WELLS FARGO FUNDS TRUST
Corporate Bond Fund
Diversified Bond Fund
Income Fund
Income Plus Fund
Intermediate Government Income Fund
Limited Term Government Income Fund
Stable Income Fund
Variable Rate Government Fund
Class A, Class B, Class C and Institutional Class
STATEMENT OF ADDITIONAL INFORMATION
Dated November 8, 1999
As Supplemented Dec. 17, 1999 and Jan. 11, 2000
The section of the Statement of Additional Information entitled "Non-Fundamental
Investment Policies" is supplemented as follows:
(7) Each Fund, except the Intermediate Government Income Fund and the Limited
Term Government Income Fund, may not sell securities short, unless it owns or
has the right to obtain securities equivalent in kind and amount to the
securities sold short (short sales "against the bos"), and provided that
transactions in futures contracts and options are not deemed to constitute
selling securities short.
The section of the Statement of Additional Information entitled "Additional
Permitted Investment Activities and Associated Risks" is supplemented as
follows:
Dollar Roll Transactions
The Funds may enter into "dollar roll" transactions wherein the Fund
sells fixed income securities, typically mortgage-backed securities, and makes a
commitment to purchase similar, but not identical, securities at a later date
from the same party. Like a forward commitment, during the roll period no
payment is made for the securities purchased and no interest or principal
payments on the security accrue to the purchaser, but the Fund assumes the risk
of ownership. A Fund is compensated for entering into dollar roll transactions
by the difference between the current sales price and the forward price for the
future purchase, as well as by the interest earned on the cash proceeds of the
initial sale. Like other when-issued securities or firm commitment agreements,
dollar roll transactions involve the risk that the market value of the
securities sold by the Fund may decline below the price at which a Fund is
committed to purchase similar securities. In the event the buyer of securities
under a dollar roll transaction becomes insolvent, the Funds use of the proceeds
of the transaction may be restricted pending a determination by the other party,
or its trustee or receiver, whether to enforce the Funds obligation to
repurchase the securities. The Funds will engage in roll transactions for the
purpose of acquiring securities for its portfolio and not for investment
leverage.
Foreign Government Securities
Foreign Government Securities investments include the securities of
"supranational" organizations such as the International Bank for Reconstruction
and Development and the Inter-American Development Bank if the Advisor believes
that the securities do not present risks inconsistent with the Fund's investment
objective.
Illiquid Securities
Guaranteed Investment Contracts. Guaranteed investment contracts
("GICs") are issued by insurance companies. In purchasing a GIC, a Fund
contributes cash to the insurance company's general account and the insurance
company then credits to the Fund's deposit fund on a monthly basis guaranteed
interest at a specified rate. The GIC provides that this guaranteed interest
will not be less than a certain minimum rate. The insurance company may assess
periodic charges against a GIC for expense and service costs allocable to it.
There is no secondary market for GICs and, accordingly, GICs are generally
treated as illiquid investments. GICs are typically unrated.
Municipal Securities
The states, territories and possessions of the United States, their
political subdivisions (such as cities, counties and towns) and various
authorities (such as public housing or redevelopment authorities),
instrumentalities, public corporations and special districts (such as water,
sewer or sanitation districts) issue municipal securities. In addition,
municipal securities include securities issued by or on behalf of public
authorities to finance various privately operated facilities, such as industrial
development bonds, that are backed only by the assets and revenues of the
non-governmental user (such as hospitals and airports).
Municipal securities are issued to obtain funds for a variety of public
purposes, including general financing for state and local governments, or
financing for specific projects or public facilities. Municipal securities
generally are classified as bonds, notes and leases. Municipal securities may be
zero-coupon securities.
General obligation securities are secured by the issuer's pledge of its full
faith, credit and taxing power for the payment of principal and interest.
Revenue securities are payable from revenue derived from a particular facility,
class of facilities or the proceeds of a special excise tax or other specific
revenue source but not from the issuer's general taxing power. Many of these
bonds are additionally secured by a debt service reserve fund which can be used
to make a limited number of principal and interest payments should the pledged
revenues be insufficient. Various forms of credit enhancement, such as a bank
letter of credit or municipal bond insurance, may also be employed in revenue
bond issues. Private activity bonds and industrial revenue bonds do not carry
the pledge of the credit of the issuing municipality, but generally are
guaranteed by the corporate entity on whose behalf they are issued. Municipal
bonds may also be moral obligation bonds, which are normally issued by special
purpose public authorities. If the issuer is unable to meet its obligations
under the bonds from current revenues, it may draw on a reserve fund that is
backed by the moral commitment (but not the legal obligation) of the state or
municipality that created the issuer.
Municipal bonds meet longer term capital needs of a municipal issuer and
generally have maturities of more than one year when issued. Municipal notes are
intended to fulfill the short-term capital needs of the issuer and generally
have maturities not exceeding one year. They include tax anticipation notes,
revenue anticipation notes, bond anticipation notes, construction loan notes and
tax-exempt commercial paper. Municipal notes also include longer term issues
that are remarketed to investors periodically, usually at one year intervals or
less. Municipal leases generally take the form of a lease or an installment
purchase or conditional sale contract. Municipal leases are entered into by
state and local governments and authorities to acquire equipment and facilities
such as fire and sanitation vehicles, telecommunications equipment and other
capital assets. Leases and installment purchase or conditional sale contracts
(which normally provide for title to the leased asset to pass eventually to the
government issuer) have evolved as a means for governmental issuers to acquire
property and equipment without being required to meet the constitutional and
statutory requirements for the issuance of debt. The debt-issuance limitations
of many state constitutions and statutes are deemed to be inapplicable because
of the inclusion in many leases or contracts of "non-appropriation" clauses that
provide that the governmental issuer has no obligation to make future payments
under the lease or contract unless money is appropriated for such purpose by the
appropriate legislative body on a yearly or other periodic basis. Generally, the
Funds will invest in municipal lease obligations through certificates of
participation.
Stand-by Commitments. The Funds may purchase municipal securities
together with the right to resell them to the seller or a third party at an
agreed-upon price or yield within specified periods prior to their maturity
dates. Such a right to resell is commonly known as a stand-by commitment, and
the aggregate price which a Fund pays for securities with a stand-by commitment
may be higher than the price which otherwise would be paid. The primary purpose
of this practice is to permit a Fund to be as fully invested as practicable in
municipal securities while preserving the necessary flexibility and liquidity to
meet unanticipated redemptions. In this regard, a Fund acquires stand-by
commitments solely to facilitate portfolio liquidity and does not exercise its
rights thereunder for trading purposes. Stand-by commitments involve certain
expenses and risks, including the inability of the issuer of the commitment to
pay for the securities at the time the commitment is exercised,
non-marketability of the commitment, and differences between the maturity of the
underlying security and the maturity of the commitment.
The acquisition of a stand-by commitment does not affect the valuation or
maturity of the underlying municipal securities. A Fund values stand-by
commitments at zero in determining net asset value. When a Fund pays directly or
indirectly for a stand-by commitment, its cost is reflected as unrealized
depreciation for the period during which the commitment is held. Stand-by
commitments do not affect the average weighted maturity of the Fund's portfolio
of securities.
Puts. The Funds may acquire "puts" with respect to municipal
securities. A put gives the Fund the right to sell the municipal security at a
specified price at any time on or before a specified date. The Funds may sell,
transfer or assign puts only in conjunction with the sale, transfer or
assignment of the underlying securities. The amount payable to a Fund upon its
exercise of a "put" is normally: (1) the Fund's acquisition cost of the
municipal securities (excluding any accrued interest which the Fund paid on
their acquisition), less any amortized market premium or plus any amortized
market or original issue discount during the period the Fund owned the
securities, plus; (2) all interest accrued on the securities since the last
interest payment date during that period.
The Funds may acquire puts to facilitate the liquidity of portfolio assets. The
Funds may use puts to facilitate the reinvestment of assets at a rate of return
more favorable than that of the underlying security. The Funds expect that they
will generally acquire puts only where the puts are available without the
payment of any direct or indirect consideration. However, if necessary or
advisable, the Funds may pay for a put either separately in cash or by paying a
higher price for portfolio securities, which are acquired subject to the puts
(thus reducing the yield to maturity otherwise available for the same
securities).
Swaps, Caps, Floors and Collars
A Fund may enter into interest rate, currency and mortgage (or other
asset) swaps, and may purchase and sell interest rate "caps," "floors" and
"collars." Interest rate swaps involve the exchange by a Fund and a counterparty
of their respective commitments to pay or receive interest (e.g., an exchange of
floating rate payments for fixed rate payments). Mortgage swaps are similar to
interest rate swap agreements, except that the contractually-based principal
amount (the "notional principal amount") is tied to a reference pool of
mortgages. Currency swaps' notional principal amount is tied to one or more
currencies, and the exchange commitments can involve payments in the same or
different currencies. The purchase of an interest rate cap entitles the
purchaser, to the extent that a specified index exceeds a predetermined interest
rate, to receive payments of interest on the notional principal amount from the
party selling the cap. The purchase of an interest rate floor entitles the
purchaser, to the extent that a specified index falls below a predetermined
value, to receive payments on a notional principal amount from the party selling
the floor. A collar entitles the purchaser to receive payments to the extent a
specified interest rate falls outside an agreed range.
Foreign Currency Transactions
Funds that make foreign investments may conduct foreign currency exchange
transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign exchange market or by entering into a forward foreign currency
contract. A forward foreign currency contract ("forward contract") involves an
obligation to purchase or sell a specific amount of a specific currency at a
future date, which may be any fixed number of days (usually less than one year)
from the date of the contract agreed upon by the parties, at a price set at the
time of the contract. Forward contracts are considered to be derivatives. A Fund
enters into forward contracts in order to "lock in" the exchange rate between
the currency it will deliver and the currency it will receive for the duration
of the contract. In addition, a Fund may enter into forward contracts to hedge
against risks arising from securities a Fund owns or anticipates purchasing, or
the U.S. dollar value of interest and dividends paid on those securities. A Fund
will not enter into forward contracts for speculative purposes. A Fund will not
have more than 25% of its total assets committed to forward contracts, or
maintain a net exposure to forward contracts that would obligate the Fund to
deliver an amount of foreign currency in excess of the value of the Fund's
investment securities or other assets denominated in that currency.
If a Fund makes delivery of the foreign currency at or before the settlement of
a forward contract, it may be required to obtain the currency through the
conversion of assets of the Fund into the currency. The Fund may close out a
forward contract obligating it to purchase a foreign currency by selling an
offsetting contract, in which case it will realize a gain or a loss.
Foreign currency transactions involve certain costs and risks. The Fund incurs
foreign exchange expenses in converting assets from one currency to another.
Forward contracts involve a risk of loss if the Adviser is inaccurate in its
prediction of currency movements. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The precise matching of forward contract
amounts and the value of the securities involved is generally not possible.
Accordingly, it may be necessary for the Fund to purchase additional foreign
currency if the market value of the security is less than the amount of the
foreign currency the Fund is obligated to deliver under the forward contract and
the decision is made to sell the security and make delivery of the foreign
currency. The use of forward contracts as a hedging technique does not eliminate
fluctuations in the prices of the underlying securities the Fund owns or intends
to acquire, but it does fix a rate of exchange in advance. Although forward
contracts can reduce the risk of loss due to a decline in the value of the
hedged currencies, they also limit any potential gain that might result from an
increase in the value of the currencies.
In addition, there is no systematic reporting of last sale information for
foreign currencies, and there is no regulatory requirement that quotations
available through dealers or other market sources be firm or revised on a timely
basis. Quotation information available is generally representative of very large
transactions in the interbank market. The interbank market in foreign currencies
is a global around-the-clock market. Because foreign currency transactions
occurring in the interbank market involve substantially larger amounts than
those that may be involved in the use of foreign currency options, a Fund may be
disadvantaged by having to deal in an odd lot market (generally consisting of
transactions of less than $1 million) for the underlying foreign currencies at
prices that are less favorable than for round lots.
The Funds have no present intention to enter into currency futures or options
contracts, but may do so in the future. A Fund might take positions in options
on foreign currencies in order to hedge against the risk of foreign exchange
fluctuation on foreign securities the Fund holds in its portfolio or which it
intends to purchase.
Purchases on Margin and Short Sales
The Limited Term Government Income Fund and Intermediate Government
Income Fund may purchase securities on margin and make short sales that are not
"against the box." When a Fund purchases securities on margin, it only pays part
of the purchase price and borrows the remainder. As a borrowing, a Fund's
purchase of securities on margin is subject to the limitations and risks of
borrowing. In addition, if the value of the securities purchased on margin
decreases such that the Fund's borrowing with respect to the security exceeds
the maximum permissible borrowing amount, the Fund will be required to make
margin payments. A Fund's obligation to satisfy margin calls may require the
Fund to sell securities at an inappropriate time.
Each of these Funds also may make short sales of securities which it does not
own or have the right to acquire in anticipation of a decline in the market
price for the security. When a Fund makes a short sale, the proceeds it receives
are retained by the broker until the Fund replaces the borrowed security. In
order to deliver the security to the buyer, a Fund must arrange through a broker
to borrow the security and, in so doing, the Fund becomes obligated to replace
the security borrowed at its market price at the time of replacement, whatever
that price may be. Short sales create opportunities to increase a Fund's return
but, at the same time, involve special risk considerations and may be considered
a speculative technique. Since a Fund in effect profits from a decline in the
price of the securities sold short without the need to invest the full purchase
price of the securities on the date of the short sale, the Fund's net asset
value per share, will tend to increase more when the securities it has sold
short decrease in value, and to decrease more when the securities it has sold
short increase in value, than would otherwise be the case if it had not engaged
in such short sales. Short sales theoretically involve unlimited loss potential,
as the market price of securities sold short may continuously increase, although
a Fund may mitigate such losses by replacing the securities sold short before
the market price has increased significantly. Under adverse market conditions, a
Fund might have difficulty purchasing securities to meet its short sale delivery
obligations and might have to sell portfolio securities to raise the capital
necessary to meet its short sale obligations at a time when fundamental
investment considerations would not favor those sales.
All Funds may engage in short sales "against the box." A short sale is "against
the box" to the extent that while the short position is open, the Fund must own
an equal amount of the securities sold short, or by virtue of ownership of
securities have the right, without payment of further consideration, to obtain
an equal amount of the securities sold short. Short sales against-the-box may in
certain cases be made to defer, for Federal income tax purposes, recognition of
gain or loss on the sale of securities "in the box" until the short position is
closed out. If a Portfolio has unrealized gain with respect to a long position
and enters into a short sale against-the-box, the Portfolio generally will be
deemed to have sold the long position for tax purposes and thus will recognize
gain. Prohibitions on entering short sales other than against the box does not
restrict a Fund's ability to use short-term credits necessary for the clearance
of portfolio transactions and to make margin deposits in connection with
permitted transactions in options and futures contracts. No Fund may make short
sales if, as a result, more than 25% of the Fund's total assets would be so
invested or such a position would represent more than 2% of the outstanding
voting securities of any single issuer or class of an issuer.
Warrants
Warrants are securities, typically issued with preferred stock or
bonds, that give the holder the right to purchase a given number of shares of
common stock at a specified price, usually during a specified period of time.
The price usually represents a premium over the applicable market value of the
common stock at the time of the warrant's issuance. Warrants have no voting
rights with respect to the common stock, receive no dividends and have no rights
with respect to the assets of the issuer. Warrants do not pay a fixed dividend.
Investments in warrants involve certain risks, including the possible lack of a
liquid market for the resale of the warrants, potential price fluctuations as a
result of speculation or other factors and failure of the price of the common
stock to rise. A warrant becomes worthless if it is not exercised within the
specified time period.
