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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM N-CSR

 

 

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number: 811-21331

 

 

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

Date of reporting period: October 31, 2014

 

 

 

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ITEM 1.

REPORT TO STOCKHOLDERS

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Wells Fargo Advantage

Multi-Sector Income Fund

 

 

Annual Report

October 31, 2014

 

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.

 

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Contents

 

 

 

Letter to shareholders			2
Performance highlights			6
Summary portfolio of investments			10
Financial statements
Statement of assets and liabilities			20
Statement of operations			21
Statement of changes in net assets			22
Statement of cash flows			23
Financial highlights			24
Notes to financial statements			25
Report of independent registered public accounting firm			32
Other information			33
Automatic dividend reinvestment plan			39
List of abbreviations			40

 

The views expressed and any forward-looking statements are as of October 31, 2014, unless otherwise noted, and are those of the Fund managers and/or Wells Fargo Funds Management, LLC. Discussions of individual securities, or the markets generally, or any Wells Fargo Advantage Fund are not intended as individual recommendations. Future events or results may vary significantly from those expressed in any forward-looking statements; the views expressed are subject to change at any time in response to changing circumstances in the market. Wells Fargo Funds Management, LLC and the Fund disclaim any obligation to publicly update or revise any views expressed or forward-looking statements.

 

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2		Wells Fargo Advantage Multi-Sector Income Fund		Letter to shareholders (unaudited)

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Letter to shareholders (unaudited)		Wells Fargo Advantage Multi-Sector Income Fund			3

 

 

1.

The Barclays U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM passthroughs), ABS, and CMBS. You cannot invest directly in an index.

 

2.	The Barclays U.S. Corporate High Yield 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.

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4		Wells Fargo Advantage Multi-Sector Income Fund		Letter to shareholders (unaudited)

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6		Wells Fargo Advantage Multi-Sector Income Fund		Performance highlights (unaudited)

The Fund is leveraged through a secured debt borrowing facility and also may incur leverage by issuing preferred shares in the future. The use of leverage results in certain risks including, among others, the likelihood of greater volatility of net asset value and the market value 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 that they are designed to hedge or to closely track. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. Changes in market conditions and government policies may lead to periods of heightened volatility in the bond market and reduced liquidity for certain bonds held by the Fund. In general, when interest rates rise, bond values fall and investors may lose principal value. Interest rate changes and their impact on the Fund and its share price can be sudden and unpredictable. 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 on the first day and sale on the last day of the period reported. Total returns based on NAV are calculated based on the NAV at the beginning of the period and end of the period. Dividends and distributions, if any, are assumed for the purposes of these calculations to be reinvested at prices obtained under the Fund’s Automatic Dividend Reinvestment Plan.

 

2.	This chart does not reflect any brokerage commissions charged on the purchase and sale of the Fund’s common stock. Dividends and distributions paid by the Fund have the effect of reducing the Fund’s NAV.

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Performance highlights (unaudited)		Wells Fargo Advantage Multi-Sector Income Fund			7

MANAGERS’ DISCUSSION

The Fund’s return based on market value was 6.55% during the 12 months that ended October 31, 2014. During the same period, the Fund’s return based on net asset value was 6.67%.

Overview

The Fund contains the following sleeves: mortgage/corporate bonds, high-yield bonds, and international/emerging markets bonds.

U.S. investment-grade corporate bonds and structured products outperformed U.S. Treasuries during the one-year period that ended October 31, 2014. The mortgage/corporate sleeve of the Fund continued to invest in commercial mortgage-backed securities (CMBS), non-agency residential mortgage-backed securities (RMBS), and corporate bonds. The lower-rated segments of these sectors tended to aid performance the most during the period.

High-yield bond performance was aided by rising stock prices, increasing prices for long-term U.S. Treasuries, and relatively low volatility during the reporting period. However, these positive effects were partially offset by a decline in commodity prices and higher yields for intermediate-term Treasuries. The rise in Treasuries’ interest rates that began in the summer of 2013 has subsided, and since the end of 2013, interest rates for long-term Treasuries have consistently declined with a few small pullbacks. We believe the resulting environment provided a strong backdrop for long-duration high-yield bonds in particular.

Within the international/emerging markets sleeve, emerging markets bonds and currency markets diverged from one another in terms of their respective performance over the reporting period; gains in emerging markets bonds contrasted with losses in currency markets versus the U.S. dollar. We found it striking that such a large portion of overall emerging markets currency losses during the period was due to results in just two months: January 2014 and September 2014. Emerging markets bonds were well supported by below-trend growth; moderating inflation aided by lower commodity prices and continued investor interest also played roles. In Russia, we reduced the Fund’s allocation to both bonds and currency in March 2014 due to the escalating tension between Russia and Ukraine. We increased the Fund’s exposure to the U.S. dollar at the expense of Eastern European currencies and maintained significant exposure to Asian currencies.

 

exception of five sectors in which the Fund overall had relatively low exposure. Three of these sectors were commodity-related, one was gaming-related, and one was consumer products-related. An emphasis on longer-duration bonds which outperformed shorter-duration bonds also contributed to performance. In addition, exposure to pipeline companies helped relative performance.

Within the international/emerging markets sleeve, the Fund benefited most from country allocation. Exposures to the bond markets of Brazil, Poland, and South Africa were especially beneficial, as were minimal exposures to the bond markets of Malaysia and Thailand. In currency, reduced exposure to the Russian ruble and Turkish lira were key contributors to Fund performance. In addition, positions in U.S. dollar-denominated high-yield emerging markets bonds added modestly to overall results.

Detractors from performance

Certain RMBS and CMBS holdings within the Fund’s mortgage/corporate bond sleeve detracted from performance during the period due to security-specific prepayment and ratings changes. The Fund also was negatively affected by its exposure to the energy sector.

 

 

Please see footnotes on page 9.

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8		Wells Fargo Advantage Multi-Sector Income Fund		Performance highlights (unaudited)

Within the Fund’s high-yield bond sleeve, performance was negatively affected by exposure to electric utilities—in particular, to Energy Future Intermediate Holding Company LLC. (The position in this company was held for part of the period and then no longer held.)

In terms of the international/emerging markets sleeve, the Fund’s positioning in Russian bonds hindered performance, partly due to the negative effect of the ongoing Ukraine conflict and the imposition of sanctions and partly due to minimal exposure to Russia during a temporary rally in the second quarter of 2014. In currency, exposure to the Chilean peso held back results, as did underexposure to the Indonesian rupee in the first quarter of 2014.

 

October 31, 2014, approximately 55% of the mortgage/corporate sleeve was invested in corporate bonds, and roughly 44% was invested in fixed-rate and floating-rate mortgage securities. Credit exposure remained centered on industrials and financials, particularly banks.

We feel that accommodative central bank monetary policies will be a key to high-yield bond performance over the coming year. High-yield bonds and most other asset classes have been underpinned by low rates and quantitative easing, which have pushed investors into higher-yielding assets. Should interest rates rise meaningfully over the coming year, we would not be surprised to see a sell-off in the high-yield market. However, if an increase in interest rates coincides with a strong economy, we believe high-yield bonds could continue to outperform other fixed-income assets. Alternatively, should rising interest rates trigger a slowdown in the economy, we are unsure which (if any) assets would perform well, and we would not be surprised by a sharper drop in the high-yield bond market. In the near term, our default outlook remains benign and supportive of high yield. Over a full cycle, we believe the best way to protect the Fund’s high-yield sleeve from periodic bouts of systemic fears and volatility will be our continued focus on a bottom-up approach that attempts to minimize downside risk while capturing the return potential of high-yield issuers.

Within the international/emerging markets sleeve, we continue to favor economies displaying sustainable growth, lower deficits, and central banks that have the ability to maneuver freely rather than developed, lower-yielding economies that have structural problems. We believe the low yields and poor debt dynamics of the older industrial economies make those markets a poor value. We anticipate maintaining this bias for the remainder of 2014 and into 2015. Specific bond markets we favor include Australia, Brazil, Italy, Korea, Malaysia, Mexico, Norway, Poland, Spain, Sweden, South Africa, and Thailand.

 

 

Please see footnotes on page 9.

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Performance highlights (unaudited)		Wells Fargo Advantage Multi-Sector Income Fund			9

 

 

 

 

 

 

3.	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.

 

4.

The credit quality of portfolio holdings reflected in the chart is based on ratings from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit quality ratings apply to the underlying holdings of the Fund and not to the Fund itself. The percentages of the Fund’s portfolio with the ratings depicted in the chart are calculated based on the total market value of fixed income securities held by the Fund. 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 rating agencies, that rating was utilized. Standard & Poor’s rates the creditworthiness of bonds on a scale of 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 on a scale SP-1 (highest) to SP-3 (lowest). Moody’s rates the creditworthiness of bond on a scale of 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). Credit quality, and credit quality ratings, are subject to change.

 

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

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10		Wells Fargo Advantage Multi-Sector Income Fund		Summary portfolio of investments—October 31, 2014

    

 

 

The Summary Portfolio of Investments shows the 50 largest portfolio holdings in unaffiliated issuers and any holdings exceeding 1% of the total net assets as of the report date. The remaining securities held are grouped as “Other securities” in each category. You can request a complete schedule of portfolio holdings as of the report date, free of charge, by accessing the following website:

http://a584.g.akamai.net/f/584/1326/1d/www.wellsfargoadvantagefunds.com/pdf/ann/holdings/multisectorincome.pdf or by calling Wells Fargo Advantage Funds at 1-800-222-8222. This complete schedule, filed on the Form N-CSR, is also available on the SEC’s website at sec.gov.

 

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Agency Securities: 2.33%
FHLMC			0.55-8.50	%			4-25-2020 to 7-25-2048			$	20,817,355			$	13,808,784				2.04	%
Other securities															1,996,398				0.29
Total Agency Securities (Cost $14,785,998)															15,805,182				2.33
Asset-Backed Securities: 0.10%
Other securities															680,814				0.10
Total Asset-Backed Securities (Cost $654,811)															680,814				0.10
Common Stocks: 0.17%
Materials: 0.00%
Chemicals: 0.00%
Other securities															825				0.00
Telecommunication Services: 0.17%
Diversified Telecommunication Services: 0.17%
Other securities															1,169,337				0.17
Total Common Stocks (Cost $1,618,617)															1,170,162				0.17
Corporate Bonds and Notes: 67.03%
Consumer Discretionary: 10.75%
Auto Components: 1.07%
Allison Transmission Incorporated 144A			7.13				5-15-2019				3,790,000				3,984,238				0.59
Other securities															3,257,385				0.48
															7,241,623				1.07
Distributors: 0.12%
Other securities															773,120				0.12
Diversified Consumer Services: 0.98%
Other securities															6,654,763				0.98
Hotels, Restaurants & Leisure: 2.75%
CCM Merger Incorporated 144A			9.13				5-1-2019				6,270,000				6,740,250				1.00
Greektown Holdings LLC 144A			8.88				3-15-2019				7,425,000				7,462,125				1.10
Other securities															4,445,081				0.65
															18,647,456				2.75
Household Durables: 0.22%
Other securities															1,509,613				0.22
Internet & Catalog Retail: 0.18%
Other securities															1,221,667				0.18

 

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

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Summary portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			11

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Media: 4.29%
Gray Television Incorporated			7.50	%			10-1-2020			$	6,040,000			$	6,319,350				0.93	%
Other securities															22,720,866				3.36
															29,040,216				4.29
Multiline Retail: 0.09%
Other securities															625,596				0.09
Specialty Retail: 1.05%
Other securities															7,079,791				1.05
Consumer Staples: 0.41%
Food & Staples Retailing: 0.09%
Other securities															619,465				0.09
Food Products: 0.20%
Other securities															1,360,706				0.20
Tobacco: 0.12%
Other securities															767,271				0.12
Energy: 14.14%
Energy Equipment & Services: 5.44%
Era Group Incorporated			7.75				12-15-2022				4,425,000				4,590,938				0.68
Gulfmark Offshore Incorporated			6.38				3-15-2022				4,930,000				4,486,300				0.66
NGPL PipeCo LLC 144A			7.12				12-15-2017				5,300,000				5,313,250				0.78
NGPL PipeCo LLC 144A			7.77				12-15-2037				6,975,000				7,219,125				1.07
NGPL PipeCo LLC 144A			9.63				6-1-2019				435,000				463,275				0.07
PHI Incorporated			5.25				3-15-2019				4,250,000				4,198,405				0.62
Other securities															10,568,613				1.56
															36,839,906				5.44
Oil, Gas & Consumable Fuels: 8.70%
Rockies Express Pipeline LLC			5.63-7.50				4-15-2020 to 7-15-2038				5,975,000				6,443,625				0.95
Rockies Express Pipeline LLC 144A			6.88				4-15-2040				4,613,000				5,120,430				0.76
Sabine Pass Liquefaction LLC			5.63-5.75				2-1-2021 to 5-15-2024				3,495,000				3,625,919				0.54
Sabine Pass Liquefaction LLC 144A			6.25				3-15-2022				3,550,000				3,825,125				0.56
Sabine Pass LNG LP			6.50				11-1-2020				4,245,000				4,489,088				0.66
Sabine Pass LNG LP			7.50				11-30-2016				4,635,000				4,971,038				0.73
Other securities															30,428,766				4.50
															58,903,991				8.70
Financials: 14.43%
Banks: 0.88%
Other securities															5,914,930				0.88
Capital Markets: 1.17%
Other securities															7,936,170				1.17

 

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

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12		Wells Fargo Advantage Multi-Sector Income Fund		Summary portfolio of investments—October 31, 2014

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Consumer Finance: 4.40%
Navient LLC			8.00	%			3-25-2020			$	3,940,000			$	4,521,150				0.67	%
Springleaf Finance Corporation			5.40-8.25				12-1-2015 to 10-1-2023				5,430,000				5,717,151				0.85
Springleaf Finance Corporation			6.90				12-15-2017				4,550,000				4,959,500				0.73
Other securities															14,608,945				2.15
															29,806,746				4.40
Diversified Financial Services: 1.98%
Other securities															13,366,864				1.98
Insurance: 1.16%
Other securities															7,838,109				1.16
Real Estate Management & Development: 0.87%
Other securities															5,898,113				0.87
REITs: 3.97%
DuPont Fabros Technology Incorporated LP			5.88				9-15-2021				4,655,000				4,841,200				0.71
Iron Mountain Incorporated			5.75				8-15-2024				4,525,000				4,615,500				0.68
Iron Mountain Incorporated			6.00-8.38				10-1-2019 to 8-15-2023				4,284,000				4,495,135				0.67
Other securities															12,948,179				1.91
															26,900,014				3.97
Health Care: 6.28%
Biotechnology: 0.11%
Other securities															764,441				0.11
Health Care Equipment & Supplies: 0.68%
Other securities															4,595,754				0.68
Health Care Providers & Services: 3.53%
Select Medical Corporation			6.38				6-1-2021				6,215,000				6,354,838				0.94
Other securities															17,542,970				2.59
															23,897,808				3.53
Health Care Technology: 0.84%
Emdeon Incorporated			11.00				12-31-2019				5,150,000				5,710,063				0.84
Life Sciences Tools & Services: 0.13%
Other securities															863,923				0.13
Pharmaceuticals: 0.99%
Other securities															6,674,203				0.99
Industrials: 4.47%
Aerospace & Defense: 0.15%
Other securities															1,006,126				0.15
Airlines: 0.45%
Other securities															3,039,157				0.45

 

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

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Summary portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			13

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Commercial Services & Supplies: 1.34%
Other securities														$	9,109,496				1.34	%
Construction & Engineering: 0.44%
Other securities															2,985,288				0.44
Machinery: 0.51%
Other securities															3,469,400				0.51
Professional Services: 0.09%
Other securities															596,927				0.09
Trading Companies & Distributors: 1.36%
Ashtead Capital Incorporated 144A			6.50	%			7-15-2022			$	4,010,000				4,330,800				0.64
Other securities															4,904,326				0.72
															9,235,126				1.36
Transportation Infrastructure: 0.13%
Other securities															847,525				0.13
Information Technology: 4.92%
Communications Equipment: 0.11%
Other securities															746,330				0.11
Electronic Equipment, Instruments & Components: 1.12%
Jabil Circuit Incorporated			8.25				3-15-2018				5,275,000				6,105,813				0.90
Other securities															1,453,999				0.22
															7,559,812				1.12
Internet Software & Services: 0.30%
Other securities															2,045,525				0.30
IT Services: 2.18%
First Data Holdings Incorporated (PIK at 14.50%) ¥144A			14.50				9-24-2019				3,687,734				3,852,607				0.58
Other securities															10,896,551				1.60
															14,749,158				2.18
Semiconductors & Semiconductor Equipment: 0.22%
Other securities															1,470,000				0.22
Software: 0.42%
Other securities															2,824,103				0.42
Technology Hardware, Storage & Peripherals: 0.57%
Other securities															3,878,861				0.57
Materials: 1.18%
Chemicals: 0.12%
Other securities															794,086				0.12

 

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

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14		Wells Fargo Advantage Multi-Sector Income Fund		Summary portfolio of investments—October 31, 2014

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Containers & Packaging: 0.68%
Other securities														$	4,622,475				0.68	%
Metals & Mining: 0.14%
Other securities															925,420				0.14
Paper & Forest Products: 0.24%
Other securities															1,648,333				0.24
Telecommunication Services: 8.42%
Diversified Telecommunication Services: 3.89%
GCI Incorporated			6.75	%			6-1-2021			$	2,330,000				2,318,350				0.34
GCI Incorporated			8.63				11-15-2019				5,625,000				5,864,063				0.86
Syniverse Holdings Incorporated			9.13				1-15-2019				5,005,000				5,255,250				0.78
Other securities															12,934,767				1.91
															26,372,430				3.89
Wireless Telecommunication Services: 4.53%
Sprint Capital Corporation			6.88				11-15-2028				13,665,000				13,289,167				1.96
Sprint Capital Corporation			8.75				3-15-2032				515,000				575,513				0.09
T-Mobile USA Incorporated			6.00-6.84				4-28-2019 to 3-1-2025				7,195,000				7,581,726				1.12
Other securities															9,200,159				1.36
															30,646,565				4.53
Utilities: 2.03%
Electric Utilities: 0.71%
Other securities															4,787,842				0.71
Gas Utilities: 0.40%
Other securities															2,748,975				0.40
Independent Power & Renewable Electricity Producers: 0.70%
Other securities															4,752,110				0.70
Multi-Utilities: 0.22%
Other securities															1,486,845				0.22
Total Corporate Bonds and Notes (Cost $432,441,973)															453,800,237				67.03
Foreign Corporate Bonds and Notes @: 5.09%
Consumer Discretionary: 0.30%
Auto Components: 0.07%
Other securities															429,814				0.07
Automobiles: 0.08%
Other securities															526,701				0.08

 

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

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Summary portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			15

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Distributors: 0.02%
Other securities														$	144,789				0.02	%
Diversified Consumer Services: 0.02%
Other securities															155,971				0.02
Hotels, Restaurants & Leisure: 0.02%
Other securities															159,370				0.02
Media: 0.09%
Other securities															581,149				0.09
Consumer Staples: 0.37%
Beverages: 0.08%
Other securities															545,869				0.08
Food & Staples Retailing: 0.13%
Other securities															906,047				0.13
Food Products: 0.16%
Other securities															1,075,911				0.16
Energy: 0.31%
Oil, Gas & Consumable Fuels: 0.31%
Other securities															2,121,976				0.31
Financials: 3.26%
Banks: 3.20%
International Bank for Reconstruction & Development (AUD)			4.25	%			6-24-2025				5,600,000				5,058,492				0.75
KfW (TRY)			5.00				1-16-2017				11,400,000				4,820,246				0.71
KfW (AUD)			5.00				3-19-2024				1,300,000				1,236,872				0.18
KfW (NZD)			6.38				2-17-2015				3,319,000				2,604,913				0.39
Other securities															7,923,921				1.17
															21,644,444				3.20
Consumer Finance: 0.02%
Other securities															153,011				0.02
Diversified Financial Services: 0.04%
Other securities															295,977				0.04
Industrials: 0.37%
Building Products: 0.08%
Other securities															534,192				0.08
Commercial Services & Supplies: 0.05%
Other securities															312,536				0.05
Construction & Engineering: 0.03%
Other securities															240,605				0.03

 

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

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16		Wells Fargo Advantage Multi-Sector Income Fund		Summary portfolio of investments—October 31, 2014

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Transportation Infrastructure: 0.21%
Other securities														$	1,403,234				0.21	%
Telecommunication Services: 0.38%
Diversified Telecommunication Services: 0.06%
Other securities															442,583				0.06
Wireless Telecommunication Services: 0.32%
Other securities															2,155,462				0.32
Utilities: 0.10%
Water Utilities: 0.10%
Other securities															656,037				0.10
Total Foreign Corporate Bonds and Notes (Cost $35,095,986)															34,485,678				5.09
Foreign Government Bonds @: 23.31%
Brazil (BRL)			10.00	%			1-1-2017				44,075,000				16,974,221				2.51
Columbia (COP)			7.00				5-4-2022				18,650,000,000				9,330,529				1.38
Hungary (HUF)			6.75				11-24-2017				1,305,000,000				5,953,762				0.88
Indonesia (IDR)			7.88				4-15-2019				74,000,000,000				6,129,417				0.90
Indonesia (IDR)			8.38				3-15-2024				67,650,000,000				5,718,202				0.84
Indonesia (IDR)			10.00				7-15-2017				50,000,000,000				4,364,915				0.64
Malaysia (MYR)			3.26				3-1-2018				22,500,000				6,767,122				1.00
Malaysia (MYR)			4.26				9-15-2016				21,100,000				6,502,739				0.96
Mexico (MXN)			7.75				11-13-2042				67,350,000				5,592,692				0.83
Mexico (MXN)			10.00				12-5-2024				62,120,000				6,030,247				0.89
New Zealand (NZD)			5.50				4-15-2023				5,625,000				4,847,578				0.72
Poland (PLN)			3.25				7-25-2025				50,000,000				15,811,890				2.34
Queensland Treasury (AUD)			5.75				7-22-2024				4,100,000				4,180,848				0.62
Republic of South Africa (ZAR)			8.00				12-21-2018				101,000,000				9,468,484				1.40
Romania (RON)			5.85				4-26-2023				15,000,000				4,914,174				0.73
South Africa (ZAR)			6.75				3-31-2021				62,000,000				5,424,645				0.80
State of New South Wales Australia (AUD)			5.00				8-20-2024				3,900,000				3,805,524				0.56
Thailand (THB)			3.25				6-16-2017				276,500,000				8,678,789				1.28
Turkey (TRY)			8.20				7-13-2016				18,000,000				8,076,170				1.19
Other securities															19,244,232				2.84
Total Foreign Government Bonds (Cost $163,981,311)															157,816,180				23.31
Loans: 16.22%
Crown Castle Operating Company ±			3.00				1-31-2021			$	6,468,769				6,412,167				0.95
Dell Incorporated ±			4.50				4-29-2020				8,365,500				8,372,778				1.24
Goodyear Tire & Rubber Company ±			4.75				4-30-2019				5,500,000				5,512,045				0.81
Texas Competitive Electric Holdings Company LLC ±(s)			4.65				10-10-2015				20,096,983				14,532,731				2.15
Other securities															74,952,598				11.07
Total Loans (Cost $116,084,433)															109,782,319				16.22

 

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

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Summary portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			17

    

 

 

Security name								Value				Percent of net assets
Municipal Obligations: 0.05%
New York: 0.05%
Other securities								$	340,943				0.05	%
Total Municipal Obligations (Cost $345,000)									340,943				0.05
Non-Agency Mortgage Backed Securities: 7.47%
Other securities									50,570,799				7.47
Total Non-Agency Mortgage Backed Securities (Cost $48,429,170)									50,570,799				7.47
Preferred Stocks: 0.18%
Financials: 0.18%
Banks: 0.18%
Other securities									1,186,812				0.18
Total Preferred Stocks (Cost $1,130,339)									1,186,812				0.18
Yankee Corporate Bonds and Notes: 7.39%
Consumer Discretionary: 0.55%
Diversified Consumer Services: 0.11%
Other securities									746,960				0.11
Media: 0.44%
Other securities									3,008,183				0.44
Consumer Staples: 0.35%
Beverages: 0.12%
Other securities									807,260				0.12
Food Products: 0.12%
Other securities									825,000				0.12
Tobacco: 0.11%
Other securities									752,408				0.11
Energy: 1.06%
Energy Equipment & Services: 0.12%
Other securities									789,729				0.12
Oil, Gas & Consumable Fuels: 0.94%
Other securities									6,375,209				0.94
Financials: 1.12%
Banks: 1.02%
Other securities									6,935,518				1.02
Diversified Financial Services: 0.10%
Other securities									644,974				0.10

 

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

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18		Wells Fargo Advantage Multi-Sector Income Fund		Summary portfolio of investments—October 31, 2014

    

 

 

Security name		Interest rate				Maturity date				Principal				Value				Percent of net assets
Health Care: 0.30%
Pharmaceuticals: 0.30%
Other securities														$	2,018,050				0.30	%
Industrials: 0.12%
Road & Rail: 0.12%
Other securities															827,118				0.12
Information Technology: 0.34%
Communications Equipment: 0.12%
Other securities															784,089				0.12
Internet Software & Services: 0.12%
Other securities															792,062				0.12
Technology Hardware, Storage & Peripherals: 0.10%
Other securities															705,250				0.10
Materials: 1.27%
Containers & Packaging: 0.43%
Other securities															2,896,823				0.43
Metals & Mining: 0.62%
Other securities															4,211,284				0.62
Paper & Forest Products: 0.22%
Other securities															1,458,600				0.22
Telecommunication Services: 2.18%
Diversified Telecommunication Services: 1.95%
Intelsat Jackson Holdings SA			5.50-8.50	%			4-1-2019 to 8-1-2023			$	7,890,000				8,209,551				1.21
Other securities															4,981,075				0.74
															13,190,626				1.95
Wireless Telecommunication Services: 0.23%
Other securities															1,569,456				0.23
Utilities: 0.10%
Electric Utilities: 0.10%
Other securities															692,250				0.10
Total Yankee Corporate Bonds and Notes (Cost $48,854,957)															50,030,849				7.39

 

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

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Summary portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			19

    

 

 

Security name		Yield						Shares				Value				Percent of net assets
Short-Term Investments: 3.47%
Investment Companies: 3.47%
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u)##			0.07	%					23,482,499			$	23,482,499				3.47	%
Total Short-Term Investments (Cost $23,482,499)													23,482,499				3.47
Total investments in securities (Cost $886,905,094) *													899,152,474				132.81
Other assets and liabilities, net													(222,148,088	)			(32.81	)
Total net assets												$	677,004,386				100.00	%

 

 

 

 

 

144A	The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933.

 

¥	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.

 

@	Foreign bond and note principal is denominated in local currency.

 

±	Variable rate investment. The rate shown is the rate in effect at period end.

 

 

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

 

(l)	The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940.

 

(u)	The rate represents the 7-day annualized yield at period end.

 

##	All or a portion of this security is segregated for when-issued securities and unfunded loans.

*	Cost for federal income tax purposes is $890,891,847 and unrealized gains (losses) consists of:

 

Gross unrealized gains		$	33,162,328
Gross unrealized losses			(24,901,701	)
Net unrealized gains		$	8,260,627

 

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

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20		Wells Fargo Advantage Multi-Sector Income Fund		Statement of assets and liabilities—October 31, 2014

Assets
Investments
In unaffiliated securities, at value (cost $863,422,595)		$	875,669,975
In affiliated securities, at value (cost $23,482,499)			23,482,499
Total investments, at value (cost $886,905,094)			899,152,474
Cash			8,387
Foreign currency, at value (cost $1,347,835)			1,334,704
Receivable for investments sold			2,937,395
Principal paydown receivable			11,440
Receivable for interest			13,284,368
Unrealized gains on forward foreign currency contracts			533,004
Prepaid expenses and other assets			26,467
Total assets			917,288,239
Liabilities
Dividends payable			4,205,501
Payable for investments purchased			4,061,611
Unrealized losses on forward foreign currency contracts			950,647
Secured borrowing payable			230,363,479
Advisory fee payable			411,141
Administration fee payable			37,376
Accrued expenses and other liabilities			254,098
Total liabilities			240,283,853
Total net assets		$	677,004,386
NET ASSETS CONSIST OF
Paid-in capital		$	761,839,820
Overdistributed net investment income			(4,088,672	)
Accumulated net realized losses on investments			(92,419,310	)
Net unrealized gains on investments			11,672,548
Total net assets		$	677,004,386
NET ASSET VALUE PER SHARE
Based on $677,004,386 divided by 42,055,000 shares issued and outstanding (100,000,000 shares authorized)			$16.10

 

 

 

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

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Statement of operations—year ended October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			21

Investment income
Interest (net of foreign interest withholding taxes of $156,347)		$	56,101,022
Dividends			90,235
Income from affiliated securities			13,767
Total investment income			56,205,024
Expenses
Advisory fee			5,027,368
Administration fee			457,033
Custody and accounting fees			163,241
Professional fees			84,351
Shareholder report expenses			81,959
Trustees’ fees and expenses			10,443
Transfer agent fees			30,192
Interest expense			469,756
Secured borrowing fees			1,945,286
Other fees and expenses			31,115
Total expenses			8,300,744
Net investment income			47,904,280
REALIZED AND UNREALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on:
Unaffiliated securities			(11,945,779	)
Forward foreign currency contract transactions			952,803
Net realized losses on investments			(10,992,976	)
Net change in unrealized gains (losses) on:
Unaffiliated securities			1,624,668
Forward foreign currency contract transactions			(638,946	)
Net change in unrealized gains (losses) on investments			985,722
Net realized and unrealized gains (losses) on investments			(10,007,254	)
Net increase in net assets resulting from operations		$	37,897,026

 

 

 

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

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22		Wells Fargo Advantage Multi-Sector Income Fund		Statement of changes in net assets

		Year ended October 31, 2014				Year ended October 31, 2013
Operations
Net investment income		$	47,904,280			$	49,766,339
Net realized gains (losses) on investments			(10,992,976	)			7,953,917
Net change in unrealized gains (losses) on investments			985,722				(33,048,688	)
Net increase in net assets resulting from operations			37,897,026				24,671,568
Distributions to shareholders from
Net investment income			(38,167,582	)			(50,466,000	)
Tax basis return of capital			(12,298,418	)			0
Total distributions to shareholders			(50,466,000	)			(50,466,000	)
Total decrease in net assets			(12,568,974	)			(25,794,432	)
Net assets
Beginning of period			689,573,360				715,367,792
End of period		$	677,004,386			$	689,573,360
Overdistributed net investment income		$	(4,088,672	)		$	(3,627,622	)

 

 

 

 

 

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

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Statement of cash flows—year ended October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			23

Cash flows from operating activities:
Net increase in net assets resulting from operations		$	37,897,026
Adjustments to reconcile net increase in net assets from operations to net cash provided by operating activities:
Purchase of investment securities			(517,783,487	)
Proceeds from sales of investment securities			526,225,007
Paydowns			5,048,853
Amortization			(857,227	)
Proceeds from sales of short-term investment securities, net			251,148
Decrease in interest receivable			201,820
Increase in receivable for investments sold			(503,843	)
Decrease in principal paydown receivable			128,791
Decrease in prepaid expenses and other assets			7,248
Decrease in payable for investments purchased			(11,480,298	)
Decrease in advisory fee payable			(15,920	)
Decrease in administration fee payable			(1,448	)
Increase in accrued expenses and other liabilities			6,692
Net realized losses on investments			10,992,976
Net change in unrealized gains (losses) on investments			(985,722	)
Net cash provided by operating activities			49,131,616
Cash flows from financing activities:
Cash distributions paid			(50,466,000	)
Increase in secured borrowing payable			163,520
Net cash used in financing activities			(50,302,480	)
Net increase in cash			(1,170,864	)
Cash (including foreign currency):
Beginning of period		$	2,513,955
End of period		$	1,343,091
Supplemental cash disclosure
Cash paid for interest		$	309,228

 

 

 

 

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

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24		Wells Fargo Advantage Multi-Sector Income Fund		Financial highlights

(For a share outstanding throughout each period)

 

		Year ended October 31
		2014				2013				2012				2011				2010
Net asset value, beginning of period		$	16.40			$	17.01			$	16.16			$	16.67			$	15.61
Net investment income			1.14	1			1.18				1.16				1.11				1.21
Net realized and unrealized gains (losses) on investments			(0.24	)			(0.59	)			0.89				(0.39	)			1.17
Distributions to preferred shareholders from net investment income			0.00				0.00				0.00				0.00				(0.02	)1
Total from investment operations			0.90				0.59				2.05				0.72				2.36
Distributions to common shareholders from
Net investment income			(0.91	)			(1.20	)			(1.20	)			(1.23	)			(1.30	)
Tax basis return of capital			(0.29	)			0.00				0.00				0.00				0.00
Total distributions to common shareholders			(1.20	)			(1.20	)			(1.20	)			(1.23	)			(1.30	)
Net asset value, end of period		$	16.10			$	16.40			$	17.01			$	16.16			$	16.67
Market value, end of period		$	14.19			$	14.47			$	16.54			$	14.97			$	16.18
Total return based on market value2			6.55	%			(5.44	)%			19.33	%			0.33	%			28.44	%
Ratios to average net assets (annualized)
Gross expenses3			1.21	%			1.24	%			1.24	%			1.14	%			1.58	%
Net expenses3			1.21	%			1.24	%			1.24	%			1.14	%			1.18	%
Net investment income			6.95	%			7.04	%			7.13	%			6.75	%			7.63	%4
Supplemental data
Portfolio turnover rate			41	%			40	%			78	%			35	%			70	%
Net assets of common shareholders, end of period (000s omitted)			$677,004				$689,573				$715,368				$679,497				$701,110
Borrowings outstanding, end of period (000s omitted)			$230,000				$230,000				$230,000				$230,000				$230,000
Asset coverage per $1,000 of borrowing, end of period			$3,944				$3,998				$4,110				$3,954				$4,048

 

 

 

1.	Calculated based upon average shares outstanding

 

2.

Total return is calculated assuming a purchase of common stock on the first day and 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 that a shareholder would pay on the purchase and sale of shares.

 

3.	Ratios include interest expense relating to interest associated with borrowings and/or leverage transactions as follows:

 

Year ended October 31, 2014			0.07	%
Year ended October 31, 2013			0.07	%
Year ended October 31, 2012			0.11	%
Year ended October 31, 2011			0.09	%
Year ended October 31, 2010			0.08	%

 

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

 

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

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Notes to financial statements		Wells Fargo Advantage Multi-Sector Income Fund			25

1. ORGANIZATION

The 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.

2. SIGNIFICANT ACCOUNTING POLICIES

The following significant accounting policies, which are consistently followed in the preparation of the financial statements of the Fund, are in conformity with U.S. generally accepted accounting principles which require management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Securities valuation

All investments are valued each business day as of the close of regular trading on the New York Stock Exchange (generally 4 p.m. Eastern Time).

Fixed income securities acquired with maturities exceeding 60 days are valued based on evaluated bid prices provided by an independent pricing service which may utilize both transaction data and market information such as yield, quality, coupon rate, maturity, type of issue, trading characteristics and other market data. If prices are not available from the independent pricing service or prices received are deemed not representative of market value, values will be obtained from an independent broker-dealer.

Equity securities that are listed on a foreign or domestic exchange or market are valued at the official closing price or, if none, the last sales price. If no sale occurs on the primary exchange or market for the security that day, the prior day’s price will be deemed “stale” and fair values will be determined in accordance with the Fund’s Valuation Procedures.

Short-term securities, with maturities of 60 days or less at time of purchase, generally are valued at amortized cost which approximates fair value. The amortized cost method involves valuing a security at its cost, plus accretion of discount or minus amortization of premium over the period until maturity.

The values of securities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team of Wells Fargo Funds Management, LLC (“Funds Management”).

Investments in registered open-end investment companies are valued at net asset value.

Investments which are not valued using any of the methods discussed above are valued at their fair value, as determined in good faith by the Board of Trustees of the Fund. The Board of Trustees has established a Valuation Committee comprised of the Trustees and has delegated to it the authority to take any actions regarding the valuation of portfolio securities that the Valuation Committee deems necessary or appropriate, including determining the fair value of portfolio securities, unless the determination has been delegated to the Management Valuation Team. The Board of Trustees retains the authority to make or ratify any valuation decisions or approve any changes to the Valuation Procedures as it deems appropriate. On a quarterly basis, the Board of Trustees receives reports on any valuation actions taken by the Valuation Committee or the Management Valuation Team which may include items for ratification.

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

Foreign currency translation

The accounting records of the Fund are maintained in U.S. dollars. The values of other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at rates provided by an independent foreign currency pricing source at a time each business day specified by the Management Valuation Team. Purchases and sales of securities, and income and expenses are converted at the rate of exchange on the respective dates of such transactions. Net realized foreign

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26		Wells Fargo Advantage Multi-Sector Income Fund		Notes to financial statements

exchange gains or losses arise from sales of foreign currencies, currency gains or losses realized between the trade and settlement dates on securities transactions, and the difference between the amounts of dividends, interest and foreign withholding taxes recorded and the U.S. dollar equivalent of the amounts actually paid or received. Net unrealized foreign exchange gains and losses arise from changes in the fair value of assets and liabilities other than investments in securities resulting from changes in exchange rates. The changes in net assets arising from changes in exchange rates and the changes in net assets resulting from changes in market prices of securities are not separately presented. Such changes are included in with net realized and unrealized gains or losses from investments.

Forward foreign currency contracts

The Fund is subject to foreign currency exchange rate risk in the normal course of pursuing its investment objectives. A forward foreign currency contract is an agreement between two parties to purchase or sell a specific currency for an agreed-upon price at a future date. The Fund enters into forward foreign currency contracts to facilitate transactions in foreign-denominated securities and to attempt to minimize the risk to the Fund from adverse changes in the relationship between currencies. Forward foreign currency contracts are recorded at the forward rate and marked-to-market daily. When the contracts are closed, realized gains and losses arising from such transactions are recorded as realized gains or losses on forward foreign currency contract transactions. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts or if the value of the foreign currency changes unfavorably. The Fund’s maximum risk of loss from counterparty credit risk is the unrealized gains or losses on the contracts. This risk may be mitigated if there is 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 commitment to purchase when-issued securities. Securities purchased on a when-issued basis are marked-to-market daily and the Fund begins earning interest on the settlement date. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract.

Loans

The Fund may invest in direct debt instruments which are interests in amounts owed to lenders by corporate or other borrowers. The loans pay interest at rates which are periodically reset by reference to a base lending rate plus a spread. Investments in loans may be in the form of participations in loans or assignments of all or a portion of loans from third parties. When the Fund purchases participations, it generally has no rights to enforce compliance with terms of the loan agreement with the borrower. As a result, the Fund assumes the credit risk of both the borrower and the lender that is selling the participation. When the Fund purchases assignments from lenders, it acquires direct rights against the borrower on the loan and may enforce compliance by the borrower with the terms of the loan agreement. Loans may include fully funded term loans or unfunded loan commitments, which are contractual obligations for future funding.

Security transactions and income recognition

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

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

Dividend income is recognized on the ex-dividend date, except for certain dividends from foreign securities, which are recorded as soon as the custodian verifies 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 federal income tax regulations, which may differ in amount or character from net investment income and realized gains recognized for purposes of U.S. generally accepted accounting principles.

Federal and other taxes

The Fund intends to continue to qualify as a regulated investment company by distributing substantially all of its investment company taxable income and any net realized capital gains (after reduction for capital loss carryforwards) sufficient to relieve it from all, or substantially all, federal income taxes. Accordingly, no provision for federal income taxes was required.

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Notes to financial statements		Wells Fargo Advantage Multi-Sector Income Fund			27

The Fund’s income and federal excise tax returns and all financial records supporting those returns for the prior three fiscal years are subject to examination by the federal and Delaware revenue authorities. Management has analyzed the Fund’s tax positions taken on federal, state, and foreign tax returns for all open tax years and does not believe that there are any uncertain tax positions that require recognition of a tax liability.

Reclassifications are made to the Fund’s capital accounts for permanent tax differences to reflect income and gains available for distribution (or available capital loss carryforwards) under federal income tax regulations. U.S. generally accepted accounting principles require that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or the net asset value per share. The primary permanent differences causing such reclassifications are due to bond premiums and foreign currency transactions. At October 31, 2014, as a result of permanent book-to-tax differences, the following reclassification adjustments were made on the Statement of Assets and Liabilities:

 

Overdistributed net investment income		Accumulated net realized losses on investments
$(10,197,748)		$10,197,748

As of October 31, 2014, capital loss carryforwards available to offset future net realized capital gains were as follows through the indicated expiration dates:

 

2017		No expiration
		Short-term		Long-term
$86,701,155		$172,085		$1,368,853

3. FAIR VALUATION MEASUREMENTS

Fair value measurements of investments are determined within a framework that has established a fair value hierarchy based upon the various data inputs utilized in determining the value of the Fund’s investments. The three-level hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to significant unobservable inputs (Level 3). The Fund’s investments are classified within the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement. The inputs are summarized into three broad levels as follows:

 

n

Level 1 – quoted prices in active markets for identical securities

 

n

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

 

n

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

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

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28		Wells Fargo Advantage Multi-Sector Income Fund		Notes to financial statements

The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as of October 31, 2014:

 

		Quoted prices (Level 1)				Other significant observable inputs (Level 2)				Significant unobservable inputs (Level 3)				Total
Assets
Investments in:
Agency securities		$	0			$	15,805,182			$	0			$	15,805,182
Asset-backed securities			0				680,814				0				680,814
Common stocks
Materials			825				0				0				825
Telecommunication services			1,169,337				0				0				1,169,337
Corporate bonds and notes			0				453,800,237				0				453,800,237
Foreign corporate bonds and notes			0				34,485,678				0				34,485,678
Foreign government bonds			0				157,816,180				0				157,816,180
Loans			0				94,929,286				14,853,033				109,782,319
Municipal obligations			0				340,943				0				340,943
Non-agency mortgage backed securities			0				50,570,799				0				50,570,799
Preferred stocks
Financials			1,186,812				0				0				1,186,812
Yankee corporate bonds and notes			0				50,030,849				0				50,030,849
Short-term investments
Investment companies			23,482,499				0				0				23,482,499
			25,839,473				858,459,968				14,853,033				899,152,474
Forward foreign currency contracts			0				533,004				0				533,004
Total assets		$	25,839,473			$	858,992,972			$	14,853,033			$	899,685,478
Liabilities
Forward foreign currency contracts		$	0			$	950,647			$	0			$	950,647
Total liabilities		$	0			$	950,647			$	0			$	950,647

Forward foreign currency contracts are reported at their unrealized gains (losses) at measurement date, which represents the change in the contract’s value from trade date. All other assets and liabilities are reported at their market value at measurement date.

Transfers in and transfers out are recognized at the end of the reporting period. At October 31, 2014, the Fund did not have any transfers into/out of Level 1 or Level 2.

The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:

 

		Loans
Balance as of October 31, 2013		$	13,055,687
Accrued discounts (premiums)			11,641
Realized gains (losses)			28,888
Change in unrealized gains (losses)			(97,779	)
Purchases			10,279,966
Sales			(5,828,648	)
Transfers into Level 3			3,564,523
Transfers out of Level 3			(6,161,245	)
Balance as of October 31, 2014		$	14,853,033
Change in unrealized gains (losses) relating to securities still held at October 31, 2014		$	(102,644	)

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Notes to financial statements		Wells Fargo Advantage Multi-Sector Income Fund			29

The investment type categorized above was valued using indicative broker quotes. These indicative broker quotes are considered Level 3 inputs. Quantitative unobservable inputs used by the brokers are often proprietary and not provided to the Fund and therefore the disclosure that would address these inputs is not included above.

4. TRANSACTIONS WITH AFFILIATES

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 subadvisers to provide daily portfolio management to the Fund. The fees for subadvisory services are borne by Funds Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is a subadviser 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 subadviser 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 a wide range of administrative services necessary to the operation of the Fund. 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 year ended October 31, 2014 and year ended October 31, 2013, the Fund did not issue any shares.

6. BORROWINGS

The Fund has borrowed approximately $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 23, 2015, at which point it may be renegotiated and potentially renewed for another one-year term. At October 31, 2014, the Fund had secured borrowings outstanding in the amount of $230,363,479 (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 year ended October 31, 2014, an effective interest rate of 0.20% was incurred on the borrowings. Interest expense of $469,756, representing 0.07% of the Fund’s average daily net assets, was incurred during the year ended October 31, 2014.

The Fund has pledged all of its assets to secure the borrowings and currently pays, on a monthly basis, a usage fee at 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 daily average outstanding principal amount of borrowings. Prior to February 25, 2014, the Fund paid 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. Effective February 25, 2014, the Fund no longer incurs any structuring fees. The secured borrowing fees on the Statement of Operations of $1,945,286 represents the usage fee, commitment fee and structuring fees. For the year ended October 31, 2014, the Fund paid structuring fees in the amount of $62,414.

7. INVESTMENT PORTFOLIO TRANSACTIONS

Purchases and sales of investments, excluding short-term securities, for the year ended October 31, 2014 were as follows:

 

Purchases at cost						Sales proceeds
U.S. government		Non-U.S. government				U.S. government				Non-U.S. government
$90,440		$	411,364,124			$	0			$	364,153,880

As of October 31, 2014, the Fund had unfunded term loan commitments of $1,602,410.

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30		Wells Fargo Advantage Multi-Sector Income Fund		Notes to financial statements

8. DERIVATIVE TRANSACTIONS

During the year ended October 31, 2014, the Fund entered into forward foreign currency contracts for economic hedging purposes.

At October 31, 2014, 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 October 31, 2014				In exchange for U.S. $				Unrealized losses
11-12-2014		State Street Bank			20,550,000	MYR		$	6,243,828			$	6,404,662			$	(160,834	)
12-5-2014		State Street Bank			45,000,000	MXN			3,335,308				3,421,949				(86,641	)
1-22-2015		State Street Bank			150,000,000	THB			4,589,359				4,621,428				(32,069	)

Forward foreign currency contracts to sell:

 

Exchange date		Counterparty		Contracts to deliver				U.S. value at October 31, 2014				In exchange for U.S. $				Unrealized gains (losses)
11-28-2014		State Street Bank			91,750,000	ZAR		$	8,285,779			$	8,004,572			$	(281,207	)
11-28-2014		State Street Bank			6,300,000	TRY			2,818,235				2,752,092				(66,143	)
11-28-2014		State Street Bank			11,175,000	TRY			4,999,012				4,786,687				(212,325	)
11-28-2014		State Street Bank			35,500,000	ZAR			3,205,942				3,283,146				77,204
12-5-2014		State Street Bank			45,000,000	MXN			3,335,308				3,320,862				(14,446	)
12-8-2014		State Street Bank			17,145,000	RON			4,865,711				4,841,019				(24,692	)
12-8-2014		State Street Bank			252,000,000	RUB			5,803,304				6,220,687				417,383
12-8-2014		State Street Bank			32,500,000	PLN			9,631,324				9,669,741				38,417
12-8-2014		State Street Bank			1,550,000,000	HUF			6,298,603				6,246,977				(51,626	)
1-23-2015		State Street Bank			7,250,000	BRL			2,859,904				2,839,240				(20,664	)

The Fund had average contract amounts of $20,911,473 and $20,744,131 in forward foreign currency exchange contracts to buy and forward foreign currency exchange contracts to sell, respectively, during the year ended October 31, 2014.

The fair value, realized gains or losses and change in unrealized gains or losses, if any, on derivative instruments are reflected in the appropriate financial statements.

For certain types of derivative transactions, the Fund has entered into International Swaps and Derivatives Association, Inc. master agreements (“ISDA Master Agreements”) or similar agreements with approved counterparties. The ISDA Master Agreements or similar agreements may have requirements to deliver/deposit securities or cash to/with an exchange or broker-dealer as collateral and allows the Fund to offset, with each counterparty, certain derivative financial instrument’s assets and/or liabilities with collateral held or pledged. Collateral requirements differ by type of derivative. Collateral or margin requirements are set by the broker or exchange clearing house for exchange traded derivatives while collateral terms are contract specific for over-the-counter traded derivatives. Cash collateral that has been pledged to cover obligations of the Fund under ISDA Master Agreements or similar agreements, if any, will be reported separately in the Statement of Assets and Liabilities. Securities pledged as collateral, if any, for the same purpose are noted in the Summary Portfolio of Investments. With respect to balance sheet offsetting, absent an event of default by the counterparty or a termination of the agreement, the reported amounts of financial assets and financial liabilities in the Statement of Assets and Liabilities are not offset across transactions between the Fund and the applicable counterparty. A reconciliation of the gross amounts on the Statement of Assets and Liabilities to the net amounts by derivative type, including any collateral exposure, is as follows:

 

Derivative type		Counterparty		Gross amounts of assets in the Statement of Assets and Liabilities		Amounts subject to netting agreements				Collateral received				Net amount of assets
Forward foreign currency contracts		State Street Bank		$533,004*		$	(533,004	)		$	0			$	0

 

*

Amount represents net unrealized gains.

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Notes to financial statements		Wells Fargo Advantage Multi-Sector Income Fund			31

Derivative type		Counterparty		Gross amounts of liabilities in the Statement of Assets and Liabilities		Amounts subject to netting agreements				Collateral pledged				Net amount of liabilities
Forward foreign currency contracts		State Street Bank		$950,647**		$	(533,004	)		$	0			$	417,643

 

**

Amount represents net unrealized losses.

9. DISTRIBUTIONS TO SHAREHOLDERS

The tax character of distributions paid during the years ended October 31, 2014 and October 31, 2013 were as follows:

 

		Year ended October 31
		2014		2013
Ordinary income		$38,167,582		$50,466,000
Tax basis return of capital		12,298,418		0

As of October 31, 2014, the components of distributable earnings on a tax basis were as follows:

 

Unrealized gains		Capital loss carryforward
$7,685,795		$(88,242,093)

10. INDEMNIFICATION

Under the Fund’s organizational documents, the officers and Trustees 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.

11. SUBSEQUENT DISTRIBUTIONS

The Fund declared the following distributions to common shareholders:

 

Declaration date		Record date		Payable date		Per share amount
October 31, 2014		November 17, 2014		December 1, 2014		$0.1000
November 7, 2014		December 15, 2014		January 2, 2015		$0.0967

These distributions are not reflected in the accompanying financial statements. The final determination of the source of all distributions is subject to change and made after the Fund’s tax year-end.

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32		Wells Fargo Advantage Multi-Sector Income Fund		Report of independent registered public accounting firm

BOARD OF TRUSTEES AND SHAREHOLDERS OF WELLS FARGO ADVANTAGE MULTI-SECTOR INCOME FUND:

We have audited the accompanying statement of assets and liabilities, including the portfolio of investments and the summary portfolio of investments, of the Wells Fargo Advantage Multi-Sector Income Fund (the “Fund”), as of October 31, 2014, and the related statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year period then ended, the statement of cash flows for the year then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2014, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Wells Fargo Advantage Multi-Sector Income Fund as of October 31, 2014, the results of its operations for the year then ended, the changes in its net assets for each of the years in the two-year period then ended, its cash flows for the year then ended, and the financial highlights for each of the years in the five-year period then ended, in conformity with U.S. generally accepted accounting principles.

 

Boston, Massachusetts

December 23, 2014

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Other information (unaudited)		Wells Fargo Advantage Multi-Sector Income Fund			33

TAX INFORMATION

For the fiscal year ended October 31, 2014, $39,871,672 has been designated as interest-related dividends for nonresident alien shareholders pursuant to Section 871 of the Internal Revenue Code.

PROXY VOTING INFORMATION

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities is available without charge, upon request, by calling 1-800-222-8222, visiting our website at wellsfargoadvantagefunds.com, or visiting the SEC website at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available without charge on the Fund’s website at wellsfargoadvantagefunds.com or by visiting the SEC website at sec.gov.

PORTFOLIO HOLDINGS INFORMATION

The complete portfolio holdings for the Fund are publicly available monthly on the Fund’s website (wellsfargoadvantagefunds.com), on a one-month delayed basis. The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q, which is available without charge by visiting the SEC website at sec.gov. In addition, the Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC, and at regional offices in New York City, at 233 Broadway, and in Chicago, at 175 West Jackson Boulevard, Suite 900. Information about the Public Reference Room may be obtained by calling 1-800-SEC-0330.

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34		Wells Fargo Advantage Multi-Sector Income Fund		Other information (unaudited)

BOARD OF TRUSTEES AND OFFICERS

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 each fund in the Wells Fargo Advantage family of funds, which consists of 133 mutual 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”). 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 or longer		Other directorships during past five years
Peter G. Gordon (Born 1942)		Trustee, since 2010; Chairman, 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. Advisory Board Member, Palm Harbor Academy. Mr. Harris is a certified public accountant.		CIGNA Corporation; Asset Allocation Trust
Judith M. Johnson (Born 1949)		Trustee, since 2010; Audit Committee Chairman, 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 2010*		Chairman, Bloc Global Services (development and construction). Trustee of the Evergreen Funds complex (and its predecessors) from 1983 to 2010. Former Managing Director, Almanac Capital Management (commodities firm), former Partner, Stonington Partners, Inc. (private equity fund), former Director, Obagi Medical Products Co. and former Director, Lincoln Educational Services.		Trustee, Virtus Fund Complex (consisting of 50 portfolios as of 12/16/2013); Asset Allocation Trust
David F. Larcker (Born 1950)		Trustee, since 2010		James Irvin Miller Professor of Accounting at the Graduate School of Business, Stanford University, Morgan Stanley Director of the Center for Leadership Development and Research and Senior Faculty of The Rock Center for Corporate Governance since 2006. From 2005 to 2008, Professor of Accounting at the Graduate School of Business, Stanford University. Prior thereto, Ernst & Young Professor of Accounting at The Wharton School, University of Pennsylvania from 1985 to 2005.		Asset Allocation Trust
Olivia S. Mitchell (Born 1953)		Trustee, since 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
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

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Other information (unaudited)		Wells Fargo Advantage Multi-Sector Income Fund			35

Name and year of birth		Position held and length of service		Principal occupations during past five years or longer		Other directorships during past five years
Michael S. Scofield (Born 1943)		Trustee, since 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 complex (and its predecessors) from 1984 to 2010. Chairman of the Evergreen Funds from 2000-2010. Former Trustee of the Mentor Funds. Retired Attorney, Law Offices of Michael S. Scofield.		Asset Allocation Trust
Donald C. Willeke (Born 1940)		Trustee, since 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 Tree Trust (non-profit corporation). Director of the American Chestnut Foundation (non-profit corporation).		Asset Allocation Trust

 

*	Leroy Keith, Jr. will retire as a Trustee effective December 31, 2014.

Officers

 

Name and year of birth		Position held and length of service		Principal occupations during past five years or longer
Karla M. Rabusch (Born 1959)		President, since 2010		Executive Vice President of Wells Fargo Bank, N.A. and President of Wells Fargo Funds Management, LLC since 2003.
Jeremy DePalma1 (Born 1974)		Treasurer, since 2012		Senior Vice President of Wells Fargo Funds Management, LLC since 2009. Senior Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Vice President, Evergreen Investment Services, Inc. from 2004 to 2007. Head of the Fund Reporting and Control Team within Fund Administration from 2005 to 2010.
C. David Messman (Born 1960)		Secretary, since 2010; Chief Legal Officer, since 2010		Assistant General Counsel of Wells Fargo Bank, N.A. since 2013 and Vice President and Managing Counsel of Wells Fargo Bank N.A. from 1996 to 2013. Senior Vice President and Secretary of Wells Fargo Funds Management , LLC since 2001.
Debra Ann Early (Born 1964)		Chief Compliance Officer, since 2010		Senior Vice President and Chief Compliance Officer of Wells Fargo Funds Management, LLC since 2007. Chief Compliance Officer of Parnassus Investments from 2005 to 2007. Chief Financial Officer of Parnassus Investments from 2004 to 2007.
David Berardi (Born 1975)		Assistant Treasurer, since 2009		Vice President of Wells Fargo Funds Management, LLC since 2009. Vice President of Evergreen Investment Management Company, LLC from 2008 to 2010. Assistant Vice President of Evergreen Investment Services, Inc. from 2004 to 2008. Manager of Fund Reporting and Control for Evergreen Investment Management Company, LLC from 2004 to 2010.

 

 

1.	Jeremy DePalma acts as Treasurer of 60 funds and Assistant Treasurer of 73 funds in the Fund Complex.

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36		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 in-person meetings held on March 27-28, 2014 (the “March Meeting”) and May 15-16, 2014 (the “May Meeting”, and together with the March Meeting, the “Meetings”), the Board reviewed: (i) an investment advisory agreement with Wells Fargo Funds Management, LLC (“Funds Management”) for the Fund, (ii) an investment sub-advisory agreement with Wells Capital Management Incorporated (“WellsCap”), an affiliate of Funds Management, for the Fund, and (iii) an investment sub-advisory agreement with First International Advisors, LLC (“FIA”), and affiliate of Funds Management, for the Fund. The investment advisory agreement with Funds Management and the investment sub-advisory agreements with WellsCap and FIA (each a “Sub-Adviser” and together, the “Sub-Advisers”) are collectively referred to as the “Advisory Agreements.”

At the May Meeting, the Board received the information, considered the factors and reached the conclusions discussed below, and unanimously approved the renewal of the Advisory Agreements, as it had done at the March Meeting.

At the Meetings, 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 Meetings, the Trustees conferred extensively among themselves and with representatives of Funds Management about these matters. Also, the Board has adopted a team-based approach, with each team consisting of a sub-set of Trustees, to assist the full Board in the discharge of its duties in reviewing performance and other matters throughout the year. 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.

In providing information to the Board, Funds Management and the Sub-Advisers were guided by a detailed set of requests for information submitted to them by independent legal counsel on behalf of the Independent Trustees at the start of the Board’s annual contract renewal process earlier in 2014. In considering and approving the Advisory Agreements, the Trustees considered the information they believed relevant, including but not limited to the information discussed below. The Board considered not only the specific information presented in connection with the Meetings, but also the knowledge gained over time through interaction with Funds Management and the Sub-Advisers about various topics. In this regard, the Board reviewed reports of Funds Management at each of its quarterly meetings, which included, among other things, portfolio reviews and performance reports. In addition, the Board and the teams mentioned above confer with portfolio managers at various times throughout the year. The Board did not identify any particular information or consideration that was all-important or controlling, and each individual Trustee may have attributed different weights to various factors.

After its deliberations, the Board unanimously approved the continuation of the Advisory Agreements and determined that the compensation payable to Funds Management and the Sub-Advisers is reasonable. The Board considered the continuation of the Advisory Agreements for the Fund as part of its consideration of the continuation of advisory agreements for funds across the complex, but its approvals were made on a fund-by-fund basis. The following summarizes a number of important, but not necessarily all, factors considered by the Board in support of its approvals.

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. This information included, among other things, a summary of the background and experience of senior management of Funds Management, and the qualifications, background, tenure and responsibilities of each 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 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 full range of services provided to the Fund by Funds Management and its affiliates.

Fund performance and expenses

The Board considered the performance results for the Fund over various time periods ended December 31, 2013. The Board also considered these results in comparison to the performance of funds in a custom peer group that was

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Other information (unaudited)		Wells Fargo Advantage Multi-Sector Income Fund			37

determined by Funds Management to be similar to the Fund (the “Custom Peer Group”), and in comparison to the Fund’s benchmark index and to other comparative data. The Board received a description of the methodology used by Funds Management to select the funds in the Custom Peer Group and discussed the limitations inherent in the use of other peer groups. The Board noted that the performance of the Fund was lower than the average performance of the Custom Peer Group for all periods under review. However, the Board also noted that the performance of the Fund was higher than or in range of its benchmark, the Multi-Sector Blended Index, which is a proprietary index used by the Board to help it assess the Fund’s relative performance, for all periods under review except for the one-year period.

The Board received information concerning, and discussed factors contributing to, the underperformance of the Fund relative to the Custom Peer Group for the periods under review and relative to the benchmark for the one-year period. The Board took note of the small size of the Custom Peer Group and the explanations for the relative underperformance and was satisfied with the information it received.

The Board also received and considered information regarding the Fund’s net operating expense ratio and its various components, including actual management fees (which reflect fee waivers, if any, and include advisory, and administration fees), custodian and other non-management fees, and fee waiver and expense reimbursement arrangements. The Board considered this ratio in comparison to the median ratio of funds in an expense group that was determined by Lipper, Inc. (“Lipper”) to be similar to the Fund (the “Group”). 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 expense Group and an explanation of year-to-year variations in the funds comprising such expense Group and their expense ratios. Based on the Lipper reports, the Board noted that the net operating expense ratio of the Fund was lower than the median net operating expense ratio of the expense Group.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board concluded that the overall performance and expense structure of the Fund supported the re-approval of the Advisory Agreements.

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 contractual administration fee rate (the “Management Rate”). The Board also reviewed and considered the contractual investment sub-advisory fee rates that are payable by Funds Management to each of the Sub-Advisers for investment sub-advisory services (the “Sub-Advisory Agreement Rate”).

Among other information reviewed by the Board was a comparison of the Management Rate of the Fund with those of other funds in the expense Group at a common asset level. The Board noted that the Management Rate of the Fund was lower than the average rate for the Fund’s expense Group.

The Board also received and considered information about the portion of the total advisory fee that was retained by Funds Management after payment of the fee to the Sub-Advisers for sub-advisory services. In assessing the reasonableness of this amount, the Board received and evaluated information about the nature and extent of responsibilities retained and risks assumed by Funds Management and not delegated to or assumed by the Sub-Advisers, and about Funds Management’s on-going oversight services. However, given the affiliation between Funds Management and the Sub-Advisers, the Board ascribed limited relevance to the allocation of the advisory fee between them.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board determined that the Advisory Agreement Rate and each Sub-Advisory Agreement Rate were reasonable in light of the services covered by the Advisory Agreements.

Profitability

The Board received and considered information concerning the profitability of Funds Management, as well as the profitability of Wells Fargo as a whole, from providing services to the Fund and the fund family as a whole. The Board did not receive or consider to be necessary separate profitability information with respect to the Sub-Advisers, because their profitability information was subsumed in the collective Wells Fargo profitability analysis.

Funds Management explained the methodologies and estimates that it used in calculating profitability. Among other things, the Board noted that the levels of profitability reported on a fund-by-fund basis varied widely, depending on factors such as the size and type of fund. Based on its review, the Board did not deem the profits reported by Funds Management to be at a level that would prevent it from approving the continuation of the Advisory Agreements.

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38		Wells Fargo Advantage Multi-Sector Income Fund		Other information (unaudited)

Economies of scale

The Board considered the extent to which there may be sharing with the Fund of potential economies of scale in the provision of advisory services to the Fund. The Board noted that, as is typical of closed-end funds, there are no breakpoints in the Management Rate. Although the Fund would not share in any potential economies of scale through contractual breakpoints, the Board noted that fee waiver and expense reimbursement arrangements and competitive fee rates at the outset are means of sharing potential economies of scale with shareholders of the Fund and the fund family as a whole. The Board concluded that the Fund’s fee waiver and expense arrangements constituted a reasonable approach to sharing potential economies of scale with the Fund and its shareholders. The Board also noted that it would have opportunities to revisit the Management Rate as part of future contract reviews.

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 relationships with the Fund. Ancillary benefits could include, among others, benefits directly attributable to other relationships with the Fund and benefits potentially derived from an increase in Funds Management’s and the Sub-Advisers’ business as a result of their relationships with the Fund. The Board also reviewed information about soft dollar credits earned and utilized by the Sub-Advisers and commissions earned by affiliated brokers from portfolio transactions.

Based on its consideration of the factors and information it deemed relevant, including those described here, the Board did not find that any ancillary benefits received by Funds Management and its affiliates, including the Sub-Advisers, were unreasonable.

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 and determined that the compensation payable to Funds Management and the Sub-Advisers is reasonable.

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Automatic dividend reinvestment plan		Wells Fargo Advantage Multi-Sector Income Fund			39

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 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 (“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 30170, College Station, Texas 77842-3170 or by calling 1-800-730-6001.

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40		Wells Fargo Advantage Multi-Sector Income Fund		List of abbreviations

The following is a list of common abbreviations for terms and entities that may have appeared in this report.

 

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Transfer Agent, Registrar, Shareholder Servicing

Agent & Dividend Disbursing Agent

Computershare Trust Company, N.A.

P.O. Box 30170

College Station, TX 77842-3170

1-800-730-6001

Website: 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. Certain material contained in this report may be considered marketing material and has been reviewed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company.

NOT FDIC INSURED  ¡  NO BANK GUARANTEE  ¡   MAY LOSE VALUE

© 2014 Wells Fargo Funds Management, LLC. All rights reserved.

 

		229615 12-14 AMSI/AR143 10-14

 

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ITEM 2.

CODE OF ETHICS

(a) As of the end of the period, covered by the report, Wells Fargo Advantage Multi-Sector Income Fund has adopted a code of ethics that applies to its President and Treasurer. A copy of the code of ethics is filed as an exhibit to this Form N-CSR.

(c) During the period covered by this report, there were no amendments to the provisions of the code of ethics adopted in Item 2(a) above.

(d) During the period covered by this report, there were no implicit or explicit waivers to the provisions of the code of ethics adopted in Item 2(a) above.

 

ITEM 3.

AUDIT COMMITTEE FINANCIAL EXPERT

The Board of Trustees of Wells Fargo Advantage Multi-Sector Income Fund has determined that Judith Johnson is an audit committee financial expert, as defined in Item 3 of Form N-CSR. Mrs. Johnson is independent for purposes of Item 3 of
Form N-CSR.

 

ITEM 4.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

(a), (b), (c), (d) The following table presents aggregate fees billed in each of the last two fiscal years for services rendered to the Registrant by the Registrant’s principal accountant. These fees were billed to the registrant and were approved by the Registrant’s audit committee.

 

		Fiscal				Fiscal
		year ended				year ended
		October 31, 2014				October 31, 2013
Audit fees		$	66,735			$	65,110
Audit-related fees			—				—
Tax fees (1)			3,830				3,740
All other fees			—				—
		$	70,565			$	68,850

 

(1)	Tax fees consist of fees for tax compliance, tax advice, tax planning and excise tax.

(e) The Chairman of the Audit Committees is authorized to pre-approve: (1) audit services for the Wells Fargo Advantage Multi-Sector Income Fund; (2) non-audit tax or compliance consulting or training services provided to the Wells Fargo Advantage Multi-Sector Income Fund by the independent auditors (“Auditors”) if the fees for any particular engagement are not anticipated to exceed $50,000; and (3) non-audit tax or compliance consulting or training services provided by the Auditors to a Wells Fargo Advantage Multi-Sector Income Fund’s investment adviser and its controlling entities (where pre-approval is required because the engagement relates directly to the operations and financial reporting of the Wells Fargo Advantage Multi-Sector Income Fund) if the fee to the Auditors for any particular engagement is not anticipated to exceed $50,000. For any such pre-approval sought from the Chairman, Management shall prepare a brief description of the proposed services. If the Chairman approves of such service, he or she shall sign the statement prepared by Management. Such written statement shall be presented to the full Committees at their next regularly scheduled meetings.

(f) Not applicable

(g) Not applicable

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(h) Not applicable

 

ITEM 5.

AUDIT COMMITTEE OF LISTED REGISTRANTS

Not applicable.

 

ITEM 6.

INVESTMENTS

A summary portfolio of investments is included as part of the report to shareholders filed under Item 1 of this Form. The portfolio of investments for Wells Fargo Advantage Multi-Sector Income Fund is filed under this Item.

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			1

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Agency Securities: 2.33%
FHLMC ±			4.66	%			9-1-2032			$	1,369,624			$	1,468,683
FHLMC			8.50				7-1-2028				69,590				83,906
FHLMC			8.50				3-1-2030				46,481				48,123
FHLMC Series 1383 ±			2.38				2-1-2037				539,472				578,135
FHLMC Series 196 Class A ±			0.95				12-15-2021				45,870				46,454
FHLMC Series 2011-K16 Class B 144A ±			4.59				11-25-2046				1,000,000				1,071,069
FHLMC Series 2011-K701 Class B 144A ±			4.29				7-25-2048				165,000				173,635
FHLMC Series 2011-K702 Class B 144A ±			4.77				4-25-2044				740,000				792,244
FHLMC Series 2012-K17 Class B 144A ±			4.35				12-25-2044				675,000				711,714
FHLMC Series 2012-K18 Class B 144A ±			4.26				1-25-2045				810,000				848,844
FHLMC Series 2012-K501 Class C 144A ±			3.48				11-25-2046				800,000				814,497
FHLMC Series 2012-K705 Class B 144A ±			4.16				9-25-2044				1,000,000				1,049,480
FHLMC Series 2012-K706 Class B 144A ±			4.02				11-25-2044				500,000				522,155
FHLMC Series 2012-K706 Class C 144A ±			4.02				11-25-2044				805,000				826,274
FHLMC Series 2012-K707 Class B 144A ±			3.88				1-25-2047				930,000				965,891
FHLMC Series 2012-K709 Class B 144A ±			3.74				4-25-2045				1,000,000				1,032,086
FHLMC Series 2012-K711 Class B 144A ±			3.56				8-25-2045				264,000				269,559
FHLMC Series 2013-K30 Class B 144A ±			3.56				6-25-2045				700,000				690,601
FHLMC Series 2013-K713 Class B 144A ±			3.16				4-25-2046				1,000,000				995,632
FHLMC Series 2390 Class FD ±			0.60				12-15-2031				33,991				34,359
FHLMC Series 2567 Class FH ±			0.55				2-15-2033				101,504				102,512
FHLMC Series K007 Class X1 ±(c)			1.19				4-25-2020				984,741				47,155
FHLMC Series K016 Class X1 ±(c)			1.57				10-25-2021				384,506				33,626
FHLMC Series K020 Class X1 ±(c)			1.47				5-25-2022				6,852,576				602,150
FNMA ±			2.02				9-1-2037				708,618				724,696
FNMA			6.00				4-1-2033				68,650				75,760
FNMA			6.50				11-1-2032				61,140				62,891
FNMA			7.50				7-1-2017				24,606				24,897
FNMA			7.50				10-1-2028				6,471				6,492
FNMA			7.50				11-1-2028				149,391				160,409
FNMA			7.50				2-1-2030				35,777				36,240
FNMA			7.50				9-1-2030				86,036				91,189
FNMA			8.00				6-1-2030				19,759				20,020
FNMA			12.00				1-1-2016				1,677				1,695
FNMA Series 1996-46 Class FA ±			0.65				8-25-2021				24,705				24,920
FNMA Series 1997-20 Class IO ±(c)			1.84				3-25-2027				1,902,352				83,515
FNMA Series 2001-25 Class Z			6.00				6-25-2031				223,723				247,114
FNMA Series 2001-35 Class F ±			0.75				7-25-2031				9,325				9,475
FNMA Series 2001-57 Class F ±			0.65				6-25-2031				9,388				9,507
FNMA Series 2002-77 Class FH ±			0.56				12-18-2032				72,621				73,339
FNMA Series 2002-97 Class FR ±			0.70				1-25-2033				18,097				18,320
FNMA Series G91-16 Class F ±			0.60				6-25-2021				25,941				26,137
FNMA Series G92-17 Class F ±			1.20				3-25-2022				71,938				73,549
GNMA			6.50				6-15-2028				44,811				51,023
GNMA			7.25				7-15-2017				5,731				5,750
GNMA			7.25				8-15-2017				21,914				22,997
GNMA			7.25				8-15-2017				14,782				14,975
GNMA			7.25				9-15-2017				23,329				24,512
GNMA			7.25				10-15-2017				31,786				33,434
GNMA			7.25				10-15-2017				13,883				14,062

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2		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Agency Securities (continued)
GNMA			7.25	%			11-15-2017			$	15,666			$	15,888
GNMA			7.25				1-15-2018				6,379				6,402
GNMA			7.25				1-15-2018				9,141				9,174
GNMA			7.25				2-15-2018				17,955				18,264
GNMA			7.25				5-15-2018				9,717				9,752
Total Agency Securities (Cost $14,785,998)															15,805,182
Asset-Backed Securities: 0.10%
CVS Pass-Through Trust Series T			6.04				12-10-2028				584,935				680,814
Total Asset-Backed Securities (Cost $654,811)															680,814
										Shares
Common Stocks: 0.17%
Materials: 0.00%
Chemicals: 0.00%
LyondellBasell Industries NV Class A											9				825
Telecommunication Services: 0.17%
Diversified Telecommunication Services: 0.17%
Fairpoint Communications Incorporated †											70,442				1,169,337
Total Common Stocks (Cost $1,618,617)															1,170,162
										Principal
Corporate Bonds and Notes: 67.03%
Consumer Discretionary: 10.75%
Auto Components: 1.07%
Allison Transmission Incorporated 144A			7.13				5-15-2019			$	3,790,000				3,984,238
Cooper Tire & Rubber Company (i)			7.63				3-15-2027				1,680,000				1,772,400
Cooper Tire & Rubber Company			8.00				12-15-2019				450,000				499,500
Goodyear Tire & Rubber Company			7.00				5-15-2022				400,000				435,000
Goodyear Tire & Rubber Company			8.75				8-15-2020				468,000				550,485
															7,241,623
Distributors: 0.12%
LKQ Corporation			4.75				5-15-2023				800,000				773,120
Diversified Consumer Services: 0.98%
Service Corporation International			6.75				4-1-2016				475,000				502,313
Service Corporation International			7.00				6-15-2017				1,410,000				1,540,425
Service Corporation International			7.50				4-1-2027				2,993,000				3,292,300
Service Corporation International			7.63				10-1-2018				680,000				761,600
Service Corporation International			8.00				11-15-2021				475,000				558,125
															6,654,763

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			3

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Hotels, Restaurants & Leisure: 2.75%
Burger King Corporation			9.88	%			10-15-2018			$	850,000			$	896,750
CCM Merger Incorporated 144A			9.13				5-1-2019				6,270,000				6,740,250
Greektown Holdings LLC 144A			8.88				3-15-2019				7,425,000				7,462,125
Hilton Worldwide Finance LLC 144A			5.63				10-15-2021				195,000				205,481
Pinnacle Entertainment Incorporated			7.50				4-15-2021				2,620,000				2,796,850
Speedway Motorsports Incorporated			6.75				2-1-2019				525,000				546,000
															18,647,456
Household Durables: 0.22%
American Greetings Corporation			7.38				12-1-2021				1,230,000				1,296,113
Tempur Sealy International Incorporated			6.88				12-15-2020				200,000				213,500
															1,509,613
Internet & Catalog Retail: 0.18%
Expedia Incorporated			5.95				8-15-2020				750,000				836,245
Priceline Group Incorporated			2.38				9-23-2024				300,000				385,422
															1,221,667
Media: 4.29%
Cablevision Systems Corporation			8.63				9-15-2017				1,310,000				1,480,300
CBS Outdoor Americas Capital LLC 144A			5.63				2-15-2024				20,000				20,850
CBS Outdoor Americas Capital LLC 144A			5.88				3-15-2025				1,185,000				1,244,250
CCO Holdings LLC			8.13				4-30-2020				415,000				439,900
CCOH Safari LLC %%			5.50				12-1-2022				450,000				452,813
CCOH Safari LLC %%			5.75				12-1-2024				1,575,000				1,586,813
Cinemark USA Incorporated			7.38				6-15-2021				775,000				831,188
CSC Holdings LLC			7.63				7-15-2018				625,000				707,813
CSC Holdings LLC			7.88				2-15-2018				1,100,000				1,243,000
CSC Holdings LLC			8.63				2-15-2019				383,000				449,546
DIRECTV Holdings LLC			3.80				3-15-2022				750,000				763,718
DISH DBS Corporation			7.88				9-1-2019				480,000				557,400
EchoStar DBS Corporation			7.13				2-1-2016				125,000				132,969
EchoStar DBS Corporation			7.75				5-31-2015				350,000				362,250
Gray Television Incorporated			7.50				10-1-2020				6,040,000				6,319,350
Interpublic Group of Companies			4.00				3-15-2022				750,000				763,615
Lamar Media Corporation			5.88				2-1-2022				690,000				727,950
LIN Television Corporation			6.38				1-15-2021				275,000				279,125
LIN Television Corporation			8.38				4-15-2018				1,625,000				1,692,031
Live Nation Entertainment Incorporated 144A			7.00				9-1-2020				200,000				212,500
Lynx II Corporation 144A			6.38				4-15-2023				365,000				385,988
National CineMedia LLC			6.00				4-15-2022				1,710,000				1,731,375
National CineMedia LLC			7.88				7-15-2021				760,000				809,400
Nexstar Broadcasting Group Incorporated			6.88				11-15-2020				1,750,000				1,815,625
Regal Entertainment Group			5.75				6-15-2023				400,000				384,000
Regal Entertainment Group			5.75				3-15-2022				2,925,000				2,859,188
Time Warner Cable Incorporated			4.00				1-15-2022				750,000				787,259
															29,040,216

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4		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Multiline Retail: 0.09%
Macy’s Retail Holdings Incorporated			3.88	%			1-15-2022			$	600,000			$	625,596
Specialty Retail: 1.05%
ABC Supply Company Incorporated 144A			5.63				4-15-2021				450,000				455,625
Advance Auto Parts Incorporated			4.50				1-15-2022				600,000				633,092
Ahern Rentals Incorporated 144A			9.50				6-15-2018				1,200,000				1,281,000
Century Intermediate Holding Company (PIK at 10.50%) 144A¥			9.75				2-15-2019				175,000				185,719
L Brands Incorporated			6.63				4-1-2021				750,000				849,375
Penske Auto Group Incorporated			5.75				10-1-2022				1,155,000				1,201,200
Sonic Automotive Incorporated			5.00				5-15-2023				1,174,000				1,138,780
Toys “R” Us Property Company II LLC			8.50				12-1-2017				1,335,000				1,335,000
															7,079,791
Consumer Staples: 0.41%
Food & Staples Retailing: 0.09%
SABMiller Holdings Incorporated 144A			3.75				1-15-2022				600,000				619,465
Food Products: 0.20%
B&G Foods Incorporated			4.63				6-1-2021				300,000				294,750
Darling Ingredients Incorporated			5.38				1-15-2022				180,000				180,450
Hearthside Group Holdings LLC 144A			6.50				5-1-2022				120,000				118,200
Kraft Foods Group Incorporated			3.50				6-6-2022				750,000				767,306
															1,360,706
Tobacco: 0.12%
Lorillard Tobacco Company			6.88				5-1-2020				650,000				767,271
Energy: 14.14%
Energy Equipment & Services: 5.44%
Bristow Group Incorporated			6.25				10-15-2022				3,540,000				3,681,600
Cleaver Brooks Incorporated 144A			8.75				12-15-2019				275,000				299,063
Compressco Partners LP 144A			7.25				8-15-2022				1,205,000				1,192,950
Era Group Incorporated			7.75				12-15-2022				4,425,000				4,590,938
Forum Energy Technologies Incorporated			6.25				10-1-2021				200,000				206,000
Gulfmark Offshore Incorporated			6.38				3-15-2022				4,930,000				4,486,300
Hornbeck Offshore Services Incorporated			5.00				3-1-2021				2,375,000				2,113,750
Hornbeck Offshore Services Incorporated			5.88				4-1-2020				2,350,000				2,209,000
NGPL PipeCo LLC 144A			7.12				12-15-2017				5,300,000				5,313,250
NGPL PipeCo LLC 144A			7.77				12-15-2037				6,975,000				7,219,125
NGPL PipeCo LLC 144A			9.63				6-1-2019				435,000				463,275
Northern Tier Energy LLC 144A			7.13				11-15-2020				825,000				866,250
PHI Incorporated			5.25				3-15-2019				4,250,000				4,198,405
															36,839,906
Oil, Gas & Consumable Fuels: 8.70%
Crestwood Midstream Partners LP			6.00				12-15-2020				1,075,000				1,088,438
Crestwood Midstream Partners LP			6.13				3-1-2022				275,000				277,750
CVR Refining LLC			6.50				11-1-2022				1,249,000				1,261,490

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			5

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Oil, Gas & Consumable Fuels (continued)
Denbury Resources Incorporated			4.63	%			7-15-2023			$	535,000			$	492,200
Denbury Resources Incorporated			6.38				8-15-2021				50,000				52,250
El Paso LLC			6.50				9-15-2020				285,000				324,188
El Paso LLC			7.00				6-15-2017				530,000				589,625
El Paso LLC			7.42				2-15-2037				800,000				960,000
El Paso LLC			7.80				8-1-2031				1,850,000				2,275,500
El Paso Pipeline Partners Operating LLC			6.50				4-1-2020				750,000				857,979
Energy Transfer Equity LP			7.50				10-15-2020				3,100,000				3,565,000
Energy Transfer Partners LP			5.20				2-1-2022				750,000				820,393
Exterran Partners LP			6.00				4-1-2021				2,500,000				2,412,500
Kinder Morgan Energy Partners LP			3.95				9-1-2022				750,000				747,704
Nabors Industries Incorporated			4.63				9-15-2021				750,000				790,957
Northern Tier Energy LLC			7.13				11-15-2020				1,975,000				2,073,750
Overseas Shipholding Group			8.13				3-30-2018				425,000				430,844
Phillips 66			4.30				4-1-2022				625,000				669,770
Pioneer Natural Resources Company			3.95				7-15-2022				750,000				755,761
Pioneer Natural Resources Company			7.50				1-15-2020				1,220,000				1,478,340
Rockies Express Pipeline LLC 144A			5.63				4-15-2020				3,625,000				3,788,125
Rockies Express Pipeline LLC 144A			6.88				4-15-2040				4,613,000				5,120,430
Rockies Express Pipeline LLC 144A			7.50				7-15-2038				2,350,000				2,655,500
Rose Rock Midstream LP			5.63				7-15-2022				215,000				214,463
Sabine Pass Liquefaction LLC			5.63				2-1-2021				850,000				890,375
Sabine Pass Liquefaction LLC			5.63				4-15-2023				1,020,000				1,055,700
Sabine Pass Liquefaction LLC 144A			5.75				5-15-2024				1,625,000				1,679,844
Sabine Pass Liquefaction LLC 144A			6.25				3-15-2022				3,550,000				3,825,125
Sabine Pass LNG LP			6.50				11-1-2020				4,245,000				4,489,088
Sabine Pass LNG LP			7.50				11-30-2016				4,635,000				4,971,038
SemGroup Corporation			7.50				6-15-2021				2,665,000				2,804,913
Suburban Propane Partners LP			7.38				3-15-2020				790,000				823,575
Suburban Propane Partners LP			7.38				8-1-2021				309,000				332,175
Ultra Petroleum Corporation 144A			5.75				12-15-2018				1,135,000				1,123,650
Ultra Petroleum Corporation 144A			6.13				10-1-2024				1,260,000				1,189,125
Weatherford International Incorporated			6.35				6-15-2017				650,000				723,267
Western Gas Partners LP			5.38				6-1-2021				503,000				562,537
Williams Partners LP			3.35				8-15-2022				750,000				730,622
															58,903,991
Financials: 14.43%
Banks: 0.88%
Bank of America Corporation			3.70				9-1-2015				650,000				665,297
Bank of America Corporation			5.70				1-24-2022				250,000				287,725
CIT Group Incorporated 144A			5.50				2-15-2019				1,275,000				1,360,266
CIT Group Incorporated 144A			6.63				4-1-2018				550,000				602,250
Citigroup Incorporated			4.50				1-14-2022				250,000				271,134
Citigroup Incorporated			6.00				8-15-2017				650,000				725,249
City National Bank			5.38				7-15-2022				500,000				546,666
HSBC Bank USA			6.00				8-9-2017				650,000				724,248
JPMorgan Chase & Company			3.38				5-1-2023				750,000				732,095
															5,914,930

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6		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Capital Markets: 1.17%
Ace Securities Corporation ±			2.78	%			6-25-2033			$	500,085			$	494,399
Blackstone Holdings Finance Company LLC 144A			5.88				3-15-2021				750,000				870,917
Goldman Sachs Group Incorporated			5.75				1-24-2022				750,000				863,745
Neuberger Berman Group LLC 144A			5.63				3-15-2020				500,000				522,500
Neuberger Berman Group LLC 144A			5.88				3-15-2022				650,000				689,000
Nuveen Investments Incorporated			5.50				9-15-2015				3,560,000				3,715,750
Nuveen Investments Incorporated 144A			9.13				10-15-2017				730,000				779,859
															7,936,170
Consumer Finance: 4.40%
Ally Financial Incorporated			5.50				2-15-2017				750,000				797,775
Ally Financial Incorporated			6.75				12-1-2014				998,000				1,000,994
Ally Financial Incorporated			7.50				9-15-2020				927,000				1,103,130
Ally Financial Incorporated			8.00				3-15-2020				755,000				907,888
Ally Financial Incorporated			8.30				2-12-2015				2,055,000				2,088,394
Discover Financial Services			5.20				4-27-2022				750,000				823,655
Ford Motor Credit Company LLC			5.00				5-15-2018				650,000				710,324
Ford Motor Credit Company LLC			8.00				12-15-2016				250,000				283,351
General Motors Financial Company Incorporated			6.75				6-1-2018				1,135,000				1,289,644
Homer City Funding LLC (PIK at 9.23%) ¥			8.73				10-1-2026				1,328,854				1,388,653
Navient LLC			8.00				3-25-2020				3,940,000				4,521,150
SLM Corporation			6.13				3-25-2024				1,220,000				1,259,662
SLM Corporation			7.25				1-25-2022				930,000				1,039,275
SLM Corporation			8.45				6-15-2018				1,675,000				1,916,200
Springleaf Finance Corporation			5.40				12-1-2015				1,535,000				1,584,888
Springleaf Finance Corporation			5.75				9-15-2016				1,100,000				1,144,000
Springleaf Finance Corporation			6.00				6-1-2020				1,735,000				1,795,725
Springleaf Finance Corporation			6.50				9-15-2017				200,000				214,000
Springleaf Finance Corporation			6.90				12-15-2017				4,550,000				4,959,500
Springleaf Finance Corporation			7.75				10-1-2021				475,000				536,750
Springleaf Finance Corporation			8.25				10-1-2023				385,000				441,788
															29,806,746
Diversified Financial Services: 1.98%
Denali Borrower LLC 144A			5.63				10-15-2020				3,510,000				3,722,794
General Electric Capital Corporation			4.65				10-17-2021				650,000				726,654
Infinity Acquisition LLC 144A			7.25				8-1-2022				2,615,000				2,445,025
ING US Incorporated			5.50				7-15-2022				750,000				845,239
Jefferies Finance LLC 144A			6.88				4-15-2022				1,360,000				1,319,200
Jefferies Finance LLC 144A			7.38				4-1-2020				2,400,000				2,394,000
Jefferies Finance LLC 144A			7.50				4-15-2021				425,000				425,000
Moody’s Corporation			5.50				9-1-2020				1,302,000				1,488,952
															13,366,864
Insurance: 1.16%
American International Group Incorporated			4.88				6-1-2022				750,000				836,255
Endurance Specialty Holdings Limited			7.00				7-15-2034				575,000				704,764
Hartford Financial Services Group Incorporated			5.13				4-15-2022				650,000				726,116

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			7

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Insurance (continued)
Hub Holdings LLC (PIK at 8.88%) 144A ¥			8.13	%			7-15-2019			$	2,900,000			$	2,878,250
Liberty Mutual Group Incorporated 144A			4.95				5-1-2022				750,000				812,601
ProAssurance Corporation			5.30				11-15-2023				750,000				815,247
Prudential Covered Trust 144A			3.00				9-30-2015				360,000				366,731
W.R. Berkley Corporation			4.63				3-15-2022				650,000				698,145
															7,838,109
Real Estate Management & Development: 0.87%
Hockey Merger Sub 2 Incorporated 144A			7.88				10-1-2021				2,035,000				2,121,488
Onex Corporation 144A			7.75				1-15-2021				3,730,000				3,776,625
															5,898,113
REITs: 3.97%
Alexandria Real Estate Company			4.60				4-1-2022				650,000				685,431
American Tower Corporation			5.90				11-1-2021				650,000				730,322
Crown Castle International Corporation			5.25				1-15-2023				100,000				102,375
DuPont Fabros Technology Incorporated LP			5.88				9-15-2021				4,655,000				4,841,200
Essex Portfolio LP			3.63				8-15-2022				750,000				763,352
Health Care REIT Incorporated			5.25				1-15-2022				650,000				720,221
Iron Mountain Incorporated			5.75				8-15-2024				4,525,000				4,615,500
Iron Mountain Incorporated			6.00				8-15-2023				2,160,000				2,273,400
Iron Mountain Incorporated			7.75				10-1-2019				365,000				392,375
Iron Mountain Incorporated			8.38				8-15-2021				1,759,000				1,829,360
Omega Healthcare Investors Incorporated			6.75				10-15-2022				1,775,000				1,894,813
Sabra Health Care Incorporated			5.38				6-1-2023				850,000				862,750
Sabra Health Care Incorporated			5.50				2-1-2021				1,100,000				1,141,250
The Geo Group Incorporated			5.13				4-1-2023				1,775,000				1,757,250
The Geo Group Incorporated			5.88				1-15-2022				2,640,000				2,745,600
The Geo Group Incorporated			5.88				10-15-2024				465,000				478,950
The Geo Group Incorporated			6.63				2-15-2021				365,000				385,988
Ventas Realty LP			4.25				3-1-2022				650,000				679,877
															26,900,014
Health Care: 6.28%
Biotechnology: 0.11%
Amgen Incorporated			3.63				5-15-2022				750,000				764,441
Health Care Equipment & Supplies: 0.68%
Boston Scientific Corporation			6.00				1-15-2020				750,000				860,216
Crimson Merger Sub Incorporated 144A			6.63				5-15-2022				2,275,000				2,127,125
Hologic Incorporated			6.25				8-1-2020				1,530,000				1,608,413
															4,595,754
Health Care Providers & Services: 3.53%
Aviv Healthcare Properties LP			6.00				10-15-2021				515,000				530,450
Aviv Healthcare Properties LP			7.75				2-15-2019				1,625,000				1,706,250
Capella Healthcare Incorporated			9.25				7-1-2017				1,375,000				1,438,594
Centene Corporation			5.75				6-1-2017				1,000,000				1,052,500

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8		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Health Care Providers & Services (continued)
Community Health Systems Incorporated			6.88	%			2-1-2022			$	1,340,000			$	1,443,850
Coventry Health Care Incorporated			5.45				6-15-2021				750,000				858,684
DaVita HealthCare Partners Incorporated			5.75				8-15-2022				525,000				556,500
Express Scripts Holding Company			3.90				2-15-2022				665,000				692,995
HCA Incorporated			6.50				2-15-2020				1,875,000				2,095,313
HealthSouth Corporation			5.75				11-1-2024				30,000				31,500
HealthSouth Corporation			8.13				2-15-2020				495,000				520,988
Humana Incorporated			7.20				6-15-2018				750,000				882,939
MPH Acquisition Holdings LLC 144A			6.63				4-1-2022				885,000				925,931
MPT Operating Partnership LP			6.38				2-15-2022				1,075,000				1,142,188
MPT Operating Partnership LP			6.88				5-1-2021				775,000				829,250
Select Medical Corporation			6.38				6-1-2021				6,215,000				6,354,838
Tenet Healthcare Corporation			6.00				10-1-2020				1,475,000				1,585,625
Tenet Healthcare Corporation			8.13				4-1-2022				1,090,000				1,249,413
															23,897,808
Health Care Technology: 0.84%
Emdeon Incorporated			11.00				12-31-2019				5,150,000				5,710,063
Life Sciences Tools & Services: 0.13%
Life Technologies Corporation			6.00				3-1-2020				750,000				863,923
Pharmaceuticals: 0.99%
Endo Finance LLC 144A			5.75				1-15-2022				715,000				718,575
Endo Finance LLC 144A			7.25				1-15-2022				2,175,000				2,321,813
Par Pharmaceutical Company			7.38				10-15-2020				2,150,000				2,284,375
Pinnacle Incorporated 144A			9.50				10-1-2023				500,000				545,000
Valeant Pharmaceuticals International Incorporated 144A			5.63				12-1-2021				85,000				84,150
Watson Pharmaceuticals Incorporated			3.25				10-1-2022				750,000				720,290
															6,674,203
Industrials: 4.47%
Aerospace & Defense: 0.15%
BAE Systems Holdings Incorporated 144A			3.80				10-7-2024				1,000,000				1,006,126
Airlines: 0.45%
Aviation Capital Group Corporation 144A			6.75				4-6-2021				1,320,000				1,504,800
Aviation Capital Group Corporation 144A			7.13				10-15-2020				720,000				827,595
Delta Air Lines Incorporated			4.75				11-7-2021				663,626				706,762
															3,039,157
Commercial Services & Supplies: 1.34%
ADT Corporation			3.50				7-15-2022				750,000				671,250
ADT Corporation			4.13				6-15-2023				1,075,000				989,000
ADT Corporation			6.25				10-15-2021				735,000				772,669
Covanta Holding Corporation			5.88				3-1-2024				1,885,000				1,946,263
Covanta Holding Corporation			6.38				10-1-2022				1,500,000				1,597,500
Covanta Holding Corporation			7.25				12-1-2020				1,480,000				1,576,200
Penske Truck Leasing Company 144A			3.75				5-11-2017				750,000				787,844
Republic Services Incorporated			3.55				6-1-2022				750,000				768,770
															9,109,496

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			9

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Construction & Engineering: 0.44%
AECOM Technology Corporation 144A			5.75	%			10-15-2022			$	215,000			$	225,213
AECOM Technology Corporation 144A			5.88				10-15-2024				2,610,000				2,760,075
															2,985,288
Machinery: 0.51%
Columbus McKinnon Corporation			7.88				2-1-2019				3,320,000				3,469,400
Professional Services: 0.09%
Verisk Analytics Incorporated			5.80				5-1-2021				530,000				596,927
Trading Companies & Distributors: 1.36%
Ashtead Capital Incorporated 144A			6.50				7-15-2022				4,010,000				4,330,800
H&E Equipment Services Incorporated			7.00				9-1-2022				3,085,000				3,293,238
International Lease Finance Corporation 144A			7.13				9-1-2018				75,000				84,938
International Lease Finance Corporation			8.63				9-15-2015				900,000				945,000
Light Tower Rentals Incorporated 144A			8.13				8-1-2019				590,000				581,150
															9,235,126
Transportation Infrastructure: 0.13%
Watco Companies LLC 144A			6.38				4-1-2023				835,000				847,525
Information Technology: 4.92%
Communications Equipment: 0.11%
Motorola Solutions Incorporated			3.75				5-15-2022				750,000				746,330
Electronic Equipment, Instruments & Components: 1.12%
Jabil Circuit Incorporated			8.25				3-15-2018				5,275,000				6,105,813
L-3 Communications Corporation			4.95				2-15-2021				750,000				822,499
Zebra Technologies Corporation 144A			7.25				10-15-2022				600,000				631,500
															7,559,812
Internet Software & Services: 0.30%
Equinix Incorporated			7.00				7-15-2021				75,000				81,750
Sophia Holding Finance LP (PIK at 10.38%) 144A¥			9.63				12-1-2018				1,930,000				1,963,775
															2,045,525
IT Services: 2.18%
Audatex North America Incorporated 144A			6.00				6-15-2021				1,400,000				1,480,500
Audatex North America Incorporated 144A			6.13				11-1-2023				420,000				445,200
First Data Corporation 144A			6.75				11-1-2020				585,000				625,950
First Data Corporation 144A			7.38				6-15-2019				1,555,000				1,648,300
First Data Corporation			11.75				8-15-2021				1,534,000				1,798,615
First Data Holdings Incorporated (PIK at 14.50%) 144A¥			14.50				9-24-2019				3,687,734				3,852,607
SunGard Data Systems Incorporated			6.63				11-1-2019				2,000,000				2,070,000
SunGard Data Systems Incorporated			7.38				11-15-2018				2,457,000				2,561,423
SunGard Data Systems Incorporated			7.63				11-15-2020				250,000				266,563
															14,749,158

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10		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Semiconductors & Semiconductor Equipment: 0.22%
Micron Technology Incorporated 144A			5.88	%			2-15-2022			$	1,400,000			$	1,470,000
Software: 0.42%
Activision Blizzard Incorporated 144A			5.63				9-15-2021				705,000				749,944
Activision Blizzard Incorporated 144A			6.13				9-15-2023				175,000				189,438
BMC Software Finance Incorporated 144A			8.13				7-15-2021				1,095,000				1,048,463
CA Incorporated			5.38				12-1-2019				750,000				836,258
															2,824,103
Technology Hardware, Storage & Peripherals: 0.57%
Hewlett-Packard Company			4.05				9-15-2022				750,000				768,236
NCR Corporation			5.88				12-15-2021				230,000				235,750
NCR Corporation			6.38				12-15-2023				2,725,000				2,874,875
															3,878,861
Materials: 1.18%
Chemicals: 0.12%
Dow Chemical Company			4.13				11-15-2021				750,000				794,086
Containers & Packaging: 0.68%
Crown Cork & Seal Company Incorporated			7.38				12-15-2026				35,000				38,675
Crown Cork & Seal Company Incorporated (i)			7.50				12-15-2096				600,000				561,000
Owens-Illinois Incorporated			7.80				5-15-2018				1,295,000				1,463,350
Sealed Air Corporation 144A			8.38				9-15-2021				2,260,000				2,559,450
															4,622,475
Metals & Mining: 0.14%
Cliffs Natural Resources			6.25				10-1-2040				460,000				340,400
Freeport-McMoRan Copper & Gold Incorporated			3.55				3-1-2022				600,000				585,020
Indalex Holdings Corporation (s)(a)(i)			11.50				2-1-2020				3,170,000				0
															925,420
Paper & Forest Products: 0.24%
Georgia-Pacific LLC			8.88				5-15-2031				1,080,000				1,648,333
Telecommunication Services: 8.42%
Diversified Telecommunication Services: 3.89%
CenturyLink Incorporated			5.80				3-15-2022				600,000				636,000
Citizens Communications Company			7.88				1-15-2027				1,805,000				1,877,200
Frontier Communications Corporation			8.13				10-1-2018				845,000				959,498
Frontier Communications Corporation			8.25				4-15-2017				1,040,000				1,166,100
Frontier Communications Corporation			8.50				4-15-2020				525,000				605,063
GCI Incorporated			6.75				6-1-2021				2,330,000				2,318,350
GCI Incorporated			8.63				11-15-2019				5,625,000				5,864,063
Level 3 Financing Incorporated			8.13				7-1-2019				300,000				321,000
Qwest Corporation			7.13				11-15-2043				795,000				807,051
Qwest Corporation			7.25				9-15-2025				1,040,000				1,225,365
Qwest Corporation			7.63				8-3-2021				230,000				251,850

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			11

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Diversified Telecommunication Services (continued)
Syniverse Holdings Incorporated			9.13	%			1-15-2019			$	5,005,000			$	5,255,250
TW Telecommunications Holdings Incorporated			5.38				10-1-2022				1,270,000				1,403,350
TW Telecommunications Holdings Incorporated			5.38				10-1-2022				600,000				663,000
Verizon Communications Incorporated			3.25				2-17-2026				300,000				425,534
Windstream Corporation			7.88				11-1-2017				2,330,000				2,593,756
															26,372,430
Wireless Telecommunication Services: 4.53%
Crown Castle Towers LLC 144A			6.11				1-15-2040				750,000				866,578
MetroPCS Wireless Incorporated			6.63				11-15-2020				3,300,000				3,477,375
SBA Telecommunications Corporation			5.63				10-1-2019				160,000				166,400
SBA Telecommunications Corporation			5.75				7-15-2020				2,000,000				2,090,000
Sprint Capital Corporation			6.88				11-15-2028				13,665,000				13,289,167
Sprint Capital Corporation			8.75				3-15-2032				515,000				575,513
Sprint Communications Incorporated 144A			9.00				11-15-2018				325,000				382,281
Sprint Communications Incorporated			11.50				11-15-2021				625,000				803,125
Sprint Corporation 144A			7.13				6-15-2024				960,000				986,400
Sprint Corporation 144A			7.25				9-15-2021				200,000				211,500
Sprint Corporation 144A			7.88				9-15-2023				200,000				216,500
T-Mobile USA Incorporated			6.00				3-1-2023				115,000				118,450
T-Mobile USA Incorporated			6.13				1-15-2022				85,000				88,081
T-Mobile USA Incorporated			6.25				4-1-2021				505,000				527,094
T-Mobile USA Incorporated			6.38				3-1-2025				225,000				231,188
T-Mobile USA Incorporated			6.46				4-28-2019				160,000				166,800
T-Mobile USA Incorporated			6.50				1-15-2024				80,000				83,800
T-Mobile USA Incorporated			6.54				4-28-2020				165,000				174,075
T-Mobile USA Incorporated			6.63				4-1-2023				505,000				532,775
T-Mobile USA Incorporated			6.63				4-28-2021				920,000				969,450
T-Mobile USA Incorporated			6.73				4-28-2022				3,490,000				3,690,675
T-Mobile USA Incorporated			6.84				4-28-2023				945,000				999,338
															30,646,565
Utilities: 2.03%
Electric Utilities: 0.71%
Great Plains Energy Incorporated			4.85				6-1-2021				750,000				833,357
IPALCO Enterprises Incorporated 144A			7.25				4-1-2016				1,730,000				1,842,450
Otter Tail Corporation (i)			9.00				12-15-2016				1,835,000				2,102,662
PNM Resources Incorporated			9.25				5-15-2015				9,000				9,373
															4,787,842
Gas Utilities: 0.40%
AmeriGas Finance LLC			6.75				5-20-2020				1,775,000				1,890,375
AmeriGas Finance LLC			7.00				5-20-2022				795,000				858,600
															2,748,975
Independent Power & Renewable Electricity Producers: 0.70%
Calpine Corporation 144A			6.00				1-15-2022				515,000				554,913
Calpine Corporation 144A			7.88				1-15-2023				735,000				814,013

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12		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Independent Power & Renewable Electricity Producers (continued)
NSG Holdings LLC 144A			7.75	%			12-15-2025			$	2,175,000			$	2,343,563
Reliant Energy Incorporated			9.24				7-2-2017				563,039				596,821
Reliant Energy Incorporated			9.68				7-2-2026				410,000				442,800
															4,752,110
Multi-Utilities: 0.22%
Ameren Illinois Company			9.75				11-15-2018				500,000				646,793
CMS Energy Corporation			5.05				3-15-2022				750,000				840,052
															1,486,845
Total Corporate Bonds and Notes (Cost $432,441,973)															453,800,237
Foreign Corporate Bonds and Notes @: 5.09%
Consumer Discretionary: 0.30%
Auto Components: 0.07%
Gestamp Funding Luxembourg SA (EUR)			5.88				5-31-2020				135,000				178,015
HP Pelzer Holdings (EUR) 144A			7.50				7-15-2021				100,000				130,212
Samvardhana Motherson Automotive Systems Group (EUR) 144A			4.13				7-15-2021				100,000				121,587
															429,814
Automobiles: 0.08%
Jaguar Land Rover plc (GBP)			8.25				3-15-2020				300,000				526,701
Distributors: 0.02%
GHD Bondco plc (GBP)			7.00				4-15-2020				100,000				144,789
Diversified Consumer Services: 0.02%
Brakes Capital (GBP) 144A			7.13				12-15-2018				100,000				155,971
Hotels, Restaurants & Leisure: 0.02%
Twinkle Pizza plc (GBP) 144A			6.63				8-1-2021				100,000				159,370
Media: 0.09%
Altice SA (EUR) 144A (i)			7.25				5-15-2022				100,000				129,388
Cable Communications Systems NV (EUR)			7.50				11-1-2020				350,000				451,761
															581,149
Consumer Staples: 0.37%
Beverages: 0.08%
Bacardi Limited (EUR)			2.75				7-3-2023				400,000				545,869
Food & Staples Retailing: 0.13%
Casino Guichard Perrachon SA (EUR)			4.73				5-26-2021				500,000				750,876
R&R Ice Cream plc (GBP)			5.50				5-15-2020				100,000				155,171
															906,047
Food Products: 0.16%
BRF SA (BRL) 144A			7.75				5-22-2018				3,100,000				1,075,911

 

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			13

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Energy: 0.31%
Oil, Gas & Consumable Fuels: 0.31%
Petroleos Mexicanos (MXN) 144A			7.19	%			9-12-2024				28,200,000			$	2,121,976
Financials: 3.26%
Banks: 3.20%
Eurofima (AUD)			6.25				12-28-2018				2,450,000				2,393,280
European Investment Bank (ZAR)			9.00				3-31-2021				17,400,000				1,667,740
General Electric Capital Corporation (NZD)			4.25				1-17-2018				2,000,000				1,554,759
International Bank for Reconstruction & Development (AUD)			4.25				6-24-2025				5,600,000				5,058,492
International Bank for Reconstruction & Development (AUD)			5.75				10-1-2020				950,000				935,115
KfW (TRY)			5.00				1-16-2017				11,400,000				4,820,246
KfW (AUD)			5.00				3-19-2024				1,300,000				1,236,872
KfW (NZD)			6.38				2-17-2015				3,319,000				2,604,913
Landwirtschaftliche Rentenbank (ZAR)			8.25				5-23-2022				15,000,000				1,373,027
															21,644,444
Consumer Finance: 0.02%
Matalan Finance plc (GBP)			6.88				6-1-2019				100,000				153,011
Diversified Financial Services: 0.04%
TES Finance plc (GBP)			6.75				7-15-2020				200,000				295,977
Industrials: 0.37%
Building Products: 0.08%
Heidelbergcement AG (EUR)			8.50				10-31-2019				330,000				534,192
Commercial Services & Supplies: 0.05%
Iron Mountain Incorporated (EUR)			6.75				10-15-2018				250,000				312,536
Construction & Engineering: 0.03%
Grupo Isolux Corsan Finance BV (EUR) 144A			6.63				4-15-2021				200,000				240,605
Transportation Infrastructure: 0.21%
Autoroutes Du Sud de la France (EUR)			2.95				1-17-2024				500,000				698,991
Heathrow Funding Limited (EUR)			4.60				2-15-2020				500,000				704,243
															1,403,234
Telecommunication Services: 0.38%
Diversified Telecommunication Services: 0.06%
Telefonica Emisiones Company (EUR)			4.69				11-11-2019				300,000				442,583
Wireless Telecommunication Services: 0.32%
America Movil SAB de CV (MXN)			7.13				12-9-2024				28,850,000				2,155,462
Utilities: 0.10%
Water Utilities: 0.10%
Befesa Zinc Aser SA (EUR)			8.88				5-15-2018				500,000				656,037
Total Foreign Corporate Bonds and Notes (Cost $35,095,986)															34,485,678

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14		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Foreign Government Bonds @: 23.31%
Australia (AUD)			3.25	%			4-21-2025				3,350,000			$	2,920,347
Brazil (BRL)			10.00				1-1-2017				44,075,000				16,974,221
Colombia (COP)			7.75				4-14-2021				5,250,000,000				2,776,950
Columbia (COP)			7.00				5-4-2022				18,650,000,000				9,330,529
Hungary (HUF)			6.75				11-24-2017				1,305,000,000				5,953,762
Indonesia (IDR)			7.88				4-15-2019				74,000,000,000				6,129,417
Indonesia (IDR)			8.38				3-15-2024				67,650,000,000				5,718,202
Indonesia (IDR)			10.00				7-15-2017				50,000,000,000				4,364,915
Korea (KRW)			5.25				3-10-2027				2,830,000,000				3,346,514
Malaysia (MYR)			3.26				3-1-2018				22,500,000				6,767,122
Malaysia (MYR)			4.26				9-15-2016				21,100,000				6,502,739
Mexico (MXN)			7.75				11-13-2042				67,350,000				5,592,692
Mexico (MXN)			10.00				12-5-2024				62,120,000				6,030,247
New Zealand (NZD)			5.50				4-15-2023				5,625,000				4,847,578
Nigeria (NGN)			15.10				4-27-2017				500,000,000				3,190,462
Poland (PLN)			3.25				7-25-2025				50,000,000				15,811,890
Queensland Treasury (AUD)			5.75				7-22-2024				4,100,000				4,180,848
Republic of South Africa (ZAR)			8.00				12-21-2018				101,000,000				9,468,484
Romania (RON)			5.85				4-26-2023				15,000,000				4,914,174
Russia (RUB)			6.70				5-15-2019				175,000,000				3,594,701
Russia (RUB)			7.00				1-25-2023				50,500,000				990,973
Russia (RUB)			7.60				7-20-2022				48,400,000				992,526
South Africa (ZAR)			6.75				3-31-2021				62,000,000				5,424,645
State of New South Wales Australia (AUD)			5.00				8-20-2024				3,900,000				3,805,524
Thailand (THB)			3.25				6-16-2017				276,500,000				8,678,789
Turkey (TRY)			6.30				2-14-2018				675,000				287,292
Turkey (TRY)			8.20				7-13-2016				18,000,000				8,076,170
Turkey (TRY)			9.00				3-8-2017				2,500,000				1,144,467
Total Foreign Government Bonds (Cost $163,981,311)															157,816,180
Loans: 16.22%
Accellent Incorporated ±			7.50				3-11-2022			$	310,000				300,080
ADS Waste Holdings Incorporated ±			3.75				10-9-2019				1,066,126				1,042,405
Albertson’s Holdings LLC ±			4.50				8-25-2021				1,475,000				1,475,266
Albertson’s Holdings LLC ±			4.50				8-25-2021				150,255				150,282
Alliance Laundry Systems LLC ±			4.25				12-10-2018				1,686,829				1,666,453
Alliance Laundry Systems LLC ±			9.50				12-10-2019				2,230,189				2,235,764
Allison Transmission Incorporated ±			3.75				8-23-2019				3,410,139				3,380,300
American Capital Limited ±			3.50				8-22-2017				1,387,362				1,371,754
AMF Bowling Centers Incorporated ±			7.25				9-18-2021				775,000				767,250
Applied Systems Incorporated ±			7.50				1-22-2022				325,000				322,699
Arris Group Incorporated ±			3.25				4-17-2020				593,250				589,542
Asurion LLC ±			8.50				3-3-2021				1,235,000				1,253,834
Capital Automotive LP ±			4.00				4-10-2019				3,096,615				3,079,832
Capital Automotive LP ±			6.00				4-30-2020				1,849,333				1,867,827
CCC Information Services Incorporated ±			4.00				12-20-2019				590,485				580,151
CCM Merger Incorporated ±			4.50				8-8-2021				720,000				715,500
CDW LLC ±			3.25				4-29-2020				886,750				866,320
Centaur Acquisition LLC ±			8.75				2-20-2020				1,850,000				1,863,875

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			15

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Loans (continued)
Crown Castle Operating Company ±			3.00	%			1-31-2021			$	6,468,769			$	6,412,167
Dave & Buster’s Incorporated ±			4.50				7-25-2020				498,962				497,870
Dell Incorporated ±			4.50				4-29-2020				8,365,500				8,372,778
Doosan Infracore International Incorporated ±			4.50				5-28-2021				219,450				219,588
Dunkin’ Brands Incorporated ±			3.25				2-7-2021				1,551,844				1,523,228
Entercom Radio LLC ±			4.00				11-23-2018				1,135,000				1,131,220
Focus Brands Incorporated ±			4.25				2-21-2018				747,628				739,217
Focus Brands Incorporated ±			10.25				8-21-2018				2,023,863				2,029,023
Gates Global LLC ±			4.25				7-3-2021				875,000				864,063
Goodyear Tire & Rubber Company ±			4.75				4-30-2019				5,500,000				5,512,045
HGIM Corporation ±			5.50				6-18-2020				1,215,789				1,153,991
Hub International Limited ±			4.25				10-2-2020				276,217				272,419
Interactive Data Corporation ±			4.75				5-2-2021				1,855,350				1,854,422
Ipreo Holdings LLC ±			4.25				7-16-2021				145,000				141,738
Kronos Incorporated ±			4.50				10-30-2019				585,308				582,381
Learfield Communications Incorporated ±%%<			8.75				10-9-2021				1,578,297				1,570,406
Level 3 Financing Incorporated ±			4.00				1-15-2020				1,700,000				1,691,500
LIN Television Corporation ±			4.00				12-21-2018				639,506				635,240
LM U.S. Corp Acquisition Incorporated ±			8.25				10-25-2020				105,000				103,163
LPL Holdings Incorporated ±			3.25				3-29-2019				1,215,222				1,195,985
LTS Buyer LLC ±			4.00				4-11-2020				748,106				738,755
LTS Buyer LLC ±			8.00				4-12-2021				566,625				561,429
MedAssets Incorporated ±			4.00				12-12-2019				234,508				232,357
MGM Resorts International ±			3.50				12-20-2019				1,351,861				1,334,963
Mission Broadcasting Incorporated ±			3.75				10-1-2020				126,491				124,277
Neff Rental LLC ±			7.25				6-9-2021				820,000				822,050
New Albertson’s Incorporated ±			4.75				6-27-2021				530,000				523,046
Nexstar Broadcasting Incorporated ±			3.75				10-1-2020				143,443				140,932
Novelis Incorporated ±			3.75				3-10-2017				969,897				958,985
nTelos Incorporated ±			5.75				11-9-2019				1,308,763				1,306,578
Nusil Technology LLC ±			5.25				4-7-2017				390,191				384,217
OSG Bulk Ships Incorporated ±			5.25				8-5-2019				89,775				89,064
OSG International Incorporated ±			5.75				8-5-2019				304,238				301,956
Peak 10 Incorporated ±			8.25				6-17-2022				430,000				424,088
Philadelphia Energy Solutions LLC ±			6.25				4-4-2018				2,831,875				2,669,042
Prestige Brands Incorporated ±			4.13				1-31-2019				126,799				126,588
Prestige Brands Incorporated ±			4.50				9-3-2021				240,000				240,074
Sedgwick Claims Management Services Incorporated ±			6.75				2-28-2022				620,000				601,400
Spin Holdco Incorporated ±			4.25				11-14-2019				1,654,721				1,636,519
Surgery Center Holdings Incorporated ±%%<			0.00				7-9-2020				185,000				184,654
Syniverse Holdings Incorporated ±			4.00				4-23-2019				959,826				943,029
Syniverse Holdings Incorporated ±			4.00				4-23-2019				169,666				166,380
Tallgrass Operations LLC ±			4.25				11-13-2018				1,425,295				1,419,594
Telesat Canada ±			3.50				3-28-2019				2,590,673				2,561,528
Tempur-Pedic International Incorporated ±			3.50				3-18-2020				756,494				745,857
Texas Competitive Electric Holdings LLC ±(s)			4.65				10-10-2015				20,096,983				14,532,731
TGI Friday’s Incorporated ±			5.25				7-15-2020				396,636				395,645
TGI Friday’s Incorporated ±			9.25				7-15-2021				565,000				556,525
TMFS Holdings LLC ±			5.50				7-30-2021				1,235,000				1,222,650

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16		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Loans (continued)
TransDigm Incorporated ±			3.75	%			2-28-2020			$	3,429,822			$	3,370,349
TWCC Holdings Corporation ±			7.00				6-26-2020				3,565,000				3,492,203
United Surgical Partners International Incorporated ±			4.25				4-19-2017				1,897,650				1,888,161
United Surgical Partners International Incorporated ±			4.75				4-3-2019				1,041,109				1,040,370
Valeant Pharmaceuticals International Incorporated ±			3.50				2-13-2019				1,446,124				1,433,471
Valeant Pharmaceuticals International Incorporated ±			3.50				12-11-2019				172,765				171,253
Vertafore Incorporated ±			9.75				10-29-2017				510,000				509,148
W3 Company ±(i)			9.25				9-13-2020				289,275				280,597
WASH Multifamily Laundry Systems LLC ±			4.50				2-21-2019				1,644,950				1,620,276
Total Loans (Cost $116,084,433)															109,782,319
Municipal Obligations: 0.05%
New York: 0.05%
Build New York City Resource Corporation Bronx Charter School for Excellence Project Series B (Education Revenue)			5.00				4-1-2018				345,000				340,943
Total Municipal Obligations (Cost $345,000)															340,943
Non-Agency Mortgage Backed Securities: 7.47%
American General Mortgage Loan Series 2010 Class 1A-A3 144A ±			5.65				3-25-2058				460,000				474,187
American Home Mortgage Assets Series 2006-2 Class 1A1 ±(i)			1.08				9-25-2046				3,551,122				2,528,942
Argent Securities Incorporated Series 2004-W5 Class AV3B ±			1.05				4-25-2034				83,324				80,784
Asset Backed Funding Certificates Series 2003-AHL1 Class A1			4.18				3-25-2033				232,798				232,304
Asset Backed Securities Corporation Home Equity Series 2002-HE3 Class M2 ±			2.48				10-15-2032				226,330				223,470
Banc of America Commercial Mortgage Securities Incorporated Series 2006-03 Class AM ±			5.85				7-10-2044				1,340,000				1,386,759
Banc of America Commercial Mortgage Securities Incorporated Series 2007-1 Class AMFX ±			5.48				1-15-2049				500,000				525,842
Banc of America Commercial Mortgage Securities Incorporated Series 2008-1 Class AM ±			6.29				2-10-2051				550,000				611,054
Banc of America Commercial Mortgage Trust Series 2006-5 Class AM			5.45				9-10-2047				750,000				793,148
Banc of America Commercial Mortgage Trust Series 2007-3 Class AM ±			5.56				6-10-2049				430,000				465,148
Banc of America Funding Corporation Series 2005 Class 5-1A1			5.50				9-25-2035				493,527				515,207
Banc of America Funding Corporation Series 2009 Class R6-3A1 144A ±			2.03				1-26-2037				133,717				134,105
Banc of America Mortgage Securities Series 2003 Class A-3A1 ±			2.62				2-25-2033				176,210				174,201
Bear Stearns Commercial Mortgage Series 2007-PW17 Class AM ±			5.89				6-11-2050				318,000				350,750
Bear Stearns Commercial Mortgage Series 2007-PW18 Class AM ±			6.08				6-11-2050				100,000				111,055
Centex Home Equity Series 2002-A Class AF6			5.54				1-25-2032				233,315				233,471
Centex Home Equity Series 2002-D Class AF6 ±			4.66				12-25-2032				69,185				70,024
Centex Home Equity Series 2004-B Class AF6			4.69				3-25-2034				256,555				262,723
Citigroup Commercial Mortgage Trust Series 2006 Class C4 ±			5.78				3-15-2049				680,000				718,647
Citigroup Commercial Mortgage Trust Series 2007-C6 Class AM ±			5.71				12-10-2049				450,000				485,006
Citigroup Commercial Mortgage Trust Series 2012-GC8 Class C 144A ±			4.88				9-10-2045				1,000,000				1,066,277
Citigroup Mortgage Loan Trust Incorporated Series 2003-HE3 Class A3 ±			0.53				12-25-2033				83,635				80,049
Commercial Mortgage Trust Series 2012-CR2 Class C ±			4.86				8-15-2045				1,000,000				1,066,776
Commercial Mortgage Trust Series 2013-FL3 Class B 144A ±			2.30				10-13-2028				1,000,000				1,015,526
Countrywide Asset Backed Certificates Series 2003-5 Class AF5			5.64				2-25-2034				97,099				102,909
Countrywide Home Loans Series 2003-48 Class 2A2 ±			2.58				10-25-2033				175,384				173,654
Credit Suisse Commercial Mortgage Trust Series 2006-C3 Class AM ±			5.81				6-15-2038				1,045,000				1,112,383
Credit Suisse Commercial Mortgage Trust Series 2006-C4 Class AM			5.51				9-15-2039				1,500,000				1,602,036
Credit Suisse Commercial Mortgage Trust Series 2006-C5 Class AM			5.34				12-15-2039				1,000,000				1,067,780

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			17

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Non-Agency Mortgage Backed Securities (continued)
Credit Suisse First Boston Mortgage Securities Series 2002-AR25 Class 1A1 ±			2.15	%			9-25-2032			$	626,154			$	624,171
Credit Suisse First Boston Mortgage Securities Series 2003-AR15 Class 3A1 ±			2.78				6-25-2033				180,841				179,863
Credit Suisse First Boston Mortgage Securities Series 2003-AR9 Class 2A2 ±			2.23				3-25-2033				52,433				51,507
Credit-Based Asset Servicing & Securitization LLC Series 2005-CB2 Class M1 ±			0.81				4-25-2036				209,286				209,143
Equity One Asset Backed Securities Series 2004-2 Class AF4 ±			4.62				7-25-2034				423,501				431,108
First Horizon Mortgage Pass Through Series 2004-AR1 Class 1A1 ±			2.59				2-25-2034				460,397				456,601
First Horizon Mortgage Pass Through Series 2004-AR4 Class 3A1 ±			2.59				8-25-2034				16,407				16,096
GCCFC Commercial Mortgage Trust Series 2007-GG9 Class AM			5.48				3-10-2039				200,000				210,991
GCCFC Commercial Mortgage Trust Series 2007-GG9 Class AMFX			5.48				3-10-2039				100,000				106,469
Global Mortgage Securitization Limited Series 2004-A Class A2 144A±			0.47				11-25-2032				372,170				359,902
GMAC Mortgage Corporation Loan Series 2003-GH1 Class A5			5.62				7-25-2034				99,606				100,667
Greenpoint Mortgage Funding Trust Series 2005-HE4 Class 1A1 ±			0.59				7-25-2030				6,134				6,105
Greenwich Capital Commercial Funding Corporation Series 2006-GG7 Class AM ±			5.82				7-10-2038				2,600,000				2,769,182
Greenwich Capital Commercial Funding Corporation Series 2007-GG11 Class A4			5.74				12-10-2049				475,000				519,940
GS Mortgage Securities Trust Series 2006-GG6 Class AM ±			5.55				4-10-2038				835,000				873,095
GS Mortgage Securities Trust Series 2007-GG10 Class A4 ±			5.80				8-10-2045				903,441				987,901
GS Mortgage Securities Trust Series 2010-C1 Class X 144A±(c)			1.50				8-10-2043				6,055,960				392,002
GS Mortgage Securities Trust Series 2012-GCJ7 Class XA ±(c)			2.57				5-10-2045				4,823,367				558,392
GSAA Home Equity Trust Series 2004-5 Class AF5 ±			4.99				6-25-2034				34,030				35,003
GSMPS Mortgage Loan Trust Series 2005-AHL Class M1 ±			0.58				4-25-2035				17,307				17,012
GSMPS Mortgage Loan Trust Series 2006-1 Class A1 144A±			0.45				3-25-2035				176,280				171,403
GSMPS Mortgage Loan Trust Series 2006-SEA1 Class A 144A±			0.45				5-25-2036				218,173				215,690
JPMorgan Chase Commercial Mortgage Trust Series 2007-CB18 Class AM ±			5.47				6-12-2047				875,000				940,447
JPMorgan Chase Commercial Mortgage Trust Series 2007-CB20 Class AM ±			5.88				2-12-2051				785,000				869,840
JPMorgan Chase Commercial Mortgage Trust Series 2007-LDPX Class AM ±			5.46				1-15-2049				550,000				577,601
JPMorgan Mortgage Trust Series 2004-A3 Class 2A1 ±			2.52				7-25-2034				76,808				77,033
JPMorgan Mortgage Trust Series 2004-A3 Series 3A3 ±			2.60				7-25-2034				100,318				99,441
JPMorgan Mortgage Trust Series 2005-A3 Class 11A2 ±			2.66				6-25-2035				435,887				436,725
JPMorgan Mortgage Trust Series 2009-7 Class 2A1 144A±			6.00				2-27-2037				69,975				71,740
JPMorgan Mortgage Trust Series 2009-7 Class 5A1 144A±			6.00				2-27-2037				298,388				306,872
Lehman Brothers-UBS Commercial Mortgage Trust Series 2007-C1 Class AM			5.46				2-15-2040				750,000				806,552
Lehman Brothers-UBS Commercial Mortgage Trust Series 2008-C1 Class AM ±			6.15				4-15-2041				820,000				908,448
Lehman XS Trust Series 2006-18N Class A5A ±(i)			0.32				12-25-2036				2,991,818				2,258,589
MASTR Adjustable Rate Mortgage Trust Series 2003-6 Class 3A1 ±			2.51				12-25-2033				564,985				559,294
MASTR Adjustable Rate Mortgage Trust Series 2003-6 Class 4A2 ±			2.67				1-25-2034				26,235				25,585
MASTR Adjustable Rate Mortgage Trust Series 2004-13 Class 3A7 ±			2.64				11-21-2034				38,865				39,546
MASTR Alternative Loans Trust Series 2005-1 Class 5A1			5.50				1-25-2020				70,377				73,568
Merrill Lynch Countrywide Commercial Mortgage Trust Series 2006-4 Class AM			5.20				12-12-2049				340,000				364,917
Merrill Lynch Countrywide Commercial Mortgage Trust Series 2007-9 Class A4			5.70				9-12-2049				829,000				904,973
Merrill Lynch Mortgage Trust Series 2005-A8 Class A1B3 ±			5.25				8-25-2036				120,000				125,613
Merrill Lynch Mortgage Trust Series 2006-C1 Class AM ±			5.67				5-12-2039				565,000				596,765
Merrill Lynch Mortgage Trust Series 2007-C1 Class A1A ±			5.84				6-12-2050				670,055				718,960
Mesa Trust Asset Backed Certificates Series 2001-5 Class A 144A±			0.95				12-25-2031				21,415				19,390
Mid State Trust Series 11 Class A1			4.86				7-15-2038				262,191				278,936
MLCC Mortgage Investors Incorporated Series 2003-G Class A2 ±			1.00				1-25-2029				151,552				141,202
Morgan Stanley Bank of America Merrill Lynch Trust Series 2012-C5 Class XA 144A±(c)			1.86				8-15-2045				5,819,669				493,514
Morgan Stanley Capital I Trust Series 2004-NC1 Class M1 ±			1.20				12-27-2033				649,757				625,965
Morgan Stanley Capital I Trust Series 2005-HQ6 Class A4B			5.04				8-13-2042				650,000				661,998
Morgan Stanley Capital I Trust Series 2006-HQ10 Class AM			5.36				11-12-2041				500,000				535,213

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18		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Non-Agency Mortgage Backed Securities (continued)
Morgan Stanley Capital I Trust Series 2006-HQ9 Class AJ ±			5.79	%			7-12-2044			$	1,000,000			$	1,053,515
Morgan Stanley Capital I Trust Series 2006-HQ9 Class AM ±			5.77				7-12-2044				25,000				26,672
Morgan Stanley Capital I Trust Series 2006-IQ12 Class AM			5.37				12-15-2043				500,000				532,241
Morgan Stanley Capital I Trust Series 2007-HQ13 Class A3			5.57				12-15-2044				1,355,000				1,455,862
Morgan Stanley Capital I Trust Series 2010-GG10 Class A4B 144A±			5.80				8-15-2045				615,000				666,022
Morgan Stanley Capital I Trust Series 2012-C4 Class C 144A±			5.53				3-15-2045				900,000				993,475
New Century Home Equity Loan Trust Series 2004-3 Class M1 ±			1.08				11-25-2034				1,165,049				1,073,272
New Century Home Equity Loan Trust Series 2005-1 Class A1MZ ±			0.73				3-25-2035				62,015				61,916
Provident Funding Mortgage Loan Series 2005-1 Class 2A1 ±			2.49				5-25-2035				57,246				57,833
RBSSP Resecuritization Trust Series 2010-3 Class 4A1 144A±			2.92				12-26-2035				38,989				38,989
Renaissance Home Equity Loan Trust Series 2004-4 Class AF4			4.88				2-25-2035				631,664				640,291
Residential Asset Securities Corporation Series 2004-KS3 Class AI4 ±			3.77				1-25-2032				120,170				120,314
Residential Funding Mortgage Securities Trust Series 03-S12 Class 2A1			4.00				12-25-2032				77,812				79,307
Saxon Asset Securities Trust Series 2002-1 Class AF5 ±			6.26				12-25-2030				170,862				177,959
Saxon Asset Securities Trust Series 2003-1 Class AF7			4.03				6-25-2033				684,685				693,273
Sequoia Mortgage Trust Series 2003-1 Class 1A ±			0.92				4-20-2033				29,111				29,018
Structured Adjustable Rate Mortgage Loan Trust Series 2004-2 Class 2A ±			2.57				3-25-2034				87,255				86,543
Structured Asset Investment Loan Trust Series 2005-4 Class M1 ±			0.75				5-25-2035				4,737				4,732
Structured Asset Securities Corporation Series 1998-2 Class A ±			0.67				2-25-2028				278,530				274,592
Structured Asset Securities Corporation Series 2002-9 Class A2 ±			0.75				10-25-2027				104,220				101,901
Terwin Mortgage Trust Series 2003-6HE Class A3 ±			1.29				11-25-2033				256,891				256,594
Vendee Mortgage Trust Series 2003-2 Class IO ±(c)			0.79				5-15-2033				6,777,586				158,571
Wachovia Bank Commercial Mortgage Trust Series 2006-C23 Class AM ±			5.47				1-15-2045				1,220,000				1,280,217
Washington Mutual Mortgage Trust Series 2004-RA4 Class 3A			7.50				7-25-2034				222,954				232,503
Total Non-Agency Mortgage Backed Securities (Cost $48,429,170)															50,570,799
		Dividend yield								Shares
Preferred Stocks: 0.18%
Financials: 0.18%
Banks: 0.18%
GMAC Capital Trust I ±			7.60								44,400				1,186,812
Total Preferred Stocks (Cost $1,130,339)															1,186,812
		Interest rate								Principal
Yankee Corporate Bonds and Notes: 7.39%
Consumer Discretionary: 0.55%
Diversified Consumer Services: 0.11%
Anglo American Capital Company 144A			4.13				9-27-2022			$	750,000				746,960
Media: 0.44%
Grupo Televisa SA			6.00				5-15-2018				750,000				848,370
Myriad International Holdings BV			6.00				7-18-2020				500,000				542,500
Myriad International Holdings BV 144A			6.38				7-28-2017				750,000				813,750
Videotron Limited			9.13				4-15-2018				40,000				41,300
WPP Finance 2010			3.63				9-7-2022				750,000				762,263
															3,008,183

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			19

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Consumer Staples: 0.35%
Beverages: 0.12%
Pernod Ricard SA 144A			4.45	%			1-15-2022			$	760,000			$	807,260
Food Products: 0.12%
BRF SA 144A			5.88				6-6-2022				750,000				825,000
Tobacco: 0.11%
BAT International Finance plc 144A			3.25				6-7-2022				750,000				752,408
Energy: 1.06%
Energy Equipment & Services: 0.12%
Ensco plc			4.70				3-15-2021				750,000				789,729
Oil, Gas & Consumable Fuels: 0.94%
Griffin Coal Mining Company Limited 144A(s)			9.50				12-1-2016				1,685,411				1,129,225
Griffin Coal Mining Company Limited (s)			9.50				12-1-2016				137,792				90,943
Petrobras International Finance Company			5.38				1-27-2021				670,000				685,986
Petroleos Mexicanos			4.88				1-24-2022				750,000				799,500
Petroplus International Finance Company			5.75				1-20-2020				650,000				686,160
Teekay Corporation			8.50				1-15-2020				2,230,000				2,475,300
Woodside Finance Limited 144A			8.75				3-1-2019				405,000				508,095
															6,375,209
Financials: 1.12%
Banks: 1.02%
Banco del Estado de Chile 144A			3.88				2-8-2022				650,000				658,176
Corporación Andina de Fomento			4.38				6-15-2022				958,000				1,029,132
Export Import Bank of Korea			5.00				4-11-2022				750,000				845,936
ITAU Unibanco Holding SA			5.13				5-13-2023				1,650,000				1,650,000
Macquarie Bank Limited 144A			5.00				2-22-2017				750,000				808,098
Nielsen Holding and Finance BV 144A			5.50				10-1-2021				415,000				430,563
Preferred Term Securities XII Limited (s)(a)(i)			1.00				12-24-2033				635,000				0
Royal Bank of Scotland plc			4.38				3-16-2016				750,000				782,939
Standard Chartered Bank 144A			6.40				9-26-2017				650,000				730,674
															6,935,518
Diversified Financial Services: 0.10%
Tyco Electronics Group SA			3.50				2-3-2022				625,000				644,974
Health Care: 0.30%
Pharmaceuticals: 0.30%
Valeant Pharmaceuticals International Incorporated 144A			6.75				8-15-2018				680,000				723,350
Valeant Pharmaceuticals International Incorporated 144A			7.50				7-15-2021				1,210,000				1,294,700
															2,018,050
Industrials: 0.12%
Road & Rail: 0.12%
Canadian Pacific Railway Company			4.50				1-15-2022				750,000				827,118

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20		Wells Fargo Advantage Multi-Sector Income Fund		Portfolio of investments—October 31, 2014

      

 

 

Security name		Interest rate				Maturity date				Principal				Value
Information Technology: 0.34%
Communications Equipment: 0.12%
Ericsson LM			4.13	%			5-15-2022			$	750,000			$	784,089
Internet Software & Services: 0.12%
Tencent Holdings Limited 144A			4.63				12-12-2016				750,000				792,062
Technology Hardware, Storage & Peripherals: 0.10%
Seagate Technology HDD Holdings			6.80				10-1-2016				650,000				705,250
Materials: 1.27%
Containers & Packaging: 0.43%
Ardagh Finance Holdings (PIK at 8.63%) 144A¥			8.63				6-15-2019				1,900,000				1,878,585
Ardagh Packaging Finance 144A			9.13				10-15-2020				945,000				1,018,238
															2,896,823
Metals & Mining: 0.62%
ArcelorMittal SA			5.00				2-25-2017				725,000				757,625
Novelis Incorporated			8.38				12-15-2017				550,000				574,750
Novelis Incorporated			8.75				12-15-2020				725,000				791,156
Vale Overseas Limited			4.38				1-11-2022				750,000				761,753
Vedanta Resources plc 144A			6.00				1-31-2019				1,300,000				1,326,000
															4,211,284
Paper & Forest Products: 0.22%
Sappi Limited 144A			7.50				6-15-2032				1,560,000				1,458,600
Telecommunication Services: 2.18%
Diversified Telecommunication Services: 1.95%
Intelsat Jackson Holdings SA			5.50				8-1-2023				2,370,000				2,375,925
Intelsat Jackson Holdings SA			7.25				4-1-2019				1,820,000				1,911,000
Intelsat Jackson Holdings SA			7.25				10-15-2020				1,775,000				1,894,813
Intelsat Jackson Holdings SA			7.50				4-1-2021				525,000				568,313
Intelsat Jackson Holdings SA			8.50				11-1-2019				1,400,000				1,459,500
Intelsat Luxembourg SA			7.75				6-1-2021				1,785,000				1,865,325
Intelsat Luxembourg SA			8.13				6-1-2023				2,450,000				2,603,125
Qtel International Finance Limited			5.00				10-19-2025				300,000				325,875
Virgin Media Secured Finance plc 144A			5.38				4-15-2021				180,000				186,750
															13,190,626
Wireless Telecommunication Services: 0.23%
Globo Communicacoes Participacoes SA 144A			4.88				4-11-2022				750,000				770,625
Telesat Canada Incorporated 144A			6.00				5-15-2017				775,000				798,831
															1,569,456
Utilities: 0.10%
Electric Utilities: 0.10%
Comision Federal de Electricidad 144A			4.88				5-26-2021				650,000				692,250
Total Yankee Corporate Bonds and Notes (Cost $48,854,957)															50,030,849

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Portfolio of investments—October 31, 2014		Wells Fargo Advantage Multi-Sector Income Fund			21

      

 

 

Security name		Yield						Shares				Value
Short-Term Investments: 3.47%
Investment Companies: 3.47%
Wells Fargo Advantage Cash Investment Money Market Fund, Select Class (l)(u)##			0.07	%					23,482,499			$	23,482,499
Total Short-Term Investments (Cost $23,482,499)													23,482,499

 

Total investments in securities (Cost $886,905,094) *			132.81	%			899,152,474
Other assets and liabilities, net			(32.81	)			(222,148,088	)
Total net assets			100.00	%		$	677,004,386

 

 

 

±	Variable rate investment. The rate shown is the rate in effect at period end.

 

144A	The security may be resold in transactions exempt from registration, normally to qualified institutional buyers, pursuant to Rule 144A under the Securities Act of 1933.

 

(c)	Investment in an interest-only security entitles holders to receive only the interest payments on the underlying mortgages. The principal amount shown is the notional amount of the underlying mortgages. The rate represents the coupon rate.

 

†	Non-income-earning security

 

(i)	Illiquid security for which the designation as illiquid is unaudited

 

%%	The security is issued on a when-issued basis.

 

¥	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)	The security is currently in default with regards to scheduled interest and/or principal payments. The Fund has stopped accruing interest on the security.

 

(a)	The security is fair valued in accordance with procedures approved by the Board of Trustees.

 

@	Foreign bond principal is denominated in local currency.

 

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

 

(l)	The security represents an affiliate of the Fund as defined in the Investment Company Act of 1940.

 

(u)	The rate represents the 7-day annualized yield at period end.

 

##	All or a portion of this security is segregated for when-issued securities and unfunded loans.

 

*	Cost for federal income tax purposes is $890,891,847 and unrealized gains (losses) consists of:

 

Gross unrealized gains		$	33,162,328
Gross unrealized losses			(24,901,701	)
Net unrealized gains		$	8,260,627

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Report of Independent Registered Public Accounting Firm

The Board of Trustees and Shareholders of

Wells Fargo Advantage Multi-Sector Income Fund:

We have audited the financial statements of the Wells Fargo Advantage Multi-Sector Income Fund (the “Fund”), as of October 31, 2014, and for each of the years presented and have issued our unqualified report thereon dated December 23, 2014 (which report and financial statements are included in Item 1 of this Certified Shareholder Report on Form N-CSR). We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Our audit included an audit of this portfolio of investments (the “Portfolio”) as of October 31, 2014, appearing in Item 6 of this Form N-CSR. This Portfolio is the responsibility of management. Our responsibility is to express an opinion on this Portfolio based on our audit.

In our opinion, the Portfolio referred to above, when read in conjunction with the financial statements of the Fund, presents fairly, in all material respects, the information set forth therein.

 

Boston, Massachusetts

December 23, 2014

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ITEM 7.

DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES

PROXY VOTING POLICIES AND PROCEDURES

REVISED AS OF AUGUST 13, 2014

1. Scope of Policies and Procedures. These Policies and Procedures (“Procedures”) are used to determine how to vote proxies relating to portfolio securities held by the series of Wells Fargo Funds Trust, Wells Fargo Master Trust, Wells Fargo Variable Trust, Asset Allocation Trust, Wells Fargo Advantage Global Dividend Opportunity Fund, Wells Fargo Advantage Income Opportunities Fund, Wells Fargo Advantage Multi-Sector Income Fund, and Wells Fargo Advantage Utilities & High Income Fund (the “Trusts”) except for those series that exclusively hold non-voting securities (hereafter, all such series, and all such Trusts not having separate series, holding voting securities are referred to as the “Funds”).

2. Voting Philosophy. The Funds and Wells Fargo Funds Management, LLC (“Funds Management”) have adopted these Procedures to ensure that proxies are voted in the best interests of Fund shareholders, without regard to any relationship that any affiliated person of the Fund (or an affiliated person of such affiliated person) may have with the issuer. Funds Management exercises its voting responsibility, as a fiduciary, with the goal of maximizing value to shareholders consistent with governing laws and the investment policies of each Fund. While securities are not purchased to exercise control or to seek to effect corporate change through share ownership, the Funds support sound corporate governance practices within companies in which they invest.

3. Responsibilities

(a) Board of Trustees. The Board of Trustees of each Trust (the “Board”) has delegated the responsibility for voting proxies relating to the Funds’ portfolio securities to Funds Management. The Board retains the authority to make or ratify any voting decisions or approve any changes to these Procedures as the Board deems appropriate. Funds Management will provide reports to the Board regarding voting matters when and as reasonably requested by the Board. The Board shall review these Procedures as often as it deems appropriate to consider whether any revisions are warranted. On an annual basis, the Board shall receive and review a report from Funds Management on the proxy voting process.

(b) Funds Management Proxy Committee

 

(i)

Responsibilities. The Funds Management Proxy Voting Committee (the “Proxy Committee”) shall be responsible for overseeing the proxy voting process to ensure its implementation in conformance with these Procedures. The Proxy Committee shall monitor Institutional Shareholder Services (“ISS”), the proxy voting agent for Funds Management, to determine that ISS is accurately applying the Procedures as set forth herein. The Proxy Committee shall review the continuing appropriateness of the Procedures set forth herein, recommend revisions to the Board as necessary and provide an annual update to the Board on the proxy voting process.

 

(ii)

Voting Guidelines. Appendix A hereto sets forth guidelines regarding how proxies will be voted on the issues specified. ISS will vote proxies for or against as directed by the guidelines. Where the guidelines specify a “case by case” determination for a particular issue, ISS will forward the proxy to the Proxy Committee for a vote determination by the Proxy Committee. Finally, with respect to issues for which a vote for or against is specified by the Procedures, the Proxy Committee shall have the authority to direct ISS to forward the proxy to the Proxy Committee for a discretionary vote by the Proxy Committee if the Proxy Committee determines that a case-by-case review of such matter is warranted. The Proxy Committee may also consult Fund sub-advisers on certain proxy voting issues on a case-by-case basis as the Proxy Committee deems appropriate or to the extent that a sub-adviser of a Fund makes a recommendation regarding a proxy voting issue. As a general matter, however, proxies are voted consistently on the same matter when securities of an issuer are held by multiple Funds.

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(iii)

Proxy Committee. In all cases, the Proxy Committee will exercise its voting discretion in accordance with the voting philosophy of the Funds. In cases where a proxy is forwarded by ISS to the Proxy Committee, the Proxy Committee may be assisted in its voting decision through receipt of: (i) independent research and voting recommendations provided by ISS or other independent sources; (ii) input from the investment sub-adviser responsible for purchasing the security; and (iii) information provided by company management and shareholder groups.

Voting decisions made by the Proxy Committee will be reported to ISS to ensure that the vote is registered in a timely manner and included in Form N-PX reporting.

 

(iv)

Securities on Loan. As a general matter, securities on loan will not be recalled to facilitate proxy voting (in which case the borrower of the security shall be entitled to vote the proxy). However, if the Proxy Committee is aware of an item in time to recall the security and has determined in good faith that the importance of the matter to be voted upon outweighs the loss in lending revenue that would result from recalling the security (i.e., if there is a controversial upcoming merger or acquisition, or some other significant matter), the security will be recalled for voting.

 

(v)

Practical Limitations to Proxy Voting. While Funds Management uses its best efforts to vote proxies, in certain circumstances it may be impractical or impossible for Funds Management to vote proxies (e.g., limited value or unjustifiable costs). For example, in accordance with local law or business practices, many foreign companies prevent the sales of shares that have been voted for a certain period beginning prior to the shareholder meeting and ending on the day following the meeting (“share blocking”). Due to these restrictions, Funds Management must balance the benefits to its clients of voting proxies against the potentially serious portfolio management consequences of a reduced flexibility to sell the underlying shares at the most advantageous time. As a result, Funds Management will generally not vote those proxies in the absence of an unusual, significant vote or compelling economic importance. Additionally, Funds Management may not be able to vote proxies for certain foreign securities if Funds Management does not receive the proxy statement in time to vote the proxies due to custodial processing delays.

 

(vi)

Conflicts of Interest. Funds Management may have a conflict of interest regarding a proxy to be voted upon if, for example, Funds Management or its affiliates have other relationships with the issuer of the proxy. In most instances, conflicts of interest are avoided through a strict and objective application of the voting guidelines attached hereto. However, when the Proxy Committee is aware of a material conflict of interest regarding a matter that would otherwise require a vote by the Proxy Committee, the Proxy Committee shall address the material conflict by using any of the following methods: (1) instructing ISS to vote in accordance with the recommendation ISS makes to its clients; (2) disclosing the conflict to the Board and obtaining their consent before voting; (3) submitting the matter to the Board to exercise its authority to vote on such matter; (4) engaging an independent fiduciary who will direct the Proxy Committee on voting instructions for the proxy; (5) consulting with outside legal counsel for guidance on resolution of the conflict of interest; (6) erecting information barriers around the person or persons making voting decisions; (7) voting in proportion to other shareholders (“mirror voting”); or (8) voting in other ways that are consistent with each Fund’s obligation to vote in the best interests of its shareholders. Additionally, the Proxy Committee will not permit its votes to be influenced by any conflict of interest that exists for any other affiliated person of the Fund (such as a sub-adviser or principal underwriter) or any affiliated persons of such affiliated persons and the Proxy Committee will vote all such matters without regard to the conflict.

Funds Management may also have a conflict of interest regarding a proxy to be voted on if a member of the Board has an affiliation, directly or indirectly, with a public or private company (an “Identified Company”). Identified Companies include a Board member’s

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employer, as well as any company of which the Board member is a director or officer or a 5% or more shareholder. The Proxy Committee shall address such a conflict by instructing ISS to vote in accordance with the recommendation ISS makes to its clients.

 

(vii)

Meetings. The Proxy Committee shall convene as needed and when discretionary voting determinations need to be considered, and shall have the authority to act by vote of a majority of the Proxy Committee members available at that time. The Proxy Committee shall also meet at least semi-annually to review the Procedures and the performance of ISS in exercising its proxy voting responsibilities.

 

(viii)

Membership. The voting members of the Proxy Committee shall be Tom Biwer, Travis Keshemberg, Patrick McGuinnis and Erik Sens. Andrew Owen shall be a non-voting member and serve in an advisory capacity on the Proxy Committee. Changes to the membership of the Proxy Committee will be made only with Board approval. Upon departure from Funds Management, a member’s position on the Proxy Committee will automatically terminate.

4. Disclosure of Policies and Procedures. Each Fund shall disclose in its statement of additional information a description of the policies and procedures it uses to determine how to vote proxies relating to securities held in its portfolio. In addition, each Fund shall disclose in its semi- and annual reports that a description of its proxy voting policies and procedures is available without charge, upon request, by calling 1-800-222-8222, on the Fund’s web site at www.wellsfargo.com/advantagefunds and on the Securities and Exchange Commission’s website at http://www.sec.gov.

5. Disclosure of Proxy Voting Record. Each Trust shall file with the Commission an annual report on Form N-PX not later than August 31 of each year (beginning August 31, 2004), containing the Trust’s proxy voting record for the most recent twelve-month period ended June 30.

Each Fund shall disclose in its statement of additional information and semi- and annual reports that 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 Funds’ web site at www.wellsfargo.com/advantagefunds or by accessing the Commission’s web site at www.sec.gov.

Each Fund shall disclose the following information on Form N-PX for each matter relating to a portfolio security considered at any shareholder meeting held during the period covered by the report and with respect to which the Fund was entitled to vote:

 

•

The name of the issuer of the portfolio security;

 

•

The exchange ticker symbol of the portfolio security;

 

•

The Council of Uniform Securities Identification Procedures (“CUSIP”) number for the portfolio security (unless the CUSIP is not available through reasonably practicable means, in which case it will be omitted);

 

•

The shareholder meeting date;

 

•

A brief identification of the matter voted on;

 

•

Whether the matter was proposed by the issuer or by a security holder;

 

•

Whether the Fund cast its vote on the matter;

 

•

How the Fund cast its vote (e.g. for or against a proposal, or abstain; for or withhold regarding election of directors); and

 

•

Whether the Fund cast its vote for or against management.

Form N-PX shall be made available to Fund shareholders through the SEC web site.

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APPENDIX A

TO

PROXY VOTING POLICIES AND PROCEDURES

Funds Management will vote proxies relating to portfolio securities held by the Trusts in accordance with the following proxy voting guidelines. To the extent the specific guidelines below do not address a proxy voting proposal, Funds Management will vote pursuant to ISS’ current U.S. and International proxy voting guidelines. Proxies related to issues not addressed by the specific guidelines below or by ISS’ current U.S. and International proxy voting guidelines will be forwarded to the Proxy Committee for a vote determination by the Proxy Committee.

 

Uncontested Election of Directors or Trustees
THE FUNDS will generally vote for all uncontested director or trustee nominees. The Nominating Committee is in the best position to select nominees who are available and capable of working well together to oversee management of the company. THE FUNDS will not require a performance test for directors.		FOR
THE FUNDS will generally vote for reasonably crafted shareholder proposals calling for directors to be elected with an affirmative majority of votes cast and/or the elimination of the plurality standard for electing directors, unless the company has adopted formal corporate governance principles that present a meaningful alternative to the majority voting standard.		FOR
Board and Committee Independence
THE FUNDS will withhold votes from insiders and affiliated outsiders on boards that are not at least majority independent.
THE FUNDS will withhold votes from any insiders or affiliated outsiders on audit, compensation or nominating committees. THE FUNDS will withhold votes from any insiders or affiliated outsiders on the board if any of these key committees has not been established.		WITHHOLD   WITHHOLD
Attendance and Overboarding
THE FUNDS will withhold votes from directors who sit on more than six boards.
THE FUNDS will withhold votes from CEO directors who sit on more than two outside boards besides their own.		WITHHOLD
THE FUNDS will withhold votes for a director if the nominee fails to attend at least 75% of the board and committee meetings without a valid excuse.		WITHHOLD
Responsiveness		WITHHOLD
THE FUNDS will withhold votes from the entire board (except for new nominees) where the director(s) receive more than 50% withhold votes out of those cast and the issue that was the underlying cause of the high level of withhold votes has not been addressed.
Poor Governance Practices		WITHHOLD
THE FUNDS will withhold votes from all directors (except for new nominees) if the company has adopted or renewed a poison pill without shareholder approval since the company’s last annual meeting, does not put the pill to a vote at the current annual meeting,

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and does not have a requirement or does not commit to put the pill to shareholder vote within 12 months. In addition, THE FUNDS will withhold votes on all directors at any company that responds to the majority of the shareholders voting by putting the poison pill to a shareholder vote with a recommendation other than to eliminate the pill.		WITHHOLD
THE FUNDS will vote against routine election of directors if any of the following apply: company fails to disclose adequate information in a timely manner, serious issues with the finances, questionable transactions, conflicts of interest, record of abuses against minority shareholder interests, bundling of director elections, and/or egregious governance practices.		WITHHOLD
Audit Issues
THE FUNDS will withhold votes from members of the Audit Committee and/or the full board if poor accounting practices, which rise to a level of serious concern, such as: fraud; misapplication of GAAP; and material weaknesses identified in Section 404 disclosures, are identified.		WITHHOLD
THE FUNDS will withhold votes from members of the Audit Committee if the company receives an adverse opinion on the company’s financial statements from its auditor.
THE FUNDS will withhold votes from members of the Audit Committee if there is persuasive evidence that the audit committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm.		WITHHOLD
Compensation Issues		WITHHOLD
THE FUNDS will withhold votes from compensation committee members where there is a pay-for-performance disconnect (for Russell 3000 companies).		WITHHOLD
THE FUNDS will withhold votes from compensation committee members if they fail to submit one-time transferable stock options (TSO’s) to shareholders for approval.
Ratification of Auditors
THE FUNDS will vote against auditors and withhold votes from audit committee members if non-audit fees are greater than audit fees, audit-related fees, and permitted tax fees, combined. THE FUNDS will follow the disclosure categories being proposed by the SEC in applying the above formula.		AGAINST/ WITHHOLD
With the above exception, THE FUNDS will generally vote for proposals to ratify auditors unless:		FOR
•   an auditor has a financial interest in or association with the company, and is therefore not independent, or		AGAINST
•   there is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of the company’s financial position.		AGAINST
THE FUNDS will vote against proposals that require auditors to attend annual meetings as auditors are regularly reviewed by the board audit committee, and such attendance is unnecessary.		AGAINST
THE FUNDS will vote for shareholder proposals requesting a shareholder vote for audit firm ratification.

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		FOR
THE FUNDS will vote against shareholder proposals asking for audit firm rotation. This practice is viewed as too disruptive and too costly to implement for the benefit achieved.		AGAINST
Company Name Change/Purpose
THE FUNDS will vote for proposals to change the company name as management and the board is best suited to determine if such change in company name is necessary.		FOR
However, where the name change is requested in connection with a reorganization of the company, the vote will be based on the merits of the reorganization.		CASE-BY-CASE
In addition, THE FUNDS will generally vote for proposals to amend the purpose of the company. Management is in the best position to know whether the description of what the company does is accurate, or whether it needs to be updated by deleting, adding or revising language.		FOR
Employee Stock Purchase Plans/401(k) Employee Benefit Plans
THE FUNDS will vote for proposals to adopt, amend or increase authorized shares for employee stock purchase plans and 401(k) plans for employees as properly structured plans enable employees to purchase common stock at a slight discount and thus own a beneficial interest in the company, provided that the total cost of the company’s plan is not above the allowable cap for the company.		FOR
Similarly, THE FUNDS will generally vote for proposals to adopt or amend thrift and savings plans, retirement plans, pension plans and profit plans.		FOR
Anti-Hedging/Pledging/Speculative Investments Policy
THE FUNDS will consider proposals prohibiting named executive officers from engaging in derivative or speculative transactions involving company stock, including hedging, holding stock in a margin account, or pledging stock as collateral for a loan on a case-by-case basis. The company’s existing policies regarding responsible use of company stock will be considered.		CASE-BY-CASE
Approve Other Business
THE FUNDS will generally vote for proposals to approve other business. This transfer of authority allows the corporation to take certain ministerial steps that may arise at the annual or special meeting.		FOR
However, THE FUNDS retains the discretion to vote against such proposals if adequate information is not provided in the proxy statement, or the measures are significant and no further approval from shareholders is sought.		AGAINST
Independent Board of Directors/Board Committees
THE FUNDS will vote for proposals requiring that two-thirds of the board be independent directors. An independent board faces fewer conflicts and is best prepared to protect stockholders’ interests.		FOR

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THE FUNDS will vote for proposals requesting that the board audit, compensation and/or nominating committees be composed of independent directors only. Committees should be composed entirely of independent directors in order to avoid conflicts of interest.		FOR
THE FUNDS will vote against proposals from shareholders requesting an independent compensation consultant.		AGAINST
Director Fees
THE FUNDS will vote for proposals to set director fees.		FOR
Minimum Stock Requirements by Directors
THE FUNDS will vote against proposals requiring directors to own a minimum number of shares of company stock in order to qualify as a director, or to remain on the board. Minimum stock ownership requirements can impose an across-the-board requirement that could prevent qualified individuals from serving as directors.		AGAINST
Indemnification and Liability Provisions for Directors and Officers
THE FUNDS will vote for proposals to allow indemnification of directors and officers, when the actions taken were on behalf of the company and no criminal violations occurred. THE FUNDS will also vote in favor of proposals to purchase liability insurance covering liability in connection with those actions. Not allowing companies to indemnify directors and officers to the degree possible under the law would limit the ability of the company to attract qualified individuals.		FOR
Alternatively, THE FUNDS will vote against indemnity proposals that are overly broad. For example, THE FUNDS will oppose proposals to indemnify directors for acts going beyond mere carelessness, such as gross negligence, acts taken in bad faith, acts not otherwise allowed by state law or more serious violations of fiduciary obligations.		AGAINST
Nominee Statement in the Proxy
THE FUNDS will vote against proposals that require board nominees to have a statement of candidacy in the proxy, since the proxy statement already provides adequate information pertaining to the election of directors.		AGAINST
Director Tenure/Retirement Age
THE FUNDS will vote against proposals to limit the tenure of directors as such limitations based on an arbitrary number could prevent qualified individuals from serving as directors. However, THE FUNDS is in favor of inserting cautionary language when the average director tenure on the board exceeds 15 years for the entire board.		AGAINST
The Funds will vote for proposals to establish a mandatory retirement age for directors provided that such retirement age is not less than 65.		FOR
Board Powers/Procedures/Qualifications
THE FUNDS will consider on a case-by-case basis proposals to amend the corporation’s By-laws so that the Board of Directors shall have the power, without the assent or vote of the shareholders, to make, alter, amend, or rescind the By-laws, fix the amount to be		CASE-BY-CASE

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reserved as working capital, and fix the number of directors and what number shall constitute a quorum of the Board. In determining these issues, THE FUNDS will rely on the proxy voting Guidelines.
Adjourn Meeting to Solicit Additional Votes
THE FUNDS will examine proposals to adjourn the meeting to solicit additional votes on a case-by-case basis. As additional solicitation may be costly and could result in coercive pressure on shareholders, THE FUNDS will consider the nature of the proposal and its vote recommendations for the scheduled meeting.		CASE-BY-CASE
THE FUNDS will vote for this item when:
THE FUNDS is supportive of the underlying merger proposal; the company provides a sufficient, compelling reason to support the adjournment proposal; and the authority is limited to adjournment proposals requesting the authority to adjourn solely to solicit proxies to approve a transaction THE FUNDS supports.		FOR
Reimbursement of Solicitation Expenses
THE FUNDS will consider contested elections on a case-by-case basis, considering the following factors: long-term financial performance of the target company relative to its industry; management’s track record; background of the proxy contest; qualifications of director or trustee nominees (both slates); evaluation of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and stock ownership positions.		CASE-BY-CASE
Board Structure: Staggered vs. Annual Elections
THE FUNDS will consider the issue of classified boards on a case-by-case basis. In some cases, the division of the board into classes, elected for staggered terms, can entrench the incumbent management and make them less responsive to shareholder concerns. On the other hand, in some cases, staggered elections may provide for the continuity of experienced directors on the Board.		CASE-BY-CASE
Removal of Directors
THE FUNDS will consider on a case-by-case basis proposals to eliminate shareholders’ rights to remove directors with or without cause or only with approval of two-thirds or more of the shares entitled to vote.		CASE-BY-CASE
However, a requirement that a 75% or greater vote be obtained for removal of directors is abusive and will warrant a vote against the proposal.		AGAINST
Board Vacancies
THE FUNDS will vote against proposals that allow the board to fill vacancies without shareholder approval as these authorizations run contrary to basic shareholders’ rights.		AGAINST
Alternatively, THE FUNDS will vote for proposals that permit shareholders to elect directors to fill board vacancies.		FOR
Cumulative Voting

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THE FUNDS will vote on proposals to permit or eliminate cumulative voting on a case-by-case basis based upon the existence of a counter balancing governance structure and company performance, in accordance with its proxy voting guideline philosophy.		CASE-BY-CASE
THE FUNDS will vote against cumulative voting if the board is elected annually.		AGAINST
Board Size
THE FUNDS will vote for proposals that seek to fix the size of the board, as the ability for management to increase or decrease the size of the board in the face of a proxy contest may be used as a takeover defense.		FOR
However, if the company has cumulative voting, downsizing the board may decrease a minority shareholder’s chances of electing a director.
By increasing the size of the board, management can make it more difficult for dissidents to gain control of the board. Fixing the size of the board also prevents a reduction in the board size as a means to oust independent directors or those who cause friction within an otherwise homogenous board.
Shareholder Rights Plan (Poison Pills)
THE FUNDS will generally vote for proposals that request a company to submit its poison pill for shareholder ratification.		FOR
Alternatively, THE FUNDS will analyze proposals to redeem a company’s poison pill, or requesting the ratification of a poison pill on a case-by-case basis.		CASE-BY-CASE
Poison pills are one of the most potent anti-takeover measures and are generally adopted by boards without shareholder approval. These plans harm shareholder value and entrench management by deterring stock acquisition offers that are not favored by the board.
Fair Price Provisions
THE FUNDS will consider fair price provisions on a case-by-case basis, evaluating factors such as the vote required to approve the proposed mechanism, the vote required to approve the proposed acquisition, the vote required to repeal the fair price provision, and the mechanism for determining the fair price.		CASE-BY-CASE
THE FUNDS will vote against fair price provisions with shareholder vote requirements of 75% or more of disinterested shares.		AGAINST
Greenmail
THE FUNDS will generally vote in favor of proposals limiting the corporation’s authority to purchase shares of common stock (or other outstanding securities) from a holder of a stated interest (5% or more) at a premium unless the same offer is made to all shareholders. These are known as “anti-greenmail” provisions. Greenmail discriminates against rank-and-file shareholders and may have an adverse effect on corporate image.		FOR
If the proposal is bundled with other charter or bylaw amendments, THE FUNDS will analyze such proposals on a case-by-case basis. In addition, THE FUNDS will analyze restructurings that involve the payment of pale greenmail on a case-by-case basis.		CASE-BY-CASE

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Voting Rights
THE FUNDS will vote for proposals that seek to maintain or convert to a one-share, one-vote capital structure as such a principle ensures that management is accountable to all the company’s owners.		FOR
Alternatively, THE FUNDS will vote against any proposals to cap the number of votes a shareholder is entitled to. Any measure that places a ceiling on voting may entrench management and lessen its interest in maximizing shareholder value.		AGAINST
Dual Class/Multiple-Voting Stock
THE FUNDS will vote against proposals that authorize, amend or increase dual class or multiple-voting stock which may be used in exchanges or recapitalizations. Dual class or multiple-voting stock carry unequal voting rights, which differ from those of the broadly traded class of common stock.		AGAINST
Alternatively, THE FUNDS will vote for the elimination of dual class or multiple-voting stock, which carry different rights than the common stock.		FOR
Confidential Voting
THE FUNDS will vote for proposals to adopt confidential voting.		FOR
Vote Tabulations
THE FUNDS will vote against proposals asking corporations to refrain from counting abstentions and broker non-votes in their vote tabulations and to eliminate the company’s discretion to vote unmarked proxy ballots. Vote counting procedures are determined by a number of different standards, including state law, the federal proxy rules, internal corporate policies, and mandates of the various stock exchanges.		AGAINST
Equal Access to the Proxy
THE FUNDS will evaluate Shareholder proposals requiring companies to give shareholders access to the proxy ballot for the purpose of nominating board members, on a case-by-case basis taking into account the ownership threshold proposed in the resolution and the proponent’s rationale for the proposal at the targeted company in terms of board and director conduct.		CASE-BY-CASE
Disclosure of Information
THE FUNDS will vote against shareholder proposals requesting fuller disclosure of company policies, plans, or business practices. Such proposals rarely enhance shareholder return and in many cases would require disclosure of confidential business information.		AGAINST
Annual Meetings
THE FUNDS will vote for proposals to amend procedures or change date or location of the annual meeting. Decisions as to procedures, dates or locations of meetings are best placed with management.		FOR

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Alternatively, THE FUNDS will vote against proposals from shareholders calling for a change in the location or date of annual meetings as no date or location proposed will be acceptable to all shareholders.		AGAINST
THE FUNDS will generally vote in favor of proposals to reduce the quorum necessary for shareholders’ meetings, subject to a minimum of a simple majority of the company’s outstanding voting shares.		FOR
Shareholder Advisory Committees/Independent Inspectors
THE FUNDS will vote against proposals seeking to establish shareholder advisory committees or independent inspectors. The existence of such bodies dilutes the responsibility of the board for managing the affairs of the corporation.		AGAINST
Technical Amendments to the Charter of Bylaws
THE FUNDS will generally vote in favor of charter and bylaw amendments proposed solely to conform to modern business practices, for simplification, or to comply with what management’s counsel interprets as applicable law.		FOR
However, amendments that have a material effect on shareholder’s rights will be considered on a case-by-case basis.		CASE-BY-CASE
Bundled Proposals
THE FUNDS will vote for bundled or “conditional” proxy proposals on a case-by-case basis, as THE FUNDS will examine the benefits and costs of the packaged items, and determine if the effect of the conditioned items are in the best interests of shareholders.		CASE-BY-CASE
Dividends
THE FUNDS will vote for proposals to allocate income and set dividends.		FOR
THE FUNDS will also vote for proposals that authorize a dividend reinvestment program as it allows investors to receive additional stock in lieu of a cash dividend.		FOR
However, if a proposal for a special bonus dividend is made that specifically rewards a certain class of shareholders over another, THE FUNDS will vote against the proposal.		AGAINST
THE FUNDS will also vote against proposals from shareholders requesting management to redistribute profits or restructure investments. Management is best placed to determine how to allocate corporate earnings or set dividends.		AGAINST
Reduce the Par Value of the Common Stock
THE FUNDS will vote for proposals to reduce the par value of common stock.		FOR
Preferred Stock Authorization
THE FUNDS will generally vote for proposals to create preferred stock in cases where the		FOR

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company expressly states that the stock will not be used as a takeover defense or carry superior voting rights, or where the stock may be used to consummate beneficial acquisitions, combinations or financings.
Alternatively, THE FUNDS will vote against proposals to authorize or issue preferred stock if the board has asked for the unlimited right to set the terms and conditions for the stock and may issue it for anti-takeover purposes without shareholder approval (blank check preferred stock).		AGAINST
In addition, THE FUNDS will vote against proposals to issue preferred stock if the shares to be used have voting rights greater than those available to other shareholders.		AGAINST
THE FUNDS will vote for proposals to require shareholder approval of blank check preferred stock issues for other than general corporate purposes (white squire placements).		FOR
Preemptive Rights
THE FUNDS will generally vote for proposals to eliminate preemptive rights. Preemptive rights are unnecessary to protect shareholder interests due to the size of most modern companies, the number of investors and the liquidity of trading.		FOR
Share Repurchase Plans
THE FUNDS will vote for share repurchase plans, unless:		FOR
•   there is clear evidence of past abuse of the authority; or		AGAINST
•   the plan contains no safeguards against selective buy-backs.		AGAINST
Corporate stock repurchases are a legitimate use of corporate funds and can add to long-term shareholder returns.
Executive and Director Compensation Plans
THE FUNDS will analyze on a case-by-case basis proposals on executive or director compensation plans, with the view that viable compensation programs reward the creation of stockholder wealth by having high payout sensitivity to increases in shareholder value. Such proposals may seek shareholder approval to adopt a new plan, or to increase shares reserved for an existing plan.		CASE-BY-CASE
THE FUNDS will review the potential cost and dilutive effect of the plan. After determining how much the plan will cost, ISS evaluates whether the cost is reasonable by comparing the cost to an allowable cap. The allowable cap is industry-specific, market cap-base, and pegged to the average amount paid by companies performing in the top quartile of their peer groups. If the proposed cost is below the allowable cap, THE FUNDS will vote for the plan. ISS will also apply a pay for performance overlay in assessing equity-based compensation plans for Russell 3000 companies.		FOR
If the proposed cost is above the allowable cap, THE FUNDS will vote against the plan.		AGAINST
Among the plan features that may result in a vote against the plan are:
•   plan administrators are given the authority to reprice or replace underwater options; repricing guidelines will conform to changes in the NYSE and NASDAQ listing rules.		AGAINST
THE FUNDS will vote against equity plans that have high average three-year burn rate. (The

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burn rate is calculated as the total number of stock awards and stock options granted any given year divided by the number of common shares outstanding.) THE FUNDS will define a high average three-year burn rate as the following: The company’s most recent three-year burn rate exceeds one standard deviation of its four-digit GICS peer group segmented by Russell 3000 index and non-Russell 3000 index; and the company’s most recent three-year burn rate exceeds 2% of common shares outstanding. For companies that grant both full value awards and stock options to their employees, THE FUNDS shall apply a premium on full value awards for the past three fiscal years.		AGAINST
Even if the equity plan fails the above burn rate, THE FUNDS will vote for the plan if the company commits in a public filing to a three-year average burn rate equal to its GICS group burn rate mean plus one standard deviation. If the company fails to fulfill its burn rate commitment, THE FUNDS will consider withholding from the members of the compensation committee.		FOR
THE FUNDS will calculate a higher award value for awards that have Dividend Equivalent Rights (DER’s) associated with them.		CASE-BY-CASE
THE FUNDS will generally vote for shareholder proposals requiring performance-based stock options unless the proposal is overly restrictive or the company demonstrates that it is using a substantial portion of performance-based awards for its top executives.		FOR
THE FUNDS will vote for shareholder proposals asking the company to expense stock options, as a result of the FASB final rule on expensing stock options.
THE FUNDS will generally vote for shareholder proposals to exclude pension fund income in the calculation of earnings used in determining executive bonuses/compensation.		FOR
THE FUNDS will generally vote for TSO awards within a new equity plan if the total cost of the equity plan is less than the company’s allowable cap.		FOR
THE FUNDS will generally vote against shareholder proposals to ban future stock option grants to executives. This may be supportable in extreme cases where a company is a serial repricer, has a huge overhang, or has highly dilutive, broad-based (non-approved) plans and is not acting to correct the situation.		FOR
THE FUNDS will evaluate shareholder proposals asking companies to adopt holding periods for their executives on a case-by-case basis taking into consideration the company’s current holding period or officer share ownership requirements, as well as actual officer stock ownership in the company.		AGAINST
For certain OBRA-related proposals, THE FUNDS will vote for plan provisions that (a) place a cap on annual grants or amend administrative features, and (b) add performance criteria to existing compensation plans to comply with the provisions of Section 162(m) of the Internal Revenue Code.		CASE-BY-CASE
In addition, director compensation plans may also include stock plans that provide directors with the option of taking all or a portion of their cash compensation in the form of stock.
THE FUNDS will consider these plans based on their voting power dilution.		FOR
THE FUNDS will generally vote for retirement plans for directors.
THE FUNDS will evaluate compensation proposals (Tax Havens) requesting share option		CASE-BY-CASE

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schemes or amending an existing share option scheme on a case-by-case basis.
Stock options align management interests with those of shareholders by motivating executives to maintain stock price appreciation. Stock options, however, may harm shareholders by diluting each owner’s interest. In addition, exercising options can shift the balance of voting power by increasing executive ownership.		FOR   CASE-BY-CASE
Bonus Plans
THE FUNDS will vote for proposals to adopt annual or long-term cash or cash-and-stock bonus plans on a case-by-case basis. These plans enable companies qualify for a tax deduction under the provisions of Section 162(m) of the IRC. Payouts under these plans may either be in cash or stock and are usually tied to the attainment of certain financial or other performance goals. THE FUNDS will consider whether the plan is comparable to plans adopted by companies of similar size in the company’s industry and whether it is justified by the company’s performance.		CASE-BY-CASE
Deferred Compensation Plans
THE FUNDS will generally vote for proposals to adopt or amend deferred compensation plans as they allow the compensation committee to tailor the plan to the needs of the executives or board of directors, unless		FOR
•   the proposal is embedded in an executive or director compensation plan that is contrary to guidelines		AGAINST
Disclosure on Executive or Director Compensation Cap or Restrict Executive or Director Compensation
THE FUNDS will generally vote for shareholder proposals requiring companies to report on their executive retirement benefits (deferred compensation, split-dollar life insurance, SERPs, and pension benefits.		FOR
THE FUNDS will generally vote for shareholder proposals requesting to put extraordinary benefits contained in SERP agreements to a shareholder vote, unless the company’s executive pension plans do not contain excessive benefits beyond what is offered under employee-wide plans.		FOR
THE FUNDS will generally vote against proposals seek to limit executive and director pay.		AGAINST
Tax-Gross-Up Payments
THE FUNDS will examine on a case-by-case basis proposals calling for companies to adopt a policy of not providing tax gross-up payments to executives.		CASE-BY-CASE
Relocation Benefits
The FUNDS will not consider relocation benefits as a problematic pay practice in connection with management say-on-pay proposals.
Exchange Offers/Re-Pricing

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The FUNDS will not vote against option exchange programs made available to executives and directors that are otherwise found acceptable.
Golden and Tin Parachutes
THE FUNDS will vote for proposals that seek shareholder ratification of golden or tin parachutes as shareholders should have the opportunity to approve or disapprove of these severance agreements.		FOR
Alternatively, THE FUNDS will examine on a case-by-case basis proposals that seek to ratify or cancel golden or tin parachutes. Effective parachutes may encourage management to consider takeover bids more fully and may also enhance employee morale and productivity. Among the arrangements that will be considered on their merits are:		CASE-BY-CASE
•   arrangements guaranteeing key employees continuation of base salary for more than three years or lump sum payment of more than three times base salary plus retirement benefits;
•   guarantees of benefits if a key employee voluntarily terminates;
•   guarantees of benefits to employees lower than very senior management; and
•   indemnification of liability for excise taxes.
By contrast, THE FUNDS will vote against proposals that would guarantee benefits in a management-led buyout.		AGAINST
Stakeholder Laws
THE FUNDS will vote against resolutions that would allow the Board to consider stakeholder interests (local communities, employees, suppliers, creditors, etc.) when faced with a takeover offer.		AGAINST
Similarly, THE FUNDS will vote for proposals to opt out of stakeholder laws, which permit directors, when taking action, to weight the interests of constituencies other than shareholders in the process of corporate decision-making. Such laws allow directors to consider nearly any factor they deem relevant in discharging their duties.		FOR

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Mergers/Acquisitions and Corporate Restructurings
THE FUNDS will consider proposals on mergers and acquisitions on a case-by-case basis. THE FUNDS will determine if the transaction is in the best economic interests of the shareholders. THE FUNDS will take into account the following factors:		CASE-BY-CASE
•   anticipated financial and operating benefits;
•   offer price (cost versus premium);
•   prospects for the combined companies;
•   how the deal was negotiated;
•   changes in corporate governance and their impact on shareholder rights.
In addition, THE FUNDS will also consider whether current shareholders would control a minority of the combined company’s outstanding voting power, and whether a reputable financial advisor was retained in order to ensure the protection of shareholders’ interests.		CASE-BY-CASE
On all other business transactions, i.e. corporate restructuring, spin-offs, asset sales, liquidations, and restructurings, THE FUNDS will analyze such proposals on a case-by-case basis and utilize the majority of the above factors in determining what is in the best interests of shareholders. Specifically, for liquidations, the cost versus premium factor may not be applicable, but THE FUNDS may also review the compensation plan for executives managing the liquidation.		CASE-BY-CASE
Appraisal Rights
THE FUNDS will vote for proposals to restore, or provide shareholders with rights of appraisal.		FOR
Rights of appraisal provide shareholders who are not satisfied with the terms of certain corporate transactions (such as mergers) the right to demand a judicial review in order to determine the fair value of their shares.
Mutual Fund Proxies
THE FUNDS will vote mutual fund proxies on a case-by-case basis. Proposals may include, and are not limited to, the following issues:		CASE-BY-CASE
•   eliminating the need for annual meetings of mutual fund shareholders;
•   entering into or extending investment advisory agreements and management contracts;
•   permitting securities lending and participation in repurchase agreements;
•   changing fees and expenses; and
•   changing investment policies.

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APPENDIX B

TO

PROXY VOTING POLICIES AND PROCEDURES

Members of Funds Management Proxy Voting Committee

Thomas C. Biwer, CFA

Mr. Biwer has over 40 years of experience in finance and investments. He has served as an investment analyst, portfolio strategist, and corporate pension officer. He received B.S. and M.B.A. degrees from the University of Illinois and has earned the right to use the CFA designation.

Erik J. Sens, CFA

Mr. Sens has over 25 years of investment industry experience. He has served as an investment analyst and portfolio manager. He received undergraduate degrees in Finance and Philosophy from the University of San Francisco and has earned the right to use the CFA designation.

Travis L. Keshemberg, CFA

Mr. Keshemberg has over 20 years of experience in the investment industry. He has served as a overlay portfolio manager and investment consultant. He holds a Masters Degree from the University of Wisconsin – Milwaukee and Bachelors degree from Marquette University. He has earned the right to use the CFA, CIPM and CIMA designations.

Aldo Ceccarelli, CFA

Mr. Ceccarelli has over 14 years of investment industry experience. He has served as a fixed income analyst and head of the Funds Management investments team. He earned his bachelor’s degree in business administration with an emphasis in economics from Santa Clara University and has earned the right to use the CFA designation.

Melissa Duller, CIMA

Ms. Duller has over 16 years of experience in the investment industry. She has served as an investment analyst and as a regional investment manager for high net worth individuals, personal trusts, and charitable foundations. She has earned the right to use the CIMA designation.

 

ITEM 8.

PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES

PORTFOLIO MANAGERS

Niklas Nordenfelt, CFA

Mr. Nordenfelt is currently managing director, senior portfolio manager with the Sutter High Yield Fixed Income team at Wells Capital Management. Niklas joined the Sutter High Yield Fixed Income team of Wells Capital Management in February 2003 as investment strategist. Niklas began his investment career in 1991 and has managed portfolios ranging from quantitative-based and tactical asset allocation strategies to credit driven portfolios. Previous to joining Sutter, Niklas was at Barclays Global Investors (BGI) from 1996-2002 where he was a principal. At BGI, he worked on their international and emerging markets equity strategies after having managed their asset allocation products. Prior to this, Niklas was a quantitative analyst at Fidelity and a portfolio manager and group leader at Mellon Capital Management. He earned a bachelor’s degree in economics from the University of California, Berkeley, and has earned the right to use the CFA designation.

Philip Susser

Mr. Susser is currently managing director, senior portfolio manager, and co-head of the Sutter High Yield Fixed Income team at Wells Capital Management. Philip joined the Sutter High Yield Fixed Income team as a senior research analyst in 2001. He has extensive research experience in the cable/satellite, gaming, hotels, restaurants, printing/publishing, telecom, REIT, lodging and distressed sectors. Philip’s investment experience began in 1995 spending three years as a securities lawyer at Cahill Gordon and Shearman & Sterling representing underwriters and issuers of high yield debt. Later, Philip evaluated venture investment opportunities for MediaOne Ventures before joining Deutsche Bank as a research analyst. He received his bachelor’s degree in economics from the University of Pennsylvania and his law degree from the University of Michigan Law School.

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Janet S. Rilling, CFA, CPA

Mrs. Rilling is a senior portfolio manager for the Wells Capital Management Fixed Income team. She joined Wells Capital Management from Strong Capital Management in 2005. Janet began her investment industry career in 1995, joining Strong as a research analyst and then becoming a portfolio manager in 2000. Prior to joining Strong, she was an auditor with Coopers & Lybrand for three years, specializing in the manufacturing and financial services industries. She earned a bachelor’s degree in accounting and finance and a master’s degree in finance from the University of Wisconsin, Madison. Janet is a Certified Public Accountant and has earned the right to use the CFA designation.

Michael Bray, CFA

Mr. Bray is the managing director of taxable fixed income and senior portfolio manager for the Wells Capital Management Fixed Income team. He began his investment industry career in 1988. Prior to joining Wells Capital Management in 2005, he was managing director at State Street Research and Management, focusing on mutual fund and institutional account management. He also gained experience while with Merrill Lynch & Company as vice president of mortgage securities research and sales. Earlier, he was an analyst with Manufacturers Hanover Company, specializing in mortgage and derivative securities. Michael earned a bachelor’s degree in math and actuarial science from the University of Connecticut, Storrs, and a master’s degree in business administration with an emphasis in finance from The Pennsylvania State University. He has earned the right to use the CFA designation.

Christopher Y. Kauffman, CFA

Mr. Kauffman is a portfolio manager for the Wells Capital Management Fixed Income team. He joined WellsCap from Tattersall Advisory Group (TAG), where he served in a similar role since 2003. He began his investment industry career in 1997 as an investment officer for NISA Investment Advisors, where he was responsible for MBS analysis, risk assessment, and trading. He earned a bachelor’s degree in finance and economics and a master’s degree in business administration with an emphasis in finance from Washington University in St. Louis. He has earned the right to use the CFA designation and is a member of the St. Louis Society of Financial Analysts and the CFA Institute.

Anthony Norris

Mr. Norris is a managing director and senior portfolio manager with the First International Advisors team at Wells Capital Management. Tony is one of five senior members of the investment team that forms the Senior Strategy Team. His responsibilities include developing investment strategies, macro-portfolio allocation, portfolio positioning, and risk management. He joined WellsCap from Evergreen Investments, where he served in a similar role since 1990. Previously, he spent several years in banking, with particular emphasis on foreign exchange. Tony served in senior executive positions at Reserve Asset Managers and Gillett Brothers Fund Management. He began his investment industry career in 1967 at Wallace Brothers Bank. He is a member of the Society of Technical Analysts and is an associate of the International Federation of Technical Analysts.

Peter Wilson

Mr. Wilson is a managing director and senior portfolio manager with the First International Advisors team at Wells Capital Management. Peter is one of five senior members of the investment team that forms the Senior Strategy Team. His responsibilities include macro-portfolio allocation, portfolio positioning, and risk management. He joined WellsCap from Evergreen Investments, where he served in a similar role since 1989. Previously, he served as treasurer and portfolio manager for Axe-Houghton, vice president at Bankers Trust in London and New York, and portfolio manager at Merchant Bankers Kleinwort Benson Ltd. Peter began his investment industry career in 1978 at international stockbrokers James Capel & Co. He was educated in Canada, Hong Kong, and England.

Michael Lee

Mr. Lee is a senior portfolio manager with the First International Advisors team at Wells Capital Management. Mike is one of five senior members of the investment team that forms the Senior Strategy Team. His responsibilities include the day-to-day management and implementation of portfolio strategies. He joined WellsCap from Evergreen Investments, where he served in a similar role since 1992. Prior to this, he worked at Northern Trust Co. Earlier, he held investment positions at JPMorganChase and National Westminster Bank. Michael began his investment industry career in 1982. He is a member of the U.K. Society of Investment Professionals.

Alex Perrin

Mr. Perrin is a senior portfolio manager with the First International Advisors team at Wells Capital Management. Alex is one of five senior members of the investment team that forms the Senior Strategy Team. His responsibilities include developing investment strategies, macro-portfolio allocation, portfolio positioning, and risk management. He joined First International Advisors in 1992. Alex earned a bachelor’s degree in mathematics and computer science from Hull University in the U.K. He is a member of the Society of Technical Analysts and an Associate Member of the U.K. Society of Investment Professionals.

Christopher Wightman

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Mr. Wightman is a senior portfolio manager with the First International Advisors team at Wells Capital Management. Chris is one of five senior members of the investment team that forms the Senior Strategy Team. His responsibilities include macro-portfolio allocation, portfolio positioning, and risk management. He joined First International Advisors in 2011 from JP Morgan Chase, where he served as a senior investment manager specializing in global fixed income strategies. Earlier, Chris served as a senior fixed income trader at Fidelity International. He began his investment industry career in 1997 as a Graduate Analyst at Morgan Stanley. Chris earned a B.A. (Hons) in business studies at Staffordshire University (UK).

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 year ended October 31, 2014.

 

Niklas Nordenfelt
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			5				6				13
Total assets of above accounts (millions)		$	1,990.7			$	259.1			$	1,713.9
performance based fee accounts:
		Other 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			$	3.2			$	0.0
Philip Susser
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			5				6				13
Total assets of above accounts (millions)		$	1,990.7			$	259.6			$	1,713.9
performance based fee accounts:
		Other 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			$	3.2			$	0.0
Janet Rilling
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			2				4				24
Total assets of above accounts (millions)		$	579			$	1,966			$	4,394
performance based fee accounts:

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		Other 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			$	0.0			$	0.0
Michael Bray
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			6				3				5
Total assets of above accounts (millions)		$	3,265			$	1,869			$	2,183
performance based fee accounts:
		Other 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			$	0.0			$	0.0
Christopher Y. Kauffman
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			7				0				1
Total assets of above accounts (millions)		$	5,461			$	0			$	23
performance based fee accounts:
		Other 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			$	0.0			$	0.0
Anthony Norris
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			6				13				11
Total assets of above accounts (millions)		$	1,739.79			$	1,190			$	3,074
performance based fee accounts:
		Other 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			$	212			$	0.0
Peter Wilson

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		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			6				13				11
Total assets of above accounts (millions)		$	1,739.79			$	1,190			$	3,074
performance based fee accounts:
		Other 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			$	212			$	0.0
Michael Lee
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			6				13				11
Total assets of above accounts (millions)		$	1,739.79			$	1,190			$	3,074
performance based fee accounts:
		Other 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			$	212			$	0.0
Alex Perrin
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			6				13				11
Total assets of above accounts (millions)		$	1,739.79			$	1,190			$	3,074
performance based fee accounts:
		Other 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			$	212			$	0.0
Christopher Wightman
		Other Registered Investment Companies				Other Pooled Investment Vehicles				Other Accounts
I manage the following types of accounts:
Number of above accounts			6				13				11

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Total assets of above accounts (millions)		$	1,739.79			$	1,190			$	3,074
performance based fee accounts:
		Other 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			$	212			$	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.

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

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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 October 31, 2014:

 

Niklas Nordenfelt		none
Philip 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

 

ITEM 9.

PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS

Not applicable.

 

ITEM 10.

SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

There have been no material changes to the procedures by which shareholders may recommend nominees to the Registrant’s board of trustees that have been implemented since the Registrant’s last provided disclosure in response to the requirements of this Item.

 

ITEM 11.

CONTROLS AND PROCEDURES

(a) The President and Treasurer have concluded that the Wells Fargo Advantage Multi-Sector Income Fund (the “Fund”) 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 Fund 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 Fund’s internal controls over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) that occurred during the second fiscal quarter of the period covered by this report that materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.

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ITEM 12.

EXHIBITS

(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as Exhibit COE.

(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT.

(a)(3) Not applicable.

(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is filed and attached hereto as Exhibit 99.906CERT.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

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.