Columbia Select Large Cap Growth Fund

Third Quarter 2014
INVESTMENT COMMENTARY
CLASS A | ELGAX
CLASS C | ELGCX
A strong recovery in growth
stocks continued in July and
August only to trail off in the
closing weeks of September
as the equity markets
broadly moved lower on
concerns of slower-thananticipated global growth.
CLASS R | URLGX
CLASS R4 | CSRRX
CLASS R5 | CGTRX
CLASS Z | UMLGX
Columbia Select Large Cap Growth Fund
Fund performance
> Columbia Select Large Cap Growth Fund Class A shares were up 2.67% (excluding
sales charge) for the three months ending September 30, 2014, outperforming the
Russell 1000 Growth Index’s increase of 1.49% during the same period.
> The fund performed well on the fundamental strength of many of our holdings, which
posted better-than-expected profit results.
> Monthly fund performance is also available online at columbiamanagement.com.
Market overview
Fund strategy
 Invests in financially strong highgrowth companies in industries that
are expanding within the economy
 Distinctly monitors risk by ensuring
that positions have lower levels of
correlation to each other and an
overall portfolio correlation lower to
the benchmark
 Run by the same team since 2003,
with a historical competitive track
record vs. its peers and benchmark
The U.S. economy picked up momentum throughout the third quarter with improvements
in every sector. Second-quarter gross domestic product growth was revised upward to
4.6%, with expectations that third-quarter growth would also be above trend.
> American companies added more than 200,000 new jobs monthly, driving
unemployment below 6% for the first time since 2008.
> Consumer spending got a boost as both income and savings rose, and confidence hit a
post-recession high.
> After a weak start to the year, corporate profits rebounded, indicating that business
remains in good shape. Rising profits led to higher capital spending.
> The housing market recovery remained on track, as home sales and prices trended
higher, and inventories declined.
> Manufacturing remained a lynchpin of the economy's expansion. Even so, performance
fell short of expectations at the end of the period.
The financial markets produced lackluster results, despite good economic news and the
Federal Reserve's reassurance that it intended to keep short-term interest rates low for
another year. A surge in global tensions and concerns that equity valuations have risen
Average annual total returns (%) for period ended September 30, 2014
Columbia Select
Large Cap Growth Fund
1-year
3-year
5-year
10-year
2.67
14.18
22.09
17.03
10.68
-3.21
7.64
19.69
15.65
10.02
Class Z
2.74
14.41
22.40
17.31
10.94
Russell 1000 Grow th Index
1.49
19.15
22.45
16.50
8.94
Class A w ithout sales charge1
Class A w ith 5.75% maximum sales charge1
Expense ratio2
Share
class
A
Without waiver
(gross)
1.10%
With waiver
(net)
—
Z
0.85%
—
3-m on.
Performance data shown represents past performance and is not a guarantee of future results. The
investment return and principal value of an investment will fluctuate so that shares, when redeemed,
may be worth more or less than their original cost. Current performance may be lower or higher than
the performance data shown. Please visit columbiamanagement.com for performance data current
to the most recent month end. Class Z shares are sold at net asset value and have limited eligibility.
Columbia Management offers multiple share classes, not all necessarily available through all firms,
and the share class ratings may vary. Contact us for details.
Columbia Management Investment Distributors, Inc.
225 Franklin Street, Boston, MA 02110-2804
columbiamanagement.com
blog.columbiamanagement.com
800.426.3750
1032083 (10/14)
Third Quarter 2014
INVESTMENT COMMENTARY
Top holdings (% of net assets):
as of 9-30-2014
Linkedin Corp - A
4.34
Vertex Pharmaceuticals Inc
4.28
Amazon.Com Inc
4.17
Fastenal Co
3.87
Priceline Group Inc/The
3.81
Facebook Inc-A
3.65
Salesforce.Com Inc
3.58
Visa Inc-Class A Shares
3.57
Biogen Idec Inc
3.51
Celgene Corp
3.51
Sector weights (%): fund vs. benchmark as of 9-30-2014
Info tech
28.43
Health care
Top five contributors
Effect on return (%)
26.89
13.64
21.60
18.23
Cons disc
6.46
Industrials
11.86
5.80
5.68
Energy
3.18
4.23
Materials
Cons staples
0.00
Financials
0.00
10.35
5.13
0.00
2.37
Telecom svcs
0.00
0.09
Utilities
Top holdings exclude short-term holdings
and cash, if applicable. Fund holdings are
as of the date given, are subject to change
at any time, and are not recommendations
to buy or sell any security.
36.07
0
10
Columbia Select Large Cap Growth Fund
20
30
40
Russell 1000 Growth Index
sharply put a damper on investor enthusiasm. The S&P 500 Index inched ahead 1.13%,
buoyed by its concentration in large-cap stocks with a defensive edge. Health care and
information technology stocks outperformed, with particularly strong performance from
biotechnology. In a challenging environment, growth stocks held up better than value.
Large-cap stocks outperformed mid- and small-cap stocks, with the latter trailing by a
considerable margin.
LinkedIn Corp - A
0.82
Pharmacyclics Inc
0.78
Gilead Sciences
0.74
Contributors and detractors
Facebook Inc-A
0.61
Vertex Pharmaceuticals Inc
0.55
For high-growth investors, the third quarter proved to be a mirror image of the second. A
strong recovery in growth stocks continued in July and August only to trail off in the
closing weeks of September as the equity markets broadly moved lower on concerns of
slower-than-anticipated global growth. Overall, the fund performed well throughout the
period, as the growth and fundamental strength of many of our holdings were on display
this earnings season  posting better-than-expected results. Given the underlying
strength of these unique growth opportunities, the market responded positively by driving
many names higher.
Top five detractors
Effect on return (%)
Michael Kors Holdings Ltd
-0.63
Fastenal Co
-0.40
Monsanto
-0.35
Illumina
-0.30
Cognizant Tech Solutions-A
-0.28
Investor sentiment shifts, like the one we witnessed last spring, can eventually lead to
pronounced outperformance, in a coiled spring fashion, when our portfolio recovers. Many
times, the market focuses on near term concerns and fails to appreciate the high rate of
compounding that true organic growth companies can generate. We continue to believe
that as long-term investors, remaining patient and disciplined to our process will continue
to be the key for success. As we previously discussed, the polar vortex that ensnared our
high-growth portfolio tended to bottom out around May 8 of this year. Since that period,
the portfolio has performed well and made up much of the lost growth.
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Third Quarter 2014
INVESTMENT COMMENTARY
Performance attribution for the 3-month period ending 9-30-2014 compared
to the Russell 1000 Growth Index
Sector allocation
Stock selection
Net value added
2.00
1.00
0.50
0.00
Value Added
1.50
-0.50
-1.00
The analysis includes portfolio management decisions regarding sector allocation and security selection w ithin
that sector. The net value added reflects the combination of both the sector allocation and the security selection.
Effects do not reflect fees and expenses and will vary from the fund’s actual return. Source: FactSet.
From March 1 to May 8, the Russell 1000 Growth Index provides a sense of scale for this
reversal. During that time, the highest 20% of long-term projected earnings growth
companies (approximately 17.9% earnings-per-share (EPS) growth or better, where the
bulk of our portfolio is invested), returned -9.76%. This compares to a positive 4.10% for
the lowest 20% of growth companies (8.9% EPS growth and lower). During the recovery
stage of May 8 through September 30, the highest 20% of growth companies returned
14.06% vs. the lowest quintile at 4.09%, which has helped absolute and relative returns.
During the quarter, the bulk of the portfolio’s relative outperformance occurred within the
health care and information technology sectors. These positives outweighed lesser results
in the consumer discretionary and industrials sectors, which lagged.
In health care, the portfolio’s holdings in the biotechnology industry proved beneficial, as
positions in Pharmacyclics, Vertex Pharmaceuticals, Gilead Sciences and Celgene were
all notable contributors. Pharmacyclics, focused on the development and
commercialization of small-molecule drugs for oncology and immunology, delivered an
impressive quarter on higher-than-expected sales results from its Imbruvica launch.
Imbruvica is used to treat lymphocytic leukemia. Shares rallied, as the drug is on track to
be one of the top product launches in oncology.
Vertex Pharmaceuticals continued to outperform after a significant move higher in June,
when the company announced a positive key phase-three trial that detailed positive
results from its combination of cystic fibrosis treatments Kalydeco and VX-809. Gilead
Sciences (HIV and hepatitis C treatments) posted another strong quarter, exceeding
expectations on the strength of its hepatitis C blockbuster treatment Solvaldi. Given Gilead
Science’s positive performance, we trimmed our position but remain invested in the
company. Celgene (treatments for multiple myeloma) continued to execute well and late in
the quarter announced FDA approval for its psoriasis treatment Otezla.
3
Third Quarter 2014
INVESTMENT COMMENTARY
In information technology, the majority of the outperformance occurred within the internet
software industry, as our position in professional social networking site LinkedIn rallied.
LinkedIn, which had struggled earlier in the year on margin concerns from an increased
research and development spend, delivered a strong quarter and exceeded revenue and
earnings estimates. The company announced that it had surpassed 300 million users,
and its talent solutions business performed better than expected, as it was the primary
growth driver for the quarter.
Positions in Chinese internet search provider Baidu and social networking site Facebook
were also relative outperformers, as both companies rallied. Baidu posted a solid quarter
and beat expectations, with the company benefiting from its investments in mobile that
has now grown to 30% of its business from 10% only a year earlier. Facebook
announced another strong quarter after exceeding sales and earnings expectations on
the strength of its mobile advertising business. Facebook increased mobile ad revenue
67% year over year, which now accounts for 62% of the company’s total ad revenue.
Additionally, Facebook’s margins improved, as the firm’s ad services continued to
appeal to advertisers who demanded more targeted audiences. That trend has led these
advertisers to pay higher prices to meet their needs.
During the quarter, we parted ways with our long-term holding in Google and established
a new position in Twitter. Google was a very successful investment over the last decade,
as we originally initiated a position in 2005. Over this period, we have witnessed the
company’s revenues grow from approximately $4 billion to over $50 billion, and the stock
has outperformed. We decided to sell the stock due to concerns around fundamentals,
including capital allocation decisions, lack of strategic focus and the impact to the
company’s long-term margin structure, which could ultimately lead to multiple
compression.
Twitter is a social media property focused on public, real-time content creation and
distribution. With over 270 million monthly active users at the end of the June quarter,
Twitter has achieved significant global scale and is among the 10 largest digitally
connected audiences in the world. Over the past two years, Twitter’s base has nearly
doubled and should continue to grow as more and more users discover the value of the
platform. As the user base grows and is more engaged on Twitter, discovering more
content and following more users and brands, the company’s knowledge of user
interests improves.
This knowledge is seen as a unique and differentiated property for advertisers because
of this large and growing global user base that accesses public and real-time content,
primarily on mobile devices, with great insight into user interests. Twitter’s addressable
market opportunity is large and growing, as the global advertising market is
approximately $550 billion while the total internet advertising market is currently $125
billion and expected to exceed $200 billion by 2020. This compares to Twitter’s expected
revenues for 2014 of estimated $1.4 billion. We believe the company will continue to
grow its user base and improve monetization levels over time, given its unique
characteristics for advertisers. We expect this will lead to robust revenue growth, margin
expansion and earnings growth.
The fund lost ground in the consumer discretionary and industrials sectors for the
quarter. In consumer discretionary, our position in fashion apparel designer Michael Kors
was a notable detractor, as shares declined in the double digits for the period. In a mixed
period for many retailers, Michael Kors continued to deliver strong top-line sales growth
of 43% year over year and exceeded earnings estimates. However, investor concerns
4
Third Quarter 2014
INVESTMENT COMMENTARY
regarding margins weighed on the stock, sending it lower. We maintained our position,
as we continued to believe that the company is well positioned to take share within the
affordable luxury segment of consumer spending.
Within the internet and catalog retail industry, our positions in online travel booking site
Priceline.com and ecommerce leader Amazon.com did not keep pace and were relative
detractors. Priceline.com, which generates sales and growth from Europe, pulled back
late in the quarter, as investors grew concerned about the effect of the newfound
strength of the U.S. dollar vs. the euro. Amazon.com fell sharply in July after announcing
an inline quarter with revenue growth of 23% year over year, but rattled investors on
increased spending initiatives, particularly in technology and content. Given the
company’s scale and investments in technology to deepen customer interactions, we
continue to believe in Amazon’s long-term growth story, as the company not only takes
share from traditional brick and mortar retailers but also other ecommerce rivals.
Elsewhere in consumer discretionary, we established a position in Tractor Supply
Company, a rural-lifestyle retailer headquartered in Tennessee. The company has over
1300 stores in 48 states, and customers include recreational farmers, small businesses
and ranchers. Tractor Supply Company offers a wide range of products, including
livestock supplies, hardware, clothing and agricultural products. Tractor Supply Company
has consistently delivered steady store growth and steady margin improvements, which
we believe can provide an attractive total return from this unique and established growth
company.
In industrials, holdings in industrial fastener distributor Fastenal and aerospace metal
component supplier Precision Castparts held back relative results, as both companies
declined for the quarter. Fastenal reported an inline quarter, but shares trended lower on
concerns that near-term margin targets would come in lower than expected. Precision
Castparts shares sold off, as the company came in shy of earnings expectations, but
reaffirmed long-term expectations.
Outlook
The market has recently grown anxious about global growth. We believe the best path to
navigate this environment is to seek out unique business models that offer differentiated
products and services that can grow regardless of the overall economic environment.
Companies that offer the right product at the right price at the right time can garner an
increased wallet-share percentage of consumer and business spending and take market
share from more traditional commoditized competitors.
While growth is always a key factor for a company’s long-term success, we believe it is
also critical to find companies that can self-finance this growth with high-quality balance
sheets. If financial conditions tighten, we will expect high-quality companies to lead the
way as leveraged companies may struggle.
Currently we are finding attractive growth opportunities in a range of areas including
groundbreaking biotechnology therapies treating illnesses that were untreatable only a
few years ago, information technology companies that have changed the way we
communicate and advertise, disruptive ecommerce models and retailers that offer musthave items. We continue to approach our strategy with a long-term focus, maintaining
our high-conviction growth names and allowing this growth to compound for years to
come, which we believe will translate into attractive returns going forward.
5
Third Quarter 2014
INVESTMENT COMMENTARY
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Investors should consider the investment objectives, risks, charges and expenses
of a mutual fund carefully before investing. For a free prospectus and, if available,
a summary prospectus, which contains this and other important information about
the funds, visit columbiamanagement.com. The prospectus should be read
carefully before investing.
Columbia Funds are distributed by Columbia Management Investment Distributors, Inc., member
FINRA and managed by Columbia Management Investment Advisers, LLC.
Investment Risks
Market risk may affect a single
issuer, sector of the economy,
industry or the market as a whole.
Growth securities, at times, may
not perform as well as value
securities or the stock market in
general and may be out of favor
with investors. Foreign
investments subject the fund to
risks, including political,
economic, market, social and
others within a particular country,
as well as to currency instabilities
and less stringent financial and
accounting standards generally
applicable to U.S. issuers.
Investments in a limited number
of companies or sectors, subject
the fund to greater risk of loss.
The views expressed are as of the date given, may change as market or other conditions change,
and may differ from views expressed by other Columbia Management Investment Advisers, LLC
(CMIA) associates or affiliates. Actual investments or investment decisions made by CMIA and its
affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views
expressed. This information is not intended to provide investment advice and does not account for
individual investor circumstances. Investment decisions should always be made based on an
investor's specific financial needs, objectives, goals, time horizon, and risk tolerance. Asset classes
described in this [report] may not be suitable for all investors. Past performance does not
guarantee future results and no forecast should be considered a guarantee either. Since
economic and market conditions change frequently, there can be no assurance that the trends
described here will continue or that the forecasts are accurate.
Additional performance information: All results shown assume reinvestment of distributions and
do not reflect the deduction of taxes that a shareholder would pay on fund distributions or the
redemption of fund shares.
The fund returns shown include the performance of Excelsior Large Cap Growth Fund, a series of
Excelsior Funds, Inc. and the predecessor to the Fund, for periods prior to March 31, 2008.
1
The returns shown for periods prior to the share class inception date (including returns since
inception, which are since fund inception) include the returns of the fund’s oldest share class. These
returns are adjusted to reflect any higher class-related operating expenses of the newer share
classes, as applicable. Please visit columbiamanagement.com/mutual-funds/appendedperformance for more information.
2
Expense ratios are generally based on the fund's most recently completed fiscal year and are not
adjusted for current asset levels or other changes. In general, expense ratios increase as net assets
decrease. See the fund's prospectus for additional details.
Performance attribution is used to help explain the impact of the manager's investment decisions
with regard to overall investment policy, asset allocation, security selection and activity. Sector
Allocation represents the contribution of the various sectors to a fund or portfolio’s return. Stock
Selection represents the contribution to return of the specific stocks within a particular sector and
the Net Value Added represents the combination of both.
The Russell 1000 Growth Index is an unmanaged index that measures the performance of those
Russell 1000 Index companies with higher price-to-book ratios and higher forecasted growth values
The Standard & Poor's 500 Index (S&P 500 Index) is an unmanaged list of common stocks which
includes 500 large companies.
Indices shown are unmanaged and do not reflect the impact of fees. It is not possible to invest
directly in an index.
6