 | ||||||||||
Computer Sciences Corporation | 418 | 26,355 | ||||||||||
Fidelity National Information Services Incorporated | 845 | 52,559 | ||||||||||
Fiserv Incorporated † | 727 | 51,595 | ||||||||||
International Business Machines Corporation | 2,743 | 440,087 | ||||||||||
MasterCard Incorporated Class A | 2,920 | 251,587 | ||||||||||
Paychex Incorporated | 973 | 44,923 |
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, 2014 |
Security name | Shares | Value | ||||||||||
IT Services (continued) | ||||||||||||
Teradata Corporation † | 456 | $ | 19,918 | |||||||||
The Western Union Company | 1,557 | 27,886 | ||||||||||
Total System Services Incorporated | 492 | 16,708 | ||||||||||
Visa Incorporated Class A | 1,455 | 381,501 | ||||||||||
Xerox Corporation | 3,198 | 44,324 | ||||||||||
1,794,100 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment: 1.44% | ||||||||||||
Altera Corporation | 908 | 33,542 | ||||||||||
Analog Devices Incorporated | 927 | 51,467 | ||||||||||
Applied Materials Incorporated | 3,631 | 90,485 | ||||||||||
Avago Technologies Limited | 754 | 75,845 | ||||||||||
Broadcom Corporation Class A | 1,606 | 69,588 | ||||||||||
First Solar Incorporated † | 224 | 9,989 | ||||||||||
Intel Corporation | 14,411 | 522,975 | ||||||||||
KLA-Tencor Corporation | 490 | 34,457 | ||||||||||
Lam Research Corporation | 473 | 37,528 | ||||||||||
Linear Technology Corporation | 711 | 32,422 | ||||||||||
Microchip Technology Incorporated « | 598 | 26,976 | ||||||||||
Micron Technology Incorporated † | 3,199 | 111,997 | ||||||||||
NVIDIA Corporation | 1,538 | 30,837 | ||||||||||
Texas Instruments Incorporated | 3,148 | 168,308 | ||||||||||
Xilinx Incorporated | 788 | 34,113 | ||||||||||
1,330,529 | ||||||||||||
|
| |||||||||||
Software: 2.27% | ||||||||||||
Adobe Systems Incorporated † | 1,411 | 102,580 | ||||||||||
Autodesk Incorporated † | 677 | 40,661 | ||||||||||
CA Incorporated | 954 | 29,049 | ||||||||||
Citrix Systems Incorporated † | 479 | 30,560 | ||||||||||
Electronic Arts Incorporated † | 926 | 43,536 | ||||||||||
Intuit Incorporated | 851 | 78,454 | ||||||||||
Microsoft Corporation | 24,568 | 1,141,184 | ||||||||||
Oracle Corporation | 9,641 | 433,556 | ||||||||||
Red Hat Incorporated † | 559 | 38,649 | ||||||||||
Salesforce.com Incorporated † | 1,749 | 103,733 | ||||||||||
Symantec Corporation | 2,057 | 52,772 | ||||||||||
2,094,734 | ||||||||||||
|
| |||||||||||
Technology Hardware, Storage & Peripherals: 2.79% | ||||||||||||
Apple Incorporated | 17,480 | 1,929,442 | ||||||||||
EMC Corporation | 6,064 | 180,343 | ||||||||||
Hewlett-Packard Company | 5,562 | 223,203 | ||||||||||
NetApp Incorporated | 928 | 38,466 | ||||||||||
SanDisk Corporation | 657 | 64,373 | ||||||||||
Seagate Technology plc | 975 | 64,838 | ||||||||||
Western Digital Corporation | 650 | 71,955 | ||||||||||
2,572,620 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 21 |
Security name | Shares | Value | ||||||||||
Materials: 1.87% | ||||||||||||
Chemicals: 1.41% | ||||||||||||
Air Products & Chemicals Incorporated | 572 | $ | 82,500 | |||||||||
Airgas Incorporated | 200 | 23,036 | ||||||||||
CF Industries Holdings Incorporated | 147 | 40,063 | ||||||||||
Dow Chemical Company | 3,301 | 150,559 | ||||||||||
E.I. du Pont de Nemours & Company | 2,700 | 199,638 | ||||||||||
Eastman Chemical Company | 442 | 33,530 | ||||||||||
Ecolab Incorporated | 805 | 84,139 | ||||||||||
FMC Corporation | 397 | 22,641 | ||||||||||
International Flavors & Fragrances Incorporated | 242 | 24,529 | ||||||||||
LyondellBasell Industries NV Class A | 1,238 | 98,285 | ||||||||||
Monsanto Company | 1,442 | 172,276 | ||||||||||
Mosaic Company | 940 | 42,911 | ||||||||||
PPG Industries Incorporated | 409 | 94,540 | ||||||||||
Praxair Incorporated | 868 | 112,458 | ||||||||||
Sigma-Aldrich Corporation | 355 | 48,731 | ||||||||||
The Sherwin-Williams Company | 243 | 63,919 | ||||||||||
1,293,755 | ||||||||||||
|
| |||||||||||
Construction Materials: 0.05% | ||||||||||||
Martin Marietta Materials Incorporated | 185 | 20,409 | ||||||||||
Vulcan Materials Company | 392 | 25,766 | ||||||||||
46,175 | ||||||||||||
|
| |||||||||||
Containers & Packaging: 0.11% | ||||||||||||
Avery Dennison Corporation | 272 | 14,111 | ||||||||||
Ball Corporation | 408 | 27,813 | ||||||||||
MeadWestvaco Corporation | 496 | 22,017 | ||||||||||
Owens-Illinois Incorporated ��� | 491 | 13,252 | ||||||||||
Sealed Air Corporation | 628 | 26,646 | ||||||||||
103,839 | ||||||||||||
|
| |||||||||||
Metals & Mining: 0.23% | ||||||||||||
Alcoa Incorporated | 3,514 | 55,486 | ||||||||||
Allegheny Technologies Incorporated | 324 | 11,265 | ||||||||||
Freeport-McMoRan Copper & Gold Incorporated Class B | 3,097 | 72,346 | ||||||||||
Newmont Mining Corporation | 1,486 | 28,085 | ||||||||||
Nucor Corporation | 950 | 46,598 | ||||||||||
213,780 | ||||||||||||
|
| |||||||||||
Paper & Forest Products: 0.07% | ||||||||||||
International Paper Company | 1,262 | 67,618 | ||||||||||
|
| |||||||||||
Telecommunication Services: 1.35% | ||||||||||||
Diversified Telecommunication Services: 1.35% | ||||||||||||
AT&T Incorporated | 15,460 | 519,301 | ||||||||||
CenturyLink Incorporated | 1,701 | 67,326 | ||||||||||
Frontier Communications Corporation « | 2,987 | 19,923 |
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, 2014 |
Security name | Shares | Value | ||||||||||
Diversified Telecommunication Services (continued) | ||||||||||||
Level 3 Communications Incorporated † | 831 | $ | 41,035 | |||||||||
Verizon Communications Incorporated | 12,368 | 578,575 | ||||||||||
Windstream Holdings Incorporated | 1,796 | 14,799 | ||||||||||
1,240,959 | ||||||||||||
|
| |||||||||||
Utilities: 1.91% | ||||||||||||
Electric Utilities: 1.09% | ||||||||||||
American Electric Power Company Incorporated | 1,458 | 88,530 | ||||||||||
Duke Energy Corporation | 2,108 | 176,102 | ||||||||||
Edison International | 971 | 63,581 | ||||||||||
Entergy Corporation | 537 | 46,977 | ||||||||||
Exelon Corporation | 2,562 | 94,999 | ||||||||||
FirstEnergy Corporation | 1,254 | 48,893 | ||||||||||
NextEra Energy Incorporated | 1,301 | 138,283 | ||||||||||
Northeast Utilities | 944 | 50,523 | ||||||||||
Pepco Holdings Incorporated | 751 | 20,224 | ||||||||||
Pinnacle West Capital Corporation | 329 | 22,474 | ||||||||||
PPL Corporation | 1,982 | 72,006 | ||||||||||
The Southern Company | 2,682 | 131,713 | ||||||||||
Xcel Energy Incorporated | 1,506 | 54,096 | ||||||||||
1,008,401 | ||||||||||||
|
| |||||||||||
Gas Utilities: 0.02% | ||||||||||||
AGL Resources Incorporated | 356 | 19,406 | ||||||||||
|
| |||||||||||
Independent Power & Renewable Electricity Producers: 0.06% | ||||||||||||
AES Corporation | 1,954 | 26,907 | ||||||||||
NRG Energy Incorporated | 1,007 | 27,139 | ||||||||||
54,046 | ||||||||||||
|
| |||||||||||
Multi-Utilities: 0.74% | ||||||||||||
Ameren Corporation | 723 | 33,352 | ||||||||||
CenterPoint Energy Incorporated | 1,281 | 30,014 | ||||||||||
CMS Energy Corporation | 819 | 28,460 | ||||||||||
Consolidated Edison Incorporated | 873 | 57,627 | ||||||||||
Dominion Resources Incorporated | 1,740 | 133,806 | ||||||||||
DTE Energy Company | 527 | 45,517 | ||||||||||
Integrys Energy Group Incorporated | 238 | 18,528 | ||||||||||
NiSource Incorporated | 940 | 39,875 | ||||||||||
PG&E Corporation | 1,415 | 75,335 | ||||||||||
Public Service Enterprise Group Incorporated | 1,507 | 62,405 | ||||||||||
SCANA Corporation | 425 | 25,670 | ||||||||||
Sempra Energy | 689 | 76,727 | ||||||||||
TECO Energy Incorporated | 699 | 14,323 | ||||||||||
Wisconsin Energy Corporation « | 671 | 35,377 | ||||||||||
677,016 | ||||||||||||
|
| |||||||||||
Total Common Stocks (Cost $31,174,689) | 54,360,806 | |||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 23 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities: 32.05% | ||||||||||||||||
U.S. Treasury Bond | 2.75 | % | 8-15-2042 | $ | 979,000 | $ | 979,305 | |||||||||
U.S. Treasury Bond | 3.00 | 5-15-2042 | 862,000 | 906,582 | ||||||||||||
U.S. Treasury Bond | 3.13 | 11-15-2041 | 1,729,000 | 1,867,859 | ||||||||||||
U.S. Treasury Bond | 3.13 | 2-15-2042 | 1,025,000 | 1,104,118 | ||||||||||||
U.S. Treasury Bond | 3.50 | 2-15-2039 | 726,000 | 834,446 | ||||||||||||
U.S. Treasury Bond | 3.75 | 8-15-2041 | 2,115,000 | 2,551,219 | ||||||||||||
U.S. Treasury Bond | 3.88 | 8-15-2040 | 1,718,000 | 2,099,181 | ||||||||||||
U.S. Treasury Bond | 4.25 | 5-15-2039 | 681,000 | 876,149 | ||||||||||||
U.S. Treasury Bond | 4.25 | 11-15-2040 | 1,930,000 | 2,500,255 | ||||||||||||
U.S. Treasury Bond | 4.38 | 2-15-2038 | 428,000 | 560,546 | ||||||||||||
U.S. Treasury Bond | 4.38 | 11-15-2039 | 1,734,000 | 2,274,249 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2040 | 1,951,000 | 2,566,784 | ||||||||||||
U.S. Treasury Bond | 4.38 | 5-15-2041 | 1,580,000 | 2,096,957 | ||||||||||||
U.S. Treasury Bond | 4.50 | 2-15-2036 | 836,000 | 1,116,060 | ||||||||||||
U.S. Treasury Bond | 4.50 | 5-15-2038 | 472,000 | 629,383 | ||||||||||||
U.S. Treasury Bond | 4.50 | 8-15-2039 | 868,000 | 1,157,560 | ||||||||||||
U.S. Treasury Bond | 4.63 | 2-15-2040 | 1,785,000 | 2,426,206 | ||||||||||||
U.S. Treasury Bond | 4.75 | 2-15-2037 | 319,000 | 440,519 | ||||||||||||
U.S. Treasury Bond | 4.75 | 2-15-2041 | 1,390,000 | 1,943,394 | ||||||||||||
U.S. Treasury Bond | 5.00 | 5-15-2037 | 421,000 | 601,109 | ||||||||||||
Total U.S. Treasury Securities (Cost $23,985,145) | 29,531,881 | |||||||||||||||
|
| |||||||||||||||
Short-Term Investments: 10.03% | ||||||||||||||||
Yield | Shares | |||||||||||||||
Investment Companies: 8.48% | ||||||||||||||||
Securities Lending Cash Investments LLC (l)(u)(r) | 0.14 | 109,300 | 109,300 | |||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | 7,702,488 | 7,702,488 | |||||||||||||
7,811,788 | ||||||||||||||||
|
| |||||||||||||||
Principal | ||||||||||||||||
U.S. Treasury Securities: 1.55% | ||||||||||||||||
U.S. Treasury Bill #(z) | 0.03 | 1-8-2015 | $ | 530,000 | 529,997 | |||||||||||
U.S. Treasury Bill #(z) | 0.12 | 7-2-2015 | 900,000 | 899,457 | ||||||||||||
1,429,454 | ||||||||||||||||
|
| |||||||||||||||
Total Short-Term Investments (Cost $9,241,287) | 9,241,242 | |||||||||||||||
|
|
Total investments in securities (Cost $64,401,121)* | 101.07 | % | 93,133,929 | |||||
Other assets and liabilities, net | (1.07 | ) | (987,784 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 92,146,145 | ||||
|
|
|
|
The accompanying notes are an integral part of these financial statements.
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24 | Wells Fargo Advantage VT Index Asset Allocation Fund | Portfolio of investments—December 31, 2014 |
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(u) | The rate represents the 7-day annualized yield at period end. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
# | All or a portion of this security is segregated as collateral for investments in derivative instruments. |
(z) | Zero coupon security. The rate represents the current yield to maturity. |
* | Cost for federal income tax purposes is $66,492,297 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 29,463,545 | ||
Gross unrealized losses | (2,821,913 | ) | ||
|
| |||
Net unrealized gains | $ | 26,641,632 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of assets and liabilities—December 31, 2014 | Wells Fargo Advantage VT Index Asset Allocation Fund | 25 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including $105,016 of securities loaned), at value (cost $56,181,912) | $ | 84,550,824 | ||
In affiliated securities, at value (cost $8,219,209) | 8,583,105 | |||
|
| |||
Total investments, at value (cost $64,401,121) | 93,133,929 | |||
Cash | 467 | |||
Receivable for dividends and interest | 320,561 | |||
Receivable for securities lending income | 84 | |||
Prepaid expenses and other assets | 12,823 | |||
|
| |||
Total assets | 93,467,864 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 899,502 | |||
Payable for Fund shares redeemed | 92,842 | |||
Payable upon receipt of securities loaned | 109,300 | |||
Payable for daily variation margin on open futures contracts | 99,488 | |||
Advisory fee payable | 44,255 | |||
Distribution fee payable | 20,116 | |||
Administration fee payable | 10,459 | |||
Accrued expenses and other liabilities | 45,757 | |||
|
| |||
Total liabilities | 1,321,719 | |||
|
| |||
Total net assets | $ | 92,146,145 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 72,797,553 | ||
Undistributed net investment income | 99,191 | |||
Accumulated net realized losses on investments | (9,287,630 | ) | ||
Net unrealized gains on investments | 28,537,031 | |||
|
| |||
Total net assets | $ | 92,146,145 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 2 | $ | 92,146,145 | ||
Shares outstanding – Class 21 | 5,000,206 | |||
Net asset value per share – Class 2 | $18.43 |
1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
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26 | Wells Fargo Advantage VT Index Asset Allocation Fund | Statement of operations—year ended December 31, 2014 |
Investment income | ||||
Interest | $ | 1,185,740 | ||
Dividends (net of foreign withholding taxes of $153) | 1,073,551 | |||
Income from affiliated securities | 20,610 | |||
Securities lending income, net | 1,362 | |||
|
| |||
Total investment income | 2,281,263 | |||
|
| |||
Expenses | ||||
Advisory fee | 487,831 | |||
Administration fee | 115,306 | |||
Distribution fee | ||||
Class 2 | 221,741 | |||
Custody and accounting fees | 23,062 | |||
Professional fees | 34,314 | |||
Shareholder report expenses | 2,853 | |||
Trustees’ fees and expenses | 6,233 | |||
Other fees and expenses | 12,931 | |||
|
| |||
Total expenses | 904,271 | |||
Less: Fee waivers and/or expense reimbursements | (22,780 | ) | ||
|
| |||
Net expenses | 881,491 | |||
|
| |||
Net investment income | 1,399,772 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: | ||||
Unaffiliated securities | 4,492,631 | |||
Affiliated securities | (36,791 | ) | ||
Futures transactions | 1,069,745 | |||
|
| |||
Net realized gains on investments | 5,525,585 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | 8,079,337 | |||
Affiliated securities | 174,217 | |||
Futures transactions | (460,972 | ) | ||
|
| |||
Net change in unrealized gains (losses) on investments | 7,792,582 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 13,318,167 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 14,717,939 | ||
|
|
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, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 1,399,772 | $ | 1,360,460 | ||||||||||||
Net realized gains on investments | 5,525,585 | 10,518,055 | ||||||||||||||
Net change in unrealized gains (losses) on investments | 7,792,582 | 3,710,196 | ||||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 14,717,939 | 15,588,711 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (1,351,046 | ) | (1,413,380 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 202,482 | 3,451,969 | 169,662 | 2,539,040 | ||||||||||||
Reinvestment of distributions – Class 2 | 78,919 | 1,351,046 | 95,451 | 1,413,380 | ||||||||||||
Payment for shares redeemed – Class 2 | (764,955 | ) | (12,958,898 | ) | (1,077,142 | ) | (15,983,942 | ) | ||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (8,155,883 | ) | (12,031,522 | ) | ||||||||||||
|
| |||||||||||||||
Total increase in net assets | 5,211,010 | 2,143,809 | ||||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 86,935,135 | 84,791,326 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 92,146,145 | $ | 86,935,135 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 99,191 | $ | 86,778 | ||||||||||||
|
|
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 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $15.85 | $13.47 | $12.09 | $11.72 | $10.53 | |||||||||||||||
Net investment income | 0.27 | 0.24 | 0.21 | 0.21 | 0.20 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 2.57 | 2.39 | 1.36 | 0.54 | 1.18 | |||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.84 | 2.63 | 1.57 | 0.75 | 1.38 | |||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.26 | ) | (0.25 | ) | (0.19 | ) | (0.38 | ) | (0.19 | ) | ||||||||||
Net asset value, end of period | $18.43 | $15.85 | $13.47 | $12.09 | $11.72 | |||||||||||||||
Total return | 18.06 | % | 19.63 | % | 13.03 | % | 6.48 | % | 13.29 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.02 | % | 1.11 | % | 1.13 | % | 1.06 | % | 1.10 | % | ||||||||||
Net expenses | 0.99 | % | 1.00 | % | 1.00 | % | 0.99 | % | 1.00 | % | ||||||||||
Net investment income | 1.58 | % | 1.57 | % | 1.58 | % | 1.70 | % | 1.76 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 3 | % | 11 | % | 8 | % | 17 | % | 25 | % | ||||||||||
Net assets, end of period (000s omitted) | $92,146 | $86,935 | $84,791 | $89,402 | $102,946 |
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 Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities and futures that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, 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 provided by an independent pricing service which may utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If prices are not available from the independent pricing service or prices received are deemed not representative of market value, prices will be obtained from an independent broker-dealer.
Short-term securities, with maturities of 60 days or less at time of purchase, 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 vehicles 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 in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the 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
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30 | Wells Fargo Advantage VT Index Asset Allocation Fund | Notes to financial statements |
business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending Fund is included in securities lending income on the Statement of Operations.
Futures contracts
The Fund is subject to interest rate risk and equity price risk in the normal course of pursuing its investment objectives. The Fund may buy and sell futures contracts in order to gain exposure to, or protect against, changes in 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.
The aggregate principal amounts of the contracts are not recorded in the financial statements. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset or liability and in the Statement of Operations as unrealized gains or losses until the contracts are closed, at which point they are recorded as net realized gains or losses on futures contracts. With futures contracts, there is minimal counterparty risk to the Fund since futures are exchange traded and the exchange’s clearinghouse, as counterparty to all exchange traded futures, guarantees the futures against default.
Security transactions and income recognition
Securities transactions are recorded on a trade date basis. Realized gains or losses are recorded on the basis of identified cost.
Dividend income is recognized on the ex-dividend date. Dividend income is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in conformity with federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.
Federal and other taxes
The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.
The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.
Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent
Table of Contents
Notes to financial statements | Wells Fargo Advantage VT Index Asset Allocation Fund | 31 |
differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2014, 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 | |
$(36,313) | $36,313 |
As of December 31, 2014, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $5,072,286 with $1,347,719 expiring in 2016; and $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, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 6,592,994 | $ | 0 | $ | 0 | $ | 6,592,994 | ||||||||
Consumer staples | 5,328,321 | 0 | 0 | 5,328,321 | ||||||||||||
Energy | 4,588,661 | 0 | 0 | 4,588,661 | ||||||||||||
Financials | 9,051,762 | 0 | 0 | 9,051,762 | ||||||||||||
Health care | 7,726,434 | 0 | 0 | 7,726,434 | ||||||||||||
Industrials | 5,660,313 | 0 | 0 | 5,660,313 | ||||||||||||
Information technology | 10,687,326 | 0 | 0 | 10,687,326 | ||||||||||||
Materials | 1,725,167 | 0 | 0 | 1,725,167 | ||||||||||||
Telecommunication services | 1,240,959 | 0 | 0 | 1,240,959 | ||||||||||||
Utilities | 1,758,869 | 0 | 0 | 1,758,869 | ||||||||||||
U.S. Treasury securities | 29,531,881 | 0 | 0 | 29,531,881 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 7,702,488 | 109,300 | 0 | 7,811,788 | ||||||||||||
U.S. Treasury securities | 899,458 | 529,996 | 0 | 1,429,454 | ||||||||||||
Total assets | $ | 92,494,633 | $ | 639,296 | $ | 0 | $ | 93,133,929 | ||||||||
Liabilities | ||||||||||||||||
Futures contracts | $ | 99,488 | $ | 0 | $ | 0 | $ | 99,488 | ||||||||
Total liabilities | $ | 99,488 | $ | 0 | $ | 0 | $ | 99,488 |
Table of Contents
32 | Wells Fargo Advantage VT Index Asset Allocation Fund | Notes to financial statements |
Futures contracts are reported at their variation margin at measurement date, which represents the amount due from the Fund at that date. All other assets and liabilities are reported at their market value at measurement date.
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.15% and declining to 0.10% as the average daily net assets of the Fund increase.
Administration fee
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 administration fee starting at 0.13% and declining to 0.11% as the average daily net assets of the Fund increase.
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, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.00% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2014 were as follows:
Purchases at cost | Sales proceeds | |||||
U.S. government | Non-U.S. government | U.S. government | Non-U.S. government | |||
$367,656 | $2,561,073 | $9,558,377 | $7,177,357 |
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2014, the Fund entered into futures contracts to gain market exposure to certain asset classes consistent with an active asset allocation strategy.
At December 31, 2014, the Fund had long and short futures contracts outstanding as follows:
Expiration date | Counterparty | Contracts | Type | Contract value at December 31, 2014 | Unrealized gains (losses) | |||||||||||||
3-19-2015 | Goldman Sachs | 14 Long | S&P 500 Index | $ | 7,183,400 | $ | 122,875 | |||||||||||
3-20-2015 | Goldman Sachs | 42 Short | U.S. Treasury Bonds | 6,937,875 | (318,652 | ) |
Table of Contents
Notes to financial statements | Wells Fargo Advantage VT Index Asset Allocation Fund | 33 |
The Fund had an average notional amount of $9,488,368 and $8,333,416 in long and short futures contracts, respectively, during the year ended December 31, 2014.
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, 2014 was as follows for the Fund:
Liability derivatives | ||||||
Statement of Assets and Liabilities location | Fair value | |||||
Interest rate contracts | Payable for daily variation margin on open futures contracts | $ | 14,438 | * | ||
Equity contracts | Payable for daily variation margin on open futures contracts | 85,050 | * | |||
$ | 99,488 |
* | Only the current day’s variation margin as of December 31, 2014 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, 2014 was as follows for the Fund:
Amount of realized gains (losses) on derivatives | Change in unrealized gains (losses) on derivatives | |||||||
Interest rate contracts | $ | (799,357 | ) | $ | (417,977 | ) | ||
Equity contracts | 1,869,102 | (42,995 | ) | |||||
$ | 1,069,745 | $ | (460,972 | ) |
For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:
Derivative type | Counterparty | Gross amounts of liabilities in the Statement of Assets and Liabilities | Amounts subject to netting agreements | Collateral pledged1 | Net amount of liabilities | |||||||||||
Futures – variation margin | Goldman Sachs | $99,488 | $ | 0 | $ | (99,488 | ) | $ | 0 |
1. | Collateral pledged within this table is limited to the collateral for the net transaction with the counterparty. |
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, 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, 2014, the Fund paid $133 in commitment fees.
For the year ended December 31, 2014, there were no borrowings by the Fund under the agreement.
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34 | Wells Fargo Advantage VT Index Asset Allocation Fund | Notes to financial statements |
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $1,351,046 and $1,413,380 of ordinary income for the years ended December 31, 2014 and December 31, 2013, respectively.
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
$99,191 | $24,321,687 | $(5,072,286) |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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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, 71.32% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2014.
For the fiscal year ended December 31, 2014, 52.45% 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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Other information (unaudited) | Wells Fargo Advantage VT Index Asset Allocation Fund | 37 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management , LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230412 02-15 AVT2/AR148 12-14 |
Table of Contents
Wells Fargo Advantage
VT International Equity Fund
Annual Report
December 31, 2014
Table of Contents
Reduce clutter. Save trees.
Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery
Contents
2 | ||||
4 | ||||
8 | ||||
9 | ||||
Financial statements | ||||
12 | ||||
13 | ||||
14 | ||||
15 | ||||
17 | ||||
24 | ||||
25 | ||||
28 |
The views expressed and any forward-looking statements are as of December 31, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT International Equity Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero.
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, 2014. The period was marked by heightened geopolitical uncertainty as the U.S. and Europe confronted Russia over Ukraine and later as Islamic militants (formerly known as ISIS) gained territory in Syria and Iraq. Toward the end of the reporting period, market volatility increased, in part, because of weaker economic numbers in Europe and China and rising expectations that the U.S. Federal Reserve (Fed) would begin raising interest rates in mid-2015. The MSCI EAFE Index (Net)1, a proxy for international developed markets, ended the period with a 4.90% loss, while the MSCI Emerging Markets Index (Net)2, a proxy for global emerging markets, ended with a 2.19% loss.
Major central banks continued to provide liquidity to the markets.
Throughout the reporting period, the Federal Open Market Committee (FOMC), which is the Fed’s monetary policymaking body, kept its key interest rate effectively at zero. This tended to support global markets given the Fed’s role in providing investor liquidity. In January 2014, the FOMC began to reduce (or taper) its bond-buying program by $10 billion per month and brought the program to an end in late October 2014. Although the FOMC kept its key interest rate at zero, its guidance led investors to expect an interest-rate hike sometime in 2015.
In June 2014, the European Central Bank (ECB) announced a variety of measures aimed at encouraging lending, including making funds available to banks at low interest rates and imposing a negative interest rate on bank deposits held at the central bank. In September 2014, the ECB cut its key rate to a historic low of 0.05% and increased its negative interest rate. In Japan, the Bank of Japan (BoJ) maintained an aggressive monetary program aimed at combating deflation by doubling the bank’s asset base over two years; on the last day of the reporting period, the BoJ surprised observers by increasing its asset purchases.
The backdrop of a challenging geopolitical situation and slowing global growth caused significant volatility.
Geopolitical events were major negatives throughout the reporting period. The ongoing standoff between the West (the U.S., Europe, and their allies) and Russia over Ukraine began in early 2014 and continued throughout the reporting period. As of December 2014, it seemed unlikely that the situation would result in a war between Russia and the West, though a civil war raged in Ukraine. However, economic sanctions from the West against Russia and from Russia against the West contributed to slower growth in Europe, a key Russian trading partner. In the Middle East, the advance of Islamic militants in Syria and Iraq led to airstrikes by the U.S. and its allies.
Market volatility increased toward the end of the reporting period as renewed fears of slowing global growth took hold and investors began to price in expectations that the FOMC was finally looking to raise short-term interest rates.
1. | The Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index (Net) is an unmanaged group of securities widely regarded by investors to be representations of the stock markets of Europe, Australasia, and the Far East. Calculations for EAFE use net dividends, which reflect the deduction of withholding taxes. 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 (MSCI) Emerging Markets Index (Net) is a free float-adjusted market-capitalization-weighted 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. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT International Equity Fund | 3 |
Economic news out of Europe trended lower for most of 2014. Slower European growth combined with expectations of higher U.S. interest rates to send the euro lower during the fourth quarter, pressuring European returns for U.S. dollar—denominated investors. Returns in Asia were dampened by a sluggish Japanese economy as well as a late-period decline in the yen. Among countries in the MSCI EAFE, major markets such as Japan, Germany, and France ended the period with losses. Among emerging markets, hopes for an economic soft landing in China faded toward the end of the period as the country produced lower-than-expected economic results. Russia also posted sharply negative returns as a result of its standoff with the West.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Slower European growth combined with expectations of higher U.S. interest rates to send the euro lower during the quarter, pressuring European returns for U.S. dollar—denominated investors.
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4 | 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, 2014
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 8-17-1998 | (5.30 | ) | 5.63 | 3.90 | 0.96 | 0.70 | |||||||||||||||
Class 2 | 7-31-2002 | (5.35 | ) | 5.43 | 3.66 | 1.21 | 0.95 | |||||||||||||||
MSCI ACWI ex USA (Net)4 | – | (3.87 | ) | 4.43 | 5.13 | – | – |
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, which 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 fees 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 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT International Equity Fund | 5 |
Growth of $10,000 investment5 as of December 31, 2014 |
1. | Historical performance shown for all classes of the Fund prior to July 19, 2010, is based on the performance of the Fund’s predecessor, Evergreen VA International Equity Fund. 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 ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
4. | The Morgan Stanley Capital International All Country World Index ex USA (MSCI ACWI ex USA (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 chart compares the performance of Class 2 shares for the most recent ten years with the MSCI ACWI ex USA (Net). The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6. | The ten largest 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. | Percentages are subject to change and are calculated based on the total long-term investments of the Fund. |
* | This security was not held in the Fund at the end of the reporting period. |
Table of Contents
6 | Wells Fargo Advantage VT International Equity Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
n | The Fund underperformed its benchmark, the MSCI ACWI ex USA Index (Net), for the 12-month period that ended December 31, 2014. |
n | The Fund remains overweight Japanese and Hong Kong companies, as well as European companies that the management team believes are undervalued. |
n | Investments in the consumer discretionary and industrials sectors detracted from relative results for the one-year period. Several holdings in the financials sector contributed to relative returns. |
Despite geopolitical troubles that included conflict in Ukraine and Iraq, as well as increased market volatility toward the end of 2014, the investment team continued to employ our time-tested approach to fundamental research, searching for nonconsensus values around the globe, maintaining a focus on overall investment risk management, and rebalancing infrequently, doing so only to capture unusual stock market or company-specific price movements for investor’s potential benefit.
Ten largest equity holdings6 (%) as of December 31, 2014 | ||||
China Everbright Limited | 4.03 | |||
Mitsubishi UFJ Financial Group Incorporated | 3.16 | |||
Man Group plc | 3.16 | |||
Daiwa House Industry Company Limited | 2.95 | |||
Zurich Financial Services AG | 2.95 | |||
Hitachi Limited | 2.90 | |||
Siemens AG | 2.79 | |||
Akzo Nobel NV | 2.73 | |||
Wolseley plc | 2.72 | |||
Prysmian SpA | 2.68 |
In a volatile year, both stock selection and sector allocations detracted from relative results.
During the reporting period, disappointing results came primarily from holdings in the consumer discretionary and industrials sectors. Rheinmetall AG (a cyclically sensitive German auto parts maker), Debenhams plc (a UK-based department store retailer), and Hengdeli Holdings Limited (a Hong Kong jewelry retailer) all weighed on performance for different reasons, and only Rheinmetall remained in the portfolio at year-end. Underperformers in other sectors included consumer staple Biostime International Holdings Limited (a structurally attractive China-based infant formula company), Russian telecommunications provider Mobile TeleSystems OJSC*, and financials
position Anima Holding SpA (an Italian asset manager that was added during recent market stress).
Overall, financials sector holdings contributed positively to performance, with Man Group plc the top contributor. At the time of investment, we believed that Man was an undervalued asset management franchise with the potential to benefit from improved fund performance, increasing asset inflows, strong cost controls, and balance sheet restructuring. So far, our investment thesis has been realized. China Everbright Limited was another notable contributor as investors began to appreciate the earnings potential from its asset management business; its sale of noncore assets; and the introduction of Shanghai-Hong Kong Connect, which opened up local Chinese stocks to foreign investors. Contributors in others sectors included consumer staple Marine Harvest ASA (an undervalued salmon producer with the leading global market position), financials firm Intesa Sanpaolo SpA (an Italian franchise bank purchased at a fraction of book value), and SK Telecom Company Limited (a South Korean wireless telecommunications operator).
On a country basis, negative attribution came primarily from the Fund’s holdings in Japan and Germany, while stocks domiciled in Hong Kong and the U.K. contributed.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo Advantage VT International Equity Fund | 7 |
Sector distribution7 as of December 31, 2014 |
We continue to search for undervalued opportunities in Europe and Japan.
Europe continued to experience negative pressures on regional economic growth. Against that backdrop, we found a number of highly attractive and undervalued stock ideas. We believe that many of the companies that we favor have the ability to improve their own prospects by enhancing operations or by investing in higher-yielding franchises; we believe that our bottom-up research model works well in analyzing the upside and downside of these opportunities. One notable holding
that arose from such research is our top European position, Siemens AG, a large German industrial conglomerate that is engaged in a firm-wide restructuring and is targeting 12% margins over the next several years.
Country allocation7 as of December 31, 2014 |
We believe that Asia still represents an outstanding investment opportunity, combining low valuations with increased corporate governance and a renewed emphasis on profitability. In Japan, recent research that included on-the-ground trips and ongoing developments in government policy have steered us in the direction of companies with strong and improving profitability such as Toyota Motor Corporation. The emergence of a two-tiered market increasingly appears inevitable in Japan, with investors focusing on highly profitable companies that possess leading global technologies, products, or
competitive positions at the expense of highly leveraged, poorly profitable companies. In China, the government’s reforms continue apace, with examples ranging from posting judicial decisions online in a searchable database, thereby improving the rule of law in a nation targeting greater market-oriented reforms, to connecting the Shanghai stock market with the Hong Kong stock market to create the world’s second-largest stock market. We believe that such far-reaching and profound changes, particularly in China’s financial markets, present an increasingly well-set table for properly placed investors in China over the coming months and years.
Please see footnotes on page 5.
Table of Contents
8 | 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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period1 | Net annualized expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 938.44 | $ | 3.37 | 0.69 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.73 | $ | 3.52 | 0.69 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 937.93 | $ | 4.59 | 0.94 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.47 | $ | 4.79 | 0.94 | % |
1. | Expenses paid is equal to the annualized 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, 2014 | Wells Fargo Advantage VT International Equity Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 87.38% | ||||||||||||
Canada: 1.84% | ||||||||||||
Valeant Pharmaceuticals International Incorporated (Health Care, Pharmaceuticals) † | 44,210 | $ | 6,326,893 | |||||||||
|
| |||||||||||
China: 5.08% | ||||||||||||
Biostime International Holdings Limited (Consumer Staples, Food Products) « | 747,500 | 1,532,384 | ||||||||||
Dongfeng Motor Group Company Limited (Consumer Discretionary, Automobiles) | 4,816,000 | 6,736,725 | ||||||||||
Industrial & Commercial Bank of China Limited Class H (Financials, Banks) | 8,471,000 | 6,185,455 | ||||||||||
Xtep International Holdings Limited (Consumer Discretionary, Textiles, Apparel & Luxury Goods) | 7,477,453 | 3,005,551 | ||||||||||
17,460,115 | ||||||||||||
|
| |||||||||||
Germany: 9.10% | ||||||||||||
Bayer AG (Health Care, Pharmaceuticals) | 51,399 | 7,006,114 | ||||||||||
Metro AG (Consumer Staples, Food & Staples Retailing) † | 222,093 | 6,788,870 | ||||||||||
Rheinmetall AG (Industrials, Industrial Conglomerates) | 39,323 | 1,712,087 | ||||||||||
SAP AG (Information Technology, Software) | 88,658 | 6,190,843 | ||||||||||
Siemens AG (Industrials, Industrial Conglomerates) | 85,346 | 9,576,152 | ||||||||||
31,274,066 | ||||||||||||
|
| |||||||||||
Hong Kong: 7.30% | ||||||||||||
China Everbright Limited (Financials, Capital Markets) | 5,848,000 | 13,838,562 | ||||||||||
China Mobile Limited (Telecommunication Services, Wireless Telecommunication Services) | 732,000 | 8,573,730 | ||||||||||
Value Partners Group Limited (Financials, Capital Markets) | 3,193,000 | 2,664,596 | ||||||||||
25,076,888 | ||||||||||||
|
| |||||||||||
Italy: 8.57% | ||||||||||||
Anima Holding SpA (Financials, Capital Markets) † | 1,620,180 | 8,150,757 | ||||||||||
ENI SpA (Energy, Oil, Gas & Consumable Fuels) | 298,804 | 5,233,994 | ||||||||||
Intesa Sanpaolo SpA (Financials, Banks) | 2,358,722 | 6,842,418 | ||||||||||
Prysmian SpA (Industrials, Electrical Equipment) | 505,182 | 9,206,311 | ||||||||||
29,433,480 | ||||||||||||
|
| |||||||||||
Japan: 19.32% | ||||||||||||
Daiwa House Industry Company Limited (Financials, Real Estate Management & Development) | 536,900 | 10,142,704 | ||||||||||
Hitachi Limited (Information Technology, Electronic Equipment, Instruments & Components) | 1,351,000 | 9,971,409 | ||||||||||
Mitsubishi UFJ Financial Group Incorporated (Financials, Banks) | 1,978,200 | 10,868,675 | ||||||||||
Mitsui Fudosan Company Limited (Financials, Real Estate Management & Development) | 248,000 | 6,650,254 | ||||||||||
Mitsui OSK Lines Limited (Industrials, Marine) | 1,734,000 | 5,137,395 | ||||||||||
Nitto Denko Corporation (Materials, Chemicals) | 85,082 | 4,753,999 | ||||||||||
Nomura Holdings Incorporated (Financials, Capital Markets) | 1,434,900 | 8,120,149 | ||||||||||
Sharp Corporation (Consumer Discretionary, Household Durables) † | 729,000 | 1,612,763 | ||||||||||
Toyota Motor Corporation (Consumer Discretionary, Automobiles) | 107,600 | 6,705,346 | ||||||||||
West Holdings Corporation (Consumer Discretionary, Household Durables) « | 251,800 | 2,097,733 | ||||||||||
Yaskawa Electric Corporation (Information Technology, Electronic Equipment, Instruments & Components) | 23,400 | 298,891 | ||||||||||
66,359,318 | ||||||||||||
|
| |||||||||||
Netherlands: 2.73% | ||||||||||||
Akzo Nobel NV (Materials, Chemicals) | 135,473 | 9,373,379 | ||||||||||
|
| |||||||||||
Norway: 2.69% | ||||||||||||
Frontline 2012 Limited (Energy, Oil, Gas & Consumable Fuels) 144A | 356,875 | 1,891,394 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
10 | Wells Fargo Advantage VT International Equity Fund | Portfolio of investments—December 31, 2014 |
Security name | Shares | Value | ||||||||||||||
Norway (continued) | ||||||||||||||||
Marine Harvest ASA (Consumer Staples, Food Products) | 535,841 | $ | 7,357,322 | |||||||||||||
9,248,716 | ||||||||||||||||
|
| |||||||||||||||
South Korea: 4.39% | ||||||||||||||||
Hana Financial Group Incorporated (Financials, Banks) | 189,016 | 5,474,334 | ||||||||||||||
Samsung Electronics Company Limited GDR (Information Technology, Semiconductors & Semiconductor Equipment) |
| 11,122 | 6,675,948 | |||||||||||||
SK Telecom Company Limited (Telecommunica tion Services, Wireless Telecommunication Services) |
| 11,919 | 2,915,302 | |||||||||||||
15,065,584 | ||||||||||||||||
|
| |||||||||||||||
Sweden: 1.36% | ||||||||||||||||
Volvo AB Class B (Industrials, Machinery) | 433,686 | 4,676,648 | ||||||||||||||
|
| |||||||||||||||
Switzerland: 7.46% | ||||||||||||||||
ABB Limited (Industrials, Electrical Equipment) | 380,946 | 8,060,108 | ||||||||||||||
Novartis AG (Health Care, Pharmaceuticals) | 80,062 | 7,425,228 | ||||||||||||||
Zurich Financial Services AG (Financials, Insurance) | 32,395 | 10,123,512 | ||||||||||||||
25,608,848 | ||||||||||||||||
|
| |||||||||||||||
United Kingdom: 15.53% | ||||||||||||||||
BP plc (Energy, Oil, Gas & Consumable Fuels) | 1,321,007 | 8,385,192 | ||||||||||||||
Capita plc (Industrials, Professional Services) | 240,351 | 4,030,131 | ||||||||||||||
Indivior plc (Health Care, Pharmaceuticals) † | 70,467 | 164,086 | ||||||||||||||
Man Group plc (Financials, Capital Markets) | 4,363,150 | 10,857,113 | ||||||||||||||
Reckitt Benckiser Group plc (Consumer Staples, Household Products) | 70,467 | 5,707,400 | ||||||||||||||
Smiths Group plc (Industrials, Industrial Conglomerates) | 335,857 | 5,710,952 | ||||||||||||||
Vodafone Group plc (Telecommunication Services, Wireless Telecommunication Services) |
| 2,669,811 | 9,153,784 | |||||||||||||
Wolseley plc (Industrials, Trading Companies & Distributors) | 163,318 | 9,337,185 | ||||||||||||||
53,345,843 | ||||||||||||||||
|
| |||||||||||||||
United States: 2.01% | ||||||||||||||||
QUALCOMM Incorporated (Information Technology, Communications Equipment) | 92,987 | 6,911,724 | ||||||||||||||
|
| |||||||||||||||
Total Common Stocks (Cost $269,172,738) | 300,161,502 | |||||||||||||||
|
| |||||||||||||||
Expiration date | ||||||||||||||||
Participation Notes: 1.26% | ||||||||||||||||
China: 1.26% | ||||||||||||||||
HSBC Bank plc (Kweichow Moutai Company Limited) (Consumer Staples, Beverages) † |
| 2-19-2019 | 39,500 | 1,206,701 | ||||||||||||
Standard Chartered Bank plc (Kweichow Moutai Company Limited) (Consumer Staples, Beverages) † |
| 4-24-2015 | 101,671 | 3,105,986 | ||||||||||||
Total Participation Notes (Cost $3,394,211) | 4,312,687 | |||||||||||||||
|
| |||||||||||||||
Dividend yield | ||||||||||||||||
Preferred Stocks: 0.99% | ||||||||||||||||
Germany : 0.99% | ||||||||||||||||
Volkswagen AG (Consumer Discretionary, Automobiles) | 2.50 | % | 15,241 | 3,387,394 | ||||||||||||
|
| |||||||||||||||
Total Preferred Stocks (Cost $3,535,526) | 3,387,394 | |||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT International Equity Fund | 11 |
Security name | Yield | Shares | Value | |||||||||||
Short-Term Investments: 8.29% | ||||||||||||||
Investment Companies: 8.29% | ||||||||||||||
Securities Lending Cash Investments, LLC (l)(r)(u) | 0.14 | % | 1,127,040 | $ | 1,127,040 | |||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | 27,360,559 | 27,360,559 | |||||||||||
Total Short-Term Investments (Cost $28,487,599) | 28,487,599 | |||||||||||||
|
|
Total investments in securities (Cost $304,590,074) * | 97.92 | % | 336,349,182 | |||||
Other assets and liabilities, net | 2.08 | 7,159,549 | ||||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 343,508,731 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
144A | The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $307,846,042 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 45,566,585 | ||
Gross unrealized losses | (17,063,445 | ) | ||
|
| |||
Net unrealized gains | $ | 28,503,140 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
12 | Wells Fargo Advantage VT International Equity Fund | Statement of assets and liabilities—December 31, 2014 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including $1,062,858 of securities loaned), at value (cost $276,102,475) | $ | 307,861,583 | ||
In affiliated securities, at value (cost $28,487,599) | 28,487,599 | |||
|
| |||
Total investments, at value (cost $304,590,074) | 336,349,182 | |||
Foreign currency, at value (cost $2,694,411) | 2,497,414 | |||
Receivable for investments sold | 3,299,786 | |||
Receivable for Fund shares sold | 61,641 | |||
Receivable for dividends | 793,507 | |||
Receivable for securities lending income | 2,451 | |||
Unrealized gains on forward foreign currency contracts | 2,148,958 | |||
Prepaid expenses and other assets | 8,947 | |||
|
| |||
Total assets | 345,161,886 | |||
|
| |||
Liabilities | ||||
Payable for Fund shares redeemed | 177,267 | |||
Unrealized losses on forward foreign currency contracts | 10,215 | |||
Payable upon receipt of securities loaned | 1,127,040 | |||
Advisory fee payable | 150,854 | |||
Distribution fee payable | 68,944 | |||
Administration fees payable | 39,622 | |||
Accrued expenses and other liabilities | 79,213 | |||
|
| |||
Total liabilities | 1,653,155 | |||
|
| |||
Total net assets | $ | 343,508,731 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 302,980,800 | ||
Undistributed net investment income | 11,208,738 | |||
Accumulated net realized losses on investments | (4,420,096 | ) | ||
Net unrealized gains on investments | 33,739,289 | |||
|
| |||
Total net assets | $ | 343,508,731 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 32,599,307 | ||
Shares outstanding – Class 11 | 6,620,567 | |||
Net asset value per share – Class 1 | $4.92 | |||
Net assets – Class 2 | $ | 310,909,424 | ||
Shares outstanding – Class 21 | 62,852,108 | |||
Net asset value per share – Class 2 | $4.95 |
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, 2014 | Wells Fargo Advantage VT International Equity Fund | 13 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $889,923) | $ | 13,778,254 | ||
Securities lending income, net | 227,500 | |||
Income from affiliated securities | 10,470 | |||
|
| |||
Total investment income | 14,016,224 | |||
|
| |||
Expenses | ||||
Advisory fee | 2,611,123 | |||
Administration fees | ||||
Fund level | 174,075 | |||
Class 1 | 29,086 | |||
Class 2 | 249,434 | |||
Distribution fee | ||||
Class 2 | 779,479 | |||
Custody and accounting fees | 105,090 | |||
Professional fees | 63,590 | |||
Shareholder report expenses | 33,073 | |||
Trustees’ fees and expenses | 6,534 | |||
Other fees and expenses | 17,889 | |||
|
| |||
Total expenses | 4,069,373 | |||
Less: Fee waivers and/or expense reimbursements | (887,660 | ) | ||
|
| |||
Net expenses | 3,181,713 | |||
|
| |||
Net investment income | 10,834,511 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on: | ||||
Unaffiliated securities | 2,185,240 | |||
Forward foreign currency contract transactions | 16,023 | |||
|
| |||
Net realized gains on investments | 2,201,263 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | (31,802,378 | ) | ||
Forward foreign currency contract transactions | (230,655 | ) | ||
|
| |||
Net change in unrealized gains (losses) on investments | (32,033,033 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | (29,831,770 | ) | ||
|
| |||
Net decrease in net assets resulting from operations | $ | (18,997,259 | ) | |
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo Advantage VT International Equity Fund | Statement of changes in net assets |
Year ended December 31, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 10,834,511 | $ | 7,318,104 | ||||||||||||
Net realized gains on investments | 2,201,263 | 8,411,771 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (32,033,033 | ) | 47,145,405 | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from operations | (18,997,259 | ) | 62,875,280 | |||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (1,068,920 | ) | (975,031 | ) | ||||||||||||
Class 2 | (8,395,187 | ) | (6,448,989 | ) | ||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (836,185 | ) | (2,022,711 | ) | ||||||||||||
Class 2 | (7,242,278 | ) | (14,996,715 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (17,542,570 | ) | (24,443,446 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 448,360 | 2,313,021 | 886,423 | 4,581,525 | ||||||||||||
Class 2 | 6,415,713 | 32,449,977 | 2,050,177 | 10,408,251 | ||||||||||||
|
| |||||||||||||||
34,762,998 | 14,989,776 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 367,780 | 1,905,105 | 610,538 | 2,997,742 | ||||||||||||
Class 2 | 3,001,422 | 15,637,465 | 4,341,236 | 21,445,704 | ||||||||||||
|
| |||||||||||||||
17,542,570 | 24,443,446 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (1,861,970 | ) | (9,716,924 | ) | (2,556,446 | ) | (13,206,020 | ) | ||||||||
Class 2 | (4,628,256 | ) | (24,125,462 | ) | (8,200,329 | ) | (42,867,613 | ) | ||||||||
|
| |||||||||||||||
(33,842,386 | ) | (56,073,633 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions | 18,463,182 | (16,640,411 | ) | |||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | (18,076,647 | ) | 21,791,423 | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 361,585,378 | 339,793,955 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 343,508,731 | $ | 361,585,378 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 11,208,738 | $ | 7,235,405 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Financial highlights | Wells Fargo Advantage VT International Equity Fund | 15 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $5.48 | $4.94 | $4.77 | $5.75 | $5.15 | |||||||||||||||
Net investment income | 0.18 | 2 | 0.12 | 2 | 0.13 | 2 | 0.11 | 2 | 0.05 | 2 | ||||||||||
Net realized and unrealized gains (losses) on investments | (0.46 | ) | 0.82 | 0.45 | (0.80 | ) | 0.78 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.28 | ) | 0.94 | 0.58 | (0.69 | ) | 0.83 | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.16 | ) | (0.13 | ) | (0.08 | ) | (0.04 | ) | (0.05 | ) | ||||||||||
Net realized gains | (0.12 | ) | (0.27 | ) | (0.33 | ) | (0.25 | ) | (0.18 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.28 | ) | (0.40 | ) | (0.41 | ) | (0.29 | ) | (0.23 | ) | ||||||||||
Net asset value, end of period | $4.92 | $5.48 | $4.94 | $4.77 | $5.75 | |||||||||||||||
Total return | (5.30 | )% | 19.94 | % | 13.68 | % | (12.79 | )% | 16.79 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.94 | % | 0.95 | % | 0.98 | % | 0.97 | % | 0.85 | % | ||||||||||
Net expenses | 0.69 | % | 0.69 | % | 0.69 | % | 0.69 | % | 0.66 | % | ||||||||||
Net investment income | 3.44 | % | 2.36 | % | 2.68 | % | 2.06 | % | 1.04 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 39 | % | 32 | % | 140 | % | 66 | % | 60 | % | ||||||||||
Net assets, end of period (000s omitted) | $32,599 | $42,021 | $43,089 | $46,017 | $67,659 |
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 period 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.
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16 | Wells Fargo Advantage VT International Equity Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $5.50 | $4.96 | $4.78 | $5.74 | $5.15 | |||||||||||||||
Net investment income | 0.16 | 0.11 | 2 | 0.11 | 0.09 | 2 | 0.06 | 2 | ||||||||||||
Net realized and unrealized gains (losses) on investments | (0.45 | ) | 0.82 | 0.47 | (0.79 | ) | 0.75 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.29 | ) | 0.93 | 0.58 | (0.70 | ) | 0.81 | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.14 | ) | (0.12 | ) | (0.07 | ) | (0.01 | ) | (0.04 | ) | ||||||||||
Net realized gains | (0.12 | ) | (0.27 | ) | (0.33 | ) | (0.25 | ) | (0.18 | ) | ||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.26 | ) | (0.39 | ) | (0.40 | ) | (0.26 | ) | (0.22 | ) | ||||||||||
Net asset value, end of period | $4.95 | $5.50 | $4.96 | $4.78 | $5.74 | |||||||||||||||
Total return | (5.35 | )% | 19.52 | % | 13.48 | % | (12.91 | )% | 16.50 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.20 | % | 1.20 | % | 1.23 | % | 1.22 | % | 0.97 | % | ||||||||||
Net expenses | 0.94 | % | 0.94 | % | 0.94 | % | 0.94 | % | 0.89 | % | ||||||||||
Net investment income | 3.07 | % | 2.08 | % | 2.41 | % | 1.75 | % | 1.22 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 39 | % | 32 | % | 140 | % | 66 | % | 60 | % | ||||||||||
Net assets, end of period (000s omitted) | $310,909 | $319,565 | $296,705 | $227,692 | $218,348 |
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 period 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.
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Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 17 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On December 31, 2014, such 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 vehicles 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 in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
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18 | 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. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Forward foreign currency contracts
The Fund is 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 forward foreign currency contract transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains on the contracts. This risk may be mitigated if there is a master netting arrangement between the Fund and the counterparty.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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 custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
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Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 19 |
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 require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to forward foreign currency transactions and recognition of partnership income. At December 31, 2014, 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 | |
$2,602,929 | $(2,602,929) |
As of December 31, 2014, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:
No expiration | ||
2017 | Short-term | |
$2,669,056 | $642,274 |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses, and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
n | Level 1 – quoted prices in active markets for identical securities |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
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20 | Wells Fargo Advantage VT International Equity 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.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in : | ||||||||||||||||
Common stocks | ||||||||||||||||
Canada | $ | 6,326,893 | $ | 0 | $ | 0 | $ | 6,326,893 | ||||||||
China | 0 | 17,460,115 | 0 | 17,460,115 | ||||||||||||
Germany | 0 | 31,274,066 | 0 | 31,274,066 | ||||||||||||
Hong Kong | 0 | 25,076,888 | 0 | 25,076,888 | ||||||||||||
Italy | 0 | 29,433,480 | 0 | 29,433,480 | ||||||||||||
Japan | 0 | 66,359,318 | 0 | 66,359,318 | ||||||||||||
Netherlands | 0 | 9,373,379 | 0 | 9,373,379 | ||||||||||||
Norway | 1,891,394 | 7,357,322 | 0 | 9,248,716 | ||||||||||||
South Korea | 0 | 15,065,584 | 0 | 15,065,584 | ||||||||||||
Sweden | 0 | 4,676,648 | 0 | 4,676,648 | ||||||||||||
Switzerland | 0 | 25,608,848 | 0 | 25,608,848 | ||||||||||||
United Kingdom | 164,086 | 53,181,757 | 0 | 53,345,843 | ||||||||||||
United States | 6,911,724 | 0 | 0 | 6,911,724 | ||||||||||||
Participation notes | ||||||||||||||||
China | 0 | 4,312,687 | 0 | 4,312,687 | ||||||||||||
Preferred stocks | ||||||||||||||||
Germany | 0 | 3,387,394 | 0 | 3,387,394 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 27,360,559 | 1,127,040 | 0 | 28,487,599 | ||||||||||||
42,654,656 | 293,694,526 | 0 | 336,349,182 | |||||||||||||
Forward foreign currency contracts | 0 | 2,148,958 | 0 | 2,148,958 | ||||||||||||
Total assets | $ | 42,654,656 | $ | 295,843,484 | $ | 0 | $ | 338,498,140 | ||||||||
Liabilities | ||||||||||||||||
Forward foreign currency contracts | $ | 0 | $ | 10,215 | $ | 0 | $ | 10,215 | ||||||||
Total liabilities | $ | 0 | $ | 10,215 | $ | 0 | $ | 10,215 |
Forward foreign currency contracts are reported at their unrealized gains (losses) at measurement date, which represents the change in the contract’s value from trade date. All other assets and liabilities are reported at their market value at measurement date.
The Fund recognizes transfers between levels at the end of the reporting period. At December 31, 2014, fair value pricing was used in pricing certain foreign securities and securities valued at $288,254,799 were transferred from Level 1 to Level 2 within the fair value hierarchy. The Fund did not have any transfers into/out of Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, the advisory fee was equivalent to an annual rate of 0.75% of the Fund’s average daily net assets.
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Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 21 |
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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
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 April 30, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.69% for Class 1 shares and 0.94% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
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, 2014 were $127,870,241 and $140,641,848, respectively.
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2014, the Fund entered into forward foreign currency contracts for economic hedging purposes.
At December 31, 2014, the Fund had forward foreign currency contracts outstanding as follows:
Forward foreign currency contracts to sell:
Exchange date | Counterparty | Contracts to deliver | U.S. value at December 31, 2014 | In exchange for U.S. $ | Unrealized gains (losses) | |||||||||||||
1-2-2015 | Brown Brothers Harriman | 540,740 | GBP | $ | 842,798 | $ | 841,608 | $ | (1,190 | ) | ||||||||
1-5-2015 | Deutsche Bank | 692,439 | GBP | 1,079,237 | 1,079,270 | 33 | ||||||||||||
1-6-2015 | Citibank | 165,027,088 | JPY | 1,377,752 | 1,368,727 | (9,025 | ) | |||||||||||
1-8-2015 | Barclays | 2,503,433,800 | JPY | 20,900,618 | 23,049,543 | 2,148,925 |
The Fund had average contract amounts of $1,485,003 and $29,513,993 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the year ended December 31, 2014.
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.
For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives while
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22 | Wells Fargo Advantage VT International Equity Fund | Notes to financial statements |
collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:
Derivative type | Counterparty | Gross amounts of assets in the Statement of Assets and Liabilities | Amounts subject to netting agreements | Collateral received | Net amount of assets | |||||||||||||
Forward foreign currency contracts | Barclays | $ | 2,148,925 | * | $ | 0 | $ | 0 | $ | 2,148,925 | ||||||||
Forward foreign currency contracts | Deutsche Bank | 33 | * | 0 | 0 | 33 |
* | Amount represents net unrealized gains. |
Derivative type | Counterparty | Gross amounts of liabilities in the Statement of Assets and Liabilities | Amounts subject to netting agreements | Collateral pledged | Net amount of liabilities | |||||||||||||
Forward foreign currency contracts | Brown Brothers Harriman | $ | 1,190 | ** | $ | 0 | $ | 0 | $ | 1,190 | ||||||||
Forward foreign currency contracts | Citibank | 9,025 | ** | 0 | 0 | 9,025 |
** | Amount represents net unrealized losses. |
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 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, 2014, the Fund paid $672 in commitment fees.
For the year ended December 31, 2014, there were no borrowings by the Fund under the agreement.
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2014 and December 31, 2013 were as follows:
Year ended December 31 | ||||
2014 | 2013 | |||
Ordinary income | $9,464,107 | $7,424,020 | ||
Long-term capital gain | 8,078,463 | 17,019,426 |
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Notes to financial statements | Wells Fargo Advantage VT International Equity Fund | 23 |
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
$13,355,940 | $30,491,780 | $(3,311,330) |
10. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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 International Equity Fund as of December 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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Other information (unaudited) | Wells Fargo Advantage VT International Equity Fund | 25 |
TAX INFORMATION
Pursuant to Section 852 of the Internal Revenue Code, $8,078,463 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2014.
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, 2014. 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 | ||
$476,738 | $0.0069 | 82.83% |
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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26 | Wells Fargo Advantage VT International Equity Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 International Equity Fund | 27 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management , LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230413 02-15 AVT3/AR149 12-14 |
Table of Contents
Wells Fargo Advantage VT Intrinsic Value Fund
Annual Report
December 31, 2014
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, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Intrinsic Value Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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, 2014. Improving U.S. economic data and strong corporate earnings helped drive positive returns for U.S. stocks overall in 2014. In contrast, many economies and markets elsewhere in the world faced significant ongoing challenges during the period.
2014’s fitful start gave way to a rally that carried through the second quarter of 2014.
Following a difficult first quarter for the U.S. economy—when unusually harsh weather kept consumers at home, disrupted business activities, and ultimately drove a 2.1% contraction in real gross domestic product (GDP)—the second quarter of 2014 brought warmer temperatures, and the U.S. economy picked up steam. Investors were heartened by encouraging economic data, driving stocks higher. In Europe, signs of economic improvement faded when GDP stagnated during the second quarter. Although select peripheral countries, such as Spain and Portugal, provided bright spots, some of Europe’s larger economies were pressured by weak economic growth and potential deflation. European stock returns generally were positive but lackluster.
U.S. Federal Reserve (Fed) officials continued winding down their bond-buying program during the second quarter, leaving it on pace to end in 2014. They also revisited the question of when to begin raising short-term interest rates from near zero and released new projections showing rates rising more than previously expected in 2015 and 2016; however, they slightly reduced their projections for rates over the longer term. The markets took this information in stride, with both U.S. stocks and bonds rallying.
Positive U.S. economic data—but increased tensions abroad—led to heightened volatility in the third quarter of 2014.
The third quarter brought a series of stock market surges that were interrupted by bouts of volatility as interest-rate concerns in the U.S. and increased tensions abroad triggered heightened investor uncertainty. In July, an escalating Russia/Ukraine situation and a growing perception that the Fed would raise short-term interest rates sooner than expected caused investors to pull back toward month-end; as a result, the S&P 500 Index1 dropped into negative territory for its overall monthly return. However, August brought a bounce-back—the S&P 500 Index delivered its largest monthly gain since February 2014 on a string of positive economic news, led by an upwardly revised 4.2% estimate of second-quarter 2014 GDP growth. Then, in September, stock market volatility rose as positive economic data became overshadowed at times by growing discomfort over escalating tensions in Ukraine and the Middle East. Signs of slowing growth in Europe and China also concerned investors. Ultimately, U.S. stocks ended the third quarter up slightly overall, buoyed largely by another upward revision of second-quarter GDP growth (to 4.6%). Strong corporate earnings also contributed to market gains, with a large number of U.S. companies exceeding consensus estimates for both revenues and earnings per share.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 3 |
The fourth quarter of 2014 brought continued improvement in the U.S.; international economies remained challenged.
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014. The last several, in December, were spurred by investor optimism following Fed Chair Janet Yellen’s comment that the Fed would be patient in its timing of an interest-rate increase. U.S. stocks also were boosted by positive data reflecting an economy continuing to strengthen. November’s 5.8% unemployment rate was down from 7.0% a year earlier, and the number of jobs being added continued to expand, keeping U.S. employers on pace to hire nearly three million workers during 2014—the most since 1999. In addition, the U.S. economy’s third-quarter growth rate was revised upward during the quarter, to 5.0%—its fastest pace in 11 years. Meanwhile, U.S. companies continued to report strong earnings during the quarter, providing an additional catalyst for stocks. The steadily brightening U.S. economy energized consumers, who were further buoyed by much lower prices at the gasoline pump. During the fourth quarter, gasoline prices fell to their lowest levels in five years, according to the American Automobile Association.
As the U.S. churned forward, major economies elsewhere in the world faced significant ongoing challenges. Growth in China continued to slow, Japan remained in a recession that had begun the previous quarter, and Russia’s economy contracted for the first time since 2009 as the country struggled under the weight of slumping oil prices, international sanctions, and massive outflows of capital. In the eurozone, growth remained sluggish as member countries faced an environment of low demand, high unemployment, and weak business investment.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014.
We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
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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
Jeffrey Peck
Jean-Baptiste Nadal, CFA
Miguel E. Giaconi, CFA
Average annual total returns1 (%) as of December 31, 2014
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 2 | 5-6-1996 | 10.31 | 13.85 | 6.19 | 1.13 | 1.01 | ||||||||||||||||
Russell 1000® Value Index4 | – | 13.45 | 15.42 | 7.30 | – | – |
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, which 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 fees 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.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 5 |
Growth of $10,000 investment5 as of December 31, 2014 |
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 ratios as stated in the most recent prospectus, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the 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 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. | 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. |
* | This security was not held in the Fund at the end of the reporting period. |
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6 | Wells Fargo Advantage VT Intrinsic Value Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
n | The Fund underperformed its benchmark, the Russell 1000 Value Index, for the 12-month period that ended December 31, 2014. |
n | Stock selection accounted for all of the Fund’s underperformance. Relative sector weightings, which are a by-product of our bottom-up security selection process, contributed to performance relative to the index during the period. |
n | Security selection in the financials, consumer staples, and information technology (IT) sectors detracted from relative return. However, the negative effect was partially offset by an overweight to the IT sector, which was the best-performing sector in the index. Stock selection in the consumer discretionary and industrials sectors enhanced relative performance. |
Stock selection was the primary source of underperformance during the 12-month period.
During the period, stock selection in the financials, consumer staples, and IT sectors detracted from relative performance. The negative effect was partially offset by an IT sector overweight. Primary detractors included wealth management services provider UBS Group AG in the financials sector, global premium spirits provider Diageo plc in the consumer staples sector, and semiconductor producer QUALCOMM Incorporated* in the IT sector.
Ten largest equity holdings6 (%) as of December 31, 2014 | ||||
The Walt Disney Company | 3.26 | |||
Express Scripts Holding Company | 3.21 | |||
Goldman Sachs Group Incorporated | 3.18 | |||
BB&T Corporation | 2.84 | |||
TRW Automotive Holdings Corporation | 2.84 | |||
Time Warner Incorporated | 2.75 | |||
The Procter & Gamble Company | 2.75 | |||
Cigna Corporation | 2.70 | |||
Chubb Corporation | 2.66 | |||
The Boeing Company | 2.63 |
Security selection in the consumer discretionary and industrials sectors enhanced relative performance. Top contributors included global auto parts supplier TRW Automotive Holdings Corporation in the consumer discretionary sector and supplier of sensors and controls Sensata Technologies Holding NV in the industrials sector.
The Fund’s non-U.S. holdings detracted from relative performance. However, we continue to maintain our global research perspective, which we believe allows us to fully understand the future investment potential of the companies in which we invest by providing context on their worldwide competitors, suppliers, and customers. We continue to have a positive long-term outlook for the
Fund’s non-U.S. investments—large, global companies located in developed, politically stable countries—and believe the portfolio is positioned to perform more favorably in the future.
Sector distribution7 as of December 31, 2014 |
During the past 12 months, we added several high-quality investments to the Fund’s holdings and divested several positions according to our disciplined investment process.
The Fund’s energy sector underweight decreased with new investments in energy industry equipment manufacturer FMC Technologies Incorporated and exploration and production companies EOG Resources Incorporated and BG Group plc, despite the sale of integrated energy company Hess Corporation* and
exploration and production company QEP Resources Incorporated*. The Fund gained exposure to the telecommunication services sector with the purchase of Verizon Communications Incorporated. The Fund’s IT sector overweight narrowed with the divestment of financial management software provider Intuit Incorporated* and technology solutions provider IBM Corporation*. We added to the Fund’s IT sector investments with purchases of software company Microsoft Corporation and money transfer and payment service provider The Western Union Company. Meanwhile, the overweight to the consumer discretionary sector decreased with sale of home-improvement retailer The Home Depot Incorporated* and specialty jewelry
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Intrinsic Value Fund | 7 |
retailer Tiffany & Company*, despite the purchase of hospitality company Marriott International Incorporated. The Fund’s financials sector underweight was reduced with the purchase of regional bank BB&T Corporation and property and casualty insurance company The Chubb Corporation. Those purchases were partially offset by the sale of regional bank Zions Bancorporation*. The Fund’s consumer staples sector overweight was reduced with the sale of American chocolatier The Hershey Company*, despite our purchases of global brewer Anheuser-Busch InBev and household and personal care products provider The Procter & Gamble Company.
We believe individual company fundamentals will ultimately determine security performance.
During 2014, investors experienced the lingering impacts of the U.S. Federal Reserve’s (Fed’s) quantitative easing–related bond-buying program. During the past several years, the Fed’s accommodative monetary policy and low-interest-rate environment encouraged investment in riskier assets, particularly equities. This environment has been challenging for us and other active managers as low-quality companies have tended to outperform high-quality companies. We believe high-quality investments shifted toward improved relative performance patterns during the fourth quarter and that the U.S. economy is poised for continued growth in 2015. In this environment, we expect high-quality companies with strong balance sheets and free cash flows should outperform lower-quality companies on both an absolute and relative basis. If the U.S. economy is negatively affected by slow growth in Europe or Asia or lower oil prices, we also anticipate high-quality companies could post stronger relative performance, although slower revenue growth could affect absolute returns.
We remain committed to our intrinsic value investment approach, seeking high-quality companies with stock prices that we believe are trading at a significant discount to our intrinsic value estimates and where we can identify catalysts that we believe may close the value gap over our investment horizon.
Please see footnotes on page 5.
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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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,039.74 | $ | 5.14 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
1. | Expenses paid is equal to the annualized 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, 2014 | Wells Fargo Advantage VT Intrinsic Value Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 98.51% | ||||||||||||
Consumer Discretionary: 12.66% | ||||||||||||
Auto Components: 2.83% | ||||||||||||
TRW Automotive Holdings Corporation † | 12,762 | $ | 1,312,572 | |||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure: 2.00% | ||||||||||||
Marriott International Incorporated | 11,884 | 927,309 | ||||||||||
|
| |||||||||||
Media: 6.01% | ||||||||||||
The Walt Disney Company | 16,002 | 1,507,228 | ||||||||||
Time Warner Incorporated | 14,921 | 1,274,552 | ||||||||||
2,781,780 | ||||||||||||
|
| |||||||||||
Textiles, Apparel & Luxury Goods: 1.82% | ||||||||||||
Kering Unsponsored ADR | 43,906 | 840,800 | ||||||||||
|
| |||||||||||
Consumer Staples: 10.51% | ||||||||||||
Beverages: 5.85% | ||||||||||||
Anheuser-Busch InBev ADR | 10,785 | 1,211,371 | ||||||||||
Diageo plc ADR | 4,235 | 483,171 | ||||||||||
PepsiCo Incorporated | 10,734 | 1,015,007 | ||||||||||
2,709,549 | ||||||||||||
|
| |||||||||||
Food Products: 1.91% | ||||||||||||
Unilever NV ADR | 22,591 | 881,953 | ||||||||||
|
| |||||||||||
Household Products: 2.75% | ||||||||||||
The Procter & Gamble Company | 13,970 | 1,272,527 | ||||||||||
|
| |||||||||||
Energy: 8.27% | ||||||||||||
Energy Equipment & Services: 3.80% | ||||||||||||
FMC Technologies Incorporated † | 21,541 | 1,008,980 | ||||||||||
Schlumberger Limited | 8,812 | 752,633 | ||||||||||
1,761,613 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels: 4.47% | ||||||||||||
BG Group plc ADR | 37,630 | 502,737 | ||||||||||
EOG Resources Incorporated | 9,666 | 889,949 | ||||||||||
Occidental Petroleum Corporation | 8,368 | 674,544 | ||||||||||
2,067,230 | ||||||||||||
|
| |||||||||||
Financials: 21.04% | ||||||||||||
Banks: 7.67% | ||||||||||||
BB&T Corporation | 33,790 | 1,314,093 | ||||||||||
JPMorgan Chase & Company | 18,103 | 1,132,886 | ||||||||||
SunTrust Banks Incorporated | 26,303 | 1,102,096 | ||||||||||
3,549,075 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Capital Markets: 10.71% | ||||||||||||
Charles Schwab Corporation | 26,466 | $ | 799,009 | |||||||||
Franklin Resources Incorporated | 15,806 | 875,178 | ||||||||||
Goldman Sachs Group Incorporated | 7,599 | 1,472,914 | ||||||||||
Northern Trust Corporation | 15,638 | 1,054,001 | ||||||||||
UBS Group AG | 44,437 | 757,651 | ||||||||||
4,958,753 | ||||||||||||
|
| |||||||||||
Insurance: 2.66% | ||||||||||||
Chubb Corporation | 11,917 | 1,233,052 | ||||||||||
|
| |||||||||||
Health Care: 11.66% | ||||||||||||
Health Care Equipment & Supplies: 4.44% | ||||||||||||
Abbott Laboratories | 26,310 | 1,184,476 | ||||||||||
Baxter International Incorporated | 11,883 | 870,905 | ||||||||||
2,055,381 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 5.91% | ||||||||||||
Cigna Corporation | 12,129 | 1,248,195 | ||||||||||
Express Scripts Holding Company † | 17,568 | 1,487,483 | ||||||||||
2,735,678 | ||||||||||||
|
| |||||||||||
Pharmaceuticals: 1.31% | ||||||||||||
AbbVie Incorporated | 9,295 | 608,265 | ||||||||||
|
| |||||||||||
Industrials: 11.97% | ||||||||||||
Aerospace & Defense: 6.96% | ||||||||||||
Honeywell International Incorporated | 11,695 | 1,168,564 | ||||||||||
Huntington Ingalls Industries Incorporated | 7,430 | 835,578 | ||||||||||
The Boeing Company | 9,365 | 1,217,263 | ||||||||||
3,221,405 | ||||||||||||
|
| |||||||||||
Air Freight & Logistics: 2.41% | ||||||||||||
United Parcel Service Incorporated Class B | 10,031 | 1,115,146 | ||||||||||
|
| |||||||||||
Electrical Equipment: 2.60% | ||||||||||||
Sensata Technologies Holding NV † | 23,026 | 1,206,793 | ||||||||||
|
| |||||||||||
Information Technology: 14.46% | ||||||||||||
Communications Equipment: 1.67% | ||||||||||||
QUALCOMM Incorporated | 10,393 | 772,512 | ||||||||||
|
| |||||||||||
IT Services: 2.17% | ||||||||||||
The Western Union Company | 56,088 | 1,004,536 | ||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment: 2.10% | ||||||||||||
Texas Instruments Incorporated | 18,180 | 971,994 | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Intrinsic Value Fund | 11 |
Security name | Shares | Value | ||||||||||||
Software: 4.59% | ||||||||||||||
Microsoft Corporation | 20,391 | $ | 947,162 | |||||||||||
Oracle Corporation | 26,236 | 1,179,833 | ||||||||||||
2,126,995 | ||||||||||||||
|
| |||||||||||||
Technology Hardware, Storage & Peripherals: 3.93% | ||||||||||||||
Apple Incorporated | 8,236 | 909,090 | ||||||||||||
EMC Corporation | 30,630 | 910,936 | ||||||||||||
1,820,026 | ||||||||||||||
|
| |||||||||||||
Materials: 1.97% | ||||||||||||||
Chemicals: 1.97% | ||||||||||||||
E.I. du Pont de Nemours & Company | 12,310 | 910,201 | ||||||||||||
|
| |||||||||||||
Telecommunication Services: 1.51% | ||||||||||||||
Diversified Telecommunication Services: 1.51% | ||||||||||||||
Verizon Communications Incorporated | 14,908 | 697,396 | ||||||||||||
|
| |||||||||||||
Utilities: 4.46% | ||||||||||||||
Electric Utilities: 4.46% | ||||||||||||||
NextEra Energy Incorporated | 11,138 | 1,183,858 | ||||||||||||
Northeast Utilities | 16,464 | 881,153 | ||||||||||||
2,065,011 | ||||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $32,798,282) | 45,607,552 | |||||||||||||
|
| |||||||||||||
Yield | ||||||||||||||
Short-Term Investments: 2.12% | ||||||||||||||
Investment Companies: 2.12% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | % | 984,277 | 984,277 | ||||||||||
|
| |||||||||||||
Total Short-Term Investments (Cost $984,277) | 984,277 | |||||||||||||
|
|
Total investments in securities (Cost $33,782,559) * | 100.63 | % | 46,591,829 | |||||
Other assets and liabilities, net | (0.63 | ) | (293,622 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 46,298,207 | ||||
|
|
|
|
† | Non-income-earning security |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $33,787,158 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 13,297,260 | ||
Gross unrealized losses | (492,589 | ) | ||
|
| |||
Net unrealized gains | $12,804,671 |
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, 2014 |
Assets | ||||
Investments | ||||
In unaffiliated securities, at value (cost $32,798,282) | $ | 45,607,552 | ||
In affiliated securities, at value (cost $984,277) | 984,277 | |||
|
| |||
Total investments, at value (cost $33,782,559) | 46,591,829 | |||
Receivable for Fund shares sold | 13,300 | |||
Receivable for dividends | 69,586 | |||
Receivable for securities lending income | 18 | |||
Prepaid expenses and other assets | 2,804 | |||
|
| |||
Total assets | 46,677,537 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 205,341 | |||
Payable for Fund shares redeemed | 97,893 | |||
Advisory fee payable | 18,996 | |||
Distribution fee payable | 10,231 | |||
Administration fee payable | 5,320 | |||
Professional fees payable | 32,483 | |||
Accrued expenses and other liabilities | 9,066 | |||
|
| |||
Total liabilities | 379,330 | |||
|
| |||
Total net assets | $ | 46,298,207 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 27,112,741 | ||
Undistributed net investment income | 362,775 | |||
Accumulated net realized gains on investments | 6,013,421 | |||
Net unrealized gains on investments | 12,809,270 | |||
|
| |||
Total net assets | $ | 46,298,207 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 2 | $ | 46,298,207 | ||
Shares outstanding – Class 21 | 2,240,455 | |||
Net asset value per share – Class 2 | $20.66 |
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, 2014 | Wells Fargo Advantage VT Intrinsic Value Fund | 13 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $12,759) | $ | 843,186 | ||
Securities lending income, net | 2,495 | |||
Income from affiliated securities | 1,053 | |||
|
| |||
Total investment income | 846,734 | |||
|
| |||
Expenses | ||||
Advisory fee | 266,166 | |||
Administration fee | 62,912 | |||
Distribution fee | ||||
Class 2 | 120,984 | |||
Custody and accounting fees | 8,305 | |||
Professional fees | 42,343 | |||
Shareholder report expenses | 4,658 | |||
Trustees’ fees and expenses | 11,858 | |||
Other fees and expenses | 3,985 | |||
|
| |||
Total expenses | 521,211 | |||
Less: Fee waivers and/or expense reimbursements | (37,274 | ) | ||
|
| |||
Net expenses | 483,937 | |||
|
| |||
Net investment income | 362,797 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 6,916,346 | |||
Net change in unrealized gains (losses) on investments | (2,563,404 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | 4,352,942 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 4,715,739 | ||
|
|
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, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 362,797 | $ | 367,818 | ||||||||||||
Net realized gains on investments | 6,916,346 | 5,759,618 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (2,563,404 | ) | 6,914,033 | |||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 4,715,739 | 13,041,469 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (367,828 | ) | (511,372 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 68,901 | 1,337,139 | 224,079 | 3,709,143 | ||||||||||||
Reinvestment of distributions – Class 2 | 18,521 | 367,828 | 29,800 | 511,372 | ||||||||||||
Payment for shares redeemed – Class 2 | (568,515 | ) | (11,100,349 | ) | (714,028 | ) | (11,967,978 | ) | ||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (9,395,382 | ) | (7,747,463 | ) | ||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | (5,047,471 | ) | 4,782,634 | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 51,345,678 | 46,563,044 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 46,298,207 | $ | 51,345,678 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 362,775 | $ | 367,806 | ||||||||||||
|
|
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 | 2014 | 2013 | 2012 | 2011 | 20101,2 | |||||||||||||||
Net asset value, beginning of period | $18.87 | $14.63 | $12.42 | $12.76 | $11.31 | |||||||||||||||
Net investment income | 0.18 | 0.15 | 0.18 | 0.18 | 0.16 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 1.76 | 4.27 | 2.22 | (0.45 | ) | 1.39 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.94 | 4.42 | 2.40 | (0.27 | ) | 1.55 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.15 | ) | (0.18 | ) | (0.19 | ) | (0.07 | ) | (0.10 | ) | ||||||||||
Net asset value, end of period | $20.66 | $18.87 | $14.63 | $12.42 | $12.76 | |||||||||||||||
Total return | 10.31 | % | 30.30 | % | 19.47 | % | (2.15 | )% | 13.83 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.08 | % | 1.12 | % | 1.14 | % | 1.17 | % | 1.10 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||
Net investment income | 0.75 | % | 0.74 | % | 1.07 | % | 1.17 | % | 1.29 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 26 | % | 22 | % | 22 | % | 26 | % | 72 | % | ||||||||||
Net assets, end of period (000s omitted) | $46,298 | $51,346 | $46,563 | $46,285 | $58,832 |
1. | 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. |
2. | After the close of business on July 16, 2010, existing shares of Wells Fargo Advantage VT Equity Income Fund were renamed Class 2 shares. |
The accompanying notes are an integral part of these financial statements.
Table of Contents
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”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, 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 vehicles 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 in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the 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.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”).
Table of Contents
Notes to financial statements | Wells Fargo Advantage VT Intrinsic Value Fund | 17 |
The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
n | Level 1 – quoted prices in active markets for identical securities |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
Table of Contents
18 | Wells Fargo Advantage VT Intrinsic Value Fund | Notes to financial statements |
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 5,862,461 | $ | 0 | $ | 0 | $ | 5,862,461 | ||||||||
Consumer staples | 4,864,029 | 0 | 0 | 4,864,029 | ||||||||||||
Energy | 3,828,843 | 0 | 0 | 3,828,843 | ||||||||||||
Financials | 9,740,880 | 0 | 0 | 9,740,880 | ||||||||||||
Health care | 5,399,324 | 0 | 0 | 5,399,324 | ||||||||||||
Industrials | 5,543,344 | 0 | 0 | 5,543,344 | ||||||||||||
Information technology | 6,696,063 | 0 | 0 | 6,696,063 | ||||||||||||
Materials | 910,201 | 0 | 0 | 910,201 | ||||||||||||
Telecommunication services | 697,396 | 0 | 0 | 697,396 | ||||||||||||
Utilities | 2,065,011 | 0 | 0 | 2,065,011 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 984,277 | 0 | 0 | 984,277 | ||||||||||||
Total assets | $ | 46,591,829 | $ | 0 | $ | 0 | $ | 46,591,829 |
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, common stocks with a market value of $840,800 were transferred from Level 2 to Level 1 because of an increase in the market activity of these securities. At December 31, 2014, there were no transfers into/out of Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, 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 fee
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 administration fee starting at 0.13% and declining to 0.11% as the average daily net assets of the Fund increase.
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, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 1.00% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
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Notes to financial statements | Wells Fargo Advantage VT Intrinsic Value Fund | 19 |
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
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, 2014 were $12,408,634 and $19,509,311, 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 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, 2014, the Fund paid $75 in commitment fees.
For the year ended December 31, 2014, there were no borrowings by the Fund under the agreement.
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $367,828 and $511,372 of ordinary income for the years ended December 31, 2014 and December 31,2013, respectively.
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | ||
$362,775 | $6,018,020 | $12,804,671 |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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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, 2014.
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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22 | Wells Fargo Advantage VT Intrinsic Value Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230414 02-15 AVT4/AR150 12-14 |
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Wells Fargo Advantage VT Omega Growth Fund
Annual Report
December 31, 2014
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Reduce clutter. Save trees.
Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery
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Financial statements | ||||
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The views expressed and any forward-looking statements are as of December 31, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Omega Growth Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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, 2014. Improving U.S. economic data and strong corporate earnings helped drive positive returns for U.S. stocks overall in 2014. In contrast, many economies and markets elsewhere in the world faced significant ongoing challenges during the period.
2014’s fitful start gave way to a rally that carried through the second quarter of 2014.
Following a difficult first quarter for the U.S. economy—when unusually harsh weather kept consumers at home, disrupted business activities, and ultimately drove a 2.1% contraction in real gross domestic product (GDP)—the second quarter of 2014 brought warmer temperatures, and the U.S. economy picked up steam. Investors were heartened by encouraging economic data, driving stocks higher. In Europe, signs of economic improvement faded when GDP stagnated during the second quarter. Although select peripheral countries, such as Spain and Portugal, provided bright spots, some of Europe’s larger economies were pressured by weak economic growth and potential deflation. European stock returns generally were positive but lackluster.
U.S. Federal Reserve (Fed) officials continued winding down their bond-buying program during the second quarter, leaving it on pace to end in 2014. They also revisited the question of when to begin raising short-term interest rates from near zero and released new projections showing rates rising more than previously expected in 2015 and 2016; however, they slightly reduced their projections for rates over the longer term. The markets took this information in stride, with both U.S. stocks and bonds rallying.
Positive U.S. economic data—but increased tensions abroad—led to heightened volatility in the third quarter of 2014.
The third quarter brought a series of stock market surges that were interrupted by bouts of volatility as interest-rate concerns in the U.S. and increased tensions abroad triggered heightened investor uncertainty. In July, an escalating Russia/Ukraine situation and a growing perception that the Fed would raise short-term interest rates sooner than expected caused investors to pull back toward month-end; as a result, the S&P 500 Index1 dropped into negative territory for its overall monthly return. However, August brought a bounce-back—the S&P 500 Index delivered its largest monthly gain since February 2014 on a string of positive economic news, led by an upwardly revised 4.2% estimate of second-quarter 2014 GDP growth. Then, in September, stock market volatility rose as positive economic data became overshadowed at times by growing discomfort over escalating tensions in Ukraine and the Middle East. Signs of slowing growth in Europe and China also concerned investors. Ultimately, U.S. stocks ended the third quarter up slightly overall, buoyed largely by another upward revision of second-quarter GDP growth (to 4.6%). Strong corporate earnings also contributed to market gains, with a large number of U.S. companies exceeding consensus estimates for both revenues and earnings per share.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 3 |
The fourth quarter of 2014 brought continued improvement in the U.S.; international economies remained challenged.
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014. The last several, in December, were spurred by investor optimism following Fed Chair Janet Yellen’s comment that the Fed would be patient in its timing of an interest-rate increase. U.S. stocks also were boosted by positive data reflecting an economy continuing to strengthen. November’s 5.8% unemployment rate was down from 7.0% a year earlier, and the number of jobs being added continued to expand, keeping U.S. employers on pace to hire nearly three million workers during 2014—the most since 1999. In addition, the U.S. economy’s third-quarter growth rate was revised upward during the quarter, to 5.0%—its fastest pace in 11 years. Meanwhile, U.S. companies continued to report strong earnings during the quarter, providing an additional catalyst for stocks. The steadily brightening U.S. economy energized consumers, who were further buoyed by much lower prices at the gasoline pump. During the fourth quarter, gasoline prices fell to their lowest levels in five years, according to the American Automobile Association.
As the U.S. churned forward, major economies elsewhere in the world faced significant ongoing challenges. Growth in China continued to slow, Japan remained in a recession that had begun the previous quarter, and Russia’s economy contracted for the first time since 2009 as the country struggled under the weight of slumping oil prices, international sanctions, and massive outflows of capital. In the eurozone, growth remained sluggish as member countries faced an environment of low demand, high unemployment, and weak business investment.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014.
We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
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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 returns (%) as of December 31, 2014
Expense ratios1 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
Class 1 | 3-6-1997 | 4.09 | 14.85 | 9.95 | 0.79 | 0.75 | ||||||||||||||||
Class 2 | 7-31-2002 | 3.86 | 14.57 | 9.67 | 1.04 | 1.00 | ||||||||||||||||
Russell 3000® Growth Index3 | – | 12.44 | 15.89 | 8.50 | – | – |
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, which 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 fees 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 investment4 as of December 31, 2014 |
1. | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
2. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
3. | 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. |
4. | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 3000® Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
5. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
6. | The 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. |
* | This security was not held in the Fund at the end of the reporting period. |
Table of Contents
6 | Wells Fargo Advantage VT Omega Growth Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
n | The Fund lagged its benchmark, the Russell 3000 Growth Index, for the 12-month period that ended December 31, 2014. |
n | Stock selection in the energy and information technology (IT) sectors challenged relative performance; stock selection in the telecommunication services and health care sectors contributed positively to the Fund’s results. |
Overall, 2014 was a good year for the U.S. economy and stock market.
Encouraging U.S. economic data, coupled with strong corporate earnings, drove positive U.S. stock returns for 2014 as measured by the S&P 500 Index5. U.S. stocks (led by larger caps) outperformed most international markets for the year despite near-constant market volatility driven by a series of geopolitical and macroeconomic issues, such as the potential for a U.S. interest-rate increase earlier than many investors had anticipated and the situation in Ukraine. The heightened uncertainty drove stock investors to at times seek the perceived safety of larger-cap stocks with lower relative valuations and higher dividend yields. This investor trend was especially evident during the two-month period from early March through early May 2014 when higher-valuation, higher-growth companies significantly underperformed slower-growing companies.
Ten largest equity holdings6 (%) as of December 31, 2014 | ||||
Facebook Incorporated Class A | 3.44 | |||
Apple Incorporated | 2.90 | |||
Comcast Corporation Class A | 2.70 | |||
Liberty Global plc Class C | 2.65 | |||
IntercontinentalExchange Group Incorporated | 2.60 | |||
SBA Communications Corporation Class A | 2.56 | |||
Visa Incorporated Class A | 2.37 | |||
Gilead Sciences Incorporated | 2.20 | |||
Micron Technology Incorporated | 2.16 | |||
AbbVie Incorporated | 2.06 |
We believe that, in any market environment, a portfolio’s construction must balance risk and return. We strive to provide this balance through a portfolio composed of three distinct types of growth companies. Core growth holdings (typically 40%–50% of assets) are companies that we believe have stable growth records, proven management teams, and relatively low volatility. Developing situations (typically 40%–50% of assets) are firms we believe are entering a period of accelerated growth driven by a new product, business plan, or management team. The remainder of the portfolio (typically 5%–10% of assets) is dedicated to valuation opportunities—holdings we believe carry above-average growth potential and relatively high volatility. Our conviction level drives each stock’s relative weight in the portfolio. This direct relationship helps us position our highest-conviction ideas to potentially make a significant impact on performance.
Results from the energy and IT sectors challenged the Fund’s relative performance.
Positioning in the energy sector weighed on results. Our fundamentally based investment process tends to be challenged when stock prices are driven by macroeconomic factors rather than company-specific fundamentals. This dynamic was apparent during the second half of 2014 as weak global demand and an increasing oil supply caused crude-oil prices to fall precipitously, causing a widespread sell-off in energy stocks. Portfolio holdings Antero Resources Corporation and Pioneer Natural Resources Company were negatively affected and detracted from returns.
Positioning in the IT sector hindered relative performance. As investors shed higher-valuation stocks early in 2014, IT holdings suffered because the innovation implicit in these stocks often drives premium valuations. Furthermore, investors nervous about the macroenvironment responded by rotating to slower-growing, blue-chip IT stocks that tended not to possess the requisite level of growth or innovation to merit inclusion in the Fund.
Holdings in health care and telecommunication services contributed positively to results.
Security selection in the telecommunication services sector contributed positively to performance. Firms with a high level of earnings visibility garnered considerable interest in a stock market that was ripe with uncertainty. Longtime portfolio holding SBA Communications Corporation, an owner of cellular towers, is a prime example of a high-earnings-visibility stock. SBA’s growth has been driven by the spending required to support the secular growth of smartphones and mobile video and data consumption. Network density and the increased demand for towers have led to strong leasing revenue.
Please see footnotes on page 5.
Table of Contents
Performance highlights (unaudited) | Wells Fargo Advantage VT Omega Growth Fund | 7 |
Also, SBA may continue participating in industry consolidation domestically and internationally via carrier-tower acquisition. These factors helped propel SBA’s shares higher in 2014.
Within the health care sector, our overweight to the biotechnology industry contributed positively to Fund performance. Biotech holding Celgene Corporation had been pressured early in 2014 on concerns that Revlimid, a blood cancer drug and Celgene’s biggest growth driver, could go generic sooner than anticipated. Based on our research, we believed these concerns were overdone and maintained the position. Our conviction was rewarded as Celgene continued to deliver strong results. Alexion Pharmaceuticals Incorporated* also benefited Fund performance, driven by growth in geographic approvals and additional indications of the company’s core drug, Soliris.
Sector distribution7 as of December 31, 2014 | ||
We look forward to 2015.
As 2014 ended, the U.S. economy clearly was moving forward. We believe falling gas prices, a healthier job market, stable home values, and a stronger U.S. dollar could lead U.S. consumers to increase spending in 2015, which could initiate a cycle of rising business investment. However, we are not certain the U.S. economy is ready to shift into high gear. Global deflation, the impact of a rising U.S. dollar on international economies, and the recent collapse in commodity prices are major unresolved concerns that may hamper the U.S. economy in 2015.
Despite the Fund’s relative underperformance in 2014, we remain committed to our investment process. Many Fund holdings have continued to benefit from consolidation, have expanded capacity, and have taken market share. We have strong conviction in these holdings, and we believe a catalyst may eventually emerge that will lead investors to increasingly recognize the attractive valuations of high-growth companies and more consistently reward those offering strong, sustainable growth.
Please see footnotes on page 5.
Table of Contents
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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,020.03 | $ | 3.82 | 0.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,019.33 | $ | 5.09 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
1. | Expenses paid is equal to the annualized 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, 2014 | Wells Fargo Advantage VT Omega Growth Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 98.81% | ||||||||||||
Consumer Discretionary: 21.84% | ||||||||||||
Auto Components: 1.21% | ||||||||||||
Delphi Automotive plc | 17,630 | $ | 1,282,054 | |||||||||
|
| |||||||||||
Distributors: 1.85% | ||||||||||||
LKQ Corporation † | 69,970 | 1,967,556 | ||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure: 2.57% | ||||||||||||
Chipotle Mexican Grill Incorporated † | 2,700 | 1,848,177 | ||||||||||
MGM Resorts International † | 41,500 | 887,270 | ||||||||||
2,735,447 | ||||||||||||
|
| |||||||||||
Internet & Catalog Retail: 1.74% | ||||||||||||
Amazon.com Incorporated † | 5,950 | 1,846,583 | ||||||||||
|
| |||||||||||
Leisure Products: 0.95% | ||||||||||||
Polaris Industries Incorporated | 6,656 | 1,006,653 | ||||||||||
|
| |||||||||||
Media: 8.58% | ||||||||||||
Comcast Corporation Class A | 49,500 | 2,871,495 | ||||||||||
Liberty Global plc Class C † | 58,222 | 2,812,705 | ||||||||||
Time Warner Incorporated | 18,800 | 1,605,896 | ||||||||||
Twenty-First Century Fox Incorporated | 47,400 | 1,820,397 | ||||||||||
9,110,493 | ||||||||||||
|
| |||||||||||
Specialty Retail: 1.56% | ||||||||||||
Advance Auto Parts Incorporated | 10,420 | 1,659,698 | ||||||||||
|
| |||||||||||
Textiles, Apparel & Luxury Goods: 3.38% | ||||||||||||
Carter’s Incorporated | 18,400 | 1,606,504 | ||||||||||
Under Armour Incorporated Class A † | 29,260 | 1,986,754 | ||||||||||
3,593,258 | ||||||||||||
|
| |||||||||||
Consumer Staples: 1.52% | ||||||||||||
Beverages: 1.52% | ||||||||||||
Constellation Brands Incorporated Class A † | 16,460 | 1,615,878 | ||||||||||
|
| |||||||||||
Energy: 3.16% | ||||||||||||
Energy Equipment & Services: 1.26% | ||||||||||||
Halliburton Company | 27,400 | 1,077,642 | ||||||||||
Nabors Industries Limited | 20,500 | 266,090 | ||||||||||
1,343,732 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels: 1.90% | ||||||||||||
Antero Resources Corporation †« | 13,049 | 529,528 | ||||||||||
Pioneer Natural Resources Company | 8,342 | 1,241,707 | ||||||||||
Sanchez Energy Corporation †« | 26,364 | 244,922 | ||||||||||
2,016,157 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Financials: 8.57% | ||||||||||||
Banks: 0.81% | ||||||||||||
Texas Capital Bancshares Incorporated † | 15,819 | $ | 859,446 | |||||||||
|
| |||||||||||
Capital Markets: 3.16% | ||||||||||||
Affiliated Managers Group Incorporated † | 8,139 | 1,727,421 | ||||||||||
Raymond James Financial Incorporated | 28,431 | 1,628,812 | ||||||||||
3,356,233 | ||||||||||||
|
| |||||||||||
Diversified Financial Services: 4.32% | ||||||||||||
IntercontinentalExchange Group Incorporated | 12,600 | 2,763,054 | ||||||||||
McGraw Hill Financial Incorporated | 20,600 | 1,832,988 | ||||||||||
4,596,042 | ||||||||||||
|
| |||||||||||
Insurance: 0.17% | ||||||||||||
eHealth Incorporated † | 7,237 | 180,346 | ||||||||||
|
| |||||||||||
REITs: 0.11% | ||||||||||||
Outfront Media Incorporated | 4,268 | 113,092 | ||||||||||
|
| |||||||||||
Health Care: 20.14% | ||||||||||||
Biotechnology: 8.67% | ||||||||||||
Biogen IDEC Incorporated † | 5,970 | 2,026,517 | ||||||||||
Celgene Corporation † | 18,880 | 2,111,917 | ||||||||||
Gilead Sciences Incorporated † | 24,836 | 2,341,041 | ||||||||||
Puma Biotechnology Incorporated † | 2,700 | 511,029 | ||||||||||
Regeneron Pharmaceuticals Incorporated † | 1,400 | 574,350 | ||||||||||
Vertex Pharmaceuticals Incorporated † | 13,900 | 1,651,320 | ||||||||||
9,216,174 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 6.02% | ||||||||||||
Community Health Systems Incorporated † | 24,400 | 1,315,648 | ||||||||||
DaVita HealthCare Partners Incorporated † | 18,200 | 1,378,468 | ||||||||||
Envision Healthcare Holdings Incorporated † | 47,151 | 1,635,668 | ||||||||||
McKesson Corporation | 9,960 | 2,067,497 | ||||||||||
6,397,281 | ||||||||||||
|
| |||||||||||
Pharmaceuticals: 5.45% | ||||||||||||
AbbVie Incorporated | 33,500 | 2,192,240 | ||||||||||
Bristol-Myers Squibb Company | 16,210 | 956,876 | ||||||||||
Eli Lilly & Company | 9,900 | 683,001 | ||||||||||
Perrigo Company plc | 11,700 | 1,955,772 | ||||||||||
5,787,889 | ||||||||||||
|
| |||||||||||
Industrials: 11.83% | ||||||||||||
Airlines: 1.41% | ||||||||||||
Delta Air Lines Incorporated | 30,390 | 1,494,884 | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Omega Growth Fund | 11 |
Security name | Shares | Value | ||||||||||
Machinery: 4.76% | ||||||||||||
Allison Transmission Holdings Incorporated | 33,800 | $ | 1,145,820 | |||||||||
Cummins Incorporated | 11,400 | 1,643,538 | ||||||||||
Proto Labs Incorporated †« | 16,772 | 1,126,408 | ||||||||||
Wabtec Corporation | 13,200 | 1,146,948 | ||||||||||
5,062,714 | ||||||||||||
|
| |||||||||||
Professional Services: 0.80% | ||||||||||||
IHS Incorporated Class A † | 7,423 | 845,331 | ||||||||||
|
| |||||||||||
Road & Rail: 3.55% | ||||||||||||
Canadian Pacific Railway Limited | 8,300 | 1,599,327 | ||||||||||
Old Dominion Freight Line Incorporated † | 17,400 | 1,350,936 | ||||||||||
Swift Transportation Company † | 28,600 | 818,818 | ||||||||||
3,769,081 | ||||||||||||
|
| |||||||||||
Trading Companies & Distributors: 1.31% | ||||||||||||
United Rentals Incorporated † | 13,650 | 1,392,437 | ||||||||||
|
| |||||||||||
Information Technology: 27.42% | ||||||||||||
Communications Equipment: 1.52% | ||||||||||||
Palo Alto Networks Incorporated † | 13,148 | 1,611,550 | ||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components: 2.69% | ||||||||||||
Cognex Corporation † | 29,000 | 1,198,570 | ||||||||||
FLIR Systems Incorporated | 10,789 | 348,593 | ||||||||||
TE Connectivity Limited | 20,800 | 1,315,600 | ||||||||||
2,862,763 | ||||||||||||
|
| |||||||||||
Internet Software & Services: 8.31% | ||||||||||||
Alibaba Group Holding Limited ADR † | 10,185 | 1,058,629 | ||||||||||
Facebook Incorporated Class A † | 46,905 | 3,659,528 | ||||||||||
Google Incorporated Class A † | 1,680 | 891,509 | ||||||||||
Google Incorporated Class C † | 3,480 | 1,831,872 | ||||||||||
LinkedIn Corporation Class A † | 3,600 | 826,956 | ||||||||||
Yelp Incorporated † | 10,139 | 554,907 | ||||||||||
8,823,401 | ||||||||||||
|
| |||||||||||
IT Services: 4.80% | ||||||||||||
Alliance Data Systems Corporation † | 4,300 | 1,230,015 | ||||||||||
Vantiv Incorporated Class A † | 40,118 | 1,360,803 | ||||||||||
Visa Incorporated Class A | 9,586 | 2,513,449 | ||||||||||
5,104,267 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment: 2.16% | ||||||||||||
Micron Technology Incorporated † | 65,400 | 2,289,654 | ||||||||||
|
| |||||||||||
Software: 3.57% | ||||||||||||
Salesforce.com Incorporated † | 23,720 | 1,406,833 | ||||||||||
ServiceNow Incorporated † | 18,480 | 1,253,868 |
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, 2014 |
Security name | Shares | Value | ||||||||||||
Software (continued) | ||||||||||||||
Workday Incorporated Class A † | 13,900 | $ | 1,134,379 | |||||||||||
3,795,080 | ||||||||||||||
|
| |||||||||||||
Technology Hardware, Storage & Peripherals: 4.37% | ||||||||||||||
Apple Incorporated | 27,920 | 3,081,810 | ||||||||||||
Western Digital Corporation | 14,100 | 1,560,870 | ||||||||||||
4,642,680 | ||||||||||||||
|
| |||||||||||||
Materials: 1.77% | ||||||||||||||
Chemicals: 1.77% | ||||||||||||||
Monsanto Company | 15,785 | 1,885,833 | ||||||||||||
|
| |||||||||||||
Telecommunication Services: 2.56% | ||||||||||||||
Wireless Telecommunication Services: 2.56% | ||||||||||||||
SBA Communications Corporation Class A † | 24,560 | 2,720,266 | ||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $81,956,567) | 104,983,953 | |||||||||||||
|
| |||||||||||||
Yield | ||||||||||||||
Short-Term Investments: 2.48% | ||||||||||||||
Investment Companies: 2.48% | ||||||||||||||
Securities Lending Cash Investments, LLC (l)(r)(u) | 0.14 | % | 1,839,824 | 1,839,824 | ||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | 789,414 | 789,414 | |||||||||||
Total Short-Term Investments (Cost $2,629,238) | 2,629,238 | |||||||||||||
|
|
Total investments in securities (Cost $84,585,805) * | 101.29 | % | 107,613,191 | |||||
Other assets and liabilities, net | (1.29 | ) | (1,367,891 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 106,245,300 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $84,869,945 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 25,424,063 | ||
Gross unrealized losses | (2,680,817 | ) | ||
|
| |||
Net unrealized gains | $ | 22,743,246 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of assets and liabilities—December 31, 2014 | Wells Fargo Advantage VT Omega Growth Fund | 13 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including $1,799,655 of securities loaned), at value (cost $81,956,567) | $ | 104,983,953 | ||
In affiliated securities, at value (cost $2,629,238) | 2,629,238 | |||
|
| |||
Total investments, at value (cost $84,585,805) | 107,613,191 | |||
Cash | 47,043 | |||
Receivable for investments sold | 1,301,786 | |||
Receivable for Fund shares sold | 316,061 | |||
Receivable for dividends | 23,277 | |||
Receivable for securities lending income | 515 | |||
Prepaid expenses and other assets | 3,140 | |||
|
| |||
Total assets | 109,305,013 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 988,647 | |||
Payable for Fund shares redeemed | 98,785 | |||
Payable upon receipt of securities loaned | 1,839,824 | |||
Advisory fee payable | 51,491 | |||
Distribution fee payable | 13,072 | |||
Administration fees payable | 12,218 | |||
Accrued expenses and other liabilities | 55,676 | |||
|
| |||
Total liabilities | 3,059,713 | |||
|
| |||
Total net assets | $ | 106,245,300 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 70,794,671 | ||
Accumulated net investment loss | (1,964 | ) | ||
Accumulated net realized gains on investments | 12,425,204 | |||
Net unrealized gains on investments | 23,027,389 | |||
|
| |||
Total net assets | $ | 106,245,300 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 47,209,801 | ||
Shares outstanding – Class 11 | 1,712,090 | |||
Net asset value per share – Class 1 | $27.57 | |||
Net assets – Class 2 | $ | 59,035,499 | ||
Shares outstanding – Class 21 | 2,195,772 | |||
Net asset value per share – Class 2 | $26.89 |
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, 2014 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $1,261) | $ | 739,310 | ||
Securities lending income, net | 3,426 | |||
Income from affiliated securities | 704 | |||
|
| |||
Total investment income | 743,440 | |||
|
| |||
Expenses | ||||
Advisory fee | 631,162 | |||
Administration fees | ||||
Fund level | 57,378 | |||
Class 1 | 41,111 | |||
Class 2 | 50,695 | |||
Distribution fee | ||||
Class 2 | 158,422 | |||
Custody and accounting fees | 16,954 | |||
Professional fees | 42,975 | |||
Shareholder report expenses | 4,504 | |||
Trustees’ fees and expenses | 9,509 | |||
Other fees and expenses | 5,366 | |||
|
| |||
Total expenses | 1,018,076 | |||
Less: Fee waivers and/or expense reimbursements | (3,987 | ) | ||
|
| |||
Net expenses | 1,014,089 | |||
|
| |||
Net investment loss | (270,649 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 18,818,280 | |||
Net change in unrealized gains (losses) on investments | (14,397,747 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | 4,420,533 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 4,149,884 | ||
|
|
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, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (270,649 | ) | $ | (297,870 | ) | ||||||||||
Net realized gains on investments | 18,818,280 | 24,911,776 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (14,397,747 | ) | 14,652,681 | |||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 4,149,884 | 39,266,587 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | 0 | (204,541 | ) | |||||||||||||
Class 2 | 0 | (87,333 | ) | |||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (10,058,181 | ) | (4,218,654 | ) | ||||||||||||
Class 2 | (12,505,884 | ) | (5,377,169 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (22,564,065 | ) | (9,887,697 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 133,823 | 4,061,419 | 249,132 | 7,209,887 | ||||||||||||
Class 2 | 157,458 | 4,688,183 | 110,803 | 3,160,430 | ||||||||||||
|
| |||||||||||||||
8,749,602 | 10,370,317 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 373,632 | 10,058,181 | 159,971 | 4,423,195 | ||||||||||||
Class 2 | 475,870 | 12,505,884 | 201,049 | 5,464,502 | ||||||||||||
|
| |||||||||||||||
22,564,065 | 9,887,697 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (499,773 | ) | (14,593,587 | ) | (576,458 | ) | (16,662,911 | ) | ||||||||
Class 2 | (570,468 | ) | (16,585,288 | ) | (669,579 | ) | (18,890,390 | ) | ||||||||
|
| |||||||||||||||
(31,178,875 | ) | (35,553,301 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions | 134,792 | (15,295,287 | ) | |||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | (18,279,389 | ) | 14,083,603 | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 124,524,689 | 110,441,086 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 106,245,300 | $ | 124,524,689 | ||||||||||||
|
| |||||||||||||||
Accumulated net investment loss | $ | (1,964 | ) | $ | (2,191 | ) | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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16 | Wells Fargo Advantage VT Omega Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $32.78 | $25.56 | $22.78 | $24.26 | $20.42 | |||||||||||||||
Net investment income (loss) | (0.03 | ) | (0.01 | ) | 0.11 | (0.06 | ) | 0.03 | ||||||||||||
Net realized and unrealized gains (losses) on investments | 1.22 | 9.81 | 4.43 | (1.21 | ) | 3.98 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.19 | 9.80 | 4.54 | (1.27 | ) | 4.01 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | 0.00 | (0.12 | ) | 0.00 | 0.00 | (0.17 | ) | |||||||||||||
Net realized gains | (6.40 | ) | (2.46 | ) | (1.76 | ) | (0.21 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (6.40 | ) | (2.58 | ) | (1.76 | ) | (0.21 | ) | (0.17 | ) | ||||||||||
Net asset value, end of period | $27.57 | $32.78 | $25.56 | $22.78 | $24.26 | |||||||||||||||
Total return | 4.09 | % | 40.22 | % | 20.76 | % | (5.36 | )% | 19.79 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.75 | % | 0.79 | % | 0.80 | % | 0.80 | % | 0.75 | % | ||||||||||
Net expenses | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | 0.74 | % | ||||||||||
Net investment income (loss) | (0.10 | )% | (0.12 | )% | 0.40 | % | (0.27 | )% | 0.01 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 88 | % | 95 | % | 93 | % | 110 | % | 160 | % | ||||||||||
Net assets, end of period (000s omitted) | $47,210 | $55,867 | $47,842 | $45,293 | $54,246 |
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 period 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.
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Financial highlights | Wells Fargo Advantage VT Omega Growth Fund | 17 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $32.19 | $25.13 | $22.48 | $24.00 | $20.19 | |||||||||||||||
Net investment income (loss) | (0.10 | ) | (0.12 | ) | 0.02 | (0.14 | ) | (0.07 | )2 | |||||||||||
Net realized and unrealized gains (losses) on investments | 1.20 | 9.68 | 4.39 | (1.17 | ) | 3.99 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 1.10 | 9.56 | 4.41 | (1.31 | ) | 3.92 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | 0.00 | (0.04 | ) | 0.00 | 0.00 | (0.11 | ) | |||||||||||||
Net realized gains | (6.40 | ) | (2.46 | ) | (1.76 | ) | (0.21 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (6.40 | ) | (2.50 | ) | (1.76 | ) | (0.21 | ) | (0.11 | ) | ||||||||||
Net asset value, end of period | $26.89 | $32.19 | $25.13 | $22.48 | $24.00 | |||||||||||||||
Total return | 3.86 | % | 39.88 | % | 20.39 | % | (5.54 | )% | 19.48 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.00 | % | 1.04 | % | 1.05 | % | 1.05 | % | 1.01 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | 1.00 | % | ||||||||||
Net investment income (loss) | (0.35 | )% | (0.37 | )% | 0.12 | % | (0.52 | )% | (0.34 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 88 | % | 95 | % | 93 | % | 110 | % | 160 | % | ||||||||||
Net assets, end of period (000s omitted) | $59,035 | $68,658 | $62,599 | $66,756 | $83,224 |
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 period 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”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, 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 vehicles 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 in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the 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.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”).
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Notes to financial statements | Wells Fargo Advantage VT Omega Growth Fund | 19 |
The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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 require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to net operating losses. At December 31, 2014, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Accumulated net investment loss | Accumulated net realized gains on investments | |
$270,876 | $(270,876) |
As of December 31, 2014, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:
2015 | 2016 | 2017 | ||
$982,505 | $2,303,740 | $771,379 |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy
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20 | Wells Fargo Advantage VT Omega Growth Fund | Notes to financial statements |
gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
n | Level 1 – quoted prices in active markets for identical securities |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 23,201,742 | $ | 0 | $ | 0 | $ | 23,201,742 | ||||||||
Consumer staples | 1,615,878 | 0 | 0 | 1,615,878 | ||||||||||||
Energy | 3,359,889 | 0 | 0 | 3,359,889 | ||||||||||||
Financials | 9,105,159 | 0 | 0 | 9,105,159 | ||||||||||||
Health care | 21,401,344 | 0 | 0 | 21,401,344 | ||||||||||||
Industrials | 12,564,447 | 0 | 0 | 12,564,447 | ||||||||||||
Information technology | 29,129,395 | 0 | 0 | 29,129,395 | ||||||||||||
Materials | 1,885,833 | 0 | 0 | 1,885,833 | ||||||||||||
Telecommunication services | 2,720,266 | 0 | 0 | 2,720,266 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 789,414 | 1,839,824 | 0 | 2,629,238 | ||||||||||||
Total assets | $ | 105,773,367 | $ | 1,839,824 | $ | 0 | $ | 107,613,191 |
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.30% as the average daily net assets of the Fund increase.
Administration fees
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
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Notes to financial statements | Wells Fargo Advantage VT Omega Growth Fund | 21 |
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 April 30, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.75% for Class 1 shares and 1.00% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
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, 2014 were $100,655,911 and $123,844,278, 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, 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, 2014, the Fund paid $180 in commitment fees.
For the year ended December 31, 2014, 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, 2014 and December 31, 2013 were as follows:
Year ended December 31 | ||||
2014 | 2013 | |||
Ordinary income | $3,838,065 | $291,874 | ||
Long-term capital gain | 18,726,000 | 9,595,823 |
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Undistributed long-term gain | Unrealized gains | Capital loss carryforward | |||
$819,441 | $15,947,530 | $22,743,246 | $(4,057,624) |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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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, 13.93% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2014.
Pursuant to Section 852 of the Internal Revenue Code, $18,726,000 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2014.
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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24 | Wells Fargo Advantage VT Omega Growth Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230415 02-15 AVT5/AR151 12-14 |
Table of Contents
Wells Fargo Advantage VT Opportunity FundSM
Annual Report
December 31, 2014
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, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Opportunity Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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, 2014. Improving U.S. economic data and strong corporate earnings helped drive positive returns for U.S. stocks overall in 2014. In contrast, many economies and markets elsewhere in the world faced significant ongoing challenges during the period.
2014’s fitful start gave way to a rally that carried through the second quarter of 2014.
Following a difficult first quarter for the U.S. economy—when unusually harsh weather kept consumers at home, disrupted business activities, and ultimately drove a 2.1% contraction in real gross domestic product (GDP)—the second quarter of 2014 brought warmer temperatures, and the U.S. economy picked up steam. Investors were heartened by encouraging economic data, driving stocks higher. In Europe, signs of economic improvement faded when GDP stagnated during the second quarter. Although select peripheral countries, such as Spain and Portugal, provided bright spots, some of Europe’s larger economies were pressured by weak economic growth and potential deflation. European stock returns generally were positive but lackluster.
U.S. Federal Reserve (Fed) officials continued winding down their bond-buying program during the second quarter, leaving it on pace to end in 2014. They also revisited the question of when to begin raising short-term interest rates from near zero and released new projections showing rates rising more than previously expected in 2015 and 2016; however, they slightly reduced their outlook for rates over the longer term. The markets took this information in stride, with both U.S. stocks and bonds rallying.
Positive U.S. economic data—but increased tensions abroad—led to heightened volatility in the third quarter of 2014.
The third quarter brought a series of stock market surges that were interrupted by bouts of volatility as interest-rate concerns in the U.S. and increased tensions abroad triggered heightened investor uncertainty. In July, an escalating Russia/Ukraine situation and a growing perception that the Fed would raise short-term interest rates sooner than expected caused investors to pull back toward month-end; as a result, the S&P 500 Index1 dropped into negative territory for its overall monthly return. However, August brought a bounce-back—the S&P 500 Index delivered its largest monthly gain since February 2014 on a string of positive economic news, led by an upwardly revised 4.2% estimate of second-quarter 2014 GDP growth. Then, in September, stock market volatility rose as positive economic data became overshadowed at times by growing discomfort over escalating tensions in Ukraine and the Middle East. Signs of slowing growth in Europe and China also concerned investors. Ultimately, U.S. stocks ended the third quarter up slightly overall, buoyed largely by another upward revision of second-quarter GDP growth (to 4.6%). Strong corporate earnings also contributed to market gains, with a large number of U.S. companies exceeding consensus estimates for both revenues and earnings per share.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 3 |
The fourth quarter of 2014 brought continued improvement in the U.S.; international economies remained challenged.
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014. The last several, in December, were spurred by investor optimism following Fed Chair Janet Yellen’s comment that the Fed would be patient in its timing of an interest-rate increase. U.S. stocks also were boosted by positive data reflecting an economy continuing to strengthen. November’s 5.8% unemployment rate was down from 7.0% a year earlier, and the number of jobs being added continued to expand, keeping U.S. employers on pace to hire nearly three million workers during 2014—the most since 1999. In addition, the U.S. economy’s third-quarter growth rate was revised upward during the quarter, to 5.0%—its fastest pace in 11 years. Meanwhile, U.S. companies continued to report strong earnings during the quarter, providing an additional catalyst for stocks. The steadily brightening U.S. economy energized consumers, who were further buoyed by much lower prices at the gasoline pump. During the fourth quarter, gasoline prices fell to their lowest levels in five years, according to the American Automobile Association.
As the U.S. churned forward, major economies elsewhere in the world faced significant ongoing challenges. Growth in China continued to slow, Japan remained in a recession that had begun the previous quarter, and Russia’s economy contracted for the first time since 2009 as the country struggled under the weight of slumping oil prices, international sanctions, and massive outflows of capital. In the eurozone, growth remained sluggish as member countries faced an environment of low demand, high unemployment, and weak business investment.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014.
We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
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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 manager
Ann M. Miletti
Average annual total returns1 (%) as of December 31, 2014
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 8-26-2011 | 10.70 | 14.47 | 8.43 | 0.85 | 0.76 | ||||||||||||||||
Class 2 | 5-8-1992 | 10.42 | 14.28 | 8.34 | 1.10 | 1.01 | ||||||||||||||||
Russell 3000® Index4 | – | 12.56 | 15.63 | 7.94 | – | – |
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, which 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 fees 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. 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 Opportunity Fund | 5 |
Growth of $10,000 investment5 as of December 31, 2014 |
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 ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3. | The Adviser has committed through April 30, 2015, 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 0.75% for Class 1 and 1.00% for Class 2. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. 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® Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. You cannot invest directly in an index. |
5. | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 3000® Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
6. | The ten largest 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. |
* | This security was not held in the Fund at the end of the reporting period. |
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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 3000 Index, for the 12-month period that ended December 31, 2014. |
n | Stock selection in the energy and materials sectors detracted from performance. Also, a moderate allocation to cash and lack of exposure to utilities hindered relative results. |
n | Stock selection added value in the consumer staples and industrials sectors. Lack of exposure to the telecommunication services sector also was beneficial. |
The broad U.S. stock market, as represented by the Russell 3000 Index, generally rose at a moderate rate over the 12-month reporting period. Stocks benefited from a variety of factors, including continuation of quantitative easing and maintenance of very low interest rates by the U.S. Federal Reserve, growth in gross domestic product, improving employment data, and generally improving economic conditions. In these favorable circumstances, investors continued to seek the potentially higher returns of stocks. Different from the previous 12-month reporting period that ended December 31, 2013, during which many companies experienced increasing valuations due to multiple expansion, the most recent reporting period saw companies benefiting from improving fundamentals with growth in revenues and earnings. In this environment, and with the expectation of tighter U.S. monetary policy to come, we continued to look for well-positioned companies—those with good business models, strong management teams, and healthy cash flows—trading at attractive discounts relative to their private market valuations (PMVs). The PMV represents the expected price an investor would pay for the entire company as a stand-alone private entity.
Stock selection in several sectors held back investment results.
For the Fund, 2014’s biggest story was the falling price of crude oil and its negative impact on the energy sector. After a slight run-up during the first half of the year, crude oil’s price fell dramatically during the second half of 2014, affecting almost every business in the energy sector in some way. Companies providing services and products in this sector were hit hard, including Halliburton Company, Weatherford International Limited, and Cameron International Corporation. Oil and gas exploration and production companies were not spared, including Denbury Resources Incorporated* and Range Resources Corporation.
In the materials sector, the Fund’s holdings in the containers and packaging industry were significant detractors from performance. Owens-Illinois Incorporated, a maker of glass containers and other packaging for beverages and pharmaceuticals, was affected by overcapacity in Europe and declined. Lack of exposure to the utilities sector and a modest allocation to cash also detracted. Utilities, which are not a good fit for our investment process, rose during the period due to the low-interest-rate environment. The Fund’s allocation to cash was transitional and not reflective of our view of the market.
Our discipline allows us to be patient with stocks that currently may be out of favor in the market. As 2014 began, our expectations for the year included an improving economic environment and stock values driven primarily by increasing earnings and revenues rather than by multiple expansion; these expectations were realized during the course of 2014.
Ten largest equity holdings6 (%) as of December 31, 2014 | ||||
Apollo Group Incorporated | 1.81 | |||
ACE Limited | 1.71 | |||
Red Hat Incorporated | 1.63 | |||
PNC Financial Services Group Incorporated | 1.60 | |||
American International Group Incorporated | 1.60 | |||
Check Point Software Technologies Limited | 1.58 | |||
Bio-Rad Laboratories Incorporated Class A | 1.54 | |||
Johnson Controls Incorporated | 1.54 | |||
Target Corporation | 1.53 | |||
Thermo Fisher Scientific Incorporated | 1.50 |
Fund performance benefited from stock selection in consumer staples and industrials.
Increased consumer cash flow due to lower energy and food costs, higher income levels, and lower financial obligations helped the consumer staples sector as a whole. The Kroger Company, which operates retail food and drug stores, rose significantly. Mead Johnson Nutrition Company, which produces infant nutrition products, also contributed positively; the firm benefited from a growing middle class in emerging countries.
In the industrials sector, steady-yet-modest economic growth supported a number of the Fund’s holdings, such as Republic Services Incorporated, a provider of
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Opportunity Fund | 7 |
nonhazardous waste management and recycling services. Also, the airline industry performed well, especially Delta Air Lines Incorporated*, and United Continental Holdings Incorporated. Capacity discipline, aided by enhanced efficiencies and industry consolidation, led to greater profitability in the airline industry. High valuations and changing fundamentals kept us out of the telecommunication services sector for the period, which proved to be beneficial.
Sector distribution7 as of December 31, 2014 |
Our disciplined investment process enables us to be keenly aware of both price and enterprise value on a company-by-company basis. Through our proprietary database of company acquisitions across industries, sectors, and time frames, we are able to maintain a steady foundation for assessing the PMVs of companies versus the public stock prices for those same companies. Our task is to exploit discrepancies between those two numbers for the benefit of Fund shareholders by purchasing stocks when we believe they are selling at a discount to their PMVs. An improving economy and
favorable investor sentiment helped lift stock prices broadly and keep multiples high over the 12-month period. With the possibility of rising interest rates in the coming year, we believe stock investors will be more discerning going forward. In our view, companies with attractive stock prices relative to their PMVs should be brought to the forefront by our process, which should allow us to add value through our unique bottom-up research.
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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,023.52 | $ | 3.83 | 0.75 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,021.42 | $ | 3.82 | 0.75 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,022.15 | $ | 5.10 | 1.00 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.16 | $ | 5.09 | 1.00 | % |
1. | Expenses paid is equal to the annualized 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, 2014 | Wells Fargo Advantage VT Opportunity Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 97.93% | ||||||||||||
Consumer Discretionary: 18.09% | ||||||||||||
Auto Components: 2.88% | ||||||||||||
Dana Holding Corporation | 150,070 | $ | 3,262,522 | |||||||||
Johnson Controls Incorporated | 77,649 | 3,753,553 | ||||||||||
7,016,075 | ||||||||||||
|
| |||||||||||
Diversified Consumer Services: 1.81% | ||||||||||||
Apollo Group Incorporated † | 129,531 | 4,418,302 | ||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure: 1.33% | ||||||||||||
Carnival Corporation | 71,259 | 3,230,170 | ||||||||||
|
| |||||||||||
Household Durables: 1.26% | ||||||||||||
Harman International Industries Incorporated | 28,847 | 3,078,263 | ||||||||||
|
| |||||||||||
Media: 4.29% | ||||||||||||
Comcast Corporation Class A « | 60,472 | 3,481,071 | ||||||||||
Discovery Communications Incorporated Class C † | 75,951 | 2,561,068 | ||||||||||
Omnicom Group Incorporated | 37,017 | 2,867,707 | ||||||||||
Time Warner Cable Incorporated | 10,059 | 1,529,572 | ||||||||||
10,439,418 | ||||||||||||
|
| |||||||||||
Multiline Retail: 4.22% | ||||||||||||
Macy’s Incorporated | 54,009 | 3,551,092 | ||||||||||
Nordstrom Incorporated | 37,937 | 3,011,818 | ||||||||||
Target Corporation | 48,943 | 3,715,263 | ||||||||||
10,278,173 | ||||||||||||
|
| |||||||||||
Specialty Retail: 2.30% | ||||||||||||
Chico’s FAS Incorporated | 167,232 | 2,710,831 | ||||||||||
Dick’s Sporting Goods Incorporated | 57,942 | 2,876,820 | ||||||||||
5,587,651 | ||||||||||||
|
| |||||||||||
Consumer Staples: 5.42% | ||||||||||||
Food & Staples Retailing: 1.23% | ||||||||||||
The Kroger Company | 46,762 | 3,002,588 | ||||||||||
|
| |||||||||||
Food Products: 2.36% | ||||||||||||
General Mills Incorporated | 49,189 | 2,623,249 | ||||||||||
Mead Johnson Nutrition Company | 31,073 | 3,124,079 | ||||||||||
5,747,328 | ||||||||||||
|
| |||||||||||
Household Products: 1.04% | ||||||||||||
Church & Dwight Company Incorporated | 31,959 | 2,518,689 | ||||||||||
|
| |||||||||||
Personal Products: 0.79% | ||||||||||||
Estee Lauder Companies Incorporated Class A | 25,349 | 1,931,594 | ||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Energy: 7.29% | ||||||||||||
Energy Equipment & Services: 2.82% | ||||||||||||
Cameron International Corporation † | 45,045 | $ | 2,249,998 | |||||||||
Halliburton Company | 61,058 | 2,401,411 | ||||||||||
Weatherford International plc † | 192,976 | 2,209,575 | ||||||||||
6,860,984 | ||||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels: 4.47% | ||||||||||||
Cimarex Energy Company | 25,807 | 2,735,542 | ||||||||||
EOG Resources Incorporated | 29,164 | 2,685,129 | ||||||||||
Newfield Exploration Company † | 98,805 | 2,679,592 | ||||||||||
Range Resources Corporation | 52,183 | 2,789,181 | ||||||||||
10,889,444 | ||||||||||||
|
| |||||||||||
Financials: 14.46% | ||||||||||||
Banks: 4.03% | ||||||||||||
Fifth Third Bancorp | 114,624 | 2,335,464 | ||||||||||
PNC Financial Services Group Incorporated | 42,828 | 3,907,198 | ||||||||||
Regions Financial Corporation | 338,811 | 3,577,844 | ||||||||||
9,820,506 | ||||||||||||
|
| |||||||||||
Capital Markets: 2.70% | ||||||||||||
Invesco Limited | 84,043 | 3,321,379 | ||||||||||
TD Ameritrade Holding Corporation | 90,760 | 3,247,393 | ||||||||||
6,568,772 | ||||||||||||
|
| |||||||||||
Insurance: 6.51% | ||||||||||||
ACE Limited | 36,328 | 4,173,361 | ||||||||||
American International Group Incorporated | 69,463 | 3,890,623 | ||||||||||
First American Financial Corporation | 85,708 | 2,905,501 | ||||||||||
RenaissanceRe Holdings Limited « | 22,304 | 2,168,395 | ||||||||||
The Progressive Corporation | 100,518 | 2,712,981 | ||||||||||
15,850,861 | ||||||||||||
|
| |||||||||||
REITs: 1.22% | ||||||||||||
American Tower Corporation | 30,054 | 2,970,838 | ||||||||||
|
| |||||||||||
Health Care: 13.68% | ||||||||||||
Health Care Equipment & Supplies: 4.42% | ||||||||||||
C.R. Bard Incorporated | 4,363 | 726,963 | ||||||||||
Covidien plc | 34,722 | 3,551,366 | ||||||||||
Medtronic Incorporated | 41,481 | 2,994,928 | ||||||||||
Zimmer Holdings Incorporated | 30,750 | 3,487,665 | ||||||||||
10,760,922 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 0.70% | ||||||||||||
Patterson Companies Incorporated | 35,376 | 1,701,586 | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Opportunity Fund | 11 |
Security name | Shares | Value | ||||||||||
Life Sciences Tools & Services: 5.22% | ||||||||||||
Agilent Technologies Incorporated | 72,914 | $ | 2,985,099 | |||||||||
Bio-Rad Laboratories Incorporated Class A † | 31,155 | 3,756,047 | ||||||||||
Covance Incorporated † | 22,350 | 2,320,824 | ||||||||||
Thermo Fisher Scientific Incorporated | 29,236 | 3,662,978 | ||||||||||
12,724,948 | ||||||||||||
|
| |||||||||||
Pharmaceuticals: 3.34% | ||||||||||||
Merck & Company Incorporated | 33,795 | 1,919,218 | ||||||||||
Novartis AG ADR | 36,593 | 3,390,707 | ||||||||||
Zoetis Incorporated | 65,715 | 2,827,716 | ||||||||||
8,137,641 | ||||||||||||
|
| |||||||||||
Industrials: 10.33% | ||||||||||||
Aerospace & Defense: 0.75% | ||||||||||||
B/E Aerospace Incorporated | 31,546 | 1,830,299 | ||||||||||
|
| |||||||||||
Airlines: 1.19% | ||||||||||||
United Continental Holdings Incorporated † | 43,285 | 2,895,334 | ||||||||||
|
| |||||||||||
Commercial Services & Supplies: 2.55% | ||||||||||||
Republic Services Incorporated | 82,466 | 3,319,257 | ||||||||||
Tyco International plc | 65,653 | 2,879,541 | ||||||||||
6,198,798 | ||||||||||||
|
| |||||||||||
Electrical Equipment: 2.70% | ||||||||||||
Babcock & Wilcox Company | 109,942 | 3,331,243 | ||||||||||
Regal-Beloit Corporation | 43,298 | 3,256,010 | ||||||||||
6,587,253 | ||||||||||||
|
| |||||||||||
Road & Rail: 3.14% | ||||||||||||
Canadian Pacific Railway Limited | 9,844 | 1,896,840 | ||||||||||
Hertz Global Holdings Incorporated † | 123,273 | 3,074,429 | ||||||||||
J.B. Hunt Transport Services Incorporated | 31,784 | 2,677,802 | ||||||||||
7,649,071 | ||||||||||||
|
| |||||||||||
Information Technology: 21.53% | ||||||||||||
Communications Equipment: 1.28% | ||||||||||||
Riverbed Technology Incorporated † | 152,116 | 3,104,688 | ||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components: 1.84% | ||||||||||||
Amphenol Corporation Class A | 60,521 | 3,256,635 | ||||||||||
Keysight Technologies Incorporated † | 36,457 | 1,231,153 | ||||||||||
4,487,788 | ||||||||||||
|
| |||||||||||
Internet Software & Services: 1.40% | ||||||||||||
Google Incorporated Class C † | 6,465 | 3,403,176 | ||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
IT Services: 2.66% | ||||||||||||
Global Payments Incorporated | 39,598 | $ | 3,196,747 | |||||||||
Teradata Corporation † | 75,137 | 3,281,984 | ||||||||||
6,478,731 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment: 4.95% | ||||||||||||
Altera Corporation | 89,210 | 3,295,417 | ||||||||||
ARM Holdings plc | 145,965 | 2,242,370 | ||||||||||
Avago Technologies Limited | 29,682 | 2,985,712 | ||||||||||
ON Semiconductor Corporation † | 348,863 | 3,533,982 | ||||||||||
12,057,481 | ||||||||||||
|
| |||||||||||
Software: 6.74% | ||||||||||||
Autodesk Incorporated † | 46,943 | 2,819,397 | ||||||||||
Check Point Software Technologies Limited † | 49,061 | 3,854,723 | ||||||||||
Citrix Systems Incorporated † | 57,224 | 3,650,891 | ||||||||||
Red Hat Incorporated † | 57,372 | 3,966,700 | ||||||||||
Salesforce.com Incorporated † | 35,865 | 2,127,153 | ||||||||||
16,418,864 | ||||||||||||
|
| |||||||||||
Technology Hardware, Storage & Peripherals: 2.66% | ||||||||||||
Apple Incorporated | 28,138 | 3,105,872 | ||||||||||
NetApp Incorporated | 81,452 | 3,376,185 | ||||||||||
6,482,057 | ||||||||||||
|
| |||||||||||
Materials: 7.13% | ||||||||||||
Chemicals: 3.93% | ||||||||||||
Cytec Industries Incorporated | 66,829 | 3,085,495 | ||||||||||
Huntsman Corporation | 133,029 | 3,030,401 | ||||||||||
Praxair Incorporated | 26,639 | 3,451,349 | ||||||||||
9,567,245 | ||||||||||||
|
| |||||||||||
Containers & Packaging: 2.38% | ||||||||||||
Crown Holdings Incorporated † | 60,900 | 3,099,810 | ||||||||||
Owens-Illinois Incorporated † | 99,616 | 2,688,636 | ||||||||||
5,788,446 | ||||||||||||
|
| |||||||||||
Metals & Mining: 0.82% | ||||||||||||
Royal Gold Incorporated | 31,899 | 2,000,067 | ||||||||||
|
| |||||||||||
Total Common Stocks (Cost $181,535,910) | 238,484,051 | |||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Opportunity Fund | 13 |
Security name | Yield | Shares | Value | |||||||||||
Short-Term Investments: 3.28% | ||||||||||||||
Investment Companies: 3.28% | ||||||||||||||
Securities Lending Cash Investments, LLC (l)(r)(u) | 0.14 | % | 4,414,550 | $ | 4,414,550 | |||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | 3,578,448 | 3,578,448 | |||||||||||
Total Short-Term Investments (Cost $7,992,998) | 7,992,998 | |||||||||||||
|
|
Total investments in securities (Cost $189,528,908) * | 101.21 | % | 246,477,049 | |||||
Other assets and liabilities, net | (1.21 | ) | (2,952,469 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 243,524,580 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $189,698,399 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 61,746,871 | ||
Gross unrealized losses | (4,968,221 | ) | ||
|
| |||
Net unrealized gains | $ | 56,778,650 |
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, 2014 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including $4,256,987 of securities loaned), at value (cost $181,535,910) | $ | 238,484,051 | ||
In affiliated securities, at value (cost $7,992,998) | 7,992,998 | |||
|
| |||
Total investments, at value (cost $189,528,908) | 246,477,049 | |||
Cash | 3,277 | |||
Receivable for investments sold | 1,835,909 | |||
Receivable for Fund shares sold | 90,747 | |||
Receivable for dividends | 235,977 | |||
Receivable for securities lending income | 434 | |||
Prepaid expenses and other assets | 4,162 | |||
|
| |||
Total assets | 248,647,555 | |||
|
| |||
Liabilities | ||||
Payable for Fund shares redeemed | 456,702 | |||
Payable upon receipt of securities loaned | 4,414,550 | |||
Advisory fee payable | 124,989 | |||
Distribution fee payable | 44,360 | |||
Administration fees payable | 27,882 | |||
Accrued expenses and other liabilities | 54,492 | |||
|
| |||
Total liabilities | 5,122,975 | |||
|
| |||
Total net assets | $ | 243,524,580 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 163,581,997 | ||
Undistributed net investment income | 390,820 | |||
Accumulated net realized gains on investments | 22,603,619 | |||
Net unrealized gains on investments | 56,948,144 | |||
|
| |||
Total net assets | $ | 243,524,580 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 42,177,950 | ||
Shares outstanding – Class 11 | 1,463,596 | |||
Net asset value per share – Class 1 | $28.82 | |||
Net assets – Class 2 | $ | 201,346,630 | ||
Shares outstanding – Class 21 | 6,976,447 | |||
Net asset value per share – Class 2 | $28.86 |
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, 2014 | Wells Fargo Advantage VT Opportunity Fund | 15 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $5,605) | $ | 2,772,747 | ||
Securities lending income, net | 10,307 | |||
Income from affiliated securities | 4,729 | |||
|
| |||
Total investment income | 2,787,783 | |||
|
| |||
Expenses | ||||
Advisory fee | 1,621,913 | |||
Administration fees | ||||
Fund level | 124,763 | |||
Class 1 | 34,366 | |||
Class 2 | 165,254 | |||
Distribution fee | ||||
Class 2 | 516,420 | |||
Custody and accounting fees | 23,399 | |||
Professional fees | 47,195 | |||
Shareholder report expenses | 6,932 | |||
Trustees’ fees and expenses | 12,012 | |||
Other fees and expenses | 6,820 | |||
|
| |||
Total expenses | 2,559,074 | |||
Less: Fee waivers and/or expense reimbursements | (171,216 | ) | ||
|
| |||
Net expenses | 2,387,858 | |||
|
| |||
Net investment income | 399,925 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 36,441,368 | |||
Net change in unrealized gains (losses) on investments | (12,075,043 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | 24,366,325 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 24,766,250 | ||
|
|
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, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 399,925 | $ | 280,132 | ||||||||||||
Net realized gains on investments | 36,441,368 | 18,919,587 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (12,075,043 | ) | 45,915,119 | |||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 24,766,250 | 65,114,838 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (127,115 | ) | (190,708 | ) | ||||||||||||
Class 2 | (116,647 | ) | (396,735 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (243,762 | ) | (587,443 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 53,369 | 1,479,957 | 29,750 | 698,335 | ||||||||||||
Class 2 | 342,554 | 9,419,119 | 306,606 | 6,934,870 | ||||||||||||
|
| |||||||||||||||
10,899,076 | 7,633,205 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 4,533 | 127,115 | 8,108 | 190,708 | ||||||||||||
Class 2 | 4,150 | 116,647 | 16,818 | 396,735 | ||||||||||||
|
| |||||||||||||||
243,762 | 587,443 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (304,044 | ) | (8,294,961 | ) | (373,971 | ) | (8,585,638 | ) | ||||||||
Class 2 | (1,442,152 | ) | (39,558,767 | ) | (1,643,579 | ) | (37,712,206 | ) | ||||||||
|
| |||||||||||||||
(47,853,728 | ) | (46,297,844 | ) | |||||||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (36,710,890 | ) | (38,077,196 | ) | ||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | (12,188,402 | ) | 26,450,199 | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 255,712,982 | 229,262,783 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 243,524,580 | $ | 255,712,982 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 390,820 | $ | 181,809 | ||||||||||||
|
|
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 | 2014 | 2013 | 2012 | 20111 | ||||||||||||
Net asset value, beginning of period | $26.11 | $20.02 | $17.40 | $16.52 | ||||||||||||
Net investment income | 0.10 | 0.08 | 0.10 | 0.04 | ||||||||||||
Net realized and unrealized gains (losses) on investments | 2.69 | 6.11 | 2.64 | 0.84 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total from investment operations | 2.79 | 6.19 | 2.74 | 0.88 | ||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | (0.08 | ) | (0.10 | ) | (0.11 | ) | 0.00 | |||||||||
Net realized gains | 0.00 | 0.00 | (0.01 | ) | 0.00 | |||||||||||
|
|
|
|
|
|
|
| |||||||||
Total distributions to shareholders | (0.08 | ) | (0.10 | ) | (0.12 | ) | 0.00 | |||||||||
Net asset value, end of period | $28.82 | $26.11 | $20.02 | $17.40 | ||||||||||||
Total return2 | 10.70 | % | 30.99 | % | 15.80 | % | 5.33 | % | ||||||||
Ratios to average net assets (annualized) | ||||||||||||||||
Gross expenses | 0.82 | % | 0.84 | % | 0.86 | % | 0.83 | % | ||||||||
Net expenses | 0.75 | % | 0.75 | % | 0.75 | % | 0.75 | % | ||||||||
Net investment income | 0.37 | % | 0.32 | % | 0.46 | % | 0.61 | % | ||||||||
Supplemental data | ||||||||||||||||
Portfolio turnover rate | 33 | % | 26 | % | 36 | % | 35 | % | ||||||||
Net assets, end of period (000s omitted) | $42,178 | $44,636 | $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 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $26.15 | $20.05 | $17.38 | $18.42 | $15.01 | |||||||||||||||
Net investment income | 0.04 | 0.02 | 0.05 | 0.03 | 0.02 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 2.69 | 6.13 | 2.65 | (1.04 | ) | 3.51 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | 2.73 | 6.15 | 2.70 | (1.01 | ) | 3.53 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.02 | ) | (0.05 | ) | (0.02 | ) | (0.03 | ) | (0.12 | ) | ||||||||||
Net realized gains | 0.00 | 0.00 | (0.01 | ) | 0.00 | 0.00 | ||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.02 | ) | (0.05 | ) | (0.03 | ) | (0.03 | ) | (0.12 | ) | ||||||||||
Net asset value, end of period | $28.86 | $26.15 | $20.05 | $17.38 | $18.42 | |||||||||||||||
Total return | 10.42 | % | 30.68 | % | 15.52 | % | (5.52 | )% | 23.76 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.07 | % | 1.09 | % | 1.10 | % | 1.07 | % | 1.18 | % | ||||||||||
Net expenses | 1.00 | % | 1.00 | % | 1.00 | % | 1.04 | % | 1.07 | % | ||||||||||
Net investment income | 0.12 | % | 0.07 | % | 0.21 | % | 0.18 | % | 0.08 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 33 | % | 26 | % | 36 | % | 35 | % | 40 | % | ||||||||||
Net assets, end of period (000s omitted) | $201,347 | $211,077 | $188,313 | $201,535 | $168,307 |
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 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”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On December 31, 2014 such 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 vehicles 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 in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
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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. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Security loans
The Fund may lend its securities from time to time in order to earn additional income in the form of fees or interest on securities received as collateral or the investment of any cash received as collateral. The Fund continues to receive interest or dividends on the securities loaned. The Fund receives collateral in the form of cash or securities with a value at least equal to the value of the securities on loan. The value of the loaned securities is determined at the close of each business day and any additional required collateral is delivered to the Fund on the next business day. In a securities lending transaction, the net asset value of the Fund will be affected by an increase or decrease in the value of the securities loaned and by an increase or decrease in the value of the instrument in which collateral is invested. The amount of securities lending activity undertaken by the Fund fluctuates from time to time. In the event of default or bankruptcy by the borrower, the Fund may be prevented from recovering the loaned securities or gaining access to the collateral or may experience delays or costs in doing so. In addition, the investment of any cash collateral received may lose all or part of its value. The Fund has the right under the lending agreement to recover the securities from the borrower on demand.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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 custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in 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
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Notes to financial statements | Wells Fargo Advantage VT Opportunity Fund | 21 |
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 require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. At December 31, 2014, 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 | |
$52,848 | $(52,848) |
As of December 31, 2014, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $721,350 with $360,675 expiring in 2015 and $360,675 expiring in 2016.
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
n | Level 1 – quoted prices in active markets for identical securities |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 44,048,052 | $ | 0 | $ | 0 | $ | 44,048,052 | ||||||||
Consumer staples | 13,200,199 | 0 | 0 | 13,200,199 | ||||||||||||
Energy | 17,750,428 | 0 | 0 | 17,750,428 | ||||||||||||
Financials | 35,210,977 | 0 | 0 | 35,210,977 | ||||||||||||
Health care | 33,325,097 | 0 | 0 | 33,325,097 | ||||||||||||
Industrials | 25,160,755 | 0 | 0 | 25,160,755 | ||||||||||||
Information technology | 50,190,415 | 2,242,370 | 0 | 52,432,785 | ||||||||||||
Materials | 17,355,758 | 0 | 0 | 17,355,758 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 3,578,448 | 4,414,550 | 0 | 7,992,998 | ||||||||||||
Total assets | $ | 239,820,129 | $ | 6,656,920 | $ | 0 | $ | 246,477,049 |
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22 | Wells Fargo Advantage VT Opportunity Fund | Notes to financial statements |
The Fund recognizes transfers between levels at the end of the reporting period. At December 31, 2014, fair value pricing was used in pricing certain foreign securities and securities valued at $2,242,370 were transferred from Level 1 to Level 2 within the fair value hierarchy. The Fund did not have any transfers into/out of Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.45% and declining to 0.30% as the average daily net assets of the Fund increase.
Administration fees
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 April 30, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.75% for Class 1 shares and 1.00% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
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, 2014 were $80,801,100 and $113,483,629, 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, 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, 2014, the Fund paid $380 in commitment fees.
For the year ended December 31, 2014, there were no borrowings by the Fund under the agreement.
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Notes to financial statements | Wells Fargo Advantage VT Opportunity Fund | 23 |
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $243,762 and $587,443 of ordinary income for the years ended December 31, 2014 and December 31, 2013, respectively.
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary | Undistributed long-term | Unrealized gains | Capital loss carryforward | |||
$398,848 | $23,494,462 | $56,778,650 | $(721,350) |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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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, 2014.
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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26 | Wells Fargo Advantage VT Opportunity Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230416 02-15 AVT6/AR152 12-14 |
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Wells Fargo Advantage
VT Small Cap Growth Fund
Annual Report
December 31, 2014
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The views expressed and any forward-looking statements are as of December 31, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Small Cap Growth Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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, 2014. Improving U.S. economic data and strong corporate earnings helped drive positive returns for U.S. stocks overall in 2014. In contrast, many economies and markets elsewhere in the world faced significant ongoing challenges during the period.
2014’s fitful start gave way to a rally that carried through the second quarter of 2014.
Following a difficult first quarter for the U.S. economy—when unusually harsh weather kept consumers at home, disrupted business activities, and ultimately drove a 2.1% contraction in real gross domestic product (GDP)—the second quarter of 2014 brought warmer temperatures, and the U.S. economy picked up steam. Investors were heartened by encouraging economic data, driving stocks higher. In Europe, signs of economic improvement faded when GDP stagnated during the second quarter. Although select peripheral countries, such as Spain and Portugal, provided bright spots, some of Europe’s larger economies were pressured by weak economic growth and potential deflation. European stock returns generally were positive but lackluster.
U.S. Federal Reserve (Fed) officials continued winding down their bond-buying program during the second quarter, leaving it on pace to end in 2014. They also revisited the question of when to begin raising short-term interest rates from near zero and released new projections showing rates rising more than previously expected in 2015 and 2016; however, they slightly reduced their projections for rates over the longer term. The markets took this information in stride, with both U.S. stocks and bonds rallying.
Positive U.S. economic data—but increased tensions abroad—led to heightened volatility in the third quarter of 2014.
The third quarter brought a series of stock market surges that were interrupted by bouts of volatility as interest-rate concerns in the U.S. and increased tensions abroad triggered heightened investor uncertainty. In July, an escalating Russia/Ukraine situation and a growing perception that the Fed would raise short-term interest rates sooner than expected caused investors to pull back toward month-end; as a result, the S&P 500 Index1 dropped into negative territory for its overall monthly return. However, August brought a bounce-back—the S&P 500 Index delivered its largest monthly gain since February 2014 on a string of positive economic news, led by an upwardly revised 4.2% estimate of second-quarter 2014 GDP growth. Then, in September, stock market volatility rose as positive economic data became overshadowed at times by growing discomfort over escalating tensions in Ukraine and the Middle East. Signs of slowing growth in Europe and China also concerned investors. Ultimately, U.S. stocks ended the third quarter up slightly overall, buoyed largely by another upward revision of second-quarter GDP growth (to 4.6%). Strong corporate earnings also contributed to market gains, with a large number of U.S. companies exceeding consensus estimates for both revenues and earnings per share.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 3 |
The fourth quarter of 2014 brought continued improvement in the U.S.; international economies remained challenged.
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014. The last several, in December, were spurred by investor optimism following Fed Chair Janet Yellen’s comment that the Fed would be patient in its timing of an interest-rate increase. U.S. stocks also were boosted by positive data reflecting an economy continuing to strengthen. November’s 5.8% unemployment rate was down from 7.0% a year earlier, and the number of jobs being added continued to expand, keeping U.S. employers on pace to hire nearly three million workers during 2014—the most since 1999. In addition, the U.S. economy’s third-quarter growth rate was revised upward during the quarter, to 5.0%—its fastest pace in 11 years. Meanwhile, U.S. companies continued to report strong earnings during the quarter, providing an additional catalyst for stocks. The steadily brightening U.S. economy energized consumers, who were further buoyed by much lower prices at the gasoline pump. During the fourth quarter, gasoline prices fell to their lowest levels in five years, according to the American Automobile Association.
As the U.S. churned forward, major economies elsewhere in the world faced significant ongoing challenges. Growth in China continued to slow, Japan remained in a recession that had begun the previous quarter, and Russia’s economy contracted for the first time since 2009 as the country struggled under the weight of slumping oil prices, international sanctions, and massive outflows of capital. In the eurozone, growth remained sluggish as member countries faced an environment of low demand, high unemployment, and weak business investment.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future.To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014.
We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
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4 | Wells Fargo Advantage VT Small Cap Growth Fund | Performance highlights (unaudited) |
The Fund is currently closed to new investors1.
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 returns2 (%) as of December 31, 2014
Expense ratios3 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net4 | |||||||||||||||||
Class 1 | 7-16-2010 | (1.67 | ) | 14.21 | 9.94 | 0.93 | 0.93 | |||||||||||||||
Class 2 | 5-1-1995 | (1.88 | ) | 13.97 | 9.82 | 1.18 | 1.18 | |||||||||||||||
Russell 2000® Growth Index5 | – | 5.60 | 16.80 | 8.54 | – | – |
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, which 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 fees 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 investment6 as of December 31, 2014 |
1. | Please see the Fund’s current Statement of Additional Information for further details. |
2. | 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. |
3. | Reflects the expense ratios as stated in the most recent prospectuses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report. |
4. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
5. | 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. |
6. | The chart compares the performance of Class 2 shares for the most recent ten years with the Russell 2000 Growth Index. The chart assumes a hypothetical $10,000 investment and reflects all operating expenses of the Fund. Performance figures of the Fund do not reflect fees charged pursuant to the terms of variable life insurance policies and variable annuity contracts. |
7. | The Russell 1000® Growth Index measures the performance of those Russell 1000 companies with higher price-to-book ratios and higher forecasted growth values. You cannot invest directly in an index. |
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 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, 2014. |
n | Within the Fund, stock selection in the financials, industrials, and information technology (IT) sectors constrained relative performance. |
n | Stock selection in the energy sector contributed positively to relative performance; an overweight to the health care sector also aided relative returns. |
Small-cap growth stocks underperformed large-cap growth stocks in 2014.
Following an unprecedented rally in 2013, small-cap growth stocks ended 2014 with a return of 5.60% (as measured by the Russell 2000 Growth Index), lagging large-cap growth stocks, which returned 13.05% (as measured by the Russell 1000® Growth Index7). This difference in market-cap performance was a reversal from 2013, during which small-cap growth stocks outperformed large-cap growth stocks. In 2014, many investors tended to shift out of small-cap growth into more defensive mega-cap stocks in search of higher dividend yields as an alternative to the very low interest rates that were available from fixed-income investments.
Ten largest equity holdings8 (%) as of December 31, 2014 | ||||
Acadia Healthcare Company Incorporated | 3.27 | |||
Proofpoint Incorporated | 3.26 | |||
MarketAxess Holdings Incorporated | 3.11 | |||
Envestnet Incorporated | 2.99 | |||
Akorn Incorporated | 2.66 | |||
Fiesta Restaurant Group Incorporated | 2.59 | |||
ExamWorks Group Incorporated | 2.57 | |||
SPS Commerce Incorporated | 2.53 | |||
Spectranetics Corporation | 2.36 | |||
DexCom Incorporated | 2.22 |
A temporary investor shift away from faster-growing companies challenged Fund performance.
Much of the Fund’s underperformance for 2014 overall occurred during the two-month period from early March through early May, when faster-growing companies significantly underperformed slower-growing companies. Despite displaying strong fundamentals, many of the Fund’s faster-growing holdings were unrewarded by the market during this period. This brief rotation away from rapidly growing companies was influenced by a variety of concerns, such as the potential for a U.S. interest-rate increase earlier than many investors had anticipated.
Weakness from holdings in the industrials, IT, and financials sectors detracted from performance.
Underperformance in the industrials sector was partly attributable to weakness from companies negatively affected by the decline in oil prices. DXP Enterprises Incorporated, a provider of industrial pumping products, was a key detractor due to fundamental weakness early in 2014 and investor fears that the firm’s growth potential would suffer due to lower oil prices. We substantially reduced the position at various points in the last few months of 2014 given decreased visibility into DXP’s sustainable growth rate. Within the IT sector, our stock selection results in the internet software and services industry considerably constrained relative performance. Online vacation rental company HomeAway Incorporated declined more than 27% because the market was concerned about competitive threats the firm faced and a slowdown in pay-per-book trends in Europe. However, we believe HomeAway is well positioned to drive growth; the firm has continued to increase user traffic to its websites, which in turn has prompted property owners and managers to look for additional distribution channels to advertise their properties. The underperformance in financials was mainly attributable to Financial Engines Incorporated; investors feared that increased competition could have an adverse effect on pricing power. We believe the firm can continue to gain market share through multiple growth drivers.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 7 |
Sector distribution9 as of December 31, 2014 | ||
Strong results from the energy and health care sectors aided the Fund’s relative performance.
Within the energy sector, select exploration and production holdings, such as Diamondback Energy Incorporated, benefited from operational efficiencies and solid production growth from acreages in U.S. shale locations. As the valuation gap narrowed in the summer months, we trimmed many of the Fund’s energy holdings and redeployed the proceeds into other sectors. With crude-oil prices trading at low levels, we continued to take a judicious approach regarding the viability of oil-
related holdings at different pricing levels to fully understand the impact of lower prices on their operations. Outperformance in the health care sector was largely attributable to holdings in the pharmaceuticals and providers and services industries. For example, pharmaceuticals holding Akorn Incorporated benefited from investor recognition that the company’s large and expanding pipeline positioned Akorn as a niche player in ophthalmology, generic injectables, and liquids/semisolid products.
We are confident in the 2015 growth prospects for the companies held within the Fund.
Our research has indicated attractive relative valuations for many of the Fund’s holdings, which we believe could be rewarded should they have strong results going forward. As the Federal Reserve’s monetary policy becomes less accommodative and indications of interest-rate increases become evident, we believe investors will increasingly recognize the attractive valuations of faster-growing companies and reward them accordingly. We also believe that our investment style—seeking robust growth companies with sustainable business models that are underappreciated by other investors—positions us well to identify and invest in select high-growth opportunities. As always, we remain focused on bottom-up analysis and have not wavered from our discipline.
Please see footnotes on page 5.
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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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,043.16 | $ | 4.79 | 0.93 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.52 | $ | 4.74 | 0.93 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,042.56 | $ | 6.08 | 1.18 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.26 | $ | 6.01 | 1.18 | % |
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, 2014 | Wells Fargo Advantage VT Small Cap Growth Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 99.08% | ||||||||||||
Consumer Discretionary: 12.93% | ||||||||||||
Auto Components: 2.51% | ||||||||||||
Gentherm Incorporated † | 120,300 | $ | 4,405,386 | |||||||||
Motorcar Parts of America Incorporated † | 64,333 | 2,000,113 | ||||||||||
6,405,499 | ||||||||||||
|
| |||||||||||
Diversified Consumer Services: 2.06% | ||||||||||||
Grand Canyon Education Incorporated † | 86,600 | 4,040,756 | ||||||||||
LifeLock Incorporated † | 65,600 | 1,214,256 | ||||||||||
5,255,012 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure: 4.12% | ||||||||||||
Fiesta Restaurant Group Incorporated † | 108,676 | 6,607,501 | ||||||||||
Jack In the Box Incorporated | 19,400 | 1,551,224 | ||||||||||
The Habit Restaurants Incorporated Class A †« | 17,746 | 574,083 | ||||||||||
Zoe’s Kitchen Incorporated †« | 59,253 | 1,772,257 | ||||||||||
10,505,065 | ||||||||||||
|
| |||||||||||
Internet & Catalog Retail: 0.15% | ||||||||||||
RetailMeNot Incorporated †« | 26,463 | 386,889 | ||||||||||
|
| |||||||||||
Media: 1.07% | ||||||||||||
IMAX Corporation † | 88,200 | 2,725,380 | ||||||||||
|
| |||||||||||
Specialty Retail: 1.50% | ||||||||||||
Boot Barn Holdings Incorporated †« | 54,411 | 990,280 | ||||||||||
Five Below Incorporated †« | 69,578 | 2,840,870 | ||||||||||
3,831,150 | ||||||||||||
|
| |||||||||||
Textiles, Apparel & Luxury Goods: 1.52% | ||||||||||||
G-III Apparel Group Limited † | 38,400 | 3,878,784 | ||||||||||
|
| |||||||||||
Consumer Staples: 1.72% | ||||||||||||
Food & Staples Retailing: 1.37% | ||||||||||||
Diplomat Pharmacy Incorporated † | 31,239 | 855,011 | ||||||||||
United Natural Foods Incorporated † | 34,100 | 2,636,783 | ||||||||||
3,491,794 | ||||||||||||
|
| |||||||||||
Personal Products: 0.35% | ||||||||||||
IGI Laboratories Incorporated †« | 99,800 | 878,240 | ||||||||||
|
| |||||||||||
Energy: 2.92% | ||||||||||||
Energy Equipment & Services: 0.21% | ||||||||||||
RigNet Incorporated † | 12,970 | 532,159 | ||||||||||
|
| |||||||||||
Oil, Gas & Consumable Fuels: 2.71% | ||||||||||||
Bonanza Creek Energy Incorporated † | 31,000 | 744,000 | ||||||||||
Diamondback Energy Incorporated † | 30,287 | 1,810,557 |
The accompanying notes are an integral part of these financial statements.
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10 | Wells Fargo Advantage VT Small Cap Growth Fund | Portfolio of investments—December 31, 2014 |
Security name | Shares | Value | ||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||
Oasis Petroleum Incorporated † | 17,600 | $ | 291,104 | |||||||||
Parsley Energy Incorporated Class A † | 104,220 | 1,663,351 | ||||||||||
RSP Permian Incorporated †« | 95,851 | 2,409,694 | ||||||||||
6,918,706 | ||||||||||||
|
| |||||||||||
Financials: 7.51% | ||||||||||||
Capital Markets: 1.66% | ||||||||||||
Financial Engines Incorporated « | 115,700 | 4,228,835 | ||||||||||
|
| |||||||||||
Consumer Finance: 2.74% | ||||||||||||
Encore Capital Group Incorporated † | 33,700 | 1,496,280 | ||||||||||
Portfolio Recovery Associates Incorporated † | 94,895 | 5,497,267 | ||||||||||
6,993,547 | ||||||||||||
|
| |||||||||||
Diversified Financial Services: 3.11% | ||||||||||||
MarketAxess Holdings Incorporated | 110,478 | 7,922,377 | ||||||||||
|
| |||||||||||
Health Care: 31.82% | ||||||||||||
Biotechnology: 3.96% | ||||||||||||
Exact Sciences Corporation †« | 36,162 | 992,285 | ||||||||||
Hyperion Therapeutics Incorporated † | 51,620 | 1,238,880 | ||||||||||
Ligand Pharmaceuticals Incorporated † | 14,700 | 782,187 | ||||||||||
NPS Pharmaceuticals Incorporated † | 95,700 | 3,423,189 | ||||||||||
PTC Therapeutics Incorporated † | 46,800 | 2,422,836 | ||||||||||
Repligen Corporation † | 62,300 | 1,233,540 | ||||||||||
10,092,917 | ||||||||||||
|
| |||||||||||
Health Care Equipment & Supplies: 10.75% | ||||||||||||
Align Technology Incorporated † | 21,600 | 1,207,656 | ||||||||||
Cardiovascular Systems Incorporated † | 137,055 | 4,122,614 | ||||||||||
Cynosure Incorporated Class A † | 120,677 | 3,308,963 | ||||||||||
DexCom Incorporated † | 102,700 | 5,653,635 | ||||||||||
Endologix Incorporated † | 134,345 | 2,054,135 | ||||||||||
Insulet Corporation † | 37,100 | 1,708,826 | ||||||||||
NxStage Medical Incorporated † | 85,820 | 1,538,753 | ||||||||||
Oxford Immunotec Global plc †« | 59,603 | 811,793 | ||||||||||
Spectranetics Corporation † | 174,313 | 6,027,744 | ||||||||||
Tandem Diabetes Care Incorporated †« | 77,648 | 986,130 | ||||||||||
27,420,249 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 10.28% | ||||||||||||
AAC Holdings Incorporated †« | 51,968 | 1,606,851 | ||||||||||
Acadia Healthcare Company Incorporated † | 136,200 | 8,336,802 | ||||||||||
Adeptus Health Incorporated Class A † | 51,883 | 1,940,424 | ||||||||||
ExamWorks Group Incorporated † | 157,856 | 6,565,231 | ||||||||||
HealthEquity Incorporated † | 57,485 | 1,462,993 | ||||||||||
MWI Veterinary Supply Incorporated † | 22,200 | 3,772,002 | ||||||||||
Team Health Holdings Incorporated † | 44,100 | 2,537,073 | ||||||||||
26,221,376 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Small Cap Growth Fund | 11 |
Security name | Shares | Value | ||||||||||
Health Care Technology: 0.74% | ||||||||||||
Medidata Solutions Incorporated † | 39,500 | $ | 1,886,125 | |||||||||
|
| |||||||||||
Life Sciences Tools & Services: 1.14% | ||||||||||||
ICON plc ADR † | 42,300 | 2,156,877 | ||||||||||
INC Research Holdings Incorporated Class A † | 29,828 | 766,281 | ||||||||||
2,923,158 | ||||||||||||
|
| |||||||||||
Pharmaceuticals: 4.95% | ||||||||||||
Akorn Incorporated †« | 187,115 | 6,773,563 | ||||||||||
ANI Pharmaceuticals Incorporated †« | 45,500 | 2,565,745 | ||||||||||
BioDelivery Sciences International Incorporated †« | 154,100 | 1,852,282 | ||||||||||
Intersect ENT Incorporated † | 77,512 | 1,437,848 | ||||||||||
12,629,438 | ||||||||||||
|
| |||||||||||
Industrials: 9.17% | ||||||||||||
Aerospace & Defense: 0.85% | ||||||||||||
TASER International Incorporated †« | 81,900 | 2,168,712 | ||||||||||
|
| |||||||||||
Building Products: 0.10% | ||||||||||||
Apogee Enterprises Incorporated | 6,300 | 266,931 | ||||||||||
|
| |||||||||||
Electrical Equipment: 0.87% | ||||||||||||
Power Solutions International Incorporated †« | 43,159 | 2,227,436 | ||||||||||
|
| |||||||||||
Machinery: 1.58% | ||||||||||||
Proto Labs Incorporated †« | 22,055 | 1,481,214 | ||||||||||
The Middleby Corporation † | 25,597 | 2,536,663 | ||||||||||
4,017,877 | ||||||||||||
|
| |||||||||||
Professional Services: 3.87% | ||||||||||||
Corporate Executive Board Company | 17,241 | 1,250,490 | ||||||||||
On Assignment Incorporated † | 130,381 | 4,327,345 | ||||||||||
Paylocity Holding Corporation †« | 58,627 | 1,530,751 | ||||||||||
Wageworks Incorporated † | 42,728 | 2,758,947 | ||||||||||
9,867,533 | ||||||||||||
|
| |||||||||||
Road & Rail: 1.12% | ||||||||||||
Saia Incorporated † | 51,800 | 2,867,648 | ||||||||||
|
| |||||||||||
Trading Companies & Distributors: 0.78% | ||||||||||||
H&E Equipment Services Incorporated | 70,500 | 1,980,345 | ||||||||||
|
| |||||||||||
Information Technology: 32.44% | ||||||||||||
Electronic Equipment, Instruments & Components: 1.61% | ||||||||||||
Cognex Corporation † | 57,300 | 2,368,209 | ||||||||||
Universal Display Corporation †« | 62,800 | 1,742,700 | ||||||||||
4,110,909 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Internet Software & Services: 12.64% | ||||||||||||
Borderfree Incorporated † | 153,293 | $ | 1,373,505 | |||||||||
ChannelAdvisor Corporation †« | 89,900 | 1,940,042 | ||||||||||
DealerTrack Holdings Incorporated † | 89,600 | 3,970,176 | ||||||||||
Demandware Incorporated † | 83,800 | 4,821,852 | ||||||||||
Envestnet Incorporated † | 155,441 | 7,638,371 | ||||||||||
HomeAway Incorporated † | 131,954 | 3,929,590 | ||||||||||
Hortonworks Incorporated †« | 18,518 | 499,986 | ||||||||||
New Relic Incorporated † | 135 | 4,703 | ||||||||||
Q2 Holdings Incorporated † | 85,668 | 1,613,985 | ||||||||||
SPS Commerce Incorporated † | 113,771 | 6,442,852 | ||||||||||
32,235,062 | ||||||||||||
|
| |||||||||||
IT Services: 2.78% | ||||||||||||
iGATE Corporation † | 45,500 | 1,796,340 | ||||||||||
InterXion Holding NV † | 65,000 | 1,777,100 | ||||||||||
Maximus Incorporated | 41,800 | 2,292,312 | ||||||||||
Wex Incorporated † | 12,394 | 1,226,014 | ||||||||||
7,091,766 | ||||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment: 2.13% | ||||||||||||
Cavium Incorporated † | 39,200 | 2,423,344 | ||||||||||
Veeco Instruments Incorporated † | 86,500 | 3,017,120 | ||||||||||
5,440,464 | ||||||||||||
|
| |||||||||||
Software: 13.28% | ||||||||||||
Aspen Technology Incorporated † | 18,400 | 644,368 | ||||||||||
Callidus Software Incorporated † | 177,334 | 2,895,864 | ||||||||||
Fleetmatics Group plc †« | 135,109 | 4,795,018 | ||||||||||
Guidewire Software Incorporated † | 49,800 | 2,521,374 | ||||||||||
HubSpot Incorporated † | 21,831 | 733,740 | ||||||||||
MobileIron Incorporated †« | 184,035 | 1,832,989 | ||||||||||
Proofpoint Incorporated † | 172,200 | 8,305,206 | ||||||||||
PROS Holdings Incorporated † | 103,327 | 2,839,426 | ||||||||||
Synchronoss Technologies Incorporated † | 86,858 | 3,635,876 | ||||||||||
Tyler Technologies Incorporated † | 23,570 | 2,579,501 | ||||||||||
Ultimate Software Group Incorporated † | 21,000 | 3,083,115 | ||||||||||
33,866,477 | ||||||||||||
|
| |||||||||||
Materials: 0.57% | ||||||||||||
Chemicals: 0.57% | ||||||||||||
Balchem Corporation | 21,900 | 1,459,417 | ||||||||||
|
| |||||||||||
Total Common Stocks (Cost $198,637,480) | 252,727,277 | |||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Small Cap Growth Fund | 13 |
Security name | Yield | Shares | Value | |||||||||||
Short-Term Investments: 16.69% | ||||||||||||||
Investment Companies: 16.69% | ||||||||||||||
Securities Lending Cash Investments, LLC (l)(r)(u) | 0.14 | % | 39,803,361 | $ | 39,803,361 | |||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | 2,778,689 | 2,778,689 | |||||||||||
Total Short-Term Investments (Cost $42,582,050) | 42,582,050 | |||||||||||||
|
|
Total investments in securities (Cost $241,219,530) * | 115.77 | % | 295,309,327 | |||||
Other assets and liabilities, net | (15.77 | ) | (40,222,628 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 255,086,699 | ||||
|
|
|
|
† | Non-income-earning security |
« | All or a portion of this security is on loan. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(r) | The investment is a non-registered investment vehicle purchased with cash collateral received from securities on loan. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $241,504,445 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 61,675,871 | ||
Gross unrealized losses | (7,870,989 | ) | ||
|
| |||
Net unrealized gains | $ | 53,804,882 |
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 assets and liabilities—December 31, 2014 |
Assets | ||||
Investments | ||||
In unaffiliated securities (including $38,526,486 of securities loaned), at value (cost $198,637,480) | $ | 252,727,277 | ||
In affiliated securities, at value (cost $42,582,050) | 42,582,050 | |||
|
| |||
Total investments, at value (cost $241,219,530) | 295,309,327 | |||
Receivable for investments sold | 255,633 | |||
Receivable for Fund shares sold | 18,038 | |||
Receivable for dividends | 14,159 | |||
Receivable for securities lending income | 19,788 | |||
Prepaid expenses and other assets | 3,799 | |||
|
| |||
Total assets | 295,620,744 | |||
|
| |||
Liabilities | ||||
Payable for Fund shares redeemed | 426,638 | |||
Payable upon receipt of securities loaned | 39,803,361 | |||
Advisory fee payable | 166,700 | |||
Distribution fee payable | 49,407 | |||
Administration fees payable | 28,895 | |||
Accrued expenses and other liabilities | 59,044 | |||
|
| |||
Total liabilities | 40,534,045 | |||
|
| |||
Total net assets | $ | 255,086,699 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 168,648,538 | ||
Accumulated net investment loss | (1,297 | ) | ||
Accumulated net realized gains on investments | 32,349,661 | |||
Net unrealized gains on investments | 54,089,797 | |||
|
| |||
Total net assets | $ | 255,086,699 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 28,120,625 | ||
Shares outstanding – Class 11 | 2,789,056 | |||
Net asset value per share – Class 1 | $10.08 | |||
Net assets – Class 2 | $ | 226,966,074 | ||
Shares outstanding – Class 21 | 22,791,528 | |||
Net asset value per share – Class 2 | $9.96 |
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, 2014 | Wells Fargo Advantage VT Small Cap Growth Fund | 15 |
Investment income | ||||
Dividends | $ | 275,218 | ||
Securities lending income, net | 187,756 | |||
Income from affiliated securities | 2,732 | |||
|
| |||
Total investment income | 465,706 | |||
|
| |||
Expenses | ||||
Advisory fee | 1,940,797 | |||
Administration fees | ||||
Fund level | 129,386 | |||
Class 1 | 23,764 | |||
Class 2 | 183,255 | |||
Distribution fee | ||||
Class 2 | 572,671 | |||
Custody and accounting fees | 26,344 | |||
Professional fees | 43,180 | |||
Shareholder report expenses | 31,423 | |||
Trustees’ fees and expenses | 12,936 | |||
Other fees and expenses | 7,083 | |||
|
| |||
Total expenses | 2,970,839 | |||
|
| |||
Net investment loss | (2,505,133 | ) | ||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on investments | 32,565,720 | |||
Net change in unrealized gains (losses) on investments | (37,633,951 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | (5,068,231 | ) | ||
|
| |||
Net decrease in net assets resulting from operations | $ | (7,573,364 | ) | |
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
16 | Wells Fargo Advantage VT Small Cap Growth Fund | Statement of changes in net assets |
Year ended December 31, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment loss | $ | (2,505,133 | ) | $ | (2,299,660 | ) | ||||||||||
Net realized gains on investments | 32,565,720 | 27,485,921 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (37,633,951 | ) | 72,423,741 | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from operations | (7,573,364 | ) | 97,610,002 | |||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net realized gains | ||||||||||||||||
Class 1 | (2,634,770 | ) | (1,493,636 | ) | ||||||||||||
Class 2 | (21,413,772 | ) | (10,871,521 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (24,048,542 | ) | (12,365,157 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 336,122 | 3,459,281 | 493,809 | 4,960,510 | ||||||||||||
Class 2 | 2,516,342 | 25,941,725 | 3,159,002 | 31,346,859 | ||||||||||||
|
| |||||||||||||||
29,401,006 | 36,307,369 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 284,840 | 2,634,770 | 158,392 | 1,493,636 | ||||||||||||
Class 2 | 2,340,303 | 21,413,772 | 1,161,487 | 10,871,521 | ||||||||||||
|
| |||||||||||||||
24,048,542 | 12,365,157 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (939,801 | ) | (9,527,061 | ) | (785,107 | ) | (7,514,839 | ) | ||||||||
Class 2 | (4,381,681 | ) | (42,879,278 | ) | (5,119,124 | ) | (48,649,167 | ) | ||||||||
|
| |||||||||||||||
(52,406,339 | ) | (56,164,006 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions | 1,043,209 | (7,491,480 | ) | |||||||||||||
|
| |||||||||||||||
Total increase (decrease) in net assets | (30,578,697 | ) | 77,753,365 | |||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 285,665,396 | 207,912,031 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 255,086,699 | $ | 285,665,396 | ||||||||||||
|
| |||||||||||||||
Accumulated net investment loss | $ | (1,297 | ) | $ | (1,447 | ) | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Financial highlights | Wells Fargo Advantage VT Small Cap Growth Fund | 17 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $11.32 | $7.93 | $7.71 | $8.06 | $6.26 | |||||||||||||||
Net investment loss | (0.07 | ) | (0.07 | ) | (0.04 | ) | (0.06 | ) | (0.02 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | (0.21 | ) | 3.98 | 0.65 | (0.29 | ) | 1.82 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.28 | ) | 3.91 | 0.61 | (0.35 | ) | 1.80 | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net realized gains | (0.96 | ) | (0.52 | ) | (0.39 | ) | 0.00 | 0.00 | ||||||||||||
Net asset value, end of period | $10.08 | $11.32 | $7.93 | $7.71 | $8.06 | |||||||||||||||
Total return2 | (1.67 | )% | 50.55 | % | 8.11 | % | (4.34 | )% | 26.93 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.93 | % | 0.93 | % | 0.94 | % | 0.94 | % | 0.95 | % | ||||||||||
Net expenses | 0.93 | % | 0.93 | % | 0.94 | % | 0.94 | % | 0.95 | % | ||||||||||
Net investment loss | (0.75 | )% | (0.73 | )% | (0.56 | )% | (0.73 | )% | (0.58 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 54 | % | 67 | % | 65 | % | 118 | % | 71 | % | ||||||||||
Net assets, end of period (000s omitted) | $28,121 | $35,192 | $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.
Table of Contents
18 | Wells Fargo Advantage VT Small Cap Growth Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $11.22 | $7.88 | $7.68 | $8.05 | $6.35 | |||||||||||||||
Net investment loss | (0.10 | ) | (0.09 | ) | (0.07 | ) | (0.09 | ) | (0.06 | ) | ||||||||||
Net realized and unrealized gains (losses) on investments | (0.20 | ) | 3.95 | 0.66 | (0.28 | ) | 1.76 | |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total from investment operations | (0.30 | ) | 3.86 | 0.59 | (0.37 | ) | 1.70 | |||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net realized gains | (0.96 | ) | (0.52 | ) | (0.39 | ) | 0.00 | 0.00 | ||||||||||||
Net asset value, end of period | $9.96 | $11.22 | $7.88 | $7.68 | $8.05 | |||||||||||||||
Total return | (1.88 | )% | 50.23 | % | 7.87 | % | (4.60 | )% | 26.77 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.18 | % | 1.18 | % | 1.19 | % | 1.20 | % | 1.22 | % | ||||||||||
Net expenses | 1.18 | % | 1.18 | % | 1.19 | % | 1.19 | % | 1.20 | % | ||||||||||
Net investment loss | (1.00 | )% | (0.98 | )% | (0.81 | )% | (0.98 | )% | (0.82 | )% | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 54 | % | 67 | % | 65 | % | 118 | % | 71 | % | ||||||||||
Net assets, end of period (000s omitted) | $226,966 | $250,473 | $182,213 | $203,348 | $247,246 |
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 Small Cap Growth Fund | 19 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, 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 vehicles 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 in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the 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.
The Fund lends its securities through an unaffiliated securities lending agent. Cash collateral received in connection with its securities lending transactions is invested in Securities Lending Cash Investments, LLC (the “Securities Lending Fund”).
Table of Contents
20 | Wells Fargo Advantage VT Small Cap Growth Fund | Notes to financial statements |
The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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 require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent differences causing such reclassifications are due to net operating losses. At December 31, 2014, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:
Paid-in capital | Accumulated net investment loss | |
$(2,505,283) | $2,505,283 |
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to 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 |
Table of Contents
Notes to financial statements | Wells Fargo Advantage VT Small Cap Growth Fund | 21 |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in : | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 32,987,779 | $ | 0 | $ | 0 | $ | 32,987,779 | ||||||||
Consumer staples | 4,370,034 | 0 | 0 | 4,370,034 | ||||||||||||
Energy | 7,450,865 | 0 | 0 | 7,450,865 | ||||||||||||
Financials | 19,144,759 | 0 | 0 | 19,144,759 | ||||||||||||
Health care | 81,173,263 | 0 | 0 | 81,173,263 | ||||||||||||
Industrials | 23,396,482 | 0 | 0 | 23,396,482 | ||||||||||||
Information technology | 82,744,678 | 0 | 0 | 82,744,678 | ||||||||||||
Materials | 1,459,417 | 0 | 0 | 1,459,417 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 2,778,689 | 39,803,361 | 0 | 42,582,050 | ||||||||||||
Total assets | $ | 255,505,966 | $ | 39,803,361 | $ | 0 | $ | 295,309,327 |
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
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
Table of Contents
22 | Wells Fargo Advantage VT Small Cap Growth Fund | Notes to financial statements |
specific expenses. Funds Management has committed through April 30, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.95% for Class 1 shares and 1.20% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
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, 2014 were $139,505,958 and $162,531,277, 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, 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, 2014, the Fund paid $506 in commitment fees.
For the year ended December 31, 2014, 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, 2014 and December 31, 2013 were as follows:
Year ended December 31 | ||||
2014 | 2013 | |||
Ordinary income | $ 3,203,905 | $ 0 | ||
Long-term capital gain | 20,844,637 | 12,365,157 |
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed long-term gain | Unrealized gains | |
$32,634,576 | $53,804,882 |
8. CONCENTRATION RISK
Concentration risks result from exposure to a limited number of sectors. A fund that invests a substantial portion of its assets in any sector may be more affected by changes in that sector than would be a fund whose investments are not heavily weighted in any sector.
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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Report of independent registered public accounting firm | Wells Fargo Advantage VT Small Cap Growth Fund | 23 |
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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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24 | Wells Fargo Advantage VT Small Cap Growth Fund | Other information (unaudited) |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 6.45% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2014.
Pursuant to Section 852 of the Internal Revenue Code, $20,844,637 was designated as long-term capital gain distributions for the fiscal year ended December 31, 2014.
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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Other information (unaudited) | Wells Fargo Advantage VT Small Cap Growth Fund | 25 |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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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26 | Wells Fargo Advantage VT Small Cap Growth Fund | Other information (unaudited) |
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management , LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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 Small Cap Growth Fund | 27 |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230417 02-15 AVT7/AR153 12-14 |
Table of Contents
Wells Fargo Advantage
VT Small Cap Value Fund
Annual Report
December 31, 2014
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, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Small Cap Value Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
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, 2014. Improving U.S. economic data and strong corporate earnings helped drive positive returns for U.S. stocks overall in 2014. In contrast, many economies and markets elsewhere in the world faced significant ongoing challenges during the period.
2014’s fitful start gave way to a rally that carried through the second quarter of 2014.
Following a difficult first quarter for the U.S. economy—when unusually harsh weather kept consumers at home, disrupted business activities, and ultimately drove a 2.1% contraction in real gross domestic product (GDP)—the second quarter of 2014 brought warmer temperatures, and the U.S. economy picked up steam. Investors were heartened by encouraging economic data, driving stocks higher. In Europe, signs of economic improvement faded when GDP stagnated during the second quarter. Although select peripheral countries, such as Spain and Portugal, provided bright spots, some of Europe’s larger economies were pressured by weak economic growth and potential deflation. European stock returns generally were positive but lackluster.
U.S. Federal Reserve (Fed) officials continued winding down their bond-buying program during the second quarter, leaving it on pace to end in 2014. They also revisited the question of when to begin raising short-term interest rates from near zero and released new projections showing rates rising more than previously expected in 2015 and 2016; however, they slightly reduced their projections for rates over the longer term. The markets took this information in stride, with both U.S. stocks and bonds rallying.
Positive U.S. economic data—but increased tensions abroad—led to heightened volatility in the third quarter of 2014.
The third quarter brought a series of stock market surges that were interrupted by bouts of volatility as interest-rate concerns in the U.S. and increased tensions abroad triggered heightened investor uncertainty. In July, an escalating Russia/Ukraine situation and a growing perception that the Fed would raise short-term interest rates sooner than expected caused investors to pull back toward month-end; as a result, the S&P 500 Index1 dropped into negative territory for its overall monthly return. However, August brought a bounce-back—the S&P 500 Index delivered its largest monthly gain since February 2014 on a string of positive economic news, led by an upwardly revised 4.2% estimate of second-quarter 2014 GDP growth. Then, in September, stock market volatility rose as positive economic data became overshadowed at times by growing discomfort over escalating tensions in Ukraine and the Middle East. Signs of slowing growth in Europe and China also concerned investors. Ultimately, U.S. stocks ended the third quarter up slightly overall, buoyed largely by another upward revision of second-quarter GDP growth (to 4.6%). Strong corporate earnings also contributed to market gains, with a large number of U.S. companies exceeding consensus estimates for both revenues and earnings per share.
1. | The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value-weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Small Cap Value Fund | 3 |
The fourth quarter of 2014 brought continued improvement in the U.S.; international economies remained challenged.
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014. The last several, in December, were spurred by investor optimism following Fed Chair Janet Yellen’s comment that the Fed would be patient in its timing of an interest-rate increase. U.S. stocks also were boosted by positive data reflecting an economy continuing to strengthen. November’s 5.8% unemployment rate was down from 7.0% a year earlier, and the number of jobs being added continued to expand, keeping U.S. employers on pace to hire nearly three million workers during 2014—the most since 1999. In addition, the U.S. economy’s third-quarter growth rate was revised upward during the quarter, to 5.0%—its fastest pace in 11 years. Meanwhile, U.S. companies continued to report strong earnings during the quarter, providing an additional catalyst for stocks. The steadily brightening U.S. economy energized consumers, who were further buoyed by much lower prices at the gasoline pump. During the fourth quarter, gasoline prices fell to their lowest levels in five years, according to the American Automobile Association.
As the U.S. churned forward, major economies elsewhere in the world faced significant ongoing challenges. Growth in China continued to slow, Japan remained in a recession that had begun the previous quarter, and Russia’s economy contracted for the first time since 2009 as the country struggled under the weight of slumping oil prices, international sanctions, and massive outflows of capital. In the eurozone, growth remained sluggish as member countries faced an environment of low demand, high unemployment, and weak business investment.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Strong fourth-quarter results by the U.S. stock market helped the S&P 500 Index deliver more than 50 record closes in 2014.
We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
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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
I. Charles Rinaldi
Erik C. Astheimer
Michael Schneider, CFA
Average annual total returns1 (%) as of December 31, 2014
Expense ratios2 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net3 | |||||||||||||||||
Class 1 | 7-16-2010 | 4.63 | 8.47 | 5.97 | 1.11 | 0.90 | ||||||||||||||||
Class 2 | 10-10-1997 | 4.46 | 8.24 | 5.86 | 1.36 | 1.15 | ||||||||||||||||
Russell 2000® Value Index4 | – | 4.22 | 14.26 | 6.89 | – | – |
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, which 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 fees 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, 2014 |
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 ratios as stated in the most recent prospectuses, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
3. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the 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 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 outperformed its benchmark, the Russell 2000 Value Index, for the 12-month period that ended December 31, 2014. |
n | Strong stock selection in several sectors contributed to the Fund’s relative performance. |
n | The Fund’s overweight to the energy sector detracted from relative results, largely due to plunging oil prices. |
Strong stock selection was offset by sector positioning.
Equities once again staged an impressive fourth-quarter rally and turned around what was shaping up to be a flat-to-down year for the U.S. equity market. Solid earnings results and expectations for continued earnings growth supported the advance. Also bolstering the market’s gain were comments by U.S. Federal Reserve (Fed) Chair Janet Yellen stating the Fed will be patient on the timing of interest-rate increases and a strong U.S. economy. Other noteworthy developments during the period were an increasing supply of crude oil that resulted in the price of crude declining by almost half and a surging U.S. dollar, which pressured dollar-denominated commodities, such as gold—the price of gold fell to a multiyear low.
Ten largest equity holdings6 (%) as of December 31, 2014 | ||||
Randgold Resources Limited ADR | 5.97 | |||
InterOil Corporation | 5.85 | |||
United Continental Holdings Incorporated | 4.47 | |||
Delta Air Lines Incorporated | 4.33 | |||
Chimera Investment Corporation | 4.15 | |||
OSI Systems Incorporated | 3.40 | |||
Cray Incorporated | 3.05 | |||
Argo Group International Holdings Limited | 2.86 | |||
Cavco Industries Incorporated | 2.70 | |||
Newpark Resources Incorporated | 1.99 |
Strong stock selection in several sectors contributed to relative returns during the period. Chief among the outperformers were airline stocks, which benefited from lower fuel prices, some capacity constraints, fare increases, and improved operating efficiencies. The Fund owned several airline stocks, such as United Continental Holdings Incorporated, and Delta Air Lines Incorporated, and collectively, they advanced 74% during the period. Airlines’ earnings have meaningfully improved since our initial purchases, and we believe future earnings growth is likely to continue in the year ahead.
The Fund’s performance benefited from strong stock selection in the information technology sector, led by Cray Incorporated and OSI Systems Incorporated. Cray posted strong gains after announcing several large contract wins. OSI Systems is recovering from operational missteps late in 2013. With some of those issues resolved, the company’s share price advanced and contributed to the Fund’s relative performance. We believe Cray and OSI Systems are well positioned to deliver on multiple growth drivers and aid the Fund’s future performance.
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, 2014 |
Strong stock selection results were offset by the Fund’s large overweight to energy. Energy stock valuations were hard hit as oil prices fell approximately 50% in the latter half of 2014. Despite crude oil’s price decline, we remain positive on selected energy companies held by the Fund because of their resource base and their relative cost profile. As oil producers adjust production levels, we would expect oil prices to recover and energy stock valuations to improve.
A company-specific approach means identifying the right companies to own.
We take a company-specific approach to investing. For example, not every company in the energy sector is affected equally by the changing prices of oil and natural
gas. Top 10 holding InterOil Corporation’s resources are natural gas–based, and an important driver of the company’s valuation in the near term will be the completion of its transaction with supermajor energy company Total SA—the transaction is expected to close in the second half of 2015. We believe that the Total SA transaction provides support for the company’s current valuation.
We are experienced investment professionals who carefully analyze the value-enhancing potential of each Fund holding. The Fund is overweight energy and materials, and both sectors are currently out of favor. However, we believe the Fund is positioned to benefit from an eventual rebound in these sectors.
As we review the Fund’s holdings, we remain confident the Fund is well positioned for various market conditions that might arise in the upcoming year.
Please see footnotes on page 5.
Table of Contents
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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value 12-31-2014 | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 1 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 930.84 | $ | 4.33 | 0.89 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.72 | $ | 4.53 | 0.89 | % | ||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 930.73 | $ | 5.55 | 1.14 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,019.46 | $ | 5.80 | 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, 2014 | Wells Fargo Advantage VT Small Cap Value Fund | 9 |
Security name | Shares | Value | ||||||||||
Common Stocks: 98.03% | ||||||||||||
Consumer Discretionary: 10.29% | ||||||||||||
Auto Components: 0.88% | ||||||||||||
Fox Factory Holding Corporation † | 12,700 | $ | 206,121 | |||||||||
Gentex Corporation | 5,300 | 191,489 | ||||||||||
397,610 | ||||||||||||
|
| |||||||||||
Hotels, Restaurants & Leisure: 3.80% | ||||||||||||
Century Casinos Incorporated † | 28,800 | 145,440 | ||||||||||
Denny’s Corporation † | 57,200 | 589,732 | ||||||||||
Peak Resorts Incorporated | 13,900 | 111,200 | ||||||||||
Scientific Games Corporation Class A † | 26,200 | 333,526 | ||||||||||
The Wendy’s Company | 58,300 | 526,449 | ||||||||||
1,706,347 | ||||||||||||
|
| |||||||||||
Household Durables: 4.53% | ||||||||||||
Cavco Industries Incorporated † | 15,300 | 1,212,831 | ||||||||||
Harman International Industries Incorporated | 1,050 | 112,046 | ||||||||||
KB Home Incorporated | 15,400 | 254,870 | ||||||||||
Skyline Corporation † | 14,100 | 57,105 | ||||||||||
Taylor Morrison Home Corporation Class A † | 9,600 | 181,344 | ||||||||||
The New Home Company Incorporated † | 15,100 | 218,648 | ||||||||||
2,036,844 | ||||||||||||
|
| |||||||||||
Media: 0.37% | ||||||||||||
Journal Communications Incorporated Class A † | 11,400 | 130,302 | ||||||||||
Starz A Incorporated † | 1,200 | 35,640 | ||||||||||
165,942 | ||||||||||||
|
| |||||||||||
Specialty Retail: 0.54% | ||||||||||||
Vitamin Shoppe Incorporated † | 5,000 | 242,900 | ||||||||||
|
| |||||||||||
Textiles, Apparel & Luxury Goods: 0.17% | ||||||||||||
Movado Group Incorporated | 2,700 | 76,599 | ||||||||||
|
| |||||||||||
Energy: 16.24% | ||||||||||||
Energy Equipment & Services: 7.31% | ||||||||||||
Glori Energy Incorporated † | 18,000 | 75,240 | ||||||||||
Helix Energy Solutions Group Incorporated † | 22,500 | 488,250 | ||||||||||
Helmerich & Payne Incorporated | 3,200 | 215,744 | ||||||||||
ION Geophysical Corporation † | 85,600 | 235,400 | ||||||||||
Key Energy Services Incorporated † | 61,500 | 102,705 | ||||||||||
Newpark Resources Incorporated † | 93,900 | 895,806 | ||||||||||
Oceaneering International Incorporated | 5,100 | 299,931 | ||||||||||
Parker Drilling Company † | 63,400 | 194,638 | ||||||||||
PHI Incorporated (non-voting) † | 10,600 | 396,440 | ||||||||||
PHI Incorporated (voting) † | 100 | 3,526 | ||||||||||
Vantage Drilling Company † | 44,400 | 21,703 | ||||||||||
Willbros Group Incorporated † | 57,000 | 357,390 | ||||||||||
3,286,773 | ||||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Oil, Gas & Consumable Fuels: 8.93% | ||||||||||||
Clean Energy Fuels Corporation † | 16,400 | $ | 81,918 | |||||||||
InterOil Corporation † | 53,900 | 2,629,781 | ||||||||||
Range Resources Corporation | 13,300 | 710,885 | ||||||||||
Sanchez Energy Corporation † | 7,300 | 67,817 | ||||||||||
Stone Energy Corporation † | 12,400 | 209,312 | ||||||||||
Trilogy Energy Corporation | 46,100 | 313,480 | ||||||||||
4,013,193 | ||||||||||||
|
| |||||||||||
Financials: 20.84% | ||||||||||||
Banks: 6.57% | ||||||||||||
Ameris Bancorp | 9,800 | 251,272 | ||||||||||
BBCN Bancorp Incorporated | 16,388 | 235,659 | ||||||||||
CenterState Banks Incorporated | 25,800 | 307,278 | ||||||||||
City National Corporation | 3,100 | 250,511 | ||||||||||
First Horizon National Corporation | 31,100 | 422,338 | ||||||||||
First Niagara Financial Group Incorporated | 42,300 | 356,589 | ||||||||||
Hilltop Holdings Incorporated † | 8,400 | 167,580 | ||||||||||
IBERIABANK Corporation | 3,400 | 220,490 | ||||||||||
Park Sterling Corporation | 20,800 | 152,880 | ||||||||||
The Bancorp Incorporated † | 34,400 | 374,616 | ||||||||||
Wilshire Bancorp Incorporated | 21,000 | 212,730 | ||||||||||
2,951,943 | ||||||||||||
|
| |||||||||||
Capital Markets: 0.58% | ||||||||||||
Medley Management Incorporated Class A | 17,600 | 258,720 | ||||||||||
|
| |||||||||||
Consumer Finance: 0.71% | ||||||||||||
Cash America International Incorporated | 6,600 | 149,292 | ||||||||||
Enova International Incorporated † | 7,600 | 169,176 | ||||||||||
318,468 | ||||||||||||
|
| |||||||||||
Insurance: 3.95% | ||||||||||||
Argo Group International Holdings Limited | 23,200 | 1,286,904 | ||||||||||
National General Holdings Corporation | 5,500 | 102,355 | ||||||||||
OneBeacon Insurance Group Limited | 23,900 | 387,180 | ||||||||||
1,776,439 | ||||||||||||
|
| |||||||||||
REITs: 8.74% | ||||||||||||
Chimera Investment Corporation | 585,800 | 1,862,844 | ||||||||||
Invesco Mortgage Capital Incorporated | 18,615 | 287,788 | ||||||||||
MFA Mortgage Investments Incorporated | 68,000 | 543,320 | ||||||||||
Redwood Trust Incorporated | 36,300 | 715,110 | ||||||||||
Sun Communities Incorporated | 5,900 | 356,714 | ||||||||||
UMH Properties Incorporated | 17,100 | 163,305 | ||||||||||
3,929,081 | ||||||||||||
|
| |||||||||||
Thrifts & Mortgage Finance: 0.29% | ||||||||||||
Northwest Bancshares Incorporated | 10,300 | 129,059 | ||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Small Cap Value Fund | 11 |
Security name | Shares | Value | ||||||||||
Health Care: 5.98% | ||||||||||||
Health Care Equipment & Supplies: 2.54% | ||||||||||||
Hologic Incorporated † | 8,400 | $ | 224,616 | |||||||||
ICU Medical Incorporated † | 300 | 24,570 | ||||||||||
OraSure Technologies Incorporated † | 88,000 | 892,320 | ||||||||||
1,141,506 | ||||||||||||
|
| |||||||||||
Health Care Providers & Services: 1.99% | ||||||||||||
Air Methods Corporation † | 1,500 | 66,045 | ||||||||||
Cross Country Healthcare Incorporated † | 41,237 | 514,638 | ||||||||||
Healthways Incorporated † | 15,800 | 314,104 | ||||||||||
894,787 | ||||||||||||
|
| |||||||||||
Health Care Technology: 0.60% | ||||||||||||
Allscripts Healthcare Solutions Incorporated † | 21,200 | 270,724 | ||||||||||
|
| |||||||||||
Life Sciences Tools & Services: 0.26% | ||||||||||||
Parexel International Corporation † | 2,100 | 116,676 | ||||||||||
|
| |||||||||||
Pharmaceuticals: 0.59% | ||||||||||||
Prestige Brands Holdings Incorporated † | 7,600 | 263,872 | ||||||||||
|
| |||||||||||
Industrials: 16.91% | ||||||||||||
Airlines: 10.58% | ||||||||||||
American Airlines Group Incorporated | 10,700 | 573,841 | ||||||||||
Delta Air Lines Incorporated | 39,600 | 1,947,924 | ||||||||||
LATAM Airlines Group SP ADR † | 18,700 | 224,026 | ||||||||||
United Continental Holdings Incorporated † | 30,000 | 2,006,700 | ||||||||||
4,752,491 | ||||||||||||
|
| |||||||||||
Commercial Services & Supplies: 3.09% | ||||||||||||
ABM Industries Incorporated | 20,600 | 590,190 | ||||||||||
ACCO Brands Corporation † | 69,400 | 625,294 | ||||||||||
Healthcare Services Group Incorporated | 5,600 | 173,208 | ||||||||||
1,388,692 | ||||||||||||
|
| |||||||||||
Electrical Equipment: 0.51% | ||||||||||||
GrafTech International Limited † | 45,800 | 231,748 | ||||||||||
|
| |||||||||||
Machinery: 0.46% | ||||||||||||
Actuant Corporation Class A | 7,600 | 207,024 | ||||||||||
|
| |||||||||||
Professional Services: 0.60% | ||||||||||||
Hill International Incorporated † | 53,500 | 205,440 | ||||||||||
Kforce Incorporated | 2,600 | 62,738 | ||||||||||
268,178 | ||||||||||||
|
| |||||||||||
Road & Rail: 1.08% | ||||||||||||
Covenant Transport Incorporated Class A † | 17,900 | 485,269 | ||||||||||
|
|
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, 2014 |
Security name | Shares | Value | ||||||||||
Trading Companies & Distributors: 0.59% | ||||||||||||
Applied Industrial Technologies Incorporated | 5,800 | $ | 264,422 | |||||||||
|
| |||||||||||
Information Technology: 11.95% | ||||||||||||
Communications Equipment: 0.85% | ||||||||||||
Brocade Communications Systems Incorporated | 14,800 | 175,232 | ||||||||||
Harmonic Incorporated † | 29,300 | 205,393 | ||||||||||
380,625 | ||||||||||||
|
| |||||||||||
Electronic Equipment, Instruments & Components: 6.44% | ||||||||||||
Checkpoint Systems Incorporated † | 25,700 | 352,861 | ||||||||||
Cognex Corporation † | 9,800 | 405,034 | ||||||||||
Coherent Incorporated † | 10,000 | 607,200 | ||||||||||
OSI Systems Incorporated † | 21,600 | 1,528,632 | ||||||||||
2,893,727 | ||||||||||||
|
| |||||||||||
Internet Software & Services: 0.29% | ||||||||||||
Gogo Incorporated † | 7,900 | 130,587 | ||||||||||
|
| |||||||||||
Semiconductors & Semiconductor Equipment: 0.57% | ||||||||||||
Kulicke & Soffa Industries Incorporated † | 17,800 | 257,388 | ||||||||||
|
| |||||||||||
Technology Hardware, Storage & Peripherals: 3.80% | ||||||||||||
Cray Incorporated † | 39,800 | 1,372,304 | ||||||||||
Diebold Incorporated | 2,800 | 96,992 | ||||||||||
Quantum Corporation † | 135,100 | 237,776 | ||||||||||
1,707,072 | ||||||||||||
|
| |||||||||||
Materials: 14.43% | ||||||||||||
Chemicals: 0.70% | ||||||||||||
Calgon Carbon Corporation † | 6,900 | 143,382 | ||||||||||
Zep Incorporated | 11,400 | 172,710 | ||||||||||
316,092 | ||||||||||||
|
| |||||||||||
Containers & Packaging: 0.45% | ||||||||||||
Intertape Polymer Group Incorporated (a) | 12,600 | 201,743 | ||||||||||
|
| |||||||||||
Metals & Mining: 12.24% | ||||||||||||
Agnico-Eagle Mines Limited | 10,100 | 251,389 | ||||||||||
Carpenter Technology Corporation | 6,800 | 334,900 | ||||||||||
Dominion Diamond Corporation † | 13,300 | 238,868 | ||||||||||
NovaGold Resources Incorporated † | 41,900 | 123,605 | ||||||||||
Randgold Resources Limited ADR | 39,800 | 2,682,918 | ||||||||||
Royal Gold Incorporated | 8,500 | 532,950 | ||||||||||
Sandstorm Gold Limited † | 50,400 | 171,360 | ||||||||||
Silver Standard Resources Incorporated † | 45,300 | 226,726 | ||||||||||
Steel Dynamics Incorporated | 36,100 | 712,614 | ||||||||||
United States Steel Corporation | 4,000 | 106,960 | ||||||||||
Webco Industries Incorporated †(a)(i) | 1,900 | 117,895 | ||||||||||
5,500,185 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Small Cap Value Fund | 13 |
Security name | Shares | Value | ||||||||||||
Paper & Forest Products: 1.04% | ||||||||||||||
Deltic Timber Corporation | 2,600 | $ | 177,840 | |||||||||||
Wausau Paper Corporation | 25,400 | 288,798 | ||||||||||||
466,638 | ||||||||||||||
|
| |||||||||||||
Telecommunication Services: 1.39% | ||||||||||||||
Diversified Telecommunication Services: 1.39% | ||||||||||||||
Cincinnati Bell Incorporated † | 195,300 | 623,007 | ||||||||||||
|
| |||||||||||||
Total Common Stocks (Cost $37,758,191) | 44,052,371 | |||||||||||||
|
| |||||||||||||
Exchange-Traded Funds: 1.32% | ||||||||||||||
KBW Regional Banking ETF | 3,538 | 143,997 | ||||||||||||
Market Vectors Gold Miners ETF | 17,338 | 318,672 | ||||||||||||
Market Vectors Junior Gold Miners ETF | 5,454 | 130,514 | ||||||||||||
Total Exchange-Traded Funds (Cost $965,079) | 593,183 | |||||||||||||
|
| |||||||||||||
Yield | ||||||||||||||
Short-Term Investments: 0.67% | ||||||||||||||
Investment Companies: 0.67% | ||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u) | 0.08 | % | 302,028 | 302,028 | ||||||||||
|
| |||||||||||||
Total Short-Term Investments (Cost $302,028) | 302,028 | |||||||||||||
|
|
Total investments in securities (Cost $39,025,298)* | 100.02 | % | 44,947,582 | |||||
Other assets and liabilities, net | (0.02 | ) | (10,373 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 44,937,209 | ||||
|
|
|
|
† | Non-income-earning security |
(a) | The security is fair valued in accordance with procedures approved by the Board of Trustees. |
(i) | Illiquid security for which the designation as illiquid is unaudited. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $39,330,992 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 11,109,684 | ||
Gross unrealized losses | (5,493,094 | ) | ||
|
| |||
Net unrealized gains | $ | 5,616,590 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
14 | Wells Fargo Advantage VT Small Cap Value Fund | Statement of assets and liabilities—December 31, 2014 |
Assets | ||||
Investments | ||||
In unaffiliated securities, at value (cost $38,723,270) | $ | 44,645,554 | ||
In affiliated securities, at value (cost $302,028) | 302,028 | |||
|
| |||
Total investments, at value (cost $39,025,298) | 44,947,582 | |||
Receivable for investments sold | 47,814 | |||
Receivable for Fund shares sold | 24,568 | |||
Receivable for dividends | 97,982 | |||
Prepaid expenses and other assets | 6,931 | |||
|
| |||
Total assets | 45,124,877 | |||
|
| |||
Liabilities | ||||
Payable for investments purchased | 54,848 | |||
Payable for Fund shares redeemed | 54,002 | |||
Advisory fee payable | 19,725 | |||
Distribution fee payable | 3,018 | |||
Administration fees payable | 5,130 | |||
Professional fees payable | 33,994 | |||
Accrued expenses and other liabilities | 16,951 | |||
|
| |||
Total liabilities | 187,668 | |||
|
| |||
Total net assets | $ | 44,937,209 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 42,854,803 | ||
Undistributed net investment income | 175,502 | |||
Accumulated net realized losses on investments | (4,015,380 | ) | ||
Net unrealized gains on investments | 5,922,284 | |||
|
| |||
Total net assets | $ | 44,937,209 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 1 | $ | 31,296,041 | ||
Shares outstanding – Class 11 | 2,806,112 | |||
Net asset value per share – Class 1 | $11.15 | |||
Net assets – Class 2 | $ | 13,641,168 | ||
Shares outstanding – Class 21 | 1,223,918 | |||
Net asset value per share – Class 2 | $11.15 |
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, 2014 | Wells Fargo Advantage VT Small Cap Value Fund | 15 |
Investment income | ||||
Dividends (net of foreign withholding taxes of $3,825) | $ | 867,813 | ||
Income from affiliated securities | 489 | |||
|
| |||
Total investment income | 868,302 | |||
|
| |||
Expenses | ||||
Advisory fee | 375,623 | |||
Administration fees | ||||
Fund level | 25,042 | |||
Class 1 | 27,896 | |||
Class 2 | 12,170 | |||
Distribution fee | ||||
Class 2 | 38,031 | |||
Custody and accounting fees | 21,708 | |||
Professional fees | 45,300 | |||
Shareholder report expenses | 17,599 | |||
Trustees’ fees and expenses | 14,929 | |||
Other fees and expenses | 4,085 | |||
|
| |||
Total expenses | 582,383 | |||
Less: Fee waivers and/or expense reimbursements | (98,612 | ) | ||
|
| |||
Net expenses | 483,771 | |||
|
| |||
Net investment income | 384,531 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains on: | ||||
Unaffiliated securities | 4,638,815 | |||
Written options | 10,334 | |||
|
| |||
Net realized gains on investments | 4,649,149 | |||
|
| |||
Net change in unrealized gains (losses) on: | ||||
Unaffiliated securities | (2,509,908 | ) | ||
Written options | (5,051 | ) | ||
|
| |||
Net change in unrealized gains (losses) on investments | (2,514,959 | ) | ||
|
| |||
Net realized and unrealized gains (losses) on investments | 2,134,190 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 2,518,721 | ||
|
|
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 changes in net assets |
Year ended | Year ended | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 384,531 | $ | 396,437 | ||||||||||||
Net realized gains on investments | 4,649,149 | 4,406,238 | ||||||||||||||
Net change in unrealized gains (losses) on investments | (2,514,959 | ) | 2,952,763 | |||||||||||||
|
| |||||||||||||||
Net increase in net assets resulting from operations | 2,518,721 | 7,755,438 | ||||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income | ||||||||||||||||
Class 1 | (214,385 | ) | (363,474 | ) | ||||||||||||
Class 2 | (53,163 | ) | (114,530 | ) | ||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (267,548 | ) | (478,004 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold | ||||||||||||||||
Class 1 | 145,789 | 1,586,802 | 103,741 | 1,045,325 | ||||||||||||
Class 2 | 190,581 | 2,169,735 | 242,058 | 2,440,592 | ||||||||||||
|
| |||||||||||||||
3,756,537 | 3,485,917 | |||||||||||||||
|
| |||||||||||||||
Reinvestment of distributions | ||||||||||||||||
Class 1 | 18,168 | 214,385 | 36,203 | 363,474 | ||||||||||||
Class 2 | 4,505 | 53,163 | 11,408 | 114,530 | ||||||||||||
|
| |||||||||||||||
267,548 | 478,004 | |||||||||||||||
|
| |||||||||||||||
Payment for shares redeemed | ||||||||||||||||
Class 1 | (707,033 | ) | (8,020,383 | ) | (842,800 | ) | (8,678,358 | ) | ||||||||
Class 2 | (355,425 | ) | (4,044,288 | ) | (597,766 | ) | (6,193,805 | ) | ||||||||
|
| |||||||||||||||
(12,064,671 | ) | (14,872,163 | ) | |||||||||||||
|
| |||||||||||||||
Net decrease in net assets resulting from capital share transactions | (8,040,586 | ) | (10,908,242 | ) | ||||||||||||
|
| |||||||||||||||
Total decrease in net assets | (5,789,413 | ) | (3,630,808 | ) | ||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 50,726,622 | 54,357,430 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 44,937,209 | $ | 50,726,622 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 175,502 | $ | 264,798 | ||||||||||||
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|
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 | 17 |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 1 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $10.72 | $9.41 | $8.33 | $9.04 | $7.36 | |||||||||||||||
Net investment income | 0.11 | 0.10 | 0.12 | 0.11 | 0.05 | 2 | ||||||||||||||
Net realized and unrealized gains (losses) on investments | 0.39 | 1.31 | 1.06 | (0.74 | ) | 1.63 | ||||||||||||||
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Total from investment operations | 0.50 | 1.41 | 1.18 | (0.63 | ) | 1.68 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.07 | ) | (0.10 | ) | (0.10 | ) | (0.08 | ) | 0.00 | |||||||||||
Net asset value, end of period | $11.15 | $10.72 | $9.41 | $8.33 | $9.04 | |||||||||||||||
Total return3 | 4.63 | % | 15.03 | % | 14.33 | % | (7.06 | )% | 22.83 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.09 | % | 1.10 | % | 1.09 | % | 1.14 | % | 0.96 | % | ||||||||||
Net expenses | 0.89 | % | 0.89 | % | 0.89 | % | 0.89 | % | 0.89 | % | ||||||||||
Net investment income | 0.85 | % | 0.81 | % | 1.10 | % | 1.07 | % | 1.43 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 27 | % | 18 | % | 17 | % | 16 | % | 61 | % | ||||||||||
Net assets, end of period (000s omitted) | $31,296 | $35,900 | $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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18 | Wells Fargo Advantage VT Small Cap Value Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $10.71 | $9.40 | $8.32 | $9.03 | $7.83 | |||||||||||||||
Net investment income | 0.07 | 0.07 | 0.09 | 0.09 | 0.12 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 0.41 | 1.31 | 1.07 | (0.74 | ) | 1.20 | ||||||||||||||
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Total from investment operations | 0.48 | 1.38 | 1.16 | (0.65 | ) | 1.32 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.04 | ) | (0.07 | ) | (0.08 | ) | (0.06 | ) | (0.12 | ) | ||||||||||
Net asset value, end of period | $11.15 | $10.71 | $9.40 | $8.32 | $9.03 | |||||||||||||||
Total return | 4.46 | % | 14.75 | % | 14.00 | % | (7.26 | )% | 17.25 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 1.34 | % | 1.35 | % | 1.34 | % | 1.39 | % | 1.52 | % | ||||||||||
Net expenses | 1.14 | % | 1.14 | % | 1.14 | % | 1.14 | % | 1.14 | % | ||||||||||
Net investment income | 0.58 | % | 0.55 | % | 0.90 | % | 0.82 | % | 1.06 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 27 | % | 18 | % | 17 | % | 16 | % | 61 | % | ||||||||||
Net assets, end of period (000s omitted) | $13,641 | $14,826 | $16,245 | $14,681 | $19,606 |
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 Small Cap Value Fund | 19 |
1. ORGANIZATION
Wells Fargo Variable Trust (the “Trust”), a Delaware statutory trust organized on March 10, 1999, is an open-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Equity securities and options that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures. Non-listed OTC options are valued at the evaluated price provided by an independent pricing service or an independent broker-dealer that the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”) has determined is an acceptable source.
The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team.
Many securities markets and exchanges outside the U.S. close prior to the close of the New York Stock Exchange and therefore may not fully reflect trading or events that occur after the close of the principal exchange in which the foreign securities are traded, but before the close of the New York Stock Exchange. If such trading or events are expected to materially affect the value of such securities, then fair value pricing procedures approved by the Board of Trustees of the Fund are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. Foreign securities that are fair valued under these procedures are categorized as Level 2 and the application of these procedures may result in transfers between Level 1 and Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in net asset values that are higher or lower than net asset values based on the last reported sales price or latest quoted bid price. On December 31, 2014, such fair value pricing was 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 in good faith by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or subadviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.
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20 | Wells Fargo Advantage VT Small Cap Value Fund | Notes to financial statements |
Foreign currency translation
The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in net realized and unrealized gains or losses from investments.
Options
The Fund is 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 and/or indexes. 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 on the expiration date. For exercised options, 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 and/or index 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 the current market value of the option. Premiums paid for purchased options that expire are recognized as realized losses 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. Purchased options traded over-the-counter expose the Fund to counterparty risk in the event the counterparty does not perform. This risk can be 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 custodian verifies the ex-dividend date. Dividend income from foreign securities is recorded net of foreign taxes withheld where recovery of such taxes is not assured.
Distributions to shareholders
Distributions to shareholders from net investment income and net realized gains, if any, are recorded on the ex-dividend date. Such distributions are determined in 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.
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Notes to financial statements | Wells Fargo Advantage VT Small Cap Value Fund | 21 |
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 require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or net asset values per share. The primary permanent difference causing such reclassifications is due to dividends from certain securities. At December 31, 2014, 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 | |
$(206,279) | $206,279 |
As of December 31, 2014, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $3,716,042 expiring in 2017.
Class allocations
The separate classes of shares offered by the Fund differ principally in distribution fees. Class specific expenses are charged directly to that share class. Investment income, common expenses and realized and unrealized gains (losses) on investments are allocated daily to each class of shares based on the relative proportion of net assets of each class.
3. FAIR VALUATION MEASUREMENTS
Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:
n | Level 1 – quoted prices in active markets for identical securities |
n | Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
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22 | Wells Fargo Advantage VT Small Cap Value Fund | Notes to financial statements |
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Common stocks | ||||||||||||||||
Consumer discretionary | $ | 4,626,242 | $ | 0 | $ | 0 | $ | 4,626,242 | ||||||||
Energy | 6,986,486 | 313,480 | 0 | 7,299,966 | ||||||||||||
Financials | 9,363,710 | 0 | 0 | 9,363,710 | ||||||||||||
Health care | 2,687,565 | 0 | 0 | 2,687,565 | ||||||||||||
Industrials | 7,597,824 | 0 | 0 | 7,597,824 | ||||||||||||
Information technology | 5,369,399 | 0 | 0 | 5,369,399 | ||||||||||||
Materials | 6,165,020 | 319,638 | 0 | 6,484,658 | ||||||||||||
Telecommunication services | 623,007 | 0 | 0 | 623,007 | ||||||||||||
Exchange-traded funds | 593,183 | 0 | 0 | 593,183 | ||||||||||||
Short-term investment | ||||||||||||||||
Investment companies | 302,028 | 0 | 0 | 302,028 | ||||||||||||
Total assets | $ | 44,314,464 | $ | 633,118 | $ | 0 | $ | 44,947,582 |
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, common stocks with a market value of $515,223 were transferred from Level 1 to Level 2 because of a decrease in the market activity of these securities. The Level 2 valuation is based on reference to similar securities from the same issuers which were trading on active markets at the end of the period. The Fund did not have any transfers into/out of Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate starting at 0.55% and declining to 0.40% as the average daily net assets of the Fund increase.
Administration fees
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 its 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 April 30, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.89% for Class 1 shares and 1.14% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
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Notes to financial statements | Wells Fargo Advantage VT Small Cap Value Fund | 23 |
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
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, 2014 were $13,120,566 and $19,401,197, respectively.
6. DERIVATIVE TRANSACTIONS
During the year ended December 31, 2014, the Fund entered into written options for economic hedging purposes.
During the year ended December 31, 2014, the Fund had written call option activities as follows:
Call options | ||||||||
Number of contracts | Premiums received | |||||||
Options outstanding at December 31, 2013 | 22 | $ | 7,691 | |||||
Options written | 75 | 13,421 | ||||||
Options expired | (6 | ) | (1,645 | ) | ||||
Options closed | (91 | ) | (19,467 | ) | ||||
Options exercised | 0 | 0 | ||||||
Options outstanding at December 31, 2014 | 0 | $ | 0 |
As of December 31, 2014, the Fund did not have any open written options. The Fund had an average of 18 written option contracts during the year ended December 31, 2014.
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 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, 2014, the Fund paid $99 in commitment fees.
For the year ended December 31, 2014, there were no borrowings by the Fund under the agreement.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid was $267,548 and $478,004 of ordinary income for the years ended December 31, 2014 and December 31, 2013, respectively.
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
$183,549 | $5,616,590 | $(3,716,042) |
9. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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24 | Wells Fargo Advantage VT Small Cap 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 Small Cap Value Fund (the “Fund”), one of the funds constituting the Wells Fargo Variable Trust, as of December 31, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years or periods in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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Other information (unaudited) | Wells Fargo Advantage VT Small Cap Value Fund | 25 |
TAX INFORMATION
For corporate shareholders, pursuant to Section 854 of the Internal Revenue Code, 67.73% of ordinary income dividends qualify for the corporate dividends-received deduction for the fiscal year ended December 31, 2014.
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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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26 | Wells Fargo Advantage VT Small Cap Value Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 Value Fund | 27 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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 Small Cap Value Fund | List of abbreviations |
The following is a list of common abbreviations for terms and entities that may have appeared in this report.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230418 02-15 AVT8/AR154 12-14 |
Table of Contents
Wells Fargo Advantage VT Total Return Bond Fund
Annual Report
December 31, 2014
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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4 | ||||
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Financial statements | ||||
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38 |
The views expressed and any forward-looking statements are as of December 31, 2014, 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 and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.
NOT FDIC INSURED ¡ NO BANK GUARANTEE ¡ MAY LOSE VALUE
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2 | Wells Fargo Advantage VT Total Return Bond Fund | Letter to shareholders (unaudited) |
Karla M. Rabusch
President
Wells Fargo Advantage Funds
Major central banks continued to inject liquidity into global banks and markets through various accommodative monetary policies, including quantitative easing.
Dear Valued Shareholder:
We are pleased to offer you this annual report for the Wells Fargo Advantage VT Total Return Bond Fund for the 12-month period that ended December 31, 2014. The period was marked by a strong U.S. dollar, low interest rates, and sluggish growth outside the U.S.
The U.S. was the fastest-growing developed country, which benefited U.S. companies. Most bond sectors gained modestly amid renewed confidence in economic growth that drove outperformance in credit-sensitive sectors as solid economic growth boosted company revenue and profits and kept default rates low. Investment-grade U.S. bonds, as measured by the Barclays U.S. Aggregate Bond Index1, returned 5.97% during the period.
Major central banks continued to provide stimulus.
Major central banks continued to inject liquidity into global banks and markets through various accommodative monetary policies, including quantitative easing. In the U.S., the Federal Reserve (Fed) kept its key interest rate near zero in order to support the economy and the financial system. It tapered the size of its quantitative easing program each month until the program ended in October 2014 and also set expectations for it to begin normalizing monetary policy with higher target ranges for the federal funds rate.
Meanwhile, European markets continued to benefit from the European Central Bank’s (ECB’s) willingness to maintain low interest rates. In September 2014, the ECB cut its key rate to a historic low of 0.05%. In addition to its targeted longer-term refinancing operations that are designed to increase bank lending, the ECB said it intends to increase the size of its balance sheet, a result of quantitative easing. In Japan, the Bank of Japan maintained an aggressive monetary program aimed at combating deflation.
Economic growth was sluggish outside the U.S.
The Fed has a dual mandate to maximize employment and keep prices stable, and economic activity during the period showed improvement on both these fronts. The unemployment rate ticked lower to 5.6% as of December 2014. On the inflation front, the personal consumption expenditures price index remained below the Fed’s longer-run objective of a 2% pace.
Elsewhere, economic data continued to show sluggish growth. The European Union’s gross domestic product was sluggish and the region’s unemployment rate remained elevated. Japan’s economy faltered in reaction to a sales-tax increase despite Prime Minister Abe’s economic plans to promote growth.
With the U.S. economy the furthest along its business cycle, the level of interest rates in the U.S. and Europe diverged—the 10-year U.S. Treasury yield was 2.17% at the end of December 2014 compared with 0.54% for 10-year German government yields, 163 basis points (100 basis points equals 1.00%) higher. This is largely attributed to the Fed being closer to eventually increasing interest rates while the ECB potentially needs to further increase, rather than scale back, its amount of accommodation. Further, U.S. economic activity is healthier than Europe’s.
1. | The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. You cannot invest directly in an index. |
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Letter to shareholders (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 3 |
Longer-dated securities and lower-rated credits were top performers.
Treasury bonds with maturities greater than 20 years returned more than 27% in 2014, according to the Barclays U.S. Aggregate Bond Index. This was due, in part, to strong demand from overseas investors because yields in Europe and Japan were substantially lower than U.S. yields. In addition, because the dollar strengthened, the returns from Treasuries were even higher for foreign-domiciled investors. Longer-maturity debt across all sectors outperformed shorter-dated securities.
Investment-grade corporate bonds returned 7.46% in 2014, according to the Barclays U.S. Aggregate Bond Index, and BBB-rated bonds had higher returns than AAA-rated bonds. Although lower-rated credits did best in 2014, the trend changed in the latter part of the year as oil prices fell dramatically. Not only were many energy and mining companies negatively affected, but investor trepidation about weak global growth caused investment-grade spreads to modestly widen while high-yield spreads widened substantially. For example, BBB-rated bonds returned 8.25% in 2014 but only 1.28% in the fourth quarter.
Don’t let short-term uncertainty derail long-term investment goals.
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future. To help you create a sound strategy based on your personal goals and risk tolerance, Wells Fargo Advantage Funds offers more than 100 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. We encourage investors to know their investments and to understand that appropriate levels of risk-taking may unlock opportunities.
Thank you for choosing to invest with Wells Fargo 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
Periods of uncertainty can present challenges, but experience has taught us that maintaining long-term investment goals can be an effective way to plan for the future.
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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, 2014
Expense ratios1 (%) | ||||||||||||||||||||||
Inception date | 1 year | 5 year | 10 year | Gross | Net2 | |||||||||||||||||
Class 2 | 9-20-1999 | 5.59 | 4.85 | 5.02 | 0.94 | 0.91 | ||||||||||||||||
Barclays U.S. Aggregate Bond Index3 | – | 5.97 | 4.45 | 4.71 | – | – |
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, which 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 fees 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. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest-rate changes and their impact on the Fund and its share price can be sudden and unpredictable. The use of derivatives may reduce returns and/or increase volatility. 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.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 5 |
Growth of $10,000 investment4 as of December 31, 2014 |
1. | Reflects the expense ratios as stated in the most recent prospectus, which include the impact of 0.01% in acquired fund fees and expenses. The expense ratios shown are subject to change and may differ from the annualized expense ratios shown in the financial highlights of this report, which do not include acquired fund fees and expenses. |
2. | The Adviser has committed through April 30, 2015, 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. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees. Brokerage commissions, stamp duty fees, interest, taxes, acquired fund fees and expenses, and extraordinary expenses are excluded from the cap. Without this cap, the Fund’s returns would have been lower. |
3. | The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. You cannot invest directly in an index. |
4. | The chart compares the performance of Class 2 shares for the most recent ten years with the 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. |
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6 | Wells Fargo Advantage VT Total Return Bond Fund | Performance highlights (unaudited) |
MANAGER’S DISCUSSION
Fund highlights
n | The Fund underperformed the Barclays U.S. Aggregate Bond Index for the 12-month period that ended December 31, 2014. |
n | Security selection within corporate bonds, specifically within the cable/media and energy sectors detracted and was not offset by good selection within the insurance, consumer noncylicals, and utilities sectors. |
n | Security selection within adjustable-rate mortgages (ARMs), collateralized mortgage obligations, and fixed-rate mortgage-backed securities (MBS) contributed to performance. |
n | Overweight sector allocations to commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) also contributed to performance. |
Ten largest long-term holdings5 (%) as of December 31, 2014 | ||||
U.S. Treasury Note, 0.88%, 10-15-2017 | 4.72 | |||
U.S. Treasury Note, 0.88%, 8-15-2017 | 3.13 | |||
U.S. Treasury Note, 1.75%, 9-30-2019 | 2.98 | |||
U.S. Treasury Note, 0.63%, 9-30-2017 | 2.90 | |||
GNMA, 3.50%, 1-21-2045 | 2.10 | |||
U.S. Treasury Note, 2.25%, 11-15-2024 | 2.05 | |||
U.S. Treasury Note, 0.88%, 5-15-2017 | 2.00 | |||
U.S. Treasury Note, 1.63%, 12-31-2019 | 1.67 | |||
FNMA, 4.50%, 1-14-2045 | 1.45 | |||
U.S. Treasury Note, 1.50%, 1-31-2019 | 1.42 |
Interest rates fell, structured products outperformed, and credit spreads widened.
The Barclays U.S. Aggregate Bond Index posted a positive total return for the year, with positive returns across all sectors, on a relative basis, led by tightening in CMBS, ABS, and MBS, while credit was the sole sector that underperformed. In a low-interest-rate environment, investors continued to reach for yield, which helped investment-grade non-Treasury securities outperform for most of the year. Mortgages shrugged off the end of the Federal Reserve’s (Fed’s) quantitative easing program and performed well into year-end. Meanwhile, tumbling oil prices, weakening commodities, all-time lows in European bond yields, and fresh highs in U.S. equities
reflected the growing disparity between a strengthening U.S. economy and significant softness globally and negatively affected high-yield and emerging markets debt in the second half of 2014.
Portfolio allocation6 as of December 31, 2014 | ||
We reduced risk allocations in 2014.
We reduced the Fund’s overweight to corporate bonds throughout the year, ending with a small overweight. Our positioning at year-end reflected our expectations for prolonged supply pressure, deteriorating commodity fundamentals, and the achievement of relative valuation targets in many securities. Reductions were mainly in insurance, foreign agencies, and health care. Separately, we moved to an underweight in Brazil due to fundamental concerns early in 2014, later reallocating this exposure to Paraguay, which was fundamentally
improving. We also added cable/media (examples include DIRECTV Holdings LLC) and pipelines following the fourth quarter’s collapse in oil prices. We viewed spread widening to be excessive in Enterprise Products Operating LLC and other master limited partnerships with limited commodity exposure.
Please see footnotes on page 5.
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Performance highlights (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 7 |
We reduced our mortgage allocations early in the year and stayed underweight throughout most of the year. We reduced our positioning in 30-year fixed-rate mortgages because we found better value in 20-year fixed-rate mortgages and hybrid adjustable-rate mortgages. Within 20-year MBS, we found value in 4.0% coupons, lower loan balance specified pools, and seasoned shorter average life pools. We significantly reduced our underweight to the Ginnie Mae sector over the course of the year.
In other structured products, we remained overweight CMBS and ABS. We reduced our overweight to student loans, selling both longer-maturity Federal Family Education Loan Program floating-rate notes and recent vintage Sallie Mae private student loans while adding three- to five-year credit card ABS, five-year prime auto ABS, and auto dealer floorplan ABS. In CMBS, we reduced risk throughout the year, especially in the fourth quarter.
We believe we are well positioned to take advantage of relative-value trading opportunities.
The U.S. economy appears to be consolidating its recent strength, providing solid momentum heading into 2015. Manufacturing surveys remain strong, and with robust payroll growth, the unemployment rate has fallen to 5.6%. The plunge in oil prices is a boon to the consumer and therefore good for consumer spending prospects. While most inflation measures remain below the Fed’s target of 2%, likely due to lower import costs, officials remain confident that medium-term inflation expectations are stable.
In light of this progress, the Fed is positioning for the normalization of monetary policy. Quantitative easing has ended, and official statements suggest that the Fed will assess incoming data patiently, with a federal funds rate increase around mid-2015 seeming reasonable. The pace of monetary policy normalization will be governed by incoming data and financial conditions.
We are closely watching international factors that provide a clear wildcard to the U.S. dollar–denominated financial markets, contributing to a volatile market environment. Strengthening domestic growth, mirrored against weaker growth abroad, is creating a powerful rally in the U.S. dollar. Fresh stimulus in Japan and Europe, along with signs of capital flight in several traditional emerging markets, is creating spillovers onto U.S. interest rates, mitigating the ending of the Fed’s asset purchases. Collapses in commodity and oil prices could be triggering a sizable global redistribution of haves and have-nots among countries, industries, and asset classes.
Consistent with our bottom-up security selection process, we maintain a neutral duration. We believe we are well positioned and stand ready to take advantage of relative-value trading opportunities as they arise.
Please see footnotes on page 5.
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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, 2014 to December 31, 2014.
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 7-1-2014 | Ending account value | Expenses paid during the period¹ | Net annualized expense ratio | |||||||||||||
Class 2 | ||||||||||||||||
Actual | $ | 1,000.00 | $ | 1,017.38 | $ | 4.58 | 0.90 | % | ||||||||
Hypothetical (5% return before expenses) | $ | 1,000.00 | $ | 1,020.67 | $ | 4.58 | 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). |
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Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 9 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities: 29.20% | ||||||||||||||||
FHLMC ± | 2.57 | % | 12-1-2042 | $ | 39,294 | $ | 39,748 | |||||||||
FHLMC ± | 2.68 | 11-1-2042 | 89,766 | 92,466 | ||||||||||||
FHLMC (a)%% | 2.70 | 2-16-2045 | 122,000 | 125,711 | ||||||||||||
FHLMC (a)%% | 2.73 | 1-13-2045 | 96,000 | 98,920 | ||||||||||||
FHLMC (a)%% | 2.75 | 2-16-2045 | 126,000 | 129,990 | ||||||||||||
FHLMC (a)%% | 2.75 | 12-16-2045 | 123,000 | 126,623 | ||||||||||||
FHLMC ± | 2.76 | 11-1-2044 | 189,794 | 196,279 | ||||||||||||
FHLMC (a)%% | 2.80 | 2-16-2045 | 122,000 | 126,169 | ||||||||||||
FHLMC ± | 2.81 | 9-1-2044 | 183 | 201 | ||||||||||||
FHLMC (a)%% | 2.83 | 1-13-2045 | 97,000 | 99,857 | ||||||||||||
FHLMC ± | 2.84 | 9-1-2044 | 2,564 | 2,643 | ||||||||||||
FHLMC ± | 2.84 | 11-1-2044 | 101 | 104 | ||||||||||||
FHLMC (a)%% | 2.85 | 1-15-2045 | 167,000 | 170,876 | ||||||||||||
FHLMC ± | 2.86 | 9-1-2044 | 211 | 218 | ||||||||||||
FHLMC ± | 2.87 | 11-1-2044 | 82,000 | 84,550 | ||||||||||||
FHLMC ± | 2.88 | 12-1-2044 | 132,000 | 136,134 | ||||||||||||
FHLMC ± | 2.90 | 11-1-2044 | 141,798 | 146,350 | ||||||||||||
FHLMC ± | 2.91 | 11-1-2044 | 21,994 | 22,706 | ||||||||||||
FHLMC ± | 2.91 | 11-1-2044 | 70,000 | 72,307 | ||||||||||||
FHLMC ± | 2.94 | 1-1-2044 | 74,461 | 76,078 | ||||||||||||
FHLMC ± | 2.95 | 11-1-2043 | 148,053 | 151,409 | ||||||||||||
FHLMC ± | 2.97 | 10-1-2043 | 105,002 | 107,421 | ||||||||||||
FHLMC ± | 3.01 | 11-1-2043 | 96,387 | 98,764 | ||||||||||||
FHLMC | 3.50 | 12-1-2029 | 29,000 | 30,881 | ||||||||||||
FHLMC | 3.50 | 6-1-2042 | 48,191 | 50,279 | ||||||||||||
FHLMC | 3.50 | 11-1-2042 | 76,376 | 79,680 | ||||||||||||
FHLMC | 3.50 | 11-1-2042 | 46,212 | 48,210 | ||||||||||||
FHLMC | 3.50 | 11-1-2042 | 25,797 | 26,913 | ||||||||||||
FHLMC | 3.50 | 3-1-2043 | 79,051 | 82,475 | ||||||||||||
FHLMC | 3.50 | 3-1-2043 | 110,499 | 115,251 | ||||||||||||
FHLMC | 3.50 | 3-1-2043 | 70,346 | 73,381 | ||||||||||||
FHLMC | 3.50 | 4-1-2043 | 74,114 | 77,311 | ||||||||||||
FHLMC | 3.50 | 4-1-2043 | 57,074 | 59,544 | ||||||||||||
FHLMC | 3.50 | 4-1-2043 | 45,479 | 47,448 | ||||||||||||
FHLMC | 3.50 | 4-1-2043 | 31,833 | 33,210 | ||||||||||||
FHLMC | 3.50 | 4-1-2043 | 77,997 | 81,360 | ||||||||||||
FHLMC | 3.50 | 5-1-2043 | 94,447 | 98,540 | ||||||||||||
FHLMC | 3.50 | 8-1-2043 | 44,158 | 46,071 | ||||||||||||
FHLMC | 3.50 | 9-1-2043 | 166,300 | 173,488 | ||||||||||||
FHLMC | 4.00 | 10-1-2029 | 62,473 | 67,333 | ||||||||||||
FHLMC | 4.00 | 11-1-2032 | 72,916 | 78,741 | ||||||||||||
FHLMC | 4.00 | 6-1-2033 | 21,610 | 23,317 | ||||||||||||
FHLMC | 4.00 | 11-1-2033 | 27,744 | 30,068 | ||||||||||||
FHLMC | 4.00 | 5-15-2039 | 273,981 | 293,220 | ||||||||||||
FHLMC | 4.50 | 6-1-2042 | 222,757 | 246,590 | ||||||||||||
FHLMC | 5.00 | 8-1-2039 | 366,149 | 412,192 | ||||||||||||
FHLMC | 5.50 | 7-1-2038 | 157,930 | 180,045 | ||||||||||||
FHLMC Series 2980 Class QA | 6.00 | 5-15-2035 | 347,370 | 384,709 | ||||||||||||
FHLMC Series 336 Class 300 | 3.00 | 8-15-2044 | 328,083 | 331,900 | ||||||||||||
FHLMC Series 3529 Class AG | 6.50 | 4-15-2039 | 85,340 | 94,703 | ||||||||||||
FHLMC Series 3664 Class DA | 4.00 | 11-15-2037 | 59,583 | 63,300 |
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities (continued) | ||||||||||||||||
FHLMC Series 3876 Class NB | 5.00 | % | 8-15-2038 | $ | 94,619 | $ | 103,208 | |||||||||
FHLMC Series T-48 Class 1A3 ± | 5.65 | 7-25-2033 | 2,235 | 2,529 | ||||||||||||
FHLMC Series T-57 Class 1A2 | 7.00 | 7-25-2043 | 374 | 433 | ||||||||||||
FHLMC Series T-57 Class 1A3 | 7.50 | 7-25-2043 | 23,862 | 28,482 | ||||||||||||
FHLMC Series T-59 Class 1A3 | 7.50 | 10-25-2043 | 33,223 | 39,946 | ||||||||||||
FHLMC Series T-60 Class 1A3 | 7.50 | 3-25-2044 | 34,103 | 40,804 | ||||||||||||
FNMA ¤ | 0.00 | 10-9-2019 | 260,000 | 233,758 | ||||||||||||
FNMA ± | 2.39 | 1-1-2036 | 48,811 | 51,996 | ||||||||||||
FNMA | 2.50 | 11-1-2027 | 4,185 | 4,504 | ||||||||||||
FNMA ± | 2.56 | 5-1-2043 | 60,031 | 60,382 | ||||||||||||
FNMA | 2.63 | 9-6-2024 | 102,000 | 103,298 | ||||||||||||
FNMA ±(a)%% | 2.70 | 1-1-2045 | 126,000 | 129,607 | ||||||||||||
FNMA (a)%% | 2.73 | 2-16-2045 | 62,000 | 63,886 | ||||||||||||
FNMA (a)%% | 2.73 | 2-16-2045 | 122,000 | 125,940 | ||||||||||||
FNMA ± | 2.76 | 11-1-2044 | 1,738 | 1,811 | ||||||||||||
FNMA ± | 2.76 | 12-1-2044 | 125,000 | 128,828 | ||||||||||||
FNMA ± | 2.80 | 12-1-2044 | 158,000 | 163,003 | ||||||||||||
FNMA ± | 2.82 | 11-1-2044 | 357,332 | 368,625 | ||||||||||||
FNMA ± | 2.95 | 4-1-2042 | 70,732 | 73,195 | ||||||||||||
FNMA ± | 2.98 | 1-1-2044 | 58,602 | 60,110 | ||||||||||||
FNMA %% | 3.00 | 1-20-2030 | 900,000 | 935,169 | ||||||||||||
FNMA %% | 3.00 | 2-18-2030 | 400,000 | 414,881 | ||||||||||||
FNMA | 3.00 | 6-1-2032 | 71,463 | 73,853 | ||||||||||||
FNMA | 3.00 | 12-1-2037 | 66,110 | 66,829 | ||||||||||||
FNMA | 3.00 | 10-25-2042 | 423,883 | 429,403 | ||||||||||||
FNMA ± | 3.15 | 7-1-2044 | 46,609 | 48,296 | ||||||||||||
FNMA ± | 3.23 | 4-1-2044 | 446,201 | 464,842 | ||||||||||||
FNMA | 3.50 | 12-1-2029 | 98,000 | 104,247 | ||||||||||||
FNMA | 3.50 | 1-1-2030 | 200,000 | 213,121 | ||||||||||||
FNMA | 3.50 | 7-1-2042 | 36,403 | 37,982 | ||||||||||||
FNMA | 3.50 | 8-1-2042 | 121,219 | 126,476 | ||||||||||||
FNMA | 3.50 | 9-1-2042 | 68,675 | 71,662 | ||||||||||||
FNMA | 3.50 | 4-1-2043 | 25,869 | 26,991 | ||||||||||||
FNMA | 3.50 | 7-1-2043 | 63,613 | 66,377 | ||||||||||||
FNMA | 3.50 | 6-1-2044 | 103,569 | 108,055 | ||||||||||||
FNMA %% | 3.50 | 1-14-2045 | 250,000 | 260,481 | ||||||||||||
FNMA %% | 3.50 | 2-12-2045 | 600,000 | 623,514 | ||||||||||||
FNMA | 4.00 | 3-1-2025 | 9,159 | 9,866 | ||||||||||||
FNMA | 4.00 | 5-1-2025 | 18,340 | 19,757 | ||||||||||||
FNMA | 4.00 | 6-1-2025 | 115,943 | 124,607 | ||||||||||||
FNMA | 4.00 | 6-1-2026 | 24,705 | 26,620 | ||||||||||||
FNMA | 4.00 | 12-1-2028 | 56,629 | 61,015 | ||||||||||||
FNMA | 4.00 | 1-1-2029 | 226,778 | 244,342 | ||||||||||||
FNMA | 4.00 | 1-1-2029 | 37,114 | 39,990 | ||||||||||||
FNMA | 4.00 | 2-1-2029 | 90,218 | 97,206 | ||||||||||||
FNMA | 4.00 | 2-1-2029 | 61,737 | 66,519 | ||||||||||||
FNMA | 4.00 | 2-1-2029 | 85,838 | 92,498 | ||||||||||||
FNMA | 4.00 | 3-1-2029 | 87,127 | 93,871 | ||||||||||||
FNMA | 4.00 | 3-1-2029 | 60,662 | 65,367 | ||||||||||||
FNMA | 4.00 | 3-1-2029 | 81,208 | 86,866 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 11 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities (continued) | ||||||||||||||||
FNMA | 4.00 | % | 4-1-2029 | $ | 95,687 | $ | 103,090 | |||||||||
FNMA | 4.00 | 7-1-2029 | 62,101 | 66,917 | ||||||||||||
FNMA | 4.00 | 11-1-2029 | 131,312 | 140,621 | ||||||||||||
FNMA | 4.00 | 3-1-2032 | 593,676 | 640,259 | ||||||||||||
FNMA | 4.00 | 8-1-2033 | 211,265 | 227,849 | ||||||||||||
FNMA | 4.00 | 9-1-2033 | 45,479 | 49,443 | ||||||||||||
FNMA | 4.00 | 9-1-2033 | 39,737 | 42,965 | ||||||||||||
FNMA | 4.00 | 9-1-2033 | 41,370 | 44,624 | ||||||||||||
FNMA | 4.00 | 11-1-2033 | 25,181 | 27,405 | ||||||||||||
FNMA | 4.00 | 2-1-2034 | 50,460 | 54,553 | ||||||||||||
FNMA | 4.00 | 2-1-2034 | 82,084 | 88,776 | ||||||||||||
FNMA | 4.00 | 3-1-2034 | 250,365 | 271,609 | ||||||||||||
FNMA | 4.00 | 4-1-2034 | 167,222 | 180,797 | ||||||||||||
FNMA | 4.00 | 5-1-2034 | 34,274 | 37,055 | ||||||||||||
FNMA | 4.00 | 6-1-2034 | 33,915 | 36,668 | ||||||||||||
FNMA | 4.00 | 6-1-2034 | 25,451 | 27,597 | ||||||||||||
FNMA | 4.00 | 6-1-2034 | 55,170 | 59,851 | ||||||||||||
FNMA | 4.00 | 6-1-2034 | 52,900 | 57,196 | ||||||||||||
FNMA | 4.00 | 7-1-2034 | 52,866 | 57,357 | ||||||||||||
FNMA | 4.00 | 7-1-2034 | 59,076 | 63,848 | ||||||||||||
FNMA | 4.00 | 7-1-2034 | 45,093 | 48,758 | ||||||||||||
FNMA | 4.00 | 7-1-2034 | 40,223 | 43,640 | ||||||||||||
FNMA | 4.00 | 8-1-2034 | 90,923 | 98,313 | ||||||||||||
FNMA | 4.00 | 8-1-2034 | 51,086 | 55,427 | ||||||||||||
FNMA | 4.00 | 8-1-2034 | 55,358 | 59,858 | ||||||||||||
FNMA | 4.00 | 9-1-2034 | 34,713 | 37,668 | ||||||||||||
FNMA | 4.00 | 9-1-2034 | 60,458 | 65,377 | ||||||||||||
FNMA | 4.00 | 6-25-2039 | 115,691 | 123,852 | ||||||||||||
FNMA | 4.00 | 1-1-2043 | 344,829 | 371,806 | ||||||||||||
FNMA %% | 4.00 | 1-14-2045 | 300,000 | 320,073 | ||||||||||||
FNMA %% | 4.00 | 2-12-2045 | 800,000 | 851,340 | ||||||||||||
FNMA | 4.50 | 10-1-2033 | 69,582 | 76,072 | ||||||||||||
FNMA | 4.50 | 5-1-2034 | 98,067 | 108,895 | ||||||||||||
FNMA | 4.50 | 5-1-2034 | 36,317 | 40,241 | ||||||||||||
FNMA | 4.50 | 11-1-2044 | 42,943 | 47,597 | ||||||||||||
FNMA %% | 4.50 | 1-14-2045 | 1,200,000 | 1,302,300 | ||||||||||||
FNMA | 5.00 | 3-1-2041 | 15,640 | 17,468 | ||||||||||||
FNMA | 5.00 | 7-1-2041 | 698,455 | 788,181 | ||||||||||||
FNMA | 5.00 | 8-1-2041 | 44,316 | 50,019 | ||||||||||||
FNMA | 5.50 | 9-1-2034 | 26,443 | 29,199 | ||||||||||||
FNMA | 5.50 | 4-1-2036 | 15,380 | 17,184 | ||||||||||||
FNMA | 5.50 | 7-1-2039 | 35,352 | 40,398 | ||||||||||||
FNMA | 5.50 | 4-1-2040 | 113,459 | 129,713 | ||||||||||||
FNMA | 5.50 | 4-25-2042 | 8,373 | 9,269 | ||||||||||||
FNMA | 6.00 | 8-1-2034 | 30,341 | 34,653 | ||||||||||||
FNMA | 6.00 | 4-1-2035 | 8,786 | 10,043 | ||||||||||||
FNMA | 6.00 | 12-1-2035 | 64,913 | 74,144 | ||||||||||||
FNMA | 6.00 | 7-1-2037 | 26,456 | 30,221 | ||||||||||||
FNMA | 6.00 | 7-1-2037 | 148,401 | 169,499 | ||||||||||||
FNMA Series 2002-33 Class A2 | 7.50 | 6-25-2032 | 24,742 | 28,893 |
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Agency Securities (continued) | ||||||||||||||||
FNMA Series 2002-95 Class DB | 6.00 | % | 1-25-2033 | $ | 90,087 | $ | 102,880 | |||||||||
FNMA Series 2003-W17 Class 1A7 | 5.75 | 8-25-2033 | 86,000 | 92,833 | ||||||||||||
FNMA Series 2005-5 Class PA | 5.00 | 1-25-2035 | 27,280 | 29,763 | ||||||||||||
FNMA Series 2006-56 Class CA | 6.00 | 7-25-2036 | 18,291 | 21,323 | ||||||||||||
FNMA Series 2009-20 Class DT | 4.50 | 4-25-2039 | 100,428 | 110,498 | ||||||||||||
FNMA Series 2011-53 Class TN | 4.00 | 6-25-2041 | 267,816 | 286,211 | ||||||||||||
FNMA Series 2012-130 Class DC | 3.00 | 12-25-2042 | 564,041 | 570,463 | ||||||||||||
FNMA Series 2012-134 Class LC | 3.00 | 12-25-2042 | 78,428 | 79,262 | ||||||||||||
FNMA Series 2012-411 Class A3 | 3.00 | 8-25-2042 | 86,726 | 86,205 | ||||||||||||
GNMA %% | 3.00 | 1-21-2045 | 1,100,000 | 1,124,267 | ||||||||||||
GNMA %% | 3.50 | 1-21-2045 | 1,800,000 | 1,888,677 | ||||||||||||
GNMA %% | 3.50 | 2-19-2045 | 800,000 | 837,350 | ||||||||||||
GNMA %% | 4.00 | 1-21-2045 | 100,000 | 107,189 | ||||||||||||
GNMA %% | 4.00 | 2-19-2045 | 900,000 | 962,873 | ||||||||||||
Tennessee Valley Authority | 2.88 | 9-15-2024 | 280,000 | 283,579 | ||||||||||||
Total Agency Securities (Cost $25,951,901) | 26,262,686 | |||||||||||||||
|
| |||||||||||||||
Asset-Backed Securities: 15.60% | ||||||||||||||||
Ally Auto Receivables Trust Series 2010-5 Class A4 | 1.75 | 3-15-2016 | 19,457 | 19,465 | ||||||||||||
Ally Auto Receivables Trust Series 2011-1 Class A4 | 2.23 | 3-15-2016 | 20,943 | 20,957 | ||||||||||||
Ally Auto Receivables Trust Series 2011-5 Class A4 | 1.32 | 7-15-2016 | 37,198 | 37,244 | ||||||||||||
Ally Auto Receivables Trust Series 2012-1 Class A3 | 0.93 | 2-16-2016 | 966 | 966 | ||||||||||||
Ally Auto Receivables Trust Series 2012-2 Class A3 | 0.74 | 4-15-2016 | 47,508 | 47,520 | ||||||||||||
Ally Auto Receivables Trust Series 2013-1 Class A3 | 0.63 | 5-15-2017 | 27,352 | 27,356 | ||||||||||||
Ally Auto Receivables Trust Series 2014-1 Class A4 | 1.53 | 4-15-2019 | 567,000 | 564,921 | ||||||||||||
Ally Auto Receivables Trust Series 2014-2 Class A4 | 1.84 | 1-15-2020 | 42,000 | 42,118 | ||||||||||||
Ally Auto Receivables Trust Series 2014-4 Class A2 | 1.43 | 6-17-2019 | 186,000 | 185,603 | ||||||||||||
Ally Master Owner Trust Series 2012-5 Class A | 1.54 | 9-15-2019 | 130,000 | 129,040 | ||||||||||||
Ally Master Owner Trust Series 2014-5 Class A1 ± | 0.65 | 10-15-2019 | 273,000 | 273,000 | ||||||||||||
American Express Credit Account Master Trust Series 2012-2 Class A | 0.68 | 3-15-2018 | 293,000 | 293,220 | ||||||||||||
American Express Credit Account Master Trust Series 2012-5 Class A | 0.59 | 5-15-2018 | 187,000 | 186,947 | ||||||||||||
American Express Issuance Trust II Series 2013-2 Class A ± | 0.59 | 8-15-2019 | 180,000 | 180,612 | ||||||||||||
AmeriCredit Automobile Receivables Trust Series 2013-2 Class A2 | 0.53 | 11-8-2016 | 5,088 | 5,088 | ||||||||||||
Avis Budget Rental Car Aesop Series 2013-1A Class A 144A | 1.92 | 9-20-2019 | 152,000 | 150,425 | ||||||||||||
Avis Budget Rental Car Funding LLC Series 2012-3A Class A 144A | 2.10 | 3-20-2019 | 100,000 | 100,039 | ||||||||||||
Bank of America Credit Card Trust Series 2007-A4 Class A4 ± | 0.20 | 11-15-2019 | 148,000 | 146,943 | ||||||||||||
Bank of America Credit Card Trust Series 2014-A2 Class A ± | 0.43 | 9-16-2019 | 370,000 | 369,322 | ||||||||||||
Bank of America Credit Card Trust Series 2014-A3 Class A ± | 0.45 | 1-15-2020 | 265,000 | 264,952 | ||||||||||||
Bank of the West Auto Trust Series 2014-1 Class A3 144A | 1.09 | 3-15-2019 | 100,000 | 100,027 | ||||||||||||
Bank of the West Auto Trust Series 2014-1 Class A4 144A | 1.65 | 3-16-2020 | 100,000 | 99,814 | ||||||||||||
California Republic Auto Receivables Trust Series 2014-2 Class A4 | 1.57 | 12-16-2019 | 52,000 | 51,858 | ||||||||||||
California Republic Auto Receivables Trust Series 2014-3 Class A4 | 1.79 | 3-16-2020 | 50,000 | 50,016 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2013-1 Class A3 | 0.79 | 6-20-2017 | 289,000 | 289,244 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2013-2 Class A4 | 1.56 | 7-20-2018 | 79,000 | 79,655 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2013-3 Class A4 | 1.68 | 4-20-2018 | 50,000 | 50,458 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2013-4 Class A3 | 1.09 | 3-20-2018 | 127,000 | 126,981 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2013-4 Class A4 | 1.47 | 7-20-2018 | 172,000 | 172,883 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2014-1 Class A3 | 1.32 | 6-20-2018 | 118,000 | 118,442 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2014-1 Class A4 | 1.69 | 10-22-2018 | 102,000 | 102,492 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2014-2 Class A1 ± | 0.47 | 6-20-2016 | 192,000 | 192,051 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 13 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Asset-Backed Securities (continued) | ||||||||||||||||
Capital Auto Receivables Asset Trust Series 2014-2 Class A3 | 1.26 | % | 5-21-2018 | $ | 177,000 | $ | 177,376 | |||||||||
Capital Auto Receivables Asset Trust Series 2014-2 Class A4 | 1.62 | 10-22-2018 | 51,000 | 51,226 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2014-3 Class A3 | 1.48 | 11-20-2018 | 196,000 | 195,840 | ||||||||||||
Capital Auto Receivables Asset Trust Series 2014-3 Class A4 | 1.83 | 4-22-2019 | 29,000 | 29,054 | ||||||||||||
Capital One Multi-Asset Execution Trust Series 2014-A5 Class A | 1.48 | 7-15-2020 | 233,000 | 233,093 | ||||||||||||
Chase Issuance Trust Series 2012-A4 Class A4 | 1.58 | 8-16-2021 | 122,000 | 119,401 | ||||||||||||
Chase Issuance Trust Series 2012-A8 Class A8 | 0.54 | 10-16-2017 | 134,000 | 133,932 | ||||||||||||
Chase Issuance Trust Series 2013-A6 Class A6 ± | 0.58 | 7-15-2020 | 243,000 | 243,387 | ||||||||||||
Chase Issuance Trust Series 2013-A7 Class A ± | 0.59 | 9-15-2020 | 200,000 | 200,571 | ||||||||||||
Chase Issuance Trust Series 2013-A9 Class A ± | 0.58 | 11-16-2020 | 426,000 | 426,828 | ||||||||||||
Chase Issuance Trust Series 2014-A5 Class A5 ± | 0.53 | 4-15-2021 | 100,000 | 99,669 | ||||||||||||
Chrysler Capital Auto Receivables Asset Trust Series 2014-BA Class A3 144A | 1.27 | 5-15-2019 | 54,000 | 54,049 | ||||||||||||
Citibank Credit Card Issuance Trust Series 2013-A7 Class A7 ± | 0.59 | 9-10-2020 | 430,000 | 429,905 | ||||||||||||
Citibank Credit Card Issuance Trust Series 2014-A3 Class A3 ± | 0.36 | 5-9-2018 | 481,000 | 481,000 | ||||||||||||
Citibank Credit Card Issuance Trust Series 2014-A6 Class A6 | 2.15 | 7-15-2021 | 995,000 | 995,706 | ||||||||||||
Discover Card Execution Note Trust Series 2013-A5 Class A5 | 1.04 | 4-15-2019 | 200,000 | 199,778 | ||||||||||||
Discover Card Execution Note Trust Series 2014-A1 Class A1 ± | 0.59 | 7-15-2021 | 200,000 | 200,433 | ||||||||||||
Ford Credit Auto Owner Trust Series 2013-B Class A3 | 0.57 | 10-15-2017 | 128,164 | 128,157 | ||||||||||||
Ford Credit Auto Owner Trust Series 2014-1 Class A 144A | 2.26 | 11-15-2025 | 273,000 | 274,467 | ||||||||||||
Ford Credit Auto Owner Trust Series 2014-2A 144A | 2.31 | 4-15-2026 | 157,000 | 157,406 | ||||||||||||
Ford Credit Floorplan Master Owner Trust Series 2014-1 Class A1 | 1.20 | 2-15-2019 | 141,000 | 140,626 | ||||||||||||
Ford Credit Floorplan Master Owner Trust Series 2012-2 Class A | 1.92 | 1-15-2019 | 140,000 | 141,580 | ||||||||||||
Honda Auto Receivables Owner Trust Series 2013-3 Class A3 | 0.77 | 5-15-2017 | 122,000 | 122,103 | ||||||||||||
Honda Auto Receivables Owner Trust Series 2014-4 Class A4 | 1.46 | 10-15-2020 | 42,000 | 41,898 | ||||||||||||
Hyundai Auto Receivables Trust Series 2011-C Class A4 | 1.30 | 2-15-2018 | 64,069 | 64,384 | ||||||||||||
MBNA Credit Card Master Note Trust Series 2004-A3 Class A3 ± | 0.42 | 8-16-2021 | 231,000 | 229,909 | ||||||||||||
MMCA Automobile Trust Series 2011-A Class A4 144A | 2.02 | 10-17-2016 | 14,005 | 14,012 | ||||||||||||
Navient Student Loan Trust Series 2014-1 Class A2 ± | 0.47 | 3-27-2023 | 100,000 | 99,609 | ||||||||||||
Navient Student Loan Trust Series 2014-8 Class A2 ± | 0.60 | 4-25-2023 | 167,000 | 167,082 | ||||||||||||
Navient Student Loan Trust Series 2014-AA Class A2A 144A | 2.74 | 2-15-2029 | 274,000 | 274,508 | ||||||||||||
Nelnet Student Loan Trust Series 2004-4 Class A5 ± | 0.39 | 1-25-2037 | 139,911 | 138,387 | ||||||||||||
Nelnet Student Loan Trust Series 2004-5 Class A5 ± | 0.41 | 10-27-2036 | 145,940 | 144,571 | ||||||||||||
Nelnet Student Loan Trust Series 2005-1 Class A5 ± | 0.34 | 10-25-2033 | 66,000 | 64,265 | ||||||||||||
Nelnet Student Loan Trust Series 2006-1 Class A4 ± | 0.32 | 11-23-2022 | 42,527 | 42,468 | ||||||||||||
Nelnet Student Loan Trust Series 2006-2 Class A4 ± | 0.31 | 10-26-2026 | 159,476 | 159,243 | ||||||||||||
Nelnet Student Loan Trust Series 2007-1 Class A1 ± | 0.24 | 11-27-2018 | 10,507 | 10,504 | ||||||||||||
Nelnet Student Loan Trust Series 2010-4A Class A 144A± | 0.97 | 4-25-2046 | 61,915 | 62,549 | ||||||||||||
Santander Drive Auto Receivables Trust Series 2012-5 Class A3 | 0.83 | 12-15-2016 | 845 | 845 | ||||||||||||
SLM Student Loan Trust Series 2005-6 Class A5 ± | 1.43 | 7-27-2026 | 68,405 | 69,280 | ||||||||||||
SLM Student Loan Trust Series 2005-7 Class A4 ± | 0.38 | 10-25-2029 | 262,000 | 252,764 | ||||||||||||
SLM Student Loan Trust Series 2005-9 Class A ± | 0.35 | 1-27-2025 | 177,234 | 176,704 | ||||||||||||
SLM Student Loan Trust Series 2006-3 Class A5 ± | 0.33 | 1-25-2021 | 181,000 | 178,106 | ||||||||||||
SLM Student Loan Trust Series 2007-2 Class A2 ± | 0.63 | 5-15-2028 | 74,101 | 74,001 | ||||||||||||
SLM Student Loan Trust Series 2007-2 Class B ± | 0.40 | 7-25-2025 | 100,000 | 90,281 | ||||||||||||
SLM Student Loan Trust Series 2010-1 Class A ± | 0.57 | 3-25-2025 | 123,968 | 123,966 | ||||||||||||
SLM Student Loan Trust Series 2012-6 Class A3 ± | 0.91 | 5-26-2026 | 100,000 | 100,508 | ||||||||||||
SLM Student Loan Trust Series 2012-6 Class B ± | 1.17 | 4-27-2043 | 100,000 | 93,443 | ||||||||||||
SLM Student Loan Trust Series 2012-D Class A2 144A | 2.95 | 2-15-2046 | 155,000 | 159,308 | ||||||||||||
SLM Student Loan Trust Series 2012-E Class A1 144A± | 0.91 | 10-16-2023 | 71,587 | 71,790 | ||||||||||||
SLM Student Loan Trust Series 2012-E Class A2 144A± | 1.91 | 6-15-2045 | 233,000 | 239,725 |
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Asset-Backed Securities (continued) | ||||||||||||||||
SLM Student Loan Trust Series 2013-1 Class B ± | 1.97 | % | 11-25-2043 | $ | 100,000 | $ | 100,257 | |||||||||
SLM Student Loan Trust Series 2013-3 Class A2 ± | 0.47 | 5-26-2020 | 106,000 | 105,834 | ||||||||||||
SLM Student Loan Trust Series 2013-5 Class A2 ± | 0.56 | 10-26-2020 | 100,000 | 100,103 | ||||||||||||
SLM Student Loan Trust Series 2013-B Class A1 144A± | 0.81 | 7-15-2022 | 98,159 | 98,321 | ||||||||||||
SLM Student Loan Trust Series 2014-1 Class A2 ± | 0.55 | 7-26-2021 | 100,000 | 99,990 | ||||||||||||
SLM Student Loan Trust Series 2014-2 Class A3 ± | 0.76 | 3-26-2029 | 119,000 | 119,400 | ||||||||||||
SLM Student Loan Trust Series 2014-A Class A1 144A± | 0.76 | 7-15-2022 | 77,583 | 77,537 | ||||||||||||
SLM Student Loan Trust Series 2014-A Class A2A 144A | 2.59 | 1-15-2026 | 101,000 | 102,255 | ||||||||||||
Trade Maps Limited Series 2013-1A Class A 144A± | 0.86 | 12-10-2018 | 268,000 | 268,347 | ||||||||||||
World Financial Network Credit Card Master Trust Series 2014-B Class A | 0.61 | 7-15-2019 | 98,000 | 97,961 | ||||||||||||
Total Asset-Backed Securities (Cost $14,015,825) | 14,029,361 | |||||||||||||||
|
| |||||||||||||||
Corporate Bonds and Notes: 17.98% | ||||||||||||||||
Consumer Discretionary: 1.70% | ||||||||||||||||
Auto Components: 0.07% | ||||||||||||||||
Johnson Controls Incorporated | 4.63 | 7-2-2044 | 30,000 | 30,872 | ||||||||||||
Johnson Controls Incorporated | 4.95 | 7-2-2064 | 30,000 | 30,929 | ||||||||||||
61,801 | ||||||||||||||||
|
| |||||||||||||||
Automobiles: 0.50% | ||||||||||||||||
Daimler Finance North America LLC 144A | 1.88 | 1-11-2018 | 150,000 | 150,521 | ||||||||||||
Daimler Finance North America LLC 144A | 2.38 | 8-1-2018 | 150,000 | 152,105 | ||||||||||||
General Motors Company | 3.50 | 10-2-2018 | 120,000 | 122,400 | ||||||||||||
General Motors Company | 5.00 | 4-1-2035 | 10,000 | 10,421 | ||||||||||||
General Motors Company | 5.20 | 4-1-2045 | 15,000 | 15,825 | ||||||||||||
451,272 | ||||||||||||||||
|
| |||||||||||||||
Hotels, Restaurants & Leisure: 0.06% | ||||||||||||||||
Yum! Brands Incorporated | 5.35 | 11-1-2043 | 45,000 | 49,210 | ||||||||||||
|
| |||||||||||||||
Internet & Catalog Retail: 0.05% | ||||||||||||||||
Amazon.com Incorporated | 4.95 | 12-5-2044 | 45,000 | 46,522 | ||||||||||||
|
| |||||||||||||||
Media: 0.96% | ||||||||||||||||
Cox Communications Incorporated 144A | 4.80 | 2-1-2035 | 75,000 | 78,140 | ||||||||||||
DIRECTV Holdings LLC | 3.80 | 3-15-2022 | 95,000 | 96,650 | ||||||||||||
DIRECTV Holdings LLC | 3.95 | 1-15-2025 | 130,000 | 131,023 | ||||||||||||
DIRECTV Holdings LLC | 4.45 | 4-1-2024 | 95,000 | 99,399 | ||||||||||||
Scripps Networks Interactive Incorporated | 2.75 | 11-15-2019 | 60,000 | 60,251 | ||||||||||||
Scripps Networks Interactive Incorporated | 3.90 | 11-15-2024 | 110,000 | 112,000 | ||||||||||||
Thomson Reuters Corporation | 3.85 | 9-29-2024 | 105,000 | 106,153 | ||||||||||||
Viacom Incorporated | 4.85 | 12-15-2034 | 140,000 | 143,271 | ||||||||||||
Viacom Incorporated | 5.25 | 4-1-2044 | 35,000 | 37,012 | ||||||||||||
863,899 | ||||||||||||||||
|
| |||||||||||||||
Specialty Retail: 0.06% | ||||||||||||||||
Bed Bath & Beyond Incorporated | 5.17 | 8-1-2044 | 55,000 | 57,370 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 15 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Consumer Staples: 1.17% | ||||||||||||||||
Beverages: 0.34% | ||||||||||||||||
Anheuser-Busch InBev Finance Company | 2.15 | % | 2-1-2019 | $ | 150,000 | $ | 150,605 | |||||||||
Anheuser-Busch InBev Finance Company | 2.63 | 1-17-2023 | 75,000 | 72,803 | ||||||||||||
Anheuser-Busch InBev Worldwide Incorporated | 7.75 | 1-15-2019 | 65,000 | 78,731 | ||||||||||||
302,139 | ||||||||||||||||
|
| |||||||||||||||
Food Products: 0.53% | ||||||||||||||||
Tyson Foods Incorporated | 4.50 | 6-15-2022 | 146,000 | 158,072 | ||||||||||||
WM Wrigley Jr Company 144A | 2.00 | 10-20-2017 | 40,000 | 40,291 | ||||||||||||
WM Wrigley Jr Company 144A | 2.40 | 10-21-2018 | 55,000 | 55,387 | ||||||||||||
WM Wrigley Jr Company 144A | 2.90 | 10-21-2019 | 107,000 | 108,384 | ||||||||||||
WM Wrigley Jr Company 144A | 3.38 | 10-21-2020 | 115,000 | 117,545 | ||||||||||||
479,679 | ||||||||||||||||
|
| |||||||||||||||
Tobacco: 0.30% | ||||||||||||||||
Altria Group Incorporated | 2.63 | 1-14-2020 | 115,000 | 115,334 | ||||||||||||
Altria Group Incorporated | 4.50 | 5-2-2043 | 65,000 | 65,459 | ||||||||||||
Philip Morris International Incorporated | 3.25 | 11-10-2024 | 45,000 | 45,097 | ||||||||||||
Philip Morris International Incorporated | 4.25 | 11-10-2044 | 45,000 | 45,760 | ||||||||||||
271,650 | ||||||||||||||||
|
| |||||||||||||||
Energy: 2.20% | ||||||||||||||||
Energy Equipment & Services: 0.02% | ||||||||||||||||
Diamond Offshore Drilling Incorporated | 4.88 | 11-1-2043 | 25,000 | 21,298 | ||||||||||||
|
| |||||||||||||||
Oil, Gas & Consumable Fuels: 2.18% | ||||||||||||||||
Access Midstream Partners LP | 4.88 | 5-15-2023 | 85,000 | 86,275 | ||||||||||||
Chevron Corporation | 2.19 | 11-15-2019 | 95,000 | 95,351 | ||||||||||||
ConocoPhillips Company | 2.88 | 11-15-2021 | 75,000 | 75,748 | ||||||||||||
ConocoPhillips Company | 4.15 | 11-15-2034 | 20,000 | 20,522 | ||||||||||||
ConocoPhillips Company | 4.30 | 11-15-2044 | 85,000 | 88,917 | ||||||||||||
Continental Resources Company | 4.50 | 4-15-2023 | 130,000 | 123,650 | ||||||||||||
Dominion Gas Holdings LLC | 4.60 | 12-15-2044 | 60,000 | 62,851 | ||||||||||||
El Paso Pipeline Partners Operating LLC | 4.10 | 11-15-2015 | 105,000 | 107,433 | ||||||||||||
El Paso Pipeline Partners Operating LLC | 4.30 | 5-1-2024 | 100,000 | 100,194 | ||||||||||||
Energy Transfer Partners LP | 6.50 | 2-1-2042 | 25,000 | 28,736 | ||||||||||||
Enlink Midstream Partners LP | 5.05 | 4-1-2045 | 75,000 | 72,457 | ||||||||||||
Enterprise Products Operating LLC | 3.75 | 2-15-2025 | 60,000 | 60,228 | ||||||||||||
Enterprise Products Operating LLC | 4.85 | 3-15-2044 | 70,000 | 72,990 | ||||||||||||
Kerr-McGee Corporation | 6.95 | 7-1-2024 | 165,000 | 201,666 | ||||||||||||
Kinder Morgan Energy Partners LP | 4.15 | 2-1-2024 | 50,000 | 49,872 | ||||||||||||
Kinder Morgan Energy Partners LP | 4.30 | 6-1-2025 | 10,000 | 10,034 | ||||||||||||
Kinder Morgan Energy Partners LP | 5.30 | 12-1-2034 | 30,000 | 30,452 | ||||||||||||
Kinder Morgan Energy Partners LP | 5.55 | 6-1-2045 | 70,000 | 71,696 | ||||||||||||
Newfield Exploration Company | 5.63 | 7-1-2024 | 85,000 | 84,097 | ||||||||||||
Phillips 66 | 4.88 | 11-15-2044 | 120,000 | 122,826 | ||||||||||||
Plains All American Pipeline LP | 4.90 | 2-15-2045 | 70,000 | 71,137 | ||||||||||||
Rowan Companies Incorporated | 5.40 | 12-1-2042 | 54,000 | 47,042 |
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||||||
Southeast Supply Header LLC 144A | 4.25 | % | 6-15-2024 | $ | 100,000 | $ | 101,341 | |||||||||
Sunoco Logistics Partner LP | 5.35 | 5-15-2045 | 110,000 | 111,217 | ||||||||||||
TC Pipelines LP | 4.65 | 6-15-2021 | 28,000 | 29,109 | ||||||||||||
Western Gas Partners LP | 5.38 | 6-1-2021 | 30,000 | 32,914 | ||||||||||||
1,958,755 | ||||||||||||||||
|
| |||||||||||||||
Financials: 6.56% | ||||||||||||||||
Banks: 2.32% | ||||||||||||||||
Bank of America Corporation | 1.50 | 10-9-2015 | 235,000 | 235,992 | ||||||||||||
Bank of America Corporation | 4.00 | 4-1-2024 | 185,000 | 192,627 | ||||||||||||
Bank of America Corporation | 4.25 | 10-22-2026 | 100,000 | 99,776 | ||||||||||||
Bank of America Corporation | 6.00 | 9-1-2017 | 120,000 | 132,327 | ||||||||||||
BB&T Corporation | 2.45 | 1-15-2020 | 185,000 | 184,508 | ||||||||||||
Citigroup Incorporated | 1.55 | 8-14-2017 | 175,000 | 174,518 | ||||||||||||
Citigroup Incorporated | 1.70 | 7-25-2016 | 120,000 | 120,851 | ||||||||||||
Citigroup Incorporated | 2.65 | 3-2-2015 | 74,000 | 74,220 | ||||||||||||
Citigroup Incorporated | 3.75 | 6-16-2024 | 75,000 | 76,715 | ||||||||||||
Citigroup Incorporated | 4.30 | 11-20-2026 | 35,000 | 34,922 | ||||||||||||
HSBC USA Incorporated | 2.38 | 2-13-2015 | 140,000 | 140,284 | ||||||||||||
HSBC USA Incorporated | 2.38 | 11-13-2019 | 210,000 | 209,939 | ||||||||||||
Inter-American Development Bank | 4.38 | 1-24-2044 | 35,000 | 43,161 | ||||||||||||
JPMorgan Chase & Company | 2.20 | 10-22-2019 | 135,000 | 133,836 | ||||||||||||
JPMorgan Chase & Company | 4.13 | 12-15-2026 | 160,000 | 159,564 | ||||||||||||
JPMorgan Chase & Company | 4.85 | 2-1-2044 | 65,000 | 72,105 | ||||||||||||
2,085,345 | ||||||||||||||||
|
| |||||||||||||||
Capital Markets: 1.33% | ||||||||||||||||
Goldman Sachs Group Incorporated | 6.25 | 2-1-2041 | 40,000 | 50,566 | ||||||||||||
Goldman Sachs Group Incorporated | 6.75 | 10-1-2037 | 45,000 | 56,582 | ||||||||||||
Lazard Group LLC | 4.25 | 11-14-2020 | 105,000 | 110,665 | ||||||||||||
Lazard Group LLC | 6.85 | 6-15-2017 | 210,000 | 233,786 | ||||||||||||
Morgan Stanley | 2.38 | 7-23-2019 | 205,000 | 204,244 | ||||||||||||
Morgan Stanley | 3.70 | 10-23-2024 | 200,000 | 202,724 | ||||||||||||
Morgan Stanley | 4.35 | 9-8-2026 | 85,000 | 85,508 | ||||||||||||
Morgan Stanley | 5.38 | 10-15-2015 | 100,000 | 103,447 | ||||||||||||
State Street Corporation | 3.30 | 12-16-2024 | 145,000 | 147,167 | ||||||||||||
1,194,689 | ||||||||||||||||
|
| |||||||||||||||
Consumer Finance: 1.01% | ||||||||||||||||
American Express Credit Corporation | 1.75 | 6-12-2015 | 220,000 | 221,225 | ||||||||||||
American Express Credit Corporation | 3.63 | 12-5-2024 | 60,000 | 60,500 | ||||||||||||
Murray Street Investment Trust I | 4.65 | 3-9-2017 | 188,000 | 198,426 | ||||||||||||
Synchrony Financial | 4.25 | 8-15-2024 | 95,000 | 97,482 | ||||||||||||
Toyota Motor Credit Corporation | 1.13 | 5-16-2017 | 210,000 | 209,283 | ||||||||||||
Toyota Motor Credit Corporation | 2.75 | 5-17-2021 | 125,000 | 126,853 | ||||||||||||
913,769 | ||||||||||||||||
|
| |||||||||||||||
Diversified Financial Services: 0.13% | ||||||||||||||||
General Electric Capital Corporation | 5.88 | 1-14-2038 | 90,000 | 113,882 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 17 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Insurance: 0.75% | ||||||||||||||||
ACE INA Holdings Incorporated | 3.35 | % | 5-15-2024 | $ | 30,000 | $ | 30,315 | |||||||||
Alleghany Corporation | 4.90 | 9-15-2044 | 55,000 | 57,694 | ||||||||||||
American International Group Incorporated | 4.50 | 7-16-2044 | 45,000 | 47,543 | ||||||||||||
American International Group Incorporated | 6.40 | 12-15-2020 | 66,000 | 78,703 | ||||||||||||
American International Group Incorporated ± | 8.18 | 5-15-2068 | 25,000 | 33,875 | ||||||||||||
Assurant Incorporated | 2.50 | 3-15-2018 | 105,000 | 106,010 | ||||||||||||
Liberty Mutual Group Incorporated 144A | 4.85 | 8-1-2044 | 65,000 | 66,071 | ||||||||||||
Markel Corporation | 3.63 | 3-30-2023 | 25,000 | 25,143 | ||||||||||||
MetLife Incorporated | 1.90 | 12-15-2017 | 55,000 | 55,128 | ||||||||||||
Nationwide Financial Services Incorporated 144A | 5.30 | 11-18-2044 | 100,000 | 105,495 | ||||||||||||
Prudential Financial Incorporated | 4.60 | 5-15-2044 | 20,000 | 21,078 | ||||||||||||
Teachers Insurance and Annuity Association 144A | 4.90 | 9-15-2044 | 45,000 | 50,146 | ||||||||||||
677,201 | ||||||||||||||||
|
| |||||||||||||||
REITs: 1.02% | ||||||||||||||||
American Tower Corporation | 3.45 | 9-15-2021 | 105,000 | 103,230 | ||||||||||||
American Tower Corporation | 3.50 | 1-31-2023 | 101,000 | 97,587 | ||||||||||||
DDR Corporation | 3.38 | 5-15-2023 | 120,000 | 116,341 | ||||||||||||
DDR Corporation | 4.63 | 7-15-2022 | 125,000 | 133,439 | ||||||||||||
Federal Realty Investment Trust | 3.00 | 8-1-2022 | 40,000 | 39,885 | ||||||||||||
Federal Realty Investment Trust | 3.95 | 1-15-2024 | 55,000 | 57,824 | ||||||||||||
Healthcare Trust of America Holdings LP | 3.38 | 7-15-2021 | 70,000 | 69,873 | ||||||||||||
Mid-America Apartments LP | 3.75 | 6-15-2024 | 110,000 | 110,394 | ||||||||||||
Mid-America Apartments LP | 4.30 | 10-15-2023 | 80,000 | 84,176 | ||||||||||||
Tanger Properties LP | 3.75 | 12-1-2024 | 45,000 | 45,349 | ||||||||||||
Tanger Properties LP | 3.88 | 12-1-2023 | 55,000 | 56,306 | ||||||||||||
914,404 | ||||||||||||||||
|
| |||||||||||||||
Health Care: 1.55% | ||||||||||||||||
Biotechnology: 0.48% | ||||||||||||||||
Amgen Incorporated | 1.25 | 5-22-2017 | 205,000 | 203,458 | ||||||||||||
Amgen Incorporated | 3.63 | 5-22-2024 | 75,000 | 76,233 | ||||||||||||
Amgen Incorporated | 5.38 | 5-15-2043 | 15,000 | 17,426 | ||||||||||||
Celgene Corporation | 3.63 | 5-15-2024 | 85,000 | 86,796 | ||||||||||||
Celgene Corporation | 5.25 | 8-15-2043 | 45,000 | 50,826 | ||||||||||||
434,739 | ||||||||||||||||
�� |
|
| ||||||||||||||
Health Care Equipment & Supplies: 0.23% | ||||||||||||||||
Medtronic Incorporated 144A | 2.50 | 3-15-2020 | 65,000 | 65,171 | ||||||||||||
Medtronic Incorporated 144A | 3.15 | 3-15-2022 | 95,000 | 96,513 | ||||||||||||
Medtronic Incorporated 144A | 4.38 | 3-15-2035 | 43,000 | 45,617 | ||||||||||||
207,301 | ||||||||||||||||
|
| |||||||||||||||
Health Care Providers & Services: 0.33% | ||||||||||||||||
McKesson Corporation | 3.80 | 3-15-2024 | 60,000 | 61,637 | ||||||||||||
WellPoint Incorporated | 3.50 | 8-15-2024 | 65,000 | 65,471 | ||||||||||||
WellPoint Incorporated | 3.13 | 5-15-2022 | 127,000 | 126,924 | ||||||||||||
WellPoint Incorporated | 5.10 | 1-15-2044 | 35,000 | 39,331 | ||||||||||||
293,363 | ||||||||||||||||
|
|
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Life Sciences Tools & Services: 0.26% | ||||||||||||||||
Thermo Fisher Scientific Incorporated | 1.30 | % | 2-1-2017 | $ | 125,000 | $ | 124,307 | |||||||||
Thermo Fisher Scientific Incorporated | 3.30 | 2-15-2022 | 60,000 | 60,099 | ||||||||||||
Thermo Fisher Scientific Incorporated | 3.60 | 8-15-2021 | 50,000 | 51,634 | ||||||||||||
236,040 | ||||||||||||||||
|
| |||||||||||||||
Pharmaceuticals: 0.25% | ||||||||||||||||
AbbVie Incorporated | 4.40 | 11-6-2042 | 60,000 | 61,900 | ||||||||||||
Forest Laboratories Incorporated 144A | 4.38 | 2-1-2019 | 105,000 | 110,919 | ||||||||||||
Mylan Incorporated | 5.40 | 11-29-2043 | 45,000 | 49,942 | ||||||||||||
222,761 | ||||||||||||||||
|
| |||||||||||||||
Industrials: 0.88% | ||||||||||||||||
Aerospace & Defense: 0.28% | ||||||||||||||||
Northrop Grumman Corporation | 3.25 | 8-1-2023 | 135,000 | 136,017 | ||||||||||||
Northrop Grumman Corporation | 4.75 | 6-1-2043 | 100,000 | 111,645 | ||||||||||||
247,662 | ||||||||||||||||
|
| |||||||||||||||
Machinery: 0.06% | ||||||||||||||||
Valmont Industries Incorporated | 5.25 | 10-1-2054 | 55,000 | 55,494 | ||||||||||||
|
| |||||||||||||||
Road & Rail : 0.54% | ||||||||||||||||
ERAC USA Finance LLC 144A | 3.85 | 11-15-2024 | 40,000 | 40,566 | ||||||||||||
ERAC USA Finance LLC 144A | 5.63 | 3-15-2042 | 137,000 | 159,940 | ||||||||||||
Penske Truck Leasing Company LP 144A | 2.50 | 6-15-2019 | 130,000 | 129,207 | ||||||||||||
Penske Truck Leasing Company LP 144A | 3.05 | 1-9-2020 | 155,000 | 154,879 | ||||||||||||
484,592 | ||||||||||||||||
|
| |||||||||||||||
Information Technology: 0.96% | ||||||||||||||||
Electronic Equipment, Instruments & Components: 0.15% | ||||||||||||||||
Keysight Technologies Incorporated 144A | 4.55 | 10-30-2024 | 55,000 | 55,022 | ||||||||||||
L-3 Communications Corporation | 3.95 | 5-28-2024 | 80,000 | 80,662 | ||||||||||||
135,684 | ||||||||||||||||
|
| |||||||||||||||
IT Services: 0.11% | ||||||||||||||||
Mastercard Incorporated | 3.38 | 4-1-2024 | 95,000 | 97,513 | ||||||||||||
|
| |||||||||||||||
Semiconductors & Semiconductor Equipment: 0.02% | ||||||||||||||||
Broadcom Corporation | 4.50 | 8-1-2034 | 20,000 | 20,954 | ||||||||||||
|
| |||||||||||||||
Software: 0.25% | ||||||||||||||||
Oracle Corporation | 3.40 | 7-8-2024 | 85,000 | 86,876 | ||||||||||||
Oracle Corporation | 4.30 | 7-8-2034 | 105,000 | 112,421 | ||||||||||||
Oracle Corporation | 4.50 | 7-8-2044 | 25,000 | 27,154 | ||||||||||||
226,451 | ||||||||||||||||
|
| |||||||||||||||
Technology Hardware, Storage & Peripherals: 0.43% | ||||||||||||||||
Apple Incorporated | 2.85 | 5-6-2021 | 220,000 | 225,051 | ||||||||||||
Apple Incorporated | 3.45 | 5-6-2024 | 95,000 | 99,490 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 19 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Technology Hardware, Storage & Peripherals (continued) | ||||||||||||||||
Apple Incorporated | 4.45 | % | 5-6-2044 | $ | 55,000 | $ | 60,608 | |||||||||
385,149 | ||||||||||||||||
|
| |||||||||||||||
Materials: 0.52% | ||||||||||||||||
Chemicals: 0.35% | ||||||||||||||||
Albemarle Corporation | 4.15 | 12-1-2024 | 45,000 | 45,720 | ||||||||||||
Albemarle Corporation | 5.45 | 12-1-2044 | 45,000 | 48,422 | ||||||||||||
Eastman Chemical Company | 3.80 | 3-15-2025 | 95,000 | 96,708 | ||||||||||||
Eastman Chemical Company | 4.65 | 10-15-2044 | 45,000 | 46,048 | ||||||||||||
Mosaic Company | 5.45 | 11-15-2033 | 30,000 | 33,942 | ||||||||||||
Mosaic Company | 5.63 | 11-15-2043 | 40,000 | 45,841 | ||||||||||||
316,681 | ||||||||||||||||
|
| |||||||||||||||
Metals & Mining: 0.17% | ||||||||||||||||
Freeport-McMoRan Copper & Gold Incorporated | 4.55 | 11-14-2024 | 95,000 | 92,248 | ||||||||||||
Freeport-McMoRan Copper & Gold Incorporated | 5.40 | 11-14-2034 | 30,000 | 29,247 | ||||||||||||
Vale Overseas Limited | 8.25 | 1-17-2034 | 25,000 | 29,919 | ||||||||||||
151,414 | ||||||||||||||||
|
| |||||||||||||||
Telecommunication Services: 1.03% | ||||||||||||||||
Diversified Telecommunication Services: 1.03% | ||||||||||||||||
AT&T Incorporated | 4.30 | 12-15-2042 | 50,000 | 47,536 | ||||||||||||
AT&T Incorporated | 4.35 | 6-15-2045 | 80,000 | 75,420 | ||||||||||||
AT&T Incorporated | 4.80 | 6-15-2044 | 50,000 | 50,948 | ||||||||||||
Verizon Communications Incorporated | 2.50 | 9-15-2016 | 105,000 | 107,357 | ||||||||||||
Verizon Communications Incorporated | 3.50 | 11-1-2024 | 100,000 | 98,250 | ||||||||||||
Verizon Communications Incorporated | 4.40 | 11-1-2034 | 293,000 | 291,236 | ||||||||||||
Verizon Communications Incorporated 144A | 4.86 | 8-21-2046 | 40,000 | 41,089 | ||||||||||||
Verizon Communications Incorporated | 5.15 | 9-15-2023 | 190,000 | 209,804 | ||||||||||||
921,640 | ||||||||||||||||
|
| |||||||||||||||
Utilities: 1.41% | ||||||||||||||||
Electric Utilities: 0.79% | ||||||||||||||||
Alabama Power Company | 4.15 | 8-15-2044 | 25,000 | 26,247 | ||||||||||||
American Electric Power Company | 1.65 | 12-15-2017 | 130,000 | 130,044 | ||||||||||||
Connecticut Light & Power Company | 4.30 | 4-15-2044 | 45,000 | 48,738 | ||||||||||||
Consolidated Edison Company of New York Incorporated | 4.63 | 12-1-2054 | 40,000 | 43,808 | ||||||||||||
Niagara Mohawk Power Corporation 144A | 4.28 | 10-1-2034 | 65,000 | 68,766 | ||||||||||||
PacifiCorp | 3.60 | 4-1-2024 | 115,000 | 118,846 | ||||||||||||
Potomac Electric Power | 3.60 | 3-15-2024 | 50,000 | 52,377 | ||||||||||||
Public Service Company of Colorado | 4.30 | 3-15-2044 | 30,000 | 32,295 | ||||||||||||
Public Service Electric & Gas Company | 3.05 | 11-15-2024 | 50,000 | 50,194 | ||||||||||||
Public Service Electric & Gas Company | 4.00 | 6-1-2044 | 55,000 | 56,683 | ||||||||||||
Southwestern Electric Power Company | 3.55 | 2-15-2022 | 40,000 | 41,027 | ||||||||||||
Virginia Electric & Power Company | 4.45 | 2-15-2044 | 35,000 | 38,231 | ||||||||||||
707,256 | ||||||||||||||||
|
|
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Gas Utilities: 0.09% | ||||||||||||||||
ONEOK Partners LP | 2.00 | % | 10-1-2017 | $ | 80,000 | $ | 79,559 | |||||||||
|
| |||||||||||||||
Multi-Utilities: 0.53% | ||||||||||||||||
Ameren Illinois Company | 4.30 | 7-1-2044 | 50,000 | 53,527 | ||||||||||||
Berkshire Hathaway Energy 144A | 4.50 | 2-1-2045 | 60,000 | 62,781 | ||||||||||||
Berkshire Hathaway Energy | 5.15 | 11-15-2043 | 35,000 | 39,603 | ||||||||||||
Consumers Energy Company | 4.35 | 8-31-2064 | 40,000 | 41,757 | ||||||||||||
Dominion Resources Incorporated | 4.70 | 12-1-2044 | 60,000 | 63,851 | ||||||||||||
Pacific Gas & Electric Corporation | 3.25 | 6-15-2023 | 50,000 | 50,095 | ||||||||||||
Puget Energy Incorporated | 6.00 | 9-1-2021 | 145,000 | 169,628 | ||||||||||||
481,242 | ||||||||||||||||
|
| |||||||||||||||
Total Corporate Bonds and Notes (Cost $15,818,883) | 16,168,380 | |||||||||||||||
|
| |||||||||||||||
Municipal Obligations: 1.04% | ||||||||||||||||
California: 0.29% | ||||||||||||||||
California Build America Bonds (GO) | 7.60 | 11-1-2040 | 80,000 | 126,647 | ||||||||||||
Los Angeles CA Community College District Build America Bonds (GO) | 6.75 | 8-1-2049 | 90,000 | 132,935 | ||||||||||||
259,582 | ||||||||||||||||
|
| |||||||||||||||
Illinois: 0.06% | ||||||||||||||||
Illinois Finance Authority (GO) | 5.88 | 3-1-2019 | 45,000 | 49,880 | ||||||||||||
|
| |||||||||||||||
Nevada: 0.15% | ||||||||||||||||
Clark County NV Airport Authority Build America Bonds Series C (Airport Revenue) | 6.82 | 7-1-2045 | 95,000 | 139,232 | ||||||||||||
|
| |||||||||||||||
New Jersey: 0.19% | ||||||||||||||||
New Jersey Turnpike Authority Build America Bonds Series A (Transportation Revenue) | 7.10 | 1-1-2041 | 119,000 | 173,869 | ||||||||||||
|
| |||||||||||||||
New York: 0.14% | ||||||||||||||||
Port Authority of New York & New Jersey Consolidated Bonds Series 174 (Airport Revenue) | 4.46 | 10-1-2062 | 120,000 | 126,641 | ||||||||||||
|
| |||||||||||||||
Ohio: 0.04% | ||||||||||||||||
Ohio State University General Receipts Taxable Bonds Series A (Education Revenue) | 4.80 | 6-1-2111 | 36,000 | 39,187 | ||||||||||||
|
| |||||||||||||||
Texas: 0.17% | ||||||||||||||||
North Texas Tollway Authority (Transportation Revenue) | 6.72 | 1-1-2049 | 104,000 | 151,096 | ||||||||||||
|
| |||||||||||||||
Total Municipal Obligations (Cost $730,390) | 939,487 | |||||||||||||||
|
| |||||||||||||||
Non-Agency Mortgage-Backed Securities: 4.44% | ||||||||||||||||
Bank of America Commercial Mortgage Incorporated Series 2005-4 Class A5A | 4.93 | 7-10-2045 | 29,000 | 29,273 | ||||||||||||
CFCRE Commercial Mortgage Trust Series 2011-C1 Series A4 144A± | 4.96 | 4-15-2044 | 100,000 | 111,665 | ||||||||||||
Citigroup Commercial Mortgage Trust Series 2013-GC17 Class A4 | 4.13 | 11-10-2046 | 31,000 | 33,651 | ||||||||||||
Citigroup Commercial Mortgage Trust Series 2014-GC19 Class A3 | 3.75 | 3-10-2047 | 49,000 | 51,645 | ||||||||||||
Citigroup Commercial Mortgage Trust Series 2014-GC19 Class AAB | 3.55 | 3-10-2047 | 69,000 | 72,328 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2012-UBS5 Class A3 | 3.55 | 9-10-2047 | 35,000 | 36,488 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2013-CR12 Class A4 | 4.05 | 10-10-2046 | 19,000 | 20,485 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-C17 Class A4 | 3.70 | 5-10-2047 | 31,000 | 32,392 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-C19 Class A5 | 3.80 | 8-10-2047 | 137,000 | 144,622 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 21 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Non-Agency Mortgage-Backed Securities (continued) | ||||||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-C20 Class ASB | 3.31 | % | 11-10-2047 | $ | 43,000 | $ | 44,024 | |||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-C4 Class A5 | 3.69 | 8-10-2047 | 262,000 | 272,880 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-CR18 Class ASB | 3.45 | 7-15-2047 | 58,000 | 60,189 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-LC15 Class ASB | 3.53 | 4-10-2047 | 102,000 | 106,473 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-UBS5 Class A4 | 3.84 | 9-10-2047 | 98,000 | 103,790 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-UBS6 Class AM ± | 4.05 | 12-10-2047 | 110,000 | 114,398 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Series 2014-UBS6 Class ASB | 3.39 | 12-10-2047 | 113,000 | 116,637 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Trust Series 2010-C1 Class A3 144A | 4.21 | 7-10-2046 | 138,000 | 149,701 | ||||||||||||
Commercial Mortgage Pass-Through Certificate Trust Series 2013-CR12 Class ASB | 3.62 | 10-10-2046 | 52,000 | 54,507 | ||||||||||||
Credit Suisse First Boston Mortgage Securities Corporation Series 2005-C5 Class A4 ± | 5.10 | 8-15-2038 | 47,838 | 48,472 | ||||||||||||
Deutsche Bank UBS Securities Mortgage Trust Series 2011-LC1A Class A1 144A | 3.74 | 11-10-2046 | 90,123 | 92,327 | ||||||||||||
Deutsche Bank UBS Securities Mortgage Trust Series 2011-LC2A Class A4 144A | 4.54 | 7-10-2044 | 111,000 | 122,568 | ||||||||||||
Greenwich Capital Commercial Funding Corporation Series 2005-GG5 Class A5 ± | 5.22 | 4-10-2037 | 64,000 | 64,691 | ||||||||||||
GS Mortgage Securities Corporation II Series 2011-GC3 Class A2 144A | 3.65 | 3-10-2044 | 79,325 | 81,229 | ||||||||||||
GS Mortgage Securities Trust Series 2005-GG4 Class A4 | 4.75 | 7-10-2039 | 30,177 | 30,206 | ||||||||||||
GS Mortgage Securities Trust Series 2012-GCJ7 Class A1 | 1.14 | 5-10-2045 | 32,254 | 32,351 | ||||||||||||
GS Mortgage Securities Trust Series 2014-GC18 Class A4 | 4.07 | 1-10-2047 | 64,000 | 68,904 | ||||||||||||
GS Mortgage Securities Trust Series 2014-GC18 Class AAB | 3.65 | 1-10-2047 | 60,000 | 63,090 | ||||||||||||
GS Mortgage Securities Trust Series 2014-GC20 Class AAB | 3.66 | 4-10-2047 | 133,000 | 139,990 | ||||||||||||
GS Mortgage Securities Trust Series 2014-GC24 Class AAB | 3.65 | 9-10-2047 | 182,000 | 191,501 | ||||||||||||
GS Mortgage Securities Trust Series 2014-GC26 Class AAB | 3.37 | 11-10-2047 | 71,000 | 73,384 | ||||||||||||
Impact Funding LLC Series 2010-1 Class A1 144A | 5.31 | 1-25-2051 | 329,450 | 377,344 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation Series 2004-LN2 Class A2 | 5.12 | 7-15-2041 | 7,120 | 7,127 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation Series 2006-CB14 Class A4 ± | 5.48 | 12-12-2044 | 48,541 | 49,629 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation Series 2010-CNTR Class A1 144A | 3.30 | 8-5-2032 | 64,637 | 66,860 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Corporation Series 2014-C25 Class ASB | 3.41 | 11-15-2047 | 15,000 | 15,588 | ||||||||||||
JPMorgan Chase Commercial Mortgage Securities Trust Series 2010-C2 Class A3 144A | 4.07 | 11-15-2043 | 266,000 | 285,262 | ||||||||||||
Merrill Lynch Mortgage Trust Series 2005-CIP1 Class A4 ± | 5.05 | 7-12-2038 | 26,000 | 26,221 | ||||||||||||
Morgan Stanley Bank of America Merrill Lynch Trust Series 2013-C10 Class A1 | 1.39 | 7-15-2046 | 125,672 | 126,238 | ||||||||||||
Morgan Stanley Bank of America Merrill Lynch Trust Series 2014-C15 Class ASB | 3.65 | 4-15-2047 | 45,000 | 47,230 | ||||||||||||
Morgan Stanley Capital I Trust Series 2011-C2 Class A2 144A | 3.48 | 6-15-2044 | 198,000 | 203,976 | ||||||||||||
Motel 6 Trust Series 2012-MTL6 Class A2 144A | 1.95 | 10-5-2025 | 191,000 | 190,418 | ||||||||||||
UBS Barclays Commercial Mortgage Trust Series 2013-C5 Class A4 | 3.18 | 3-10-2046 | 33,000 | 33,551 | ||||||||||||
Total Non-Agency Mortgage-Backed Securities (Cost $3,911,878) | 3,993,305 | |||||||||||||||
|
| |||||||||||||||
U.S. Treasury Securities: 33.68% | ||||||||||||||||
U.S. Treasury Bond | 2.75 | 11-15-2042 | 156,000 | 155,951 | ||||||||||||
U.S. Treasury Bond | 3.00 | 11-15-2044 | 99,000 | 104,043 | ||||||||||||
U.S. Treasury Bond | 3.13 | 11-15-2041 | 412,000 | 445,089 | ||||||||||||
U.S. Treasury Bond | 3.13 | 2-15-2043 | 288,000 | 309,420 | ||||||||||||
U.S. Treasury Bond | 3.13 | 8-15-2044 | 58,000 | 62,441 | ||||||||||||
U.S. Treasury Bond | 3.38 | 5-15-2044 | 64,000 | 72,100 | ||||||||||||
U.S. Treasury Bond | 3.63 | 8-15-2043 | 523,000 | 615,424 | ||||||||||||
U.S. Treasury Bond | 3.63 | 2-15-2044 | 602,000 | 708,949 | ||||||||||||
U.S. Treasury Bond | 3.75 | 11-15-2043 | 209,000 | 251,388 | ||||||||||||
U.S. Treasury Note | 0.38 | 10-31-2016 | 120,000 | 119,475 | ||||||||||||
U.S. Treasury Note | 0.50 | 9-30-2016 | 754,000 | 752,910 | ||||||||||||
U.S. Treasury Note ## | 0.63 | 12-31-2016 | 1,108,000 | 1,106,874 |
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, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
U.S. Treasury Securities (continued) | ||||||||||||||||
U.S. Treasury Note ## | 0.63 | % | 9-30-2017 | $ | 2,641,000 | $ | 2,611,495 | |||||||||
U.S. Treasury Note ## | 0.88 | 5-15-2017 | 1,797,000 | 1,797,421 | ||||||||||||
U.S. Treasury Note ## | 0.88 | 8-15-2017 | 2,822,000 | 2,814,285 | ||||||||||||
U.S. Treasury Note | 0.88 | 10-15-2017 | 4,266,000 | 4,248,332 | ||||||||||||
U.S. Treasury Note | 0.88 | 11-15-2017 | 617,000 | 613,771 | ||||||||||||
U.S. Treasury Note | 1.00 | 12-15-2017 | 552,000 | 550,749 | ||||||||||||
U.S. Treasury Note | 1.50 | 1-31-2019 | 1,279,000 | 1,279,397 | ||||||||||||
U.S. Treasury Note | 1.50 | 5-31-2019 | 406,000 | 405,017 | ||||||||||||
U.S. Treasury Note | 1.50 | 10-31-2019 | 439,000 | 436,154 | ||||||||||||
U.S. Treasury Note | 1.50 | 11-30-2019 | 114,000 | 113,252 | ||||||||||||
U.S. Treasury Note | 1.63 | 6-30-2019 | 741,000 | 742,853 | ||||||||||||
U.S. Treasury Note | 1.63 | 8-31-2019 | 978,000 | 978,840 | ||||||||||||
U.S. Treasury Note | 1.63 | 12-31-2019 | 1,505,000 | 1,502,765 | ||||||||||||
U.S. Treasury Note | 1.75 | 9-30-2019 | 2,661,000 | 2,675,968 | ||||||||||||
U.S. Treasury Note | 1.88 | 11-30-2021 | 200,000 | 198,828 | ||||||||||||
U.S. Treasury Note | 2.00 | 10-31-2021 | 499,000 | 500,131 | ||||||||||||
U.S. Treasury Note | 2.25 | 7-31-2021 | 334,000 | 340,471 | ||||||||||||
U.S. Treasury Note | 2.25 | 11-15-2024 | 1,828,000 | 1,840,282 | ||||||||||||
U.S. Treasury Note | 2.38 | 8-15-2024 | 76,000 | 77,360 | ||||||||||||
U.S. Treasury Note | 2.50 | 5-15-2024 | 1,021,000 | 1,050,992 | ||||||||||||
U.S. Treasury Note | 3.13 | 4-30-2017 | 766,000 | 806,694 | ||||||||||||
Total U.S. Treasury Securities (Cost $29,981,409) | 30,289,121 | |||||||||||||||
|
| |||||||||||||||
Yankee Corporate Bonds and Notes: 4.18% | ||||||||||||||||
Consumer Discretionary: 0.29% | ||||||||||||||||
Media: 0.12% | ||||||||||||||||
British Sky Broadcasting 144A | 3.75 | 9-16-2024 | 105,000 | 105,643 | ||||||||||||
|
| |||||||||||||||
Textiles, Apparel & Luxury Goods: 0.17% | ||||||||||||||||
LVMH Moet Hennessy Louis Vuitton SA 144A | 1.63 | 6-29-2017 | 158,000 | 158,115 | ||||||||||||
|
| |||||||||||||||
Consumer Staples: 0.19% | ||||||||||||||||
Beverages: 0.19% | ||||||||||||||||
Pernod Ricard SA 144A | 5.75 | 4-7-2021 | 150,000 | 172,302 | ||||||||||||
|
| |||||||||||||||
Energy: 1.24% | ||||||||||||||||
Oil, Gas & Consumable Fuels: 1.24% | ||||||||||||||||
BP Capital Markets plc | 3.54 | 11-4-2024 | 40,000 | 39,285 | ||||||||||||
BP Capital Markets plc | 3.81 | 2-10-2024 | 10,000 | 10,065 | ||||||||||||
Canadian Oil Sands Trust Limited 144A | 6.00 | 4-1-2042 | 55,000 | 49,660 | ||||||||||||
Ecopetrol SA | 5.88 | 5-28-2045 | 45,000 | 41,625 | ||||||||||||
Ecopetrol SA | 7.38 | 9-18-2043 | 45,000 | 48,600 | ||||||||||||
Petrobras Global Finance Company | 3.00 | 1-15-2019 | 70,000 | 61,885 | ||||||||||||
Petrobras Global Finance Company | 4.88 | 3-17-2020 | 100,000 | 93,551 | ||||||||||||
Petroleos Mexicanos Company ± | 2.25 | 7-18-2018 | 50,000 | 50,550 | ||||||||||||
Petroleos Mexicanos Company | 2.38 | 4-15-2025 | 120,000 | 118,662 | ||||||||||||
Petroleos Mexicanos Company 144A | 5.50 | 6-27-2044 | 15,000 | 15,300 | ||||||||||||
Petroleos Mexicanos Company | 6.38 | 1-23-2045 | 100,000 | 113,250 | ||||||||||||
Statoil ASA | 2.25 | 11-8-2019 | 80,000 | 80,046 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Portfolio of investments—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 23 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Oil, Gas & Consumable Fuels (continued) | ||||||||||||||||
Statoil ASA | 2.90 | % | 11-8-2020 | $ | 95,000 | $ | 97,176 | |||||||||
Talisman Energy Incorporated | 3.75 | 2-1-2021 | 75,000 | 72,528 | ||||||||||||
Total Capital International SA | 2.10 | 6-19-2019 | 80,000 | 80,035 | ||||||||||||
Total Capital International SA | 2.75 | 6-19-2021 | 50,000 | 50,187 | ||||||||||||
Weatherford International Limited | 4.50 | 4-15-2022 | 45,000 | 40,051 | ||||||||||||
Weatherford International Limited | 5.95 | 4-15-2042 | 60,000 | 50,804 | ||||||||||||
1,113,260 | ||||||||||||||||
|
| |||||||||||||||
Financials: 1.81% | ||||||||||||||||
Banks: 1.28% | ||||||||||||||||
Bank of Tokyo-Mitsubishi UFJ Limited 144A | 2.35 | 9-8-2019 | 325,000 | 322,840 | ||||||||||||
Credit Suisse (New York) | 3.63 | 9-9-2024 | 250,000 | 254,310 | ||||||||||||
ING Bank NV 144A | 2.50 | 10-1-2019 | 275,000 | 276,759 | ||||||||||||
ING Bank NV 144A | 5.80 | 9-25-2023 | 90,000 | 99,835 | ||||||||||||
Norddeutsche Landesbank Pfandbriefe 144A | 2.00 | 2-5-2019 | 200,000 | 200,261 | ||||||||||||
1,154,005 | ||||||||||||||||
|
| |||||||||||||||
Consumer Finance: 0.25% | ||||||||||||||||
CNOOC Finance Corporation Limited | 1.63 | 4-30-2017 | 225,000 | 223,915 | ||||||||||||
|
| |||||||||||||||
Diversified Financial Services: 0.28% | ||||||||||||||||
BHP Billiton Finance USA Limited | 5.00 | 9-30-2043 | 35,000 | 39,673 | ||||||||||||
Volkswagen International Finance NV 144A | 1.13 | 11-18-2016 | 210,000 | 209,833 | ||||||||||||
249,506 | ||||||||||||||||
|
| |||||||||||||||
Health Care: 0.11% | ||||||||||||||||
Pharmaceuticals: 0.11% | ||||||||||||||||
Actavis Funding SCS | 3.85 | 6-15-2024 | 35,000 | 35,179 | ||||||||||||
Actavis Funding SCS | 4.85 | 6-15-2044 | 65,000 | 65,958 | ||||||||||||
101,137 | ||||||||||||||||
|
| |||||||||||||||
Materials: 0.18% | ||||||||||||||||
Chemicals: 0.05% | ||||||||||||||||
LYB International Finance BV | 4.88 | 3-15-2044 | 40,000 | 41,151 | ||||||||||||
|
| |||||||||||||||
Metals & Mining: 0.13% | ||||||||||||||||
Barrick Gold Corporation | 4.10 | 5-1-2023 | 45,000 | 43,794 | ||||||||||||
Xstrata Finance Canada 144A | 2.05 | 10-23-2015 | 71,000 | 71,461 | ||||||||||||
115,255 | ||||||||||||||||
|
| |||||||||||||||
Telecommunication Services: 0.26% | ||||||||||||||||
Wireless Telecommunication Services: 0.26% | ||||||||||||||||
America Movil SAB de CV | 3.13 | 7-16-2022 | 235,000 | 231,860 | ||||||||||||
|
| |||||||||||||||
Utilities: 0.10% | ||||||||||||||||
Electric Utilities: 0.10% | ||||||||||||||||
Electricite de France 144A | 6.00 | 1-22-2114 | 80,000 | 93,195 | ||||||||||||
|
| |||||||||||||||
Total Yankee Corporate Bonds and Notes (Cost $3,754,820) | 3,759,344 | |||||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
Table of Contents
24 | Wells Fargo Advantage VT Total Return Bond Fund | Portfolio of investments—December 31, 2014 |
Security name | Interest rate | Maturity date | Principal | Value | ||||||||||||
Yankee Government Bonds: 1.16% | �� | |||||||||||||||
Province of Manitoba | 3.05 | % | 5-14-2024 | $ | 75,000 | $ | 77,729 | |||||||||
Republic of Paraguay 144A | 6.10 | 8-11-2044 | 100,000 | 106,500 | ||||||||||||
Republic of Slovenia 144A | 5.25 | 2-18-2024 | 200,000 | 219,750 | ||||||||||||
Slovak Republic 144A | 4.38 | 5-21-2022 | 375,000 | 405,578 | ||||||||||||
United Mexican States | 5.75 | 10-12-2049 | 215,000 | 231,125 | ||||||||||||
Total Yankee Government Bonds (Cost $976,418) | 1,040,682 | |||||||||||||||
|
| |||||||||||||||
Yield | Shares | |||||||||||||||
Short-Term Investments: 4.90% | ||||||||||||||||
Investment Companies: 4.90% | ||||||||||||||||
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class ##(l)(u) | 0.08 | 4,410,686 | 4,410,686 | |||||||||||||
|
| |||||||||||||||
Total Short-Term Investments (Cost $4,410,686) | 4,410,686 | |||||||||||||||
|
|
Total investments in securities (Cost $99,552,210) * | 112.18 | % | 100,893,052 | |||||
Other assets and liabilities, net | (12.18 | ) | (10,956,528 | ) | ||||
|
|
|
| |||||
Total net assets | 100.00 | % | $ | 89,936,524 | ||||
|
|
|
|
± | Variable rate investment. The rate shown is the rate in effect at period end. |
(a) | The security is fair valued in accordance with procedures approved by the Board of Trustees. |
%% | The security is issued on a when-issued basis. |
¤ | The security is issued in zero coupon form with no periodic interest payments. |
144A | The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933. |
## | All or a portion of this security is segregated for when-issued securities. |
(l) | The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940. |
(u) | The rate represents the 7-day annualized yield at period end. |
* | Cost for federal income tax purposes is $99,674,339 and unrealized gains (losses) consists of: |
Gross unrealized gains | $ | 1,534,948 | ||
Gross unrealized losses | (316,235 | ) | ||
|
| |||
Net unrealized gains | $ | 1,218,713 |
The accompanying notes are an integral part of these financial statements.
Table of Contents
Statement of assets and liabilities—December 31, 2014 | Wells Fargo Advantage VT Total Return Bond Fund | 25 |
Assets | ||||
Investments | ||||
In unaffiliated securities, at value (cost $95,141,524) | $ | 96,482,366 | ||
In affiliated securities, at value (cost $4,410,686) | 4,410,686 | |||
|
| |||
Total investments, at value (cost $99,552,210) | 100,893,052 | |||
Receivable for investments sold | 12,122,005 | |||
Principal paydown receivable | 10,146 | |||
Receivable for Fund shares sold | 3,422 | |||
Receivable for interest | 390,012 | |||
Prepaid expenses and other assets | 6,210 | |||
|
| |||
Total assets | 113,424,847 | |||
|
| |||
Liabilities | ||||
Dividends payable | 3,121 | |||
Payable for investments purchased | 23,098,314 | |||
Payable for Fund shares redeemed | 256,356 | |||
Advisory fee payable | 29,699 | |||
Distribution fee payable | 19,838 | |||
Administration fee payable | 10,316 | |||
Accrued expenses and other liabilities | 70,679 | |||
|
| |||
Total liabilities | 23,488,323 | |||
|
| |||
Total net assets | $ | 89,936,524 | ||
|
| |||
NET ASSETS CONSIST OF | ||||
Paid-in capital | $ | 91,987,830 | ||
Undistributed net investment income | 13,787 | |||
Accumulated net realized losses on investments | (3,405,935 | ) | ||
Net unrealized gains on investments | 1,340,842 | |||
|
| |||
Total net assets | $ | 89,936,524 | ||
|
| |||
COMPUTATION OF NET ASSET VALUE PER SHARE | ||||
Net assets – Class 2 | $ | 89,936,524 | ||
Shares outstanding – Class 21 | 8,554,067 | |||
Net asset value per share – Class 2 | $10.51 |
1. | The Fund has an unlimited number of authorized shares. |
The accompanying notes are an integral part of these financial statements.
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26 | Wells Fargo Advantage VT Total Return Bond Fund | Statement of operations—year ended December 31, 2014 |
Investment income | ||||
Interest | $ | 2,009,844 | ||
Income from affiliated securities | 2,094 | |||
Securities lending income, net | 457 | |||
|
| |||
Total investment income | 2,012,395 | |||
|
| |||
Expenses | ||||
Advisory fee | 364,480 | |||
Administration fee | 118,456 | |||
Distribution fee | ||||
Class 2 | 227,800 | |||
Custody and accounting fees | 49,991 | |||
Professional fees | 51,323 | |||
Shareholder report expenses | 9,175 | |||
Trustees’ fees and expenses | 15,980 | |||
Other fees and expenses | 3,761 | |||
|
| |||
Total expenses | 840,966 | |||
Less: Fee waivers and/or expense reimbursements | (20,885 | ) | ||
|
| |||
Net expenses | 820,081 | |||
|
| |||
Net investment income | 1,192,314 | |||
|
| |||
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS | ||||
Net realized gains (losses) on: | ||||
Unaffiliated securities | 1,765,045 | |||
TBA sale commitments | (3,843 | ) | ||
|
| |||
Net realized gains on investments | 1,761,202 | |||
|
| |||
Net change in unrealized gains (losses) on investments | 2,039,702 | |||
|
| |||
Net realized and unrealized gains (losses) on investments | 3,800,904 | |||
|
| |||
Net increase in net assets resulting from operations | $ | 4,993,218 | ||
|
|
The accompanying notes are an integral part of these financial statements.
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Statement of changes in net assets | Wells Fargo Advantage VT Total Return Bond Fund | 27 |
Year ended December 31, 2014 | Year ended December 31, 2013 | |||||||||||||||
Operations | ||||||||||||||||
Net investment income | $ | 1,192,314 | $ | 1,085,032 | ||||||||||||
Net realized gains (losses) on investments | 1,761,202 | (696,697 | ) | |||||||||||||
Net change in unrealized gains (losses) on investments | 2,039,702 | (2,680,209 | ) | |||||||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from operations | 4,993,218 | (2,291,874 | ) | |||||||||||||
|
| |||||||||||||||
Distributions to shareholders from | ||||||||||||||||
Net investment income – Class 2 | (1,240,908 | ) | (1,136,906 | ) | ||||||||||||
Net realized gains – Class 2 | 0 | (2,908,485 | ) | |||||||||||||
|
| |||||||||||||||
Total distributions to shareholders | (1,240,908 | ) | (4,045,391 | ) | ||||||||||||
|
| |||||||||||||||
Capital share transactions | Shares | Shares | ||||||||||||||
Proceeds from shares sold – Class 2 | 1,245,757 | 12,903,246 | 1,865,149 | 19,545,659 | ||||||||||||
Reinvestment of distributions – Class 2 | 119,606 | 1,240,908 | 398,039 | 4,045,391 | ||||||||||||
Payment for shares redeemed – Class 2 | (1,765,773 | ) | (18,312,667 | ) | (1,796,392 | ) | (18,758,567 | ) | ||||||||
|
| |||||||||||||||
Net increase (decrease) in net assets resulting from capital share transactions | (4,168,513 | ) | 4,832,483 | |||||||||||||
|
| |||||||||||||||
Total decrease in net assets | (416,203 | ) | (1,504,782 | ) | ||||||||||||
|
| |||||||||||||||
Net assets | ||||||||||||||||
Beginning of period | 90,352,727 | 91,857,509 | ||||||||||||||
|
| |||||||||||||||
End of period | $ | 89,936,524 | $ | 90,352,727 | ||||||||||||
|
| |||||||||||||||
Undistributed net investment income | $ | 13,787 | $ | 62,381 | ||||||||||||
|
|
The accompanying notes are an integral part of these financial statements.
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28 | Wells Fargo Advantage VT Total Return Bond Fund | Financial highlights |
(For a share outstanding throughout each period)
Year ended December 31 | ||||||||||||||||||||
CLASS 2 | 2014 | 2013 | 2012 | 2011 | 20101 | |||||||||||||||
Net asset value, beginning of period | $10.09 | $10.82 | $10.54 | $10.41 | $10.34 | |||||||||||||||
Net investment income | 0.14 | 0.12 | 0.15 | 0.22 | 0.29 | |||||||||||||||
Net realized and unrealized gains (losses) on investments | 0.42 | (0.38 | ) | 0.48 | 0.62 | 0.43 | ||||||||||||||
|
| �� |
|
|
|
|
|
|
|
| ||||||||||
Total from investment operations | 0.56 | (0.26 | ) | 0.63 | 0.84 | 0.72 | ||||||||||||||
Distributions to shareholders from | ||||||||||||||||||||
Net investment income | (0.14 | ) | (0.13 | ) | (0.15 | ) | (0.28 | ) | (0.36 | ) | ||||||||||
Net realized gains | 0.00 | (0.34 | ) | (0.20 | ) | (0.43 | ) | (0.29 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||
Total distributions to shareholders | (0.14 | ) | (0.47 | ) | (0.35 | ) | (0.71 | ) | (0.65 | ) | ||||||||||
Net asset value, end of period | $10.51 | $10.09 | $10.82 | $10.54 | $10.41 | |||||||||||||||
Total return | 5.59 | % | (2.43 | )% | 6.10 | % | 8.31 | % | 7.04 | % | ||||||||||
Ratios to average net assets (annualized) | ||||||||||||||||||||
Gross expenses | 0.92 | % | 0.93 | % | 0.94 | % | 0.91 | % | 0.91 | % | ||||||||||
Net expenses | 0.90 | % | 0.90 | % | 0.90 | % | 0.88 | % | 0.86 | % | ||||||||||
Net investment income | 1.31 | % | 1.19 | % | 1.37 | % | 2.09 | % | 2.76 | % | ||||||||||
Supplemental data | ||||||||||||||||||||
Portfolio turnover rate | 593 | % | 613 | % | 574 | % | 843 | % | 838 | % | ||||||||||
Net assets, end of period (000s omitted) | $89,937 | $90,353 | $91,858 | $87,138 | $85,416 |
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.
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Notes to financial statements | Wells Fargo Advantage VT Total Return Bond 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”). As an investment company, the Trust follows the accounting and reporting guidance in FASB Accounting Standards Codification 946. These financial statements report on the 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 (generally 4 p.m. Eastern Time).
Fixed income securities acquired with maturities exceeding 60 days are valued based on evaluated bid prices provided by an independent pricing service which may utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If prices are not available from the independent pricing service or prices received are deemed not representative of market value, prices will be obtained from an independent broker-dealer.
Short-term securities, with maturities of 60 days or less at time of purchase, 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 vehicles 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 in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.
Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market values, to assess the continued appropriateness of the fair valuation methodologies used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the inputs considered in the valuation process until there is a readily available price provided on an exchange or by an independent pricing service. Valuations received from an independent pricing service or independent broker-dealer quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the 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
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30 | 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 Securities Lending Cash Investments, LLC (the “Securities Lending Fund”). The Securities Lending Fund is exempt from registration under Section 3(c)(7) of the 1940 Act and is managed by Funds Management and is subadvised by Wells Capital Management Incorporated (“WellsCap”). Funds Management receives an advisory fee starting at 0.05% and declining to 0.01% as the average daily net assets of the Securities Lending Fund increase. All of the fees received by Funds Management are paid to WellsCap for its services as subadviser. The Securities Lending Fund seeks to provide a positive return compared to the daily Fed Funds Open rate by investing in high-quality, U.S. dollar-denominated short-term money market instruments. Securities Lending Fund investments are fair valued based upon the amortized cost valuation technique. Income earned from investment in the Securities Lending 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 through TBA 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.
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Notes to financial statements | Wells Fargo Advantage VT Total Return Bond Fund | 31 |
Distributions to shareholders
Distributions to shareholders from net investment income are accrued daily and paid monthly. Distributions from 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.
As of December 31, 2014, the Fund had capital loss carryforwards available to offset future net realized capital gains in the amount of $3,283,804 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, use of amortized cost, etc.) |
n | Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments) |
The inputs or methodologies used for valuing investments in securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of December 31, 2014:
Quoted prices (Level 1) | Other significant observable inputs (Level 2) | Significant unobservable inputs (Level 3) | Total | |||||||||||||
Assets | ||||||||||||||||
Investments in: | ||||||||||||||||
Agency securities | $ | 0 | $ | 26,262,686 | $ | 0 | $ | 26,262,686 | ||||||||
Asset-backed securities | 0 | 14,029,361 | 0 | 14,029,361 | ||||||||||||
Corporate bonds and notes | 0 | 16,168,380 | 0 | 16,168,380 | ||||||||||||
Municipal obligations | 0 | 939,487 | 0 | 939,487 | ||||||||||||
Non-agency mortgage-backed securities | 0 | 3,993,305 | 0 | 3,993,305 | ||||||||||||
U.S. Treasury securities | 30,090,293 | 198,828 | 0 | 30,289,121 | ||||||||||||
Yankee corporate bonds and notes | 0 | 3,759,344 | 0 | 3,759,344 | ||||||||||||
Yankee government bonds | 0 | 1,040,682 | 0 | 1,040,682 | ||||||||||||
Short-term investments | ||||||||||||||||
Investment companies | 4,410,686 | 0 | 0 | 4,410,686 | ||||||||||||
Total assets | $ | 34,500,979 | $ | 66,392,073 | $ | 0 | $ | 100,893,052 |
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32 | Wells Fargo Advantage VT Total Return Bond Fund | Notes to financial statements |
Transfers in and transfers out are recognized at the end of the reporting period. At December 31, 2014, the Fund did not have any transfers into/out of Level 1, Level 2, or Level 3.
4. TRANSACTIONS WITH AFFILIATES
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, 2014, 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 and an indirect wholly owned subsidiary of Wells Fargo, 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 fee
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 administration fee starting at 0.13% and declining to 0.11% as the average daily net assets of the Fund increase.
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, 2015 to waive fees and/or reimburse expenses to the extent necessary to cap the Fund’s expenses at 0.90% for Class 2 shares. After this time, the cap may be increased or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.
Distribution fee
The Trust has adopted a Distribution Plan for Class 2 shares of the Fund pursuant to Rule 12b-1 under the 1940 Act. A distribution fee is charged to Class 2 shares and paid to Wells Fargo Funds Distributor, LLC, the principal underwriter, at an annual rate of 0.25% of the average daily net assets of Class 2 shares.
5. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments, excluding short-term securities, for the year ended December 31, 2014 were as follows:
Purchases at cost | Sales proceeds | |||||
U.S. government | Non-U.S. government | U.S. government | Non-U.S. government | |||
$511,361,442 | $73,191,887 | $508,784,464 | $75,037,943 |
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 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, 2014, the Fund paid $103 in commitment fees.
For the year ended December 31, 2014, there were no borrowings by the Fund under the agreement.
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Notes to financial statements | Wells Fargo Advantage VT Total Return Bond Fund | 33 |
7. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid during the years ended December 31, 2014 and December 31, 2013 were as follows:
Year ended December 31 | ||||||
2014 | 2013 | |||||
Ordinary income | $1,240,908 | $ | 2,927,256 | |||
Long-term capital gain | 0 | 1,118,135 |
As of December 31, 2014, the components of distributable earnings on a tax basis were as follows:
Undistributed ordinary income | Unrealized gains | Capital loss carryforward | ||
$17,711 | $1,218,713 | $(3,283,804) |
8. INDEMNIFICATION
Under the Trust’s organizational documents, the officers and Trustees 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.
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34 | 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, 2014, 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, 2014, by correspondence with the custodian and brokers, or by 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, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
February 24, 2015
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Other information (unaudited) | Wells Fargo Advantage VT Total Return Bond Fund | 35 |
TAX INFORMATION
For the fiscal year ended December 31, 2014, 18.14% of the ordinary income 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 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 monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. In addition, top ten holdings information (excluding derivative positions) for the Fund is publicly available on the Fund’s website on a monthly, seven-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.
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36 | Wells Fargo Advantage VT Total Return Bond Fund | Other information (unaudited) |
BOARD OF TRUSTEES AND OFFICERS
Each of the Trustees and Officers1 listed in the table below acts in identical capacities for each fund in the Wells Fargo Advantage family of funds, which consists of 134 mutual funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust and four closed-end funds (collectively the “Fund Complex”). This table should be read in conjunction with the Prospectus and the Statement of Additional Information2. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. Each Trustee and Officer serves an indefinite term, however, each Trustee serves such term until reaching the mandatory retirement age established by the Trustees.
Independent Trustees
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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. | Asset Allocation Trust | |||
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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant. | CIGNA Corporation; Asset Allocation Trust | |||
Judith M. Johnson (Born 1949) | Trustee, since 2008; Audit Committee Chairman, since 2008 | Retired. Prior thereto, Chief Executive Officer and Chief Investment Officer of Minneapolis Employees Retirement Fund from 1996 to 2008. Ms. Johnson is an attorney, certified public accountant and a certified managerial accountant. | Asset Allocation Trust | |||
Leroy Keith, Jr. (Born 1939) | Trustee, since 2010** | Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) 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 50 portfolios as of 12/16/2013); 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 the Center for Leadership Development and Research 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 | 37 |
Name and year of birth | Position held and length of service* | Principal occupations during past five years or longer | 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield. | Asset Allocation Trust | |||
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 and Vice Chair of The Tree Trust (non-profit corporation). Director 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. |
** | Leroy Keith, Jr. retired as a Trustee effective December 31, 2014. |
Officers
Name and year of birth | Position held and length of service | Principal occupations during past five years or longer | ||||
Karla M. Rabusch (Born 1959) | President, since 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 | Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. | ||||
Debra Ann Early (Born 1964) | Chief Compliance Officer, since 2007 | Senior Vice President of Wells Fargo Funds Management, LLC since 2007 and Chief Compliance Officer from 2007 to 2014. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004. | ||||
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 73 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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38 | 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.
ACA | — ACA Financial Guaranty Corporation |
ADR | — American depositary receipt |
ADS | — American depositary shares |
AGC | — Assured Guaranty Corporation |
AGM | — Assured Guaranty Municipal |
Ambac | — Ambac Financial Group Incorporated |
AMT | — Alternative minimum tax |
AUD | — Australian dollar |
BAN | — Bond anticipation notes |
BHAC | — Berkshire Hathaway Assurance Corporation |
BRL | — Brazilian real |
CAB | — Capital appreciation bond |
CAD | — Canadian dollar |
CCAB | — Convertible capital appreciation bond |
CDA | — Community Development Authority |
CDO | — Collateralized debt obligation |
CHF | — Swiss franc |
COP | — Columbian Peso |
CLP | — Chilean peso |
DKK | — Danish krone |
DRIVER | — Derivative inverse tax-exempt receipts |
DW&P | — Department of Water & Power |
DWR | — Department of Water Resources |
ECFA | — Educational & Cultural Facilities Authority |
EDA | — Economic Development Authority |
EDFA | — Economic Development Finance Authority |
ETF | — Exchange-traded fund |
EUR | — Euro |
FDIC | — Federal Deposit Insurance Corporation |
FFCB | — Federal Farm Credit Banks |
FGIC | — Financial Guaranty Insurance Corporation |
FHA | — Federal Housing Administration |
FHLB | — Federal Home Loan Bank |
FHLMC | — Federal Home Loan Mortgage Corporation |
FICO | — The Financing Corporation |
FNMA | — Federal National Mortgage Association |
FSA | — Farm Service Agency |
GBP | — Great British pound |
GDR | — Global depositary receipt |
GNMA | — Government National Mortgage Association |
GO | — General obligation |
HCFR | — Healthcare facilities revenue |
HEFA | — Health & Educational Facilities Authority |
HEFAR | — Higher education facilities authority revenue |
HFA | — Housing Finance Authority |
HFFA | — Health Facilities Financing Authority |
HKD | — Hong Kong dollar |
HUD | — Department of Housing and Urban Development |
HUF | — Hungarian forint |
IDA | — Industrial Development Authority |
IDAG | — Industrial Development Agency |
IDR | — Indonesian rupiah |
IEP | — Irish pound |
JPY | — Japanese yen |
KRW | — Republic of Korea won |
LIBOR | — London Interbank Offered Rate |
LIQ | — Liquidity agreement |
LLC | — Limited liability company |
LLLP | — Limited liability limited partnership |
LLP | — Limited liability partnership |
LOC | — Letter of credit |
LP | — Limited partnership |
MBIA | — Municipal Bond Insurance Association |
MFHR | — Multifamily housing revenue |
MSTR | — Municipal securities trust receipts |
MTN | — Medium-term note |
MUD | — Municipal Utility District |
MXN | — Mexican peso |
MYR | — Malaysian ringgit |
National | — National Public Finance Guarantee Corporation |
NGN | — Nigerian naira |
NOK | — Norwegian krone |
NZD | — New Zealand dollar |
PCFA | — Pollution Control Financing Authority |
PCL | — Public Company Limited |
PCR | — Pollution control revenue |
PFA | — Public Finance Authority |
PFFA | — Public Facilities Financing Authority |
PFOTER | — Puttable floating option tax-exempt receipts |
plc | — Public limited company |
PLN | — Polish zloty |
PUTTER | — Puttable tax-exempt receipts |
R&D | — Research & development |
Radian | — Radian Asset Assurance |
RAN | — Revenue anticipation notes |
RDA | — Redevelopment Authority |
RDFA | — Redevelopment Finance Authority |
REIT | — Real estate investment trust |
ROC | — Reset option certificates |
RON | — Romanian lei |
RUB | — Russian ruble |
SAVRS | — Select auction variable rate securities |
SBA | — Small Business Authority |
SEK | — Swedish krona |
SFHR | — Single-family housing revenue |
SFMR | — Single-family mortgage revenue |
SGD | — Singapore dollar |
SPA | — Standby purchase agreement |
SPDR | — Standard & Poor’s Depositary Receipts |
STRIPS | — Separate trading of registered interest and |
principal securities |
TAN | — Tax anticipation notes |
TBA | — To be announced |
THB | — Thai baht |
TIPS | — Treasury inflation-protected securities |
TRAN | — Tax revenue anticipation notes |
TRY | — Turkish lira |
TTFA | — Transportation Trust Fund Authority |
TVA | — Tennessee Valley Authority |
ZAR | — South African rand |
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For more information
More information about Wells Fargo 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. Before investing, please consider the investment objectives, risks, charges, and expenses of the investment. For a current prospectus and, if available, a summary prospectus, containing this information, call 1-800-222-8222 or visit the Fund’s website at wellsfargoadvantagefunds.com. 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
© 2014 Wells Fargo Funds Management, LLC. All rights reserved.
230419 02-15 AVT9/AR155 12-14 |
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ITEM 2. | CODE OF ETHICS |
(a) As of the end of the period covered by the report, Wells Fargo Variable Trust has adopted a code of ethics that applies to its President and Treasurer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
(c) During the period covered by this report, there were no amendments to the provisions of the code of ethics adopted in Item 2(a) above.
(d) During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above.
ITEM 3. | AUDIT COMMITTEE FINANCIAL EXPERT |
The Board of Trustees of Wells Fargo Variable Trust has determined that Judith Johnson is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mrs. Johnson is independent for purposes of Item 3 of Form N-CSR.
ITEM 4. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
(a), (b), (c), (d) The following table presents aggregate fees billed in each of the last two fiscal years for services rendered to the Registrant by the Registrant’s principal accountant. These fees were billed to the registrant and were approved by the Registrant’s audit committee.
Fiscal year ended December 31, 2014 | Fiscal year ended December 31, 2013 | |||||||
Audit fees | $ | 268,260 | $ | 261,710 | ||||
Audit-related fees | — | — | ||||||
Tax fees (1) | 21,130 | 20,600 | ||||||
All other fees | — | — | ||||||
|
|
|
| |||||
$ | 289,390 | $ | 282,310 | |||||
|
|
|
|
(1) | Tax fees consist of fees for tax compliance, tax advice, and tax planning. |
(e) The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services to the mutual funds of Wells Fargo Variable Trust; (2) non-audit tax or compliance consulting or training services provided to the Funds by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.
(f) Not applicable
(g) Not applicable
(h) Not applicable
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ITEM 5. | AUDIT COMMITTEE OF LISTED REGISTRANTS |
Not applicable.
ITEM 6. | INVESTMENTS |
A Portfolio of investments for each series of Wells Fargo Variable Trust is included as part of the report to shareholders filed under Item 1 of this Form.
ITEM 7. | DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
ITEM 8. | PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Not applicable.
ITEM 9. | PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
Not applicable.
ITEM 10. | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees that have been implemented since the Registrant’s last provided disclosure in response to the requirements of this Item.
ITEM 11. | CONTROLS AND PROCEDURES |
(a) The President and Treasurer have concluded that the Wells Fargo Variable Trust (the “Trust”) disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) provide reasonable assurances that material information relating to the Trust is made known to them by the appropriate persons based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.
(b) There were no significant changes in the Trust’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
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ITEM 12. | EXHIBITS |
(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as Exhibit COE.
(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Wells Fargo Variable Trust | ||
By: | /s/ Karla M. Rabusch | |
Karla M. Rabusch | ||
President | ||
Date: February 24, 2015 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.
Wells Fargo Variable Trust | ||
By: | /s/ Karla M. Rabusch | |
Karla M. Rabusch | ||
President | ||
Date: February 24, 2015 | ||
By: | /s/ Jeremy DePalma | |
Jeremy DePalma | ||
Treasurer | ||
Date: February 24, 2015 |