The Wells Fargo Utilities and High Income Fund (NYSE American: ERH), a closed-end fund, announced today that the fund’s Board of Trustees has approved the following changes to the fund:
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Changes to the fund’s principal investment strategy.
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Changes to subadvisory arrangement and portfolio management personnel.
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A reduction in investment advisory fees payable by the fund to Wells Fargo Funds Management, LLC (Funds Management), the fund’s investment advisor.
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The commencement of a managed distribution plan by the fund.
All of the changes are effective on or about October 15, 2019, with the exception of the managed distribution plan, which will be effective according to the timeline discussed below.
The fund’s investment objective will remain to seek a high level of current income and moderate capital growth, with an emphasis on providing tax-advantaged dividend income. There will be no changes to the investment objective.
Changes to the investment strategy
The equity sleeve of the fund will continue to focus on the common stocks of utilities companies, but will no longer allow for a focus on convertible debentures. Utilities companies may include, for example, companies that provide basic services such as water, sewage, and the transmission, generation and distribution of electricity and transmission and distribution of natural gas. The equity sleeve also intends to remove its parameters regarding the number of utilities companies in which it normally invests and will no longer emphasize investments in telecommunications companies. In addition, the fund will no longer make significant use of the dividend capture strategy to generate income in the portfolio. Finally, the fund’s description of its investment process for the equity portion of the fund will change.
Below is the revised investment process for the equity portion of the fund:
We focus on dividend-paying companies that we expect to pay and increase dividends consistently. Our process applies a rigorous analytical methodology to all of our investment decisions, which might include the following analyses of a company and its stock: cash flow analysis, debt levels, discipline of company management, relative and absolute valuation levels and dividend yield. In selecting companies, we begin with a screen of a broad universe of equity securities that looks first, but not exclusively, at dividend yield, dividend growth potential, and market capitalization. In addition, a review of company fundamentals, such as valuation, earnings growth, and financial condition, helps the portfolio managers focus on companies with dividends that appear reasonably sustainable with potential for moderate dividend growth. We regularly review the investments of the portfolio and may sell a portfolio holding when there is deterioration in the underlying fundamentals of the business, dividend growth is no longer expected or there is the possibility of a dividend cut, the stock price reflects full or overvaluation, it has achieved its valuation target or we have identified a more attractive investment opportunity.
Changes to subadvisory arrangement and portfolio management personnel
Crow Point Partners, LLC, will no longer serve as a subadvisor to the fund, and as a result, Timothy O’Brien, CFA, of Crow Point Partners, will no longer be a portfolio manager for the fund. The assets of the fund previously managed by Crow Point Partners will be managed by Wells Capital Management Incorporated, the fund’s other subadvisor.
In light of the increased responsibility to be assigned to Wells Capital Management, Funds Management has agreed, and the Board has approved, to increase the subadvisory fee paid by Funds Management (not the fund) to Wells Capital Management from 0.20 percent of average daily total assets per year to 0.40 percent of average daily total assets per year. It is important to note that this subadvisory fee is paid from Funds Management’s own assets and is not paid by the fund, and the aggregate subadvisory fee paid by Funds Management will remain unchanged at 0.40 percent.
The portfolio managers that will be responsible for managing the assets of the equity sleeve will be Jack Spudich, CFA, and Kent Newcomb, CFA, with the Wells Fargo Asset Management Compass Equity team. Their biographies are listed below.
In addition, Niklas Nordenfelt, CFA, and Philip Susser will continue in their roles as portfolio managers for the other sleeve of the fund.
Jack Spudich is a senior portfolio manager and team leader for the Compass Equity team at Wells Fargo Asset Management. Before joining predecessor firm A. G. Edwards, where he began his investment industry career, Jack was a certified public accountant and audit manager for an international accounting firm. He earned a bachelor's degree in accountancy from the University of Illinois and has earned the right to use the Chartered Financial Analyst® (CFA®) designation. Jack is also a member of CFA Institute and CFA Society St. Louis.
Kent Newcomb is a portfolio manager for the Compass Equity team at Wells Fargo Asset Management. In this capacity, he manages the managed diversified stock income plan portfolio. Kent started in the securities industry as an equity analyst for A. G. Edwards. Prior to his current role, he had research responsibility for the firm’s DSIP list and the industrials and utilities sectors. He earned a bachelor’s degree in economics from Northwestern University and a master’s degree in business administration, with an emphasis in finance from Washington University. Kent has earned the right to use the Chartered Financial Analyst® (CFA®) designation and is a member of CFA Institute and CFA Society St. Louis.
CFA® and Chartered Financial Analyst® are trademarks owned by CFA Institute.
Reduction in investment advisory fees
Funds Management is entitled to receive a fee at an annual rate of 0.60 percent of the fund’s average daily total assets. This investment advisory fee paid by the fund to Funds Management will be reduced by 0.10 percent to 0.50 percent of the fund’s average daily total assets.
Commencement of a managed distribution plan
A managed distribution plan will be effective beginning with the monthly distribution expected to be declared in September 2019 and expected to be paid in November 2019 that provides for the declaration of monthly distributions to common shareholders of the fund at an annual minimum fixed rate of 7.5 percent, based on the fund’s average monthly net asset value (NAV) per share over the prior 12 months. Under the managed distribution plan, monthly distributions may be sourced from income, paid-in capital and/or capital gains, if any. Shareholders may elect to reinvest distributions received pursuant to the managed distribution plan in the fund under the existing dividend reinvestment plan, which is described in the fund’s shareholder reports.
Under the managed distribution plan, the fund will distribute available investment income to its shareholders monthly. If sufficient investment income is not available on a monthly basis, the fund will distribute long-term capital gains and/or return capital to its shareholders in order to maintain its managed distribution level. The fund expects that distributions under the managed distribution plan will exceed investment income and capital gains and thus expects that such distributions likely will include return of capital for the foreseeable future. No conclusions should be drawn about the fund’s investment performance from the amount of the fund’s distributions or from the terms of the fund’s managed distribution plan.
The amount distributed per share is subject to change at the discretion of the fund’s Board of Trustees. The managed distribution plan will be subject to periodic review by the fund’s Board of Trustees to determine whether the managed distribution plan should be continued, modified, or terminated. The fund’s Board of Trustees may amend the terms of the managed distribution plan or suspend or terminate the managed distribution plan at any time without prior notice to the fund’s shareholders. The amendment or termination of the managed distribution plan could have an adverse effect on the market price of the fund's shares.
With each distribution that does not consist solely of net investment income, the fund will issue a notice to shareholders that will provide detailed information regarding the amount and composition of the distribution and other related information. The amounts and sources of distributions reported in the notice are only estimates and are not being provided for tax reporting purposes. The actual amounts and sources of the amounts for tax reporting purposes will depend upon the fund’s investment experience during its full fiscal year and may be subject to changes. The fund will send shareholders a Form 1099-DIV for the calendar year that will tell shareholders how to report these distributions for federal income tax purposes.
For more information on Wells Fargo’s closed-end funds, please visit our website at wfam.com.
The fund is a closed-end fund that is no longer engaged in initial public offerings, and shares are available 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 through broker-dealers in the secondary marketplace, and the market price of the shares is determined by supply and demand, not by NAV, and is often lower than the NAV. A closed-end fund is not required to buy its shares back from investors upon request.
The use of leverage results in certain risks, including, among others, the likelihood of greater volatility of NAV and the market price of common shares. High-yield, lower-rated bonds may contain more risk due to the increased possibility of default. Foreign investments may contain more risk due to the inherent risks associated with changing political climates, foreign market instability, and foreign currency fluctuations. Risks of international investing are magnified in emerging or developing markets. Funds that concentrate their investments in a single industry or sector may face increased risk of price fluctuation due to adverse developments within that industry or sector. Small- and mid-cap securities may be subject to special risks associated with narrower product lines and limited financial resources compared with their large-cap counterparts. Derivatives involve additional risks, including interest rate risk, credit risk, the risk of improper valuation, and the risk of noncorrelation to the relevant instruments they are designed to hedge or closely track. There are numerous risks associated with transactions in options on securities. Illiquid securities may be subject to wide fluctuations in market value and may be difficult to sell. This closed-end fund is no longer available as an initial public offering and is only offered through broker-dealers on the secondary market.
Wells Fargo Asset Management (WFAM) is the trade name for certain investment advisory/management firms owned by Wells Fargo & Company. These firms include but are not limited to Wells Capital Management Incorporated and Wells Fargo Funds Management, LLC. Certain products managed by WFAM entities are distributed by Wells Fargo Funds Distributor, LLC (a broker-dealer and Member FINRA).
This material is for general informational and educational purposes only and is NOT intended to provide investment advice or a recommendation of any kind—including a recommendation for any specific investment, strategy, or plan.
Some of the information contained herein may include forward-looking statements about the expected investment activities of the funds. These statements provide no assurance as to the funds’ actual investment activities or results. Readers must make their own assessment of the information contained herein and consider such other factors as they may deem relevant to their individual circumstances. 405463 08-19
INVESTMENT PRODUCTS: NOT FDIC INSURED ● NO BANK GUARANTEE ● MAY LOSE VALUE
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