1 Wells Fargo Advantage Absolute Return Fund

Quarterly Report Q4 2014 │ All information is as of 12-31-13 unless otherwise indicated.

Wells Fargo Advantage Absolute Return Fund O v e r v i e w

General fund information

Ticker: WARDX Portfolio managers: Ben Inker, CFA; Sam Wilderman, CFA, at GMO LLC1 Category: Absolute return

Fund strategy

Applies two levels of active management, with portfolio allocation decisions across stocks, bonds, and alternative strategies determined by the GMO Asset Allocation team, led by Ben Inker and Sam Wilderman, and implemented by GMO’s seasoned and institutionally oriented portfolio management teams.

Seeks to identify and exploit mispricings among all investable asset classes based on a belief that asset classes can become grossly overvalued or undervalued and revert to fair value.

Takes a cautious approach to portfolio reallocations, waiting for asset class valuations to move to extremes before making large portfolio bets.

Recognizes that markets are inefficient and the mean reversion process can take years to play out. Removes traditional portfolio constraints to concentrate holdings in the most attractively valued asset classes.

Average annual total returns (%) as of 12-31-13*

3 month

Year to date 1 year 3 year 5 year 10 year

Since inception2

(7-23-03) Absolute Return Fund–Admin 3.34 9.95 9.95 7.12 8.84 8.40 9.88

MSCI World Index (Net) 8.00 26.68 26.68 11.49 15.02 6.98 –

Barclays U.S. 1–10 Year Treasury Inflation-Protected Securities Index -1.30 -5.58 -5.58 2.61 4.95 4.37 –

*Returns for periods of less than one year are not annualized. Figures quoted represent past performance, which is no guarantee of future results. 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. Performance shown without sales charges would be lower if sales charges were reflected. 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, wellsfargoadvantagefunds.com. Administrator Class shares are sold without a front-end sales charge or contingent deferred sales charge. The advisor has committed, through 2-28-14, to waive fees and/or reimburse expenses to the extent necessary to cap the fund’s total annual operating expenses after fee waivers, excluding brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the fund (including the expenses of the GMO Benchmark-Free Allocation Fund), at 0.60% for Administrator Class shares. After this time, such cap may be changed or the commitment to maintain the cap may be 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 1.49%. The fund’s gross expense ratio is 1.53%. 1. and 2. Please see footnotes on page 7.

Key drivers of performance

The fund’s return was positive for the 3-month and 12-month periods that ended December 31, 2013.

In the quarter, positive returns were driven by equities, particularly U.S. equities. The fund’s U.S., developed-country international, and emerging markets strategies all posted positive returns.

Fixed-income strategies detracted. Credit exposure helped, but Treasury Inflation-Protected Securities (TIPS) exposure hurt.

The fund’s alternative strategies contributed to performance.

Market and portfolio overview

The U.S. stock market outperformed foreign markets in the fourth quarter. The S&P 500 Index returned 10.51%, the MSCI EAFE Index (Net) returned 5.71%, and the MSCI Emerging Markets Index (Net) returned 1.83% (all in U.S. dollar terms). In the U.S., growth stocks outperformed value and large cap outperformed small-cap stocks, but value and small-cap stocks outperformed in developed foreign markets. In the U.S., industrials and information technology were the best-performing sectors; telecommunication services and utilities lagged.

Most interest-rate-sensitive bond sectors were negative in the quarter as yields rose and the yield curve steepened. The Barclays U.S. Aggregate Bond Index returned -0.14%. Credit spreads narrowed, enabling positive returns in credit-sensitive sectors. As a result, lower-quality bonds outperformed. TIPS underperformed traditional Treasury securities.

In the U.S., our focus remained on high-quality stocks, which trailed the overall market. In international markets, we remained focused on value stocks, and we continue to hedge our developed markets foreign currency exposure.

In fixed income, we maintained a position in intermediate-duration TIPS. During 2013, TIPS yields moved significantly higher, affording a modest investment opportunity if inflation stays low as well as added protection against unexpectedly high inflation. We maintained our low-duration posture in U.S. credit and our allocation to emerging markets debt. Other portfolio allocations were relatively stable during the quarter. We maintained significant positions in cash and alternative strategies.

(See pages 6–7 for important information.)

CM504 01-14

Video-enabled edition. For more information, see page 6.

2 Wells Fargo Advantage Absolute Return Fund

Quarterly Report Q4 2013

Wells Fargo Advantage Absolute Return Fund Q u a r t e r l y p e r f o r m a n c e a t t r i b u t i o n

Contributors

Our U.S. stock exposure, in which we invested only in high-quality companies, was the largest contributor in the quarter. We believe that U.S. equities are expensive relative to other markets, but in our view, the valuations of high-quality U.S. companies remain attractive.

Developed-country international stock exposure also contributed. In particular, our emphasis on value stocks helped, as did significant small-cap exposure, which is a larger percentage of our portfolio than it represents in the broad market.

Currency hedging did not have a notable impact because the dollar was relatively flat during the quarter.

The Risk Premium strategy also contributed. This strategy sells near-dated at-the-money puts on global stock indexes.

Emerging markets stock exposure contributed slightly. We tend to own the more economically sensitive areas of the emerging markets. Our largest exposure is to Russian energy companies, which trade at an attractive discount, and we have limited direct exposure to China.

Alternative strategies contributed to results. The GMO Alternative Asset Opportunity Fund—which takes both long and short positions in a range of global equity, bond, currency, and commodity markets—had strong performance. The fund’s results more than offset the modest decline in the GMO Alpha Only Fund, a strategy that attemptsto capture the excess returns of GMO equity strategies, which was hurt by its high-quality bias. Both of these funds are used instead of traditional cash investments, which currently offer little yield.

Detractors

Fixed-income allocations were a detractor, hurt by exposure to TIPS. Our low-duration credit and emerging markets debt strategies contributed but not enough to offset a drop in TIPS prices.

Contribution to return

-1%

0%

1%

2%

U.S. equities Internationaldevelopedequities

Emergingmarkets equities

Fixed income Alternatives& other

Contribution fromasset classweights

Contribution fromunderlyingstrategies

Total contributionto return

U.S. equities

International developed

equities

Emerging markets equities Fixed income

Alternatives & other

Asset class weights (%)

Beginning weights 18.0 25.0 9.0 20.0 28.0

Ending weights 18.0 26.0 10.0 20.0 26.0

Asset class returns (%)

Index returns 10.1 5.6 1.8 -0.1 0.0

Fund returns 9.7 5.8 2.4 -1.0 0.4

Contribution to return (%)

Contribution from asset-class weights 1.8 1.4 0.2 0.0 0.0

Contribution from underlying strategies -0.1 0.0 -0.1 -0.2 0.1

Total contribution to return 1.8 1.5 0.2 -0.2 0.1

While the overall fund doesn't have a true benchmark, for comparison purposes, an asset-class benchmark was chosen for each category, all in U.S. dollar terms: U.S. equities, MSCI USA (Net); international developed equities, MSCI World ex USA (Net); emerging markets equities, MSCI Emerging Markets (Net); fixed income, Barclays U.S. Aggregate Bond; other and cash, Barclays Treasury 1–3 Month. Past performance is no guarantee of future results. Sector weights are subject to change and may have changed since the date specified.

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Quarterly Report Q4 2013

Wells Fargo Advantage Absolute Return Fund A s s e t a l l o c a t i o n

Absolute Return Fund changes in past 12 months Underlying GMO strategy detail

Alternatives & other, 37%

28% Alternatives & other, 26%

Fixed income, 9%20% Fixed income, 20%

Emerging equities, 8%9% Emerging equities, 10%

Int'l equities, 30% 25% Int'l equities, 26%

U.S. equities, 16% 18% U.S. equities, 18%

Q4 2012 Q3 2013 Q4 2013

2% 0%

-5%

-9%

11%

1%

-2%

0%

1%

1%

Component % of fund

U.S. equities Quality equities 18.0

International equities Non-U.S. quality 2.0

Hedged int'l value 19.0

Risk premium 5.0

Emerging equities Emerging equities 10.0

Fixed income Developed fixed income 16.0

Emerging country debt 4.0

Alternatives & other Alpha only 14.0

Alternative asset opportunity 9.0

Cash & collateral 3.0

Source: GMO Component weights are subject to change and may have changed since the date specified.

Outlook

We expect economic growth to continue to improve. The U.S. is adding more jobs, and growth has picked up modestly. Also, the eurozone recovery is gaining ground. Central bank policies remain accommodative, and investors gained more clarity about the Federal Reserve’s plans to scale back its bond-buying program. However, political uncertainties remain. The U.S. debt ceiling limit is set to become an issue in late February or early March, and Europe and Japan face a number of political hurdles. We are also concerned about the potential for a credit and real estate bubble in China and worry about the spillover effects it could have on other emerging markets countries.

In the U.S., rich stock valuations and historically high profit margins have made the broad market expensive. Small-cap stocks are even less attractive. Our U.S. stock holdings are high-quality companies, where valuations are less frothy and profit margins are less likely to erode meaningfully.

Outside the U.S., developed markets value stocks remain attractive, particularly in Europe. Our international stock exposure is broad and includes a significant allocation to small caps. Emerging markets valuations are attractive, but fundamental risks prevail. Our

emerging markets allocation is lower than valuations alone would prescribe. We have little direct exposure to Chinese equities, and we are tilted toward cyclical opportunities.

Although the yield curve steepened, bond yields remain low and fixed-rate nominal bonds remain unattractive. Eventually, we believe bond yields will rise. In that scenario, we believe coupon income may not completely offset principal losses as prices fall. Investors could possibly lose money in real terms.

In mid-2013, we established a position in intermediate-duration TIPS after real yields increased, but at present, we are not overly worried about inflation. Developed economies appear to have enough unused resources to make inflation unlikely in the near term, but that could change as economies normalize. TIPS can provide a hedge against unexpected inflation, and we believe that their yields moved high enough to justify purchase.

We remain unimpressed with most credit sectors, but we still believe floating-rate asset-backed securities are attractive in the U.S. We see value in hard-currency emerging markets debt. We have no exposure to non-U.S. developed debt markets.

4 Wells Fargo Advantage Absolute Return Fund

Quarterly Report Q4 2013

Wells Fargo Advantage Absolute Return Fund P o r t f o l i o d e t a i l

Equity portfolio

Geographic weights Portfolio (%)

United States 38.0

United Kingdom 11.0

Japan 7.0

Europe ex U.K. 23.0

Emerging markets 17.0

Cash/other 4.0

Sector weights Portfolio (%)

Information Technology 16.9

Health Care 13.9

Financials 12.8

Consumer Staples 12.1

Energy 13.7 Consumer Discretionary 7.9 Telecommunication Services 7.0 Industrials 6.6 Materials 5.0 Utilities 4.1

Fixed-income portfolio

Portfolio

Duration 5.9 years

Sector weights (%)

Treasury Inflation-Protected Securities 55.0

Asset-backed securities and credit 25.0

Emerging debt 20.0

Duration and sector weights are subject to change and may have changed since the date specified. The fixed-income weights represent the largest active positions within the portfolio.

Fund facts

Inception date 3-1-12

Gross expense ratio–Admin 1.53 Assets–all share classes $8,138.48M

5 Wells Fargo Advantage Absolute Return Fund

Quarterly Report Q4 2013

Wells Fargo Advantage Absolute Return Fund P e r f o r m a n c e a n a l y s i s

Risk versus return

Annualized returns (%)

1 year 3 year 5 year Since inception

Absolute Return Fund–Admin 9.95 7.12 8.84 9.88

MSCI World Index (Net) 26.68 11.49 15.02 –

Barclays U.S. 1–10 Year TIPS Index -5.58 2.61 4.95 – Lipper Absolute Return Funds Average 3.99 1.74 3.15 –

Morningstar World-Allocation Average 10.07 6.82 11.88 –

Calendar-year returns (%)

2009 2010 2011 2012 2013

Absolute Return Fund–Admin 19.56 3.94 2.92 8.63 9.95

MSCI World Index (Net) 29.99 11.76 -5.54 15.83 26.68

Barclays U.S. 1–10 Year TIPS Index 12.02 5.22 8.93 5.04 -5.58

t

Wells Fargo Advantage Absolute Return Fund–Admin

MSCI World Index (Net)

Barclays U.S.

1–10 Year TIPS Inde

0

2

4

6

8

10

12

14

16

0 5 10 15 20

Ann

ualiz

ed to

tal r

etur

n (%

)

Annualized standard deviation (%)

Five years, as of 12-31-13

Cumulative return (excluding sales charges)

Past performance is no guarantee of future results.

$2,382

$2,118

$1,566

$0

$500

$1,000

$1,500

$2,000

$2,500

$3,000

9‐03 3‐04 9‐04 3‐05 9‐05 3‐06 9‐06 3‐07 9‐07 3‐08 9‐08 3‐09 9‐09 3‐10 9‐10 3‐11 9‐11 3‐12 9‐12 3‐13 9‐13

Growth of $

1,000

Bear market Wells Fargo Advantage Absolute Return Fund—Admin MSCI World Index (Net) Barclays U.S. 1–10 Year TIPS Index

6 Wells Fargo Advantage Absolute Return Fund

Quarterly Report Q4 2013

Wells Fargo Advantage Absolute Return Fund

Share class availability

Class Ticker

Gross expense ratio (%)

Net expense ratio (%)

Contractual expense cap (%)

Contractual expense

waiver dateA WARAX 1.69 1.69 0.80 2-28-14 C WARCX 2.44 2.44 1.55 2-28-14

Admin WARDX 1.53 1.49 0.60 2-28-14 Inst WABIX 1.26 1.24 0.35 2-28-14

The advisor has 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 brokerage commissions, interest, taxes, extraordinary expenses, and the expenses of any money market fund or other fund held by the fund, (including the expenses of GMO Benchmark-Free Allocation Fund), until the waiver date shown above. After this time, such cap may be changed or the commitment to maintain the cap may be terminated only with the approval of the Board of Trustees.

Video and audio resources This Quarterly Report features video links to learn more about key aspects of the Wells Fargo Advantage Absolute Return Fund. See below for a brief description of each video, featuring Ben Inker, co-portfolio manager and co-director of Asset Allocation at GMO, subadvisor to the Absolute Return Fund. 1. People: Learn more about Portfolio Manager Ben Inker, as well as the rest of the talented group at GMO. The GMO team is a world-renowned institutional money manager and was founded in 1977 by Jeremy Grantham, Richard Mayo, and Eyk Van Otterloo, value managers with three decades of experience. 2. Philosophy: Learn more about the investment philosophy associated with the fund, including the guiding philosophy that asset classes always revert to the mean, the belief in long-term value through asset allocation and security selection, and the team’s focus on absolute risk and absolute returns. 3. Process: Learn more about the investment process of the fund, including a proprietary seven-year asset class model used to set long-term perspectives, the team’s pursuit of alpha through top-down allocation and security selection, and the aim to participate in up markets and to preserve capital in down markets. 4. Key differentiators: Learn more about what makes the fund different from other asset allocation funds, including the team's “reversion-to-the-mean” philosophy, its proprietary seven-year forecast model, and its attempt to target value with top- down allocation and security selection.

Benchmark descriptions: 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 Barclays U.S. Aggregate Bond Index is composed of the Barclays Government/Credit Index and the Mortgage-Backed Securities Index and includes U.S. Treasury issues, agency issues, corporate bond issues, and mortgage-backed securities. You cannot invest directly in an index. The Barclays 1–3 Month Treasury Bill Index includes all publicly issued zero-coupon U.S. Treasury bills that have a remaining maturity of less than three months and more than one, are rated investment grade, and have $250 million or more of outstanding face value. The Barclays U.S. 1–10 Year Treasury Inflation-Protected Securities Index is an unmanaged index of U.S. Treasury securities with maturities of less than 10 years and more than one. You cannot invest directly in an index. The Morgan Stanley Capital International Emerging Markets (MSCI Emerging Markets) Index is a free float-adjusted market capitalization index designed to measure the equity market performance in the global emerging markets. The index is currently composed of 21 emerging markets country indexes. You cannot invest directly in an index. The Morgan Stanley Capital International World Index (MSCI World Index) (Net) is a free float-adjusted market-capitalization-weighted index that is designed to measure the equity market performance of developed markets. You cannot invest directly in an index. MSCI makes no express or implied warranties or representations and shall have no liability whatsoever with respect to any MSCI data contained herein. The MSCI data may not be further redistributed or used as a basis for other indexes or any securities or financial products. This report is not approved, reviewed, or produced by MSCI. The Morgan Stanley Capital International Europe, Australasia, and Far East (MSCI EAFE) Index is an unmanaged group of securities widely regarded by investors to be representations of the stock markets of Europe, Australasia, and the Far East. You cannot invest directly in an index. The MSCI USA Index is a free float-adjusted market capitalization index that is designed to measure large- and mid-cap U.S. equity market performance. You cannot invest directly in an index. Definition of terms: Standard deviation of return measures the average deviations of a return series from its mean and is often used as a measure of risk. Duration is a measurement of the sensitivity of a bond’s price to changes in Treasury yields. A fund’s duration is the weighted average duration of the bonds in the portfolio. Duration should be interpreted as the approximate change in a bond’s (or a fund’s) price for a 100-basis-point change in Treasury yields.

Users with a printed version of this report can view any or all of the modules listed to the left by opening a web browser and entering the following text into the browser's address bar: wellsfargoadvantagefunds.com/video_inker.

7 Wells Fargo Advantage Absolute Return Fund

Quarterly Report Q4 2013

Wells Fargo Advantage Absolute Return Fund

CM504 01-14

Risks: Absolute return funds are not intended to outperform stocks and bonds in strong markets and there is no guarantee of positive returns or that the fund’s objectives will be achieved. Stock values fluctuate in response to the activities of individual companies and general market and economic conditions. Bond values fluctuate in response to the financial condition of individual issuers, general market and economic conditions, and changes in interest rates. In general, when interest rates rise, bond values fall and investors may lose principal value. Alternative investments such as commodities, real estate, and short strategies are speculative and entail a high degree of risk. Foreign investments are especially volatile and can rise or fall dramatically due to differences in the political and economic conditions of the host country. The fund will indirectly be exposed to all of the risks of an investment in the underlying funds and will indirectly bear expenses of the underlying funds. The use of derivatives may reduce returns and/or increase volatility. Certain investment strategies tend to increase the total risk of an investment (relative to the broader market). This fund is exposed to high-yield securities risk, mortgage- and asset-backed securities risk, and smaller-company securities risk. Consult the fund’s prospectus for additional information on these and other risks.

1. The fund invests substantially all of its investable assets directly in the Benchmark-Free Allocation Fund, for which GMO serves as investment advisor. Mr. Inker and Mr. Wilderman, employees of GMO, have been responsible for coordinating the portfolio management of the Benchmark-Free Allocation Fund since 2003 and 2012, respectively. 2. The inception date of the Administrator Class shares was 3-1-12. Historical performance shown for Administrator Class shares prior to their inception is based on the performance of the Class III shares of the Benchmark-Free Allocation Fund (GBMFX), the GMO fund in which the fund invests substantially all of its investable assets. Returns for the Class III shares have been adjusted downward to reflect the higher expenses applicable to the Administrator Class at its inception. These fees were 1.50% for the Administrator Class.

The views expressed in this document are as of 12-31-13 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 Advantage 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. 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 wellsfargoadvantagefunds.com. Read it carefully before investing. Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company, provides investment advisory and administrative services for Wells Fargo Advantage 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/SIPC, an affiliate of Wells Fargo & Company. 221791 01-14