|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
Investments in unaffiliated securities, at value (cost $689,952,099)
|
|
$
|
607,000,918
|
|
|
Investments in affiliated securities, at value (cost $10,523,431)
|
|
|
10,523,431
|
|
|
Receivable for investments sold
|
|
|
3,991,026
|
|
|
Receivable for interest
|
|
|
9,235,699
|
|
|
Prepaid expenses and other assets
|
|
|
27,729
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
630,778,803
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Secured borrowing payable
|
|
|
163,400,000
|
|
|
Payable for investments purchased
|
|
|
4,041,913
|
|
|
Advisory fee payable
|
|
|
283,955
|
|
|
Dividends payable
|
|
|
3,628,151
|
|
|
Administration fee payable
|
|
|
23,663
|
|
|
Trustees’ fees and expenses payable
|
|
|
5,441
|
|
|
Accrued expenses and other liabilities
|
|
|
840,265
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
172,223,388
|
|
|
|
|
|
|
|
|
Total net assets
|
|
$
|
458,555,415
|
|
|
|
|
|
|
|
|
|
|
|
Net assets consist of
|
|
|
|
|
|
Paid-in capital
|
|
$
|
586,291,951
|
|
|
Total distributable loss
|
|
|
(127,736,536
|
)
|
|
|
|
|
|
|
|
Total net assets
|
|
$
|
458,555,415
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per share
|
|
|
|
|
|
Based on $458,555,415 divided by 60,622,944 shares issued and outstanding (100,000,000 shares
authorized)
|
|
|
$7.56
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
Wells Fargo Income Opportunities Fund | 21
Statement of operations—year ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income
|
|
|
|
|
|
Interest
|
|
$
|
44,713,008
|
|
|
Income from affiliated securities
|
|
|
162,709
|
|
|
Dividends
|
|
|
29
|
|
|
|
|
|
|
|
|
Total investment income
|
|
|
44,875,746
|
|
|
|
|
|
|
|
|
|
|
|
Expenses
|
|
|
|
|
|
Advisory fee
|
|
|
4,547,142
|
|
|
Administration fee
|
|
|
378,928
|
|
|
Custody and accounting fees
|
|
|
32,508
|
|
|
Professional fees
|
|
|
87,679
|
|
|
Shareholder report expenses
|
|
|
124,864
|
|
|
Trustees’ fees and expenses
|
|
|
21,370
|
|
|
Transfer agent fees
|
|
|
43,011
|
|
|
Interest expense
|
|
|
6,281,554
|
|
|
Other fees and expenses
|
|
|
71,231
|
|
|
|
|
|
|
|
|
Total expenses
|
|
|
11,588,287
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
33,287,459
|
|
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gains (losses) on investments
|
|
|
|
|
|
Net realized gains on investments
|
|
|
909,328
|
|
|
Net change in unrealized gains (losses) on investments
|
|
|
(78,429,052
|
)
|
|
|
|
|
|
|
|
Net realized and unrealized gains (losses) on investments
|
|
|
(77,519,724
|
)
|
|
|
|
|
|
|
|
Net decrease in net assets resulting from operations
|
|
$
|
(44,232,265
|
)
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
22 | Wells Fargo Income Opportunities Fund
Statement of changes in net assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended
April 30, 2020
|
|
|
Year ended
April 30, 2019
|
|
|
|
|
|
|
Operations
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
$
|
33,287,459
|
|
|
$
|
37,947,790
|
|
|
Net realized gains on investments
|
|
|
909,328
|
|
|
|
1,421,870
|
|
|
Net change in unrealized gains (losses) on investments
|
|
|
(78,429,052
|
)
|
|
|
(2,577,006
|
)
|
|
|
|
|
|
|
|
Net increase (decrease) in net assets resulting from operations
|
|
|
(44,232,265
|
)
|
|
|
36,792,654
|
|
|
|
|
|
|
|
|
|
|
|
|
Distributions to shareholders from
|
|
|
|
|
|
|
|
|
|
Net investment income and net realized gains
|
|
|
(34,858,334
|
)
|
|
|
(39,840,972
|
)
|
|
Tax basis return of capital
|
|
|
(8,760,619
|
)
|
|
|
(5,846,040
|
)
|
|
|
|
|
|
|
|
Total distributions to shareholders
|
|
|
(43,618,953
|
)
|
|
|
(45,687,012
|
)
|
|
|
|
|
|
|
|
|
|
|
Capital share transactions
|
|
|
|
|
|
Cost of shares repurchased
|
|
|
(19,928,530
|
)
|
|
|
(45,633,195
|
)
|
|
|
|
|
|
|
|
Total decrease in net assets
|
|
|
(107,779,748
|
)
|
|
|
(54,527,553
|
)
|
|
|
|
|
|
|
|
|
|
|
Net assets
|
|
|
|
|
|
Beginning of period
|
|
|
566,335,163
|
|
|
|
620,862,716
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
458,555,415
|
|
|
$
|
566,335,163
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
Wells Fargo Income Opportunities Fund | 23
Statement of cash flows—year ended April 30, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
Net decrease in net assets resulting from operations
|
|
$
|
(44,232,265
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net decrease in net assets from operations to net cash provided by
operating activities:
|
|
|
Purchase of long-term securities
|
|
|
(268,827,553
|
)
|
|
Proceeds from the sales of long-term securities
|
|
|
368,694,153
|
|
|
Amortization
|
|
|
(403,612
|
)
|
|
Purchases and sales of short-term securities, net
|
|
|
(4,116,542
|
)
|
|
Increase in receivable for investments sold
|
|
|
(3,685,782
|
)
|
|
Decrease in receivable for interest
|
|
|
2,549,738
|
|
|
Increase in prepaid expenses and other assets
|
|
|
(22,998
|
)
|
|
Increase in payable for investments purchased
|
|
|
3,666,913
|
|
|
Decrease in advisory fee payable
|
|
|
(109,335
|
)
|
|
Decrease in administration fee payable
|
|
|
(9,111
|
)
|
|
Increase in trustee’s fee and expenses payable
|
|
|
3,181
|
|
|
Increase in accrued expenses and other liabilities
|
|
|
681,418
|
|
|
Net realized gains on investments
|
|
|
(909,328
|
)
|
|
Net change in unrealized gains (losses) on investments
|
|
|
78,429,052
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
131,707,929
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
Cost of shares repurchased
|
|
|
(20,323,430
|
)
|
|
Decrease in overdraft due to custodian bank
|
|
|
(1,026,800
|
)
|
|
Decrease in secured borrowing payable
|
|
|
(66,600,000
|
)
|
|
Cash distributions paid
|
|
|
(43,757,699
|
)
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(131,707,929
|
)
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Cash:
|
|
|
|
|
|
Beginning of period
|
|
$
|
0
|
|
|
|
|
|
|
|
|
End of period
|
|
$
|
0
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental cash disclosure
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
5,694,679
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these financial
statements.
24 | Wells Fargo Income Opportunities Fund
Financial highlights
(For a share outstanding throughout each period)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30
|
|
|
|
|
2020
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
|
2016
|
|
|
Net asset value, beginning of period
|
|
|
$8.98
|
|
|
|
$9.00
|
|
|
|
$9.31
|
|
|
|
$8.56
|
|
|
|
$9.75
|
|
|
Net investment income
|
|
|
0.54
|
1
|
|
|
0.57
|
1
|
|
|
0.60
|
1
|
|
|
0.74
|
1
|
|
|
0.77
|
1
|
|
Net realized and unrealized gains (losses) on investments
|
|
|
(1.28
|
)
|
|
|
(0.02
|
)
|
|
|
(0.23
|
)
|
|
|
0.81
|
|
|
|
(1.14
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations
|
|
|
(0.74
|
)
|
|
|
0.55
|
|
|
|
0.37
|
|
|
|
1.55
|
|
|
|
(0.37
|
)
|
|
Distributions to shareholders from
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
(0.57
|
)
|
|
|
(0.59
|
)
|
|
|
(0.62
|
)
|
|
|
(0.79
|
)
|
|
|
(0.82
|
)
|
|
Tax basis return of capital
|
|
|
(0.14
|
)
|
|
|
(0.09
|
)
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
|
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions to shareholders
|
|
|
(0.71
|
)
|
|
|
(0.68
|
)
|
|
|
(0.68
|
)
|
|
|
(0.80
|
)
|
|
|
(0.82
|
)
|
|
Anti-dilutive effect of shares repurchased
|
|
|
0.03
|
|
|
|
0.11
|
|
|
|
0.00
|
2
|
|
|
0.00
|
2
|
|
|
0.00
|
|
|
Net asset value, end of period
|
|
|
$7.56
|
|
|
|
$8.98
|
|
|
|
$9.00
|
|
|
|
$9.31
|
|
|
|
$8.56
|
|
|
Market value, end of period
|
|
|
$6.81
|
|
|
|
$8.09
|
|
|
|
$8.07
|
|
|
|
$8.64
|
|
|
|
$7.76
|
|
|
Total return based on market value3
|
|
|
(7.91
|
)%
|
|
|
9.29
|
%
|
|
|
1.24
|
%
|
|
|
22.55
|
%
|
|
|
(3.47
|
)%
|
|
Ratios to average net assets (annualized)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross expenses4
|
|
|
2.16
|
%
|
|
|
2.15
|
%
|
|
|
1.68
|
%
|
|
|
1.40
|
%
|
|
|
1.30
|
%
|
|
Net expenses4
|
|
|
2.16
|
%
|
|
|
2.12
|
%
|
|
|
1.63
|
%
|
|
|
1.23
|
%
|
|
|
1.10
|
%
|
|
Net investment income
|
|
|
6.21
|
%
|
|
|
6.38
|
%
|
|
|
6.53
|
%
|
|
|
8.15
|
%
|
|
|
8.76
|
%
|
|
Supplemental data
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Portfolio turnover rate
|
|
|
30
|
%
|
|
|
16
|
%
|
|
|
33
|
%
|
|
|
43
|
%
|
|
|
25
|
%
|
|
Net assets, end of period (000s omitted)
|
|
|
$458,555
|
|
|
|
$566,335
|
|
|
|
$620,863
|
|
|
|
$656,517
|
|
|
|
$607,437
|
|
|
Borrowings outstanding, end of period (000s omitted)
|
|
|
$163,400
|
|
|
|
$231,027
|
|
|
|
$230,000
|
|
|
|
$230,000
|
|
|
|
$230,000
|
|
|
Asset coverage per $1,000 of borrowing, end of period
|
|
|
$3,806
|
|
|
|
$3,451
|
|
|
|
$3,699
|
|
|
|
$3,854
|
|
|
|
$3,641
|
|
|
1
|
Calculated based upon average shares outstanding
|
|
2
|
Amount is less than $0.005.
|
|
3
|
Total return is calculated assuming a purchase of common stock on the first day and a sale on the last day of the period
reported. 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. Total return does not reflect brokerage commissions
that a shareholder would pay on the purchase and the sale of shares.
|
|
4
|
Ratios include interest expense relating to interest associated with borrowings and/or leverage transactions as follows:
|
|
|
|
|
|
|
|
Year ended April 30, 2020
|
|
|
1.17
|
%
|
|
Year ended April 30, 2019
|
|
|
1.19
|
%
|
|
Year ended April 30, 2018
|
|
|
0.74
|
%
|
|
Year ended April 30, 2017
|
|
|
0.48
|
%
|
|
Year ended April 30, 2016
|
|
|
0.37
|
%
|
The accompanying notes are an integral part of these financial
statements.
Wells Fargo Income Opportunities Fund | 25
Notes to financial statements
1. ORGANIZATION
Wells Fargo Income Opportunities Fund (the “Fund”) was organized as a statutory trust under the laws of the state of Delaware on December 3, 2002 and is
registered as a diversified closed-end management investment company under the Investment Company Act of 1940, as amended (the “1940 Act”). As an investment company, the Fund follows the accounting
and reporting guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, Financial Services – Investment Companies.
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), although the Fund may deviate from this calculation time under unusual or unexpected circumstances.
Debt securities are valued at the evaluated bid price provided by an independent pricing service (e.g. taking into account various factors, including yields, maturities,
or credit ratings) or, if a reliable price is not available, the quoted bid price 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 principal exchange or market that day, a fair value price will be determined in accordance with the Fund’s
Valuation Procedures.
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 Wells Fargo Asset Management Pricing Committee at Wells Fargo Funds Management, LLC (“Funds Management”). 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 Wells Fargo Asset Management Pricing Committee which may include items for ratification.
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.
26 | Wells Fargo Income Opportunities Fund
Notes to financial statements
Interest income is accrued daily and bond discounts are accreted and premiums are amortized daily.
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 been
determined to be doubtful based on consistently applied procedures and the fair value has decreased. 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.
Distributions to shareholders
Under a managed distribution plan, the Fund
pays monthly distributions to shareholders at an annual minimum fixed rate of 8% based on the Fund’s average monthly net asset value per share over the prior 12 months. The monthly distributions may be sourced from income, paid-in capital, and/or capital gains, if any. To the extent that sufficient investment income is not available on a monthly basis, the Fund may distribute paid-in capital
and/ or capital gains, if any, in order to maintain its managed distribution level.
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 accordance with income tax regulations and may differ from U.S. generally accepted accounting principles. Dividend sources are
estimated at the time of declaration. The tax character of distributions is determined as of the Fund’s fiscal year end. Therefore, a portion of the Fund’s distributions made prior to the Fund’s fiscal year end may be categorized as a
tax return of capital at year end.
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.
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.
As of
April 30, 2020, the aggregate cost of all investments for federal income tax purposes was $703,629,497 and the unrealized gains (losses) consisted of:
|
|
|
|
|
|
|
|
|
|
Gross unrealized gains
|
|
$
|
14,160,140
|
|
|
|
|
|
Gross unrealized losses
|
|
|
(100,265,288
|
)
|
|
|
|
|
Net unrealized losses
|
|
$
|
(86,105,148
|
)
|
As of April 30, 2020, the Fund had capital loss carryforwards which consist of $23,810,916 in short-term capital losses and
$14,138,769 in long-term capital losses.
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 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:
|
∎
|
|
Level 1 – quoted prices in active markets for identical securities
|
|
∎
|
|
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates,
prepayment speeds, credit risk, etc.)
|
|
∎
|
|
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.
Wells Fargo Income Opportunities Fund | 27
Notes to financial statements
The following is a summary of the inputs used in valuing the Fund’s assets and liabilities as
of April 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted prices
(Level 1)
|
|
|
Other significant
observable inputs
(Level 2)
|
|
|
Significant
unobservable inputs
(Level 3)
|
|
|
Total
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
$
|
0
|
|
|
$
|
1,351,346
|
|
|
$
|
0
|
|
|
$
|
1,351,346
|
|
|
|
|
|
|
|
|
Materials
|
|
|
406
|
|
|
|
0
|
|
|
|
0
|
|
|
|
406
|
|
|
|
|
|
|
|
|
Corporate bonds and notes
|
|
|
0
|
|
|
|
519,117,591
|
|
|
|
0
|
|
|
|
519,117,591
|
|
|
|
|
|
|
|
|
Loans
|
|
|
0
|
|
|
|
26,380,130
|
|
|
|
5,851,645
|
|
|
|
32,231,775
|
|
|
|
|
|
|
|
|
Preferred stocks
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
0
|
|
|
|
7,119,095
|
|
|
|
0
|
|
|
|
7,119,095
|
|
|
|
|
|
|
|
|
Rights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
0
|
|
|
|
559,650
|
|
|
|
0
|
|
|
|
559,650
|
|
|
|
|
|
|
|
|
Yankee corporate bonds and notes
|
|
|
0
|
|
|
|
46,621,055
|
|
|
|
0
|
|
|
|
46,621,055
|
|
|
|
|
|
|
|
|
Short-term investments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment companies
|
|
|
10,523,431
|
|
|
|
0
|
|
|
|
0
|
|
|
|
10,523,431
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
10,523,837
|
|
|
$
|
601,148,867
|
|
|
$
|
5,851,645
|
|
|
$
|
617,524,349
|
|
Additional sector, industry or geographic detail is included in the Portfolio of Investments.
The following is a reconciliation of assets in which significant unobservable inputs (Level 3) were used in determining fair value:
|
|
|
|
|
|
|
|
|
|
|
|
Loans
|
|
|
Balance as of April 30, 2019
|
|
$
|
4,946,625
|
|
|
|
|
|
Accrued discounts (premiums)
|
|
|
5,294
|
|
|
|
|
|
Realized gains (losses)
|
|
|
(1,445,242
|
)
|
|
|
|
|
Change in unrealized gains (losses)
|
|
|
(622,071
|
)
|
|
|
|
|
Purchases
|
|
|
4,484,165
|
|
|
|
|
|
Sales
|
|
|
(994,455
|
)
|
|
|
|
|
Transfers into Level 3
|
|
|
0
|
|
|
|
|
|
Transfers out of Level 3
|
|
|
(522,671
|
)
|
|
|
|
|
Balance as of April 30, 2020
|
|
$
|
5,851,645
|
|
|
|
|
|
Change in unrealized gains (losses) relating to securities still held at April 30, 2020
|
|
$
|
(741,387
|
)
|
The loan obligations in the Level 3 table were 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 0.60% of the Fund’s average daily total assets. Total assets consist of the 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 a subadviser to provide daily portfolio management to the Fund. The fee for subadvisory services is borne by Funds
Management. Wells Capital Management Incorporated, an affiliate of Funds Management and an indirect wholly owned subsidiary of Wells Fargo, is the subadviser to the Fund and is entitled to receive a fee from Funds Management at an annual rate of
0.40% of the Fund’s average daily total assets.
28 | Wells Fargo Income Opportunities Fund
Notes to financial statements
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.
Interfund
transactions
The Fund may purchase or sell portfolio investment securities to certain other Wells Fargo affiliates pursuant to Rule
17a-7 under the 1940 Act and under procedures adopted by the Board of Trustees. The procedures have been designed to ensure that these interfund transactions, which do not incur broker commissions, are
effected at current market prices.
5. CAPITAL SHARE TRANSACTIONS
The
Fund has authorized capital of 100,000,000 shares with no par value. For the year ended April 30, 2020 and April 30, 2019, the Fund did not issue any shares.
On November 22, 2019, the Fund announced a renewal of its open-market share repurchase program (the “Buyback Program”). Under the Buyback Program, the Fund
is authorized to repurchase up to 10% of its outstanding shares in open market transactions during the period beginning on January 1, 2020 and ending on December 31, 2020. The Fund’s Board of Trustees has delegated to Funds Management
full discretion to administer the Buyback Program including the determination of the amount and timing of repurchases in accordance with the best interests of the Fund and subject to applicable legal limitations. During the year ended April 30,
2020, the Fund purchased 2,453,003 of its shares on the open market at a total cost of $19,928,530 (weighted average price per share of $8.11). The weighted average discount of these repurchased shares was 9.23%.
6. BORROWINGS
The Fund has borrowed $163,400,000 through a revolving
credit facility administered by a major financial institution (the “Facility”). The Facility has a commitment amount of $230,000,000 with no specific contract expiration date but the Facility can be terminated upon 180 days’ notice.
The Fund is charged interest at London Interbank Offered Rate (LIBOR) plus 0.65% and a commitment fee of 0.30% of the average daily unutilized amount of the commitment which may be waived if the amount drawn on the Facility is over 75% of the
committed amount. The financial institution holds a security interest in all the assets of the Fund as collateral for the borrowing. Based on the nature of the terms of the Facility and comparative market rates, the carrying amount of the borrowings
at April 30, 2020 approximates its fair value. If measured at fair value, the borrowings would be categorized as a Level 2 under the fair value hierarchy.
During the
year ended April 30, 2020, the Fund had average borrowings outstanding of $221,951,093 at an average interest rate of 2.83% and paid interest in the amount of $6,281,554, which represents 1.17% of its average daily net assets.
7. INVESTMENT PORTFOLIO TRANSACTIONS
Purchases and sales of investments,
excluding U.S. government obligations (if any) and short-term securities, for the year ended April 30, 2020 were $222,794,210 and $291,234,621, respectively.
8. DISTRIBUTIONS TO SHAREHOLDERS
The tax character of distributions paid
during the years ended April 30, 2020 and April 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended April 30
|
|
|
|
|
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
Ordinary income
|
|
$
|
34,858,334
|
|
|
$
|
39,840,972
|
|
|
|
|
|
|
Tax basis return of capital
|
|
|
8,760,619
|
|
|
|
5,846,040
|
|
As of April 30, 2020, the components of distributable earnings on a tax basis were as follows:
|
|
|
|
|
Unrealized
losses
|
|
Capital loss
carryforward
|
|
|
|
|
$(86,105,148)
|
|
$(37,949,685)
|
Wells Fargo Income Opportunities Fund | 29
Notes to financial statements
9. INDEMNIFICATION
Under the Fund’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out
of performance of their duties to the Fund. The Fund has entered into a separate agreement with each Trustee that converts indemnification rights currently existing under the Fund’s organizational documents into contractual rights that cannot
be changed in the future without the consent of the Trustee. 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.
10. NEW ACCOUNTING
PRONOUNCEMENTS
In August 2018, FASB issued Accounting Standards Update (“ASU”) No. 2018-13, Fair Value
Measurement (Topic 820) Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement. ASU 2018-13 updates the disclosure requirements for fair value measurements by
modifying or removing certain disclosures and adding certain new disclosures. The amendments are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted.
Management has adopted the removal and modification of disclosures early, as permitted, and will adopt the additional new disclosures at the effective date.
In March
2017, FASB issued ASU No. 2017-08, Premium Amortization on Purchased Callable Debt Securities. ASU 2017-08 shortens the amortization period for certain
callable debt securities held at a premium and requires the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount and discounts will continue to be accreted to the
maturity date of the security. ASU 2017-08 is effective for fiscal years beginning after December 15, 2018 and for interim periods within those fiscal years. During the current reporting period,
management of the Fund adopted the change in accounting policy which did not have a material impact to the Fund’s financial statements.
11.
CORONAVIRUS (COVID-19) PANDEMIC
On March 11, 2020, the World Health Organization announced that it had made the
assessment that coronavirus disease 2019 (“COVID-19”) is a pandemic. The impacts of COVID-19 are adversely affecting the entire global economy, individual
companies and investment products, and the market in general. There is significant uncertainty around the extent and duration of business disruptions related to COVID-19 and the impacts may be short term or
may last for an extended period of time. The risk of further spreading of COVID-19 has led to significant uncertainty and volatility in the financial markets. The value of the Fund and the securities in which
the Fund invests have generally been adversely affected by impacts caused by COVID-19.
12. SUBSEQUENT
DISTRIBUTIONS
Under the managed distribution plan, the Fund declared the following distributions to common shareholders:
|
|
|
|
|
|
|
|
|
Declaration date
|
|
Record date
|
|
Payable date
|
|
Per share amount
|
|
|
|
|
|
|
April 24, 2020
|
|
May 12, 2020
|
|
June 1, 2020
|
|
$0.05899
|
|
|
|
|
|
|
May 28, 2020
|
|
June 15, 2020
|
|
July 1, 2020
|
|
0.05812
|
These distributions are not reflected in the accompanying financial statements.
30 | Wells Fargo Income Opportunities Fund
Report of independent registered public accounting firm
TO THE SHAREHOLDERS OF THE FUND AND BOARD OF TRUSTEES WELLS FARGO INCOME
OPPORTUNITIES FUND:
Opinion on the Financial Statements
We have audited
the accompanying statement of assets and liabilities of Wells Fargo Income Opportunities Fund (the Fund), including the portfolio of investments, as of April 30, 2020, the related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the years in the two-year period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the years in the five-year period then ended. In our
opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Fund as of April 30, 2020, the results of its operations and its cash flows for the year then ended, the changes in
its net assets for each of the years in the two-year period 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.
Basis for Opinion
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 are a public accounting firm registered with the Public Company Accounting
Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. 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, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements and
financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial
highlights. Such procedures also included confirmation of securities owned as of April 30, 2020, by correspondence with the custodian, transfer agent and brokers, or by other appropriate auditing procedures. Our audits also included evaluating the
accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. We believe that our audits provide a reasonable basis for our opinion.
We have not been able to determine the specific year that we began serving as the auditor of one or more Wells Fargo Funds investment
companies; however we are aware that we have served as the auditor of one or more Wells Fargo Funds investment companies since at least 1955.
Boston, Massachusetts
June 26, 2020
Wells Fargo Income Opportunities Fund | 31
Other information (unaudited)
TAX INFORMATION
For the fiscal year ended April 30, 2020, $29,184,065 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 used to determine how to vote proxies relating to portfolio securities is available, upon request, by calling 1-800-222-8222, visiting our website at wfam.com, or visiting the SEC website at sec.gov. Information regarding how the
proxies related to portfolio securities were voted during the most recent 12-month period ended June 30 is available on the website at wfam.com or by visiting the SEC website at sec.gov.
QUARTERLY PORTFOLIO HOLDINGS INFORMATION
The Fund files its complete
schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT. Shareholders may view the filed Form N-PORT by visiting the SEC website at sec.gov.
32 | Wells Fargo Income Opportunities Fund
Other information (unaudited)