Form N-CSRS
Table of Contents

 

LOGO

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM N-CSRS

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21331

Wells Fargo Advantage Multi-Sector Income Fund

(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: October 31, 2011

Date of reporting period: April 30, 2012

 

 

 


Table of Contents

ITEM 1. REPORT TO SHAREHOLDERS


Table of Contents

 

 

 

LOGO

 

Wells Fargo Advantage

Multi-Sector Income Fund

 

LOGO

 

Semi-Annual Report

April 30, 2012

 

This closed-end fund is no longer offered as an initial public offering and is only offered through broker/dealers on the secondary market. A closed-end fund is not required to buy its shares back from investors upon request.

 

LOGO

 


Table of Contents

Reduce clutter. Save trees.

Sign up for electronic delivery of prospectuses and shareholder reports at wellsfargo.com/advantagedelivery

Contents

 

 

 

Letter to Shareholders

    2   

Performance Highlights

    5   

Portfolio of Investments

    8   

Financial Statements

 

Statement of Assets and Liabilities

    27   

Statement of Operations

    28   

Statement of Changes in Net Assets

    29   

Statement of Cash Flows

    30   

Financial Highlights

    31   

Notes to Financial Statements

    32   

Other Information

    39   

Automatic Dividend Reinvestment Plan

    45   

List of Abbreviations

    46   

 

The views expressed and any forward-looking statements are as of April 30, 2012, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements.

 

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE


Table of Contents

 

2   Wells Fargo Advantage Multi-Sector Income Fund   Letter to Shareholders

 

LOGO

Karla M. Rabusch,

President

Wells Fargo Advantage Funds

 

 

The global financial markets throughout most of the past six months may best be defined by the uncertainty about the sustainability of the U.S. economic recovery and ongoing concerns about the Greek debt crisis and the overall health of the eurozone.

 

 

Dear Valued Shareholder:

We’re pleased to offer you this semi-annual report for the Wells Fargo Advantage Multi-Sector Income Fund for the six-month period that ended April 30, 2012.

The global financial markets throughout most of the past six months may best be defined by the uncertainty about the sustainability of the U.S. economic recovery and ongoing concerns about the Greek debt crisis and the overall health of the eurozone. During periods of elevated uncertainty, many global investors sold riskier assets such as high-beta1 equities, commodities, emerging markets securities, and high-yield bonds in preference for the relative safety of U.S. Treasuries. In periods of lower volatility, investor risk tolerance sharply rose and investors sought out the higher yield and return potential of those riskier investments.

During the first several months of 2012, investor sentiment appeared to be more positive and balanced than earlier in the year. This recent shift in sentiment was the result of improvement in the global macroeconomic backdrop, which we believe contributed to a less volatile market environment and more stable earnings growth expectations. These developments seemed to encourage investors to refocus on underlying fundamentals and a longer-term investment perspective, sparking the first-quarter 2012 U.S. equity rally that was led by stocks and sectors that were shunned at times in 2011, notably retail and higher-growth information technology names. In addition, as investors’ risk tolerance increased during the period, corporate bonds, including high-yield bonds, were favored over the relative safety and lower yields offered by U.S. Treasuries.

After struggling in the early part of the six-month period, most global equity markets rallied to post positive total returns on the whole. In fact, during the first three months of 2012, many of the major U.S. equity indexes realized the strongest first-quarter performance in more than 10 years.

During the six-month period, the S&P 500 Index2 and the Russell 3000® Index3 posted returns of 12.77% and 12.74%, respectively, while the Barclays U.S. Aggregate Bond Index4, representing the universe of investment-grade U.S. bonds, posted a total return of 2.44%. By comparison, the Barclays U.S. Corporate High Yield Bond Index5 added 6.91% and the Barclays U.S. Treasury Index6 returned 1.87%.

On the international front, the MSCI EAFE Index7 returned 0.74% during the six-month period, while the BofA Merrill Lynch Global Broad Market Ex. U.S. Index8,

 

 

 

1. Beta measures fund volatility relative to general market movements. It is a standardized measure of systematic risk in comparison to a specified index. The benchmark beta is 1.00 by definition. Beta is based on historical performance and does not represent future results.

 

2. The S&P 500 Index consists of 500 stocks chosen for market size, liquidity, and industry group representation. It is a market-value weighted index with each stock’s weight in the index proportionate to its market value. You cannot invest directly in an index.

 

3.

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.

 

4. The Barclays U.S. Aggregate Bond Index is composed of the Barclays Government/Credit Index and the Mortgage-Backed Securities Index and includes U.S. Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index.

 

5. The Barclays U.S. Corporate High Yield Bond Index is an unmanaged, U.S. dollar denominated, nonconvertible, non-investment grade debt index. The index consists of domestic and corporate bonds rated Ba and below with a minimum outstanding amount of $150 million. You cannot invest directly in an index.

 

6. The Barclays U.S. Treasury Index is an index of U.S. Treasury securities. You cannot invest directly in an index.


Table of Contents

 

Letter to Shareholders   Wells Fargo Advantage Multi-Sector Income Fund     3   

representative of the international investment-grade bond market, returned 0.08%.

Developed global economies regained some momentum during the period.

Developed global economies showed some positive signs during the period, but ongoing credit issues continued to threaten sustainable growth across most of Europe. The U.S. economy, by comparison, showed more consistent upward momentum, but certain areas—namely, the employment situation and the housing market—remained a concern.

The U.S. Bureau of Economic Analysis reported that U.S. gross domestic product (GDP) expanded to an annual growth rate of a 3.0% annualized rate in the fourth quarter of 2011, reigniting hopes of a sustainable U.S. economic recovery. Those hopes were buoyed further by the preliminary estimate of first-quarter 2012 GDP, which showed that growth remains positive, with a 1.9% annual rate. While few economists now believe that the U.S. economy is in danger of sliding back into recession—seen as a possibility at the beginning of the period—many continue to expect a tepid economic growth environment throughout 2012.

Within the eurozone, GDP grew at an annualized rate of 1.5% for 2011, which was modestly weaker from a year earlier when eurozone GDP was reported at an annualized rate of 2.0% in the fourth quarter of 2010. Considering the fiscal challenges that faced European countries throughout 2011—stemming primarily from the re-emergence of the Greek debt crisis—most economists had expected weaker economic conditions in 2011. While several steps have been taken by the International Monetary Fund and the European Central Bank (ECB) to address the ongoing fiscal challenges in Europe, economic conditions within many countries in the eurozone are likely to remain weak throughout 2012.

Central banks across the globe remain committed to accommodative policies.

With inflation seeming to be in check, the U.S. Federal Reserve (Fed) held its target range for the federal funds rate—a proxy for short-term interest rates—steady at 0% to 0.25%. Last summer, the Federal Open Market Committee (FOMC) issued a statement explaining that economic conditions were likely to warrant exceptionally low levels for the federal funds rate through at least mid-2013. That timetable was later revised to late 2014 following the FOMC meeting on January 25, 2012.

The ECB also continued to maintain an accommodative monetary policy throughout the period, primarily in an effort to stave off the contagion risk stemming from the ongoing concerns about the potential of Greece defaulting on its sovereign bonds. Fortunately, Greece received another bailout and was able to restructure its outstanding debt in February 2012, which seemed to alleviate near-term contagion risks and the possibility of the euro currency collapsing. However, the debt agreement did not fully address longer-term structural issues that affect

 

 

 

Developed global economies showed some positive signs during the period, but ongoing credit issues continued to threaten sustainable growth across most of Europe. The U.S. economy, by comparison, showed more consistent upward momentum, but certain areas—namely, the employment situation and the housing market—remained a concern.

 

 

 

 

 

7. The Morgan Stanley Capital International Europe, Australasia, and Far East (“MSCI EAFE”) Index is an unmanaged group of securities widely regarded by investors to be representations of the stock markets of Europe, Australasia, and the Far East. You cannot invest directly in an index. Source: MSCI. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed or produced by MSCI.

 

8. The BofA Merrill Lynch Global Broad Market Ex. U.S. Index tracks the performance of investment grade debt publicly issued in the major domestic and euro bond markets, including sovereign, quasi-government, corporate, securitized and collateralized securities and excludes all securities denominated in US dollars. You cannot invest directly in an index.


Table of Contents

 

4   Wells Fargo Advantage Multi-Sector Income Fund   Letter to Shareholders

not only Greece but several other countries across the eurozone. Recognizing the drag the persistent sovereign debt crisis has had on financial stability across the eurozone, the ECB introduced additional liquidity into the European banking system through its Long-Term Refinancing Operation (LTRO). The LTRO program effectively encourages European banks to buy sovereign bonds of the eurozone governments, helping to push yields lower on bonds from financially fragile countries like Spain and Italy. This type of activity helps reduce the near-term risk that those countries would experience funding issues. From a global credit market perspective, this additional liquidity further aims to help alleviate fears of contagion and may cause risk premiums to decline—we believe an encouraging scenario for equities and high-yield bonds.

Recent events have not altered our message to shareholders.

The heightened volatility across the global financial markets during 2011 and lingering uncertainties about the outlook going forward have left many investors questioning their resolve—and their investments. Yet, it is precisely at such times that the market may present opportunities—as well as challenges—for prudent investors. For many investors, simply building and maintaining a well-diversified9 investment plan focused on clear financial objectives is the best long-term strategy.

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 Web site at wellsfargoadvantagefunds.com, or call us directly at 1-800-222-8222. We are available 24 hours a day, 7 days a week.

Sincerely,

 

LOGO

Karla M. Rabusch

President

Wells Fargo Advantage Funds

 

 

 

 

9. Diversification does not assure or guarantee better performance and cannot eliminate the risk of investment losses.


Table of Contents

 

Performance Highlights (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     5   

Investment objective

The Fund seeks a high level of current income consistent with limiting its overall exposure to domestic interest-rate risk.

Adviser

Wells Fargo Funds Management, LLC

Sub-advisers

First International Advisors, LLC

Wells Capital Management Incorporated

Portfolio managers

Michael Bray, CFA

Christopher Y. Kauffman, CFA

Michael Lee

Niklas Nordenfelt, CFA

Anthony Norris

Alex Perrin

Janet S. Rilling, CFA, CPA

Phillip Susser

Christopher Wightman2

Peter Wilson

Fund inception

June 25, 2003

Average annual total returns1 (%) as of April 30, 2012

 

    6 Months*      1 Year      5 Year      Since
inception
 

Based on market value

    7.07         10.25         8.45         6.96   

Based on net asset value (NAV) per share

    5.62         5.67         8.29         8.32   

 

* Returns for periods of less than one year are not annualized.

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 sales of fund shares. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when sold, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. To obtain performance information current to the most recent month-end, please call 1.800.730.6001.

The Fund’s annualized expense ratio for the six months ended April 30, 2012, is 1.24%. Expense ratio includes 0.15% of interest expense.

 

Comparison of NAV vs. market value since inception3

LOGO

 

The Fund is leveraged through a secured debt borrowing facility and may issue preferred shares. The use of leverage results in certain risks including, among others, the likelihood of greater volatility of net asset value and the market price of common shares. 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. Derivatives involve additional risks including interest rate risk, credit risk, the risk of improper valuation and the risk of non-correlation to the relevant instruments they are designed to hedge or to closely track. Bond fund values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond fund values fall and investors may lose principal value. High-yield securities have a greater risk of default and tend to be more volatile than higher-rated debt securities. This Fund is exposed to mortgage- and asset-backed securities risk.

 

 

1. Total returns based on market value are calculated assuming a purchase of common stock at the closing market price prior to the first day’s opening market price and a sale at the last day’s closing market price for the period reported. Total returns based on NAV are calculated based on the NAV at the beginning of the period and end of period. Dividends and distributions are assumed for the purposes of these calculations to be reinvested at prices obtained under the Fund’s Automatic Dividend Reinvestment Plan. Total return do not reflect brokerage commissions or sales charges. If these charges were included, the returns would be lower.

 

2. Effective June 29, 2012, Christopher Wightman became a Portfolio Manager of the Fund.

 

3. This chart does not reflect any brokerage commissions or sales charges.


Table of Contents

 

6   Wells Fargo Advantage Multi-Sector Income Fund   Performance Highlights (Unaudited)

MANAGER’S DISCUSSION

Strategy

The fear of a double-dip U.S. economic recession and a contagion resulting from the ongoing European debt crisis that was priced into the global financial market in late summer 2011 has lessened—for now. Much of the fear surrounding the potential of cascading bank failures in Europe was removed in December 2011 when the European Central Bank (ECB)

initiated its Long-Term Refinancing Operation (LTRO). Since then, Greece has, thus far, avoided a disorderly default, and the ECB’s LTRO have proved successful in providing liquidity to the banking system, helping to roll over sizable positions of maturing unsecured debt while also encouraging European banks to buy sovereign bonds. The primary beneficiaries have been “risk assets” such as U.S. equities and high-yield bonds.

During the six-month period, the international/emerging markets fixed-income portion of the Fund moved from a global (excluding U.S.) aggregate style to a more income-oriented style focusing on local developed and emerging markets with higher relative yields and stronger fundamentals. This repositioning had a positive effect on the Fund as emerging markets debt outperformed developed market bonds during the period.

The U.S. high-yield corporate bond market, as measured by the BofA Merrill Lynch U.S. High-Yield Master II Blended Index4, posted a six-month total return of 6.45%, buoyed by a strong U.S. equity market and steady improvement of U.S. economic conditions.

The mortgage/corporate sleeve continued to invest in adjustable-rate mortgage-backed securities but also began to invest in investment-grade corporate bonds and fixed-rate mortgages—including mortgage-backed securities, asset-backed securities, and collateralized mortgage obligations. Within the mortgage and corporate bond markets, higher-beta sectors, such as financials and commercial mortgage-backed securities (CMBS), were the best-performing areas as market sentiment toward risk assets improved.

Ten largest holdings5 as of April 30, 2012       

Poland, 5.25%, 10/25/2020

     2.70%   

Mexico, 7.25%, 12/15/2016

     2.38%   

Brazil, 12.50%, 01/05/2016

     2.37%   

Russia, 7.85%, 03/10/2018

     2.34%   

Mexico, 8.50%, 11/15/2038

     2.09%   

FHLMC, 2.40%, 04/01/2034

     1.98%   

Brazil, 12.50%, 01/05/2022

     1.94%   

South Africa, 8.25%, 09/15/2017

     1.93%   

FNMA, 2.49%, 10/01/2034

     1.57%   

Columbia, 7.75%, 04/14/2021

     1.51%   

 

Credit quality6 as of April 30, 2012
LOGO

 

Effective maturity distribution7 as of April 30, 2012
LOGO

 

 

4. The BofA Merrill Lynch U.S. High Yield Master II Blended Index is a market value-weighted index of all domestic and Yankee high-yield bonds, including deferred interest bonds and payment-in kind securities. Issues included in the index have maturities of one year or more and have a credit rating lower than BBB-/Baa3, but are not in default. The BofA Merrill Lynch U.S. High Yield Master II Blended Index limits any individual issuer to a maximum of 2% benchmark exposure. You cannot invest directly in an index

 

5. 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.

 

6. The ratings indicated are from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit Quality Ratings: Credit quality ratings apply to underlying holdings of the Fund and not the Fund itself. Standard & Poor’s rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Ratings from A to CCC may be modified by the addition of a plus (+) or minus (–) sign to show relative standing within the rating categories. Standard & Poor’s rates the creditworthiness of short-term notes from SP-1 (highest) to SP-3 (lowest). Moody’s rates the creditworthiness of bonds, ranging from Aaa (highest) to C (lowest). Ratings Aa to B may be modified by the addition of a number 1 (highest) to 3 (lowest) to show relative standing within the ratings categories. Moody’s rates the creditworthiness of short-term U.S. tax-exempt municipal securities from MIG 1/VMIG 1 (highest) to SG (lowest). Fitch rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). If a security was rated by all three rating agencies, the middle rating was utilized. If rated by two of three rating agencies, the lower rating was utilized and if rated by one of the agencies that rating was utilized. Credit quality is subject to change and is calculated based on the total investments of the Fund.

 

7. Percentages are subject to change and are calculated based on the total long-term investments of the Fund.


Table of Contents

 

Performance Highlights (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     7   
Country allocation7 as of April 30, 2012
LOGO

Contributors to performance

The international/emerging markets bond allocation benefited from an overweight to emerging markets debt and an underweight to sovereign debt. Specifically, concentrations in the bond markets of Australia, Brazil, Hungary, Poland, and Russia were contributors to performance.

The U.S. high-yield bond portion of the Fund benefited from individual credit selection, specifically benefiting from strong market demand for fundamentally sound credits that continue to offer compelling yields.

 

 

The mortgage/corporate credit sleeve’s focus on credits rated A or BBB added value as lower-rated credits outperformed the highest-quality credits, AAA- and AA-rated, in the period. The sleeve’s exposure to CMBS and financial credits also contributed to returns.

Detractors from performance

The international/emerging markets exposures to the Australian dollar, Brazilian real, Indonesian rupiah, and Korean won detracted from performance. The U.S. high-yield allocation’s preference for BB- and B-rated credits over CCC- and lower-rated bonds detracted from performance, as the lower-quality credit tiers performed best. While floating-rate bank loans posted positive returns during the quarter, they underperformed the broad high-yield bond market. Consequently, the Fund’s increased exposure to bank loans was a drag on performance.

Management outlook

Consensus forecasts for global economic growth—particularly into 2013—have firmed up further. Inflationary expectations remain benign and central banks around the globe retain highly accommodative stances. All of these factors have combined to help equity markets, nongovernment bonds, and select currencies recover from their late-November 2011 lows. With a partial resolution to the European Economic and Monetary Union debt crisis—or at least a delay of the problems until a later date—it looks as if the current strong market can continue through the spring and into the summer. A background of political stability will also remain an important requirement. Against this backdrop, the international/emerging markets portion of the Fund will continue to emphasize emerging markets debt and select developed markets such as Australia and New Zealand.

The U.S. economy is ideal for U.S. high yield, as it shows signs of steady improvement yet is weak enough to encourage extraordinarily accommodative monetary policy. Based on our assessment, although absolute yields remain low, yield spreads are still compensatory for the near- and medium-term default risk. If the Fed were to end some of its liquidity-enhancing programs and let markets have a greater influence on pricing, we would expect rates to rise rather quickly. Rising rates affect pricing across all asset classes, and high yield would likely experience higher average yields as a result. In this environment, the U.S. high-yield fixed-income team will remain focused on bottom-up credit analysis and individual issue selection to manage downside risk while maintaining its allocation toward floating-rate bank loans.

A gradual improvement in U.S. economic conditions remains the mortgage/corporate credit management team’s base-case scenario for 2012. Risks to our outlook include the chance of a further spike in energy prices and the political uncertainty associated with the U.S. presidential and congressional elections in November. Against the backdrop of the uncertainty of an election year, it is reasonable to question how much progress will be made toward eliminating or reducing the inevitable impact of fiscal headwinds in January 2013. Some estimate as much as a 4% GDP drag if the 2001 and 2003 tax cuts are allowed to expire and the automatic spending cuts, as legislated in the Budget Control Act of 2011, are allowed to go into effect beginning in 2013. Clearly this is a material risk, and market participants are understandably anxious about it. In this environment, the team will continue to emphasize CMBS and nonagency mortgages relative to adjustable-rate mortgage securities.


Table of Contents

 

8   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Agency Securities: 10.00%          

FHLB ±

    2.41     12/01/2034       $ 6,523,269       $ 6,897,006   

FHLMC ±

    2.40        04/01/2034             12,928,686         13,696,261   

FHLMC

    8.50        04/01/2015         11,344         11,484   

FHLMC

    8.50        07/01/2028         120,829         148,446   

FHLMC

    8.50        03/01/2030         67,590         71,333   

FHLMC Series 0196 Class A ±

    1.05        12/15/2021         80,651         81,691   

FHLMC Series 1383 ±

    5.81        02/01/2037         1,680,084         1,806,506   

FHLMC Series 2011-K16 Class B ±144A

    4.59        11/25/2046         1,000,000         997,853   

FHLMC Series 2012-K17 Class B ±144A

    4.50        12/25/2044         500,000         490,930   

FHLMC Series 2012-K501 Class C ±

    3.49        11/25/2046         800,000         759,406   

FHLMC Series 2012-K705 Class B ±144A

    4.31        09/25/2044         1,000,000         1,012,614   

FHLMC Series 2012-K706 Class B ±144A

    4.02        11/25/2044         500,000         501,007   

FHLMC Series 2012-K706 Class C ±144A

    4.02        11/25/2044         450,000         406,700   

FHLMC Series 2012-K707 Class B ±144A

    3.88        01/25/2047         930,000         908,753   

FHLMC Series 2390 Class FD ±

    0.69        12/15/2031         72,792         73,079   

FHLMC Series 2411 Class F ±

    0.79        02/15/2032         104,613         105,327   

FHLMC Series 2567 Class FH ±

    0.64        02/15/2033         176,974         177,180   

FNMA ±

    2.13        12/01/2035         1,464,922         1,527,047   

FNMA ±

    2.30        08/01/2036         1,995,247         2,079,866   

FNMA ±

    2.49        10/01/2034         10,187,735         10,833,075   

FNMA ±

    2.50        06/01/2038         3,301,540         3,517,425   

FNMA ±

    2.58        01/01/2038         2,747,988         2,833,823   

FNMA ±

    2.63        04/01/2036         1,608,095         1,676,195   

FNMA ±

    2.69        05/01/2036         845,947         880,184   

FNMA ±

    2.71        07/01/2036         1,214,062         1,290,903   

FNMA ±

    4.21        02/01/2035         4,955,539         5,289,013   

FNMA ±

    4.75        09/01/2032         2,231,086         2,384,129   

FNMA ±

    4.86        04/01/2034         2,644,641         2,780,004   

FNMA

    6.00        04/01/2033         187,514         210,199   

FNMA ±

    6.26        09/01/2037         1,958,505         2,135,702   

FNMA

    6.50        11/01/2032         65,527         75,542   

FNMA

    7.50        07/01/2017         96,207         105,458   

FNMA

    7.50        10/01/2028         11,894         11,922   

FNMA

    7.50        11/01/2028         162,921         177,122   

FNMA

    7.50        02/01/2030         42,829         43,637   

FNMA

    7.50        09/01/2030         99,635         107,810   

FNMA

    8.00        12/01/2024         7,239         7,324   

FNMA

    8.00        06/01/2030         34,878         35,667   

FNMA

    12.00        01/01/2016         13,261         14,789   

FNMA Series 1996-46 Class FA ±

    0.75        08/25/2021         48,131         48,324   

FNMA Series 2001-25 Class Z

    6.00        06/25/2031         488,679         551,215   

FNMA Series 2001-35 Class F ±

    0.84        07/25/2031         22,481         22,660   

FNMA Series 2001-57 Class F ±

    0.74        06/25/2031         22,633         22,743   

FNMA Series 2001-T10 Class A2

    7.50        12/25/2041         220,100         255,380   

FNMA Series 2002-77 Class FH ±

    0.64        12/18/2032         157,575         157,912   

FNMA Series 2002-97 Class FR ±

    0.79        01/25/2033         48,200         48,275   

FNMA Series 2003-W8 Class 3F2 ±

    0.59        05/25/2042         1,027,747         1,027,954   

FNMA Series G91-16 Class F ±

    0.70        06/25/2021         52,875         53,045   

FNMA Series G92-17 Class F ±

    1.30        03/25/2022         115,421         117,474   

GNMA

    6.50        06/15/2028         70,415         82,232   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     9   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Agency Securities (continued)          

GNMA

    7.25     07/15/2017       $ 34,683       $ 38,157   

GNMA

    7.25        08/15/2017         53,510         59,191   

GNMA

    7.25        08/15/2017         27,883         30,753   

GNMA

    7.25        08/15/2017         14,345         15,916   

GNMA

    7.25        09/15/2017         40,201         44,635   

GNMA

    7.25        10/15/2017         76,420         84,492   

GNMA

    7.25        10/15/2017         44,500         49,062   

GNMA

    7.25        11/15/2017         35,632         39,157   

GNMA

    7.25        01/15/2018         12,682         14,046   

GNMA

    7.25        01/15/2018         29,457         32,743   

GNMA

    7.25        02/15/2018         30,074         33,396   

GNMA

    7.25        05/15/2018         15,601         17,097   

Total Agency Securities (Cost $66,302,596)

            69,008,271   
         

 

 

 
Asset-Backed Securities: 0.11%          

CVS Pass-Through Trust Series T

    6.04        12/10/2028         646,432         723,383   
         

 

 

 

Total Asset-Backed Securities (Cost $723,654)

            723,383   
         

 

 

 
                 Shares         
Common Stocks: 0.05%          

Consumer Discretionary: 0.00%

         
Hotels, Restaurants & Leisure: 0.00%          

Trump Entertainment Resorts Incorporated †

         1,161         5,225   
         

 

 

 

Telecommunication Services: 0.05%

         
Diversified Telecommunication Services: 0.05%          

Fairpoint Communications Incorporated †

         70,442         326,146   
         

 

 

 

Total Common Stocks (Cost $1,617,838)

            331,371   
         

 

 

 
                 Principal         
Convertible Debentures: 0.16%          

Information Technology: 0.16%

         
Communications Equipment: 0.16%          

Lucent Technologies Incorporated Series B

    2.88        06/15/2025       $ 1,145,000         1,130,688   
         

 

 

 

Total Convertible Debentures (Cost $765,113)

            1,130,688   
         

 

 

 

Corporate Bonds and Notes: 55.47%

         

Consumer Discretionary: 11.54%

         
Auto Components: 0.94%          

Allison Transmission Incorporated 144A

    7.13        05/15/2019             3,050,000         3,194,875   

Cooper Tire & Rubber Company

    7.63        03/15/2027         1,895,000         1,876,050   

Cooper Tire & Rubber Company

    8.00        12/15/2019         450,000         487,125   

Goodyear Tire & Rubber Company

    7.00        05/15/2022         400,000         397,000   

Goodyear Tire & Rubber Company

    8.75        08/15/2020         468,000         508,950   
            6,464,000   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

10   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Diversified Consumer Services: 1.36%          

Carriage Services Incorporated

    7.88     01/15/2015       $     1,795,000       $     1,821,925   

Service Corporation International

    6.75        04/01/2016         475,000         515,375   

Service Corporation International

    7.00        06/15/2017         1,610,000         1,795,150   

Service Corporation International

    7.00        05/15/2019         650,000         694,688   

Service Corporation International

    7.50        04/01/2027         3,965,000         4,004,650   

Service Corporation International

    8.00        11/15/2021         475,000         542,688   
            9,374,476   
         

 

 

 
Hotels, Restaurants & Leisure: 3.05%          

Ameristar Casinos Incorporated

    7.50        04/15/2021         2,150,000         2,273,625   

Burger King Corporation

    9.88        10/15/2018         850,000         965,813   

CCM Merger Incorporated 144A

    9.13        05/01/2019         1,050,000         1,067,063   

Chukchansi Economic Development Authority ±144A

    4.16        11/15/2012         1,375,000         1,000,313   

CityCenter Holdings LLC

    7.63        01/15/2016         175,000         185,500   

CityCenter Holdings LLC 144A

    7.63        01/15/2016         1,000,000         1,057,500   

CityCenter Holdings LLC ¥

    11.50        01/15/2017         1,138,307         1,263,521   

DineEquity Incorporated

    9.50        10/30/2018         3,475,000         3,839,875   

Greektown Superholdings

    13.00        07/01/2015         4,125,000         4,552,969   

NAI Entertainment Holdings LLC 144A

    8.25        12/15/2017         1,800,000         1,984,500   

Scientific Games Corporation

    9.25        06/15/2019         485,000         537,138   

Speedway Motorsports Incorporated

    6.75        02/01/2019         225,000         235,125   

Speedway Motorsports Incorporated

    8.75        06/01/2016         950,000         1,035,500   

William Hill plc

    7.13        11/11/2016         396,000         694,082   

Yonkers Racing Corporation 144A

    11.38        07/15/2016         325,000         349,781   
            21,042,305   
         

 

 

 
Household Durables: 0.07%          

American Greetings Corporation

    7.38        12/01/2021         475,000         494,000   
         

 

 

 
Internet & Catalog Retail: 0.11%          

Expedia Incorporated

    5.95        08/15/2020         750,000         783,653   
         

 

 

 
Media: 4.79%          

Cablevision Systems Corporation

    8.63        09/15/2017         1,310,000         1,437,725   

CBS Corporation

    8.88        05/15/2019         750,000         999,226   

CCH II Capital LLC

    13.50        11/30/2016         7,535,929         8,515,600   

Cinemark USA Incorporated

    7.38        06/15/2021         775,000         837,000   

Cinemark USA Incorporated

    8.63        06/15/2019         350,000         388,938   

CSC Holdings LLC

    7.88        02/15/2018         1,100,000         1,221,000   

CSC Holdings LLC

    8.50        04/15/2014         400,000         441,000   

DIRECTV Holdings LLC 144A

    3.80        03/15/2022         750,000         746,120   

DISH DBS Corporation

    7.88        09/01/2019         480,000         555,600   

EchoStar DBS Corporation

    6.63        10/01/2014         1,000,000         1,085,000   

EchoStar DBS Corporation

    7.13        02/01/2016         125,000         138,438   

EchoStar DBS Corporation

    7.75        05/31/2015         350,000         393,750   

Gray Television Incorporated

    10.50        06/29/2015         3,600,000         3,780,000   

Interactive Data Corporation

    10.25        08/01/2018         1,250,000         1,412,500   

Interpublic Group of Companies

    4.00        03/15/2022         750,000         749,168   

Lamar Media Corporation 144A

    5.88        02/01/2022         225,000         231,188   

Lamar Media Corporation

    7.88        04/15/2018         575,000         628,906   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     11   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Media (continued)          

Lamar Media Corporation Series C

    9.75     04/01/2014       $ 500,000       $ 565,625   

LIN Television Corporation

    8.38        04/15/2018         925,000         959,688   

National CineMedia LLC 144A

    6.00        04/15/2022         775,000         788,563   

National CineMedia LLC

    7.88        07/15/2021         650,000         700,375   

Regal Cinemas Corporation

    8.63        07/15/2019         2,650,000         2,915,000   

Salem Communications Corporation

    9.63        12/15/2016         2,516,000         2,792,760   

Time Warner Cable Incorporated

    4.00        01/15/2022         750,000         787,331   
            33,070,501   
         

 

 

 
Specialty Retail: 0.93%          

Advance Auto Parts Incorporated

    4.50        01/15/2022         600,000         631,957   

Gap Incorporated

    5.95        04/12/2021         600,000         620,001   

Limited Brands Incorporated

    6.63        04/01/2021         800,000         864,000   

Macys Retail Holdings Incorporated

    3.88        01/15/2022         600,000         617,331   

RadioShack Corporation

    6.75        05/15/2019         1,800,000         1,341,000   

Rent-A-Center Incorporated

    6.63        11/15/2020         375,000         391,875   

Toys R Us Property Company LLC

    8.50        12/01/2017         1,905,000         1,981,200   
            6,447,364   
         

 

 

 
Textiles, Apparel & Luxury Goods: 0.29%          

Oxford Industries Incorporated

    11.38        07/15/2015         1,865,000         2,007,225   
         

 

 

 

Consumer Staples: 0.69%

         
Food & Staples Retailing: 0.09%          

SABMiller Holdings Incorporated 144A

    3.75        01/15/2022         600,000         623,601   
         

 

 

 
Food Products: 0.49%          

Darling International Incorporated

    8.50        12/15/2018         125,000         140,156   

Dole Food Company Incorporated

    13.88        03/15/2014         1,452,000         1,658,910   

Smithfield Foods Incorporated

    10.00        07/15/2014         1,370,000         1,602,900   
            3,401,966   
         

 

 

 
Tobacco: 0.11%          

Lorillard Tobacco Company

    6.88        05/01/2020         650,000         770,776   
         

 

 

 

Energy: 8.55%

         
Energy Equipment & Services: 1.73%          

Bristow Group Incorporated

    7.50        09/15/2017             1,585,000         1,656,325   

Cleaver-Brooks Incorporated 144A

    12.25        05/01/2016         630,000         668,588   

Dresser Rand Group Incorporated

    6.50        05/01/2021         925,000         966,625   

Gulfmark Offshore Incorporated 144A

    6.38        03/15/2022         1,875,000         1,912,500   

Hornbeck Offshore Services Incorporated Series B

    8.00        09/01/2017         2,230,000         2,408,400   

Oil States International Incorporated

    6.50        06/01/2019         1,230,000         1,300,725   

Parker Drilling Company

    9.13        04/01/2018         460,000         487,600   

PHI Incorporated

    8.63        10/15/2018         2,500,000         2,562,500   
            11,963,263   
         

 

 

 
Oil, Gas & Consumable Fuels: 6.82%          

Chesapeake Energy Corporation

    9.50        02/15/2015         2,250,000         2,452,500   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

12   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Oil, Gas & Consumable Fuels (continued)          

Coffeyville Resources LLC 144A

    9.00     04/01/2015       $ 932,000       $ 994,910   

Coffeyville Resources LLC 144A

    10.88        04/01/2017         1,350,000         1,522,125   

Crestwood Midstream Part Company 144A

    7.75        04/01/2019         675,000         686,813   

Denbury Resources Incorporated

    6.38        08/15/2021         350,000         371,000   

Denbury Resources Incorporated

    8.25        02/15/2020         425,000         473,875   

El Paso Corporation

    6.50        04/01/2020         750,000         861,087   

El Paso Corporation

    6.50        09/15/2020         445,000         492,619   

El Paso Corporation

    7.00        06/15/2017         525,000         590,323   

El Paso Corporation

    7.25        06/01/2018         1,610,000         1,841,603   

El Paso Corporation

    7.42        02/15/2037         800,000         847,266   

El Paso Corporation

    7.80        08/01/2031         1,850,000         2,107,907   

Encore Acquisition Company

    9.50        05/01/2016         375,000         412,500   

Energy Transfer Equity LP

    7.50        10/15/2020         3,100,000         3,433,250   

Energy Transfer Partners LP

    5.20        02/01/2022         750,000         801,593   

Ferrellgas Finance Corporation

    9.13        10/01/2017         2,325,000         2,447,063   

Forest Oil Corporation

    7.25        06/15/2019         1,345,000         1,328,188   

Forest Oil Corporation

    8.50        02/15/2014         535,000         575,125   

Holly Corporation

    9.88        06/15/2017         1,895,000         2,122,400   

Inergy Holdings LP

    6.88        08/01/2021         421,000         425,210   

Inergy Holdings LP

    7.00        10/01/2018         500,000         512,500   

Kinder Morgan Energy Partners LP

    3.95        09/01/2022         750,000         754,787   

Nabors Industries Incorporated

    4.63        09/15/2021         750,000         795,739   

NGPL PipeCo LLC 144A

    7.12        12/15/2017         375,000         362,550   

NGPL PipeCo LLC 144A

    7.77        12/15/2037         2,300,000         2,070,952   

Overseas Shipholding Group

    7.50        02/15/2024         800,000         536,000   

Petrohawk Energy Corporation

    7.88        06/01/2015         790,000         829,500   

Petrohawk Energy Corporation

    10.50        08/01/2014         495,000         549,450   

Phillips 66 144A

    4.30        04/01/2022         625,000         651,461   

Pioneer Natural Resources Company

    7.50        01/15/2020         1,220,000         1,502,939   

Plains Exploration & Production Company

    8.63        10/15/2019             2,885,000         3,245,625   

Regency Energy Partners

    6.88        12/01/2018         250,000         265,000   

Rockies Express Pipeline 144A

    5.63        04/15/2020         400,000         360,000   

Rockies Express Pipeline 144A

    6.88        04/15/2040         650,000         542,750   

Sabine Pass LNG LP

    7.25        11/30/2013         2,265,000         2,372,588   

Sabine Pass LNG LP

    7.50        11/30/2016         3,250,000         3,485,625   

Susser Holdings LLC

    8.50        05/15/2016         975,000         1,067,625   

Tesoro Corporation

    9.75        06/01/2019         945,000         1,074,938   

Weatherford International Incorporated

    6.35        06/15/2017         650,000         755,360   

Western Gas Partners LP

    5.38        06/01/2021         503,000         548,798   
            47,071,544   
         

 

 

 

Financials: 14.22%

         
Capital Markets: 0.90%          

E*TRADE Financial Corporation

    12.50        11/30/2017         4,291,000         4,999,015   

Oppenheimer Holdings Incorporated

    8.75        04/15/2018         1,225,000         1,243,375   
            6,242,390   
         

 

 

 
Commercial Banks: 1.20%          

CIT Group Incorporated 144A

    4.75        02/15/2015         1,475,000         1,504,500   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     13   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Commercial Banks (continued)          

CIT Group Incorporated 144A

    5.25     04/01/2014       $ 750,000       $ 772,500   

CIT Group Incorporated

    5.25        03/15/2018         500,000         515,000   

CIT Group Incorporated 144A

    5.50        02/15/2019         1,275,000         1,310,063   

Emigrant Bancorp Incorporated 144A

    6.25        06/15/2014         2,925,000         2,661,563   

HSBC Bank USA

    6.00        08/09/2017         650,000         726,970   

Royal Bank of Scotland plc

    4.38        03/16/2016         750,000         765,017   
            8,255,613   
         

 

 

 
Consumer Finance: 7.55%          

Ally Financial Incorporated

    5.50        02/15/2017         750,000         766,363   

Ally Financial Incorporated

    6.75        12/01/2014         1,298,000         1,369,390   

Ally Financial Incorporated

    6.88        08/28/2012         1,244,000         1,259,550   

Ally Financial Incorporated

    7.50        12/31/2013         3,620,000         3,864,350   

Ally Financial Incorporated

    8.30        02/12/2015         2,055,000         2,255,363   

American General Finance Corporation

    5.40        12/01/2015         1,625,000         1,389,375   

American General Finance Corporation

    5.75        09/15/2016         1,100,000         904,750   

American General Finance Corporation

    6.50        09/15/2017         200,000         162,000   

Calpine Construction Finance Corporation 144A

    7.25        10/15/2017         4,800,000         5,124,000   

Calpine Construction Finance Corporation 144A

    8.00        06/01/2016         1,375,000         1,491,875   

Clearwire Communications Finance Corporation 144A

    12.00        12/01/2015         940,000         867,150   

Clearwire Communications Finance Corporation 144A

    12.00        12/01/2015         1,450,000         1,337,625   

Ford Motor Credit Company LLC

    5.00        05/15/2018         650,000         702,225   

Ford Motor Credit Company LLC

    8.00        12/15/2016         250,000         298,561   

General Motors Financial Company Incorporated

    6.75        06/01/2018         1,150,000         1,224,479   

Homer City Funding LLC

    8.73        10/01/2026         1,235,276         1,181,233   

International Lease Finance Corporation

    6.38        03/25/2013         460,000         471,500   

International Lease Finance Corporation 144A

    6.75        09/01/2016         100,000         108,000   

International Lease Finance Corporation 144A

    7.13        09/01/2018         75,000         82,500   

International Lease Finance Corporation

    8.63        09/15/2015         900,000         996,750   

JBS USA Finance Incorporated

    11.63        05/01/2014             3,745,000         4,306,750   

Level 3 Financing Incorporated

    10.00        02/01/2018         2,010,000         2,200,950   

Local TV Finance LLC 144A ¥

    9.25        06/15/2015         2,825,000         2,909,750   

Nielsen Finance LLC Company

    7.75        10/15/2018         5,100,000         5,635,500   

Nielsen Finance LLC Company

    11.50        05/01/2016         601,000         694,155   

Springleaf Finance Corporation

    6.90        12/15/2017         3,745,000         3,056,856   

Sprint Capital Corporation

    6.88        11/15/2028         7,885,000         5,894,038   

Sprint Capital Corporation

    8.75        03/15/2032         1,855,000         1,572,113   
            52,127,151   
         

 

 

 
Diversified Financial Services: 1.91%          

Bank of America Corporation

    3.70        09/01/2015         650,000         654,475   

Blackstone Holdings Finance Company LLC 144A

    5.88        03/15/2021         500,000         523,388   

Citigroup Incorporated

    6.00        08/15/2017         650,000         720,252   

Discover Financial Services 144A

    5.20        04/27/2022         750,000         750,942   

General Electric Capital Corporation

    4.65        10/17/2021         650,000         706,287   

General Electric Capital Corporation

    7.63        12/10/2014         2,000,000         1,761,459   

Moody’s Corporation

    5.50        09/01/2020         1,302,000         1,389,367   

Neuberger Berman Group LLC 144A

    5.63        03/15/2020         500,000         507,500   

Neuberger Berman Group LLC 144A

    5.88        03/15/2022         650,000         661,375   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

14   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Diversified Financial Services (continued)          

Nuveen Investments Incorporated

    5.50     09/15/2015       $ 2,950,000       $ 2,684,500   

Nuveen Investments Incorporated

    10.50        11/15/2015         1,975,000         2,039,188   

Samson Investment Company 144A

    9.75        02/15/2020         725,000         756,719   
            13,155,452   
         

 

 

 
Insurance: 0.84%          

Berkley Corporation

    4.63        03/15/2022         650,000         660,376   

Hartford Financial Services Group

    5.13        04/15/2022         650,000         656,118   

Hub International Holdings Incorporated 144A

    10.25        06/15/2015         3,375,000         3,450,938   

Prudential Covered Trust Company 144A

    3.00        09/30/2015         480,000         486,672   

USI Holdings Corporation 144A

    9.75        05/15/2015         525,000         530,906   
            5,785,010   
         

 

 

 
REITs: 1.82%          

Alexandria Real Estate Company

    4.60        04/01/2022         650,000         652,321   

Dupont Fabros Technology Incorporated

    8.50        12/15/2017             5,560,000         6,129,900   

Health Care Incorporated

    5.25        01/15/2022         650,000         687,775   

Host Hotels & Resorts LP

    9.00        05/15/2017         235,000         260,850   

MPT Operating Partnership LP

    6.88        05/01/2021         775,000         809,875   

Omega Healthcare Investors Incorporated

    6.75        10/15/2022         1,775,000         1,863,750   

Ventas Incorporated

    4.25        03/01/2022         650,000         643,612   

Ventas Incorporated

    9.00        05/01/2012         859,000         859,000   

WEA Finance LLC 144A

    4.63        05/10/2021         650,000         673,374   
            12,580,457   
         

 

 

 

Health Care: 2.63%

         
Health Care Equipment & Supplies: 0.34%          

Biomet Incorporated ¥

    10.38        10/15/2017         540,000         583,875   

Boston Scientific Corporation

    6.00        01/15/2020         750,000         875,390   

CareFusion Corporation

    6.38        08/01/2019         750,000         886,718   
            2,345,983   
         

 

 

 
Health Care Providers & Services: 1.87%          

Apria Healthcare Group Incorporated

    11.25        11/01/2014         590,000         613,600   

Aristotle Holding Incorporated 144A

    3.90        02/15/2022         665,000         683,897   

Aviv Healthcare Properties LP

    7.75        02/15/2019         1,025,000         1,066,000   

Centene Corporation

    5.75        06/01/2017         1,000,000         1,016,250   

Community Health Systems Incorporated

    8.88        07/15/2015         422,000         435,715   

Coventry Health Care Incorporated

    5.45        06/15/2021         750,000         846,231   

Emergency Medical Services Corporation

    8.13        06/01/2019         425,000         435,625   

HCA Incorporated

    5.88        03/15/2022         425,000         431,906   

HCA Incorporated

    6.50        02/15/2020         1,875,000         2,006,250   

HCA Incorporated

    7.50        11/15/2095         800,000         629,000   

HCA Incorporated

    8.50        04/15/2019         375,000         420,703   

Health Management Associates Incorporated

    6.13        04/15/2016         175,000         183,750   

HealthSouth Corporation

    7.25        10/01/2018         400,000         424,000   

HealthSouth Corporation

    7.75        09/15/2022         400,000         431,000   

Humana Incorporated

    7.20        06/15/2018         750,000         905,424   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     15   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Health Care Providers & Services (continued)          

MPT Operating Partnership LP

    6.38     02/15/2022       $ 475,000       $ 477,375   

PSS World Medical Incorporated 144A

    6.38        03/01/2022         250,000         256,250   

Sabra Health Care LP

    8.13        11/01/2018         1,450,000         1,542,438   

Tenet Healthcare Corporation

    10.00        05/01/2018         75,000         86,625   
            12,892,039   
         

 

 

 
Life Sciences Tools & Services: 0.13%          

Life Technologies Corporation

    6.00        03/01/2020         750,000         871,629   
         

 

 

 
Pharmaceuticals: 0.29%          

Mylan Incorporated 144A

    6.00        11/15/2018         725,000         761,250   

Mylan Incorporated 144A

    7.63        07/15/2017         375,000         415,313   

Mylan Incorporated 144A

    7.88        07/15/2020         775,000         868,000   
            2,044,563   
         

 

 

 

Industrials: 2.85%

         
Aerospace & Defense: 0.82%          

Alliant Techsystems Incorporated

    6.75        04/01/2016             1,980,000         2,027,025   

GeoEye Incorporated

    9.63        10/01/2015         485,000         531,075   

Hexcel Corporation

    6.75        02/01/2015         480,000         484,800   

L-3 Communications Corporation Incorporated

    4.95        02/15/2021         750,000         802,118   

L-3 Communications Holdings Incorporated

    6.38        10/15/2015         1,379,000         1,411,751   

TransDigm Group Incorporated

    7.75        12/15/2018         375,000         408,750   
            5,665,519   
         

 

 

 
Commercial Services & Supplies: 1.29%          

Casella Waste Systems Incorporated

    11.00        07/15/2014         1,945,000         2,090,875   

Corrections Corporation of America

    7.75        06/01/2017         1,270,000         1,377,950   

Covanta Energy Corporation

    6.38        10/01/2022         225,000         231,324   

Crown Cork & Seal Company Incorporated

    7.50        12/15/2096         600,000         508,500   

Geo Group Incorporated

    7.75        10/15/2017         1,450,000         1,566,000   

Interface Incorporated

    7.63        12/01/2018         125,000         135,000   

Iron Mountain Incorporated

    6.75        10/15/2018         250,000         330,925   

Iron Mountain Incorporated

    8.38        08/15/2021         1,385,000         1,509,650   

KAR Holdings Incorporated ±

    4.55        05/01/2014         1,150,000         1,147,125   
            8,897,349   
         

 

 

 
Machinery: 0.63%          

Columbus McKinnon Corporation

    7.88        02/01/2019         725,000         768,500   

CPM Holdings Incorporated

    10.63        09/01/2014         1,315,000         1,420,200   

Titan International Incorporated

    7.88        10/01/2017         375,000         397,500   

UR Financing Escrow Corporation 144A

    5.75        07/15/2018         1,685,000         1,739,763   
            4,325,963   
         

 

 

 
Professional Services: 0.08%          

Verisk Analytics Incorporated

    5.80        05/01/2021         530,000         576,293   
         

 

 

 
Road & Rail: 0.03%          

RailAmerica Incorporated

    9.25        07/01/2017         166,000         173,885   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

16   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         

Information Technology: 4.57%

         
Communications Equipment: 0.33%          

Allbritton Communications Company

    8.00     05/15/2018       $ 1,275,000       $ 1,357,875   

Lucent Technologies Incorporated

    6.45        03/15/2029         1,285,000         941,263   
            2,299,138   
         

 

 

 
Computers & Peripherals: 0.35%          

Hewlett Packard Company

    4.05        09/15/2022         750,000         756,106   

Seagate Technology HDD Holdings

    6.88        05/01/2020         300,000         321,750   

Seagate Technology HDD Holdings

    7.75        12/15/2018         1,225,000         1,350,563   
            2,428,419   
         

 

 

 
Electronic Equipment, Instruments & Components: 1.63%          

CDW Financial Corporation

    12.54        10/12/2017         725,000         790,250   

GCI Incorporated

    6.75        06/01/2021         575,000         580,750   

GCI Incorporated

    8.63        11/15/2019         2,125,000         2,337,500   

Jabil Circuit Incorporated

    8.25        03/15/2018         5,275,000         6,145,375   

Viasystem Group Incorporated 144A

    12.00        01/15/2015         1,285,000         1,384,588   
            11,238,463   
         

 

 

 
Internet Software & Services: 0.19%          

Equinix Incorporated

    7.00        07/15/2021         75,000         81,938   

Equinix Incorporated

    8.13        03/01/2018             1,085,000         1,198,925   
            1,280,863   
         

 

 

 
IT Services: 1.83%          

Fidelity National Information Services Incorporated 144A

    5.00        03/15/2022         275,000         275,000   

Fidelity National Information Services Incorporated

    7.63        07/15/2017         225,000         246,938   

Fidelity National Information Services Incorporated 144A

    7.63        07/15/2017         175,000         191,188   

Fidelity National Information Services Incorporated

    7.88        07/15/2020         1,000,000         1,120,000   

First Data Corporation 144A

    7.38        06/15/2019         625,000         639,063   

First Data Corporation

    11.25        03/31/2016         4,550,000         4,186,000   

SunGard Data Systems Incorporated

    7.38        11/15/2018         525,000         560,438   

SunGard Data Systems Incorporated

    7.63        11/15/2020         250,000         266,563   

SunGard Data Systems Incorporated

    10.25        08/15/2015         3,455,000         3,580,244   

TW Telecommunications Holdings Incorporated

    8.00        03/01/2018         675,000         739,125   

Unisys Corporation

    12.50        01/15/2016         338,000         359,125   

Unisys Corporation 144A

    12.75        10/15/2014         434,000         481,198   
            12,644,882   
         

 

 

 
Software: 0.24%          

Audatex North American Incorporated 144A

    6.75        06/15/2018         525,000         549,938   

Audatex North American Incorporated 144A

    6.75        06/15/2018         225,000         235,688   

CA Incorporated

    5.38        12/01/2019         750,000         835,846   
            1,621,472   
         

 

 

 

Materials: 1.03%

         
Chemicals: 0.43%          

Dow Chemical Company

    4.13        11/15/2021         750,000         789,765   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     17   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Chemicals (continued)          

Huntsman International LLC

    5.50     06/30/2016       $ 1,260,000       $ 1,261,575   

Solutia Incorporated

    7.88        03/15/2020         695,000         811,413   

Solutia Incorporated

    8.75        11/01/2017         50,000         56,500   
            2,919,253   
         

 

 

 
Containers & Packaging: 0.10%          

Crown Americas LLC

    7.63        05/15/2017         450,000         488,250   

Owens Brockway Glass Container Incorporated

    7.38        05/15/2016         175,000         197,750   
            686,000   
         

 

 

 
Metals & Mining: 0.20%          

Alcoa Incorporated

    5.40        04/15/2021         750,000         787,810   

Freeport-McMoRan Copper & Gold Incorporated

    3.55        03/01/2022         600,000         592,460   

Indalex Holdings Corporation (s)

    11.50        02/01/2014             3,170,000         11,888   
            1,392,158   
         

 

 

 
Paper & Forest Products: 0.30%          

Clearwater Paper Corporation

    10.63        06/15/2016         545,000         613,125   

Georgia-Pacific Corporation

    8.88        05/15/2031         1,080,000         1,474,046   
            2,087,171   
         

 

 

 

Telecommunication Services: 5.35%

         
Diversified Telecommunication Services: 2.09%          

Avaya Incorporated

    9.75        11/01/2015         575,000         569,969   

CenturyLink Incorporated

    5.80        03/15/2022         600,000         594,489   

Citizens Communications Company

    7.88        01/15/2027         1,805,000         1,606,450   

Frontier Communications Corporation

    8.13        10/01/2018         845,000         887,250   

Frontier Communications Corporation

    8.25        05/01/2014         200,000         217,500   

Frontier Communications Corporation

    8.25        04/15/2017         1,040,000         1,120,600   

Frontier Communications Corporation

    8.50        04/15/2020         525,000         546,000   

Intelsat Jackson Holdings Limited

    8.50        11/01/2019         850,000         937,125   

Intelsat Jackson Holdings Limited

    9.50        06/15/2016         725,000         754,906   

Qtel International Finance Limited

    5.00        10/19/2025         500,000         511,250   

Qwest Corporation

    7.13        11/15/2043         795,000         795,994   

Qwest Corporation

    7.25        09/15/2025         1,040,000         1,149,200   

Qwest Corporation

    7.50        06/15/2023         1,370,000         1,381,988   

Qwest Corporation

    7.63        08/03/2021         230,000         245,969   

SBA Telecommunications Incorporated

    8.00        08/15/2016         455,000         487,419   

SBA Telecommunications Incorporated

    8.25        08/15/2019         65,000         71,663   

Windstream Corporation

    7.88        11/01/2017         2,330,000         2,574,650   
            14,452,422   
         

 

 

 
Wireless Telecommunication Services: 3.26%          

American Tower Corporation

    5.90        11/01/2021         650,000         730,209   

CC Holdings LLC 144A

    7.75        05/01/2017         325,000         354,250   

CC Holdings LLC

    8.13        04/30/2020         450,000         504,000   

Cricket Communications Incorporated

    7.75        05/15/2016         1,705,000         1,794,513   

Cricket Communications Incorporated

    7.75        10/15/2020         1,550,000         1,453,125   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

18   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Wireless Telecommunication Services (continued)          

Crown Castle International Corporation

    7.13     11/01/2019       $ 75,000       $ 82,125   

Crown Castle International Corporation

    9.00        01/15/2015         325,000         359,125   

Crown Castle Towers LLC 144A

    6.11        01/15/2040         750,000         856,104   

iPCS Incorporated ¥

    3.80        05/01/2014             1,357,019         1,295,953   

MetroPCS Communications Incorporated

    6.63        11/15/2020         2,775,000         2,670,938   

MetroPCS Communications Incorporated

    7.88        09/01/2018         775,000         794,375   

Sprint Nextel Corporation 144A

    9.00        11/15/2018         325,000         357,906   

Sprint Nextel Corporation 144A

    11.50        11/15/2021         625,000         664,063   

Sprint Nextel Corporation Series D

    7.38        08/01/2015         3,260,000         3,162,200   

Sprint Nextel Corporation Series F

    5.95        03/15/2014         2,335,000         2,332,081   

Syniverse Holdings Incorporated

    9.13        01/15/2019         4,575,000         5,072,531   
            22,483,498   
         

 

 

 

Utilities: 4.04%

         
Electric Utilities: 1.89%          

Aquila Incorporated Step Bond

    11.88        07/01/2012         6,545,000         6,660,074   

Dolphin Subsidiary II Incorporated 144A

    7.25        10/15/2021         2,400,000         2,664,000   

Great Plains Energy Incorporated

    4.85        06/01/2021         750,000         813,623   

IPALCO Enterprises Incorporated

    5.00        05/01/2018         900,000         895,500   

Otter Tail Corporation

    9.00        12/15/2016         1,835,000         1,988,681   

PNM Resources Incorporated

    9.25        05/15/2015         9,000         10,384   
            13,032,262   
         

 

 

 
Gas Utilities: 0.37%          

AmeriGas Finance LLC

    6.75        05/20/2020         1,775,000         1,814,938   

AmeriGas Finance LLC

    7.00        05/20/2022         425,000         433,500   

Suburban Propane Partners LP

    7.38        03/15/2020         275,000         290,813   
            2,539,251   
         

 

 

 
Independent Power Producers & Energy Traders: 1.57%          

Mirant Mid-Atlantic LLC Series C

    10.06        12/30/2028         3,614,632         3,686,925   

NRG Energy Incorporated

    7.38        01/15/2017         3,475,000         3,609,656   

NRG Energy Incorporated

    8.50        06/15/2019         1,615,000         1,647,300   

Reliant Energy Incorporated

    7.63        06/15/2014         450,000         459,000   

Reliant Energy Incorporated

    9.24        07/02/2017         1,071,656         1,050,223   

Reliant Energy Incorporated

    9.68        07/02/2026         410,000         389,500   
            10,842,604   
         

 

 

 
Multi-Utilities: 0.21%          

Ameren Illinois Company

    9.75        11/15/2018         500,000         686,860   

CMS Energy Corporation

    5.05        03/15/2022         750,000         762,964   
            1,449,824   
         

 

 

 

Total Corporate Bonds and Notes (Cost $363,589,295)

  

        382,851,650   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     19   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         

Foreign Corporate Bonds and Notes @: 5.29%

         

Consumer Discretionary: 0.49%

         
Automobiles: 0.07%          

Aston Martin Capital Limited (GBP)

    9.25     07/15/2018         400,000       $ 525,820   
         

 

 

 
Hotels, Restaurants & Leisure: 0.24%          

Casino Guichard Perrachon SA (EUR)

    4.73        05/26/2021         900,000         1,227,628   

ODEON & UCI Cinemas Group (GBP)

    9.00        08/01/2018         300,000         477,133   
            1,704,761   
         

 

 

 
Media: 0.18%          

UPC Holding BV (EUR)

    9.63        12/01/2019         470,000         665,689   

Ziggo Bond Company BV (EUR) 144A(i)

    8.00        05/15/2018         200,000         285,257   

Ziggo Bond Company BV (EUR)

    8.00        05/15/2018         200,000         285,257   
            1,236,203   
         

 

 

 

Consumer Staples: 0.10%

         
Food & Staples Retailing: 0.10%          

Foodcorp Limited (EUR)

    8.75        03/01/2018         520,000         688,324   
         

 

 

 

Financials: 3.94%

         
Commercial Banks: 2.91%          

Banco De Brasil (EUR)

    4.50        01/20/2016         600,000         832,025   

Eurofima (AUD)

    6.25        12/28/2018             2,450,000         2,642,755   

European Investment Bank (AUD)

    6.13        01/23/2017         6,930,000         7,492,494   

Instituto de Credito Oficial (EUR)

    4.38        05/23/2012         1,800,000         2,385,424   

International Bank for Reconstruction & Development (AUD)

    5.75        10/01/2020         950,000         1,068,101   

KfW Bankengruppe (AUD)

    6.25        12/04/2019         1,225,000         1,380,570   

KfW Bankengruppe (NZD)

    6.38        02/17/2015         4,819,000         4,245,524   
            20,046,893   
         

 

 

 
Consumer Finance: 0.08%          

Fiat Industrial SpA (EUR)

    6.25        03/09/2018         400,000         530,147   
         

 

 

 
Diversified Financial Services: 0.20%          

Voto-Votorantim Limited (EUR)

    5.25        04/28/2017         1,000,000         1,405,108   
         

 

 

 
Thrifts & Mortgage Finance: 0.75%          

Dexia Kommunalbank AG (EUR)

    3.50        06/05/2014         3,100,000         4,235,931   

Nationwide Building Society (EUR)

    3.75        01/20/2015         700,000         959,094   
            5,195,025   
         

 

 

 

Industrials: 0.36%

         
Building Products: 0.07%          

Heidelbergcement AG (EUR)

    8.50        10/31/2019         330,000         486,051   
         

 

 

 
Trading Companies & Distributors: 0.08%          

Rexel SA (EUR)

    7.00        12/17/2018         200,000         277,315   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

20   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Trading Companies & Distributors (continued)          

Rexel SA (EUR)

    8.25     12/15/2016         200,000       $ 285,919   
            563,234   
         

 

 

 
Transportation Infrastructure: 0.21%          

BAA Funding Limited (EUR)

    4.60        02/15/2018         1,000,000         1,409,754   
         

 

 

 

Materials: 0.18%

         
Metals & Mining: 0.10%          

New World Resources NV (EUR)

    7.38        05/15/2015         500,000         661,850   
         

 

 

 
Paper & Forest Products: 0.08%          

Smurfit Kappa Funding plc (EUR)

    7.25        11/15/2017         400,000         561,249   
         

 

 

 

Telecommunication Services: 0.14%

         
Diversified Telecommunication Services: 0.14%          

Telefonica Emisiones Company (EUR)

    4.69        11/11/2019         300,000         388,359   

Virgin Media Finance plc (GBP)

    8.88        10/15/2019         300,000         545,294   
            933,653   
         

 

 

 

Utilities: 0.08%

         
Water Utilities: 0.08%          

Zinc Capital SA (EUR)

    8.88        05/15/2018         500,000         575,810   
         

 

 

 

Total Foreign Corporate Bonds and Notes (Cost $33,864,147)

            36,523,882   
         

 

 

 
Foreign Government Bonds @: 27.14%          

Australia Series 124 (AUD)

    5.75        05/15/2021         2,750,000         3,341,356   

Australia Series 22 (AUD)

    6.00        07/21/2022         4,000,000         4,486,678   

Brazil (BRL)

    12.50        01/05/2016         26,000,000         16,368,072   

Brazil (BRL)

    12.50        01/05/2022         19,500,000         13,401,359   

Chile (CLP)

    5.50        08/05/2020         1,700,000,000         3,645,661   

Colombia (COP)

    7.75        04/14/2021             15,000,000,000         10,448,456   

Hungary (HUF) ¤

    0.00        05/02/2012         1,220,000,000         5,631,220   

Korea (KRW)

    5.25        09/10/2015         1,850,000,000         1,724,687   

Korea (KRW)

    5.25        03/10/2027         2,830,000,000         2,884,355   

Malaysia (MYR)

    4.26        09/15/2016         24,000,000         8,245,095   

Mexico (MXN)

    7.25        12/15/2016         197,500,000         16,414,290   

Mexico (MXN)

    8.50        11/18/2038         166,900,000         14,423,618   

New Zealand (NZD)

    6.00        12/15/2017         6,705,000         6,228,153   

Peru (PEN)

    7.84        08/12/2020         20,000,000         8,939,860   

Poland (PLN)

    4.75        10/25/2016         25,500,000         8,043,098   

Poland (PLN)

    5.25        10/25/2020         59,000,000         18,613,262   

Queensland Treasury (AUD)

    6.00        03/01/2022         3,600,000         4,174,285   

Russia (RUB)

    7.85        03/10/2018         455,000,000         16,150,593   

South Africa (ZAR)

    8.00        12/21/2018         55,000,000         7,332,296   

South Africa (ZAR)

    8.25        09/15/2017         98,200,000         13,331,506   

South Africa (ZAR)

    8.75        12/21/2014         25,000,000         3,442,853   

Total Foreign Government Bonds (Cost $181,555,074)

            187,270,753   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     21   

      

 

 

Security Name   Interest Rate      Maturity Date      Principal      Value  
          
Non-Agency Mortgage Backed Securities: 3.31%           

American Home Mortgage Assets Series 2006-2 Class 1A1 ±

    1.12         09/25/2046       $ 4,143,591       $ 2,221,968   

Banc of America Commercial Mortgage Incorporated Series 2006-03 Class AM ±

    6.05         07/10/2044         1,340,000         1,282,596   

Bear Stearns Asset Backed Securities Series 2006 Class 1A2 ±

    0.46         12/25/2035         354,467         342,477   

Carrington Mortgage Loan Trust Series 2005-FRE1 Class A5 ±

    0.52         12/25/2035         100,000         96,515   

Centex Home Equity Series 2002-A Class AF6

    5.54         01/25/2032         695,384         700,787   

Centex Home Equity Series 2002-D Class AF6 ±

    4.66         12/25/2032         218,269         216,040   

Centex Home Equity Series 2004-B Class AF6

    4.19         03/25/2034         305,000         299,878   

Citigroup Commercial Mortgage Series 2006 Class C4 ±

    5.92         03/15/2049         680,000         731,585   

Citigroup Commercial MortgageSeries 2006 Class C5

    5.46         10/15/2049         325,000         345,521   

Countrywide Asset Backed Certificates Series 2007-7 Class 2A1 ±

    0.32         10/25/2047         405,978         402,866   

Equity One Asset Backed Securities Series 2004-2 Class AF4 ±

    4.62         07/25/2034         423,501         423,897   

First Franklin Mortgage Loan Assets Series 2005-FT9 Class A3 ±

    0.52         10/25/2035         289,692         284,633   

Fremont Home Loan Trust Series 2006-2 Class 2A2 ±

    0.35         02/25/2036         78,293         77,975   

Greenwich Capital Commercial Funding Corporation Series 2006-GG7 Class AM ±

    6.08         07/10/2038             1,820,000         1,882,148   

Greenwich Capital Commercial Funding Corporation Series 2007-GG11 Class A4

    5.74         12/10/2049         475,000         528,844   

GS Mortgage Securities Trust Series 2007-GG10 Class A4 ±

    5.98         08/10/2045         1,000,000         1,110,600   

GSMPS Mortgage Loan Trust Series 2006-1 Class A1 ±144A

    0.54         03/25/2035         186,925         152,866   

JPMorgan Mortgage Trust Series 2005-A3 Class 11A2 ±

    4.48         06/25/2035         575,000         574,924   

JPMorgan Mortgage Trust Series 2005-A5 Class 3A2 ±

    5.08         08/25/2035         805,625         787,138   

JPMorgan Mortgage Trust Series 2009-7 Class 2A1 ±144A

    6.00         02/27/2037         123,267         124,995   

JPMorgan Mortgage Trust Series 2009-7 Class 5A1 ±144A

    6.00         02/27/2037         697,439         708,482   

Lehman XS Trust Series 2006-18N Class A5A ±

    0.41         12/25/2036         3,571,816         1,479,168   

MASTR Alternative Loans Trust Series 2005-1 Class 5A1

    5.50         01/25/2020         156,201         159,949   

Merrill Lynch Countrywide Commercial Mortgage Trust Series 2006-4 Class AM ±

    5.20         12/12/2049         340,000         331,768   

Merrill Lynch Countrywide Commercial Mortgage Trust Series 2007-7 Class A4 ±

    5.81         06/12/2050         470,000         508,073   

Merrill Lynch Countrywide Commercial Mortgage Trust Series 2007-9 Class A4

    5.70         09/12/2049         829,000         909,716   

Merrill Lynch Mortgage Trust Series 2005-A8 Class A1B3 ±

    5.25         08/25/2036         120,000         122,847   

Merrill Lynch Mortgage Trust Series 2006-C1 Class AM ±

    5.85         05/12/2039         565,000         602,345   

Morgan Stanley Capital I Series 2005-HQ6 Class A4B

    5.04         08/13/2042         650,000         683,400   

Morgan Stanley Capital I Trust Series 2006-IQ12 Class AM

    5.37         12/15/2043         500,000         512,283   

Morgan Stanley Dean Witter Capital I Series 2006-HQ8 Class AM ±

    5.65         03/12/2044         800,000         856,251   

RAAC Series 2005-SP2 Class 1A3 ±

    0.64         05/25/2044         387,250         381,191   

Residential Asset Mortgage Products Incorporated Series 2006-EFC1 Class A2 ±

    0.44         02/25/2036         443,672         426,210   

Residential Asset Securities Series 2004-KS3 Class AI4 ±

    3.77         01/25/2032         422,706         419,815   

Saxon Asset Securities Trust Series 2002-1 Class AF5 ±

    6.76         12/25/2030         218,154         208,763   

Soundview Home Equity Loan Trust Series 2005-OPT2 Class A5 ±

    0.61         08/25/2035         353,058         349,812   

Structured Asset Securities Corporation Series 2002-9 Class A2 ±

    0.54         10/25/2027         163,632         150,810   

Structured Asset Securities Corporation Series 2005 Class 1A7 ±144A

    0.48         02/25/2035         125,210         124,172   

Wachovia Bank Commercial Mortgage Trust Series 2006-C23 Class AM ±

    5.47         01/15/2045         1,220,000         1,305,644   

Total Non-Agency Mortgage Backed Securities (Cost $23,296,013)

             22,828,952   
          

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

22   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Dividend Yield            Shares      Value  
         

Preferred Stocks: 0.09%

         

Financials: 0.09%

         
Diversified Financial Services: 0.09%          

Ally Financial Incorporated ±

    8.13        27,000       $ 646,650   
         

 

 

 

Total Preferred Stocks (Cost $675,000)

            646,650   
         

 

 

 
    Interest Rate     Maturity Date      Principal         
Term Loans: 20.09%          

Advantage Sales & Marketing LLC

    9.25     06/18/2018       $ 475,000         474,207   

Allison Transmission Incorporated

    2.74        08/07/2014         3,358,937         3,348,222   

Ameristar Casinos Incorporated

    4.00        04/13/2018         1,009,997         1,013,310   

Atlantic Broadband Finance LLC

    5.25        04/03/2019         1,850,000         1,856,938   

B&G Foods Incorporated

    4.50        11/18/2018         773,063         778,860   

Barrington Broadcasting Group

    7.50        06/08/2017         3,747,162         3,768,259   

Capital Automotive LP

    5.25        03/10/2017         3,733,803         3,717,487   

CCC Information Services Incorporated

    5.50        11/11/2015         192,872         193,292   

CCM Merger Incorporated

    6.00        03/01/2017             4,222,936         4,231,720   

Charter Communications

    4.00        04/26/2019         1,875,000         1,867,706   

Coinmach Corporation

    3.24        11/20/2014         3,321,733         3,078,151   

Covanta Energy Holdings

    4.00        03/23/2019         2,600,000         2,598,700   

Crown Castle International Corporation

    4.00        01/25/2019         6,633,375         6,634,105   

DineEquity Incorporated

    4.25        10/19/2017         1,836,459         1,839,434   

Dunkin Brands Incorporated

    4.00        11/23/2017         3,190,718         3,194,388   

Energy Transfer Equity LP

    3.75        03/21/2017         2,650,000         2,618,121   

Entercom Communication LLC

    6.28        11/30/2018         267,667         269,340   

Fairpoint Communications Incorporated

    6.50        01/22/2016         3,523,399         2,926,923   

Federal Mogul Corporation

    2.18        12/29/2014         3,438,236         3,327,662   

Federal Mogul Corporation

    2.18        12/28/2015         3,971,999         3,844,259   

Fidelity National Information Services Incorporated

    4.25        07/18/2016         8,000         8,026   

First Data Corporation

    2.99        09/24/2014         916,226         5,180,552   

Focus Brands Incorporated

    6.27        03/05/2018         440,410         441,511   

Focus Brands Incorporated

    10.25        08/22/2018         1,300,000         1,319,500   

Genesys Telecommunication

    6.75        01/25/2019         1,975,000         1,998,858   

Goodyear Tire & Rubber Company

    4.75        04/12/2019         6,200,000         6,110,844   

Gray Television Incorporated

    3.75        12/31/2014         968,827         962,171   

HCA Incorporated

    2.74        05/01/2016         974,359         950,302   

Helm Holdings Corporation

    6.25        06/02/2017         2,612,578         2,592,984   

HHI Holdings LLC

    7.00        03/21/2017         940,502         940,502   

Interactive Data Corporation

    4.50        02/12/2018         3,349,546         3,351,120   

KAR Auction Services Incorporated

    5.00        05/19/2017         4,975,335         4,997,127   

Level 3 Financing Incorporated

    2.65        03/13/2014         2,700,000         2,679,750   

LIN Television Corporation

    5.00        12/15/2018         399,000         400,329   

Local TV Finance LLC

    4.24        05/07/2015         1,424,159         1,418,505   

LPL Holdings

    2.76        03/23/2017         550,000         537,169   

LPL Holdings

    4.00        03/22/2019         3,775,000         3,775,000   

MedAssets Incorporated

    5.25        11/16/2016         646,443         649,811   

Merisant Company

    7.50        01/08/2014         776,957         765,302   

Mission Broadcasting Incorporated

    5.00        09/30/2016         77,539         77,054   

MSCI Incorporated

    3.50        03/14/2017         2,768,564         2,765,602   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     23   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         
Term Loans (continued)          

National Cinemedia LLC

    1.98     02/13/2015       $ 1,208,934       $ 1,205,005   

Newsday LLC

    10.50        08/01/2013         2,755,000         2,825,611   

Nexstar Broadcasting Incorporated

    5.00        09/30/2016         216,463         215,110   

Nielsen Finance LLC Class C

    3.49        05/02/2016         274,302         274,264   

Nielsen Finance LLC Class D

    2.49        02/07/2017         225,000         216,450   

Novelis Incorporated

    4.00        03/10/2017         995,000         993,756   

nTelos Incorporated

    4.00        08/07/2015         999,006         995,570   

Panolam Industries International Incorporated

    8.25        12/31/2013         206,466         202,337   

Penn National Gaming Incorporated

    3.75        07/16/2018         997,487         1,001,228   

Phillips Van Heusen Corporation

    3.50        05/06/2016         124,685         124,665   

Prestige Brands International

    5.26        12/20/2018         292,992         294,675   

RailAmerica Incorporated

    4.00        02/27/2019         600,000         600,186   

Rexnord Corporation

    5.00        04/30/2018         1,097,250         1,104,656   

SBA Communications Corporation

    3.75        06/29/2018         1,994,975         1,994,975   

Springleaf Finance Corporation

    5.50        05/05/2017         700,000         663,103   

Sungard Data Systems Incorporated

    1.99        02/28/2014         650,000         647,959   

Sungard Data Systems Incorporated

    3.95        02/26/2016         1,750,000         1,752,188   

Syniverse Technologies Incorporated

    5.00        04/10/2019         1,000,000         1,000,630   

Telesat Holdings Incorporated

    4.25        03/26/2019         2,650,000         2,645,575   

Texas Competitive Electric Holding LLC

    3.74        10/10/2014             16,421,983         9,401,585   

Texas Competitive Electric Holding LLC

    4.74        10/10/2017         375,000         206,505   

Total Safety US Incorporated

    7.50        10/27/2017         897,750         899,617   

Towerco Finance LLC

    4.50        04/12/2018         1,942,582         1,949,867   

Transdigm Incorporated

    4.00        02/14/2017         2,711,507         2,710,666   

Tronox Incorporated

    1.00        02/02/2018         514,286         515,001   

Tronox Incorporated

    4.25        02/02/2018         1,885,714         1,888,335   

United Surgical Partners International Incorporated

    5.25        04/19/2017         1,946,307         1,937,393   

United Surgical Partners International Incorporated

    6.00        03/19/2019         1,325,000         1,325,557   

Valeant Pharmaceuticals International

    3.75        02/08/2019         1,700,000         1,691,500   

Warnaco Incorporated

    3.75        06/15/2018         598,492         598,492   

Web Service Company LLC

    7.00        08/28/2014         456,990         453,184   

Wendys/Arbys Restaurants LLC <

    N/A        05/03/2019         2,800,000         2,814,000   

Total Term Loans (Cost $142,517,648)

            138,652,748   
         

 

 

 

Yankee Corporate Bonds and Notes: 7.64%

         

Consumer Discretionary: 0.55%

         
Media: 0.55%          

Grupo Televisa SA

    6.00        05/15/2018         750,000         874,852   

Intelsat Jackson Holdings Limited 144A

    7.25        10/15/2020         900,000         938,250   

Intelsat Jackson Holdings Limited

    7.25        10/15/2020         875,000         914,375   

Videotron Limited 144A

    5.00        07/15/2022         200,000         199,500   

Videotron Limited

    9.13        04/15/2018         775,000         856,375   
            3,783,352   
         

 

 

 

Consumer Staples: 0.11%

         
Beverages: 0.11%          

Pernod Ricard SA 144A

    4.45        01/15/2022         760,000         789,587   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

24   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         

Energy: 1.64%

         
Energy Equipment & Services: 0.12%          

Ensco plc

    4.70     03/15/2021       $ 750,000       $ 817,889   
         

 

 

 
Oil, Gas & Consumable Fuels: 1.52%          

Griffin Coal Mining Company Limited 144A(s)

    9.50        12/01/2016         3,792,790         3,095,864   

Griffin Coal Mining Company Limited (s)

    9.50        12/01/2016         310,082         253,104   

Lukoil International Finance Company

    7.25        11/05/2019         600,000         676,500   

Petrobras International Finance Company

    5.38        01/27/2021         670,000         733,525   

Petroleos Mexicanos 144A

    4.88        01/24/2022         750,000         799,100   

Petroplus Finance Limited

    5.75        01/20/2020         650,000         725,137   

Ship Finance International Limited

    8.50        12/15/2013             3,720,000         3,710,700   

Woodside Finance Limited 144A

    8.75        03/01/2019         405,000         520,788   
            10,514,718   
         

 

 

 

Financials: 1.14%

         
Capital Markets: 0.06%          

Mubadala Development Company 144A

    5.50        04/20/2021         360,000         389,077   
         

 

 

 
Commercial Banks: 0.87%          

Banco De Brasil 144A

    5.88        01/26/2022         750,000         780,000   

Banco de Credito Del Peru

    4.75        03/16/2016         1,200,000         1,236,000   

Banco Del Estado de Chile 144A

    3.88        02/08/2022         650,000         646,750   

Eurasian Development Bank

    7.38        09/29/2014         1,000,000         1,095,000   

Export Import Bank of Korea

    5.00        04/11/2022         750,000         805,072   

Macquarie Bank Limited 144A

    5.00        02/22/2017         750,000         762,458   

Standard Chartered Bank 144A

    6.40        09/26/2017         650,000         715,000   
            6,040,280   
         

 

 

 
Diversified Financial Services: 0.21%          

BM&F Bovespa SA

    5.50        07/16/2020         500,000         537,500   

Corporación Andina de Fomento

    8.13        06/04/2019         750,000         938,012   

Preferred Term Securities XII Limited (s)(i)

    1.97        12/24/2033         635,000         191   
            1,475,703   
         

 

 

 

Industrials: 0.14%

         
Commercial Services & Supplies: 0.09%          

Tyco Electronics Group SA

    3.50        02/03/2022         625,000         624,823   
         

 

 

 
Road & Rail: 0.05%          

Transnet Limited 144A

    4.50        02/10/2016         300,000         313,326   
         

 

 

 

Information Technology: 0.16%

         
Computers & Peripherals: 0.16%          

Seagate Technology HDD Holdings

    6.80        10/01/2016         650,000         721,500   

Seagate Technology HDD Holdings 144A

    7.00        11/01/2021         375,000         406,875   
            1,128,375   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Portfolio of Investments—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     25   

      

 

 

Security Name   Interest Rate     Maturity Date      Principal      Value  
         

Materials: 1.35%

         
Metals & Mining: 0.75%          

ArcelorMittal

    4.50     02/25/2017       $ 725,000       $ 729,763   

Novelis Incorporated

    7.25        02/15/2015         1,030,000         1,032,575   

Novelis Incorporated

    8.38        12/15/2017         550,000         594,000   

Novelis Incorporated

    8.75        12/15/2020         725,000         799,313   

Teck Resources Limited

    10.75        05/15/2019         1,025,000         1,268,438   

Vale Overseas Limited

    4.38        01/11/2022         750,000         767,945   
            5,192,034   
         

 

 

 
Paper & Forest Products: 0.60%          

PE Paper Escrow GmbH 144A

    12.00        08/01/2014         1,170,000         1,263,600   

Sappi Limited 144A

    7.50        06/15/2032             3,560,000         2,874,700   
            4,138,300   
         

 

 

 

Telecommunication Services: 2.29%

         
Diversified Telecommunication Services: 1.75%          

Intelsat Jackson Holdings Limited

    7.25        04/01/2019         425,000         443,063   

Intelsat Jackson Holdings Limited

    7.50        04/01/2021         525,000         551,250   

Intelsat Jackson Holdings Limited

    11.25        06/15/2016         5,075,000         5,335,094   

Qtel International Finance Limited

    4.75        02/16/2021         300,000         312,750   

Sable International Finance Limited

    7.75        02/15/2017         350,000         362,250   

Virgin Media Finance plc

    6.50        01/15/2018         650,000         708,500   

Vivendi SA 144A

    4.75        04/12/2022         750,000         722,736   

Wind Acquisition Finance SpA 144A

    11.75        07/15/2017         3,660,000         3,595,950   
            12,031,593   
         

 

 

 
Wireless Telecommunication Services: 0.54%          

Digicel Group Limited 144A

    12.00        04/01/2014         1,335,000         1,485,188   

Globo Communicacoes Participacoes SA 144A

    4.88        04/11/2022         750,000         755,625   

Telesat Canada Incorporated 144A

    6.00        05/15/2017         300,000         300,000   

Telesat Canada Incorporated

    11.00        11/01/2015         1,135,000         1,205,938   
            3,746,751   
         

 

 

 

Utilities: 0.26%

         
Electric Utilities: 0.26%          

Comision Federal de Electricidad 144A

    4.88        05/26/2021         650,000         687,375   

Eskom Holdings Limited

    5.75        01/26/2021         1,000,000         1,075,000   
            1,762,375   
         

 

 

 

Total Yankee Corporate Bonds and Notes (Cost $50,229,946)

            52,748,183   
         

 

 

 
Yankee Government Bonds: 0.04%          

Croatia 144A

    6.25        04/27/2017         300,000         303,494   
         

 

 

 

Total Yankee Government Bonds (Cost $298,419)

            303,494   
         

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

26   Wells Fargo Advantage Multi-Sector Income Fund   Portfolio of Investments—April 30, 2012 (Unaudited)

      

 

 

Security Name   Yield          Shares      Value  
         

Short-Term Investments: 3.44%

         
Investment Companies: 3.44%          

Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u)##

    0.11        23,750,607       $ 23,750,607   
         

 

 

 

Total Short-Term Investments (Cost $23,750,607)

            23,750,607   
         

 

 

 

 

Total Investments in Securities        
(Cost $889,185,350) *      132.83        916,770,632   

Other Assets and Liabilities, Net

     (32.83        (226,602,331
  

 

 

      

 

 

 
Total Net Assets      100.00      $ 690,168,301   
  

 

 

      

 

 

 

 

 

 

 

± Variable rate investment

 

144A Security that may be resold to “qualified institutional buyers” under Rule 144A or securities offered pursuant to Section 4(2) of the Securities Act of 1933, as amended.

 

Non-income earning security

 

¥ A payment-in-kind (PIK) security is a security in which the issuer may make interest or dividend payments in cash or additional securities. These additional securities generally have the same terms as the original holdings.

 

(s) Security is currently in default with regards to scheduled interest and/or principal payments. The Fund has stopped accruing interest on this security.

 

@ Foreign bond principal is denominated in local currency.

 

(i) Illiquid security

 

¤ Security issued in zero coupon form with no periodic interest payments.

 

< All or a portion of the position represents an unfunded loan commitment.

 

(l) Investment in an affiliate.

 

(u) Rate shown is the 7-day annualized yield at period end.

 

## All or a portion of this security is segregated as collateral for unfunded loan commitments.

 

* Cost for federal income tax purposes is $894,138,762 and net unrealized appreciation (depreciation) consists of:

 

Gross unrealized appreciation

   $ 38,916,007   

Gross unrealized depreciation

     (16,284,137
  

 

 

 

Net unrealized appreciation

   $ 22,631,870   

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Statement of Assets and Liabilities—April 30, 2012 (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     27   
         

Assets

 

Investments

 

In unaffiliated securities, at value (see cost below)

  $ 893,020,025   

In affiliated securities, at value (see cost below)

    23,750,607   
 

 

 

 

Total investments, at value (see cost below)

    916,770,632   

Cash

    4,924   

Foreign currency, at value (see cost below)

    59   

Receivable for investments sold

    2,416,927   

Principal paydown receivable

    735,028   

Receivable for interest

    14,585,676   

Unrealized gains on forward foreign currency contracts

    25,457   

Prepaid expenses and other assets

    104,829   
 

 

 

 

Total assets

    934,643,532   
 

 

 

 

Liabilities

 

Dividends payable

    4,205,500   

Payable for investments purchased

    8,480,956   

Unrealized losses on forward foreign currency contracts

    431,293   

Secured borrowing payable

    230,707,166   

Advisory fee payable

    440,185   

Due to other related parties

    40,017   

Accrued expenses and other liabilities

    170,114   
 

 

 

 

Total liabilities

    244,475,231   
 

 

 

 

Total net assets

  $ 690,168,301   
 

 

 

 

NET ASSETS CONSIST OF

 

Paid-in capital

  $ 774,480,927   

Overdistributed net investment income

    (3,757,664

Accumulated net realized losses on investments

    (107,648,643

Net unrealized gains on investments

    27,093,681   
 

 

 

 

Total net assets

  $ 690,168,301   
 

 

 

 

NET ASSET VALUE PER SHARE

 

Based on $690,168,301 divided by 42,055,000 shares issued and outstanding
(100,000,000 shares authorized)

    $16.41   

Investments in unaffiliated securities, at cost

  $ 865,434,743   
 

 

 

 

Investments in affiliated securities, at cost

  $ 23,750,607   
 

 

 

 

Total investments, at cost

  $ 889,185,350   
 

 

 

 

Foreign currency, at cost

  $ 59   
 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

28   Wells Fargo Advantage Multi-Sector Income Fund   Statement of Operations—Six Months Ended April 30, 2012 (Unaudited)
         

Investment income

 

Interest*

  $ 28,014,777   

Dividends

    37,375   

Income from affiliated securities

    13,506   
 

 

 

 

Total investment income

    28,065,658   
 

 

 

 

Expenses

 

Advisory fee

    2,489,976   

Administration fee

    226,361   

Custody and accounting fee

    53,331   

Professional fees

    20,661   

Shareholder report expenses

    61,089   

Trustees’ fees and expenses

    7,531   

Transfer agent fees

    15,787   

Interest expense

    493,151   

Secured borrowing fees

    794,074   

Other fees and expenses

    26,514   
 

 

 

 

Total expenses

    4,188,475   
 

 

 

 

Net investment income

    23,877,183   
 

 

 

 

REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS

 

Net realized gains (losses) on:

 

Unaffiliated securities

    7,467,250   

Forward foreign currency contract transactions

    (90,479
 

 

 

 

Net realized gains on investments

    7,376,771   
 

 

 

 

Net change in unrealized gains (losses) on:

 

Unaffiliated securities

    3,115,190   

Forward foreign currency contract transactions

    1,534,944   
 

 

 

 

Net change in unrealized gains (losses) on investments

    4,650,134   
 

 

 

 

Net realized and unrealized gains (losses) on investments

    12,026,905   
 

 

 

 

Net increase in net assets resulting from operations

  $ 35,904,088   
 

 

 

 

* Net of foreign interest withholding taxes of

    $25,281   

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Statement of Changes in Net Assets   Wells Fargo Advantage Multi-Sector Income Fund     29   
     Six Months Ended
April 30, 2012
(Unaudited)
       Year Ended
October 31, 2011
 

Operations

      

Net investment income

  $ 23,877,183         $ 46,577,610   

Net realized gains on investments

    7,376,771           12,228,308   

Net change in unrealized gains (losses) on investments

    4,650,134           (28,556,729
 

 

 

      

 

 

 

Net increase in net assets resulting from operations

    35,904,088           30,249,189   
 

 

 

      

 

 

 

Distributions to shareholders from net investment income

    (25,233,000        (51,862,226
 

 

 

      

 

 

 

Total increase (decrease) in net assets

    10,671,088           (21,613,037
 

 

 

      

 

 

 

Net assets

      

Beginning of period

    679,497,213           701,110,250   
 

 

 

      

 

 

 

End of period

  $ 690,168,301         $ 679,497,213   
 

 

 

      

 

 

 

Overdistributed net investment income

  $ (3,757,664      $ (2,401,847
 

 

 

      

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

30   Wells Fargo Advantage Multi-Sector Income Fund   Statement of Cash Flows—Six Months Ended April 30, 2012 (Unaudited)
         

Cash flows from operating activities:

 

Net increase in net assets resulting from operations

  $ 35,904,088   

Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:

 

Purchase of investment securities

    (516,074,065

Proceeds from sales of investment securities

    495,306,070   

Paydowns

    12,076,839   

Amortization

    (567,006

Sale of short-term investment securities, net

    86,704   

Increase in interest receivable

    (1,034,760

Increase in receivable for investments sold

    (404,994

Increase in principal paydown receivable

    (20,895

Increase in prepaid expenses and other assets

    (53,581

Increase in payable for investments purchased

    7,316,427   

Decrease in advisory fee payable

    (6,783

Decrease in due to other related parties

    (616

Increase in accrued expenses and other liabilities

    122,667   

Unrealized gains on unaffiliated securities

    (3,115,190

Unrealized gains on forward foreign currency contract transactions

    (1,534,944

Net realized gains on unaffiliated securities

    (7,467,250
 

 

 

 

Net cash provided by operating activities

    20,532,711   
 

 

 

 

Cash flows from financing activities:

 

Cash distributions paid

    (25,233,000

Decrease in reverse repurchase agreements

    (99,561,821

Increase in secured borrowing

    100,567,869   
 

 

 

 

Net cash used in financing activities

    (24,226,952
 

 

 

 

Net decrease in cash

    (3,694,241
 

 

 

 

Cash (including foreign currency):

 

Beginning of period

  $ 3,699,224   
 

 

 

 

End of period

  $ 4,983   
 

 

 

 

Supplemental cash disclosure

 

Cash paid for interest

  $ 126,927   
 

 

 

 

 

 

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

Financial Highlights   Wells Fargo Advantage Multi-Sector Income Fund     31   

(For a common share outstanding throughout each period)

 

   

Six Months Ended
April 30, 2012

(Unaudited)

    Year Ended October 31,  
      2011     2010     2009     2008     2007  

Net asset value, beginning of period

  $ 16.16      $ 16.67      $ 15.61      $ 13.47      $ 18.74      $ 18.55   

Net investment income

    0.57        1.11        1.21        1.33        1.68        1.731   

Net realized and unrealized gains (losses) on investments

    0.28        (0.39     1.17        3.26        (5.35     0.29   

Distributions to preferred shareholders from net investment income

    0.00        0.00        (0.02 )1      (0.03 )1      (0.30 )1      (0.51 )1 
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total from investment operations

    0.85        0.72        2.36        4.56        (3.97     1.51   

Distributions to common shareholders from

           

Net investment income

    (0.60     (1.23     (1.30     (2.20     (1.30     (1.29

Tax basis return of capital

    0.00        0.00        0.00        (0.22     0.00        (0.03
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Total distributions to common shareholders

    (0.60     (1.23     (1.30     (2.42     (1.30     (1.32

Net asset value, end of period

  $ 16.41      $ 16.16      $ 16.67      $ 15.61      $ 13.47      $ 18.74   

Market value, end of period

  $ 15.41      $ 14.97      $ 16.18      $ 13.73      $ 11.68      $ 16.22   

Total return based on market value2

    7.07     0.33     28.44     44.93     (21.43 )%      2.64

Ratios to average net assets (annualized)

           

Gross expenses

    1.24     1.14     1.58     3.07     1.95     1.15

Net expenses

    1.24     1.14     1.18     1.62     1.90     1.15

Interest expense3

    0.15     0.09     0.08     0.47     0.54     0.02

Net investment income

    7.06     6.75     7.63 %4      9.65 %4      7.85 %4      6.54 %4 

Supplemental data

           

Portfolio turnover rate

    51     35     70     93     92     95

Net assets of common shareholders, end of period (000’s omitted)

    $690,168        $679,497        $701,110        $656,404        $566,515        $787,919   

Borrowings outstanding, end of period (000’s omitted)

    $230,000        $230,000        $230,000        $230,000        $380,000        $400,000   

Asset coverage per $1,000 of borrowing, end of period

    $4,001        $3,954        $4,048        $3,854        $2,491        $2,970   

Liquidation value of Preferred Shares, end of period (thousands)

    N/A        N/A        N/A      $ 80,035      $ 80,108      $ 400,475   

Asset coverage ratio for Preferred Shares, end of period

    N/A        N/A        N/A        385     249     296

 

 

 

1. Calculated based upon average common shares outstanding

 

2. Total return is calculated assuming a purchase of common stock on the first day and a sale on the last day of the period reported. Dividends and distributions, if any, are assumed for purposes of these calculations to be reinvested at prices obtained under the Fund’s Automatic Dividend Reinvestment Plan. Total return does not reflect brokerage commissions or sales charges. Returns for periods of less than one year are not annualized.

 

3. Interest expense ratio relates to interest associated with borrowings and/or leverage transactions.

 

4. The net investment income ratio reflects any distributions paid to preferred shareholders.

 

The accompanying notes are an integral part of these financial statements.


Table of Contents

 

32   Wells Fargo Advantage Multi-Sector Income Fund   Notes to Financial Statements (Unaudited)

1. ORGANIZATION

Wells Fargo Advantage Multi-Sector Income Fund (the “Fund”) was organized as a statutory trust under the laws of the state of Delaware on April 10, 2003 and is registered as a diversified closed-end management investment company under the Investment Company Act of 1940, as amended. The primary investment objective of the Fund is to seek a high level of current income consistent with limiting its overall exposure to domestic interest-rate risk.

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

Fixed income securities with original maturities exceeding 60 days are valued based on evaluated prices received from an independent pricing service approved by the Board of Trustees which may utilize both transaction data and market information such as yield, prices of securities of comparable quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If valuations are not available from the pricing service or values received are deemed not representative of market value, values will be obtained from a third party broker-dealer or determined based on the Fund’s Fair Value Procedures.

Investments in equity securities are valued each business day as of the close of regular trading on the New York Stock Exchange, which is usually 4:00 p.m. (Eastern Time). Securities which are traded on a national or foreign securities exchange are valued at the last reported sales price, except that securities listed on The Nasdaq Stock Market, Inc. (“Nasdaq”) are valued at the Nasdaq Official Closing Price (“NOCP”), and if no NOCP is available, then at the last reported sales price. If no sales price is shown on the Nasdaq, the bid price will be used. In the absence of any sale of securities listed on the Nasdaq, and in the case of other securities (including U.S. Government obligations, but excluding debt securities maturing in 60 days or less), the price will be deemed “stale” and the valuations will be determined in accordance with the Fund’s Fair Value Procedures.

Securities denominated in foreign currencies are translated into U.S. dollars using the closing rates of exchange in effect on the day of valuation.

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 securities, then fair value pricing procedures approved by the Board of Trustees are applied. These procedures take into account multiple factors including movements in U.S. securities markets after foreign exchanges close. As a result of the fair value pricing procedures, these securities which are normally categorized as Level 1 in the fair value hierarchy will represent a transfer from a Level 1 to a Level 2 security and will be categorized as Level 2. Depending on market activity, such fair valuations may be frequent. Such fair value pricing may result in NAVs that are higher or lower than NAVs based on the closing price or latest quoted bid price. On April 30, 2012, fair value pricing was not used in pricing foreign securities.

Debt securities of sufficient credit quality with original maturities of 60 days or less generally are valued at amortized cost which approximates fair value. The amortized cost method involves valuing a security at its cost, plus accretion of discount or minus amortization of premium over the period until maturity.

Investments in open-end mutual funds are valued at net asset value.

Investments which are not valued using any of the methods discussed above, are valued at their fair value, as determined by procedures established in good faith and approved by the Board of Trustees. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary in determining the fair value of portfolio securities, unless the responsibility has been delegated to the Management Valuation Team of Wells Fargo Funds


Table of Contents

 

Notes to Financial Statements (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     33   

Management, LLC (“Funds Management”). The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Fair Value Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees considers for ratification any valuation actions taken by the Valuation Committee or the Management Valuation Team.

Valuations of fair valued securities are compared to the next actual sales price when available, or other appropriate market information to assess the continued appropriateness of the fair valuation methodology used. These securities are fair valued on a day-to-day basis, taking into consideration changes to appropriate market information and any significant changes to the input factors considered in the valuation process until there is a readily available price provided on the exchange or by an independent pricing service. Valuations received from an independent pricing service or broker quotes are periodically validated by comparisons to most recent trades and valuations provided by other independent pricing services in addition to the review of prices by the adviser and/or sub-adviser. Unobservable inputs used in determining fair valuations are identified based on the type of security, taking into consideration factors utilized by market participants in valuing the investment, knowledge about the issuer and the current market environment.

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. Assets, including investment securities, and liabilities denominated in foreign currency are translated into U.S. dollars at the prevailing rates of exchange at the date of valuation. Purchases and sales of securities, and income and expenses are translated at the prevailing rate of exchange on the respective dates of such transactions. Reported net realized foreign exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting in changes in exchange rates.

The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are recorded with net realized and unrealized gains or losses from investments. Gains and losses from certain foreign currency transactions are treated as ordinary income for U.S. federal income tax purposes.

Reverse repurchase agreements

To obtain short-term financing, the Fund may enter into reverse repurchase agreements with banks and other financial institutions, which are deemed by the investment adviser to be creditworthy. At the time the Fund enters into a reverse repurchase agreement, it will establish a segregated account with the custodian containing qualified assets having a value not less than the repurchase price, including accrued interest. If the counterparty to the transaction is rendered insolvent, the Fund may be delayed or limited in the repurchase of the collateral securities.

Forward foreign currency contracts

The Fund may be subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on foreign currency related transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains or losses on the contracts. This risk is mitigated by having a master netting arrangement between the Fund and the counterparty.

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 commitments 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.


Table of Contents

 

34   Wells Fargo Advantage Multi-Sector Income Fund   Notes to Financial Statements (Unaudited)

Term loans

The Fund may invest in term loans. The loans are marked-to-market daily and the Fund begins earning interest when the loans are funded. The loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. The Fund assumes the credit risk of the borrower and there could be potential loss to the Fund in the event of default by the borrower.

Security transactions and income recognition

Securities transactions are recorded on a trade date basis. Realized gains or losses are reported on the basis of identified cost of securities delivered.

Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily based on the effective interest method. To the extent debt obligations are placed on non-accrual status, any related interest income may be reduced by writing off interest receivables when the collection of all or a portion of interest has become doubtful based on consistently applied procedures. If the issuer subsequently resumes interest payments or when the collectability of interest is reasonably assured, the debt obligation is removed from non-accrual status.

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the Fund is informed of the ex-dividend date.

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 income tax regulations, which may differ from 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.

Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years which began after December 22, 2010 for an unlimited period. However, any losses incurred are required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than be considered all short-term as under previous law. In addition, the Fund may elect to defer any portion of a post-October capital loss or qualified late-year ordinary loss to the first day of the following taxable year. A post-October capital loss is the greatest of the net capital loss, net short-term capital loss or net long-term capital loss for the portion of the taxable year after October 31. A qualified late-year ordinary loss is the net loss comprised of (a) net gain or loss from the sale or other disposition of capital assets for the portion of the taxable year after October 31, and (b) other ordinary income or loss for the portion of the taxable year after December 31.

As of October 31, 2011, the Fund had net capital loss carryforwards, which were available to offset future net realized capital gains, in the amount of $110,049,569 with $20,598,096 expiring in 2016 and $89,451,473 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


Table of Contents

 

Notes to Financial Statements (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     35   

lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

n  

Level 1 – quoted prices in active markets for identical securities

 

n  

Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risk, etc.)

 

n  

Level 3 – significant unobservable inputs (including the Fund’s own assumptions in determining the fair value of investments)

The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

As of April 30, 2012, the inputs used in valuing the Fund’s assets, which are carried at fair value, were as follows:

 

Investments in Securities  

Quoted Prices

(Level 1)

   

Significant Other
Observable Inputs

(Level 2)

   

Significant

Unobservable Inputs

(Level 3)

    Total  

Agency securities

  $ 0      $ 69,008,271      $ 0      $ 69,008,271   

Asset-backed securities

    0        723,383        0        723,383   

Convertible debentures

    0        1,130,688        0        1,130,688   

Corporate bonds and notes

    0        382,851,650        0        382,851,650   

Equity securities

       

Common stocks

    326,146        0        5,225        331,371   

Preferred stocks

    646,650        0        0        646,650   

Foreign corporate bonds and notes

    0        36,523,882        0        36,523,882   

Foreign government bonds

    0        187,270,753        0        187,270,753   

Non-agency mortgage backed securities

    0        22,828,952        0        22,828,952   

Term loans

    0        127,634,485        11,018,263        138,652,748   

Yankee corporate bonds and notes

    0        52,748,183        0        52,748,183   

Yankee government bonds

    0        303,494        0        303,494   

Short-term investments

       

Investment companies

    23,750,607        0        0        23,750,607   
    $ 24,723,403      $ 881,023,741      $ 11,023,488      $ 916,770,632   

Further details on the major security types listed above can be found in the Portfolio of Investments.

As of April 30, 2012, the inputs used in valuing the Fund’s other financial instruments, which are carried at fair value, were as follows:

 

Other financial instruments  

Quoted Prices

(Level 1)

   

Significant Other
Observable Inputs

(Level 2)

   

Significant

Unobservable Inputs

(Level 3)

    Total  

Forward foreign currency contracts+

  $ 0      $ (405,836   $ 0      $ (405,836

 

+ Forward foreign currency contracts are presented at the unrealized gains or losses on the instrument.

Transfers in and transfers out are recognized at the end of the reporting period. For the six months ended April 30, 2012, the Fund did not have any significant transfers into/out of Level 1 and Level 2.


Table of Contents

 

36   Wells Fargo Advantage Multi-Sector Income Fund   Notes to Financial Statements (Unaudited)

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

     Corporate
bonds and
notes
     Common
stocks
    

Term

loans

     Yankee
corporate
bonds and
notes
     Total  

Balance as of October 31, 2011

   $ 5,243,760       $ 0       $ 3,971,316       $ 191       $ 9,215,267   

Accrued discounts (premiums)

     1,284         0         14,846         0         16,130   

Realized gains (losses)

     0         0         378         0         378   

Change in unrealized gains (losses)

     (118,396      0         11,619         0         (106,777

Purchases

     0         0         1,301,625         0         1,301,625   

Sales

     0         0         (11,834      0         (11,834

Transfers into Level 3

     0         5,225         8,555,924         0         8,561,149   

Transfers out of Level 3

     (5,126,648      0         (2,825,611      (191      (7,952,450

Balance as of April 30, 2012

   $ 0       $ 5,225       $ 11,018,263       $ 0       $ 11,023,488   

Change in unrealized gains (losses) relating to securities still held at April 30, 2012

   $ 0       $ 0       $ 27,298       $ 0       $ 27,298   

4. TRANSACTIONS WITH AFFILIATES AND OTHER EXPENSES

Advisory fee

Funds Management, an indirect wholly owned subsidiary of Wells Fargo & Company (“Wells Fargo”) is the adviser to the Fund and is entitled to receive a fee at an annual rate of 0.55% of the Fund’s average daily total assets. Total assets consist of net assets of the Fund plus borrowings or other leverage for investment purposes to the extent excluded in calculating net assets.

Funds Management has retained the services of certain sub-advisers to provide daily portfolio management to the Fund. The fees for sub-advisory services are borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management, is a sub-adviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate of 0.30% of the Fund’s average daily total assets. First International Advisors, LLC, an affiliate of Funds Management and an indirect, wholly owned subsidiary of Wells Fargo, is also a sub-adviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate of 0.10% of the Fund’s average daily total assets.

Administration fee

Funds Management also serves as the administrator to the Fund providing the Fund with facilities, equipment and personnel. Funds Management is entitled to receive an annual administration fee from the Fund equal to 0.05% of the Fund’s average daily total assets.

5. CAPITAL SHARE TRANSACTIONS

The Fund has authorized capital of 100,000,000 shares with no par value. For the six months ended April 30, 2012 and the year ended October 31, 2011, the Fund did not issue any shares.

6. BORROWING AND LEVERAGE TRANSACTIONS

The Fund has borrowed $230 million through a secured debt financing agreement administered by a major financial institution (the “Facility”). The Facility has a commitment amount of $230 million which expires on February 25, 2013, at which point it may be renegotiated and potentially renewed for another one-year term. At April 30, 2012, the Fund had secured borrowings outstanding in the amount of $230,707,166 (including accrued interest and usage and commitment fees payable).

The Fund’s borrowing under the Facility are generally charged interest at a rate based on the rates of the commercial paper notes issued to fund the Fund’s borrowings or at the London Interbank Offered Rate (LIBOR) plus 1.0%. During the six months ended April 30, 2012, an effective interest rate of 0.43% was incurred on the borrowings. Interest expense of $361,039, representing 0.11% of the Fund’s average daily net assets, was incurred during the six months ended April 30, 2012.


Table of Contents

 

Notes to Financial Statements (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     37   

The Fund has pledged all of its assets to secure the borrowings and currently pays, on a monthly basis, a usage fee an annual rate of 0.40% of the daily average outstanding principal amount of borrowings and a commitment fee at an annual rate of 0.40% of the product of (i) the daily average outstanding principal amount of borrowings and (ii) 1.02. Prior to February 27, 2012, both the useage fee and commitment fee were charged at an annual rate of 0.50%. The secured borrowing fees on the Statement of Operations of $794,074 represents the usage fee, commitment fee and structuring fees. For the six months ended April 30, 2012, the Fund paid structuring fees in the amount of $42,582.

During the six months ended April 30, 2012, the Fund entered into reverse repurchase agreements that had an average daily balance outstanding of $66,056,000 with an effective annual interest rate of 0.20% and paid interest of $132,112 representing 0.04% of the Fund’s average daily net assets. The maximum amount outstanding under reverse repurchase agreements during the six months ended April 30, 2012 was $99,567,272 (including accrued interest).

7. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the six months ended April 30, 2012 were as follows:

 

Purchases at Cost     Sales Proceeds  
U.S. Government     Non-U.S. Government     U.S. Government     Non-U.S. Government  
$ 0      $ 503,399,409      $ 132,718,722      $ 316,697,737   

As of April 30, 2012, the Fund had unfunded loan commitments of $2,772,000.

8. DERIVATIVE TRANSACTIONS

During the six months ended April 30, 2012, the Fund entered into forward foreign currency exchange contracts for economic hedging purposes.

At April 30, 2012, the Fund had forward foreign currency contracts outstanding as follows:

Forward foreign currency contracts to buy:

 

Exchange Date   Counterparty   Contracts to
Receive
    U.S. Value at
April 30, 2012
    In Exchange
for U.S. $
    Unrealized
Gains
(Losses)
 
06/04/2012   State Street Bank     27,200,000  MYR    $ 8,967,427      $ 8,973,936      $ (6,509

Forward foreign currency contracts to sell:

 

Exchange Date   Counterparty   Contracts to
Deliver
    U.S. Value at
April 30, 2012
    In Exchange
for U.S. $
    Unrealized
Gains
(Losses)
 
05/02/2012   State Street Bank     1,220,000,000  HUF    $ 5,631,784      $ 5,207,000      $ (424,784
05/29/2012   State Street Bank     69,570,000  ZAR      8,915,841        8,941,298        25,457   

The Fund had average contract amounts of $74,427,606 and $23,219,686 in forward foreign currency contracts to buy and forward foreign currency contracts to sell, respectively, during the six months ended April 30, 2012.

The fair value, realized gains or losses and change in unrealized gains or losses on derivative instruments are reflected in the appropriate financial statements.

9. INDEMNIFICATION

Under the Fund’s organizational documents, the officers and directors are indemnified against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund may enter into contracts with service providers that contain a variety of indemnification clauses. The Fund’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

 

38   Wells Fargo Advantage Multi-Sector Income Fund   Notes to Financial Statements (Unaudited)

10. NEW ACCOUNTING PRONOUNCEMENTS

In December 2011, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) No. 2011-11, Disclosures about Offsetting Assets and Liabilities. ASU 2011-11, which amends FASB ASC Topic 210, Balance Sheet, creates new disclosure requirements which require entities to disclose both gross and net information for derivatives and other financial instruments that are either offset in the Statement of Assets and Liabilities or subject to an enforceable master netting arrangement or similar agreement. The disclosure requirements are effective for interim and annual reporting periods beginning on or after January 1, 2013. Management is currently assessing the potential impact, in addition to expanded financial statement disclosure, that may result from adopting this ASU.

In May 2011, FASB issued ASU No. 2011-04 Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. ASU No. 2011-04 amends FASB ASC Topic 820, Fair Value Measurements, to establish common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with GAAP. The ASU is effective prospectively for interim and annual periods beginning after December 15, 2011. Management expects that adoption of the ASU will result in additional disclosures in the financial statements, as applicable.

In April 2011, FASB issued ASU No. 2011-03 Reconsideration of Effective Control for Repurchase Agreements. ASU No. 2011-03 amends FASB ASC Topic 860, Transfers and Servicing, specifically the criteria required to determine whether a repurchase agreement (repo) and similar agreements should be accounted for as sales of financial assets or secured borrowings with commitments. ASU No. 2011-03 changes the assessment of effective control by focusing on the transferor’s contractual rights and obligations and removing the criterion to assess its ability to exercise those rights or honor those obligations. This could result in changes to the way entities account for certain transactions including repurchase agreements, mortgage dollar rolls and reverse repurchase agreements. The ASU will become effective on a prospective basis for new transfers and modifications to existing transactions as of the beginning of the first interim or annual period beginning on or after December 15, 2011. Management has evaluated the impact of adopting the ASU and expects no significant changes.

11. SUBSEQUENT DISTRIBUTIONS

The Fund declared the following distributions to common shareholders:

 

Declaration Date   Record Date   Payable Date   Net Investment Income
April 20, 2012   May 15, 2012   June 1, 2012   $0.1000
May 18, 2012   June 13, 2012   July 2, 2012   $0.1000
June 22, 2012   July 16, 2012   August 1, 2012   $0.1000

These distributions are not reflected in the accompanying financial statements.


Table of Contents

 

Other Information (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     39   

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 Web site at www.wellsfargo.com/advantagefunds, or visiting the SEC Web site at www.sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s Web site at www.wellsfargo.com/advantagefunds or by visiting the SEC Web site at www.sec.gov.

ANNUAL MEETING OF SHAREHOLDERS

On February 13, 2012, an Annual Meeting of Shareholders for the Fund was held to consider the following proposal. The results of the proposal are indicated below.

Proposal 1 – Election of Trustees:

 

Net Assets Voted “For”

    Judith M. Johnson         $ 615,634,183   

Net Assets Voted “Withheld”

       $ 8,205,283   

Net Assets Voted “For”

    Leroy Keith, Jr.         $ 614,192,172   

Net Assets Voted “Withheld”

       $ 9,647,294   

Net Assets Voted “For”

    Donald C. Willeke         $ 614,584,532   

Net Assets Voted “Withheld”

             $ 9,254,934   

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Fund are publicly available on the Fund’s Web site (wellsfargoadvantagefunds.com) on a monthly, 30-day or more delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC Web site 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.


Table of Contents

 

40   Wells Fargo Advantage Multi-Sector Income Fund   Other Information (Unaudited)

BOARD OF TRUSTEES

The following table provides basic information about the Board of Trustees (the “Trustees”) and Officers of the Fund. Each of the Trustees and Officers listed below acts in identical capacities for the Wells Fargo Advantage family of funds, which consists of 137 funds comprising the Wells Fargo Funds Trust, Wells Fargo Variable Trust, Wells Fargo Master Trust, and four closed-end funds, including the Fund (collectively the “Fund Complex”). All of the Trustees are also Members of the Audit and Governance Committees of each Trust in the Fund Complex. The mailing address of each Trustee and Officer is 525 Market Street, 12th Floor, San Francisco, CA 94105. The Board of Trustees is classified into three classes of which one is elected annually. Each Trustee serves a three-year term concurrent with the class from which the Trustee is elected. Each Officer serves an indefinite term.

Independent Trustees

 

Name and

Year of Birth

 

Position Held and

Length of Service

  Principal Occupations During Past Five Years  

Other

Directorships During
Past Five Years

Peter G. Gordon
(Born 1942)
  Trustee, since 2010; Chairman, since 2010 (Lead Trustee since 2010)   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 2010   Retired. Prior thereto, President and CEO of BellSouth Advertising and Publishing Corp. from 2005 to 2007, President and CEO of BellSouth Enterprises from 2004 to 2005 and President of BellSouth Consumer Services from 2000 to 2003. Emeritus member of the Iowa State University Foundation Board of Governors. Emeritus Member of the Advisory Board of Iowa State University School of Business. Mr. Harris is a certified public accountant.   CIGNA Corporation; Deluxe Corporation; Asset Allocation Trust
Judith M. Johnson
(Born 1949)
  Trustee, since 2010   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 2003   Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services.   Trustee, Virtus Fund Complex (consisting of 40 portfolios as of 12/31/11); Asset Allocation Trust
David F. Larcker
(Born 1950)
  Trustee, since 2010   James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Director of Corporate Governance Research Program and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.   Asset Allocation Trust
Olivia S. Mitchell
(Born 1953)
  Trustee, since 2010   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


Table of Contents

 

Other Information (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     41   

Name and

Year of Birth

 

Position Held and

Length of Service

  Principal Occupations During Past Five Years  

Other

Directorships During
Past Five Years

Timothy J. Penny
(Born 1951)
  Trustee, since 2010   President and CEO of Southern Minnesota Initiative Foundation, a non-profit organization, since 2007 and Senior Fellow at the Humphrey Institute Policy Forum at the University of Minnesota since 1995. Member of the Board of Trustees of NorthStar Education Finance, Inc., a non-profit organization, since 2007.   Asset Allocation Trust
Michael S. Scofield
(Born 1943)
  Trustee, since 2003  

Served on the Investment Company Institute’s Board of Governors and Executive Committee from 2008-2011 as well the Governing Council of the Independent Directors Council from 2006-2011 and the Independent Directors Council Executive Committee from 2008-2011. Chairman of the IDC from 2008-2010. Institutional Investor (Fund Directions) Trustee of Year in 2007. Trustee of the Evergreen Funds (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield and former Director and Chairman, Branded Media Corporation (multi-media branding company).

  Asset Allocation Trust
Donald C. Willeke
(Born 1940)
  Trustee, since 2010   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 Free Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).   Asset Allocation Trust

Officers

 

Name and

Year of Birth

  Position Held and
Length of Service
  Principal Occupations During Past Five Years    
Karla M. Rabusch
(Born 1959)
  President, since 2010   Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003. Senior Vice President and Chief Administrative Officer of Wells Fargo Funds Management, LLC from 2001 to 2003.    
C. David Messman
(Born 1960)
  Secretary, since 2010; Chief Legal Counsel, since 2010   Senior Vice President and Secretary of Wells Fargo Funds Management, LLC since 2001. Vice President and Managing Senior Counsel of Wells Fargo Bank, N.A. since 1996.    
Kasey Phillips
(Born 1970)
  Treasurer, since 2005   Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2006 to 2010. Treasurer of the Evergreen Funds from 2005 to 2010.    
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.    
Jeremy DePalma
(Born 1974)
  Assistant Treasurer, since 2005   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.    
Debra Ann Early
(Born 1964)
  Chief Compliance Officer, since 2010   Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007 and Senior Audit Manager of PricewaterhouseCoopers LLP from 1998 to 2004.    


Table of Contents

 

42   Wells Fargo Advantage Multi-Sector Income Fund   Other Information (Unaudited)

BOARD CONSIDERATION OF INVESTMENT ADVISORY AND SUB-ADVISORY AGREEMENTS:

Under Section 15 of the Investment Company Act of 1940 (the “1940 Act”), the Board of Trustees (the “Board”) of Wells Fargo Advantage Multi-Sector Income Fund (the “Fund”), all the members of which have no direct or indirect interest in the investment advisory and sub-advisory agreements and are not “interested persons” of the Fund, as defined in the 1940 Act (the “Independent Trustees”), must determine whether to approve the continuation of the Fund’s investment advisory and sub-advisory agreements. In this regard, at an in person meeting held on March 29-30, 2012 (the “Meeting”), the Board reviewed and re-approved: (i) an investment advisory agreement with Wells Fargo Funds Management, LLC (“Funds Management”); (ii) an investment sub-advisory agreement with Wells Capital Management Incorporated (“Wells Capital Management”); and (iii) an investment sub-advisory agreement with First International Advisors, LLC (“First International”) for the Fund. The investment advisory agreement with Funds Management and the investment sub-advisory agreements with Wells Capital Management and First International (the “Sub-Advisers”) are collectively referred to as the “Advisory Agreements.”

At the Meeting, the Board considered the factors and reached the conclusions described below relating to the selection of Funds Management and the Sub-Advisers and the continuation of the Advisory Agreements. Prior to the Meeting, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. The Board also met throughout the year and received information that was useful to them in considering the continuation of the Advisory Agreements. The Independent Trustees were assisted in their evaluation of the Advisory Agreements by independent legal counsel, from whom they received separate legal advice and with whom they met separately from Funds Management.

In providing information to the Board, Funds Management was guided by a detailed set of requests submitted by the Independent Trustees’ independent legal counsel on their behalf at the start of the Board’s annual contract renewal process earlier in 2012. In approving the Advisory Agreements, the Board did not identify any particular information or consideration that was all-important or controlling, and each Trustee likely attributed different weights to various factors.

Nature, extent and quality of services

The Board received and considered various information regarding the nature, extent and quality of services provided to the Fund by Funds Management and the Sub-Advisers under the Advisory Agreements. The Board also received and considered, among other things, information about the background and experience of senior management of Funds Management, and the qualifications, backgrounds, tenures and responsibilities of the portfolio managers primarily responsible for the day-to-day portfolio management of the Fund.

The Board evaluated the ability of Funds Management and the Sub-Advisers, based on their respective financial condition, resources, reputation and other attributes, to attract and retain qualified investment professionals, including research, advisory, and supervisory personnel. The Board further considered the compliance programs and compliance records of Funds Management and the Sub-Advisers. In addition, the Board took into account the administrative services provided to the Fund by Funds Management and its affiliates.

The Board’s decision to approve the continuation of the Advisory Agreements was based on a comprehensive evaluation of information provided to it. In considering these matters, the Board considered not only the specific information presented in connection with the Meeting, but also the knowledge gained over time through interaction with Funds Management and the Sub-Advisers about various topics, including Funds Management’s oversight of service providers. The above factors, together with those referenced below, are some of the most important, but not necessarily all, factors considered by the Board in concluding that the nature, extent and quality of the investment advisory services provided to the Fund by Funds Management and the Sub-Advisers supported the re-approval of the Advisory Agreements. Although the Board considered the continuation of the Advisory Agreements for the Fund as part of the larger process of considering the continuation of the advisory agreements for all of the funds in the complex, its decision to continue the Advisory Agreements for the Fund was ultimately made on a fund-by-fund basis.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2011. The Board also considered these results in comparison to the median performance of a universe of relevant funds (the “Universe”) that was determined by Lipper Inc. (“Lipper”) to be similar to the Fund and to other comparative data. The


Table of Contents

 

Other Information (Unaudited)   Wells Fargo Advantage Multi-Sector Income Fund     43   

Board noted that Lipper did not provide data comparing the Fund’s performance to a benchmark index. Lipper is an independent provider of investment company data. The Board received a description of the methodology used by Lipper to select the funds in the Universe. The Board noted that the performance of the Fund was in range of or higher than the median performance of the Universe for the periods under review.

The Board received and considered information regarding the Fund’s contractual advisory fee and net operating expense ratio and its various components, including actual management fees (which reflect fee waivers, if any), transfer agent, custodian and other non-management fees. The Board also considered the ratio in comparison to the median ratio of an expense Universe and a narrower expense group of funds (each, an “Expense Group”) that was determined by Lipper to be similar to the Fund. The Board received a description of the methodology used by Lipper to select the funds in the Fund’s Expense Group. The Board noted that the net operating expense ratio of the Fund was lower than the Fund’s Expense Group’s median net operating expense ratio.

Based on the above-referenced considerations and other factors, the Board concluded that the overall performance and expense structure of the Fund supported the re-approval of the Advisory Agreements for the Fund.

Investment advisory and sub-advisory fee rates

The Board reviewed and considered the contractual investment advisory fee rate that is payable by the Fund to Funds Management for investment advisory services (the “Advisory Agreement Rate”), both on a stand-alone basis and on a combined basis with the Fund’s administration fee rate. The Board took into account the separate administrative and other services covered by the administration fee rate. The Board also reviewed and considered the contractual investment sub-advisory fee rate that is payable by Funds Management to each Sub-Adviser for investment sub-advisory services (the “Sub-Advisory Agreement Rate”). In addition, the Board reviewed and considered the existing fee waiver/cap arrangements applicable to the Advisory Agreement Rate and considered the Advisory Agreement Rate after taking the waivers/caps into account (the “Net Advisory Rate”).

The Board received and considered information comparing the Advisory Agreement Rate and Net Advisory Rate with that of other funds in the Fund’s Expense Group median. The Board noted that the Advisory Agreement Rate and Net Advisory Rate for the Fund were in range of the median rates of the Fund’s Expense Group.

The Board also received and considered information about the nature and extent of services offered and fee rates charged by Funds Management and the Sub-Advisers to other types of clients. In this regard, the Board received information about differences between the services, and the compliance, reporting, and other legal burdens and risks of providing investment advice to registered funds and those associated with providing advice to non-registered fund clients such as collective funds or institutional separate accounts.

The Board determined that the Advisory Agreement Rate for the Fund, both before and after waivers, was reasonable in light of the Fund’s Expense Group information, the net expense ratio commitments, the services covered by the Advisory Agreements and other information provided. The Board also reviewed and considered each Sub-Advisory Agreement Rate and concluded that each Sub-Advisory Agreement Rate was reasonable in light of the services covered by each sub-advisory agreement and other information provided.

Profitability

The Board received and considered a profitability analysis of Funds Management, as well as an analysis of the profitability to the collective Wells Fargo businesses that provide services to the Fund. It considered that the information provided to it was necessarily estimated, and that the profitability information provided to it, especially on a fund-by-fund basis, did not necessarily provide a precise tool for evaluating the appropriateness of the Fund’s Advisory Agreement Rate in isolation. It noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on, among other things, the size and type of fund. The Board concluded that the profitability reported by Funds Management was not unreasonable.

The Board did not consider separate profitability information with respect to the Sub-Advisers, because, as affiliates of Funds Management, their profitability information was subsumed in the collective Wells Fargo profitability analysis provided by Funds Management.


Table of Contents

 

44   Wells Fargo Advantage Multi-Sector Income Fund   Other Information (Unaudited)

Economies of scale

The Board considered that, in light of the fact that the Fund was not making a continuous offering of its shares, the likelihood of realizing economies of scale following the Fund’s initial offering was relatively low, although the Board determined to continue to monitor the Fund’s expense ratio and the profitability of the investment advisory agreement to Funds Management in light of future growth of the Fund.

Other benefits to Funds Management and the Sub-Advisers

The Board received and considered information regarding potential “fall-out” or ancillary benefits received by Funds Management and its affiliates, including the Sub-Advisers, as a result of their relationship with the Fund. Ancillary benefits could include, among others, benefits directly attributable to the relationship of Funds Management and the Sub-Advisers with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Advisers’ business as a result of their relationship with the Fund (such as the ability to market to shareholders other financial products offered by Funds Management and its affiliates, including the Sub-Advisers).

Other factors and broader review

As discussed above, the Board reviews detailed materials received from Funds Management and the Sub-Advisers annually as part of the re-approval process under Section 15 of the 1940 Act and also reviews and assesses information about the quality of the services that the Fund receives throughout the year. In this regard, the Board has reviewed reports of Funds Management at each of its quarterly meetings, which include, among other things, portfolio reviews and performance reports. In addition, the Board confers with portfolio managers at various times throughout the year.

Conclusion

After considering the above-described factors and based on its deliberations and its evaluation of the information described above, the Board unanimously approved the continuation of the Advisory Agreements for an additional one-year period.


Table of Contents

 

Automatic Dividend Reinvestment Plan   Wells Fargo Advantage Multi-Sector Income Fund     45   

AUTOMATIC DIVIDEND REINVESTMENT PLAN

All common shareholders are eligible to participate in the Automatic Dividend Reinvestment Plan (“the Plan”). Pursuant to the Plan, unless a common shareholder is ineligible or elects otherwise, all cash dividends and capital gains distributions are automatically reinvested by Computershare Trust Company, N.A., as agent for shareholders in administering the Plan (“Plan Agent”), in additional common shares of the Fund. Whenever the Fund declares an ordinary income dividend or a capital gain dividend (collectively referred to as “dividends”) payable either in shares or in cash, nonparticipants in the Plan will receive cash, and participants in the Plan will receive the equivalent in shares of common shares. The shares are acquired by the Plan Agent for the participant’s account, depending upon the circumstances described below, either (i) through receipt of additional unissued but authorized common shares from the Fund (“newly issued common shares”) or (ii) by purchase of outstanding common shares on the open-market (open-market purchases) on the NYSE Amex or elsewhere. If, on the payment date for any dividend or distribution, the net asset value per share of the common shares is equal to or less than the market price per common share plus estimated brokerage commissions (“market premium”), the Plan Agent will invest the amount of such dividend or distribution in newly issued shares on behalf of the participant. The number of newly issued common shares to be credited to the participant’s account will be determined by dividing the dollar amount of the dividend by the net asset value per share on the date the shares are issued, provided that the maximum discount from the then current market price per share on the date of issuance may not exceed 5%. If on the dividend payment date the net asset value per share is greater than the market value or market premium (“market discount”), the Plan Agent will invest the dividend amount in shares acquired on behalf of the participant in open-market purchases. There will be no brokerage charges with respect to shares issued directly by the Fund as a result of dividends or capital gains distributions payable either in shares or in cash. However, each participant will pay a pro rata share of brokerage commissions incurred with respect to the Plan Agent’s open-market purchases in connection with the reinvestment of dividends. The automatic reinvestment of dividends and distributions will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. All correspondence concerning the Plan should be directed to the Plan Agent at P.O. Box 43010, Providence, Rhode Island 02940-3010 or by calling 1-800-730-6001.


Table of Contents

 

46   Wells Fargo Advantage Multi-Sector Income Fund   List of Abbreviations

The following is a list of common abbreviations for terms and entities which may have appeared in this report.

 

ACB —  Agricultural Credit Bank
ADR —  American Depository Receipt
ADS —  American Depository Shares
AGC-ICC —  Assured Guaranty Corporation - Insured Custody Certificates
AGM —  Assured Guaranty Municipal
AMBAC —  American Municipal Bond Assurance Corporation
AMT —  Alternative Minimum Tax
AUD —  Australian Dollar
BAN —  Bond Anticipation Notes
BHAC —  Berkshire Hathaway Assurance Corporation
BRL —  Brazil Real
CAB —  Capital Appreciation Bond
CAD —  Canadian Dollar
CCAB —  Convertible Capital Appreciation Bond
CDA —  Community Development Authority
CDO —  Collateralized Debt Obligation
CHF —  Swiss Franc
COP —  Certificate of Participation
CR —  Custody Receipts
DKK —  Danish Krone
DRIVER —  Derivative Inverse Tax-Exempt Receipts
DW&P —  Department of Water & Power
DWR —  Department of Water Resources
ECFA —  Educational & Cultural Facilities Authority
EDA —  Economic Development Authority
EDFA —  Economic Development Finance Authority
ETF —  Exchange-Traded Fund
EUR —  Euro
FFCB —  Federal Farm Credit Bank
FGIC —  Financial Guaranty Insurance Corporation
FHA —  Federal Housing Authority
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 Depository Receipt
GNMA —  Government National Mortgage Association
GO —  General Obligation
HCFR —  Healthcare Facilities Revenue
HEFA —  Health & Educational Facilities Authority
HEFAR —  Higher Education Facilities Authority Revenue
HFA —  Housing Finance Authority
HFFA —  Health Facilities Financing Authority
HKD —  Hong Kong Dollar
HUF —  Hungarian Forint
IBC —  Insured Bond Certificate
IDA —  Industrial Development Authority
IDAG —  Industrial Development Agency
IDR —  Industrial Development Revenue
IEP —  Irish Pound
JPY —  Japanese Yen
KRW —  Republic of Korea Won
LIBOR —  London Interbank Offered Rate
LIQ —  Liquidity Agreement
LLC —  Limited Liability Company
LLP —  Limited Liability Partnership
LOC —  Letter of Credit
LP —  Limited Partnership
MBIA —  Municipal Bond Insurance Association
MFHR —  Multi-Family Housing Revenue
MSTR —  Municipal Securities Trust Receipts
MTN —  Medium Term Note
MUD —  Municipal Utility District
MXN —  Mexican Peso
MYR —  Malaysian Ringgit
NATL-RE —  National Public Finance Guarantee Corporation
NOK —  Norwegian Krone
NZD —  New Zealand Dollar
PCFA —  Pollution Control Finance Authority
PCR —  Pollution Control Revenue
PFA —  Public Finance Authority
PFFA —  Public Facilities Financing Authority
PFOTER —  Puttable Floating Option Tax-Exempt Receipts
plc —  Public Limited Company
PLN —  Polish Zloty
PUTTER —  Puttable Tax-Exempt Receipts
R&D —  Research & Development
RDA —  Redevelopment Authority
RDFA —  Redevelopment Finance Authority
REIT —  Real Estate Investment Trust
ROC —  Reset Option Certificates
SAVRS —  Select Auction Variable Rate Securities
SBA —  Small Business Authority
SEK —  Swedish Krona
SFHR —  Single Family Housing Revenue
SFMR —  Single Family Mortgage Revenue
SGD —  Singapore Dollar
SKK —  Slovakian Koruna
SPA —  Standby Purchase Agreement
SPDR —  Standard & Poor’s Depositary Receipts
STRIPS —  Separate Trading of Registered Interest and Principal       Securities
TAN —  Tax Anticipation Notes
TBA —  To Be Announced
TIPS —  Treasury Inflation-Protected Securities
TRAN —  Tax Revenue Anticipation Notes
TCR —  Transferable Custody Receipts
TRY —  Turkish Lira
TTFA —  Transportation Trust Fund Authority
TVA —  Tennessee Valley Authority
XLCA —  XL Capital Assurance
ZAR —  South African Rand
 


Table of Contents

 

This page is intentionally left blank.


Table of Contents

 

This page is intentionally left blank.


Table of Contents

LOGO

 

LOGO

Transfer Agent, Registrar, Shareholder Servicing

Agent & Dividend Disbursing Agent

Computershare Trust Company, N.A.

P.O. Box 43010

Providence, RI 02940-3010

1-800-730-6001

Web site: wellsfargoadvantagefunds.com

Wells Fargo Funds Management, LLC, is a subsidiary of Wells Fargo & Company and is an affiliate of Wells Fargo & Company’s broker/dealer subsidiaries.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2012 Wells Fargo Funds Management, LLC. All rights reserved.

 

LOGO     

209718 06-12

SMSI/SAR159 04-12

 


Table of Contents

ITEM 2. CODE OF ETHICS

Not required in this filing

ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT

Not required in this filing.

ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Not required in this filing.

ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS

Not required in this filing.

ITEM 6. SCHEDULE OF INVESTMENTS

The Schedule of Investments is included as part of the report to shareholders filed under Item 1 of this Form.

ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

Not applicable.

ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

PORTFOLIO MANAGERS

Niklas Nordenfelt, CFA

Mr. Nordenfelt is jointly responsible for managing the Fund, which he has managed since 2010. Mr. Nordenfelt joined Wells Capital Management in 2003, where he is a senior portfolio manager and co-manager of the Sutter High Yield Fixed Income team. Education: B.S., Economics, University of California, Berkeley.

Philip Susser

Mr. Susser is jointly responsible for managing the Fund, which he has managed since 2010. Mr. Susser joined Wells Capital Management in 2001, where he is a senior portfolio manager and co-manager of the Sutter High Yield Fixed Income team. Education: B.A., Economics, University of Pennsylvania; J.D., University of Michigan.

Janet S. Rilling, CFA, CPA

Mr. Rilling is jointly responsible for managing the Fund, which she has managed since 2011. Ms. Rilling has been with Wells Capital Management or one of its affiliate firms since 2005. Ms Rilling has been working in the investment management field since 1995.

Michael J. Bray, CFA

Mr. Bray is jointly responsible for managing the Fund, which he has managed since 2011. Mr. Bray joined Wells Capital Management in 2005 as a portfolio manager on the Customized Fixed Income Team specializing in government, agency and interest rate derivative instruments. Prior to joining Wells Capital Management, Mr. Bray was a principal responsible for multi-currency yield curve arbitrage business at Windward Capital, LLC from 2004 to 2005. From 1996 to 2004, he was the managing director at State Street Research and Management, focusing on mutual fund and institutional account management. Education: B.S., Math and Actuarial Science, University of Connecticut, Storrs; M.B.A., Pennsylvania State University.


Table of Contents

Christopher Kauffman, CFA

Mr. Kauffman is jointly responsible for managing Fund, which he has managed since 2008. Mr. Kauffman has been with Wells Capital Management or an affiliate firm since 2003, where he is a senior portfolio manager with Wells Fargo affiliate Tattersall Advisory Group (TAG). Education: B.A., Finance and Economics, Master’s, Business Administration with an emphasis in finance, Washington University in St. Louis, MO.

Anthony Norris

Mr. Norris is jointly responsible for managing Fund, which he has managed since 2003. Mr. Norris is Managing Director, Chief Investment Officer, and Senior Portfolio Manager with First International Advisors. He has been with Wells Capital or one of its affiliate firms since 1990.

Peter Wilson

Mr. Wilson is jointly responsible for managing the Fund, which he has managed since 2003. Mr. Wilson is Managing Director, Chief Operating Officer, and Senior Portfolio Manager with First International Advisors in London. Mr. Wilson has been with Wells Capital or one of its affiliate firms since 1989. He was educated in Canada, Hong Kong and England.

Michael Lee

Mr. Lee is jointly responsible for managing the Fund, which he has managed since 2003. Mr. Lee joined First International Advisors in 1992, where he currently serves as a Director of Trading and Senior Portfolio Manager.

Alex Perrin

Mr. Perrin is jointly responsible for managing the Fund, which he has managed since 2003. Mr. Perrin joined First International Advisors in 1992, where he currently serves as Director of Research and Senior Portfolio Manager.

Christopher Wightman

Mr. Wightman is jointly responsible for managing the Fund, which he has managed since 2012. Mr. Wightman joined First International Advisors in 2011, where he currently serves as Senior Portfolio Manager. Prior to joining First International Advisors, he served as a senior investment manager specializing in global fixed income strategies at JP Morgan Chase.

OTHER FUNDS AND ACCOUNTS MANAGED

The following table provides information about the registered investment companies and other pooled investment vehicles and accounts managed by the portfolio manager of the Fund as of the Fund’s most recent period ended April 30, 2012.

Niklas Nordenfelt

 

     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     6         4         22   

Total assets of above accounts (millions)

   $ 2,678.9       $ 380.8       $ 2,281.2   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         1         0   

Total assets of above accounts (millions)

   $ 0.0       $ 287.8       $ 0.0   


Table of Contents

Philip Susser

 

     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     6         4         22   

Total assets of above accounts (millions)

   $ 2,678.9       $ 380.8       $ 2,281.2   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         1         0   

Total assets of above accounts (millions)

   $ 0.0       $ 287.8       $ 0.0   
Janet S. Rilling         
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     2         2         28   

Total assets of above accounts (millions)

   $ 798       $ 328       $ 2,557   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   
Michael J. Bray         
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     6         2         8   

Total assets of above accounts (millions)

   $ 4,593       $ 1,443       $ 2,539   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   
Christopher Kauffman         
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     5         0         2   

Total assets of above accounts (millions)

   $ 5,716       $ 0       $ 251   

performance based fee accounts:

        


Table of Contents
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   
Anthony Norris         
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     5         5         23   

Total assets of above accounts (millions)

   $ 2,262       $ 458       $ 3,943   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   
Peter Wilson         
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     5         5         23   

Total assets of above accounts (millions)

   $ 2,262       $ 458       $ 3,943   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   
Michael Lee         
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     5         5         23   

Total assets of above accounts (millions)

   $ 2,262       $ 458       $ 3,943   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   


Table of Contents

Alex Perrin

 

     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     5         5         23   

Total assets of above accounts (millions)

   $ 2,262       $ 458       $ 3,943   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   

Christopher Wightman

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     5         5         23   

Total assets of above accounts (millions)

   $ 2,262       $ 458       $ 3,943   

performance based fee accounts:

        
     Registered
Investment
Companies
     Other
Pooled
Investment
Vehicles
     Other
Accounts
 

I manage the following types of accounts:

        

Number of above accounts

     0         0         0   

Total assets of above accounts (millions)

   $ 0       $ 0       $ 0   

MATERIAL CONFLICTS OF INTEREST

The Portfolio Managers face inherent conflicts of interest in their day-to-day management of the Funds and other accounts because the Funds may have different investment objectives, strategies and risk profiles than the other accounts managed by the Portfolio Managers. For instance, to the extent that the Portfolio Managers manage accounts with different investment strategies than the Funds, they may from time to time be inclined to purchase securities, including initial public offerings, for one account but not for a Fund. Additionally, some of the accounts managed by the Portfolio Managers may have different fee structures, including performance fees, which are or have the potential to be higher or lower, in some cases significantly higher or lower, than the fees paid by the Funds. The differences in fee structures may provide an incentive to the Portfolio Managers to allocate more favorable trades to the higher-paying accounts.

To minimize the effects of these inherent conflicts of interest, the Sub-Advisers have adopted and implemented policies and procedures, including brokerage and trade allocation policies and procedures, that they believe address the potential conflicts associated with managing portfolios for multiple clients and ensure that all clients are treated fairly and equitably. Additionally, some of the Sub-Advisers minimize inherent conflicts of interest by assigning the Portfolio Managers to accounts having similar objectives. Accordingly, security block purchases are allocated to all accounts with similar objectives in proportionate weightings. Furthermore, the Sub-Advisers have adopted a Code of Ethics under Rule 17j-1 of the 1940 Act and Rule 204A-1 under the Investment Advisers Act of 1940 (the “Advisers Act”) to address potential conflicts associated with managing the Funds and any personal accounts the Portfolio Managers may maintain.


Table of Contents

First International Advisors

First International Advisors’ Portfolio Managers often provide investment management for separate accounts advised in the same or similar investment style as that provided to mutual funds. While management of multiple accounts could potentially lead to conflicts of interest over various issues such as trade allocation, fee disparities and research acquisition, First International Advisors has implemented policies and procedures for the express purpose of ensuring that clients are treated fairly and that potential conflicts of interest are minimized.

Wells Capital Management

Wells Capital Management’s Portfolio Managers often provide investment management for separate accounts advised in the same or similar investment style as that provided to mutual funds. While management of multiple accounts could potentially lead to conflicts of interest over various issues such as trade allocation, fee disparities and research acquisition, Wells Capital Management has implemented policies and procedures for the express purpose of ensuring that clients are treated fairly and that potential conflicts of interest are minimized.

COMPENSATION

The Portfolio Managers were compensated by their employing sub-adviser from the fees the Adviser paid the Sub-Adviser using the following compensation structure:

First International Advisors Compensation. The compensation structure for First International Advisors’s Portfolio Managers includes a competitive fixed base salary plus variable incentives (First International Advisors utilizes investment management compensation surveys as confirmation). Incentive bonuses are typically tied to pretax relative investment performance of all accounts under his or her management within acceptable risk parameters. Relative investment performance is generally evaluated for 1, 3, and 5 year performance results, with a predominant weighting on the 3-and 5- year time periods, versus the relevant benchmarks and/or peer groups consistent with the investment style. This evaluation takes into account relative performance of the accounts to each account’s individual benchmark and/or the relative composite performance of all accounts to one or more relevant benchmarks consistent with the overall investment style. In the case of each Fund, the benchmark(s) against which the performance of the Fund’s portfolio may be compared for these purposes generally are indicated in the Performance” sections of the Prospectuses.

Wells Capital Management Compensation. The compensation structure for Wells Capital Management’s Portfolio Managers includes a competitive fixed base salary plus variable incentives (Wells Capital Management utilizes investment management compensation surveys as confirmation). Incentive bonuses are typically tied to pretax relative investment performance of all accounts under his or her management within acceptable risk parameters. Relative investment performance is generally evaluated for 1, 3, and 5 year performance results, with a predominant weighting on the 3- and 5- year time periods, versus the relevant benchmarks and/or peer groups consistent with the investment style. This evaluation takes into account relative performance of the accounts to each account’s individual benchmark and/or the relative composite performance of all accounts to one or more relevant benchmarks consistent with the overall investment style. In the case of each Fund, the benchmark(s) against which the performance of the Fund’s portfolio may be compared for these purposes generally are indicated in the Performance” sections of the Prospectuses.

BENEFICIAL OWNERSHIP OF THE FUND

The following table shows for each Portfolio Manager the dollar value of the Fund beneficially owned by the Portfolio Manager as of April 30, 2012:

 

Wells Fargo Advantage Multi-Sector Income Fund

Niklas Nordenfelt

   none

Phil Susser

   none

Janet S. Rilling

   none

Michael J. Bray

   none

Christopher Kauffman

   none

Tony Norris

   none

Peter Wilson

   none

Michael Lee

   none

Alex Perrin

   none

Christopher Wightman

   none


Table of Contents

ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMEENT INVESTMENT COMPANY AND AFFILIATED PURCHASES

Not applicable.

ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

The Governance Committee (the “Committee”) of the Board of Trustees of the registrant (the “Trust”) has adopted procedures by which a shareholder of any series of the Trust may submit properly a nominee recommendation for the Committee’s consideration.

The shareholder must submit any such recommendation (a “Shareholder Recommendation”) in writing to the Trust, to the attention of the Trust’s Secretary, at the address of the principal executive offices of the Trust.

The Shareholder Recommendation must be delivered to, or mailed and received at, the principal executive offices of the Trust not less than forty-five (45) calendar days nor more than seventy-five (75) calendar days prior to the date of the Committee meeting at which the nominee would be considered.

The Shareholder Recommendation must include: (i) a statement in writing setting forth (A) the name, age, date of birth, business address, residence address and nationality of the person recommended by the shareholder (the “candidate”); (B) the series (and, if applicable, class) and number of all shares of the Trust owned of record or beneficially by the candidate, as reported to such shareholder by the candidate; (C) any other information regarding the candidate called for with respect to director nominees by paragraphs (a), (d), (e) and (f) of Item 401 of Regulation S-K or paragraph (b) of Item 22 of Rule 14a-101 (Schedule 14A) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), adopted by the Securities and Exchange Commission (or the corresponding provisions of any regulation or rule subsequently adopted by the Securities and Exchange Commission or any successor agency applicable to the Trust); (D) any other information regarding the candidate that would be required to be disclosed if the candidate were a nominee in a proxy statement or other filing required to be made in connection with solicitation of proxies for election of directors pursuant to Section 14 of the Exchange Act and the rules and regulations promulgated thereunder; and (E) whether the recommending shareholder believes that the candidate is or will be an “interested person” of the Trust (as defined in the Investment Company Act of 1940, as amended) and, if not an “interested person,” information regarding the candidate that will be sufficient for the Trust to make such determination; (ii) the written and signed consent of the candidate to be named as a nominee and to serve as a Trustee if elected; (iii) the recommending shareholder’s name as it appears on the Trust’s books; (iv) the series (and, if applicable, class) and number of all shares of the Trust owned beneficially and of record by the recommending shareholder; and (v) a description of all arrangements or understandings between the recommending shareholder and the candidate and any other person or persons (including their names) pursuant to which the recommendation is being made by the recommending shareholder. In addition, the Committee may require the candidate to interview in person and furnish such other information as it may reasonably require or deem necessary to determine the eligibility of such candidate to serve as a Trustee of the Trust.

ITEM 11. CONTROLS AND PROCEDURES

(a) The President and Treasurer have concluded that the Wells Fargo Advantage Multi-Sector Income Fund (the “Trust”) disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) provide reasonable assurances that material information relating to the Trust is made known to them by the appropriate persons, based on their evaluation of these controls and procedures as of a date within 90 days of the filing of this report.

(b) There were no significant changes in the Trust’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.


Table of Contents

ITEM 12. EXHIBITS

(a)(1) Not required in this filing.

(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.


Table of Contents

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 Advantage Multi-Sector Income Fund
By:   /s/ Karla M. Rabusch
Karla M. Rabusch
President
Date:   June 25, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

 

By:   /s/ Karla M. Rabusch
Karla M. Rabusch
President
Date:   June 25, 2012

 

By:   /s/ Kasey L. Phillips
Kasey L. Phillips
Treasurer
Date:   June 25, 2012