Quarterly update Q4 2016 | All information is as of 12-31-16 unless otherwise indicated.

Wells Fargo Discovery Fund Overview

General fund information

Key drivers of performance

Ticker: WFDSX Portfolio managers: Michael Smith, CFA; Chris Warner, CFA Subadvisor: Wells Capital Management, Inc. Category: Small/mid-cap growth Fund strategy

 The fund underperformed its benchmark, the Russell 2500 Growth Index, for the three-month period that ended December 31, 2016.  Stock selection in the information technology (IT), industrials, and consumer staples sectors hindered the fund’s relative returns.  Stock selection in the financials, consumer discretionary, and real estate sectors provided key contributions to the fund’s relative returns.

 Conducts a rigorous research process designed to surround the company and develop unique fundamental insights

Market and portfolio overview

 Performs a thorough analysis of a company’s current balance sheet to gain insight into its potential to execute its business model and achieve future growth objectives  Surrounds companies by analyzing competitors, suppliers, and customers up and down the market-capitalization spectrum  Maintains valuation targets as part of a strong sell discipline and risk management process  Constructs portfolios with a unique process that includes core holdings, developing situations, and valuation opportunities Average annual total returns (%) as of 12-31-16*  

Discovery Fund–Inst Russell 2500™ Growth Index

3 month 1.56

Year to date 7.53

1 year 7.53

3 year 2.40

5 year 12.29

10 year 8.95

Since inception (12-31-87) 11.27

2.60

9.73

9.73

5.45

13.88

8.24

–

*Returns for periods of less than one year are not annualized. Figures quoted represent past performance, which is no guarantee of future results, and do not reflect taxes that a shareholder may pay on a fund. Investment return and principal value of an investment will fluctuate so that an investor’s shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted and assumes the reinvestment of dividends and capital gains. Current month-end performance is available at the fund’s website, wellsfargofunds.com. Institutional Class shares are sold without a front-end sales charge or contingent deferred sales charge. The advisor has contractually committed, through 1-31-17, to waive fees and/or reimburse expenses to the extent necessary to cap the fund’s total annual fund operating expenses after fee waiver, excluding certain expenses, at 0.89% for the Institutional Class. After this time, the cap may be increased or terminated only with the approval of the Board of Trustees. Without this cap, the fund’s returns would have been lower. The fund's net expense ratio is 0.86%. The fund's gross expense ratio is 0.86%.

QU010 01-17 1

U.S. growth stocks overall generated modest gains during the fourth quarter despite some weakness leading up to the U.S. elections. Stocks rallied following the surprise election results as investors reacted positively to the prospects of pro-growth policies—lower taxes, less regulation, and the likelihood of increased infrastructure spending. Investors demonstrated a clear preference for cyclical market segments such as industrials and financials, areas perceived as potential beneficiaries under the Trump administration. In the midst of the postelection market rally, companies with strong seculargrowth characteristics, especially within the IT sector, tended to suffer share-price declines as many investors used their positions in these stocks to fund purchases in more cyclical areas. Consequently, many highergrowth stocks struggled during the quarter regardless of their underlying fundamentals. Investors also tended to move away from certain defensive areas of the market, such as consumer staples and real estate, partly driven by the upward move in interest rates. We viewed the recent rally for a variety of stocks, especially cyclicals, as being primarily driven by favorable sentiment rather than significant fundamental improvements. However, we have recognized some green shoots in the economy, such as higher-than-expected earnings for many U.S. companies and solid labor-market data. We also believe that proposed measures, such as corporate tax reform, could have a notably positive effect on earnings. However, we believe that recent strong gains in certain sectors, such as industrials, could be over-extended given the likelihood that some of the proposed policies may not reach implementation. Our team has continued to focus on companies with compelling growth prospects. We have maintained a balanced approach by allocating to companies with either higher-quality fundamentals or strong secular-growth characteristics. Going forward, we believe an environment in which fundamental factors, rather than sentiment, drive stock returns likely could lead to increased investor recognition of the higher-growth stocks emphasized in the fund. (See pages 4-5 for important information.) Wells Fargo Discovery Fund

 

Quarterly update Q4 2016

Wells Fargo Discovery Fund Quarterly attribution analysis

Contributors

Discovery Fund versus Russell 2500™ Grow th Index

 An underweight to the defensive real estate sector boosted the fund’s results. Real estate was negatively affected by rising rates and investors’ preference for cyclical market segments. A solid gain in CBRE Group, Inc., also aided results in the sector.  Stock selection in the financials sector provided an additional boost to fund results. Diversified financial-services firm Raymond James Financial, Inc., benefited from the anticipated positive effect on company earnings from rising interest rates. SLM Corp. (also known as SALLIE MAE), the largest private student lender, also performed well. We purchased the stock following the election as a valuation opportunity; we believed the stock’s valuation could expand significantly in an environment of less regulatory overhang.  Stock selection in the consumer discretionary sector boosted the fund’s relative returns. A key contribution came from Thor Industries, Inc., which reported strong quarterly growth, led by surging consumer demand for its recreational vehicles as well as favorable results from a recent acquisition. Consumer Consumer Discretionary Staples

Detractors  Holdings in the IT sector often declined despite reporting solid growth fundamentals. Several companies that gained market share in rapidly growing areas, such as cloud services, declined as investors tended to reallocate to more cyclical market segments. CoStar Group, Inc., a provider of analytics and marketing services to the commercial real-estate industry, was a key detractor. The company reported solid quarterly results; however, investors reacted cautiously to the company’s intention to invest in a new research center in 2017, which is anticipated to pressure operating margins. We believe the firm is effectively positioned to sustain strong growth through higher profit margins over the next few years and as the company gains entry into new markets. An underweight to the semiconductors industry also hindered results as investors preferred more cyclical segments of IT.  Weakness in the industrials sector was largely driven by the fund’s underweights to the more cyclical segments of the sector, which rallied this quarter in anticipation of higher infrastructure spending. Our team has instead emphasized other companies in the sector with more visible growth characteristics.

Energy

Financials Health Care Industrials

Info Tech

Materials

Real Estate

Telecom Services

Utilities

Cash

Sector weights (average % weight during the quarter) Discovery Fund

15.45

2.42

0.97

5.26

16.15

21.56

30.71

3.14

1.22

2.43

0.00

0.70

Russell 2500™ Growth Index

16.95

4.32

1.16

6.02

18.87

18.38

21.50

6.65

5.10

0.66

0.40

0.00

Over/underweight

-1.50

-1.90

-0.19

-0.76

-2.72

3.18

9.21

-3.51

-3.88

1.77

-0.40

0.70

Sector returns (%) Fund sector return

7.72

-12.84

4.68

20.22

-6.70

6.03

-2.66

10.35

12.55

10.60

0.00

0.10

Index sector return

5.82

0.31

-3.02

12.93

-6.28

9.94

0.85

3.08

-1.73

11.64

9.10

0.00

Relative return

1.90

-13.15

7.70

7.29

-0.42

-3.91

-3.51

7.27

14.28

-1.04

-9.10

0.10

Sources: FactSet and Wells Fargo Funds Management, LLC Past performance is no guarantee of future results.

Sector weights are subject to change and may have changed since the date specified.

When reviewing the performance attribution of our portfolio, it is vital to remember that we construct our portfolio from the bottom up, one stock at a time. Each stock is included in the portfolio based on its own investment thesis. To help manage risk, we are aware of our sector and security weights, but we do not include a holding to obtain a sector distribution to resemble an index. Our exposure to any given sector is a result of our security selection process.

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Wells Fargo Discovery Fund

 

Quarterly update Q4 2016

Wells Fargo Discovery Fund Fund information

Top holdings

Performance (%)

 

Stock Waste Connections, Inc. HD Supply Holdings, Inc. Zayo Group Holdings, Inc. Berry Plastics Group, Inc. WEX Inc. Integra LifeSciences Holdings Corporation Allegion PLC VCA Inc. Bright Horizons Family Solutions, Inc. Spirit Airlines, Inc.

% of net assets 2.47 2.21 2.06 2.03 1.98 1.96 1.91 1.91 1.83 1.83

Portfolio characteristics  

Weighted average market cap Weighted median market cap EPS growth (3- to 5-year forecast) P/E ratio (trailing 12-month) Turnover¹ P/B ratio P/S ratio Number of equity holdings

Fund $5.75B $5.04B 15.00% 30.77x 78.91% 4.52x 2.39x 80

Russell 2500™ Growth Index $4.37B $3.78B 12.50% 25.00x – 4.52x 1.61x 1,469

Source: FactSet

Fund facts  

Inception date Net expense ratio—Inst Assets—all share classes

12-31-87 0.86% $2,536.58M

Portfolio holdings and characteristics are subject to change and may have changed since the date specified. The holdings listed should not be considered recommendations to purchase or sell a particular security. 1. Calculated based on a one-year period. High portfolio turnover may result in increased expenses and higher short-term capital gains.

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Discovery Fund–Inst Russell 2500™ Growth Index Lipper Mid-Cap Growth Funds Average Morningstar Mid-Cap Growth Average

1 year 7.53 9.73 5.90 6.03

3 year 2.40 5.45 4.04 4.03

5 year 12.29 13.88 11.85 11.79

10 year 8.95 8.24 6.80 6.79

Rankings and ratings Morningstar total return rankings—Institutional Class (as of 12-31-16) Morningstar Category: Mid-cap growth 1 year 193 out of 644 funds 3 year 461 out of 588 funds 5 year 201 out of 504 funds 10 year 41 out of 368 funds Overall Morningstar Rating™



The Overall Morningstar Rating, a weighted average of the 3-, 5-, and 10-year (if applicable) ratings, is out of 588 funds in the mid-cap growth category, based on risk-adjusted returns as of 12-31-16.

Performance and volatility measures 2

Alpha Beta Sharpe ratio Standard deviation R-squared Information ratio Upside capture Downside capture Tracking error

Fund -2.16 0.93 0.16 14.16% 0.94 -0.82 79.74% 97.24% 3.77%

Past performance is no guarantee of future results. 2. Calculated for the Institutional Class based on a three-year period. Relative measures are compared with the fund’s benchmark.

Wells Fargo Discovery Fund

 

Quarterly update Q4 2016

Wells Fargo Discovery Fund Benchmark descriptions, continued:

Share class availability  

Contractual Net expense Contractual expense waiver ratio (%) expense cap (%) date

Share class

Ticker

Gross expense ratio (%)

A

WFDAX

1.19

1.19

1.22

1-31-17

C

WDSCX

1.94

1.94

1.97

1-31-17

Admin

WFDDX

1.11

1.11

1.15

1-31-17

Inst

WFDSX

0.86

0.86

0.89

1-31-17

R6

WFDRX

0.76

0.76

0.84

1-31-17

The advisor has contractually committed to waive fees and/or reimburse expenses to the extent necessary to cap the fund’s total annual fund operating expenses after fee waiver, excluding certain expenses, at the amount shown above. Please consult the prospectus for additional information on applicable sales charges and expenses for the available share classes.

The Lipper averages are compiled by Lipper, Inc., an independent mutual fund research and rating service. Each Lipper average represents a universe of funds that are similar in investment objective. You cannot invest directly in a Lipper average. The Morningstar Category average is the average return for the peer group based on the returns of each individual fund within the group. The total return of the Morningstar Category average does not include the effect of sales charges. You cannot invest directly in a Morningstar Category average. The Russell 2500 Growth Index measures the performance of those Russell 2500 companies with higher price/book ratios and higher forecasted growth values. You cannot invest directly in an index. The Russell 3000 Index measures the performance of the 3,000 largest U.S. companies based on total market capitalization, which represents approximately 98% of the investable U.S. equity market. You cannot invest directly in an index. Attribution analysis: Performance attribution and sector returns are calculated using the Brinson-Fachler attribution model. As such, performance attribution calculations may differ from the fund’s actual investment results. Definition of terms: Alpha measures the difference between a fund’s actual returns and its expected performance given its level of risk (as measured by beta). Beta measures fund volatility relative to general market movements. It is a standardized measure of systematic risk in comparison with a specified index. The benchmark beta is 1.00 by definition. Downside capture measures a fund’s replication of its benchmark during periods of negative returns. During periods of negative benchmark returns, a downside capture ratio less than 100% reflects product performance greater than the benchmark and a downside capture ratio greater than 100% reflects performance less than the benchmark. Information ratio measures the consistency of excess return (return in excess of a benchmark). This value is determined by taking the annualized excess return over a benchmark (style benchmark by default) and dividing it by the standard deviation of excess return.

Benchmark descriptions: The Morgan Stanley Capital International (MSCI) EAFE (Europe, Australasia, Far East) Index is a free-float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets, excluding the U.S. and Canada. The MSCI EAFE Index consists of the following 21 developed markets country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom. You cannot invest directly in an index. The Morgan Stanley Capital International (MSCI) Emerging Markets Index is a free-floatadjusted market-capitalization-weighted index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Markets Index consists of the following 23 emerging markets country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, the Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey, and United Arab Emirates. You cannot invest directly in an index.

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R-squared is a measurement of how similar a fund’s historical performance has been to that of the benchmark. The measure ranges from 0.0, which means that the fund’s performance bears no relationship to the performance of the index, to 1.0, which means that the fund’s performance was perfectly synchronized with the performance of the benchmark. Sharpe ratio measures the potential reward offered by a mutual fund relative to its risk level. The ratio uses a fund’s standard deviation and its excess return to determine reward per unit of risk. The higher the Sharpe ratio, the better the fund’s historical risk-adjusted performance. Standard deviation represents the degree to which an investment’s performance has varied from its average performance over a particular time period. Tracking error measures the extent to which a manager’s performance mimics that of a benchmark. The value is the standard deviation of the difference between a fund’s performance and a benchmark’s performance. Upside capture measures a fund’s replication of its benchmark during periods of positive returns. During periods of positive benchmark returns, an upside capture ratio greater than 100% reflects product performance greater than the benchmark and an upside capture ratio less than 100% reflects performance less than the benchmark.

Wells Fargo Discovery Fund

 

Quarterly update Q4 2016

Wells Fargo Discovery Fund

Risks: Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Smaller-company stocks tend to be more volatile and less liquid than those of larger companies. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). This fund is exposed to foreign investment risk. Consult the fund's prospectus for additional information on these and other risks.

The views expressed in this document are as of 12-31-16 and are those of the portfolio manager(s). The views are subject to change at any time in response to changing circumstances in the market and are not intended to predict or guarantee the future performance of any individual security, market sector or the markets generally, or any Wells Fargo Fund. Any specific securities discussed may or may not be current or future holdings of the fund. The securities discussed should not be considered recommendations to purchase or sell a particular security. Wells Fargo Funds Management, LLC, disclaims any obligation to publicly update or revise any views expressed or forward-looking statements. The inception date of the Institutional Class was 8-31-06. Performance shown prior to the inception of the Institutional Class reflects the performance of the Administrator Class and includes expenses that are not applicable to and are higher than those of the Institutional Class. Performance shown prior to 4-8-05 for the Institutional Class reflects the performance of the Investor Class and includes expenses that are not applicable to and are higher than those of the Institutional Class.

For each fund with at least a three-year history, Morningstar calculates a Morningstar Rating based on a Morningstar risk-adjusted return measure that accounts for variation in a fund’s monthly performance (including the effects of sales charges, loads, and redemption fees, unless otherwise indicated), placing more emphasis on downward variations and rewarding consistent performance. The top 10% of funds in each category receive 5 stars, the next 22.5% receive 4 stars, the next 35% receive 3 stars, the next 22.5% receive 2 stars, and the bottom 10% receive 1 star. (Each share class is counted as a fraction of one fund within this scale and is rated separately, which may cause slight variations in the distribution percentages.) Across U.S.domiciled mid-cap growth funds, the Discovery Fund received 2 stars among 588 funds, 3 stars among 504 funds, and 4 stars among 368 funds for the 3-, 5-, and 10-year periods, respectively. Morningstar Ratings and Rankings are for the Institutional Class only; other classes may have different performance characteristics. The Morningstar Return ranking is based on the fund’s total return rank relative to all funds that have the same category for the same time period. Past performance is no guarantee of future results.

Carefully consider a fund’s investment objectives, risks, charges, and expenses before investing. For a current prospectus and, if available, a summary prospectus, containing this and other information, visit wellsfargofunds.com. Read it carefully before investing. Wells Fargo Asset Management (WFAM) is a trade name used by the asset management businesses of Wells Fargo & Company. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Funds. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the funds. The funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA, an affiliate of Wells Fargo & Company. Neither Wells Fargo Funds Management nor Wells Fargo Funds Distributor has fund customer accounts/assets, and neither provides investment advice/recommendations or acts as an investment advice fiduciary to any investor. 300119 01-17 CM010 01-17

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Wells Fargo Discovery Fund