The Wells Fargo Advantage Multi-Sector Income Fund (NYSE Amex:ERC) (the Fund) announced today several changes to its investment guidelines and strategies, as well as the addition of a new portfolio manager to its existing portfolio management team. The Fund is a closed-end, fixed-income fund managed by Wells Fargo Funds Management, LLC, and subadvised by Wells Capital Management Incorporated and First International Advisors, LLC. The changes are designed to enhance the Fund’s ability to invest in potentially higher-yielding fixed-income sectors. The Fund’s portfolio will begin to reflect these changes over the coming months, as the Fund begins to implement the revised investment guidelines and strategies. The Fund’s investment objective remains the same: to seek a high level of current income consistent with limiting its overall exposure to domestic interest-rate risk. In pursuing this objective, the Fund has historically utilized a diversified bond strategy, allocating 20%–60% of its assets to each of three distinct types of securities or “sleeves”: high-yield bonds, international bonds from developed markets, and adjustable-rate agency mortgage securities. The revised investment guidelines and strategies permit the Fund to invest in a broader range of security types and adjust the percentage of the Fund’s assets that can be allocated to each specific sleeve as described below. While these changes may increase the overall income generated by the Fund’s portfolio, they also are expected to result in an increase in the overall risk profile of the Fund’s portfolio. There can be no assurance that these changes will result in an increase in income or shareholder distributions.
- High-yield bond sleeve:
- This sleeve will continue to invest primarily in a diversified portfolio of non-investment-grade corporate debt securities, including floating-rate high-yield bank loan securities.
- The percentage allocation range is changing to 30%–70% of the Fund’s total assets from the previous allocation range of 20%–60%.
- International bond sleeve:
- This sleeve is being renamed the “International/Emerging Markets” sleeve. This sleeve will continue to invest in foreign debt securities, but the sleeve is now permitted to invest in emerging market debt securities, as well as developed market debt securities (including obligations of foreign governments or governmental entities, foreign corporations, or supranational agencies denominated in various currencies). Accordingly, the Fund is now subject to the additional risks associated with investing in emerging market debt securities (see below).
- The percentage allocation range is changing to 10%–40% of the Fund’s total assets from the previous allocation range of 20%–60%.
- Adjustable-rate agency mortgage securities sleeve:
- This sleeve is being renamed the “Mortgage/Corporate” sleeve. This sleeve may continue to invest in adjustable-rate mortgage-backed securities, but the sleeve is now also permitted to invest in fixed-rate mortgages—including mortgage-backed securities, asset-backed securities, and collateralized mortgage obligations—and investment-grade corporate bonds. The mortgage securities can consist of both nonagency mortgage securities and securities issued or guaranteed by the U.S. government, its agencies, or its instrumentalities.
- The percentage allocation range is changing to 10%–30% of the Fund’s total assets from the previous allocation range of 20%–60%.
- The weighted average credit quality of this sleeve is expected to be investment-grade (BBB-/Baa3 or better), as opposed to AAA/Aaa.
- The investment guideline that required that the weighted average life of this sleeve be 1 year to 6 years has been eliminated.
- The investment guideline that required that the average duration of this sleeve be between 0.5 years and 1.5 years has been eliminated.
- A new portfolio manager, Janet Rilling, CFA, CPA, has been added to the portfolio management team. Ms. Rilling manages investment-grade corporate bond portfolios and is part of a broader team at Wells Capital Management Incorporated, one of the Fund’s investment subadvisers, that includes portfolio managers Michael Bray, CFA, and Christopher Y. Kauffman, CFA.
- In addition to the sleeve-specific changes described above:
- The Fund will no longer seek to maintain an average maturity of the Fund’s portfolio of between 5 years and 7 years.
- The Fund will no longer seek to maintain an overall credit quality of the Fund’s portfolio of BBB- or better.
- The Fund may now purchase illiquid securities, which the Fund defines as securities that cannot be disposed of within seven days in the ordinary course of business at approximately the value at which the Fund has valued the securities. Previously, the Fund was permitted to continue to hold securities after they became illiquid (but not to purchase illiquid securities).
About investment risksThe Fund has leverage through borrowings. The use of leverage results in certain risks, including, among others, the likelihood of greater volatility of net asset value (NAV) and the market price of common shares. Foreign investments may contain more risk due to the inherent risks associated with changing political climates, foreign market instability, and foreign currency fluctuations. Derivatives involve additional risks, including interest-rate risk, credit risk, the risk of improper valuation, and the risk of non-correlation to the relevant instruments they are designed to hedge or to closely track. Below-investment-grade securities are commonly referred to as “junk bonds” and are considered speculative with respect to the issuer’s capacity to pay interest and principal. They involve greater risk of loss, are subject to greater price volatility, and are less liquid—especially during periods of economic uncertainty or change—than higher-rated debt securities. Generally, the value of fixed-income securities rises when prevailing interest rates fall and falls when interest rates rise. U.S. government guarantees apply only to certain securities held in the Fund’s portfolio and not to the Fund’s shares. The Fund is also exposed to mortgage- and asset-backed securities risk. Illiquid securities may be subject to wide fluctuations in market value. The Fund may be subject to significant delays in disposing of illiquid securities. Accordingly, the Fund may be forced to sell these securities at less than fair market value or may not be able to sell them when the adviser or sub-adviser believes that it is desirable to do so. In addition, the changes to the investment guidelines and strategies described above expose the Fund’s portfolio to emerging market risk. Emerging market securities typically present even greater exposure to the risks of investment in foreign securities issued in developed markets and may be particularly sensitive to certain economic changes. For example, emerging market countries are typically more dependent on exports and are therefore more vulnerable to recessions in other countries. Emerging markets may be undercapitalized and have less developed legal and financial systems than markets in the developed world. Additionally, emerging markets may have volatile currencies and may be more sensitive than more mature markets to a variety of economic factors. Emerging market securities also may be less liquid than securities of more developed countries and could be difficult to sell, particularly during a market downturn.
This closed-end Fund is no longer conducting an initial public offering, and shares may be purchased only through broker/dealers on the secondary market. Unlike an open-end mutual fund, a closed-end fund offers a fixed number of shares for sale. After the initial public offering, shares are bought and sold in the secondary marketplace, and the market price of the shares is determined by supply and demand—not by NAV—and is often at a lower price than the NAV. A closed-end fund is not required to buy its shares back from investors upon request.Required Ratings Disclosure The ratings indicated herein are from Standard & Poor’s, Moody’s Investors Service, and/or Fitch Ratings Ltd. Credit quality ratings apply to underlying holdings of the Fund itself. Standard & Poor’s rates the creditworthiness of bonds, ranging from AAA (highest) to D (lowest). Standard & Poor’s rates the creditworthiness of short-term notes from SP-1 (highest) to SP-3 (lowest). Moody’s rates the creditworthiness of bonds, ranging from Aaa (highest) to C (lowest). 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). Fitch rates the creditworthiness of short-term notes from F-1 (highest) to D (lowest). About Wells Fargo Funds Management, LLC Wells Fargo Funds Management, LLC, a wholly owned subsidiary of Wells Fargo & Company (NYSE:WFC), provides investment advisory and administrative services for the Fund. Other affiliates of Wells Fargo & Company provide subadvisory and other services for the Fund. The open-end funds are distributed by Wells Fargo Funds Distributor, LLC, Member FINRA/SIPC, an affiliate of Wells Fargo & Company. For more information about the Fund, please visit wellsfargo.com/advantagefunds. Some of the information contained herein may include forward-looking statements about the expected investment activities of the Fund. These statements provide no assurance as to the Fund’s actual investment activities or results. The reader must make his/her own assessment of the information contained herein and consider such other factors as he/she may deem relevant to his/her individual circumstances. 206605 11-11