1. finance
2. investing
3. stocks

Third Quarter 2014
INVESTMENT COMMENTARY
CLASS A | CMUAX
CLASS C | CMUCX
We have not changed our
longstanding process of
acquiring companies that
have compelling valuations
and an opportunity to
improve their operating
earnings.
CLASS R | CMVRX
CLASS R4 | CFDRX
CLASS R5 | CVERX
CLASS Z | NAMAX
Columbia Mid Cap Value Fund
Fund performance
 Class A shares of Columbia Mid Cap Value Fund returned -2.29% (excluding sales
charge) for the third quarter, outperforming its benchmark. For up-to-date performance
information, please check online at columbiamanagement.com.
 The benchmark Russell Midcap Value Index returned -2.65% for the period.
 Relative performance benefited from information technology, financials and health care
followed by materials, energy and consumer discretionary. These benefits were partly
offset by negatives within utilities, industrials and consumer staples.
Market overview
Fund strategy
 Capital appreciation and income
through an actively managed
portfolio of undervalued, mid-sized
company stocks
 Fundamental and quantitative
analysis with risk management
techniques to construct a portfolio of
undervalued, misunderstood midsized companies
 Traditional, value-style holding
whose stock valuations are believed
to be temporarily depressed
In addition to well-known risks like slowing growth, hyper-regulation and armed conflict
throughout the world, multiple new threats grabbed investors’ attention — from escalating
terrorism and fears of contagion to a power struggle between Hong Kong and China.
Bright spots during the quarter included modest gains in U.S. large caps, blue chips and
technology stocks, as well as an upward revision in U.S. gross domestic product growth
and reasonably positive employment and housing data. Earnings announcements during
the period were generally strong, with capital spending plans largely intact. In addition,
even though the S&P 500 Index rose to its 28th record high of the year in August and the
Alibaba initial public offering fueled market enthusiasm in September, mounting anxiety
eventually derailed any hope of a lasting, broad-based rally.
U.S. small-cap stocks were especially hard hit during the quarter. The Russell 2000 Index
lost more than 7%, driven in large part by double-digit declines in dozens of energy stocks
that dropped in concert with oil prices. U.S. mid-cap value stocks, which had been market
leaders for most of the year, declined as well, with the Russell Midcap Value Index losing
2.65%. As was the case with small caps, energy was the key detractor. In this challenging
environment, growth stocks across all capitalization ranges outperformed their value
counterparts.
Average annual total returns (%) for period ended September 30, 2014
Expense ratio1
Share
class
A
Without waiver
(gross)
1.17%
With waiver
(net)
—
Z
0.92%
—
Columbia Mid Cap Value Fund
3-m on.
1-year
3-year
5-year
10-year
Class A w ithout sales charge
-2.29
19.96
24.61
16.23
9.63
Class A w ith 5.75% maximum sales charge
-7.91
13.04
22.18
14.86
8.99
Class Z
-2.28
20.29
24.92
16.52
9.90
Russell Midcap Value Index
-2.65
17.46
24.72
17.24
10.17
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
1029015 (10/14)
Third Quarter 2014
INVESTMENT COMMENTARY
Top holdings (% of net assets):
as of 9-30-2014
Index
Third quarter (%)
One year (%)
Russell 1000 Growth Index
1.49
19.15
Russell 1000 Index
0.65
19.01
Russell 1000 Value Index
-0.19
18.89
Fifth Third Bancorp
1.87
Zimmer Holdings Inc
1.83
Host Hotels & Resorts Inc
1.78
Russell Midcap Growth Index
-0.73
14.43
Hartford Financial Svcs Grp
1.73
Russell Midcap Index
-1.66
15.83
Portland General Electric Co
1.68
Russell Midcap Value Index
-2.65
17.46
Lincoln National Corp
1.66
Russell 2000 Growth Index
-6.13
3.79
M & T Bank Corp
1.57
Russell 2000 Index
-7.36
3.93
Principal Financial Group
1.57
Russell 2000 Value Index
-8.58
4.13
Weatherford International Pl
1.56
S&P 500 Index
1.13
19.73
Sl Green Realty Corp
1.55
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.
Top five contributors
Effect on return (%)
Steel Dynamics
0.30
Community Health Systems Inc
0.25
Royal Caribbean Cruises Ltd
0.25
TRW Automotive Holdings Corp
0.18
Salix Pharmaceuticals Ltd
0.16
Top five detractors
Effect on return (%)
Performance
Beyond the ups and downs of the global picture mentioned above, the portfolio was
influenced by consolidation (both actual and anticipated) in health care, materials and
consumer discretionary, as well as by benefits from the Affordable Care Act (ACA) and
challenges in the energy sector. On a sector basis, the portfolio’s relative performance
benefited from information technology, financials and health care followed by materials,
energy and consumer discretionary. These benefits were partly offset by negatives within
utilities, industrials and consumer staples.
On the whole, stock selection was very positive, especially in energy, technology,
financials and health care. Selection was negative in utilities and industrials. Overall sector
allocation detracted, particularly in energy where the portfolio was overweight. Falling oil
prices drove the sector’s sharp decline amid high levels of production worldwide with no
cuts in sight.
Although the energy sector helped relative performance, it did pose its share of challenges
during the quarter. The portfolio’s strong stock selection within the sector was helped by
not owning many benchmark stocks that dropped 20% or more. These positives, however,
were largely offset by portfolio holdings in both the exploration and production, and
equipment and services industries, including Weatherford International and Noble Energy.
In the end, the good outweighed the bad, making the sector's overall contribution an
incremental positive.
NRG Energy Inc
-0.27
Stock selection was positive in technology, as performance within the semiconductor
space was strong.
DR Horton Inc
-0.21
 Skyworks Solutions continued to benefit from its exposure to the smartphone market
Noble Energy
-0.19
Cimarex Energy
-0.18
Harley-Davidson Inc
-0.17
and increased dollar content per phone, including the iPhone 6 rollout.
 During the period, we exited Avago Technologies in favor of establishing a new position
in Broadcom. The portfolio has benefited from Avago and other holdings with
smartphone exposure. These companies delivered strong operating performance and
were rewarded with significant share price appreciation. By replacing Avago with
Broadcom, we reduced exposure to the smartphone vertical as well as momentum in
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Third Quarter 2014
INVESTMENT COMMENTARY
the portfolio. Broadcom announced that it is exiting unprofitable segments to focus
instead on maximizing cash flow and shareholder capital returns. We believe the stock’s
multiple will expand, as investors become more confident that the company will deliver
on this strategy. Operationally, the strategic shift means lower revenue growth but
potentially significantly higher operating margins.
In financials, stock selection was positive in insurance companies and banks.
The health care sector benefited from aspects of the ACA. Hospitals have fewer
delinquent accounts, as they are now getting paid for services rendered to formerly
uninsured patients.
 Portfolio holding Community Health Systems, a hospital owner and operator, benefited
during the period. In addition, the pharmaceuticals industry was positively affected by
rumors of consolidation, as several rival companies expressed interest in taking over
prescription manufacturer Salix Pharmaceuticals.
The materials sector also benefited from consolidation.
 During the period, Steel Dynamics bought the assets of the North American unit of
Russian steel company Severstal. Steel prices have been holding up reasonably well,
which is pointing toward improved prospects for pricing and margins.
Sector weights (%): fund vs. benchmark as of 9-30-2014
30.66
32.19
Financials
12.47
10.00
Cons disc
10.38
10.84
Info tech
10.36
11.86
Utilities
10.06
9.55
Industrials
Energy
5.42
9.42
7.54
9.31
Health care
6.12
7.12
Materials
1.53
3.37
Cons staples
1.47
0.34
Telecom svcs
0
10
Columbia Mid Cap Value Fund
20
30
40
Russell Midcap Value Index
3
Third Quarter 2014
INVESTMENT COMMENTARY
While headlines, challenges and transactions also hit the consumer discretionary sector,
the quarter ended on an incrementally positive note.
 Mid quarter, a weak jobs report hurt the sector, particularly our holdings in HarleyDavidson (on the auto side) and DR Horton (on the home builder side). Horton had
disappointing order rates with margin guidance that was below expectations. In
addition, while appliance upgrades and other housing incentives such as reductions in
broker commissions were being offered, we believe they are temporary and do not
affect our overall view of the industry. We believe the industry is still underpricing and
under-earning and, therefore, kept our position in the name.
 Shares of TRW Automotive Holdings spiked at the beginning of the quarter on rumors
of a takeover and again in September when ZF Friedrichshafen of Germany formally
announced the acquisition. This action will create the world's second largest
automotive supplier by sales at a time when car parts makers are looking to build
scale amid technological shifts in the global auto industry. When the stock rose in July,
we reduced our position and took profits.
 Another name in the sector, Hertz Global Holdings, lowered guidance on significantly
higher-than-expected fleet expenses in the U.S. rental car business, as well as
weakness in the equipment rental business. As a result, we exited the stock mid
quarter on concerns over management’s ability to execute in a consolidated industry.
 Lastly, on the leisure side of the sector, Royal Caribbean Cruises contributed to
performance.
Performance attribution for the 3-month period ending 9-30-2014 compared
to the Russell Midcap Value Index
Sector allocation
Stock selection
Net value added
0.80
0.40
0.20
0.00
Value Added
0.60
-0.20
-0.40
-0.60
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.
On the downside, the utilities sector detracted the most overall from the portfolio with
independent power companies declining on much of the same power generation
challenges as the energy sector. In addition, stock selection was negative in the gas and
electric utilities industries.
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Third Quarter 2014
INVESTMENT COMMENTARY
 In particular, NRG Energy declined double digits.
Stock selection was also negative in industrials, especially in machinery.
 Crane manufacturer Manitowoc declined during the quarter. The industry has
experienced weak demand for cranes globally. Contrary to our thesis on the stock, we
believed demand would be increasing. As a result, we reduced the position.
Outlook and positioning
Last quarter we wrote about the rising chorus of concerns regarding market valuations.
At that time, we stated that the disconnect between earnings and equity prices has its
origins in a number of factors, not the least of which is the dearth of favorable
alternatives to equities. We went on to say that we continue to find opportunities in a
rising market, as we seek not only the values but the improvements in corporate
earnings. Today we see what is arguably the best example of the former and a decent
example of the latter. Hilton Worldwide Holdings, whose stock we do not own,
announced in early October that it is selling the storied Waldorf Astoria Hotel in New
York City for an eye-popping $1.95 billion to an offshore insurance company. That price
equates to 32x the property’s earnings before interest, taxes and depreciation (EBITDA).
But, to this particular insurance company, that valuation may not seem too rich when
compared with a 10-year U.S. Treasury note that yields less than 2.5%. The new owners
may be able to divide the property into condominiums and time-share units as well as a
hotel and recoup a large portion of their initial investment in a relatively short period of
time. That would leave the owners with the operations of the hotel (in a slimmed down
form), which could produce a substantially higher rate of return that grows (cyclically)
over time, perhaps not to a level that we would find acceptable but better than a 2.5%
return over the next 10 years.
Since the end of the second quarter, the Russell Midcap Value benchmark has
contracted roughly 2.7% or 10% on an annualized basis. Using the same valuation
metric as our Waldorf example, the market now trades at roughly 8x its projected
EBITDA. More importantly, however, the median company in that benchmark is
projected to grow its earnings by more than 11%, with the average growth approaching
19% (this year to next). So, our market has gotten cheaper over the last three months,
while the companies within it continue to grow their earnings at a healthy clip. It is the
combination of the two (valuation and operating earnings growth) that attracts us to a
stock. As such, we continue to remain favorably positioned in areas of the market where
we see those underpinnings of growth firmly in place. Both in the case of the mid-cap
market and our portfolio in general, we still see attractive valuations and significant
potential for growth in operating earnings.
Nevertheless, we remain cautious about certain areas of the global economy. European
growth continues to lag that of the United States, while Asian economies have shown
signs that their already high growth rates are not sustainable. Latin America has seen its
largest economy, Brazil, slip from strong growth leading up to the World Cup. Likewise,
despite the Federal Reserve taking action to stem its quantitative easing program, longterm interest rates remain stubbornly low. We remain positioned to benefit from rising
rates via our banks and life insurance companies, as we see nascent signs of
improvements in the short end of the interest rate curve. Our cyclical positioning has not
changed; energy, housing, travel, leisure, technology, and manufacturing remain key
areas of focus for the portfolio. Nor have we changed our longstanding process of
acquiring companies that have compelling valuations and an opportunity to improve their
operating earnings.
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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.
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 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 any 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.
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.
1
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.
Investment Risks
Market risk may affect a single
issuer, sector of the economy,
industry or the market as a whole.
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 mid-cap
companies involve risks and
volatility greater than investments
in larger, more established
companies. Value securities may
be unprofitable if the market fails
to recognize their intrinsic worth
or the portfolio manager
misgauged that worth.
The Russell Midcap Value Index measures the performance of those Russell Midcap companies
with lower price-to book ratios and lower forecasted growth values. The stocks are also members of
the Russell 1000 Value index.
The Russell 1000 Growth Index, an unmanaged index, measures the performance of those Russell
1000 companies which have higher price-to-book ratios and higher forecasted growth values.
The Russell 1000 Index measures the performance of the large-cap segment of the U.S. equity
universe. It is a subset of the Russell 3000® Index and includes approximately 1000 of the largest
securities based on a combination of their market cap and current index membership. The Russell
1000 represents approximately 92% of the U.S. market.
The Russell 1000 Value Index, an unmanaged index, measures the performance of those Russell
1000 companies lower price- to-book ratios and lower forecasted growth values.
The Russell MidCap Growth Index, an unmanaged index, measures the performance of those
Russell MidCap companies with higher price-to-book ratios and higher forecasted growth values.
The Russell Midcap Index measures the performance of the mid-cap segment of the U.S. equity
universe. The Russell Midcap Index is a subset of the Russell 1000 Index. It includes approximately
800 of the smallest securities based on a combination of their market cap and current index
membership. The Russell Midcap Index represents approximately 31% of the total market
capitalization of the Russell 1000 companies.
The Russell 2000 Growth Index measures the performance of those Russell 2000 Index
companies with higher price-to-book ratios and higher forecasted growth values.
The Russell 2000 Index measures the performance of the small-cap segment of the U.S. equity
universe. The Russell 2000 Index is a subset of the Russell 3000® Index representing approximately
10% of the total market capitalization of that index. It includes approximately 2000 of the smallest
securities based on a combination of their market cap and current index membership.
The Russell 2000 Value Index, an unmanaged index, measures the performance of those Russell
2000 Companies with lower price-to-book ratios and lower forecasted growth values.
Indices shown are unmanaged and do not reflect the impact of fees.
The S&P 500 Index is an unmanaged list of common stocks which includes 500 large companies.
It is not possible to invest directly in an index.
6