N-30B-2 1 a15-21323_1n30b2.htm N-30B-2

THIRD QUARTER REPORT

September 30, 2015

COLUMBIA ACORN FAMILY OF FUNDS

Class A, B, C, I, R, R4, R5, Y and Z Shares
Managed by Columbia Wanger Asset Management, LLC

Columbia Acorn® Fund

Columbia Acorn International®

Columbia Acorn USA®

Columbia Acorn International SelectSM

Columbia Acorn SelectSM

Columbia Thermostat FundSM

Columbia Acorn Emerging Markets FundSM

Columbia Acorn European FundSM



COLUMBIA ACORN FAMILY OF FUNDS

NET ASSET VALUE PER SHARE as of 9/30/15

    Columbia
Acorn® Fund
  Columbia
Acorn
International®
  Columbia
Acorn
USA®
  Columbia
Acorn
International
SelectSM
  Columbia
Acorn
SelectSM
  Columbia
Thermostat
FundSM
  Columbia
Acorn
Emerging
Markets
FundSM
  Columbia
Acorn
European
FundSM
 

Class A

 

$

27.61

   

$

39.02

   

$

27.23

   

$

20.59

   

$

18.66

   

$

14.38

   

$

10.21

   

$

14.33

   

Class B

 

$

23.84

   

$

37.55

   

$

23.28

   

$

19.30

   

$

15.67

   

$

14.43

     

N/A

     

N/A

   

Class C

 

$

23.28

   

$

37.41

   

$

23.12

   

$

19.16

   

$

15.35

   

$

14.40

   

$

10.10

   

$

14.14

   

Class I

 

$

29.35

   

$

39.21

   

$

29.30

   

$

20.88

   

$

20.02

     

N/A

   

$

10.27

   

$

14.35

   

Class R

   

N/A

   

$

38.91

     

N/A

     

N/A

     

N/A

     

N/A

     

N/A

     

N/A

   

Class R4

 

$

29.78

   

$

39.40

   

$

29.76

   

$

21.02

   

$

20.35

   

$

14.29

   

$

10.32

   

$

14.42

   

Class R5

 

$

29.84

   

$

39.14

   

$

29.79

   

$

21.01

   

$

20.39

   

$

14.31

   

$

10.32

   

$

14.49

   

Class Y

 

$

29.91

   

$

39.46

   

$

29.88

   

$

21.01

   

$

20.48

   

$

14.29

   

$

10.23

     

N/A

   

Class Z

 

$

29.27

   

$

39.15

   

$

29.11

   

$

20.88

   

$

19.91

   

$

14.22

   

$

10.25

   

$

14.36

   

                

Class I shares are available only to the Columbia funds, such as Columbia Thermostat Fund, and are not available to individual investors. Class R, R4, R5, Y and Z shares are sold at net asset value and have limited eligibility. Please see the Funds' prospectuses for details. The Columbia Acorn Family of Funds offer multiple share classes, not all necessarily available through all financial intermediaries, and the ratings assigned to the various share classes by mutual fund rating agencies may vary. Contact us for details.

ESTIMATED YEAR-END DISTRIBUTIONS as of 10/31/15

To help with your tax planning, following are the estimated year-end capital gain distributions for the Columbia Acorn Funds. With the exception of Columbia Thermostat Fund, the expected record date is December 8, 2015, and the expected ex-dividend and payable date is December 9, 2015. For Columbia Thermostat Fund, the expected record date is December 21, 2015, and the expected ex-dividend and payable date is December 22, 2015. Distribution information is not final and should not be considered final until after the record date. The board of trustees will determine the actual distributions the Funds will pay. We have not provided estimates for income distributions, but some Funds may pay such distributions on the same dates noted above.

    Short-term
Capital Gains
  Long-term
Capital Gains
 

Columbia Acorn Fund

   

None

   

$

9.70-$10.70

   

Columbia Acorn International

   

None

   

$

1.20-$1.40

   

Columbia Acorn USA

   

None

   

$

6.80-$7.30

   

Columbia Acorn International Select

   

None

     

None

   

Columbia Acorn Select

 

$

0.75-$0.85

   

$

4.75-$5.25

   

Columbia Thermostat Fund

   

None

   

$

0.00-$0.05

   

Columbia Acorn Emerging Markets Fund

   

None

     

None

   

Columbia Acorn European Fund

   

None

     

None

   

    

The views expressed in the report commentaries reflect the current views of the respective authors. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict, so actual outcomes and results may differ significantly from the views expressed. These views are subject to change at any time based upon economic, market or other conditions and the respective authors disclaim any responsibility to update such views. These views may not be relied upon as investment advice and, because investment decisions for a Columbia Acorn Fund are based on numerous factors, may not be relied upon as an indication of trading intent on behalf of any particular Columbia Acorn Fund. References to a specific company's securities should not be construed as a recommendation or investment advice and there can be no assurance that as of the date of publication of this report, the securities mentioned in each Fund's portfolio are still held or that the securities sold have not been repurchased.

Acorn®, Acorn USA® and Acorn International® are service marks owned and registered by Columbia Acorn Trust.




COLUMBIA ACORN FAMILY OF FUNDS

TABLE OF CONTENTS

Message From Director of International Research

   

2

   

Descriptions of Indexes

   

3

   

Share Class Performance

   

4

   

Fund Performance vs. Benchmarks

   

5

   

Columbia Acorn® Fund

 

In a Nutshell

   

6

   

At a Glance

   

7

   

Major Portfolio Changes

   

26

   

Statement of Investments

   

28

   

Columbia Acorn International®

 

In a Nutshell

   

8

   

At a Glance

   

9

   

Major Portfolio Changes

   

36

   

Statement of Investments

   

39

   

Portfolio Diversification

   

47

   

Columbia Acorn USA®

 

In a Nutshell

   

10

   

At a Glance

   

11

   

Major Portfolio Changes

   

48

   

Statement of Investments

   

49

   

Columbia Acorn International SelectSM

 

In a Nutshell

   

12

   

At a Glance

   

13

   

Major Portfolio Changes

   

54

   

Statement of Investments

   

55

   

Portfolio Diversification

   

59

   

Columbia Acorn SelectSM

 

In a Nutshell

   

14

   

At a Glance

   

15

   

Major Portfolio Changes

   

60

   

Statement of Investments

   

61

   

Columbia Thermostat FundSM

 

In a Nutshell

   

16

   

At a Glance

   

17

   

Statement of Investments

   

65

   

Columbia Acorn Emerging Markets FundSM

 

In a Nutshell

   

18

   

At a Glance

   

19

   

Major Portfolio Changes

   

67

   

Statement of Investments

   

69

   

Portfolio Diversification

   

74

   

Columbia Acorn European FundSM

 

In a Nutshell

   

20

   

At a Glance

   

21

   

Major Portfolio Changes

   

75

   

Statement of Investments

   

77

   

Portfolio Diversification

   

81

   

Squirrel Chatter: Fannie Mae, Freddie Mac and the Housing Market Collapse

   

22

   

Columbia Acorn Family of Funds

 

Expense Information

   

83

   

A COMMENT ON TRADING VOLUMES

Market conditions are always changing and vary by country and industry sector, and investing in international markets involves unique risks. In the wake of the 2007-2009 financial crisis, trading volumes in both emerging and developed international markets declined significantly and have stayed at generally reduced levels since then. Although it is difficult to accurately assess trends in trading volumes in foreign markets, because some amount of activity has migrated to alternative trading venues, a reduction in trading volumes poses challenges to the Funds. This is particularly so because the Funds focus on small- and mid-cap companies that usually have lower trading volumes and often take sizeable positions in portfolio companies. As a result of lower trading volumes, it may take longer to buy or sell securities, which can exacerbate a Fund's exposure to volatile markets. A Fund may also be limited in its ability to execute favorable trades in portfolio securities in response to changes in company prices and fundamentals. If a Fund is forced to sell securities to meet redemption requests or other cash needs, or in the case of an event affecting liquidity in a particular market or markets, it may be forced to dispose of those securities under disadvantageous circumstances and at a loss. As a Fund grows in size, these considerations take on increasing significance and may adversely impact performance.


1



MESSAGE FROM DIRECTOR OF INTERNATIONAL RESEARCH

DEAR SHAREHOLDERS:

Effective January 1, 2016, the primary benchmarks for all Columbia Acorn international products will be changed from their current S&P benchmark indices to the more commonly used MSCI family of benchmark indices. After a comprehensive review of various indices, and taking into account input from various investors and intermediaries, we believe the MSCI family of indices are most representative of the international Funds' target opportunity sets and provide the best comparison of your Funds to their peer funds. MSCI is the most widely used benchmark family for international funds in both the Lipper and Morningstar peer groups of mutual funds. These changes will have no effect on our investment philosophy and process at Columbia Wanger, and they do not affect the domestic Columbia Acorn Fund product offerings.

Specifically, the benchmark changes are as follows:

Fund

 

Current primary benchmark

 

Primary benchmark effective January 1, 2016

 

Columbia Acorn International

  S&P Global Ex-U.S.
Between $500M-$5B
 

MSCI ACWI Ex USA SMID Cap

 

Columbia Acorn International Select

  S&P Developed Ex-U.S.
Between $2B-$10B
 

MSCI ACWI Ex USA

 

Columbia Acorn Emerging Markets Fund

  S&P Emerging Markets
Between $500M-$5B
 

MSCI Emerging Markets SMID Cap

 

Columbia Acorn European Fund

  S&P Europe
Between $500M-$5B
 

MSCI AC Europe Small Cap

 

The difference in composition between the current and new benchmarks varies from Fund to Fund, and Fund portfolio composition may be adjusted in connection with the transition to the new benchmarks. For example, the average weighted market capitalization for the new benchmark is greater than that of the current benchmark for Columbia Acorn International, Columbia Acorn International Select and Columbia Acorn European Fund, and is less than that of the current benchmark for Columbia Acorn Emerging Markets Fund. The regional geographic weightings will differ between the current and new benchmarks for all Funds other than Columbia Acorn European Fund, which invests in one region. Industry sector weightings may also vary between the current and new benchmarks. As an active manager, we have always been benchmark aware, but we have regularly deviated from the benchmark average weighted market capitalizations, and from benchmark sector and geography weightings, where we believed this was in the interest of Fund shareholders. We will continue to do so going forward.

In managing the international Funds, we will of course continue to seek to outperform the new benchmarks in keeping with the Funds' investment strategies and our overall investment approach. As provided in SEC rules relating to mutual funds, for one year after the change, Fund performance will be shown against both the current and the new benchmarks.

Louis J. Mendes
Director of International Research and Portfolio Manager
Columbia Wanger Asset Management, LLC


2



COLUMBIA ACORN FAMILY OF FUNDS

DESCRIPTIONS OF INDEXES INCLUDED IN THIS REPORT

•  50/50 Blended Benchmark, established by the Fund's investment manager, is an equally weighted custom composite of Columbia Thermostat Fund's primary equity and primary debt benchmarks, the S&P 500® Index and the Barclays U.S. Aggregate Bond Index, respectively. The percentage of the Fund's assets allocated to underlying stock and bond portfolio funds will vary, and accordingly the composition of the Fund's portfolio will not always reflect the composition of the 50/50 Blended Benchmark.

•  Barclays U.S. Aggregate Bond Index is a market value-weighted index that tracks the daily price, coupon, pay-downs and total return performance of fixed-rate, publicly placed, dollar-denominated and non-convertible investment grade debt issues with at least $250 million par amount outstanding and with at least one year to final maturity.

•  Euromoney Smaller European Companies (inc. UK) Index is an index of smaller companies in Europe including the UK market. The Euromoney Smaller European Companies Index covers companies of small- and mid-cap market capitalization in Europe's developed markets. The index is rebalanced on a quarterly basis.

•  Lipper Indexes are composed of the 10 or 30 largest funds in the Lipper investment objective grouping. Lipper Mid-Cap Growth Funds Index, 30 largest mid-cap growth funds, including Columbia Acorn Fund; Lipper International Small/Mid Growth Funds Index, 10 largest non-U.S. small/mid growth funds, including Columbia Acorn International and Columbia Acorn International Select; Lipper Small-Cap Growth Funds Index, 30 largest small-cap growth funds, including Columbia Acorn USA; Lipper Mid-Cap Core Funds Index, 30 largest mid-cap core funds; Lipper Flexible Portfolio Funds Index, an equal-weighted index of the 30 largest mutual funds within the Flexible Portfolio fund classification, as defined by Lipper; Lipper Emerging Markets Index, 30 largest emerging markets funds; Lipper European Region Index, 10 largest European funds.

•  MSCI Europe, Australasia and Far East (EAFE) Index (Net) is a capitalization-weighted index that tracks the total return of common stocks in 21 developed-market countries within Europe, Australasia and the Far East. The returns of the MSCI EAFE Index (Net) are presented net of the withholding tax rate applicable to foreign non-resident institutional investors in the foreign companies included in the index who do not benefit from double taxation treaties.

•  MSCI Emerging Markets Small Cap Index (Net), a widely recognized international benchmark, is a free float-adjusted market capitalization index that is designed to measure small-cap emerging market equity performance in 23 emerging market countries, as determined by MSCI. The MSCI Emerging Markets Small Cap Index (Net) currently consists of the following emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

•  Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represents approximately 10% of the total market capitalization of the Russell 3000 Index.

•  Russell 2500 Index measures the performance of the 2,500 smallest companies in the Russell 3000 Index, which represents approximately 17% of the total market capitalization of the Russell 3000 Index.

•  Standard & Poor's (S&P) 500® Index tracks the performance of 500 widely held, large-capitalization U.S. stocks.

•  S&P MidCap 400® Index is a market value-weighted index that tracks the performance of 400 mid-cap U.S. companies.

•  S&P Developed Ex-U.S. Between $2B and $10B® Index is a subset of the broad market selected by the index sponsor that represents the mid-cap developed market, excluding the United States.

•  S&P Emerging Markets Between $500M and $5B® Index represents the institutionally investable capital of 23 emerging market countries, as determined by S&P, with market caps ranging between $500 million to $5 billion. The index currently consists of the following emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates.

•  S&P Europe Between $500M and $5B® Index represents the institutionally investable capital of 16 European countries, as determined by S&P, with market caps ranging between $500 million to $5 billion. The index consists of the following European countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Luxembourg, the Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom.

•  S&P Global Ex-U.S. SmallCap® Index consists of the bottom 20% of institutionally investable capital of developed and emerging countries, excluding the United States.

•  S&P Global Ex-U.S. Between $500M and $5B® Index is a subset of the broad market selected by the index sponsor that represents the mid- and small-cap developed and emerging markets, excluding the United States.

Unlike mutual funds, indexes are not managed and do not incur fees or expenses. It is not possible to invest directly in an index.


3



COLUMBIA ACORN FAMILY OF FUNDS

SHARE CLASS PERFORMANCE Average Annual Total Returns through 9/30/15

 

Class A

 

Class B

 

Class C

 

Class I

 

Class R

 

Class R4

 

Class R5

 

Class Y

  Class Z  

  Without
Sales
Charge
  With
Sales
Charge
  Without
Sales
Charge
  With
Sales
Charge
  Without
Sales
Charge
  With
Sales
Charge
                     

 

Columbia Acorn® Fund

 

Year to date*

   

-4.05

%

   

-9.57

%

   

-4.64

%

   

-9.13

%

   

-4.55

%

   

-5.45

%

   

-3.79

%

   

N/A

     

-3.90

%

   

-3.83

%

   

-3.79

%

   

-3.80

%

 
1 year    

-0.38

%

   

-6.11

%

   

-1.20

%

   

-5.13

%

   

-1.10

%

   

-1.88

%

   

-0.03

%

   

N/A

     

-0.16

%

   

-0.07

%

   

-0.01

%

   

-0.07

%

 
5 years    

10.02

%

   

8.73

%

   

9.34

%

   

9.07

%

   

9.23

%

   

9.23

%

   

10.41

%

   

N/A

     

10.32

%

   

10.37

%

   

10.40

%

   

10.35

%

 
10 years    

6.66

%

   

6.03

%

   

5.99

%

   

5.99

%

   

5.85

%

   

5.85

%

   

7.01

%

   

N/A

     

6.96

%

   

6.98

%

   

7.00

%

   

6.97

%

 

Columbia Acorn International®

 

Year to date*

   

-5.58

%

   

-11.00

%

   

-6.18

%

   

-10.83

%

   

-6.11

%

   

-7.04

%

   

-5.30

%

   

-5.82

%

   

-5.44

%

   

-5.36

%

   

-5.29

%

   

-5.38

%

 
1 year    

-8.11

%

   

-13.40

%

   

-8.89

%

   

-13.20

%

   

-8.79

%

   

-9.65

%

   

-7.75

%

   

-8.45

%

   

-7.93

%

   

-7.81

%

   

-7.76

%

   

-7.84

%

 
5 years    

4.35

%

   

3.12

%

   

3.60

%

   

3.25

%

   

3.58

%

   

3.58

%

   

4.77

%

   

4.00

%

   

4.64

%

   

4.70

%

   

4.73

%

   

4.68

%

 
10 years    

6.35

%

   

5.72

%

   

5.63

%

   

5.63

%

   

5.54

%

   

5.54

%

   

6.74

%

   

6.02

%

   

6.68

%

   

6.71

%

   

6.73

%

   

6.70

%

 

Columbia Acorn USA®

 

Year to date*

   

-3.97

%

   

-9.50

%

   

-4.94

%

   

-9.55

%

   

-4.47

%

   

-5.40

%

   

-3.67

%

   

N/A

     

-3.77

%

   

-3.71

%

   

-3.69

%

   

-3.79

%

 
1 year    

3.42

%

   

-2.53

%

   

2.09

%

   

-1.95

%

   

2.71

%

   

1.89

%

   

3.84

%

   

N/A

     

3.68

%

   

3.75

%

   

3.80

%

   

3.65

%

 
5 years    

11.45

%

   

10.14

%

   

10.54

%

   

10.27

%

   

10.66

%

   

10.66

%

   

11.88

%

   

N/A

     

11.75

%

   

11.79

%

   

11.82

%

   

11.74

%

 
10 years    

5.89

%

   

5.27

%

   

5.12

%

   

5.12

%

   

5.11

%

   

5.11

%

   

6.25

%

   

N/A

     

6.19

%

   

6.21

%

   

6.23

%

   

6.19

%

 

Columbia Acorn International SelectSM

 

Year to date*

   

-6.19

%

   

-11.56

%

   

-6.66

%

   

-11.32

%

   

-6.72

%

   

-7.65

%

   

-5.94

%

   

N/A

     

-5.98

%

   

-5.95

%

   

-5.90

%

   

-5.98

%

 
1 year    

-13.95

%

   

-18.90

%

   

-14.58

%

   

-18.35

%

   

-14.65

%

   

-15.40

%

   

-13.68

%

   

N/A

     

-13.72

%

   

-13.70

%

   

-13.60

%

   

-13.72

%

 
5 years    

3.39

%

   

2.18

%

   

2.73

%

   

2.44

%

   

2.59

%

   

2.59

%

   

3.79

%

   

N/A

     

3.71

%

   

3.74

%

   

3.77

%

   

3.73

%

 
10 years    

5.55

%

   

4.93

%

   

4.86

%

   

4.86

%

   

4.72

%

   

4.72

%

   

5.93

%

   

N/A

     

5.88

%

   

5.90

%

   

5.91

%

   

5.89

%

 

Columbia Acorn SelectSM

 

Year to date*

   

-3.65

%

   

-9.17

%

   

-4.22

%

   

-8.56

%

   

-4.19

%

   

-5.05

%

   

-3.37

%

   

N/A

     

-3.50

%

   

-3.45

%

   

-3.39

%

   

-3.43

%

 
1 year    

-0.96

%

   

-6.65

%

   

-1.73

%

   

-5.42

%

   

-1.66

%

   

-2.39

%

   

-0.59

%

   

N/A

     

-0.71

%

   

-0.62

%

   

-0.57

%

   

-0.63

%

 
5 years    

7.89

%

   

6.61

%

   

7.14

%

   

6.94

%

   

7.09

%

   

7.09

%

   

8.30

%

   

N/A

     

8.17

%

   

8.22

%

   

8.25

%

   

8.21

%

 
10 years    

6.22

%

   

5.59

%

   

5.50

%

   

5.50

%

   

5.39

%

   

5.39

%

   

6.57

%

   

N/A

     

6.51

%

   

6.53

%

   

6.55

%

   

6.53

%

 

Columbia Thermostat FundSM

 

Year to date*

   

-1.25

%

   

-6.95

%

   

-1.65

%

   

-6.47

%

   

-1.78

%

   

-2.75

%

   

N/A

     

N/A

     

-1.06

%

   

-0.99

%

   

-1.06

%

   

-1.06

%

 
1 year    

0.50

%

   

-5.31

%

   

-0.01

%

   

-4.80

%

   

-0.26

%

   

-1.22

%

   

N/A

     

N/A

     

0.75

%

   

0.77

%

   

0.76

%

   

0.70

%

 
5 years    

7.63

%

   

6.36

%

   

7.10

%

   

6.79

%

   

6.82

%

   

6.82

%

   

N/A

     

N/A

     

7.88

%

   

7.91

%

   

7.92

%

   

7.88

%

 
10 years    

5.82

%

   

5.20

%

   

5.29

%

   

5.29

%

   

5.04

%

   

5.04

%

   

N/A

     

N/A

     

6.09

%

   

6.11

%

   

6.11

%

   

6.09

%

 

Columbia Acorn Emerging Markets FundSM

 

Year to date*

   

-19.73

%

   

-24.37

%

   

N/A

     

N/A

     

-20.16

%

   

-20.96

%

   

-19.45

%

   

N/A

     

-19.56

%

   

-19.50

%

   

-19.51

%

   

-19.54

%

 
1 year    

-21.63

%

   

-26.14

%

   

N/A

     

N/A

     

-22.25

%

   

-23.03

%

   

-21.32

%

   

N/A

     

-21.40

%

   

-21.38

%

   

-21.33

%

   

-21.44

%

 

Life of Fund

   

0.96

%

   

-0.48

%

   

N/A

     

N/A

     

0.24

%

   

0.24

%

   

1.37

%

   

N/A

     

1.30

%

   

1.33

%

   

1.34

%

   

1.25

%

 

Columbia Acorn European FundSM

 

Year to date*

   

0.36

%

   

-5.38

%

   

N/A

     

N/A

     

-0.14

%

   

-1.14

%

   

0.57

%

   

N/A

     

0.56

%

   

0.56

%

   

N/A

     

0.57

%

 
1 year    

-0.42

%

   

-6.11

%

   

N/A

     

N/A

     

-1.12

%

   

-2.11

%

   

-0.11

%

   

N/A

     

-0.15

%

   

-0.17

%

   

N/A

     

-0.15

%

 

Life of Fund

   

9.90

%

   

8.33

%

   

N/A

     

N/A

     

9.10

%

   

9.10

%

   

10.21

%

   

N/A

     

10.19

%

   

10.18

%

   

N/A

     

10.19

%

 

*Not annualized.

Returns for Class A shares are shown with and without the maximum initial sales charge of 5.75%. Returns for Class B shares are shown with and without the applicable contingent deferred sales charge (CDSC) of 5.00% in the first year, declining to 1.00% in the sixth year and eliminated thereafter. Returns for Class C shares are shown with and without the maximum CDSC of 1.00% for the first year after purchase. The Funds' other classes are not subject to sales charges and have limited eligibility. Please see the Funds' prospectuses for details. Performance for different share classes will vary based on differences in sales charges and certain fees associated with each class.

All results shown assume reinvestment of distributions during the period. Returns do not reflect the deduction of taxes that a shareholder may pay on Fund distributions or on the redemption of Fund shares. Performance results may reflect the effect of any fee waivers or reimbursements of Fund expenses by the investment manager and/or any of its affiliates. Absent these fee waivers and/or expense reimbursement arrangements, performance results may have been lower. Please see Page 83 of this report for information on contractual fee waiver and expense reimbursement agreements in place on September 30, 2015, for Columbia Thermostat Fund, Columbia Acorn Emerging Markets Fund and Columbia Acorn European Fund and voluntary fee waiver and expense reimbursement arrangements in place for Columbia Acorn International, Columbia Acorn International Select and Columbia Acorn Select.

The performance information shown represents past performance and is not a guarantee of future results. The investment return and principal value of your 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. You may obtain performance information current to the most recent month-end by contacting your financial intermediary, visiting columbiathreadneedle.com/us or calling 800.922.6769.

The returns shown include the returns of each Fund's Class Z shares, each Fund's oldest share class, in cases where the inception date of the Fund is earlier than the inception date of the particular share class or where a period shown dates to before the inception date of the share class. These returns are adjusted to reflect any higher class-related operating expenses of the newer share classes, as applicable. Please visit columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Continued on Page 5.


4



FUND PERFORMANCE VS. BENCHMARKS Class Z Average Annual Total Returns through 9/30/15

Class Z Shares   3rd
quarter*
  Year to
date*
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Columbia Acorn® Fund (ACRNX) (6/10/70)    

-9.77

%

   

-3.80

%

   

-0.07

%

   

10.35

%

   

6.97

%

   

14.23

%

 

Russell 2500 Index

   

-10.30

%

   

-5.98

%

   

0.38

%

   

12.69

%

   

7.40

%

   

N/A

   

S&P 500 Index**

   

-6.44

%

   

-5.29

%

   

-0.61

%

   

13.34

%

   

6.80

%

   

10.73

%

 

Russell 2000 Index

   

-11.92

%

   

-7.73

%

   

1.25

%

   

11.73

%

   

6.55

%

   

N/A

   

Lipper Mid-Cap Growth Funds Index

   

-9.25

%

   

-4.22

%

   

1.35

%

   

11.53

%

   

7.76

%

   

N/A

   
Columbia Acorn International® (ACINX) (9/23/92)    

-10.04

%

   

-5.38

%

   

-7.84

%

   

4.68

%

   

6.70

%

   

10.24

%

 

S&P Global Ex-U.S. Between $500M and $5B Index

   

-11.49

%

   

-4.44

%

   

-7.76

%

   

3.71

%

   

5.61

%

   

7.81

%

 

S&P Global Ex-U.S. SmallCap Index

   

-9.70

%

   

-2.10

%

   

-5.34

%

   

4.72

%

   

5.61

%

   

7.40

%

 

MSCI EAFE Index (Net)

   

-10.23

%

   

-5.28

%

   

-8.66

%

   

3.98

%

   

2.97

%

   

5.52

%

 

Lipper International Small/Mid Growth Funds Index

   

-7.20

%

   

2.23

%

   

-0.72

%

   

7.79

%

   

6.64

%

   

N/A

   
Columbia Acorn USA® (AUSAX) (9/4/96)    

-10.29

%

   

-3.79

%

   

3.65

%

   

11.74

%

   

6.19

%

   

10.14

%

 

Russell 2000 Index

   

-11.92

%

   

-7.73

%

   

1.25

%

   

11.73

%

   

6.55

%

   

7.88

%

 

Lipper Small-Cap Growth Funds Index

   

-11.20

%

   

-4.50

%

   

2.97

%

   

11.99

%

   

6.51

%

   

6.67

%

 
Columbia Acorn Int'l SelectSM (ACFFX) (11/23/98)    

-9.49

%

   

-5.98

%

   

-13.72

%

   

3.73

%

   

5.89

%

   

7.99

%

 

S&P Developed Ex-U.S. Between $2B and $10B Index

   

-8.78

%

   

-1.48

%

   

-3.90

%

   

5.29

%

   

4.80

%

   

6.98

%

 

MSCI EAFE Index (Net)

   

-10.23

%

   

-5.28

%

   

-8.66

%

   

3.98

%

   

2.97

%

   

3.63

%

 

Lipper International Small/Mid Growth Funds Index

   

-7.20

%

   

2.23

%

   

-0.72

%

   

7.79

%

   

6.64

%

   

9.70

%

 
Columbia Acorn SelectSM (ACTWX) (11/23/98)    

-8.96

%

   

-3.43

%

   

-0.63

%

   

8.21

%

   

6.53

%

   

9.58

%

 

S&P MidCap 400 Index

   

-8.50

%

   

-4.66

%

   

1.40

%

   

12.93

%

   

8.25

%

   

9.81

%

 

S&P 500 Index**

   

-6.44

%

   

-5.29

%

   

-0.61

%

   

13.34

%

   

6.80

%

   

4.96

%

 

Lipper Mid-Cap Core Funds Index

   

-9.32

%

   

-6.20

%

   

-1.31

%

   

11.49

%

   

7.10

%

   

8.37

%

 
Columbia Thermostat FundSM (COTZX) (9/25/02)    

-2.27

%

   

-1.06

%

   

0.70

%

   

7.88

%

   

6.09

%

   

7.42

%

 

S&P 500 Index

   

-6.44

%

   

-5.29

%

   

-0.61

%

   

13.34

%

   

6.80

%

   

8.96

%

 

Barclays U.S. Aggregate Bond Index

   

1.23

%

   

1.13

%

   

2.94

%

   

3.10

%

   

4.64

%

   

4.49

%

 

Lipper Flexible Portfolio Funds Index

   

-6.03

%

   

-5.08

%

   

-4.83

%

   

6.58

%

   

5.12

%

   

7.12

%

 

50/50 Blended Benchmark

   

-2.62

%

   

-1.98

%

   

1.32

%

   

8.31

%

   

6.02

%

   

6.99

%

 
Columbia Acorn Emerging Markets FundSM (CEFZX) (8/19/11)    

-17.21

%

   

-19.54

%

   

-21.44

%

   

     

     

1.25

%

 

S&P Emerging Markets Between $500M and $5B Index

   

-17.85

%

   

-15.34

%

   

-18.15

%

   

     

     

-1.37

%

 

MSCI Emerging Markets Small Cap Index

   

-16.67

%

   

-9.80

%

   

-15.23

%

   

     

     

-1.55

%

 

Lipper Emerging Markets Index

   

-16.71

%

   

-15.28

%

   

-19.72

%

   

     

     

-2.23

%

 
Columbia Acorn European FundSM (CAEZX) (8/19/11)    

-5.84

%

   

0.57

%

   

-0.15

%

   

     

     

10.19

%

 

S&P Europe Between $500M and $5B Index

   

-5.34

%

   

4.71

%

   

3.18

%

   

     

     

12.41

%

 

Euromoney Smaller European Companies Index

   

-5.17

%

   

4.45

%

   

0.88

%

   

     

     

10.66

%

 

Lipper European Region Index

   

-7.28

%

   

-1.32

%

   

-3.80

%

   

     

     

9.45

%

 

The inception dates for Class A, B and C shares (if offered) are as follows: Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn International Select and Columbia Acorn Select, 10/16/00; Columbia Thermostat Fund, 3/3/03; Columbia Acorn Emerging Markets Fund and Columbia Acorn European Fund, 8/19/11. The inception dates for Class I shares are as follows: Columbia Acorn Fund, Columbia Acorn International, Columbia Acorn USA, Columbia Acorn International Select and Columbia Acorn Select, 9/27/10; Columbia Acorn Emerging Markets Fund and Columbia Acorn European Fund, 8/19/11. The inception date for Class R shares for Columbia Acorn International is 8/2/11. The inception date for Class R4, R5 and Y shares (if offered) is as follows: Columbia Acorn Fund, Columbia Acorn USA, Columbia Acorn International Select, Columbia Acorn Select, Columbia Thermostat Fund, Columbia Acorn Emerging Markets Fund and Columbia Acorn European Fund, 11/8/12, except that Class Y shares of Columbia Acorn Emerging Markets Fund commenced operations on 6/13/13 and Class R4 shares of Columbia Acorn European Fund commenced operations on 6/25/14. The inception date for Class R5 shares of Columbia Acorn International is 8/2/11. The inception date for Class R4 and Y shares of Columbia Acorn International is 11/8/12. The inception date for Class Z shares is as follows: Columbia Acorn Fund, 6/10/70; Columbia Acorn International, 9/23/92; Columbia Acorn USA, 9/4/96; Columbia Acorn International Select and Columbia Acorn Select, 11/23/98; Columbia Thermostat Fund, 9/25/02; Columbia Acorn Emerging Markets Fund and Columbia Acorn European Fund, 8/19/11.

*Not annualized.

**Although the Fund typically invests in small- and mid-sized companies, the comparison to the S&P 500® Index is presented to show performance against a widely recognized market index over the life of the Fund.

Please see Page 3 for a description of the indexes listed above.


5




COLUMBIA ACORN® FUND

IN A NUTSHELL

 

 
Robert A. Mohn*
Co-Portfolio Manager
  P. Zachary Egan
Co-Portfolio Manager
 

 

 
Fritz Kaegi
Co-Portfolio Manager
  David L. Frank
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. Foreign investments subject the Fund to political, economic, market, social and other risks within a particular country, as well as to potential currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector.

In the third quarter of 2015, Columbia Acorn Fund Class Z shares fell 9.77%, outperforming the Fund's primary benchmark, the Russell 2500 Index, which declined 10.30%. Year to date through September, the Fund had a 3.80% loss versus a 5.98% decline for the benchmark.

During the third quarter, we continued to concentrate the portfolio modestly by reducing the number of holdings in the Fund to 174 positions, down 10 names from the end of the second quarter. As we have made adjustments, our actions have been consistent with our growth-at-a-reasonable-price (GARP) approach, which focuses on allocating capital to companies that we believe have excellent business models and solid growth prospects, and that are available at reasonable prices. In addition to selling several positions to further concentrate the portfolio in the quarter, we selectively trimmed names that had reached our valuation targets and reallocated the proceeds into new positions that we believe meet our GARP standards. These additions were largely made in the consumer discretionary and information technology (IT) sectors. We maintained the Fund's overweight in industrials, its roughly benchmark weight in health care, and its underweight in financials, as discussed below.

Within the IT sector, one of our themes is investing in software developers offering product via the cloud for a monthly rental fee. This is a transition away from the older approach that requires customers to buy software outright and have it installed on site. The big implication for investors is that the software company will benefit from smooth revenues achieved through the rental arrangement, though upfront revenues will be lower. This newer model has created new businesses and is attracting takeouts from older developers who are trying to keep up. Under this theme, we added Cvent to the portfolio late in the second quarter. A developer of software used in corporate event planning, Cvent is dominating its niche and gained 34% in the third quarter. Other IT winners outside of the cloud theme included Solera Holdings, a software developer for automotive insurance claims processing, which gained 21% following the September announcement of its agreement to be acquired by Vista Equity Partners. We opted to take our gains and sold the position, using some of the proceeds to buy Coupons.com, a company that allows businesses to distribute coupons, advertising and trade promotions online. The Fund had a 28% weighting in the IT sector at quarter end, while the benchmark weight was 15%.

Industrials continue to be among the Fund's largest sector overweights, representing 23% of the Fund and 15% of the benchmark. During the third quarter, our stock selection within the sector was positive relative to the benchmark,

but we lost some ground due to the Fund's overweight in a down quarter for the sector. U.S. dollar strength continued to negatively impact global names like Donaldson, a maker of industrial air filtration equipment, and Nordson, a manufacturer of dispensing systems for adhesives and coatings. Both names fell around 20% in the quarter. While the dollar headwind has had an impact, the majority of the industrial stocks the Fund owns have a more natural linkage to the U.S. market. For example, NVR, a homebuilder with operations in 14 states, was up 14% in the quarter. In addition to being largely U.S.-focused, Fund holdings within the industrial sector are also much broader than the machines and tools that the industrials name evokes; they include rental cars, trucking companies, consulting services and distributors, to name a few.

After a tremendous run in the first half of the year, the health care sector cooled in the third quarter. Despite the reversal, the Fund maintained its strong outperformance in the sector year to date, posting a 14% gain in the sector versus the benchmark's 1% return for the first nine months of the year. Much of the Fund's strength in health care has been driven by the outperformance of biotech and pharmaceutical names. Due to the higher valuations we are seeing now in biotechs and pharmaceuticals, we did some selective trimming within this segment during the quarter. Laggards in the health care sector during the quarter included Cepheid, a provider of molecular diagnostic supplies, which fell 26% due to softer-than-expected June quarter results. Akorn, a developer, manufacturer and distributor of specialty generic drugs, fell 35% in the quarter primarily due to accounting errors that caused a delay in the company's filings with the SEC. Akorn hired a new chief financial officer, and we don't anticipate future problems.

The Fund's financial sector performance was a relative detractor in the quarter. The Federal Reserve opted not to raise interest rates at their meeting in September but implied a hike would come before year end. We continue to be leery of rate-sensitive names in this current environment. We maintained our underweight in real estate investment trusts (REITs) because of the potential negative impact of a rate increase on many of these companies. Banks, on the other hand, are expected to benefit from a rate hike, but we think any advantage would be modest, as banks struggle with fierce competition and heavy regulation. Bucking the downward trend in the quarter in REITs, Extra Space Storage, a self-storage facility operator, gained 19%. This name exemplifies what we are looking for in the REIT space—companies with strong growth potential and pricing power.

*In our first quarter shareholder report, we announced that Robert Mohn would be retiring later this year. Mr. Mohn formally retired effective October 1, 2015.

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.


6



COLUMBIA ACORN® FUND

AT A GLANCE

Total Net Assets of the Fund:
$9.1 billion

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn® Fund Class Z Shares

June 10, 1970 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period. A $10,000 investment in Columbia Acorn Fund at inception appreciated to $31,777 on December 31, 1978, the inception date of the Russell 2500 Index. For comparison with the Russell 2500 Index, we assigned the index the same value as the Fund at index inception. Although the Fund typically invests in small- and mid-sized companies, the comparison to the S&P 500 Index is presented to show performance against a widely recognized market index over the life of the Fund.

Average Annual Total Returns for period ended September 30, 2015

    3rd
quarter
  Year to
date
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Class Z (6/10/70 inception)    

-9.77

%

   

-3.80

%

   

-0.07

%

   

10.35

%

   

6.97

%

   

14.23

%

 
Class A (10/16/00 inception)  

without sales charge

   

-9.86

     

-4.05

     

-0.38

     

10.02

     

6.66

     

13.86

   

with sales charge

   

-15.05

     

-9.57

     

-6.11

     

8.73

     

6.03

     

13.72

   

Russell 2500 Index*

   

-10.30

     

-5.98

     

0.38

     

12.69

     

7.40

     

N/A

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 0.79% for Class Z shares and 1.08% for Class A shares. The returns shown for periods prior to the inception of the Fund's Class A shares append the returns of the Fund's Class Z shares, 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 columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   Donaldson
Industrial Air Filtration
  2.4
%  
2.   Ametek
Aerospace/Industrial Instruments
  2.1
%  
3.   LKQ
Alternative Auto Parts Distribution
  1.9
%  
4.   Cepheid
Molecular Diagnostics
  1.7
%  
5.   Amphenol
Electronic Connectors
  1.7
%  
6.   Mettler-Toledo International
Laboratory Equipment
  1.6
%  
7.   SEI Investments
Mutual Fund Administration & Investment
Management
  1.5
%  
8.   Nordson
Dispensing Systems for Adhesives & Coatings
  1.4
%  
9.   HEICO
FAA-approved Aircraft Replacement Parts
  1.4
%  
10.   Associated Banc-Corp
Midwest Bank
  1.4
%  

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


7



COLUMBIA ACORN INTERNATIONAL®

IN A NUTSHELL

 

 
P. Zachary Egan
Co-Portfolio Manager
  Louis J. Mendes
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different, potentially less stringent, financial and accounting standards than those generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. Please also see "A Comment on Trading Volumes" on Page 1 of this report.

Columbia Acorn International Class Z shares fell 10.04% in the third quarter of 2015, compared to an 11.49% decline of the Fund's primary benchmark, the S&P Global ex-U.S. Between $500M and $5B® Index. Year to date through September, the Fund had a 5.38% loss versus a 4.44% decline for the benchmark. While the Fund outperformed in the quarter, the strain put on most global markets by decelerating economic growth in China created a difficult environment for international investors.

The third quarter saw a dramatic reversal of enthusiasm for Chinese stocks. Following China's market collapse in June and unexpected relaxation of the currency peg to the U.S. dollar, which resulted in modest devaluation in mid-August, its benchmark Shanghai Composite index declined 8.5% on August 24, wiping out all gains made in the year and closing down 38% from its June peak. China's steady growth has historically bolstered emerging markets in Asia and elsewhere because these markets are a source of commodities. This economic link drove emerging markets down along with China in the quarter, particularly when expressed in U.S. dollar terms, as commodity-tied currencies lost ground. For example, in Brazil, a country struggling against high inflation, unemployment and corruption, the real hit a 12-year low against the U.S. dollar in the quarter. The Fund had less than a 1% weight in Brazil at quarter end.

Against this backdrop, Fund holdings in Asia ex-Japan fell 14%, outperforming the benchmark in the region. In Latin America EMEA (Europe, Middle East, Africa), Fund holdings fell 25%, underperforming the benchmark. Coronation Fund Managers, a South African investment manager, was the largest detractor in the period, falling 30% on lower performance fees compared to those earned the prior year, and on reduced prospects for emerging markets, which could hurt future inflows.

While the news from Asia was bleak, European markets fared far better, as quantitative easing policies continued to provide a floor for European equities. Posting a relatively benign 3% loss, the Fund's overweight exposure to Europe benefited the Fund in the quarter versus the benchmark. The top three contributors to Fund gains were European companies and included Sweden's Unibet, a European online gaming operator, which gained 37% in the quarter.

We increased the liquidity of the Fund by moving into some larger market-cap positions in the quarter. We reduced the Fund's exposure to emerging markets and put that capital to work in Western Europe. European small- to mid-cap stocks have outperformed relative to other world markets and, despite this strong run, we believe valuations are only

modestly above historical averages, which may be warranted by the outlook for interest rates in the Eurozone.

Within emerging markets, we have concerns about the impact of a continued slowdown in China and a weakness in consumption across Southeast Asia and Latin America. While we have reduced Fund exposure to emerging markets, we are not moving away from these economies completely. Not all emerging markets are impacted in the same way by global events, so we take a country-by-country view to discover the local drivers of growth and the unique opportunities available in each market. In India, for example, our holdings were down only 4% in local currency in the quarter and positive that amount year to date, strongly outperforming the largely double-digit declines of other emerging markets. In Korea, holdings in the Fund were up slightly in local currency terms in the quarter and had a 17% gain for the first nine months of the year. We will continue to hold and make strategic investments within the emerging market space.

We believe we can no longer rely on consistent 7% or 8% growth from China to power the factories of Europe and Japan or the commodity markets of the emerging markets. With a slower Chinese growth rate, we believe emerging markets will continue to be fairly volatile. Our focus within China continues to be on businesses addressing the country's domestic needs, such as environmental companies, infrastructure development businesses, and providers of health care management services. In the broader international markets, we are putting fresh capital in higher growth companies and companies where near-term fundamental progress is masked by accounting factors or other issues, but that we believe have solid long-term earnings prospects. We are steering clear of modestly growing businesses where volatility of earnings is very low but valuations are high.

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.


8



COLUMBIA ACORN INTERNATIONAL®

AT A GLANCE

Total Net Assets of the Fund:
$6.9 billion

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn International® Class Z Shares

September 23, 1992 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

    3rd
quarter
  Year to
date
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Class Z (9/23/92 inception)    

-10.04

%

   

-5.38

%

   

-7.84

%

   

4.68

%

   

6.70

%

   

10.24

%

 
Class A (10/16/00 inception)  

without sales charge

   

-10.11

     

-5.58

     

-8.11

     

4.35

     

6.35

     

9.83

   

with sales charge

   

-15.28

     

-11.00

     

-13.40

     

3.12

     

5.72

     

9.54

   
S&P Global Ex-U.S.
Between $500M® and $5B*
   

-11.49

     

-4.44

     

-7.76

     

3.71

     

5.61

     

7.81

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 0.93% for Class Z shares and 1.26% for Class A shares. The returns shown for periods prior to the inception of the Fund's Class A shares append the returns of the Fund's Class Z shares, 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 columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   SimCorp (Denmark)
Software for Investment Managers
  1.4
%  
2.   CCL Industries (Canada)
Global Label Converter
  1.3
%  
3.   Spotless (Australia)
Facility Management & Catering Company
  1.3
%  
4.   Wirecard (Germany)
Online Payment Processing & Risk Management
  1.2
%  
5.   Distribuidora Internacional
de Alimentación (Spain)
Discount Retailer in Spain & Latin America
  1.2
%  
6.   Zee Entertainment Enterprises (India)
Indian Programmer of Pay Television Content
  1.2
%  
7.   Unibet (Sweden)
European Online Gaming Operator
  1.1
%  
8.   Partners Group (Switzerland)
Private Markets Asset Management
  1.0
%  
9.   Novozymes (Denmark)
Industrial Enzymes
  1.0
%  
10.   Geberit (Switzerland)
Plumbing Systems
  1.0
%  

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


9



COLUMBIA ACORN USA®

IN A NUTSHELL

 

 
Robert A. Mohn*
Co-Portfolio Manager
  William J. Doyle
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector.

Columbia Acorn USA Class Z shares outperformed the Fund's primary benchmark, the Russell 2000 Index, by 1.63% in the third quarter. In a volatile quarter, the Fund fell 10.29%, while the Russell 2000 Index fell 11.92%. Year to date through September, the Fund declined 3.79%, outperforming the 7.73% decline of the benchmark. Stock selection across most industries contributed positively to the Fund's performance versus the benchmark.

We continue to see the effects of increased takeover activity on Columbia Acorn USA. The Fund had 11 of its stocks acquired by strategic or financial buyers in the first nine months of the year, or nearly 10% of the number of holdings in the portfolio. While there is no guarantee that this trend will continue and not all of these transactions were at large premiums like Synageva BioPharma, which we mentioned last quarter, we do think this activity reinforces our view that we are succeeding in finding strategically important or financially attractive businesses in the markets in which they operate. In the third quarter, two of our three top contributors to performance gained on acquisition announcements. Solera Holdings, a software developer for automotive insurance claims processing, gained 21% on news that it would be acquired by Vista Equity Partners. Zulily, an e-commerce retailer offering flash sale events, gained 41% after Liberty Interactive extended an exchange offer to acquire all of the outstanding shares of its stock. We exited both positions on the announcements.

We did not make significant adjustments to Columbia Acorn USA in the quarter. Using the proceeds from sales of takeovers, or from the trimming of existing positions, we did redeploy some cash into the consumer discretionary sector and have also made some additions in the information technology (IT) space. At the period end, we remained underweight in financial stocks versus the benchmark, and we had an overweight position in the IT sector. Industrials continue to be the Fund's largest overweight, while its health care weight is below benchmark.

Within the IT sector, one of the areas that we have been focusing on is cloud computing, which provides access to software applications and computing power via the Internet for a monthly fee. Cvent, a developer of software used in corporate event planning, is a newer position in the Fund purchased following this theme. Cvent has a dominant position in its market niche, and its stock was up 34% in the quarter. Other IT winners outside of the cloud theme included Solera Holdings, mentioned above, and ExlService Holdings, a provider of business process outsourcing services, which was up 7% in the quarter after reporting stronger-than-expected June quarter results and

on management's upward revision of its 2015 forecast amid healthy demand.

In the industrials sector, Fund stock selection was a positive but the Fund's heavy overweight worked against us as the sector declined in the quarter. Nordson, a manufacturer of dispensing systems for adhesives and coatings, and Donaldson, a maker of industrial air filtration equipment, were both down around 20%. The strong U.S. dollar has negatively impacted these global companies, but we are seeing stronger results from the Fund's more domestic-oriented industrial names like Toro, a provider of turf maintenance equipment, which gained 4% in the quarter.

After a strong run in the first half of the year, health care stocks reversed in the third quarter. Despite these shorter-term declines, the Fund has maintained its strong outperformance in this sector year to date versus the benchmark. As we mentioned last quarter, we've done some trimming of the Fund's health care weight and this did prove to be modestly beneficial this quarter. Our biggest detractors in the sector included Cepheid, a provider of molecular diagnostic supplies, which fell 26% due to softer-than-expected June quarter results. Akorn, a developer, manufacturer and distributor of specialty generic drugs, fell 35% after disclosing that accounting errors caused a delay in the company's filings with the SEC. Akorn hired a new chief financial officer, and we don't anticipate future problems.

Relative to the benchmark, stock selection in the financial sector was a positive for the Fund in the quarter, but the sector as a whole underperformed. World Acceptance, a provider of personal loans, fell 56% on news of possible action to be taken against the company by the Consumer Financial Protection Bureau. SVB Financial Group, a bank to venture capitalists, ended the quarter down 20%. SVB's large deposit base positions it to benefit from an increase in interest rates, but the Federal Reserve's decision to delay a rate increase dampened investor sentiment around the stock.

*In our first quarter shareholder report, we announced that Robert Mohn would be retiring later this year. Mr. Mohn formally retired effective October 1, 2015.

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.


10



COLUMBIA ACORN USA®

AT A GLANCE

Total Net Assets of the Fund:
$1.1 billion

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn USA® Class Z Shares

September 4, 1996 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

    3rd
quarter
  Year to
date
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Class Z (9/4/96 inception)    

-10.29

%

   

-3.79

%

   

3.65

%

   

11.74

%

   

6.19

%

   

10.14

%

 
Class A (10/16/00 inception)  

without sales charge

   

-10.37

     

-3.97

     

3.42

     

11.45

     

5.89

     

9.78

   

with sales charge

   

-15.51

     

-9.50

     

-2.53

     

10.14

     

5.27

     

9.44

   

Russell 2000 Index*

   

-11.92

     

-7.73

     

1.25

     

11.73

     

6.55

     

7.88

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 1.08% for Class Z shares and 1.34% for Class A shares. The returns shown for periods prior to the inception of the Fund's Class A shares append the returns of the Fund's Class Z shares, 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 columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   Extra Space Storage
Self Storage Facilities
  3.7
%  
2.   Ametek
Aerospace/Industrial Instruments
  3.4
%  
3.   HEICO
FAA-approved Aircraft Replacement Parts
  3.0
%  
4.   Nordson
Dispensing Systems for Adhesives & Coatings
  2.9
%  
5.   Donaldson
Industrial Air Filtration
  2.4
%  
6.   Mettler-Toledo International
Laboratory Equipment
  2.0

%

 
7.   Drew Industries
RV & Manufactured Home Components
  1.9

%

 
8.   ExlService Holdings
Business Process Outsourcing
  1.9

%

 
9.   Cepheid
Molecular Diagnostics
  1.8

%

 
10.   Ansys
Simulation Software for Engineers & Designers
  1.8

%

 

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


11



COLUMBIA ACORN INTERNATIONAL SELECTSM

IN A NUTSHELL

 

 
Christopher J. Olson
Co-Portfolio Manager
  Andreas Waldburg-Wolfegg
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Foreign investments subject the Fund to political, economic, market, social and other risks within a particular country, as well as to potential currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector. Please also see "A Comment on Trading Volumes" on Page 1 of this report.

Columbia Acorn International Select Class Z shares ended the third quarter of 2015 down 9.49%, underperforming the 8.78% drop of the Fund's primary benchmark, the S&P Developed Ex-U.S. Between $2B and $10B® Index. Year to date through September, the Fund was down 5.98% versus a benchmark decline of 1.48%. Most world markets were negatively impacted by China's reversal, making it a difficult quarter for international investors. On a regional basis, Fund stock selection in Europe, North America and Australasia outpaced the benchmark in the quarter, but the Fund's overweight exposure to Latin America and select emerging markets was a detractor.

During the quarter, we moved some Fund assets away from Asia (excluding Japan) and put that money to work in Europe, where the Fund has historically been underweight. Compass Group, a UK provider of catering and support services, and Essilor International, a French manufacturer of eyeglass lenses, were two new names added to the Fund in the quarter. We also increased the Fund's exposure to some existing positions including Whitbread, a UK hotelier and coffee shop owner. At quarter end, the Fund was modestly overweight in Europe versus the benchmark.

We have put more emphasis on the mid-cap space within the portfolio since the beginning of the year. As market valuations have continued to grow, we are seeing opportunities in mid-cap names similar to those historically available in the small-mid cap area. Additionally, focusing on mid-caps gives us the opportunity to continue to invest in names that we have known for a long time, but that have outgrown the smaller cap space. Also in the quarter, we reduced the Fund's weighting in the basic materials sector by selling holdings in precious metal stocks. Gold miners Tahoe Resources and Goldcorp, down 33% and 23%, respectively in the quarter, were among the Fund's detractors and were sold before the period end.

Within Europe and North America, top contributors in the quarter included Wirecard, a German online payment processor, which gained 25%. Wirecard announced continued high revenue growth and operating profit. CCL Industries, a global label converter based in Canada, gained 15% on improved margins in all of its business segments, which beat market expectations. Partners Group, a Swiss private markets asset management company, gained 13% in the quarter on strong asset flows that are expected to be substantially higher than were anticipated at the beginning of the year. As noted above, the Fund benefited from its stock selection in Europe. In North America and Australasia, the Fund's underweight and stock selection were both beneficial relative to its benchmark.

Leading detractors in the period were heavily impacted by China's decline. While we made adjustments away from Asia (excluding Japan) during the quarter, the region remained an overweight in the Fund at quarter end and was a detractor relative to the benchmark. The Fund's one position listed in Hong Kong, the Hong Kong equity and derivatives market operator Hong Kong Exchanges and Clearing, declined 34%, dropping with the Chinese market. CapitaLand Mall Trust, a Singaporean commercial property real estate investment trust (REIT), fell 15%, as most emerging market economies were also down substantially in the quarter. As long-term investors, we generally try to hold or build positions in companies with good fundamentals when stock weakness occurs due to near-term factors.

Also an overweight in the Fund, Latin America and EMEA (Europe, Middle East, Africa) regional exposure was the largest detractor relative to the benchmark during the quarter. Naspers, a South African provider of media to emerging markets, fell 20% due to a 17% fall in Hong Kong-listed social networking platform TenCent. TenCent is Naspers' primary investment and it declined on concerns about the Chinese economy.

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.


12



COLUMBIA ACORN INTERNATIONAL SELECTSM

AT A GLANCE

Total Net Assets of the Fund:
$180.7 million

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn International SelectSM Class Z Shares

November 23, 1998 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

    3rd
quarter
  Year to
date
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Class Z (11/23/98 inception)    

-9.49

%

   

-5.98

%

   

-13.72

%

   

3.73

%

   

5.89

%

   

7.99

%

 
Class A (10/16/00 inception)  

without sales charge

   

-9.53

     

-6.19

     

-13.95

     

3.39

     

5.55

     

7.64

   

with sales charge

   

-14.74

     

-11.56

     

-18.90

     

2.18

     

4.93

     

7.26

   
S&P Developed Ex-U.S.
Between $2B and $10B® Index*
   

-8.78

     

-1.48

     

-3.90

     

5.29

     

4.80

     

6.98

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 1.18% for Class Z shares and 1.47% for Class A shares. The returns shown for periods prior to the inception of the Fund's Class A shares append the returns of the Fund's Class Z shares, 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 columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   KDDI (Japan)
Mobile & Fixed Line Communication Service
Provider in Japan
  4.9

%

 
2.   Naspers (South Africa)
Media in Africa, China, Russia & other
Emerging Markets
  4.2

%

 
3.   Secom (Japan)
Security Services
  4.0
%  
4.   Partners Group (Switzerland)
Private Markets Asset Management
  3.9
%  
5.   Recruit Holdings (Japan)
Recruitment & Media Services
  3.9
%  
6.   CCL Industries (Canada)
Global Label Converter
  3.8
%  
7.   Telefonica Deutschland (Germany)
Mobile & Fixed-line Communications in Germany
  3.3
%  
8.   CapitaLand Mall Trust (Singapore)
Singapore Commercial Property Real Estate
Investment Trust
  3.2
%  
9.   Distribuidora Internacional de
Alimentación (Spain)
Discount Retailer in Spain & Latin America
  3.1
%  
10.   WH Smith (United Kingdom)
Newsprint, Books & General Stationery Retailer
  3.0
%  

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


13



COLUMBIA ACORN SELECTSM

IN A NUTSHELL

 

 
Robert A. Chalupnik
Lead Portfolio Manager
  Matthew S. Szafranski
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. Foreign investments subject the Fund to risks, including political, economic, market, social and other risks, within a particular country, as well as to potential currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. The Fund may invest significantly in issuers within a particular sector, which may be negatively affected by market, economic or other conditions, making the Fund more vulnerable to unfavorable developments in the sector.

Columbia Acorn Select Class Z shares ended the third quarter of 2015 down 8.96%, slightly behind the 8.50% decline of its primary benchmark, the S&P MidCap 400 Index. Year to date through September, the Fund was down 3.43%, outperforming the 4.66% decline of the benchmark. Fund performance in the information technology (IT) sector was strong in the quarter, while certain holdings in the industrials and consumer staples sectors were relative detractors.

We ended the quarter with 41 holdings in Columbia Acorn Select. This is somewhat below the average number of Fund positions in recent years, and is roughly where we intend to keep the portfolio going forward. We've made adjustments to concentrate Fund assets in higher-conviction names. During the quarter, for example, we reduced the Fund's exposure to biotech, an area that has performed well for the Fund but where we currently feel valuations are stretched. In general, we are opting for companies with better balance sheets, higher return on capital, and a solid competitive advantage.

Strong performance in the IT sector was led by Solera Holdings, a software developer for automotive insurance claims processing that gained 21% following the announcement of its agreement to be acquired by Vista Equity Partners. Ultimate Software, a provider of human capital management systems, gained 9% on strong earnings news and strength in new bookings. Vonage, a provider of business and consumer Internet telephone services, benefited from strong quarterly earnings and growth in business customers. Its stock gained 20% in the quarter.

Reacting favorably to the Federal Reserve's September decision not to raise interest rates, Fund holdings in real estate investment trusts (REITs) were also strong contributors in the quarter. Extra Space Storage, a self-storage facility operator, Post Properties, an owner of multifamily properties, and EdR, a provider of student housing at universities, had gains ranging from 6% to 19%. Overall, the Fund's relative underweight in the financial sector detracted from performance in the quarter but stock selection in the sector topped the benchmark.

Fund stocks in the industrial sector did not keep pace with the benchmark in the quarter. Donaldson, a maker of industrial air filtration equipment, and Nordson, a maker of dispensing systems for adhesives and coatings, detracted from relative performance, as both declined around 20%. U.S. dollar strength continued to hurt these global businesses, but Donaldson's stock also came under pressure following a close competitor's announcement of an earnings miss. While external factors have weighed

heavily on Donaldson, the company continues to take market share from competitors because they have better-performing products (filters) and have expanded their distribution.

Within the consumer staples sector, specialty food retailer The Fresh Market and organic food distributor United Natural Foods continued to struggle, ending the quarter down 32% and 24%, respectively. The Fresh Market is facing increased competition and is also feeling the impact of lower produce prices on its bottom line. While we did some trimming of this position in the quarter, we continue to feel confident in its business model and believe its current valuation is quite appealing. We decided to sell the Fund's position in United Natural Foods because of slower growth prospects for the industry.

We added two new positions to the Fund in the quarter: Polaris and Align Technology. Polaris manufactures leisure vehicles and related products and we feel the company is well positioned to benefit from improving U.S. consumer spending and lower gas prices. Align Technology, which manufactures the Invisalign system used to straighten teeth, is a leader in non-invasive orthodontics and is taking share from traditional orthodontic solutions. While adding Align, we decided to exit Henry Schein, a distributor of dental, veterinary and other medical products, because we believe Align has higher growth prospects and a better business model. In the current low-price environment, we opted to reduce the Fund's energy exposure and sold Gulfport Energy and Petromanas.

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.


14



COLUMBIA ACORN SELECTSM

AT A GLANCE

Total Net Assets of the Fund:
$468.5 million

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn SelectSM Class Z Shares

November 23, 1998 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

    3rd
quarter
  Year to
date
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Class Z (11/23/98 inception)    

-8.96

%

   

-3.43

%

   

-0.63

%

   

8.21

%

   

6.53

%

   

9.58

%

 
Class A (10/16/00 inception)  

without sales charge

   

-9.06

     

-3.65

     

-0.96

     

7.89

     

6.22

     

9.23

   

with sales charge

   

-14.29

     

-9.17

     

-6.65

     

6.61

     

5.59

     

8.85

   

S&P MidCap 400® Index*

   

-8.50

     

-4.66

     

1.40

     

12.93

     

8.25

     

9.81

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 0.84% for Class Z shares and 1.12% for Class A shares. The returns shown for periods prior to the inception of the Fund's Class A shares append the returns of the Fund's Class Z shares, 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 columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   Ametek
Aerospace/Industrial Instruments
  6.5
%  
2.   LKQ
Alternative Auto Parts Distribution
  4.8
%  
3.   Donaldson
Industrial Air Filtration
  4.7
%  
4.   SEI Investments
Mutual Fund Administration & Investment
Management
  3.6
%  
5.   Nordson
Dispensing Systems for Adhesives & Coatings
  3.6
%  
6.   Vail Resorts
Ski Resort Operator & Developer
  3.5
%  
7.   The Fresh Market
Specialty Food Retailer
  3.0
%  
8.   Gentex
Manufacturer of Auto Parts
  3.0
%  
9.   CNO Financial Group
Life, Long-term Care & Medical Supplement
Insurance
  3.0
%  
10.   Expeditors International of Washington
International Freight Forwarder
  2.9
%  

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


15



COLUMBIA THERMOSTAT FUNDSM

IN A NUTSHELL

 

 
Charles P. McQuaid
Lead Portfolio Manager
  Christopher J. Olson
Co-Portfolio Manager
 

A "fund of funds" bears its allocable share of the costs and expenses of the underlying funds in which it invests. Such funds are thus subject to two levels of fees and potentially higher expense ratios than would be associated with a fund that invests and trades directly in financial instruments under the direction of a single manager.

The value of an investment in the Fund is based primarily on the performance of the underlying funds in which it invests. The Fund is subject to the risk that the investment manager's decisions regarding asset classes and underlying funds will not anticipate market trends successfully, resulting in a failure to preserve capital or lower total return. The Investment Manager may prefer an underlying fund in the Columbia Acorn Family of Funds over alternative investments. There can be no assurance that the Columbia Acorn Funds will outperform similar funds managed by the Investment Manager's affiliates. This is not an offer of the shares of any other mutual fund mentioned herein.

Class Z shares of our fund of funds, Columbia Thermostat Fund, ended the third quarter of 2015 down 2.27%, compared to the 6.44% loss of the Fund's primary equity benchmark, the S&P 500® Index, and the 1.23% gain of the Fund's primary debt benchmark, the Barclays U.S. Aggregate Bond Index. Year to date through September, the Fund fell 1.06%, while the S&P 500 fell 5.29%. The Barclay's benchmark gained 1.13% for the same period. The Fund's custom 50/50 Blended Benchmark fell 2.62% in the quarter and ended the nine months down 1.98%.

In a volatile quarter for stocks, the Fund's equity portfolio had a weighted average loss of 7.93%. Columbia Dividend Income Fund was the Fund's best performer on the equity side, but declined 5.14%. Columbia Acorn International was at the bottom of the performance list with a 10.01% loss in the quarter.

The bond portion of the Fund had a slight loss in the third quarter, falling 0.37%. Three of the Fund's four underlying bond funds had a positive return, with Columbia Intermediate Bond Fund in the lead, up 1.03%. Columbia Income Opportunities Fund was the worst detractor on the bond side, falling 3.53%.

Columbia Thermostat Fund continues to faithfully execute its "buy low, sell high" strategy. When stocks appeared expensive through June 30, the Fund was just 10% to 20% invested in stocks. During the late summer swoon in stocks, the Fund bought stocks, hitting a 35% exposure, where it remained through the quarter end. As a result, the Fund dropped much less than the stock market year to date. As of the end of the quarter, Columbia Thermostat was poised to moderately profit on a stock market recovery but also to buy more on a market drop.

Results of the Funds Owned in Columbia Thermostat Fund

as of September 30, 2015

Stock Funds

Fund

  Weightings
in category
  3rd
quarter
performance
  Year
to date
performance
 
Columbia Acorn
International, Class I
   

20

%

   

-10.01

%

   

-5.30

%

 
Columbia Contrarian
Core Fund, Class I
   

20

%

   

-7.17

%

   

-4.30

%

 
Columbia Dividend
Income Fund, Class I
   

20

%

   

-5.14

%

   

-6.24

%

 
Columbia Acorn
Fund, Class I
   

10

%

   

-9.78

%

   

-3.79

%

 
Columbia Acorn
Select, Class I
   

10

%

   

-9.00

%

   

-3.37

%

 
Columbia Large Cap
Enhanced Core
Fund, Class I
   

10

%

   

-6.80

%

   

-5.99

%

 
Columbia Select Large Cap
Growth Fund, Class I
   

10

%

   

-9.16

%

   

-1.58

%

 
Weighted Average
Equity Loss
   

100

%

   

-7.93

%

   

-4.57

%

 

Bond Funds

Fund

  Weightings
in category
  3rd
quarter
performance
  Year
to date
performance
 
Columbia Short Term
Bond Fund, Class I
   

40

%

   

0.14

%

   

0.87

%

 
Columbia Intermediate
Bond Fund, Class I
   

20

%

   

1.03

%

   

1.33

%

 
Columbia Income
Opportunities Fund, Class I
   

20

%

   

-3.53

%

   

-0.94

%

 
Columbia U.S. Government
Mortgage Fund, Class I
   

20

%

   

0.38

%

   

1.70

%

 
Weighted Average
Income Gain/Loss
   

100

%

   

-0.37

%

   

0.77

%

 

Columbia Thermostat Fund Rebalancing in the Third Quarter

July 31, 2015

 

20% stocks, 80% bonds

 

August 31, 2015

 

30% stocks, 70% bonds

 

September 2, 2015

 

35% stocks, 65% bonds

 

The Fund's investments in the underlying funds may present certain risks, including the following. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The Fund's investment in other funds subjects it to the investment performance (positive or negative), risks and expenses of these underlying funds. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than in investments in larger, more established companies. There are risks associated with fixed income investments, including credit risk, market risk, interest rate risk and prepayment and extension risk. In general, bond prices fall when interest rates rise and vice versa. This effect is more pronounced for longer term securities. Non-investment-grade (high-yield or junk) securities present greater price volatility and more risk to principal and income than higher rated securities. Foreign investments subject the Fund to political, economic, market, social and other risks within a particular country, as well as to potential currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers.


16



COLUMBIA THERMOSTAT FUNDSM

AT A GLANCE

Total Net Assets of the Fund:
$1.1 billion

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Thermostat FundSM Class Z Shares

September 25, 2002 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

    3rd
quarter
  Year to
date
 

1 year

 

5 years

 

10 years

  Life of
Fund
 
Class Z (9/25/02 inception)    

-2.27

%

   

-1.06

%

   

0.70

%

   

7.88

%

   

6.09

%

   

7.42

%

 
Class A (3/3/03 inception)  

without sales charge

   

-2.31

     

-1.25

     

0.50

     

7.63

     

5.82

     

7.15

   

with sales charge

   

-7.94

     

-6.95

     

-5.31

     

6.36

     

5.20

     

6.67

   

S&P 500® Index*

   

-6.44

     

-5.29

     

-0.61

     

13.34

     

6.80

     

8.96

   
Barclays U.S. Aggregate
Bond Index*
   

1.23

     

1.13

     

2.94

     

3.10

     

4.64

     

4.49

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmarks. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 0.77% for Class Z shares and 1.02% for Class A shares. The returns shown for periods prior to the inception of the Fund's Class A shares append the returns of the Fund's Class Z shares, 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 columbiathreadneedleus.com/investment-products/mutual-funds/appended-performance for more information.

Asset Allocation

as a percentage of net assets, as of 9/30/15

Portfolio Weightings

as a percentage of assets in each investment category, as of 9/30/15

Stock Mutual Funds

Columbia Acorn International, Class I

   

20

%  

Columbia Contrarian Core Fund, Class I

   

20

%  

Columbia Dividend Income Fund, Class I

   

20

%  

Columbia Acorn Fund, Class I

   

10

%  

Columbia Acorn Select, Class I

   

10

%  
Columbia Large Cap Enhanced Core Fund,
Class I
   

10

%  
Columbia Select Large Cap Growth Fund,
Class I
   

10

%  

Bond Mutual Funds

Columbia Short Term Bond Fund, Class I

   

40

%  

Columbia Intermediate Bond Fund, Class I

   

20

%  
Columbia Income Opportunities Fund,
Class I
   

20

%  
Columbia U.S. Government Mortgage
Fund, Class I
   

20

%

 


17



COLUMBIA ACORN EMERGING MARKETS FUNDSM

IN A NUTSHELL

 

 
Fritz Kaegi
Co-Portfolio Manager
  Stephen Kusmierczak
Co-Portfolio Manager
 

 

 
Louis J. Mendes
Co-Portfolio Manager
  Satoshi Matsunaga
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different, potentially less stringent, financial and accounting standards than those generally applicable to U.S. issuers. Risks are enhanced for emerging and frontier market issuers. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. Please also see "A Comment on Trading Volumes" on Page 1 of this report.

Columbia Acorn Emerging Markets Fund Class Z shares lost 17.21% in the third quarter of 2015, slightly outperforming the 17.85% decline of the Fund's primary benchmark, the S&P Emerging Markets Between $500M and $5B® Index. Year to date through September, the Fund was down 19.54%, trailing the benchmark's 15.34% drop for the same period.

Much of the Fund's decline in the quarter was tied to weakness in China, which experienced further slowdowns in economic growth. The Fund's exposure to China was roughly 23% at quarter end, attributable to direct investment in China and Hong Kong, and to investments in companies operating in China but listed elsewhere in Asia. The Fund's weighting was in line with the benchmark's Greater China weight and was an area of modest relative outperformance in the quarter. Given China's greater focus on its domestic needs, we've added an emphasis in environmental companies, health care and select infrastructure names within this market.

Emerging markets that serve as a source of raw materials or commodities for China experienced similar declines in their markets and in their currencies. In Brazil, South Africa and Kazakhstan, where the Fund has a combined weighting of 10%, currencies have declined significantly against the U.S. dollar, and stocks in these markets have experienced greatly diminished returns when stated in dollar terms. We do not hedge the Fund's exposure to these currencies in order to provide shareholders exposure to local markets and currency diversification, and we expect emerging market currencies to be volatile. Hurt by the currency headwind and broader economic concerns in Brazil, car rental company Localiza Rent a Car ended the quarter down 38%. Coronation Fund Managers, a South African investment manager, fell 30% on lower fees compared to the prior year and on general concerns about future inflows given emerging market uncertainty. These portfolio companies were among the Fund's largest detractors in the quarter.

While it was a difficult quarter in some emerging market countries, not all of these markets were impacted in the same way by global events. Looking at each country individually, we can focus on what influenced growth locally. The Fund's second-largest country weight at quarter end was in India, a country that has very different drivers when compared to China, and that performed very differently in this volatile quarter. Within the Fund, India was down 2% for the quarter in local currency terms, which compared to a 22% decline for China for the same period. We are focusing on Indian companies positioned to benefit from an advancing consumer class and expected economic reforms. Zee Entertainment Enterprises, an

Indian programmer of pay television content, was a top contributor in the quarter, gaining 5%. Amara Raja, a maker of auto and industrial batteries, was another top Indian contributor, gaining 14% in the quarter. The Fund's 14% exposure to India at quarter end was just above the 13% weight of the benchmark, and was a modest detractor from performance during the quarter.

Another way to differentiate the emerging market space is to look at a country's stage of development. Both Taiwan and Korea have deeper domestic capital markets and a large current account surplus, which are not common in many other emerging countries. Taiwan is largely a manufacturer of technology hardware and semiconductors sold in developed markets. With a relatively affluent, urbanized and stable population, Taiwan does not possess the same growth opportunities as less developed countries that are benefiting from improving demographics, growing consumer incomes, better education, urbanization and higher workforce participation. Still, we believe that while the opportunity set may be smaller in more developed emerging markets, valuations may, at times, offer greater value. Strong stock selection resulted in Fund holdings in Taiwan outpacing the benchmark and was an overall contributor to performance in the quarter, despite the Fund's below benchmark weighting. Korea is also further along in development versus most emerging markets. Like Taiwan, Korea has strong export-oriented industries (such as technology hardware and automotive), but it has a larger domestic economy. We took advantage of favorable stock valuations and added three new Korean names in the quarter, bringing the Fund's weighting in Korea to 3%.

Emerging markets are some of the most dynamic economies in the world, evolving rapidly and poised for growth to reflect the underlying demographics. The quality of life for half of the world's population is improving as these markets advance and new companies are formed to meet the needs of a stronger consumer base. While there will continue to be volatility and currency fluctuations within these markets, as we have seen recently, emerging market downturns can provide compelling investment opportunities for long-term, bottom-up investors like Columbia Wanger Asset Management. With valuations down across many of these markets and currencies at multi-year lows against the U.S. dollar, we see many excellent businesses attractively priced in U.S. dollar terms. As we allocate Fund capital to these opportunities, we will continue to focus on companies that we believe have strong balance sheets and the ability to survive the volatility in these markets and position themselves for strong growth as local conditions improve.

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.

Columbia Acorn Emerging Markets Fund is closed to most new investors and new accounts with certain exceptions. Refer to the Fund's prospectus for details.


18



COLUMBIA ACORN EMERGING MARKETS FUNDSM

AT A GLANCE

Total Net Assets of the Fund:
$305.4 million

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn Emerging Markets FundSM Class Z Shares

August 19, 2011 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

 

3rd quarter

 

Year to date

 

1 year

 

Life of Fund

 
Class Z (8/19/11 inception)    

-17.21

%

   

-19.54

%

   

-21.44

%

   

1.25

%

 
Class A (8/19/11 inception)  

without sales charge

   

-17.26

     

-19.73

     

-21.63

     

0.96

   

with sales charge

   

-22.00

     

-24.37

     

-26.14

     

-0.48

   
S&P Emerging Markets Between
$500M and $5B® Index*
   

-17.85

     

-15.34

     

-18.15

     

-1.37

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 1.33% for Class Z shares and 1.57% for Class A shares.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   Zee Entertainment Enterprises (India)
Indian Programmer of Pay Television Content
  4.8
%  
2.   Adani Ports & Special Economic Zone
(India)
Indian West Coast Shipping Port
  2.6
%  
3.   Coronation Fund Managers
(South Africa)
South African Fund Manager
  2.6
%  
4.   Halyk Savings Bank of
Kazakhstan–GDR (Kazakhstan)
Retail Bank & Insurer in Kazakhstan
  2.5
%  
5.   Koh Young Technology (Korea)
Inspection Systems for Printed Circuit Boards
  2.3
%  
6.   Commercial International Bank of
Egypt (Egypt)
Private Universal Bank in Egypt
  2.2
%  
7.   Far EasTone Telecom (Taiwan)
Mobile Operator in Taiwan
  2.2
%  
8.   Cable and Wireless (United Kingdom)
Telecommunications Service Provider in the
Caribbean
  2.0
%  
9.   MNC Sky Vision (Indonesia)
Satellite Pay TV Operator in Indonesia
  2.0
%  
10.   Rand Merchant Insurance (South Africa)
Directly Sold Property & Casualty Insurance;
Holdings in other Insurers
  1.9
%  

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


19



COLUMBIA ACORN EUROPEAN FUNDSM

IN A NUTSHELL

 

 
Andreas Waldburg-Wolfegg
Co-Portfolio Manager
  Stephen
Kusmierczak
Co-Portfolio Manager
 

Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. International investing involves certain risks and volatility due to potential political, economic or currency instabilities and different, potentially less stringent, financial and accounting standards than those generally applicable to U.S. issuers. Risks are enhanced for emerging market issuers. Investments in small- and mid-cap companies involve risks and volatility and possible illiquidity greater than investments in larger, more established companies. Please also see "A Comment on Trading Volumes" on Page 1 of this report.

Columbia Acorn European Fund Class Z shares fell 5.84% in the third quarter of 2015, slightly underperforming the 5.34% drop of the Fund's primary benchmark, the S&P Europe Between $500M and $5B Index. Year to date through September, the Fund was up 0.57%, while the benchmark gained 4.71% for the same period. Underperformance for both periods was due in part to significant declines in several of the Fund's largest positions.

Munksjo, a Finnish specialty paper retailer and the Fund's second largest position at quarter end, was also the second largest detractor. Its stock continued to give back the gains made early in the year, falling an additional 21% in the third quarter. Markets are worried that the company will not be able to offset higher hardwood pulp input prices. We think this is a short-term issue, which will ease with recently implemented price increases of the company's release liner and décor paper products. We have, therefore, added to the Fund's position in the company since the beginning of the year. Distribuidora Internacional de Alimentación (DIA), a discount retailer in Spain and Latin America, was the third largest position in the Fund at quarter end and also ranked among the Fund's main detractors. While DIA's stock was down 19% in the quarter, we believe strengthening food prices in Spain should help the company increase its margins and gain market share. We took advantage of the decline and added to the Fund's position. The company's emerging market exposure is a concern in the current environment, but we believe the outlook for DIA is positive overall.

Looking at the Fund's regional weightings, the overweight in the Nordic region (Denmark, Finland, Norway and Sweden) was a positive in the third quarter relative to the benchmark. Nordic winners included Sweden's Unibet, an online gaming operator, which gained 37% as the company continues to take market share in European markets. SimCorp, a Danish developer of software for investment managers, was also strong in the quarter, gaining 26%. The company has enjoyed a recovery in new license sales, as asset managers respond to new compliance rules put in place in the wake of the financial crisis.

In Northern and Central Europe (Austria, Belgium, Germany, Luxembourg, the Netherlands and Switzerland), the Fund's average weight and performance were largely in line with the benchmark at quarter end. Gaining nearly 25%, German online payment processor Wirecard announced continued high revenue growth and operating profit, and also benefited from its increased attention to the financial technology sector. Partners Group, a Swiss

private markets asset management company, gained 13% on strong asset flows that beat expectations.

Performance of Fund stocks held in the Mediterranean region (France, Greece, Italy, Portugal and Spain) were a significant detractor relative to the benchmark. The Fund was below the benchmark weight in this region at the end of the quarter. French online advertiser Hi-Media fell 72%, as its decision to separate from its sister company (HiPay) raised liquidity concerns. We elected to sell the Fund's position in the stock. French postage machine manufacturer Neopost continued to struggle in the third quarter, falling 36%. Neopost's revenues have suffered from decreasing mail volumes and weak European demand in its core equipment business.

Columbia Acorn European Fund reached its four-year anniversary in August and, at the end of the third quarter, had a 10.19% annualized return since its inception. We are pleased that the Fund has provided our shareholders with a solid gain, while taking on less average risk than its benchmark. Today, we are increasingly concerned by the asylum crisis in Europe, and while it seems to receive less media attention than the Greek euro exit worries of this summer, we believe that the impact on Europe could be decidedly more detrimental. European trade and travel have benefited enormously since the introduction of the Schengen open border zone three decades ago. Certainly one of the important accomplishments of the European Union, borderless travel has increased intra-European trade and travel, and enabled more economically efficient dispersion of manufacturing and logistics across the continent. However, if border controls are re-introduced, trade will be impaired and companies may face meaningfully higher transport and working capital costs. We are seeing evidence that growing negative public sentiment will force new restrictions on refugee entrance to the European Union, thus preserving the Schengen area. In the event that immigration curbs are not imposed and countries re-establish intra-Schengen border controls, we are ready to make portfolio changes to reflect higher trade and travel restrictions for Europe.

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.


20



COLUMBIA ACORN EUROPEAN FUNDSM

AT A GLANCE

Total Net Assets of the Fund:
$57.9 million

Performance data shown below represents past performance, does not guarantee future results, assumes reinvestment of dividends and distributions and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or the redemption of Fund shares. 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. Performance data reflects fee waivers or reimbursements of Fund expenses, if any; in their absence, performance results would have been lower. Indexes are unmanaged; their results do not reflect the effect of expenses or sales charges. Securities in the Fund may not match those in an index. Please visit columbiathreadneedle.com/us for performance data current to the most recent month-end.

The Growth of a $10,000 Investment in Columbia Acorn European FundSM Class Z Shares

August 19, 2011 (Fund inception) through September 30, 2015

This chart shows the change in value of a hypothetical $10,000 investment in Class Z shares of the Fund during the stated time period.

Average Annual Total Returns for period ended September 30, 2015

 

3rd quarter

 

Year to date

 

1 year

 

Life of Fund

 
Class Z (8/19/11 inception)    

-5.84

%

   

0.57

%

   

-0.15

%

   

10.19

%

 
Class A (8/19/11 inception)  

without sales charge

   

-5.91

     

0.36

     

-0.42

     

9.90

   

with sales charge

   

-11.32

     

-5.38

     

-6.11

     

8.33

   
S&P Europe Between $500M and
$5B® Index*
   

-5.34

     

4.71

     

3.18

     

12.41

   

Results for other share classes can be found on Page 4.

*The Fund's primary benchmark. Please see Page 3 for index descriptions.

Returns for Class A shown with and without the maximum initial sales charge of 5.75%. As stated in the May 1, 2015, prospectus, the Fund's annual operating expense ratio is 1.50% for Class Z shares and 1.75% for Class A shares.

Portfolio Diversification

as a percentage of net assets, as of 9/30/15

Top 10 Holdings

as a percentage of net assets, as of 9/30/15

1.   Assura (United Kingdom)
UK Primary Health Care Property Developer
  2.8
%  
2.   Munksjo (Finland)†
Specialty Paper Maker
  2.8
%  
3.   Distribuidora Internacional
de Alimentación (Spain)
Discount Retailer in Spain & Latin America
  2.7
%  
4.   Partners Group (Switzerland)
Private Markets Asset Management
  2.6
%  
5.   Aurelius (Germany)
European Turnaround Investor
  2.5
%  
6.   Charles Taylor (United Kingdom)
Insurance Services
  2.5
%  
7.   Wirecard (Germany)
Online Payment Processing & Risk Management
  2.3
%  
8.   SimCorp (Denmark)
Software for Investment Managers
  2.2
%  
9.   Unibet (Sweden)
European Online Gaming Operator
  2.2
%  
10.   William Demant Holding (Denmark)
Manufacture & Distribution of Hearing Aids &
Diagnostic Equipment
  2.1
%  

†The Fund holds shares traded on both the Finnish and Swedish exchanges.

The Fund's top 10 holdings and portfolio diversification vary with changes in portfolio investments. See the Statement of Investments for a complete list of the Fund's holdings.


21



SQUIRREL CHATTER: FANNIE MAE, FREDDIE MAC AND THE HOUSING MARKET COLLAPSE

American Enterprise Institute scholar and member of the Financial Crisis Inquiry Commission, Peter Wallison, published a book this year called Hidden in Plain Sight, in which he states that there would not have been a housing bubble and collapse without the specific U.S. Department of Housing and Urban Development (HUD) targets mandated for Fannie Mae (Fannie) and Freddie Mac1 (Freddie) to support housing. Because it contradicts the popularly accepted belief that the financial crisis was caused by Wall Street greed and poor regulation of the financial system, Wallison's stance piqued my interest and led me to do some further research on the subject.

Fannie and Freddie Become Aggressive Lenders

After years of expanding and evolving, Fannie's and Freddie's share of residential mortgages reached 28.4% in 1991.2 The Housing and Community Development Act of 1992 (the Act) created a safety and soundness regulator for Fannie and Freddie, the Office of Federal Housing Enterprise Oversight (OFHEO).3 OFHEO ended up being part of HUD, an agency intended to support housing, and the OFHEO generally regulated Fannie and Freddie lightly.

As a result of pressure from community activists,4 the Act also mandated that HUD set specific targets to support housing for low- and middle-income loan applicants, including loans for inner-city, affordable housing.5 Low- and middle-income loan targets began at 30% for 1995, below what was already being achieved.6 Lending standards initially remained high.7

The affordability goal was raised to 42% in 1996 and 50% in 2001.8 Congress specifically instructed Fannie and Freddie to consider loans with down payments of 5% or less, and loans to borrowers whose credit was good for only the last year.9 A 1996 study by the Federal Reserve indicated that such affordable housing loans had default rates of 51 times those with 20% down payments and good credit scores.10

Fannie and Freddie grew their overall mortgage holdings more than five-fold in the eight years between 1992 and 2000, to $993 billion. Including guarantees, their combined mortgage exposure was nearly $2.3 trillion.11 Competitors and free-market advocates questioned their

unique advantages, such as implicit guarantees on their debt and low taxes,12 but subsequent attempts to more vigorously regulate Freddie and Fannie failed as allied politicians supported them as enablers of affordable home ownership.13

A HUD study in 2002 confirmed that Fannie and Freddie had adopted more "flexible" underwriting standards with respect to down payments and credit histories, including down payments as low as 3%, in order to reach the targets. By 2002, Fannie and Freddie held $1.21 trillion of mortgages and guaranteed $1.52 trillion more, achieving a 44.7% market share.14

Former Fannie chief financial officer Timothy Howard admitted that in order for Fannie to grow, it had to "extend the reach of our affordable housing activities by proportionately much more."15 Howard denied, however, taking excessive risk to meet the HUD goals, and credit losses on Fannie's mortgages remained low through the year 2000.16

According to Howard, Fannie tightened up its risk discipline in the summer of 2003 in response to rising interest rates, painful losses from loans for manufactured housing, and risks being accepted by its competitors.17 Fannie lost market share in 2004, as outstanding mortgages grew 14% and its portfolio grew just 5%, down from the double-digit growth experienced since 1986.18

Through 2003, Fannie and Freddie dominated mortgage securitization.19 Buyers of Fannie and Freddie securities took only interest rate and early repayment risks, as the implicit government guarantees purportedly eliminated credit risk. Private label—not Government backed—securitization accounted for just 12% of mortgage securitizations in 1996 and 17% in 2003.20

Private Mortgage Securitization Accelerates

Post 2003, private label securitizers became more aggressive in issuing mortgage-backed securities, offering higher yields in exchange for minimal credit guarantees.21 Pools of mortgages were securitized into risk tranches, with senior tranches receiving cash flows prior to junior tranches and interest rates reflecting perceived risks. By 2006, private label securitizations accounted for 50% of mortgage securitizations.22 All of the top five securitizers were mortgage companies such as Countrywide; none were Wall Street firms or commercial banks.23


22



There was substantial "moral hazard" in this business, as profits were made via securitization regardless of whether the loans ended up being sound. Loan quality plunged. Adjustable rate mortgages with low initial "teaser" rates jumped to a 45% share by 2006.24 A similar percentage of loans made to first-time homebuyers had no down payments, and low or no documentation fraud-prone loans also surged.25 Indeed, in 2006, 80% of new subprime mortgage loans were securitized.26 "Conforming" (high quality) loans dropped to just 33% of new mortgage loans that year.27

Rating agencies used statistical models based on low historical mortgage default ratios in rating mortgage-backed securities. While there had been regional drops in housing prices, nationwide declines had occurred only during the Great Depression. Mortgage securitizations included diversified geographies, so most of the tranches were rated AAA. The rating agencies seemed blind to decreasing mortgage quality and an apparent housing bubble. Critics noted the conflict of interest of rating agencies being paid by the securitizers, who shopped for high ratings.28

Bank regulations encouraged holdings of securitized mortgage debt because banks had to hold just 1.6% capital reserves on AA or higher rated private mortgage-backed securities, compared to 4.0% reserves on residential mortgages and 8.0% reserves on commercial loans.29 Regulators also allowed some capital relief if securitized debt was insured.30 Utilizing models similar to those used by rating agencies, AIG, an international insurance company, believed there was little risk and by the end of 2006 had insured $527 billion of credit.31

Accordingly, many large financial institutions bought AAA-rated tranches on their own balance sheets. The top five commercial banks and the top five investment banks roughly doubled balance sheet assets from 2003 to 2007.32 Many of them also set up special investment vehicles (SIVs), funded off balance sheet, to place securitized mortgages and other loans.33 However, SIVs tended to have liquidity or credit guarantees.34

Howard noted that Fannie continued to be under attack by competitors and free market advocates, and management's relationship with its regulator grew contentious. In December 2004, Fannie management was forced out due to an accounting controversy. The account-

ing rules for derivatives were complex and ambiguous, and ultimately Fannie and nearly 300 other companies restated their derivative results and earnings.35 The disallowance of hedge accounting resulted in a $9 billion reported loss from derivatives and left Fannie undercapitalized.36

The new Fannie management was forced to hire a chief risk officer independent of other corporate responsibilities, who had an oversight role.37 In addition to his role as CFO, Howard had been chief risk officer and had actual authority to veto the decisions of marketing executives. Within the new management structure, this role did not have veto power, and Fannie's risk management process deteriorated. Of $76 billion in single family credit losses Fannie ultimately recorded from 2008 to 2012, 87% came from loans purchased or guaranteed after 2004.38

Meanwhile, HUD phased in higher affordability goals, from 52% in 2005 to 56% in 2008.39 Dan Mudd, Fannie's new chairman, said Fannie had to devote a great deal of resources to running its business to satisfy HUD targets.40 In 2006, Fannie's newer management decided to increase market share, including share of subprime mortgages.41

Fannie and Freddie ended up being the largest buyers of securitized mortgage loans backed by low-quality mortgages, which helped them meet their affordable home mortgage targets.42 Home mortgage debt jumped from 54% of gross domestic product (GDP) to 89% of GDP in the 10 years through year-end 2006,43 and hit $11 trillion in 2008, exceeding the federal government debt.44

Spurred by cheap and high-risk loans, home prices surged, creating an unprecedented bubble. The S&P/Case-Shiller 10 City Index45 nearly tripled in the 10 years to June 2006.46 As long as home prices were rising, there were few defaults, as deadbeat borrowers could sell at a profit or refinance.

The Bubble Bursts

The home ownership rate in the United States reached 64% of households in the 1960s, stayed about there for the next 30 years,47 and then grew. At the height of the housing boom, the home ownership rate hit nearly 70%.48 At that time, there were 31 million low down payment, poor credit and poor documentation loans, accounting for 56% of mortgage loans.49

Home sales peaked in 2005 and prices peaked in 2006.50 The S&P/Case-Shiller Housing Price Index fell 40%


23



in the next three years.51 Mortgage delinquencies soared. Fannie's rose to 0.98% in 2007, 2.42% in 2008 and 5.4% in 2009.52 Fannie lost $2.2 billion in both of the first two quarters of 2008, and then in the third quarter lost $29.0 billion; Freddie's results were similar.53 Millions lost their homes to foreclosure.54 Banks were compelled to take back onto their balance sheets hundreds of billions of dollars of asset-backed securities.55

Regulators were blindsided. In their financial statements, Fannie and Freddie had reported that their exposures to subprime loans were under 1% of their portfolios.56 As of May 2007, the Federal Reserve apparently believed those reports and estimated that there were only about 7.5 million subprime loans outstanding.57 In July 2008, economist Paul Krugman wrote that Fannie and Freddie "didn't do any subprime lending..."58 As a result of a 2011 U.S. Securities and Exchange Commission lawsuit, Fannie and Freddie subsequently admitted holding or guaranteeing 13.6 million subprime loans.59

Fannie and Freddie had $1.7 trillion debt outstanding as of September 2008, including $520 million maturing within a year.60 Foreign entities held over $1 trillion of Fannie and Freddie debt, and made it clear to the U.S. Department of the Treasury (the Treasury) that if those debts defaulted, no government debt would be rolled over. Unable to roll over debt and deemed "too big to fail," Fannie and Freddie were placed into conservatorship on September 7, 2008.61 Fannie and Freddie eventually received $187 billion of bailout funds, and AIG received $152 billion.62

In 2004, HUD stated that it had created "a revolution in affordable lending," as "conventional loans to low income and minority families increased at much faster rates than loans to upper-income and nonminority families." Wallison points out the irony in that claim, as the "revolution" drove up home prices such that only 33% of U.S. housing markets were affordable (home prices three times incomes or less) in 2005, down from 90% in 1989, prior to the standards being created.63

Former congressman and chair of the House Financial Services Committee Barney Frank had been a vocal supporter of affordable housing, but he admitted in 2010 that "it was a great mistake to push lower-income people into housing they couldn't afford" and "I had been too sanguine about Fannie and Freddie."64

While Wallison makes good points, lots of bad loans were also made and securitized by the private sector, which gained market share from 2003 to 2006, the most precarious time for the housing bubble. I agree with the four Columbia University professors who wrote Guaranteed to Fail. They wrote, "The subprime mortgage mess was in part [emphasis added] due to government guarantees for Fannie and Freddie that distorted a level playing field, resulting in the debacle of mortgage finance."65

Bailouts

The Federal Reserve bailouts that followed the collapse provided short- and intermediate-term liquidity to companies who were deemed strategic to the economy. On the campaign trail in 2012, President Obama said that the banks paid back in full all federal bailout money. PolitiFact agreed that, in aggregate, the statement was true. A January 3, 2015 Washington Post story reported that the Treasury declared that the entire bailout was actually marginally profitable, as Fannie, Freddie, AIG and others had also paid back, with interest and profit, the money they received. The story added that "in many cases shareholders of bailed-out firms—especially AIG, Fannie and Freddie—were essentially wiped out, as they should have been."

One reason that the bailouts were paid back was that most subprime residential first mortgage-backed securities substantially recovered after the panic. Of those securities issued from 2005 to 2007, about 82% were originally rated AAA, and just 4.4% of this tranche became impaired through 2009, which was far better than expected.66 Most of the securities had been subject to mark-to-market accounting, and when their prices plunged, financial firms had to write them down, making them look far worse than the ultimate economic reality.

In hindsight, it seems that bad policies and incentives caused the housing bubble and financial crisis. While the economy, homeowners and shareholders were hurt, many purveyors of bad loans walked away wealthy, even after sanctions, in some cases. Yet regulations to prevent a recurrence could be much simpler than those created after Dodd-Frank's 2010 passage.67 Companies deemed strategically essential that needed bailouts could be broken up, bailouts that resulted in taxpayer losses could trigger claw-backs of top management compensation, fraud and predatory lending abuses could be fully prosecuted, and shareholders of surviving companies could not be subjected


24



to the negative impact of huge settlements many years after a financial crisis.

Charles P. McQuaid

Portfolio Manager, Analyst and Advisor
Columbia Wanger Asset Management, LLC

The information and data provided in this analysis are derived from sources that we deem to be reliable and accurate. These views are not guarantees of future performance and involve certain risks, uncertainties and assumptions that are difficult to predict so actual outcomes and results may differ significantly from the views expressed. The views/opinions expressed here are those of the author and not of the Columbia Acorn Trust Board of Trustees, are subject to change at any time based upon economic, market or other conditions, may differ from views expressed by other Columbia Management associates and the respective parties disclaim any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for a Columbia Acorn Fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia Acorn Fund.

1  The Federal National Mortgage Association (later dubbed Fannie Mae) was created in 1938 to purchase Federal Housing Administration-insured mortgages; later it was allowed to also buy U.S. Department of Veterans Affairs mortgages and was made exempt from state and local income taxes. Fannie was privatized in 1968. The Federal Home Loan Mortgage Corporation (Freddie Mac) was created in 1970, originally to purchase mortgages from the Savings & Loan industry and was privatized two decades later.

2  Viral V. Acharya, Matthew Richardson, Stijn Van Nieuwerburgh and Lawrence J. White, Guaranteed to Fail, Fannie Mae, Freddie Mac and the Debacle of Mortgage Finance (Princeton, New Jersey, Princeton University Press, 2011), p. 20.

3  Ibid., p. 32.

4  Peter J. Wallison, Hidden In Plain Sight, What Really Caused the World's Worst Financial Crisis and Why It Could Happen Again (New York, Encounter Books, 2015), p. 113.

5  Acharya, op. cit., p. 33.

6  Wallison, op. cit., p. 128-129.

7  Timothy Howard, The Mortgage Wars, Inside Fannie Mae, Big-Money Politics, and the Collapse of the American Dream (New York, McGraw-Hill Education, 2014), p. 46.

8  Wallison, op. cit., p. 129.

9  Ibid., p. 119.

10  Ibid., p. 164

11  Acharya, op. cit., p. 62

12  Howard, op. cit., p. 13.

13  Wallison, op. cit., p. 172.

14  Acharya, op. cit., p. 20.

15  Howard, op. cit., p. 65.

16  Ibid., p. 65-67.

17  Ibid., p. 157-163, 178.

18  Ibid., p. 177.

19  Acharya, op. cit., p. 42. A mortgage-backed security (MBS) is a type of asset-backed security that is secured by a mortgage or a collection of mortgages. The mortgages are sold to a government agency or investment bank that securitizes, or packages, the loans together into a security that investors can buy.

20  Ibid., p. 48.

21  Ibid., p. 42.

22  Ibid., p. 48.

23  Wallison, op. cit., p. 195. While mortgage companies created securitized mortgages, Wall Street did participate in the bubble. Wall Street Firms repackaged securitized mortgages and other debt instruments into collateralized debt obligations (CDO). According to McLean/Nocera (p126) revenues from underwriting such securities were

$5 billion in 2006. Wall Street also made money from associated derivatives and trading all types of debt. But mortgage-backed securities underpinned the CDOs, derivatives, and ultimately the housing collapse and Great Recession.

24  Acharya, op. cit., p. 47.

25  Wallison, op. cit., p. 222.

26  Acharya, op. cit., p. 48.

27  Ibid., p. 44.

28  Bethany McLean and Joe Nocera, All The Devils Are Here, The Hidden History of the Financial Crisis (New York, Penguin Group, 2010), p. 118.

29  Wallison, op. cit., p. 19.

30  McLean, op. cit., p. 78.

31  Ibid., p. 329.

32  Acharya, op. cit., p. 51.

33  Ibid., p. 49-50.

34  Ibid., p. 70.

35  Howard, op. cit., p. 220.

36  Ibid., p. 213.

37  Ibid., p. 229-233.

38  Ibid., p. 262.

39  Ibid., p. 193.

40  Wallison, op. cit., p. 168.

41  Howard, op. cit., p. 237.

42  Wallison, op. cit., p. 224.

43  Acharya, op. cit., p. 44.

44  Howard, op. cit., p. 11.

45  The S&P/Case-Shiller Home Price Indices are the leading measures of U.S. residential real estate prices, tracking changes in the value of residential real estate both nationally, as well as in 20 metropolitan regions.

46  Acharya, op. cit., p. 43.

47  Wallison, op. cit., p. 102.

48  Ibid., p. 219.

49  Ibid., p. 41.

50  Howard, op. cit., p. 15.

51  Acharya, op. cit., p. 85.

52  Ibid., p. 90.

53  Ibid., p. 89.

54  Howard, op. cit., p. 258.

55  Wallison, op. cit., p. 22. An asset-backed security (ABS) is a security whose income payments and hence value are derived from and collateralized (or "backed") by a specified pool of underlying assets. The pool of assets is typically a group of small and illiquid assets which are unable to be sold individually.

56  Ibid., p. 248.

57  Ibid., p. 249.

58  Ibid., p. 257.

59  Peter J. Wallison, "The 'Big Lie' Defense, The Painful Task of Taking on the Left," The American Spectator, April 2012, p. 21.

60  Acharya, op. cit., p. 73.

61  Ibid., p. 77, 83.

62  Chris Isidore, "We're Almost Break Even on the Bailout," CNNMoney (New York) September 15, 2013. http://money.cnn.com/2013/09/15/news/economy/bailout-profit/. Accessed October 12, 2015.

63  Wallison, op. cit., p. 157-158.

64  Wallison, op. cit., p. 25.

65  Acharya, op. cit., p. 98.

66  Wallison, op. cit., p. 91.

67  The Dodd-Frank Wall Street Reform and Consumer Protection Act is a compendium of federal regulations, primarily affecting financial institutions and their customers, that the Obama administration passed in 2010 in an attempt to prevent the recurrence of events that caused the 2008 financial crisis.


25




COLUMBIA ACORN® FUND

MAJOR PORTFOLIO CHANGES IN THE THIRD QUARTER (UNAUDITED)

   

Number of Shares

 
   

6/30/15

 

9/30/15

 

Purchases

 

Information

 

CoreLogic

   

1,005,000

     

1,138,000

   

Cvent

   

205,225

     

1,364,000

   

DemandWare

   

0

     

550,000

   

Genpact

   

1,419,083

     

1,714,083

   

Lamar Advertising

   

550,749

     

628,184

   

RetailMeNot

   

1,830,000

     

2,768,000

   

Sanmina

   

3,467,599

     

3,572,799

   

Starz

   

0

     

951,000

   

Industrial Goods & Services

 

Robert Half International

   

1,798,000

     

1,911,000

   

Consumer Goods & Services

 

Avis Budget Group

   

1,806,776

     

2,017,776

   

Cato

   

0

     

719,860

   

Coupons.com

   

0

     

2,697,000

   

Fiesta Restaurant Group

   

856,484

     

997,484

   

Gentex

   

4,350,000

     

6,505,000

   

Hertz

   

2,800,000

     

3,635,000

   

HRG Group

   

0

     

1,608,005

   

Mattress Firm

   

0

     

390,000

   

Polaris Industries

   

0

     

192,000

   

Tenneco

   

411,825

     

649,825

   

Health Care

 

Align Technology

   

777,276

     

914,276

   

Celldex Therapeutics

   

1,902,687

     

2,162,687

   

Other Industries

 

Heartland Express

   

2,296,684

     

2,816,684

   

Energy & Minerals

 

Carrizo Oil & Gas

   

944,733

     

1,216,733

   

Cimarex Energy

   

402,497

     

528,771

   
   

Number of Shares

 
   

6/30/15

 

9/30/15

 

Sales

 

Information

 

Amphenol

   

3,468,610

     

3,102,522

   

Ansys

   

1,530,948

     

1,307,860

   

Belden

   

427,810

     

0

   

Cadence Design Systems

   

4,514,783

     

4,174,029

   

CalAmp

   

1,269,759

     

1,255,089

   

Cogent Communications

   

769,047

     

0

   

Crown Castle International

   

747,504

     

655,865

   
Discovery Communications
Series C
   

402,028

     

0

   

F5 Networks

   

491,008

     

450,102

   

FLIR Systems

   

1,596,221

     

1,440,913

   

Global Eagle Entertainment

   

1,808,895

     

1,767,570

   

Global Payments

   

941,314

     

446,868

   

Gogo

   

2,208,178

     

2,138,621

   

GTT Communications

   

2,502,088

     

1,838,844

   

inContact

   

2,244,897

     

2,190,721

   

Infinera

   

1,940,827

     

1,896,961

   

IPG Photonics

   

1,143,460

     

1,051,460

   

Liberty Global Series A

   

661,980

     

623,626

   

Liquidity Services

   

1,600,000

     

0

   

Littelfuse

   

319,938

     

300,258

   

Mettler-Toledo International

   

532,255

     

500,314

   

NetSuite

   

570,149

     

505,397

   

Rogers

   

494,334

     

466,375

   

RP

X

     

1,908,954

     

1,780,644

   

Rubicon Technology

   

2,371,155

     

2,024,886

   

SBA Communications

   

839,317

     

557,169

   

Solera Holdings

   

1,650,392

     

0

   

SPS Commerce

   

940,526

     

738,167

   

Trimble Navigation

   

2,575,640

     

1,765,318

   

Ultimate Software

   

543,708

     

531,160

   

VeriFone Holdings

   

1,003,359

     

978,966

   

Verint Systems

   

1,258,046

     

1,228,326

   

Verisign

   

887,506

     

706,197

   

Verisk Analytics

   

1,170,274

     

1,019,873

   

Virtusa

   

1,263,525

     

1,078,328

   

Industrial Goods & Services

 

Airgas

   

823,571

     

760,291

   

Allegion

   

609,008

     

560,477

   

Ametek

   

4,569,066

     

3,759,949

   

Donaldson

   

7,949,116

     

7,758,932

   

Dorman Products

   

954,332

     

921,458

   

Drew Industries

   

1,434,286

     

1,341,286

   

ESCO Technologies

   

1,489,000

     

1,438,756

   
Expeditors International of
Washington
   

1,674,435

     

1,614,150

   

Forward Air

   

1,359,907

     

1,310,342

   

HEICO

   

2,962,178

     

2,863,648

   


26



   

Number of Shares

 
   

6/30/15

 

9/30/15

 

Sales (continued)

 

Industrial Goods & Services—continued

 

LKQ

   

6,748,927

     

6,088,786

   

Middleby

   

803,972

     

576,889

   

Moog

   

1,440,787

     

1,296,026

   

Nordson

   

2,147,586

     

2,096,519

   

Oshkosh Corporation

   

1,942,945

     

1,875,197

   

Toro

   

1,353,698

     

1,148,893

   

WABCO Holdings

   

595,235

     

376,496

   

Wabtec

   

625,474

     

0

   

Consumer Goods & Services

 

Caesarstone (Israel)

   

540,000

     

0

   

Casey's General Stores

   

596,335

     

328,705

   

Choice Hotels

   

720,955

     

695,884

   

Fossil

   

874,735

     

857,573

   

HomeAway

   

2,160,506

     

2,108,589

   

Knoll

   

2,520,350

     

2,285,817

   

Pool

   

1,274,436

     

968,373

   

Select Comfort

   

2,158,630

     

2,082,715

   

United Natural Foods

   

1,192,643

     

0

   

Vail Resorts

   

817,499

     

696,739

   

Williams-Sonoma

   

567,295

     

517,835

   

Zulily

   

2,405,817

     

0

   

Finance

 
Allied World Assurance
Company Holdings
   

864,371

     

761,549

   

Associated Banc-Corp

   

7,931,448

     

7,020,624

   

BOK Financial

   

1,799,411

     

1,693,009

   

CAI International

   

839,000

     

46,177

   

Eaton Vance

   

2,914,581

     

2,744,774

   

First Busey

   

1,370,960

     

1,150,982

   

Hancock Holding

   

1,350,879

     

1,255,879

   

Leucadia National

   

3,760,346

     

3,510,346

   

MB Financial

   

1,790,025

     

1,665,025

   

McGrath Rentcorp

   

1,167,476

     

1,018,222

   

RLI

   

606,457

     

0

   

Sandy Spring Bancorp

   

1,014,983

     

920,302

   

SEI Investments

   

6,522,307

     

2,926,928

   
SVB Financial Group    

677,700

     

585,706

   

TrustCo Bank

   

3,089,176

     

2,400,880

   

World Acceptance

   

530,000

     

284,817

   

Health Care

 

Agios Pharmaceuticals

   

346,692

     

278,315

   

Akorn

   

2,503,151

     

2,343,909

   

Allscripts Healthcare Solutions

   

1,749,965

     

0

   

Bio-Techne

   

1,123,116

     

940,171

   

Cepheid

   

4,065,050

     

3,544,076

   

Envision Healthcare Holdings

   

1,155,575

     

953,559

   

HealthSouth

   

1,647,700

     

1,564,880

   
   

Number of Shares

 
   

6/30/15

 

9/30/15

 

Intercept Pharmaceuticals

   

220,978

     

167,157

   

Sarepta Therapeutics

   

2,404,789

     

1,465,091

   

Seattle Genetics

   

1,823,556

     

1,406,314

   

Sirona Dental Systems

   

435,820

     

410,018

   

Ultragenyx Pharmaceutical

   

1,712,134

     

881,105

   

VWR

   

1,850,600

     

1,742,943

   

Wright Medical Group

   

1,829,940

     

1,764,061

   

Other Industries

 

EdR

   

2,325,332

     

2,277,125

   

Extra Space Storage

   

1,002,619

     

915,342

   

Federal Realty

   

658,669

     

599,049

   

Genesee & Wyoming

   

380,000

     

0

   

JB Hunt Transport Services

   

578,406

     

545,660

   

Post Properties

   

1,316,297

     

1,040,362

   

Rush Enterprises, Class A

   

2,173,034