Frequently Asked Questions

Here are some frequently asked questions on capital gains distributions.

What are capital gains?
Under federal law, mutual funds are required to distribute to shareholders net gains that occur when a fund sells a security and receives a profit as a result of that sale. When a capital asset is sold, the difference between the amount the asset is sold for and the base cost for which it was purchased is a capital gain or a capital loss. Capital assets include property held for investment, such as stocks, bonds, or shares of a mutual fund. If a mutual fund has gains that cannot be offset by losses, those gains must be distributed to shareholders in the form of either a short-term or long-term capital gain or a combination of the two.

Mutual funds typically distribute capital gains to shareholders annually, near the end of the calendar year. It is important to note that, in certain situations, capital gains may be distributed to shareholders more than once a year at any time of the year.

How are capital gains distributed to shareholders?
Shareholders may receive capital gains distributions in cash, or they may reinvest the distributions into their accounts as additional shares (or a fraction of a share).

Distributions are subject to income tax in the year that they were declared and are reported annually, if applicable, on Form 1099-DIV, whether they are received as cash or reinvested into a shareholder's account.

How can mutual funds pay capital gains distributions when the market is either flat or down?
When the value of a fund holding increases, the fund has an unrealized gain until the security is sold. Once this security is sold, however, the fund realizes the gain and must pay a distribution unless the gain is offset by capital losses. Consequently, a fund’s capital gains distribution in a particular year is a result of the sale of securities that may have appreciated in value over time, perhaps during prior years when the fund’s returns were positive.

What is a shareholder’s tax liability on capital gains?
Capital gains can be paid out to shareholders or reinvested into a fund in the form of new shares. Either way, shareholders in taxable accounts are subject to taxes on the payout in the year the capital gains are distributed.

The length of time that a fund owned a security determines the rate at which the capital gains will be taxed. For securities held for 12 months or less, capital gains are considered short-term capital gains, while capital gains distributions for those held for more than 12 months are considered long-term capital gains.

The American Taxpayer Relief Act of 2012 (P.L. 112–240), or ATRA, changed the rates for capital gains (which includes capital gains distributions from a mutual fund) and qualified dividends received in 2014 in the following ways:

  • For individuals that fall in the top income bracket, the top rate was raised from 15% to 20%.
  • For individuals that fall in lower tax brackets, capital gains and qualified dividends will continue to be taxed at 15% or 0%.
  • Nonqualified dividends and short-term capital gains continue to be taxed at rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%, depending on the level of taxable income.
  • All dividends and capital gains beginning in 2013 could be subject to a new 3.8% Medicare surtax that would be added onto an individual’s regular income tax.

Please consult your tax advisor to see how these new income tax changes may affect you.

Why are the estimated capital gains for the following Wells Fargo Advantage Funds larger (as a percentage of the fund’s NAV) than the distributions for other funds?

Wells Fargo Advantage Fund Estimated capital gains can be attributed to the following:
Capital Growth Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Common Stock Fund
  • Strong market conditions caused certain holdings to reach valuations that approached the team’s assessed private market values.
  • The team has remained disciplined in selling off holdings that it believes were near their full market values.
Disciplined U.S. Core Fund
  • The fund’s quantitative strategy and focus on managing risk relative to the fund’s benchmark resulted in securities sales on which capital gains were realized by the fund.
  • A slightly higher level of portfolio turnover during select periods of short-term market volatility also resulted in capital gains.
Discovery Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Diversified Equity Fund
  • Anticipated capital gains are from long-term appreciation within the U.S. large-growth and large-value equity styles.
Diversified Income Builder Fund
  • Anticipated capital gains are primarily from the equity portion of the portfolio.
  • Appreciation in stock prices caused certain holdings to reach their valuation targets, leading to portfolio turnover and capital gains.
Emerging Growth Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Endeavor Select Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Enterprise Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Global Opportunities Fund
  • Strong market conditions caused certain holdings to reach valuations that approached the higher end of the team’s assessed price-range tolerance.
  • The team has remained disciplined in selling off holdings that it believes were near their full market values.
Growth Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Intrinsic Value Fund
  • Anticipated capital gains are from long-term appreciation.
  • Appreciation in stock prices caused certain holdings to reach their full valuation, leading portfolio managers to sell those particular holdings and look for more attractive opportunities.
Large Company Value Fund
  • Anticipated capital gains are from long-term appreciation.
  • Strong appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to sell them.
Omega Growth Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused numerous holdings to approach their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings in order to balance reward potential with an appropriate level of risk.
Opportunity Fund
  • Strong market conditions caused certain holdings to reach valuations that approached the team’s assessed private market values.
  • The team has remained disciplined in selling off holdings that it believes were near their full market values.
Small Cap Opportunities Fund
  • Long-held securities in the fund were sold, resulting in capital gains.
  • As holdings approached the team’s price targets, the portfolio manager trimmed or sold them.
  • The team traded positions in order to maintain exposure to a diversified mix of companies with stable growth characteristics, companies with understated growth opportunities, and those who have undergone a period of transition, which the team believed were apt to provide attractive risk/reward opportunities over the long term.
Small Cap Value Fund
  • Anticipated capital gains are from long-term appreciation.
  • Appreciation in stock prices caused certain holdings to reach their full valuation, leading portfolio managers to sell those particular holdings and look for more attractive opportunities.
Small Company Growth Fund
  • Select holdings reached the team’s valuation targets, leading portfolio managers to trim or eliminate those particular holdings.
  • The portfolio managers took profits in some holdings where they believed the fundamentals of those particular companies could deteriorate.
Small/Mid Cap Value Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • The Small/Mid Cap Value Fund did not pay capital gains in the past five years (2009–2013), as the portfolio managers used capital loss carryovers during that period. At this point, all capital loss carryovers have been fully used.
Special Mid Cap Value Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • Appreciation in stock prices caused certain holdings to reach their full valuation, leading portfolio managers to sell those particular holdings and look for more attractive opportunities.
Special Small Cap Value Fund
  • Anticipated capital gains are mostly from long-term appreciation.
  • The Special Small Cap Value Fund did not pay capital gains in the past five years (2009–2013), as the portfolio managers used capital loss carryovers during that period. At this point, all capital loss carryovers have been fully used.
Specialized Technology Fund
  • Anticipated capital gains have been partially due to long-term appreciation of certain holdings sold during the year.
  • Movement in technology stock prices also caused certain holdings to reach their price targets, leading portfolio managers to sell those particular holdings.
Traditional Small Cap Growth Fund
  • Numerous holdings approached their respective valuation targets, leading portfolio managers to trim or eliminate those particular holdings.
  • The portfolio managers took profits in some holdings where they believed the fundamentals of those particular companies could deteriorate.
  • Mergers and acquisitions in the market caused the portfolio managers to sell certain holdings with capital gains.

What actions can shareholders take to mitigate the tax liability on capital gains distributions?
Shareholders should consult their tax professionals to determine what course of action is most appropriate for their individual situations.

What steps does Wells Fargo Advantage Funds take to manage tax implications of portfolio transactions?
In conjunction with managing each fund to its respective investment objective and within its stated investment strategy, portfolio managers receive information relating to the current tax status of their funds’ holdings in order to assist them as they consider security transactions.

How will shareholders be notified of the estimated and actual capital gains distributions?
Wells Fargo Advantage Funds will post notification regarding projected distribution ranges to wellsfargoadvantagefunds.com on Monday, November 3, 2014.

Wells Fargo Advantage Funds will post notification regarding actual capital gains distribution amounts to wellsfargoadvantagefunds.com on or around the ex-dividend date (December 9 or December 11, 2014, as listed on the tables on previous pages) for each fund

  • Not FDIC Insured
  • No Bank Guarantee
  • May Lose Value

Wells Fargo Advantage Funds

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