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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-21852
Columbia Funds Series Trust II
(Exact name of registrant as specified in charter)
225 Franklin Street
Boston, Massachusetts 02110
(Address of principal executive offices) (Zip code)
Christopher O. Petersen, Esq.
c/o Columbia Management Investment Advisers, LLC
225 Franklin Street
Boston, Massachusetts 02110
Ryan C. Larrenaga, Esq.
c/o Columbia Management Investment Advisers, LLC
225 Franklin Street
Boston, MA 02110
(Name and address of agent for service)
Registrant’s telephone number, including area code: (800) 345-6611
Date of fiscal year end: August 31
Date of reporting period: August 31, 2019
Form N-CSR is to be used by management investment companies to file reports with the Commission not later than 10 days after the transmission to stockholders of any report that is required to be transmitted to stockholders under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1). The Commission may use the information provided on Form N-CSR in its regulatory, disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form N-CSR, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-CSR unless the Form displays a currently valid Office of Management and Budget (“OMB”) control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. § 3507.
Table of Contents
Item 1. Reports to Stockholders.
Table of Contents
Annual
Report
August 31, 2019
August 31, 2019
Columbia Emerging Markets Bond Fund
Beginning on January 1, 2021, as permitted by regulations
adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semiannual shareholder reports like this one will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the
reports will be made available on the Fund’s website (columbiathreadneedleus.com/investor/), and each time a report is posted you will be notified by mail and provided with a website address to access the report.
If you have already elected to receive shareholder reports
electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from the Fund electronically at any time by contacting your financial intermediary (such
as a broker-dealer or bank) or, for Fund shares held directly with the Fund, by calling 800.345.6611 or by enrolling in “eDelivery” by logging into your account at columbiathreadneedleus.com/investor/.
You may elect to receive all future reports in paper free of
charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue receiving paper copies of your shareholder reports. If you invest directly with the Fund, you can call 800.345.6611 to
let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive paper reports will apply to all Columbia Funds held in your account if you invest through a financial intermediary or all Columbia
Funds held with the fund complex if you invest directly with the Fund.
Not FDIC Insured • No bank guarantee • May lose
value
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Columbia Emerging Markets Bond Fund (the Fund) mails one
shareholder report to each shareholder address, unless such shareholder elected to receive shareholder reports from the Fund electronically. If you would like more than one report, please call shareholder services at 800.345.6611 and additional
reports will be sent to you.
Proxy voting policies and
procedures
The policy of the Board of Trustees is to
vote the proxies of the companies in which the Fund holds investments consistent with the procedures as stated in the Statement of Additional Information (SAI). You may obtain a copy of the SAI without charge by calling 800.345.6611; contacting your
financial intermediary; visiting columbiathreadneedleus.com/investor/; or searching the website of the Securities and Exchange Commission (SEC) at sec.gov. Information regarding how the Fund voted proxies relating to portfolio securities is filed
with the SEC by August 31st for the most recent 12-month period ending June 30th of that year, and is available without charge by visiting columbiathreadneedleus.com/investor/, or searching the website of the SEC at sec.gov.
Quarterly schedule of investments
The Fund files a complete schedule of portfolio holdings with
the SEC for the first and third quarters of each fiscal year on Form N-PORT, and for reporting periods ended prior to March 31, 2019, on Form N-Q. The Fund’s Form N-Q and Form N-PORT filings are available on the SEC’s website at sec.gov.
The Fund’s complete schedule of portfolio holdings, as filed on Form N-Q or Form N-PORT, can also be obtained without charge, upon request, by calling 800.345.6611.
Additional Fund information
For more information about the Fund, please visit
columbiathreadneedleus.com/investor/ or call 800.345.6611. Customer Service Representatives are available to answer your questions Monday through Friday from 8 a.m. to 7 p.m. Eastern time.
Fund investment manager
Columbia Management Investment Advisers, LLC (the Investment Manager)
225 Franklin Street
Boston, MA 02110
Fund distributor
Columbia Management Investment Distributors, Inc.
225 Franklin Street
Boston, MA 02110
Fund transfer agent
Columbia Management Investment Services Corp.
P.O. Box 219104
Kansas City, MO 64121-9104
Columbia Emerging
Markets Bond Fund | Annual Report 2019
Table of Contents
Fund at a Glance
Investment objective
The Fund seeks to provide
shareholders with high total return through current income and, secondarily, through capital appreciation.
Portfolio
management
Tim
Jagger
Lead Portfolio
Manager
Managed Fund
since March 2019
Christopher
Cooke
Portfolio
Manager
Managed Fund
since 2017
Returns for Class A shares are shown
with and without the maximum initial sales charge of 4.75%. Returns for Class C shares are shown with and without the 1.00% contingent deferred sales charge for the first year only. The Fund’s other share classes are not subject to sales
charges and have limited eligibility. Please see the Fund’s prospectus for details. Performance for different share classes will vary based on differences in sales charges and fees associated with each share 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 reflect the effect of any fee waivers or
reimbursements of Fund expenses by Columbia Management Investment Advisers, LLC and/or any of its affiliates. Absent these fee waivers or expense reimbursement arrangements, performance results would have been lower.
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 your shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than
the performance information shown. You may obtain performance information current to the most recent month-end by contacting your financial intermediary, visiting columbiathreadneedleus.com/investor/ or calling 800.345.6611.
| * | The returns shown for periods prior to the share class inception date (including returns for the Life of the Fund, if shown, which are since Fund inception) include the returns of the Fund’s oldest share class. Since the Fund launched more than one share class at its inception, Class A shares were used. These returns are adjusted to reflect any higher class-related operating expenses of the newer share classes, as applicable. Please visit columbiathreadneedleus.com/investor/investment-products/mutual-funds/appended-performance for more information. |
The JPMorgan Emerging Markets Bond Index-Global is based on
U.S. dollar-denominated debt instruments issued by emerging market sovereign and quasi-sovereign entities, such as Brady bonds, Eurobonds and loans, and reflects reinvestment of all distributions and changes in market prices.
Indices are not available for investment, are not
professionally managed and do not reflect sales charges, fees, brokerage commissions, taxes or other expenses of investing. Securities in the Fund may not match those in an index.
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Columbia
Emerging Markets Bond Fund | Annual Report 2019
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Table of Contents
Fund at a Glance (continued)
Performance of a
hypothetical $10,000 investment (August 31, 2009 — August 31, 2019)
The chart above shows the
change in value of a hypothetical $10,000 investment in Class A shares of Columbia Emerging Markets Bond Fund during the stated time period, and does not reflect the deduction of taxes that a shareholder may pay on Fund distributions or on the
redemption of Fund shares.
| 4 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Fund at a Glance (continued)
| Quality breakdown (%) (at August 31, 2019) | |
| AAA rating | 1.6 |
| AA rating | 6.7 |
| A rating | 9.1 |
| BBB rating | 25.9 |
| BB rating | 21.1 |
| B rating | 28.0 |
| CCC rating | 3.4 |
| D rating | 0.3 |
| Not rated | 3.9 |
| Total | 100.0 |
Percentages indicated are based
upon total fixed income investments.
Bond ratings apply
to the underlying holdings of the Fund and not the Fund itself and are divided into categories ranging from highest to lowest credit quality, determined by using the middle rating of Moody’s, S&P and Fitch, after dropping the highest and
lowest available ratings. When ratings are available from only two rating agencies, the lower rating is used. When a rating is available from only one rating agency, that rating is used. When a bond is not rated by any rating agency, it is
designated as “Not rated.” Credit quality ratings assigned by a rating agency are subjective opinions, not statements of fact, and are subject to change, including daily. The ratings assigned by credit rating agencies are but one of the
considerations that the Investment Manager and/or Fund’s subadviser incorporates into its credit analysis process, along with such other country-specific factors as the direction and stance of fiscal policy, balance of payment trends and
commodity prices, the level and structure of public debt as well as political stability and commitment to strong macroeconomic policies.
| (a) | Includes investments in Money Market Funds. |
Country breakdown is based primarily on issuer’s place
of organization/incorporation. Percentages indicated are based upon total investments excluding investments in derivatives, if any. The Fund’s portfolio composition is subject to change.
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Columbia
Emerging Markets Bond Fund | Annual Report 2019
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5 |
Table of Contents
Manager Discussion of Fund Performance
At
August 31, 2019, approximately 38.5% of the Fund’s shares were owned in the aggregate by affiliated funds-of-funds managed by Columbia Management Investment Advisers, LLC (the Investment Manager). As a result of asset allocation decisions by
the Investment Manager, it is possible that the Fund may experience relatively large purchases or redemptions from affiliated funds-of-funds. The Investment Manager seeks to minimize the impact of these transactions by structuring them over a
reasonable period of time. The Fund may experience increased expenses as it buys and sells securities as a result of purchases or redemptions by affiliated funds-of-funds.
For the 12-month period that ended August 31, 2019, the
Fund’s Class A shares returned 9.33% excluding sales charges. While posting solid absolute gains, the Fund underperformed its benchmark, the JPMorgan Emerging Markets Bond Index-Global, which returned 13.11% for the same period. The
Fund’s relative underperformance can be attributed primarily to its positioning in Argentinean assets, for country positioning elsewhere was generally favorable as was risk, currency and duration/curve positioning overall.
Emerging market debt sector gained strongly amid declining
U.S. Treasury yields
The decline in U.S. Treasury
yields during the period benefited the emerging market debt sector more than many other fixed-income sectors given its longer duration bias, thus driving the double-digit gains of the benchmark. Headline spreads (yield differentials between emerging
market bonds and U.S. Treasuries) contracted during the period but were flattened by the inclusion of higher rated Gulf Co-Operation Council countries from February 19, 2019 onward and, more recently, by the gradual exclusion of Venezuela. Excluding
these factors, spreads actually widened during the period. The trend, however, was not linear. Spreads widened most notably during the fourth quarter of 2018 when yields rose and the U.S. dollar appreciated, historically serving as pressure on
emerging market debt, and then began to reverse in early 2019 as it became clear that U.S. monetary policy was becoming more accommodative.
From a country perspective, Brazil was a stand-out performer
following the election of market-friendly Bolsonaro as its new president in late 2018. Bolsonaro ushered in a series of reforms attempting to address the country’s poor fiscal position, and many investors believed sustained progress on this
path could cause the nation’s debt ratings to move back to investment grade. Qatar was also a strong performer during the period. Qatar is a fundamentally strong credit that benefited from relative value demand from many investors, as spreads
looked attractive relative to other higher rated credits, such as those of Peru and Chile, within the emerging markets debt universe.
Conversely, Mexico was under pressure following the election
of populist Obrador as its new president as concerns about a lack of fiscal discipline grew. Many investors believed downgrade risks for Mexican debt were real. China’s debt spreads were also relatively subdued, as concerns about the impact of
the trade dispute with the U.S. on economic growth lingered. There remained deep concerns about the health of China’s financial sector given a spate of bank closures and forced takeovers. High indebtedness and a rather narrow tax base were
seen as limiting the effectiveness of monetary and fiscal stimulus measures announced during the period.
Perhaps most notable during the period was the performance of
Argentinean debt, which was significantly impacted by the result of the first round of voting in its presidential election in August 2019. In what many believed to be a surprise development, Argentineans backed the populist, Alberto Fernandez, by a
seemingly insurmountable margin over the incumbent, Mauricio Macri, who had successfully negotiated a large International Monetary Fund (IMF) financial assistance package in the summer of 2018. These voting results prompted a rapid and dramatic
collapse in all Argentinean financial assets, as investors began to speculate on a possible debt default scenario despite assurances from the Fernandez camp that it was not their intention to do so. At the end of the period, the situation remained
unclear, as currency controls were implemented and some local market financial instruments, including those held by the Fund, were forcibly extended. Moreover, the IMF had not confirmed whether it would make its scheduled September 2019 disbursement
of US$5.4 billion. Greater clarity is unlikely before the end of October 2019 when the next round of voting in Argentina is scheduled to take place, although the political rhetoric from the presidential candidates had abated given a common desire to
calm the nation’s financial assets.
| 6 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Manager Discussion of Fund Performance (continued)
Fund positioning in Argentina detracted most
The Fund’s performance for the period was affected
most by the sharp deterioration in Argentinean asset prices in August 2019. We, like many other market participants, underestimated the adverse impact that a landslide vote for Alberto Fernandez would have on Argentina’s financial
assets.
Elsewhere, country positioning was favorable,
especially in Brazil, Mexico, Egypt, Lebanon, China and Nigeria. Indeed, country detractors were quite modest outside of Argentina. Overall risk, currency and duration/curve positioning also contributed positively to the Fund’s relative
results during the period. Local rates positioning in Nigeria and Egypt added value as well.
Relative valuation and fundamental analysis drove Fund
changes
For the period overall, the Fund had a
portfolio turnover rate of 106%. While the Fund remained invested primarily in the U.S. dollar, we continued to allocate to local currency bonds selectively and opportunistically. On August 31, 2019, the Fund had approximately 9% of its net assets
invested in local currency bonds, with the largest positions in the Dominican Republic peso and Egyptian pound. The Fund’s local currency bond position at the end of the period was slightly higher than its typical allocations given the span of
underperformance of emerging market currencies during August 2019. The Fund’s interest rate duration was near that of the benchmark, although a modest portion of this duration was comprised of non-U.S. dollar exposure.
Regionally, at the end of the period, the Fund was overweight
Africa and the Middle East and North Africa (MENA) region overall in net asset value (NAV) terms and underweight Asia, Europe and Latin America. The Fund’s largest country overweight positions relative to the benchmark at the end of August
2019 included Brazil, Nigeria and Qatar, while Turkey, Chile and the Philippines represented the largest underweights for the Fund.
Market risk may affect a single
issuer, sector of the economy, industry or the market as a whole. Foreign investments subject the Fund to risks, including political, economic, market, social and others within a particular country, as well
as to currency instabilities and less stringent financial and accounting standards generally applicable to U.S. issuers. Risks are enhanced for emerging market and sovereign debt issuers. Fixed-income securities present issuer default risk. A rise in interest rates may result in a price decline of fixed-income instruments held by the Fund, negatively
impacting its performance and NAV. Falling rates may result in the Fund investing in lower yielding debt instruments, lowering the Fund’s income and yield. These risks may be heightened for longer maturity and duration securities.
Non-investment-grade (high-yield or junk) securities present greater price volatility and more risk to principal and income than higher rated securities. Prepayment and extension risk exists because the timing of payments on a loan, bond or other investment may accelerate when interest rates fall or decelerate when interest rates rise which may reduce investment opportunities and potential
returns. As a non-diversified fund, fewer investments could have a greater affect on performance. Market or other (e.g., interest rate) environments may adversely affect the liquidity of Fund investments, negatively impacting their price. Generally, the less liquid the market at the time the Fund sells a holding, the greater the risk of loss or decline of value to the Fund. See the Fund’s
prospectus for more information on these and other risks.
The views expressed in this report reflect the current views of
the respective parties. 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 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 fund are based on numerous factors, may not be relied on as an indication of trading intent on behalf of any particular Columbia fund. References to specific securities should not be construed as a recommendation or
investment advice.
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Columbia
Emerging Markets Bond Fund | Annual Report 2019
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7 |
Table of Contents
Understanding Your Fund’s Expenses
(Unaudited)
(Unaudited)
As an investor, you incur two types of costs. There are
shareholder transaction costs, which generally include sales charges on purchases and may include redemption fees. There are also ongoing fund costs, which generally include management fees, distribution and/or service fees, and other fund expenses.
The following information is intended to help you understand your ongoing costs (in dollars) of investing in the Fund and to help you compare these costs with the ongoing costs of investing in other mutual funds.
Analyzing your Fund’s expenses
To illustrate these ongoing costs, we have provided examples
and calculated the expenses paid by investors in each share class of the Fund during the period. The actual and hypothetical information in the table is based on an initial investment of $1,000 at the beginning of the period indicated and held for
the entire period. Expense information is calculated two ways and each method provides you with different information. The amount listed in the “Actual” column is calculated using the Fund’s actual operating expenses and total
return for the period. You may use the Actual information, together with the amount invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000
= 8.6), then multiply the results by the expenses paid during the period under the “Actual” column. The amount listed in the “Hypothetical” column assumes a 5% annual rate of return before expenses (which is not the
Fund’s actual return) and then applies the Fund’s actual expense ratio for the period to the hypothetical return. You should not use the hypothetical account values and expenses to estimate either your actual account balance at the end
of the period or the expenses you paid during the period. See “Compare with other funds” below for details on how to use the hypothetical data.
Compare with other funds
Since all mutual funds are required to include the same
hypothetical calculations about expenses in shareholder reports, you can use this information to compare the ongoing cost of investing in the Fund with other funds. To do so, compare the hypothetical example with the 5% hypothetical examples that
appear in the shareholder reports of other funds. As you compare hypothetical examples of other funds, it is important to note that hypothetical examples are meant to highlight the ongoing costs of investing in a fund only and do not reflect any
transaction costs, such as sales charges, or redemption or exchange fees. Therefore, the hypothetical calculations are useful in comparing ongoing costs only, and will not help you determine the relative total costs of owning different funds. If
transaction costs were included in these calculations, your costs would be higher.
Expenses paid during the period
are equal to the annualized expense ratio for each class as indicated above, multiplied by the average account value over the period and then multiplied by the number of days in the Fund’s most recent fiscal half year and divided by 365.
Expenses do not include fees and expenses incurred indirectly
by the Fund from its investment in underlying funds, including affiliated and non-affiliated pooled investment vehicles, such as mutual funds and exchange-traded funds.
| 8 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Portfolio of Investments
August 31, 2019
August 31, 2019
(Percentages represent value of investments compared to net
assets)
Investments in securities
The accompanying Notes to Financial Statements are an integral part
of this statement.
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Columbia
Emerging Markets Bond Fund | Annual Report 2019
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9 |
Table of Contents
Portfolio of Investments (continued)
August 31, 2019
August 31, 2019
The accompanying Notes to Financial Statements are an integral part
of this statement.
| 10 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Portfolio of Investments (continued)
August 31, 2019
August 31, 2019
The accompanying Notes to Financial Statements are an integral part
of this statement.
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Columbia
Emerging Markets Bond Fund | Annual Report 2019
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11 |
Table of Contents
Portfolio of Investments (continued)
August 31, 2019
August 31, 2019
| Money Market Funds 7.2% | ||
| Shares | Value ($) | |
| Columbia Short-Term Cash Fund, 2.208%(g),(h) | 28,755,316 | 28,752,441 |
|
Total
Money Market Funds
(Cost $28,752,441) |
28,752,441 | |
|
Total
Investments in Securities
(Cost $382,672,000) |
387,477,124 | |
| Other Assets & Liabilities, Net | 14,482,882 | |
| Net Assets | $401,960,006 | |
At August 31, 2019, securities and/or cash totaling
$241,252 were pledged as collateral.
Investments in derivatives
| Forward foreign currency exchange contracts | |||||
|
Currency
to
be sold |
Currency
to
be purchased |
Counterparty |
Settlement
date |
Unrealized
appreciation ($) |
Unrealized
depreciation ($) |
| 86,112,000 ZAR | 6,035,451 USD | HSBC | 09/10/2019 | 363,008 | — |
| 40,722,033 MXN | 2,120,718 USD | Morgan Stanley | 09/10/2019 | 90,951 | — |
| Total | 453,959 | — | |||
| Long futures contracts | ||||||
| Description |
Number
of
contracts |
Expiration
date |
Trading
currency |
Notional
amount |
Value/Unrealized
appreciation ($) |
Value/Unrealized
depreciation ($) |
| U.S. Ultra Treasury Bond | 73 | 12/2019 | USD | 14,412,938 | 161,235 | — |
| Short futures contracts | ||||||
| Description |
Number
of
contracts |
Expiration
date |
Trading
currency |
Notional
amount |
Value/Unrealized
appreciation ($) |
Value/Unrealized
depreciation ($) |
| U.S. Ultra Bond 10-Year Note | (62) | 12/2019 | USD | (8,955,125) | — | (25,327) |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 12 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Portfolio of Investments (continued)
August 31, 2019
August 31, 2019
Notes to Portfolio of Investments
| (a) | Represents privately placed and other securities and instruments exempt from Securities and Exchange Commission registration (collectively, private placements), such as Section 4(a)(2) and Rule 144A eligible securities, which are often sold only to qualified institutional buyers. The Fund may invest in private placements determined to be liquid as well as those determined to be illiquid. Private placements may be determined to be liquid under guidelines established by the Fund’s Board of Trustees. At August 31, 2019, the total value of these securities amounted to $267,337,953, which represents 66.51% of total net assets. |
| (b) | Represents a variable rate security with a step coupon where the rate adjusts according to a schedule for a series of periods, typically lower for an initial period and then increasing to a higher coupon rate thereafter. The interest rate shown was the current rate as of August 31, 2019. |
| (c) | Principal amounts are denominated in United States Dollars unless otherwise noted. |
| (d) | Principal and interest may not be guaranteed by the government. |
| (e) | Represents securities that have defaulted on payment of interest. The Fund has stopped accruing interest on these securities. At August 31, 2019, the total value of these securities amounted to $3,972,132, which represents 0.99% of total net assets. |
| (f) | On August 29, 2019, the government of Argentina announced a delay in the repayment of short-term government debt at maturity and introduced an extended repayment schedule. On September 27, 2019, the Fund received $883,350, which represented 15% of the original par. The repayment schedule also includes a 25% payment of original par due 90 calendar days after the first payment and the remaining 60% of par due 180 days after the first payment. The maturity date shown represents the extended final maturity. The fair value of this security, as reflected in this Portfolio of Investments, has declined substantially subsequent to August 31, 2019 as a result of the volatile Argentinean market. |
| (g) | The rate shown is the seven-day current annualized yield at August 31, 2019. |
| (h) | As defined in the Investment Company Act of 1940, an affiliated company is one in which the Fund owns 5% or more of the company’s outstanding voting securities, or a company which is under common ownership or control with the Fund. Holdings and transactions in these affiliated companies during the year ended August 31, 2019 are as follows: |
Currency Legend
| DOP | Dominican Republic Peso |
| EGP | Egyptian Pound |
| MXN | Mexican Peso |
| NGN | Nigerian Naira |
| PEN | Peruvian New Sol |
| USD | US Dollar |
| ZAR | South African Rand |
Fair value
measurements
The Fund categorizes its fair value
measurements according to a three-level hierarchy that maximizes the use of observable inputs and minimizes the use of unobservable inputs by prioritizing that the most observable input be used when available. Observable inputs are those that market
participants would use in pricing an investment based on market data obtained from sources independent of the reporting entity. Unobservable inputs are those that reflect the Fund’s assumptions about the information market participants would
use in pricing an investment. An investment’s level within the fair value hierarchy is based on the lowest level of any input that is deemed significant to the asset’s or liability’s fair value measurement. The input levels are not
necessarily an indication of the risk or liquidity associated with investments at that level. For example, certain U.S. government securities are generally high quality and liquid, however, they are reflected as Level 2 because the inputs used to
determine fair value may not always be quoted prices in an active market.
Fair value inputs are summarized in the three broad levels
listed below:
| ■ | Level 1 — Valuations based on quoted prices for investments in active markets that the Fund has the ability to access at the measurement date. Valuation adjustments are not applied to Level 1 investments. |
| ■ | Level 2 — Valuations based on other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, credit risks, etc.). |
| ■ | Level 3 — Valuations based on significant unobservable inputs (including the Fund’s own assumptions and judgment in determining the fair value of investments). |
Inputs that are used in determining fair value of an investment
may include price information, credit data, volatility statistics, and other factors. These inputs can be either observable or unobservable. The availability of observable inputs can vary between investments, and is affected by various factors such
as the type of investment, and the volume and level of activity for that investment or similar investments in the marketplace. The inputs will be considered by the Investment Manager, along with any other relevant factors in the calculation of an
investment’s fair value. The Fund uses prices and inputs that are current as of the measurement date, which may include periods of market dislocations. During these periods, the availability of prices and inputs may be reduced for many
investments. This condition could cause an investment to be reclassified between the various levels within the hierarchy.
The accompanying Notes to Financial Statements are an integral part of this
statement.
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Columbia
Emerging Markets Bond Fund | Annual Report 2019
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13 |
Table of Contents
Portfolio of Investments (continued)
August 31, 2019
August 31, 2019
Fair value
measurements (continued)
Investments falling into the Level 3 category are primarily supported by quoted prices from brokers and dealers participating in the market for those investments. However, these may be classified as Level 3 investments due to lack of market transparency and corroboration to support these quoted prices. Additionally, valuation models may be used as the pricing source for any remaining investments classified as Level 3. These models may rely on one or more significant unobservable inputs and/or significant assumptions by the Investment Manager. Inputs used in valuations may include, but are not limited to, financial statement analysis, capital account balances, discount rates and estimated cash flows, and comparable company data.
Investments falling into the Level 3 category are primarily supported by quoted prices from brokers and dealers participating in the market for those investments. However, these may be classified as Level 3 investments due to lack of market transparency and corroboration to support these quoted prices. Additionally, valuation models may be used as the pricing source for any remaining investments classified as Level 3. These models may rely on one or more significant unobservable inputs and/or significant assumptions by the Investment Manager. Inputs used in valuations may include, but are not limited to, financial statement analysis, capital account balances, discount rates and estimated cash flows, and comparable company data.
Under the direction of the Fund’s Board of Trustees (the
Board), the Investment Manager’s Valuation Committee (the Committee) is responsible for overseeing the valuation procedures approved by the Board. The Committee consists of voting and non-voting members from various groups within the
Investment Manager’s organization, including operations and accounting, trading and investments, compliance, risk management and legal.
The Committee meets at least monthly to review and approve
valuation matters, which may include a description of specific valuation determinations, data regarding pricing information received from approved pricing vendors and brokers and the results of Board-approved valuation control policies and
procedures (the Policies). The Policies address, among other things, instances when market quotations are or are not readily available, including recommendations of third party pricing vendors and a determination of appropriate pricing
methodologies; events that require specific valuation determinations and assessment of fair value techniques; securities with a potential for stale pricing, including those that are illiquid, restricted, or in default; and the effectiveness of third
party pricing vendors, including periodic reviews of vendors. The Committee meets more frequently, as needed, to discuss additional valuation matters, which may include the need to review back-testing results, review time-sensitive information or
approve related valuation actions. The Committee reports to the Board, with members of the Committee meeting with the Board at each of its regularly scheduled meetings to discuss valuation matters and actions during the period, similar to those
described earlier.
The following table is a summary of the
inputs used to value the Fund’s investments at August 31, 2019:
| Level 1 ($) | Level 2 ($) | Level 3 ($) | Total ($) | |
| Investments in Securities | ||||
| Corporate Bonds & Notes | — | 38,793,232 | — | 38,793,232 |
| Foreign Government Obligations | — | 301,825,925 | — | 301,825,925 |
| Treasury Bills | — | 18,105,526 | — | 18,105,526 |
| Money Market Funds | 28,752,441 | — | — | 28,752,441 |
| Total Investments in Securities | 28,752,441 | 358,724,683 | — | 387,477,124 |
| Investments in Derivatives | ||||
| Asset | ||||
| Forward Foreign Currency Exchange Contracts | — | 453,959 | — | 453,959 |
| Futures Contracts | 161,235 | — | — | 161,235 |
| Liability | ||||
| Futures Contracts | (25,327) | — | — | (25,327) |
| Total | 28,888,349 | 359,178,642 | — | 388,066,991 |
See the Portfolio of Investments for
all investment classifications not indicated in the table.
The Fund’s assets assigned to the Level 2 input category
are generally valued using the market approach, in which a security’s value is determined through reference to prices and information from market transactions for similar or identical assets.
Derivative instruments are valued at unrealized appreciation
(depreciation).
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 14 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Statement of Assets and Liabilities
August 31, 2019
August 31, 2019
| Assets | |
| Investments in securities, at value | |
| Unaffiliated issuers (cost $353,919,559) | $358,724,683 |
| Affiliated issuers (cost $28,752,441) | 28,752,441 |
| Foreign currency (cost $6,673,819) | 6,675,684 |
| Margin deposits on: | |
| Futures contracts | 241,252 |
| Unrealized appreciation on forward foreign currency exchange contracts | 453,959 |
| Receivable for: | |
| Investments sold | 2,163,443 |
| Capital shares sold | 93,871 |
| Dividends | 37,709 |
| Interest | 5,094,031 |
| Foreign tax reclaims | 94,823 |
| Variation margin for futures contracts | 15,969 |
| Prepaid expenses | 4,068 |
| Total assets | 402,351,933 |
| Liabilities | |
| Payable for: | |
| Capital shares purchased | 208,947 |
| Variation margin for futures contracts | 7,750 |
| Foreign capital gains taxes deferred | 6,800 |
| Management services fees | 6,593 |
| Distribution and/or service fees | 1,077 |
| Transfer agent fees | 36,982 |
| Compensation of board members | 54,009 |
| Custodian fees | 39,038 |
| Other expenses | 30,731 |
| Total liabilities | 391,927 |
| Net assets applicable to outstanding capital stock | $401,960,006 |
| Represented by | |
| Paid in capital | 436,767,639 |
| Total distributable earnings (loss) (Note 2) | (34,807,633) |
| Total - representing net assets applicable to outstanding capital stock | $401,960,006 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
15 |
Table of Contents
Statement of Assets and Liabilities (continued)
August 31, 2019
August 31, 2019
| Class A | |
| Net assets | $54,777,601 |
| Shares outstanding | 4,850,262 |
| Net asset value per share | $11.29 |
| Maximum sales charge | 4.75% |
| Maximum offering price per share (calculated by dividing the net asset value per share by 1.0 minus the maximum sales charge for Class A shares) | $11.85 |
| Advisor Class | |
| Net assets | $20,140,943 |
| Shares outstanding | 1,780,178 |
| Net asset value per share | $11.31 |
| Class C | |
| Net assets | $13,374,374 |
| Shares outstanding | 1,192,347 |
| Net asset value per share | $11.22 |
| Institutional Class | |
| Net assets | $71,443,176 |
| Shares outstanding | 6,320,271 |
| Net asset value per share | $11.30 |
| Institutional 2 Class | |
| Net assets | $35,131,170 |
| Shares outstanding | 3,109,336 |
| Net asset value per share | $11.30 |
| Institutional 3 Class | |
| Net assets | $182,472,360 |
| Shares outstanding | 16,142,484 |
| Net asset value per share | $11.30 |
| Class R | |
| Net assets | $24,620,382 |
| Shares outstanding | 2,181,060 |
| Net asset value per share | $11.29 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
| 16 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Statement of Operations
Year Ended August 31, 2019
Year Ended August 31, 2019
| Net investment income | |
| Income: | |
| Dividends — affiliated issuers | $539,104 |
| Interest | 26,457,705 |
| Interfund lending | 2,484 |
| Foreign taxes withheld | (355,523) |
| Total income | 26,643,770 |
| Expenses: | |
| Management services fees | 2,454,616 |
| Distribution and/or service fees | |
| Class A | 143,265 |
| Class C | 151,475 |
| Class R | 129,260 |
| Class T | 115 |
| Transfer agent fees | |
| Class A | 102,057 |
| Advisor Class | 21,759 |
| Class C | 27,030 |
| Institutional Class | 131,532 |
| Institutional 2 Class | 21,798 |
| Institutional 3 Class | 15,228 |
| Class R | 46,048 |
| Class T | 87 |
| Compensation of board members | 17,478 |
| Custodian fees | 56,673 |
| Printing and postage fees | 37,080 |
| Registration fees | 120,924 |
| Audit fees | 39,131 |
| Legal fees | 10,728 |
| Interest on collateral | 369 |
| Compensation of chief compliance officer | 92 |
| Other | 57,162 |
| Total expenses | 3,583,907 |
| Net investment income | 23,059,863 |
| Realized and unrealized gain (loss) — net | |
| Net realized gain (loss) on: | |
| Investments — unaffiliated issuers | (32,943,673) |
| Investments — affiliated issuers | (1,149) |
| Foreign currency translations | 186,372 |
| Forward foreign currency exchange contracts | 77,901 |
| Futures contracts | 1,774,616 |
| Swap contracts | 224,618 |
| Net realized loss | (30,681,315) |
| Net change in unrealized appreciation (depreciation) on: | |
| Investments — unaffiliated issuers | 45,185,861 |
| Foreign currency translations | 1,643 |
| Forward foreign currency exchange contracts | (259,598) |
| Futures contracts | 173,722 |
| Foreign capital gains tax | (6,800) |
| Net change in unrealized appreciation (depreciation) | 45,094,828 |
| Net realized and unrealized gain | 14,413,513 |
| Net increase in net assets resulting from operations | $37,473,376 |
The accompanying Notes to Financial Statements are an integral
part of this statement.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
17 |
Table of Contents
Statement of Changes in Net Assets
|
Year
Ended
August 31, 2019 |
Year
Ended
August 31, 2018 |
|
| Operations | ||
| Net investment income | $23,059,863 | $25,241,554 |
| Net realized gain (loss) | (30,681,315) | 4,093,763 |
| Net change in unrealized appreciation (depreciation) | 45,094,828 | (55,973,311) |
| Net increase (decrease) in net assets resulting from operations | 37,473,376 | (26,637,994) |
| Distributions to shareholders | ||
| Net investment income and net realized gains | ||
| Class A | (2,258,287) | |
| Advisor Class | (502,047) | |
| Class C | (488,629) | |
| Institutional Class | (3,080,458) | |
| Institutional 2 Class | (1,468,247) | |
| Institutional 3 Class | (8,328,066) | |
| Class R | (953,527) | |
| Class T | (1,909) | |
| Net investment income | ||
| Class A | (4,284,050) | |
| Advisor Class | (573,421) | |
| Class C | (954,814) | |
| Institutional Class | (5,345,248) | |
| Institutional 2 Class | (2,796,629) | |
| Institutional 3 Class | (11,381,019) | |
| Class K | (983) | |
| Class R | (1,675,880) | |
| Class T | (11,168) | |
| Total distributions to shareholders (Note 2) | (17,081,170) | (27,023,212) |
| Increase (decrease) in net assets from capital stock activity | (53,701,715) | 31,008,022 |
| Total decrease in net assets | (33,309,509) | (22,653,184) |
| Net assets at beginning of year | 435,269,515 | 457,922,699 |
| Net assets at end of year | $401,960,006 | $435,269,515 |
| Excess of distributions over net investment income | $(2,950,132) | $(1,189,082) |
The accompanying Notes to Financial Statements are an
integral part of this statement.
| 18 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Statement of Changes in Net Assets (continued)
| Year Ended | Year Ended | |||
| August 31, 2019 | August 31, 2018 | |||
| Shares | Dollars ($) | Shares | Dollars ($) | |
| Capital stock activity | ||||
| Class A | ||||
| Subscriptions | 820,311 | 8,999,216 | 1,933,936 | 22,616,307 |
| Distributions reinvested | 199,197 | 2,173,681 | 344,049 | 4,005,576 |
| Redemptions | (1,889,197) | (20,699,944) | (2,996,975) | (34,440,467) |
| Net decrease | (869,689) | (9,527,047) | (718,990) | (7,818,584) |
| Advisor Class | ||||
| Subscriptions | 1,573,445 | 17,276,929 | 699,169 | 8,251,282 |
| Distributions reinvested | 45,376 | 501,637 | 49,195 | 572,801 |
| Redemptions | (650,791) | (7,048,161) | (659,614) | (7,729,601) |
| Net increase | 968,030 | 10,730,405 | 88,750 | 1,094,482 |
| Class C | ||||
| Subscriptions | 80,670 | 871,395 | 267,768 | 3,113,093 |
| Distributions reinvested | 41,577 | 449,699 | 75,197 | 870,418 |
| Redemptions | (481,411) | (5,247,130) | (481,914) | (5,512,412) |
| Net decrease | (359,164) | (3,926,036) | (138,949) | (1,528,901) |
| Institutional Class | ||||
| Subscriptions | 1,860,095 | 20,345,926 | 3,684,063 | 42,843,843 |
| Distributions reinvested | 277,843 | 3,034,724 | 444,012 | 5,167,853 |
| Redemptions | (3,425,605) | (37,229,571) | (4,302,680) | (50,048,322) |
| Net decrease | (1,287,667) | (13,848,921) | (174,605) | (2,036,626) |
| Institutional 2 Class | ||||
| Subscriptions | 1,442,749 | 15,696,050 | 4,788,100 | 54,350,908 |
| Distributions reinvested | 134,583 | 1,468,217 | 239,683 | 2,792,744 |
| Redemptions | (1,858,248) | (19,877,020) | (5,801,287) | (65,583,373) |
| Net decrease | (280,916) | (2,712,753) | (773,504) | (8,439,721) |
| Institutional 3 Class | ||||
| Subscriptions | 1,556,246 | 17,023,820 | 5,050,887 | 57,598,061 |
| Distributions reinvested | 762,822 | 8,328,065 | 976,088 | 11,328,348 |
| Redemptions | (5,061,715) | (55,708,692) | (1,452,454) | (16,812,515) |
| Net increase (decrease) | (2,742,647) | (30,356,807) | 4,574,521 | 52,113,894 |
| Class K | ||||
| Subscriptions | — | — | 2 | 12 |
| Distributions reinvested | — | — | 50 | 601 |
| Redemptions | — | — | (2,375) | (27,737) |
| Net decrease | — | — | (2,323) | (27,124) |
| Class R | ||||
| Subscriptions | 97,747 | 1,067,568 | 223,375 | 2,604,373 |
| Distributions reinvested | 80,912 | 882,188 | 130,426 | 1,516,941 |
| Redemptions | (533,534) | (5,848,387) | (553,528) | (6,425,812) |
| Net decrease | (354,875) | (3,898,631) | (199,727) | (2,304,498) |
| Class T | ||||
| Subscriptions | — | — | 1 | 6 |
| Distributions reinvested | 169 | 1,795 | 909 | 10,570 |
| Redemptions | (15,561) | (163,720) | (4,732) | (55,476) |
| Net decrease | (15,392) | (161,925) | (3,822) | (44,900) |
| Total net increase (decrease) | (4,942,320) | (53,701,715) | 2,651,351 | 31,008,022 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
19 |
Table of Contents
Financial Highlights
The
following table is intended to help you understand the Fund’s financial performance. Certain information reflects financial results for a single share of a class held for the periods shown. Per share net investment income (loss) amounts are
calculated based on average shares outstanding during the period. Total return assumes reinvestment of all dividends and distributions, if any. Total return does not reflect payment of sales charges, if any. Total return and portfolio turnover are
not annualized for periods of less than one year. The portfolio turnover rate is calculated without regard to purchase and sales transactions of short-term instruments and certain derivatives, if any. If such transactions were included, the
Fund’s portfolio turnover rate may be higher.
|
Net
asset value,
beginning of period |
Net
investment income |
Net
realized and unrealized gain (loss) |
Total
from
investment operations |
Distributions
from net investment income |
Distributions
from net realized gains |
Total
distributions to shareholders |
|
| Class A | |||||||
| Year Ended 8/31/2019 | $10.74 | 0.59 | 0.39 | 0.98 | (0.43) | — | (0.43) |
| Year Ended 8/31/2018 | $12.09 | 0.62 | (1.31) | (0.69) | (0.66) | — | (0.66) |
| Year Ended 8/31/2017(d) | $11.64 | 0.54 | 0.33 | 0.87 | (0.42) | — | (0.42) |
| Year Ended 10/31/2016 | $10.56 | 0.64 | 0.73 | 1.37 | (0.29) | — | (0.29) |
| Year Ended 10/31/2015 | $11.37 | 0.62 | (1.12) | (0.50) | (0.30) | (0.01) | (0.31) |
| Year Ended 10/31/2014 | $11.59 | 0.60 | (0.18) | 0.42 | (0.49) | (0.15) | (0.64) |
| Advisor Class | |||||||
| Year Ended 8/31/2019 | $10.75 | 0.61 | 0.41 | 1.02 | (0.46) | — | (0.46) |
| Year Ended 8/31/2018 | $12.11 | 0.65 | (1.32) | (0.67) | (0.69) | — | (0.69) |
| Year Ended 8/31/2017(d) | $11.65 | 0.58 | 0.32 | 0.90 | (0.44) | — | (0.44) |
| Year Ended 10/31/2016 | $10.57 | 0.68 | 0.72 | 1.40 | (0.32) | — | (0.32) |
| Year Ended 10/31/2015 | $11.38 | 0.64 | (1.12) | (0.48) | (0.32) | (0.01) | (0.33) |
| Year Ended 10/31/2014 | $11.60 | 0.63 | (0.18) | 0.45 | (0.52) | (0.15) | (0.67) |
| Class C | |||||||
| Year Ended 8/31/2019 | $10.67 | 0.51 | 0.39 | 0.90 | (0.35) | — | (0.35) |
| Year Ended 8/31/2018 | $12.01 | 0.53 | (1.29) | (0.76) | (0.58) | — | (0.58) |
| Year Ended 8/31/2017(d) | $11.57 | 0.47 | 0.31 | 0.78 | (0.34) | — | (0.34) |
| Year Ended 10/31/2016 | $10.50 | 0.56 | 0.72 | 1.28 | (0.21) | — | (0.21) |
| Year Ended 10/31/2015 | $11.32 | 0.53 | (1.11) | (0.58) | (0.23) | (0.01) | (0.24) |
| Year Ended 10/31/2014 | $11.54 | 0.51 | (0.18) | 0.33 | (0.40) | (0.15) | (0.55) |
| Institutional Class | |||||||
| Year Ended 8/31/2019 | $10.75 | 0.62 | 0.39 | 1.01 | (0.46) | — | (0.46) |
| Year Ended 8/31/2018 | $12.10 | 0.65 | (1.31) | (0.66) | (0.69) | — | (0.69) |
| Year Ended 8/31/2017(d) | $11.65 | 0.57 | 0.32 | 0.89 | (0.44) | — | (0.44) |
| Year Ended 10/31/2016 | $10.57 | 0.67 | 0.73 | 1.40 | (0.32) | — | (0.32) |
| Year Ended 10/31/2015 | $11.37 | 0.64 | (1.11) | (0.47) | (0.32) | (0.01) | (0.33) |
| Year Ended 10/31/2014 | $11.59 | 0.63 | (0.18) | 0.45 | (0.52) | (0.15) | (0.67) |
The accompanying Notes to Financial Statements are an
integral part of this statement.
| 20 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Financial Highlights (continued)
|
Net
asset value, end of period |
Total
Return |
Total
gross
expense ratio to average net assets(a) |
Total
net
expense ratio to average net assets(a),(b) |
Net
investment
income ratio to average net assets |
Portfolio
turnover |
Net
assets, end of period (000’s) |
|
| Class A | |||||||
| Year Ended 8/31/2019 | $11.29 | 9.33% | 1.11% (c) | 1.11% (c) | 5.40% | 106% | $54,778 |
| Year Ended 8/31/2018 | $10.74 | (5.97%) | 1.13% | 1.13% | 5.33% | 64% | $61,421 |
| Year Ended 8/31/2017(d) | $12.09 | 7.68% | 1.17% (e) | 1.17% (e) | 5.63% (e) | 44% | $77,842 |
| Year Ended 10/31/2016 | $11.64 | 13.30% | 1.20% | 1.20% | 5.91% | 44% | $135,877 |
| Year Ended 10/31/2015 | $10.56 | (4.39%) | 1.15% | 1.15% (f) | 5.72% | 32% | $136,042 |
| Year Ended 10/31/2014 | $11.37 | 3.84% | 1.16% | 1.16% (f) | 5.29% | 42% | $188,935 |
| Advisor Class | |||||||
| Year Ended 8/31/2019 | $11.31 | 9.69% | 0.86% (c) | 0.86% (c) | 5.51% | 106% | $20,141 |
| Year Ended 8/31/2018 | $10.75 | (5.80%) | 0.88% | 0.88% | 5.60% | 64% | $8,734 |
| Year Ended 8/31/2017(d) | $12.11 | 7.99% | 0.91% (e) | 0.91% (e) | 5.97% (e) | 44% | $8,758 |
| Year Ended 10/31/2016 | $11.65 | 13.57% | 0.95% | 0.95% | 6.21% | 44% | $1,964 |
| Year Ended 10/31/2015 | $10.57 | (4.19%) | 0.89% | 0.89% (f) | 5.99% | 32% | $1,578 |
| Year Ended 10/31/2014 | $11.38 | 4.09% | 0.91% | 0.91% (f) | 5.54% | 42% | $1,985 |
| Class C | |||||||
| Year Ended 8/31/2019 | $11.22 | 8.57% | 1.86% (c) | 1.86% (c) | 4.66% | 106% | $13,374 |
| Year Ended 8/31/2018 | $10.67 | (6.63%) | 1.88% | 1.88% | 4.57% | 64% | $16,550 |
| Year Ended 8/31/2017(d) | $12.01 | 6.97% | 1.92% (e) | 1.92% (e) | 4.91% (e) | 44% | $20,307 |
| Year Ended 10/31/2016 | $11.57 | 12.43% | 1.95% | 1.95% | 5.16% | 44% | $23,714 |
| Year Ended 10/31/2015 | $10.50 | (5.11%) | 1.90% | 1.90% (f) | 4.96% | 32% | $31,610 |
| Year Ended 10/31/2014 | $11.32 | 3.08% | 1.91% | 1.91% (f) | 4.55% | 42% | $53,086 |
| Institutional Class | |||||||
| Year Ended 8/31/2019 | $11.30 | 9.60% | 0.86% (c) | 0.86% (c) | 5.65% | 106% | $71,443 |
| Year Ended 8/31/2018 | $10.75 | (5.72%) | 0.88% | 0.88% | 5.57% | 64% | $81,762 |
| Year Ended 8/31/2017(d) | $12.10 | 7.90% | 0.92% (e) | 0.92% (e) | 5.94% (e) | 44% | $94,159 |
| Year Ended 10/31/2016 | $11.65 | 13.57% | 0.95% | 0.95% | 6.17% | 44% | $75,526 |
| Year Ended 10/31/2015 | $10.57 | (4.10%) | 0.90% | 0.90% (f) | 5.98% | 32% | $79,496 |
| Year Ended 10/31/2014 | $11.37 | 4.10% | 0.91% | 0.91% (f) | 5.55% | 42% | $107,518 |
The accompanying Notes to Financial Statements are an
integral part of this statement.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
21 |
Table of Contents
Financial Highlights (continued)
|
Net
asset value,
beginning of period |
Net
investment income |
Net
realized and unrealized gain (loss) |
Total
from
investment operations |
Distributions
from net investment income |
Distributions
from net realized gains |
Total
distributions to shareholders |
|
| Institutional 2 Class | |||||||
| Year Ended 8/31/2019 | $10.74 | 0.63 | 0.40 | 1.03 | (0.47) | — | (0.47) |
| Year Ended 8/31/2018 | $12.10 | 0.65 | (1.30) | (0.65) | (0.71) | — | (0.71) |
| Year Ended 8/31/2017(d) | $11.64 | 0.59 | 0.33 | 0.92 | (0.46) | — | (0.46) |
| Year Ended 10/31/2016 | $10.56 | 0.70 | 0.72 | 1.42 | (0.34) | — | (0.34) |
| Year Ended 10/31/2015 | $11.37 | 0.66 | (1.12) | (0.46) | (0.34) | (0.01) | (0.35) |
| Year Ended 10/31/2014 | $11.59 | 0.65 | (0.18) | 0.47 | (0.54) | (0.15) | (0.69) |
| Institutional 3 Class | |||||||
| Year Ended 8/31/2019 | $10.75 | 0.64 | 0.39 | 1.03 | (0.48) | — | (0.48) |
| Year Ended 8/31/2018 | $12.10 | 0.66 | (1.30) | (0.64) | (0.71) | — | (0.71) |
| Year Ended 8/31/2017(d) | $11.65 | 0.61 | 0.31 | 0.92 | (0.47) | — | (0.47) |
| Year Ended 10/31/2016 | $10.57 | 0.71 | 0.72 | 1.43 | (0.35) | — | (0.35) |
| Year Ended 10/31/2015 | $11.38 | 0.67 | (1.12) | (0.45) | (0.35) | (0.01) | (0.36) |
| Year Ended 10/31/2014 | $11.59 | 0.65 | (0.16) | 0.49 | (0.55) | (0.15) | (0.70) |
| Class R | |||||||
| Year Ended 8/31/2019 | $10.73 | 0.56 | 0.40 | 0.96 | (0.40) | — | (0.40) |
| Year Ended 8/31/2018 | $12.08 | 0.59 | (1.31) | (0.72) | (0.63) | — | (0.63) |
| Year Ended 8/31/2017(d) | $11.63 | 0.52 | 0.32 | 0.84 | (0.39) | — | (0.39) |
| Year Ended 10/31/2016 | $10.55 | 0.62 | 0.73 | 1.35 | (0.27) | — | (0.27) |
| Year Ended 10/31/2015 | $11.37 | 0.59 | (1.12) | (0.53) | (0.28) | (0.01) | (0.29) |
| Year Ended 10/31/2014 | $11.59 | 0.57 | (0.18) | 0.39 | (0.46) | (0.15) | (0.61) |
| Notes to Financial Highlights | |
| (a) | In addition to the fees and expenses that the Fund bears directly, the Fund indirectly bears a pro rata share of the fees and expenses of any other funds in which it invests. Such indirect expenses are not included in the Fund’s reported expense ratios. |
| (b) | Total net expenses include the impact of certain fee waivers/expense reimbursements made by the Investment Manager and certain of its affiliates, if applicable. |
| (c) | Ratios include interest on collateral expense which is less than 0.01%. |
| (d) | For the period from November 1, 2016 to August 31, 2017. During the period, the Fund’s fiscal year end was changed from October 31 to August 31. |
| (e) | Annualized. |
| (f) | The benefits derived from expense reductions had an impact of less than 0.01%. |
The accompanying Notes to Financial Statements are an
integral part of this statement.
| 22 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Financial Highlights (continued)
|
Net
asset value, end of period |
Total
Return |
Total
gross
expense ratio to average net assets(a) |
Total
net
expense ratio to average net assets(a),(b) |
Net
investment
income ratio to average net assets |
Portfolio
turnover |
Net
assets, end of period (000’s) |
|
| Institutional 2 Class | |||||||
| Year Ended 8/31/2019 | $11.30 | 9.83% | 0.75% (c) | 0.75% (c) | 5.75% | 106% | $35,131 |
| Year Ended 8/31/2018 | $10.74 | (5.68%) | 0.75% | 0.74% | 5.60% | 64% | $36,419 |
| Year Ended 8/31/2017(d) | $12.10 | 8.18% | 0.76% (e) | 0.75% (e) | 6.10% (e) | 44% | $50,366 |
| Year Ended 10/31/2016 | $11.64 | 13.82% | 0.74% | 0.74% | 6.34% | 44% | $18,615 |
| Year Ended 10/31/2015 | $10.56 | (4.03%) | 0.72% | 0.72% | 6.19% | 32% | $8,384 |
| Year Ended 10/31/2014 | $11.37 | 4.31% | 0.70% | 0.70% | 5.67% | 42% | $8,928 |
| Institutional 3 Class | |||||||
| Year Ended 8/31/2019 | $11.30 | 9.79% | 0.69% (c) | 0.69% (c) | 5.83% | 106% | $182,472 |
| Year Ended 8/31/2018 | $10.75 | (5.54%) | 0.70% | 0.69% | 5.72% | 64% | $202,999 |
| Year Ended 8/31/2017(d) | $12.10 | 8.13% | 0.71% (e) | 0.70% (e) | 6.17% (e) | 44% | $173,174 |
| Year Ended 10/31/2016 | $11.65 | 13.86% | 0.69% | 0.69% | 6.41% | 44% | $3,199 |
| Year Ended 10/31/2015 | $10.57 | (3.99%) | 0.67% | 0.67% | 6.23% | 32% | $1,120 |
| Year Ended 10/31/2014 | $11.38 | 4.46% | 0.65% | 0.65% | 5.83% | 42% | $1,384 |
| Class R | |||||||
| Year Ended 8/31/2019 | $11.29 | 9.16% | 1.36% (c) | 1.36% (c) | 5.15% | 106% | $24,620 |
| Year Ended 8/31/2018 | $10.73 | (6.20%) | 1.38% | 1.38% | 5.07% | 64% | $27,218 |
| Year Ended 8/31/2017(d) | $12.08 | 7.46% | 1.42% (e) | 1.42% (e) | 5.43% (e) | 44% | $33,057 |
| Year Ended 10/31/2016 | $11.63 | 13.03% | 1.45% | 1.45% | 5.64% | 44% | $21,289 |
| Year Ended 10/31/2015 | $10.55 | (4.69%) | 1.40% | 1.40% (f) | 5.53% | 32% | $13,281 |
| Year Ended 10/31/2014 | $11.37 | 3.57% | 1.41% | 1.41% (f) | 5.07% | 42% | $10,212 |
The accompanying Notes to Financial Statements are an integral part of this
statement.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
23 |
Table of Contents
Notes to Financial Statements
August 31, 2019
August 31, 2019
Note 1. Organization
Columbia Emerging Markets Bond Fund (the Fund), a series of
Columbia Funds Series Trust II (the Trust), is a non-diversified fund. The Trust is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as an open-end management investment company organized as a Massachusetts business
trust.
Fund shares
The Trust may issue an unlimited number of shares (without par
value). The Fund offers each of the share classes listed in the Statement of Assets and Liabilities. Although all share classes generally have identical voting, dividend and liquidation rights, each share class votes separately when required by the
Trust’s organizational documents or by law. Each share class has its own expense and sales charge structure. Different share classes may have different minimum initial investment amounts and pay different distribution amounts to the extent the
expenses of distributing such share classes vary. Distributions to shareholders in a liquidation will be proportional to the net asset value of each share class.
As described in the Fund’s prospectus, Class A and Class
C shares are offered to the general public for investment. Advisor Class, Institutional Class, Institutional 2 Class, Institutional 3 Class and Class R shares are available for purchase through authorized investment professionals to omnibus
retirement plans or to institutional and to certain other investors as also described in the Fund’s prospectus. Class C shares automatically convert to Class A shares after 10 years. Effective December 14, 2018, Class T shares merged, in a
tax-free transaction, into Class A shares of the Fund and are no longer offered for sale.
Note 2. Summary of significant accounting
policies
Basis of preparation
The Fund is an investment company that applies the accounting
and reporting guidance in the Financial Accounting Standards Board (FASB) Accounting Standards Codification Topic 946, Financial Services - Investment Companies (ASC 946). The financial statements are prepared
in accordance with U.S. generally accepted accounting principles (GAAP), which requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of income and expenses during the reporting period. Actual results could differ from those estimates.
The following is a summary of significant accounting policies
followed by the Fund in the preparation of its financial statements.
Security valuation
Debt securities generally are valued by pricing services
approved by the Board of Trustees based upon market transactions for normal, institutional-size trading units of similar securities. The services may use various pricing techniques that take into account, as applicable, factors such as yield,
quality, coupon rate, maturity, type of issue, trading characteristics and other data, as well as approved independent broker-dealer quotes. Debt securities for which quotations are not readily available or not believed to be reflective of market
value may also be valued based upon a bid quote from an approved independent broker-dealer. Debt securities maturing in 60 days or less are valued primarily at amortized cost value, unless this method results in a valuation that management believes
does not approximate market value.
Investments in
open-end investment companies, including money market funds, are valued at their latest net asset value.
Forward foreign currency exchange contracts are
marked-to-market based upon foreign currency exchange rates provided by a pricing service.
Futures and options on futures contracts are valued based upon
the settlement price at the close of regular trading on their principal exchanges or, in the absence of transactions, at the mean of the latest quoted bid and ask prices.
Swap transactions are valued through an independent pricing
service or broker, or if neither is available, through an internal model based upon observable inputs.
| 24 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
Investments for which market quotations are not readily
available, or that have quotations which management believes are not reflective of market value or reliable, are valued at fair value as determined in good faith under procedures approved by and under the general supervision of the Board of
Trustees. If a security or class of securities (such as foreign securities) is valued at fair value, such value is likely to be different from the quoted or published price for the security.
The determination of fair value often requires significant
judgment. To determine fair value, management may use assumptions including but not limited to future cash flows and estimated risk premiums. Multiple inputs from various sources may be used to determine fair value.
GAAP requires disclosure regarding the inputs and valuation
techniques used to measure fair value and any changes in valuation inputs or techniques. In addition, investments shall be disclosed by major category. This information is disclosed following the Fund’s Portfolio of Investments.
Foreign currency transactions and translations
The values of all assets and liabilities denominated in
foreign currencies are generally translated into U.S. dollars at exchange rates determined at the close of regular trading on the New York Stock Exchange. Net realized and unrealized gains (losses) on foreign currency transactions and translations
include gains (losses) arising from the fluctuation in exchange rates between trade and settlement dates on securities transactions, gains (losses) arising from the disposition of foreign currency and currency gains (losses) between the accrual and
payment dates on dividends, interest income and foreign withholding taxes.
For financial statement purposes, the Fund does not
distinguish that portion of gains (losses) on investments which is due to changes in foreign exchange rates from that which is due to changes in market prices of the investments. Such fluctuations are included with the net realized and unrealized
gains (losses) on investments in the Statement of Operations.
Derivative instruments
The Fund invests in certain derivative instruments, as
detailed below, to meet its investment objectives. Derivatives are instruments whose values depend on, or are derived from, in whole or in part, the value of one or more securities, currencies, commodities, indices, or other assets or instruments.
Derivatives may be used to increase investment flexibility (including to maintain cash reserves while maintaining desired exposure to certain assets), for risk management (hedging) purposes, to facilitate trading, to reduce transaction costs and to
pursue higher investment returns. The Fund may also use derivative instruments to mitigate certain investment risks, such as foreign currency exchange rate risk, interest rate risk and credit risk. Derivatives may involve various risks, including
the potential inability of the counterparty to fulfill its obligations under the terms of the contract, the potential for an illiquid secondary market (making it difficult for the Fund to sell or terminate, including at favorable prices) and the
potential for market movements which may expose the Fund to gains or losses in excess of the amount shown in the Statement of Assets and Liabilities. The notional amounts of derivative instruments, if applicable, are not recorded in the financial
statements.
A derivative instrument may suffer a
marked-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform its obligations under the contract. The
Fund’s risk of loss from counterparty credit risk on over-the-counter derivatives is generally limited to the aggregate unrealized gain netted against any collateral held by the Fund and the amount of any variation margin held by the
counterparty, plus any replacement costs or related amounts. With exchange-traded or centrally cleared derivatives, there is reduced counterparty credit risk to the Fund since the clearinghouse or central counterparty (CCP) provides some protection
in the case of clearing member default. The clearinghouse or CCP stands between the buyer and the seller of the contract; therefore, additional counterparty credit risk is failure of the clearinghouse or CCP. However, credit risk still exists in
exchange-traded or centrally cleared derivatives with respect to initial and variation margin that is held in a broker’s customer account. While brokers are required to segregate customer margin from their own assets, in the event that a
broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the broker for all its clients, U.S. bankruptcy laws will typically allocate that shortfall on a pro-rata basis across
all the broker’s customers (including the Fund), potentially resulting in losses to the Fund.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
25 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
In
order to better define its contractual rights and to secure rights that will help the Fund mitigate its counterparty risk, the Fund may enter into an International Swaps and Derivatives Association, Inc. Master Agreement (ISDA Master Agreement) or
similar agreement with its derivatives contract counterparties. An ISDA Master Agreement is an agreement between the Fund and a counterparty that governs over-the-counter derivatives and typically contains, among other things, collateral posting
terms and netting provisions in the event of a default and/or termination event. Under an ISDA Master Agreement, the Fund may, under certain circumstances, offset with the counterparty certain derivative instrument’s payables and/or
receivables with collateral held and/or posted and create one single net payment. The provisions of the ISDA Master Agreement typically permit a single net payment in the event of default (close-out netting), including the bankruptcy or insolvency
of the counterparty. Note, however, that bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against the right of offset or netting in bankruptcy, insolvency or other events.
Collateral (margin) requirements differ by type of derivative.
Margin requirements are established by the clearinghouse or CCP for exchange-traded and centrally cleared derivatives. Brokers can ask for margin in excess of the minimum in certain circumstances. Collateral terms are contract specific for
over-the-counter derivatives. For over-the-counter derivatives traded under an ISDA Master Agreement, the collateral requirements are typically calculated by netting the marked-to-market amount for each transaction under such agreement and comparing
that amount to the value of any variation margin currently pledged by the Fund and/or the counterparty. Generally, the amount of collateral due from or to a party has to exceed a minimum transfer amount threshold (e.g., $250,000) before a transfer
has to be made. To the extent amounts due to the Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty nonperformance. The Fund may also pay interest expense on cash
collateral received from the broker. Any interest expense paid by the Fund is shown on the Statement of Operations. The Fund attempts to mitigate counterparty risk by only entering into agreements with counterparties that it believes have the
financial resources to honor their obligations and by monitoring the financial stability of those counterparties.
Certain ISDA Master Agreements allow counterparties of
over-the-counter derivatives transactions to terminate derivatives contracts prior to maturity in the event the Fund’s net asset value declines by a stated percentage over a specified time period or if the Fund fails to meet certain terms of
the ISDA Master Agreement, which would cause the Fund to accelerate payment of any net liability owed to the counterparty. The Fund also has termination rights if the counterparty fails to meet certain terms of the ISDA Master Agreement. In
determining whether to exercise such termination rights, the Fund would consider, in addition to counterparty credit risk, whether termination would result in a net liability owed from the counterparty.
For financial reporting purposes, the Fund does not offset
derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities.
Forward foreign currency exchange contracts
Forward foreign currency exchange contracts are
over-the-counter agreements between two parties to buy and sell a currency at a set price on a future date. The Fund utilized forward foreign currency exchange contracts to hedge the currency exposure associated with some or all of the Fund’s
securities. These instruments may be used for other purposes in future periods.
The values of forward foreign currency exchange contracts
fluctuate daily with changes in foreign currency exchange rates. Changes in the value of these contracts are recorded as unrealized appreciation or depreciation until the contract is exercised or has expired. The Fund will realize a gain or loss
when the forward foreign currency exchange contract is closed or expires. Non-deliverable forward foreign currency exchange contracts are settled with the counterparty in U.S. dollars without delivery of foreign currency.
The use of forward foreign currency exchange contracts does
not eliminate fluctuations in the prices of the Fund’s portfolio securities. The risks of forward foreign currency exchange contracts include movement in the values of the foreign currencies relative to the U.S. dollar (or other foreign
currencies) and the possibility that counterparties will not complete their contractual obligations, which may be in excess of the amount reflected, if any, in the Statement of Assets and Liabilities.
Futures contracts
Futures contracts are exchange-traded and represent
commitments for the future purchase or sale of an asset at a specified price on a specified date. The Fund bought and sold futures contracts to manage the duration and yield curve exposure of the Fund versus the benchmark. These instruments may be
used for other purposes in future periods. Upon entering into futures
| 26 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
contracts, the Fund
bears risks that it may not achieve the anticipated benefits of the futures contracts and may realize a loss. Additional risks include counterparty credit risk, the possibility of an illiquid market, and that a change in the value of the contract or
option may not correlate with changes in the value of the underlying asset.
Upon entering into a futures contract, the Fund deposits cash
or securities with the broker, known as a futures commission merchant (FCM), in an amount sufficient to meet the initial margin requirement. The initial margin deposit must be maintained at an established level over the life of the contract. Cash
deposited as initial margin is recorded in the Statement of Assets and Liabilities as margin deposits. Securities deposited as initial margin are designated in the Portfolio of Investments. Subsequent payments (variation margin) are made or received
by the Fund each day. The variation margin payments are equal to the daily change in the contract value and are recorded as variation margin receivable or payable and are offset in unrealized gains or losses. The Fund recognizes a realized gain or
loss when the contract is closed or expires. Futures contracts involve, to varying degrees, risk of loss in excess of the variation margin disclosed in the Statement of Assets and Liabilities.
Swap contracts
Swap contracts are negotiated in the over-the-counter market
and may be entered into as a bilateral contract or centrally cleared (centrally cleared swap contract). In a centrally cleared swap contract, immediately following execution of the swap contract with a broker, the swap contract is novated to a
central counterparty (the CCP) and the CCP becomes the Fund’s counterparty to the centrally cleared swap contract. The Fund is required to deposit initial margin with the futures commission merchant (FCM), which pledges it through to the CCP
in the form of cash or securities in an amount that varies depending on the size and risk profile of the particular swap contract. Securities deposited as initial margin are designated in the Portfolio of Investments and cash deposited is recorded
in the Statement of Assets and Liabilities as margin deposits. Unlike a bilateral swap contract, for centrally cleared swap contracts, the Fund has minimal credit exposure to the FCM because the CCP stands between the Fund and the relevant
buyer/seller on the other side of the contract. Swap contracts are marked-to-market daily and changes in value are recorded as unrealized appreciation (depreciation). The daily change in valuation of centrally cleared swap contracts, if any, is
recorded as a receivable or payable for variation margin in the Statement of Assets and Liabilities.
Entering into these contracts involves, to varying degrees,
elements of interest, liquidity and counterparty credit risk in excess of the amounts recognized in the Statement of Assets and Liabilities. Such risks involve the possibility that there may be unfavorable changes in interest rates, market
conditions or other conditions, that it may be difficult to initiate a swap transaction or liquidate a position at an advantageous time or price which may result in significant losses, and that the FCM or CCP may not fulfill its obligation under the
contract.
Credit default swap contracts
The Fund entered into credit default swap contracts to manage
credit risk exposure. These instruments may be used for other purposes in future periods. Credit default swap contracts are agreements in which one party pays fixed periodic payments to a counterparty in consideration for an agreement from the
counterparty to make a specific payment should a specified credit event(s) take place. Although specified credit events are contract specific, credit events are generally defined as bankruptcy, failure to pay, restructuring, obligation acceleration,
obligation default, or repudiation/moratorium.
As the
purchaser of a credit default swap contract, the Fund purchases protection by paying a periodic interest rate on the notional amount to the counterparty. The interest amount is accrued daily as a component of unrealized appreciation (depreciation)
and is recorded as a realized loss upon payment. If a credit event as specified in the contract occurs, the Fund may have the option either to deliver the reference obligation to the seller in exchange for a cash payment of its par amount, or to
receive a net cash settlement equal to the par amount less an agreed-upon value of the reference obligation as of the date of the credit event. The difference between the value of the obligation or cash delivered and the notional amount received
will be recorded as a realized gain (loss).
Any upfront
payments or receipts by the Fund upon entering into a credit default swap contract is recorded as an asset or liability, respectively, and amortized daily as a component of realized gain (loss) in the Statement of Operations. Credit default swap
contracts are valued daily, and the change in value is recorded as unrealized appreciation (depreciation) until the termination of the swap, at which time a realized gain (loss) is recorded.
|
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Emerging Markets Bond Fund | Annual Report 2019
|
27 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
Credit default swap contracts can involve greater risks than
if a fund had invested in the reference obligation directly since, in addition to general market risks, credit default swaps are subject to counterparty credit risk, leverage risk, hedging risk, correlation risk and liquidity risk.
Effects of derivative transactions in the financial
statements
The following tables are intended to provide
additional information about the effect of derivatives on the financial statements of the Fund, including: the fair value of derivatives by risk category and the location of those fair values in the Statement of Assets and Liabilities; and the
impact of derivative transactions over the period in the Statement of Operations, including realized and unrealized gains (losses). The derivative instrument schedules following the Portfolio of Investments present additional information regarding
derivative instruments outstanding at the end of the period, if any.
The following table is a summary of the fair value of
derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) at August 31, 2019:
| Asset derivatives | ||
|
Risk
exposure
category |
Statement
of assets and liabilities location |
Fair value ($) |
| Foreign exchange risk | Unrealized appreciation on forward foreign currency exchange contracts | 453,959 |
| Interest rate risk | Component of total distributable earnings (loss) — unrealized appreciation on futures contracts | 161,235* |
| Total | 615,194 |
| Liability derivatives | ||
|
Risk
exposure
category |
Statement
of assets and liabilities location |
Fair value ($) |
| Interest rate risk | Component of total distributable earnings (loss) — unrealized depreciation on futures contracts | 25,327* |
| * | Includes cumulative appreciation (depreciation) as reported in the tables following the Portfolio of Investments. Only the current day’s variation margin is reported in receivables or payables in the Statement of Assets and Liabilities. |
The following table indicates the
effect of derivative instruments (not considered to be hedging instruments for accounting disclosure purposes) in the Statement of Operations for the year ended August 31, 2019:
| 28 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
The
following table is a summary of the average outstanding volume by derivative instrument for the year ended August 31, 2019:
| Derivative instrument |
Average
notional
amounts ($) |
| Futures contracts — long | 15,378,640* |
| Futures contracts — short | 6,723,471* |
| Credit default swap contracts — buy protection | 6,926,099** |
| Derivative instrument |
Average
unrealized
appreciation ($)* |
Average
unrealized
depreciation ($)* |
| Forward foreign currency exchange contracts | 314,018 | (59,044) |
| * | Based on the ending quarterly outstanding amounts for the year ended August 31, 2019. |
| ** | Based on the ending daily outstanding amounts for the year ended August 31, 2019. |
Treasury inflation protected securities
The Fund may invest in treasury inflation protected securities
(TIPS). The principal amount of TIPS is adjusted periodically and is increased for inflation or decreased for deflation based on a monthly published index. These adjustments are recorded as interest income in the Statement of Operations. Coupon
payments are based on the adjusted principal at the time the interest is paid.
Offsetting of assets and liabilities
The following table presents the Fund’s gross and net
amount of assets and liabilities available for offset under netting arrangements as well as any related collateral received or pledged by the Fund as of August 31, 2019:
| HSBC ($) |
Morgan
Stanley ($) |
Total ($) | |
| Assets | |||
| Forward foreign currency exchange contracts | 363,008 | 90,951 | 453,959 |
| Total financial and derivative net assets | 363,008 | 90,951 | 453,959 |
| Total collateral received (pledged) (a) | - | - | - |
| Net amount (b) | 363,008 | 90,951 | 453,959 |
| (a) | In some instances, the actual collateral received and/or pledged may be more than the amount shown due to overcollateralization. |
| (b) | Represents the net amount due from/(to) counterparties in the event of default. |
Security transactions
Security transactions are accounted for on the trade date.
Cost is determined and gains (losses) are based upon the specific identification method for both financial statement and federal income tax purposes.
Income recognition
Interest income is recorded on an accrual basis. Market
premiums and discounts, including original issue discounts, are amortized and accreted, respectively, over the expected life of the security on all debt securities, unless otherwise noted.
The Fund may place a debt security on non-accrual status and
reduce related interest income when it becomes probable that the interest will not be collected and the amount of uncollectible interest can be reasonably estimated. A defaulted debt security is removed from non-accrual status when the issuer
resumes interest payments or when collectibility of interest is reasonably assured.
Dividend income is recorded on the ex-dividend date.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
29 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
Expenses
General expenses of the Trust are allocated to the Fund and
other funds of the Trust based upon relative net assets or other expense allocation methodologies determined by the nature of the expense. Expenses directly attributable to the Fund are charged to the Fund. Expenses directly attributable to a
specific class of shares are charged to that share class.
Determination of class net asset value
All income, expenses (other than class-specific expenses,
which are charged to that share class, as shown in the Statement of Operations) and realized and unrealized gains (losses) are allocated to each class of the Fund on a daily basis, based on the relative net assets of each class, for purposes of
determining the net asset value of each class.
Federal
income tax status
The Fund intends to qualify each year
as a regulated investment company under Subchapter M of the Internal Revenue Code, as amended, and will distribute substantially all of its investment company taxable income and net capital gain, if any, for its tax year, and as such will not be
subject to federal income taxes. In addition, the Fund intends to distribute in each calendar year substantially all of its ordinary income, capital gain net income and certain other amounts, if any, such that the Fund should not be subject to
federal excise tax. Therefore, no federal income or excise tax provision is recorded.
Foreign taxes
The Fund may be subject to foreign taxes on income, gains on
investments or currency repatriation, a portion of which may be recoverable. The Fund will accrue such taxes and recoveries, as applicable, based upon its current interpretation of tax rules and regulations that exist in the markets in which it
invests.
Realized gains in certain countries may be
subject to foreign taxes at the Fund level, based on statutory rates. The Fund accrues for such foreign taxes on realized and unrealized gains at the appropriate rate for each jurisdiction, as applicable. The amount, if any, is disclosed as a
liability on the Statement of Assets and Liabilities.
Distributions to shareholders
Distributions from net investment income, if any, are declared
and paid monthly. Net realized capital gains, if any, are distributed at least annually. Income distributions and capital gain distributions are determined in accordance with federal income tax regulations, which may differ from GAAP.
Guarantees and indemnifications
Under the Trust’s organizational documents and, in some
cases, by contract, its officers and trustees are indemnified against certain liabilities arising out of the performance of their duties to the Trust or its funds. In addition, certain of the Fund’s contracts with its service providers contain
general indemnification clauses. The Fund’s maximum exposure under these arrangements is unknown since the amount of any future claims that may be made against the Fund cannot be determined, and the Fund has no historical basis for predicting
the likelihood of any such claims.
Recent accounting
pronouncements
Accounting Standards Update 2017-08
Premium Amortization on Purchased Callable Debt Securities
In March 2017, the Financial Accounting Standards Board issued
Accounting Standards Update (ASU) No. 2017-08 Premium Amortization on Purchased Callable Debt Securities. ASU No. 2017-08 updates the accounting standards to shorten the amortization period for certain purchased callable debt securities, held at a
premium, to be amortized to the earliest call date. The update applies to securities with explicit, noncontingent call features that are callable at fixed prices and on preset dates. The standard is effective for annual periods beginning after
December 15, 2018 and interim periods within those fiscal years. Management does not expect the implementation of this guidance to have a material impact on the financial statement amounts and footnote disclosures.
Accounting Standards Update 2018-13 Disclosure Framework -
Changes to the Disclosure Requirements for Fair Value Measurement
| 30 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
In
August 2018, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2018-13 Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement. The standard is effective for annual periods
beginning after December 15, 2019 and interim periods within those fiscal years, with early adoption permitted. After evaluation, management determined to adopt the ASU effective for the period ended August 31, 2019 and all subsequent periods. As a
result of the amendments, management implemented disclosure changes which include removal of the amount and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, removal of the policy for the timing of transfers between
levels, removal of the description of the Level 3 valuation processes, as well as modifications to the measurement uncertainty disclosure.
Disclosure Update and Simplification
In September 2018, the Securities and Exchange Commission
(SEC) released Final Rule 33-10532, Disclosure Update and Simplification, which amends certain financial statement disclosure requirements that the SEC determined to be redundant, outdated, or superseded in light of other SEC disclosure
requirements, GAAP, or changes in the information environment. As a result of the amendments, management implemented disclosure changes which included removing the components of distributable earnings presented on the Statement of Assets and
Liabilities and combining income and gain distributions paid to shareholders as presented on the Statement of Changes in Net Assets. Any values presented to meet prior year requirements were left unchanged. The amendments had no effect on the
Fund’s net assets or results of operation.
Note
3. Fees and other transactions with affiliates
Management services fees
The Fund has entered into a Management Agreement with Columbia
Management Investment Advisers, LLC (the Investment Manager), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial). Under the Management Agreement, the Investment Manager provides the Fund with investment research and
advice, as well as administrative and accounting services. The management services fee is an annual fee that is equal to a percentage of the Fund’s daily net assets that declines from 0.600% to 0.393% as the Fund’s net assets increase.
The effective management services fee rate for the year ended August 31, 2019 was 0.600% of the Fund’s average daily net assets.
Participating Affiliates
The Investment Manager and its investment advisory affiliates
(Participating Affiliates) around the world may coordinate in providing services to their clients. From time to time the Investment Manager (or any affiliated investment subadviser to the Fund, as the case may be) may engage its Participating
Affiliates to provide a variety of services such as investment research, investment monitoring, trading and discretionary investment management (including portfolio management) to certain accounts managed by the Investment Manager, including the
Fund. These Participating Affiliates will provide services to the Investment Manager (or any affiliated investment subadviser to the Fund as the case may be) either pursuant to subadvisory agreements, personnel-sharing agreements or similar
inter-company arrangements and the Fund will pay no additional fees and expenses as a result of any such arrangements.
These Participating Affiliates, like the Investment Manager,
are direct or indirect subsidiaries of Ameriprise Financial and are registered with appropriate respective regulators in their home jurisdictions and, where required, the Securities and Exchange Commission and the Commodity Futures Trading
Commission in the United States.
Pursuant to some of
these arrangements, certain employees of these Participating Affiliates may serve as "associated persons" of the Investment Manager and, in this capacity, subject to the oversight and supervision of the Investment Manager and consistent with the
investment objectives, policies and limitations set forth in the Fund’s prospectus and Statement of Additional Information (SAI), may provide such services to the Fund on behalf of the Investment Manager.
Compensation of board members
Members of the Board of Trustees who are not officers or
employees of the Investment Manager or Ameriprise Financial are compensated for their services to the Fund as disclosed in the Statement of Operations. Under a Deferred Compensation Plan (the Deferred Plan), these members of the Board of Trustees
may elect to defer payment of up to 100% of their compensation. Deferred amounts are treated as though equivalent dollar amounts had been invested in shares of certain
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
31 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
funds managed by
the Investment Manager. The Fund’s liability for these amounts is adjusted for market value changes and remains in the Fund until distributed in accordance with the Deferred Plan. All amounts payable under the Deferred Plan constitute a
general unsecured obligation of the Fund.
Compensation of
Chief Compliance Officer
The Board of Trustees has
appointed a Chief Compliance Officer to the Fund in accordance with federal securities regulations. As disclosed in the Statement of Operations, a portion of the Chief Compliance Officer’s total compensation is allocated to the Fund, along
with other allocations to affiliated registered investment companies managed by the Investment Manager and its affiliates, based on relative net assets.
Transactions with affiliates
For the year ended August 31, 2019, the Fund engaged in
purchase and/or sale transactions with affiliates and/or accounts that have a common investment manager (or affiliated investment managers), common directors/trustees, and/or common officers. Those purchase and sale transactions complied with
provisions of Rule 17a-7 under the 1940 Act and were $1,323,118 and $0, respectively.
Transfer agency fees
Under a Transfer and Dividend Disbursing Agent Agreement,
Columbia Management Investment Services Corp. (the Transfer Agent), an affiliate of the Investment Manager and a wholly-owned subsidiary of Ameriprise Financial, is responsible for providing transfer agency services to the Fund. The Transfer Agent
has contracted with DST Asset Manager Solutions, Inc. (DST) to serve as sub-transfer agent. The Transfer Agent pays the fees of DST for services as sub-transfer agent and DST is not entitled to reimbursement for such fees from the Fund (with the
exception of out-of-pocket fees).
The Fund pays the
Transfer Agent a monthly transfer agency fee based on the number or the average value of accounts, depending on the type of account. In addition, the Fund pays the Transfer Agent a fee for shareholder services based on the number of accounts or on a
percentage of the average aggregate value of the Fund’s shares maintained in omnibus accounts up to the lesser of the amount charged by the financial intermediary or a cap established by the Board of Trustees from time to time.
The Transfer Agent also receives compensation from the Fund
for various shareholder services and reimbursements for certain out-of-pocket fees. Total transfer agency fees for Institutional 2 Class and Institutional 3 Class shares are subject to an annual limitation of not more than 0.07% and 0.02%,
respectively, of the average daily net assets attributable to each share class.
For the year ended August 31, 2019, the Fund’s effective
transfer agency fee rates as a percentage of average daily net assets of each class were as follows:
| Effective rate (%) | |
| Class A | 0.18 |
| Advisor Class | 0.17 |
| Class C | 0.18 |
| Institutional Class | 0.18 |
| Institutional 2 Class | 0.06 |
| Institutional 3 Class | 0.01 |
| Class R | 0.18 |
| Class T | 0.05 (a) |
| (a) | Unannualized. |
An annual minimum account balance
fee of $20 may apply to certain accounts with a value below the applicable share class’s initial minimum investment requirements to reduce the impact of small accounts on transfer agency fees. These minimum account balance fees are remitted to
the Fund and recorded as part of expense reductions in the Statement of Operations. For the year ended August 31, 2019, no minimum account balance fees were charged by the Fund.
| 32 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
Distribution and service fees
The Fund has entered into an agreement with Columbia
Management Investment Distributors, Inc. (the Distributor), an affiliate of the Investment Manager and a wholly-owned subsidiary of Ameriprise Financial, for distribution and shareholder services. Under a Plan and Agreement of Distribution, the Fund
pays a fee at the maximum annual rates of up to 0.25%, 1.00%, 0.50% and 0.25% of the Fund’s average daily net assets attributable to Class A, Class C, Class R and Class T shares, respectively. For Class C shares, of the 1.00% fee, up to 0.75%
can be reimbursed for distribution expenses and up to an additional 0.25% can be reimbursed for shareholder servicing expenses. For Class R shares, of the 0.50% fee, up to 0.25% can be reimbursed for shareholder servicing expenses. For Class T
shares, of the 0.25% fee, up to 0.25% can be reimbursed for distribution and/or shareholder servicing expenses. As a result of all Class T shares of the Fund being redeemed or converted to Class A shares, December 14, 2018 was the last day the Fund
paid a distribution and shareholder services fee for Class T shares.
The amount of distribution and shareholder services expenses
incurred by the Distributor and not yet reimbursed (unreimbursed expense) was approximately $331,000 for Class C shares. This amount is based on the most recent information available as of June 30, 2019, and may be recovered from future payments
under the distribution plan or contingent deferred sales charges (CDSCs). To the extent the unreimbursed expense has been fully recovered, the distribution and/or shareholder services fee is reduced.
Sales charges (unaudited)
Sales charges, including front-end charges and CDSCs, received
by the Distributor for distributing Fund shares for the year ended August 31, 2019, if any, are listed below:
| Front End (%) | CDSC (%) | Amount ($) | |
| Class A | 4.75 | 0.50 - 1.00 (a) | 35,106 |
| Class C | — | 1.00 (b) | 1,060 |
| Class T | 2.50 | — | — |
| (a) | This charge is imposed on certain investments of between $1 million and $50 million redeemed within 18 months after purchase, as follows: 1.00% if redeemed within 12 months after purchase, and 0.50% if redeemed more than 12, but less than 18, months after purchase, with certain limited exceptions. |
| (b) | This charge applies to redemptions within 12 months after purchase, with certain limited exceptions. |
The Fund’s other share classes are not subject to sales
charges.
Expenses waived/reimbursed by the Investment
Manager and its affiliates
The Investment Manager and
certain of its affiliates have contractually agreed to waive fees and/or reimburse expenses (excluding certain fees and expenses described below) for the period(s) disclosed below, unless sooner terminated at the sole discretion of the Board of
Trustees, so that the Fund’s net operating expenses, after giving effect to fees waived/expenses reimbursed and any balance credits and/or overdraft charges from the Fund’s custodian, do not exceed the following annual rate(s) as a
percentage of the class’ average daily net assets:
Under the agreement governing
these fee waivers and/or expense reimbursement arrangements, the following fees and expenses are excluded from the waiver/reimbursement commitment, and therefore will be paid by the Fund, if applicable: taxes (including foreign transaction taxes),
expenses associated with investments in affiliated and non-affiliated pooled investment vehicles (including mutual funds and exchange-traded funds), transaction costs and brokerage
|
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Emerging Markets Bond Fund | Annual Report 2019
|
33 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
commissions, costs
related to any securities lending program, dividend expenses associated with securities sold short, inverse floater program fees and expenses, transaction charges and interest on borrowed money, interest, infrequent and/or unusual expenses and any
other expenses the exclusion of which is specifically approved by the Board of Trustees. This agreement may be modified or amended only with approval from the Investment Manager, certain of its affiliates and the Fund. Any fees waived and/or
expenses reimbursed under the expense reimbursement arrangements described above are not recoverable by the Investment Manager or its affiliates in future periods.
Note 4. Federal tax information
The timing and character of income and capital gain
distributions are determined in accordance with income tax regulations, which may differ from GAAP because of temporary or permanent book to tax differences.
At August 31, 2019, these differences were primarily due to
differing treatment for deferral/reversal of wash sale losses, trustees’ deferred compensation, derivative investments, tax straddles, late-year ordinary losses, capital loss carryforward, swap investments, principal and/or interest of fixed
income securities, foreign capital gains tax, and foreign currency transactions. To the extent these differences were permanent, reclassifications were made among the components of the Fund’s net assets. Temporary differences do not require
reclassifications.
The following reclassifications were
made:
|
Excess
of distributions
over net investment income ($) |
Accumulated
net realized (loss) ($) |
Paid
in
capital ($) |
| (7,739,743) | 7,739,743 | — |
Net investment income (loss) and
net realized gains (losses), as disclosed in the Statement of Operations, and net assets were not affected by this reclassification.
The tax character of distributions paid during the years
indicated was as follows:
| Year Ended August 31, 2019 | Year Ended August 31, 2018 | ||||
|
Ordinary
income ($) |
Long-term
capital gains ($) |
Total ($) |
Ordinary
income ($) |
Long-term
capital gains ($) |
Total ($) |
| 17,081,170 | — | 17,081,170 | 27,023,212 | — | 27,023,212 |
Short-term capital gain
distributions, if any, are considered ordinary income distributions for tax purposes.
At August 31, 2019, the components of distributable earnings
on a tax basis were as follows:
|
Undistributed
ordinary income ($) |
Undistributed
long-term capital gains ($) |
Capital
loss
carryforwards ($) |
Net
unrealized
appreciation ($) |
| — | — | (35,094,991) | 2,433,509 |
At August 31, 2019, the cost of
all investments for federal income tax purposes along with the aggregate gross unrealized appreciation and depreciation based on that cost was:
|
Federal
tax cost ($) |
Gross
unrealized
appreciation ($) |
Gross
unrealized
(depreciation) ($) |
Net
unrealized
appreciation ($) |
| 385,633,482 | 21,339,460 | (18,905,951) | 2,433,509 |
Tax cost of investments and
unrealized appreciation/(depreciation) may also include timing differences that do not constitute adjustments to tax basis.
| 34 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
The
following capital loss carryforwards, determined at August 31, 2019, may be available to reduce taxable income arising from future net realized gains on investments, if any, to the extent permitted by the Internal Revenue Code. Capital loss
carryforwards with no expiration are required to be utilized prior to any capital losses which carry an expiration date. As a result of this ordering rule, capital loss carryforwards which carry an expiration date may be more likely to expire
unused. In addition, for the year ended August 31, 2019, capital loss carryforwards utilized and expired unused, if any, were as follows:
|
No
expiration
short-term ($) |
No
expiration
long-term ($) |
Total ($) | Utilized ($) | Expired ($) |
| (8,665,379) | (26,429,612) | (35,094,991) | — | — |
Under current tax rules, regulated
investment companies can elect to treat certain late-year ordinary losses incurred and post-October capital losses (capital losses realized after October 31) as arising on the first day of the following taxable year. As of August 31, 2019, the Fund
will elect to treat the following late-year ordinary losses and post-October capital losses as arising on September 1, 2019.
|
Late
year
ordinary losses ($) |
Post-October
capital losses ($) |
| 2,078,301 | — |
Management of the Fund has
concluded that there are no significant uncertain tax positions in the Fund that would require recognition in the financial statements. However, management’s conclusion may be subject to review and adjustment at a later date based on factors
including, but not limited to, new tax laws, regulations, and administrative interpretations (including relevant court decisions). Generally, the Fund’s federal tax returns for the prior three fiscal years remain subject to examination by the
Internal Revenue Service.
Note 5. Portfolio
information
The cost of purchases and proceeds from
sales of securities, excluding short-term investments and derivatives, if any, aggregated to $403,225,044 and $464,449,848, respectively, for the year ended August 31, 2019. The amount of purchase and sale activity impacts the portfolio turnover
rate reported in the Financial Highlights.
Note
6. Affiliated money market fund
The Fund invests
in Columbia Short-Term Cash Fund, an affiliated money market fund established for the exclusive use by the Fund and other affiliated funds (the Affiliated MMF). The income earned by the Fund from such investments is included as Dividends -
affiliated issuers in the Statement of Operations. As an investing fund, the Fund indirectly bears its proportionate share of the expenses of the Affiliated MMF. The Affiliated MMF prices its shares with a floating net asset value. In addition, the
Board of Trustees of the Affiliated MMF may impose a fee on redemptions (sometimes referred to as a liquidity fee) or temporarily suspend redemptions (sometimes referred to as imposing a redemption gate) in the event its liquidity falls below
regulatory limits.
Note 7. Interfund
lending
Pursuant to an exemptive order granted by the
Securities and Exchange Commission, the Fund participates in a program (the Interfund Program) allowing each participating Columbia Fund (each, a Participating Fund) to lend money directly to and, except for closed-end funds and money market funds,
borrow money directly from other Participating Funds for temporary purposes. The amounts eligible for borrowing and lending under the Interfund Program are subject to certain restrictions.
Interfund loans are subject to the risk that the borrowing
fund could be unable to repay the loan when due, and a delay in repayment to the lending fund could result in lost opportunities and/or additional lending costs. The exemptive order is subject to conditions intended to mitigate conflicts of interest
arising from the Investment Manager’s relationship with each Participating Fund.
|
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Emerging Markets Bond Fund | Annual Report 2019
|
35 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
The
Fund’s activity in the Interfund Program during the year ended August 31, 2019 was as follows:
| Borrower or lender |
Average
loan
balance ($) |
Weighted
average
interest rate (%) |
Days
outstanding |
| Lender | 3,200,000 | 2.78 | 10 |
Interest income earned by the Fund
is recorded as Interfund lending in the Statement of Operations. The Fund had no outstanding interfund loans at August 31, 2019.
Note 8. Line of credit
The Fund has access to a revolving credit facility with a
syndicate of banks led by Citibank, N.A., HSBC Bank USA, N.A. and JPMorgan Chase Bank, N.A. whereby the Fund may borrow for the temporary funding of shareholder redemptions or for other temporary or emergency purposes. The credit facility, which is
a collective agreement between the Fund and certain other funds managed by the Investment Manager or an affiliated investment manager, severally and not jointly, permits collective borrowings up to $1 billion. Interest is charged to each
participating fund based on its borrowings at a rate equal to the higher of (i) the federal funds effective rate, (ii) the one-month LIBOR rate and (iii) the overnight bank funding rate, plus in each case, 1.00%. Each borrowing under the credit
facility matures no later than 60 days after the date of borrowing. The Fund also pays a commitment fee equal to its pro rata share of the unused amount of the credit facility at a rate of 0.15% per annum. The commitment fee is included in other
expenses in the Statement of Operations. This agreement expires annually in December unless extended or renewed.
The Fund had no borrowings during the year ended August 31,
2019.
Note 9. Significant risks
Credit risk
Credit risk is the risk that the value of debt securities in
the Fund’s portfolio may decline because the issuer defaults or otherwise becomes unable or unwilling, or is perceived to be unable or unwilling, to honor its financial obligations, such as making payments to the Fund when due. Rating agencies
assign credit ratings to certain debt instruments to indicate their credit risk. Lower rated or unrated debt instruments held by the Fund may present increased credit risk as compared to higher-rated debt instruments.
Foreign securities and emerging market countries risk
Investing in foreign securities may involve certain risks not
typically associated with investing in U.S. securities, such as increased currency volatility and risks associated with political, regulatory, economic, social, diplomatic and other conditions or events occurring in the country or region, which may
result in significant market volatility. In addition, certain foreign securities may not be as liquid as U.S. securities. Investing in emerging markets may increase these risks and expose the Fund to elevated risks associated with increased
inflation, deflation or currency devaluation. To the extent that the Fund concentrates its investment exposure to any one or a few specific countries, the Fund will be particularly susceptible to the risks associated with the conditions, events or
other factors impacting those countries or regions and may, therefore, have a greater risk than that of a fund that is more geographically diversified.
High-yield investments risk
Securities and other debt instruments held by the Fund that
are rated below investment grade (commonly called "high-yield" or "junk" bonds) and unrated debt instruments of comparable quality expose the Fund to a greater risk of loss of principal and income than a fund that invests solely or primarily in
investment grade debt instruments. In addition, these investments have greater price fluctuations, are less liquid and are more likely to experience a default than higher-rated debt instruments. High-yield debt instruments are considered to be
predominantly speculative with respect to the issuer’s capacity to pay interest and repay principal.
| 36 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
Interest rate risk
Interest rate risk is the risk of losses attributable to
changes in interest rates. In general, if prevailing interest rates rise, the values of debt securities tend to fall, and if interest rates fall, the values of debt securities tend to rise. Actions by governments and central banking authorities can
result in increases in interest rates. Increasing interest rates may negatively affect the value of debt securities held by the Fund, resulting in a negative impact on the Fund’s performance and net asset value per share. In general, the
longer the maturity or duration of a debt security, the greater its sensitivity to changes in interest rates.
Liquidity risk
Liquidity risk is the risk associated with a lack of
marketability of investments which may make it difficult to sell the investment at a desirable time or price. Changing regulatory, market or other conditions or environments (for example, the interest rate or credit environments) may adversely
affect the liquidity of the Fund’s investments. The Fund may have to accept a lower selling price for the holding, sell other investments, or forego another, more appealing investment opportunity. Generally, the less liquid the market at the
time the Fund sells a portfolio investment, the greater the risk of loss or decline of value to the Fund. A less liquid market can lead to an increase in Fund redemptions, which may negatively impact Fund performance and net asset value per share,
including, for example, if the Fund is forced to sell securities in a down market.
Non-diversification risk
A non-diversified fund is permitted to invest a greater
percentage of its total assets in fewer issuers than a diversified fund. This increases the risk that a change in the value of any one investment held by the Fund could affect the overall value of the Fund more than it would affect that of a
diversified fund holding a greater number of investments. Accordingly, the Fund’s value will likely be more volatile than the value of a more diversified fund.
Shareholder concentration risk
At August 31, 2019, one unaffiliated shareholder of record
owned 11.9% of the outstanding shares of the Fund in one or more accounts. The Fund has no knowledge about whether any portion of those shares was owned beneficially. Affiliated shareholders of record owned 53.5% of the outstanding shares of the
Fund in one or more accounts. Subscription and redemption activity by concentrated accounts may have a significant effect on the operations of the Fund. In the case of a large redemption, the Fund may be forced to sell investments at inopportune
times, including its liquid positions, which may result in Fund losses and the Fund holding a higher percentage of less liquid positions. Large redemptions could result in decreased economies of scale and increased operating expenses for
non-redeeming Fund shareholders.
Note
10. Subsequent events
Management has evaluated
the events and transactions that have occurred through the date the financial statements were issued and noted no items requiring adjustment of the financial statements or additional disclosure.
Note 11. Information regarding pending and settled
legal proceedings
Ameriprise Financial and certain of
its affiliates have historically been involved in a number of legal, arbitration and regulatory proceedings, including routine litigation, class actions, and governmental actions, concerning matters arising in connection with the conduct of their
business activities. Ameriprise Financial believes that the Fund is not currently the subject of, and that neither Ameriprise Financial nor any of its affiliates are the subject of, any pending legal, arbitration or regulatory proceedings that are
likely to have a material adverse effect on the Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund. Ameriprise Financial is required to make quarterly (10-Q), annual (10-K) and, as necessary,
8-K filings with the Securities and Exchange Commission (SEC) on legal and regulatory matters that relate to Ameriprise Financial and its affiliates. Copies of these filings may be obtained by accessing the SEC website at www.sec.gov.
There can be no assurance that these matters, or the adverse
publicity associated with them, will not result in increased Fund redemptions, reduced sale of Fund shares or other adverse consequences to the Fund. Further, although we believe proceedings are not likely to have a material adverse effect on the
Fund or the ability of Ameriprise Financial or its affiliates to perform under their contracts with the Fund, these proceedings are subject to uncertainties and, as such, we are unable to
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
37 |
Table of Contents
Notes to Financial Statements (continued)
August 31, 2019
August 31, 2019
estimate the
possible loss or range of loss that may result. An adverse outcome in one or more of these proceedings could result in adverse judgments, settlements, fines, penalties or other relief that could have a material adverse effect on the consolidated
financial condition or results of operations of Ameriprise Financial.
| 38 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
Report of Independent Registered Public Accounting Firm
To the
Board of Trustees of Columbia Funds Series Trust II and Shareholders of Columbia Emerging Markets Bond Fund
Opinion on the Financial Statements
We have audited the accompanying statement of assets and
liabilities, including the portfolio of investments, of Columbia Emerging Markets Bond Fund (one of the funds constituting Columbia Funds Series Trust II, hereafter referred to as the “Fund”) as of August 31, 2019, the related statement
of operations for the year ended August 31, 2019, the statement of changes in net assets for each of the two years in the period ended August 31, 2019, including the related notes, and the financial highlights for each of the periods indicated
therein (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of August 31, 2019, the results of its operations
for the year then ended, the changes in its net assets for each of the two years in the period ended August 31, 2019 and the financial highlights for each of the periods indicated therein in conformity with accounting principles generally accepted
in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the
Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits of these financial statements in
accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.
Our audits included performing procedures to assess the risks
of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the
financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our procedures included confirmation
of securities owned as of August 31, 2019, by correspondence with the custodian, transfer agent and brokers; when replies were not received from brokers, we performed other audit procedures. We believe that our audits provide a reasonable basis for
our opinion.
/s/PricewaterhouseCoopers LLP
Minneapolis, Minnesota
October 24, 2019
We have served as the auditor of one or more investment
companies within the Columbia Funds Complex since 1977.
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
39 |
Table of Contents
Federal Income Tax Information
(Unaudited)
The Fund hereby designates the following tax attributes for
the fiscal year ended August 31, 2019. Shareholders will be notified in early 2020 of the amounts for use in preparing 2019 income tax returns.
|
Foreign
taxes paid to foreign countries |
Foreign
taxes paid per share to foreign countries |
Foreign
source income |
Foreign
source income per share |
| $349,873 | $0.0098 | $25,047,574 | $0.70 |
Foreign taxes. The Fund makes the election to pass through to shareholders the foreign taxes paid. Eligible shareholders may claim a foreign tax credit. These taxes, and the corresponding foreign source income, are
provided.
TRUSTEES AND OFFICERS
The Board oversees the Fund’s operations and appoints
officers who are responsible for day-to-day business decisions based on policies set by the Board. The following table provides basic biographical information about the Fund’s Trustees as of the printing of this report, including their
principal occupations during the past five years, although specific titles for individuals may have varied over the period. Under current Board policy, Trustees not affiliated with the Investment Manager generally may serve through the end of the
calendar year in which they reach the mandatory retirement age established by the Board.
Independent trustees
|
Name,
address, year of birth |
Position
held
with the Trust and length of service |
Principal
occupation(s)
during past five years and other relevant professional experience |
Number
of
Funds in the Columbia Funds complex overseen |
Other
directorships
held by Trustee during the past five years |
|
George
S. Batejan
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1953 |
Trustee since 1/17 | Executive Vice President, Global Head of Technology and Operations, Janus Capital Group, Inc., 2010-2016 | 121 | Former Chairman of the Board, NICSA (National Investment Company Services Association) (Executive Committee, Nominating Committee and Governance Committee), 2014-2016; former Director, Intech Investment Management, 2011-2016; former Board Member, Metro Denver Chamber of Commerce, 2015-2016; former Advisory Board Member, University of Colorado Business School, 2015-2018 |
| 40 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
TRUSTEES AND OFFICERS (continued)
Independent trustees (continued)
Independent trustees (continued)
|
Name,
address, year of birth |
Position
held
with the Trust and length of service |
Principal
occupation(s)
during past five years and other relevant professional experience |
Number
of
Funds in the Columbia Funds complex overseen |
Other
directorships
held by Trustee during the past five years |
|
Kathleen
Blatz
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1954 |
Trustee since 1/06 for RiverSource Funds and since 6/11 for Nations Funds | Attorney; specializing in arbitration and mediation; Chief Justice, Minnesota Supreme Court, 1998-2006; Associate Justice, Minnesota Supreme Court, 1996-1998; Fourth Judicial District Court Judge, Hennepin County, 1994-1996; Attorney in private practice and public service, 1984-1993; State Representative, Minnesota House of Representatives, 1979-1993, which included service on the Tax and Financial Institutions and Insurance Committees; Member and Interim Chair, Minnesota Sports Facilities Authority, January 2017-July 2017; Interim President and Chief Executive Officer, Blue Cross and Blue Shield of Minnesota (health care insurance), February-July 2018 | 121 | Trustee, BlueCross BlueShield of Minnesota since 2009 (Chair of the Business Development Committee, 2014-2017; Chair of the Governance Committee since 2017); Chair of the Robina Foundation since August 2013; former Member and Chair of the Board, Minnesota Sports Facilities Authority, January 2017-July 2017 |
|
Edward
J. Boudreau, Jr.
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1944 |
Chair of the Board since 1/18; Trustee since 6/11 for RiverSource Funds and since 1/05 for Nations Funds | Managing Director, E.J. Boudreau & Associates (consulting) since 2000; FINRA Industry Arbitrator, 2002-present; Chairman and Chief Executive Officer, John Hancock Investments (asset management), Chairman and Interested Trustee for open-end and closed-end funds offered by John Hancock, 1989-2000; John Hancock Mutual Life Insurance Company, including Senior Vice President and Treasurer and Senior Vice President Information Technology, 1968-1988 | 121 | Former Trustee, Boston Museum of Science (Chair of Finance Committee) 1985-2013; former Trustee, BofA Funds Series Trust (11 funds), 2005-2011 |
|
Pamela
G. Carlton
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1954 |
Trustee since 7/07 for RiverSource Funds and since 6/11 for Nations Funds | President, Springboard — Partners in Cross Cultural Leadership (consulting company) since 2003; Managing Director of US Equity Research, JP Morgan Chase, 1999-2003; Director of US Equity Research, Chase Asset Management, 1996-1999; Co-Director Latin America Research, 1993-1996, COO Global Research, 1992-1996, Co-Director of US Research, 1991-1992, Investment Banker, Morgan Stanley, 1982-1991 | 121 | Trustee, New York Presbyterian Hospital Board (Executive Committee and Chair of Human Resources Committee) since 1996; Director, Laurel Road Bank (Audit Committee) since 2017 |
|
Patricia
M. Flynn
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1950 |
Trustee since 11/04 for RiverSource Funds and since 6/11 for Nations Funds | Trustee Professor of Economics and Management, Bentley University since 1976 (also teaches and conducts research on corporate governance); Dean, McCallum Graduate School of Business, Bentley University, 1992-2002 | 121 | Trustee, MA Taxpayers Foundation since 1997; Board of Directors, The MA Business Roundtable since 2003; Board of Governors, Innovation Institute, MA Technology Collaborative since 2010 |
|
Brian
J. Gallagher
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1954 |
Trustee since 12/17 | Retired; Partner with Deloitte & Touche LLP and its predecessors, 1977-2016 | 119 | Trustee, Catholic Schools Foundation since 2004 |
|
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Emerging Markets Bond Fund | Annual Report 2019
|
41 |
Table of Contents
TRUSTEES AND OFFICERS (continued)
Independent trustees (continued)
Independent trustees (continued)
|
Name,
address, year of birth |
Position
held
with the Trust and length of service |
Principal
occupation(s)
during past five years and other relevant professional experience |
Number
of
Funds in the Columbia Funds complex overseen |
Other
directorships
held by Trustee during the past five years |
|
Catherine
James Paglia
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1952 |
Trustee since 11/04 for RiverSource Funds and since 6/11 for Nations Funds | Director, Enterprise Asset Management, Inc. (private real estate and asset management company) since September 1998; Managing Director and Partner, Interlaken Capital, Inc., 1989-1997; Managing Director, Morgan Stanley, 1982-1989; Vice President, Investment Banking, 1980-1982, Associate, Investment Banking, 1976-1980, Dean Witter Reynolds, Inc. | 121 | Director, Valmont Industries, Inc. (irrigation systems manufacturer) since 2012; Trustee, Carleton College (on the Investment Committee); Trustee, Carnegie Endowment for International Peace (on the Investment Committee) |
|
Anthony
M. Santomero
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1946 |
Trustee since 6/11 for RiverSource Funds and since 1/08 for Nations Funds | Richard K. Mellon Professor Emeritus of Finance, The Wharton School, University of Pennsylvania, since 2002; Senior Advisor, McKinsey & Company (consulting), 2006-2008; President, Federal Reserve Bank of Philadelphia, 2000- 2006; Professor of Finance, The Wharton School, University of Pennsylvania, 1972-2002 | 121 | Trustee, Penn Mutual Life Insurance Company since March 2008; Director, Renaissance Reinsurance Ltd. since May 2008; former Trustee, BofA Funds Series Trust (11 funds), 2008-2011; former Director, Citigroup Inc. and Citibank, N.A., 2009-2019 |
|
Minor
M. Shaw
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1947 |
Trustee since 6/11 for RiverSource Funds and since 2003 for Nations Funds | President, Micco LLC (private investments) since 2011; President, Micco Corp. (family investment business), 1998-2011 | 121 | Director, BlueCross BlueShield of South Carolina since April 2008; Board Chair, Hollingsworth Funds since 2016; Advisory Board member, Duke Energy Corp. since October 2016; Chair of the Duke Endowment; Chair of Greenville – Spartanburg Airport Commission; former Trustee, BofA Funds Series Trust (11 funds), 2003-2011; former Director, Piedmont Natural Gas, 2004-2016; former Director, National Association of Corporate Directors, Carolinas Chapter, 2013-2018 |
|
Sandra
Yeager
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Mail Drop BX32 05228 Boston, MA 02110 1964 |
Trustee since 12/17 | Retired; President and founder, Hanoverian Capital, LLC (SEC registered investment advisor firm), 2008-2016; Managing Director, DuPont Capital, 2006-2008; Managing Director, Morgan Stanley Investment Management, 2004-2006; Senior Vice President, Alliance Bernstein, 1990-2004 | 119 | Director, NAPE Education Foundation since October 2016 |
| 42 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
Table of Contents
TRUSTEES AND OFFICERS (continued)
Interested trustee affiliated with Investment Manager*
Interested trustee affiliated with Investment Manager*
| Name, address, year of birth | Position held with the Trust and length of service | Principal occupation(s) during the past five years and other relevant professional experience | Number of Funds in the Columbia Funds Complex overseen | Other directorships held by Trustee during the past five years |
|
William
F. Truscott
c/o Columbia Management Investment Advisers, LLC 225 Franklin Street Boston, MA 02110 1960 |
Trustee
2012 |
Chairman of the Board and President, Columbia Management Investment Advisers, LLC since May 2010 and February 2012, respectively; Chief Executive Officer, Global Asset Management, Ameriprise Financial, Inc. since September 2012 (previously Chief Executive Officer, U.S. Asset Management & President, Annuities, May 2010-September 2012); Director and Chief Executive Officer, Columbia Management Investment Distributors, Inc. since May 2010 and February 2012, respectively; Chairman of the Board and Chief Executive Officer, RiverSource Distributors, Inc. since 2006; Director, Threadneedle Asset Management Holdings, SARL since 2014; President and Chief Executive Officer, Ameriprise Certificate Company, 2006-August 2012 | 192 | Chairman of the Board, Columbia Management Investment Advisers, LLC since May 2010; Director, Columbia Management Investment Distributors, Inc. since May 2010; former Director, Ameriprise Certificate Company, August 2006 - January 2013 |
| * | Interested person (as defined under the 1940 Act) by reason of being an officer, director, security holder and/or employee of the Investment Manager or Ameriprise Financial. |
Nations Funds refer to the Funds within the Columbia Funds
Complex that historically bore the Nations brand and includes series of Columbia Funds Series Trust. RiverSource Funds refer to the Funds within the Columbia Funds Complex that historically bore the RiverSource brand and includes series of Columbia
Funds Series Trust II.
The Statement of Additional
Information has additional information about the Fund’s Board members and is available, without charge, upon request by calling 800.345.6611, visiting columbiathreadneedleus.com/investor/ or contacting your financial intermediary.
The Board has appointed officers who are responsible for
day-to-day business decisions based on policies it has established. The officers serve at the pleasure of the Board. The following table provides basic information about the Officers of the Fund as of the printing of this report, including principal
occupations during the past five years, although their specific titles may have varied over the period. In addition to Mr. Truscott, who is Senior Vice President, the Fund’s other officers are:
Fund officers
|
Name,
address and year of birth |
Position
and year
first appointed to position for any Fund in the Columbia Funds complex or a predecessor thereof |
Principal occupation(s) during past five years |
|
Christopher
O. Petersen
5228 Ameriprise Financial Center Minneapolis, MN 55474 Born 1970 |
President and Principal Executive Officer (2015) | Vice President and Lead Chief Counsel, Ameriprise Financial, Inc. since January 2015 (previously Vice President and Chief Counsel, January 2010 - December 2014; officer of Columbia Funds and affiliated funds since 2007. |
|
Michael
G. Clarke
225 Franklin Street Boston, MA 02110 Born 1969 |
Chief Financial Officer (Principal Financial Officer) (2009) and Senior Vice President (2019) | Vice President, Head of North American Operations, and Co-Head of Global Operations, Columbia Management Investment Advisers, LLC, since June 2019 (previously Vice President – Accounting and Tax, May 2010 - May 2019); senior officer of Columbia Funds and affiliated funds since 2002 (previously Treasurer and Chief Accounting Officer, January 2009 - January 2019 and December 2015 - January 2019, respectively). |
|
Columbia
Emerging Markets Bond Fund | Annual Report 2019
|
43 |
Table of Contents
TRUSTEES AND OFFICERS (continued)
Fund officers (continued)
Fund officers (continued)
|
Name,
address and year of birth |
Position
and year
first appointed to position for any Fund in the Columbia Funds complex or a predecessor thereof |
Principal occupation(s) during past five years |
|
Joseph
Beranek
5890 Ameriprise Financial Center Minneapolis, MN 55474 Born 1965 |
Treasurer and Chief Accounting Officer (Principal Accounting Officer) (2019) | Vice President — Mutual Fund Accounting and Financial Reporting, Columbia Management Investment Advisers, LLC, since December 2018 and March 2017, respectively (previously Vice President — Pricing and Corporate Actions, May 2010 - March 2017). |
|
Paul
B. Goucher
485 Lexington Avenue New York, NY 10017 Born 1968 |
Senior Vice President (2011) and Assistant Secretary (2008) | Senior Vice President and Assistant General Counsel, Ameriprise Financial, Inc. since January 2017 (previously Vice President and Lead Chief Counsel, November 2008 - January 2017 and January 2013 - January 2017, respectively); Vice President, Chief Legal Officer and Assistant Secretary, Columbia Management Investment Advisers, LLC since March 2015 (previously Vice President and Assistant Secretary, May 2010 – March 2015). |
|
Thomas
P. McGuire
225 Franklin Street Boston, MA 02110 Born 1972 |
Senior Vice President and Chief Compliance Officer (2012) | Vice President — Asset Management Compliance, Ameriprise Financial, Inc., since May 2010; Chief Compliance Officer, Ameriprise Certificate Company since September 2010. |
|
Colin
Moore
225 Franklin Street Boston, MA 02110 Born 1958 |
Senior Vice President (2010) | Executive Vice President and Global Chief Investment Officer, Ameriprise Financial, Inc., since July 2013; Executive Vice President and Global Chief Investment Officer, Columbia Management Investment Advisers, LLC since July 2013. |
|
Ryan
C. Larrenaga
225 Franklin Street Boston, MA 02110 Born 1970 |
Senior Vice President (2017), Chief Legal Officer (2017), and Secretary (2015) | Vice President and Chief Counsel, Ameriprise Financial, Inc. since August 2018 (previously Vice President and Group Counsel, August 2011 - August 2018); officer of Columbia Funds and affiliated funds since 2005. |
|
Michael
E. DeFao
225 Franklin Street Boston, MA 02110 Born 1968 |
Vice President (2011) and Assistant Secretary (2010) | Vice President and Chief Counsel, Ameriprise Financial, Inc. since May 2010. |
|
Lyn
Kephart-Strong
5228 Ameriprise Financial Center Minneapolis, MN 55474 Born 1960 |
Vice President (2015) | President, Columbia Management Investment Services Corp. since October 2014; Vice President & Resolution Officer, Ameriprise Trust Company since August 2009. |
Approval of Management Agreement
Columbia Management Investment Advisers, LLC (Columbia
Threadneedle or the Investment Manager, and together with its domestic and global affiliates, Columbia Threadneedle Investments), a wholly-owned subsidiary of Ameriprise Financial, Inc. (Ameriprise Financial), serves as the investment manager to
Columbia Emerging Markets Bond Fund (the Fund). Under a management agreement (the Management Agreement), Columbia Threadneedle provides investment advice and other services to the Fund and other funds distributed by Columbia Management Investment
Distributors, Inc. (collectively, the Funds).
On an
annual basis, the Fund’s Board of Trustees (the Board), including the independent Board members (the Independent Trustees), considers renewal of the Management Agreement. Columbia Threadneedle prepared detailed reports for the Board and its
Contracts Committee in November 2018 and January, March, April and June 2019, including reports providing the results of analyses performed by an independent organization, Broadridge Financial Solutions, Inc. (Broadridge), and a comprehensive
response to items of information requested by independent legal counsel to the Independent Trustees (Independent Legal Counsel) in a letter to the Investment Manager, to assist the Board in making this determination. Many of
| 44 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
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Approval of Management Agreement (continued)
the materials presented at these meetings were first supplied in draft form to designated independent Board representatives, i.e., Independent Legal Counsel, Fund Counsel, the Chair of the Board (who is an Independent Trustee) and the Chair of the Contracts Committee (who is an Independent Trustee), and the final materials were revised to include information reflective of discussion and subsequent requests made by the Contracts Committee. In addition, throughout the year, the Board (or its committees) regularly meets with portfolio management teams and senior management personnel and reviews information prepared by Columbia Threadneedle addressing the services Columbia Threadneedle provides and Fund performance. The Board also accords appropriate weight to the work, deliberations and conclusions of the various committees, such as the Contracts Committee, the Investment Review Committee, the Audit Committee and the Compliance Committee in determining whether to continue the Management Agreement.
the materials presented at these meetings were first supplied in draft form to designated independent Board representatives, i.e., Independent Legal Counsel, Fund Counsel, the Chair of the Board (who is an Independent Trustee) and the Chair of the Contracts Committee (who is an Independent Trustee), and the final materials were revised to include information reflective of discussion and subsequent requests made by the Contracts Committee. In addition, throughout the year, the Board (or its committees) regularly meets with portfolio management teams and senior management personnel and reviews information prepared by Columbia Threadneedle addressing the services Columbia Threadneedle provides and Fund performance. The Board also accords appropriate weight to the work, deliberations and conclusions of the various committees, such as the Contracts Committee, the Investment Review Committee, the Audit Committee and the Compliance Committee in determining whether to continue the Management Agreement.
The Board, at its June 17-19, 2019 in-person Board meeting
(the June Meeting), considered the renewal of the Management Agreement for an additional one-year term. At the June Meeting, Independent Legal Counsel reviewed with the Independent Trustees various factors relevant to the Board’s consideration
of management agreements and the Board’s legal responsibilities related to such consideration. Following an analysis and discussion of the factors identified below, the Board, including all of the Independent Trustees, approved the renewal of
the Management Agreement.
Nature, extent and quality
of services provided by Columbia Threadneedle
The
Board analyzed various reports and presentations it had received detailing the services performed by Columbia Threadneedle, as well as its history, reputation, expertise, resources and capabilities, and the qualifications of its personnel.
The Board specifically considered the many developments during
recent years concerning the services provided by Columbia Threadneedle, including, in particular, the organization and depth of the equity and credit research departments. The Board further observed the enhancements to the investment risk management
department’s processes, systems and oversight, over the past several years, as well as planned 2019 initiatives. The Board also took into account the broad scope of services provided by Columbia Threadneedle to each Fund, including, among
other services, investment, risk and compliance oversight. The Board also took into account the information it received concerning Columbia Threadneedle’s ability to attract and retain key portfolio management personnel and that it has
sufficient resources to provide competitive and adequate compensation to investment personnel.
In connection with the Board’s evaluation of the overall
package of services provided by Columbia Threadneedle, the Board also considered the nature, quality and range of administrative services provided to the Fund by Columbia Threadneedle, as well as the achievements in 2018 in the performance of
administrative services, and noted the various enhancements anticipated for 2019. In evaluating the quality of services provided under the Management Agreement, the Board also took into account the organization and strength of the Fund’s and
its service providers’ compliance programs. In addition, the Board reviewed the financial condition of Columbia Threadneedle and its affiliates and each entity’s ability to carry out its responsibilities under the Management Agreement
and the Fund’s other service agreements with affiliates of Ameriprise Financial, observing the financial strength of Ameriprise Financial, with its relatively strong cash position and solid balance sheet.
The Board also discussed the acceptability of the terms of the
Management Agreement (including the relatively broad scope of services required to be performed by Columbia Threadneedle), noting that no material changes are proposed from the form of agreement previously approved. They also noted the wide array of
legal and compliance services provided to the Funds under the Management Agreement. It was also observed that the services being performed under the Management Agreement were of a reasonably high quality.
Based on the foregoing, and based on other information
received (both oral and written, including the information on investment performance referenced below) and other considerations, the Board concluded that Columbia Threadneedle and its affiliates are in a position to continue to provide a high
quality and level of services to the Fund.
Investment
performance
For purposes of evaluating the nature,
extent and quality of services provided under the Management Agreement, the Board carefully reviewed the investment performance of the Fund. In this regard, the Board considered detailed reports providing the results of analyses performed by an
independent organization showing, for various periods (including since manager inception): the performance of the Fund, the performance of a benchmark index, the percentage ranking of the Fund among
|
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Emerging Markets Bond Fund | Annual Report 2019
|
45 |
Table of Contents
Approval of Management Agreement (continued)
its comparison group, the product score of the Fund (taking into account performance relative to peers and benchmarks) and the net assets of the Fund. The Board observed that the Fund’s investment performance was understandable in light of the particular management style involved and the particular market environment.
its comparison group, the product score of the Fund (taking into account performance relative to peers and benchmarks) and the net assets of the Fund. The Board observed that the Fund’s investment performance was understandable in light of the particular management style involved and the particular market environment.
Comparative fees, costs of services provided and the profits
realized by Columbia Threadneedle and its affiliates from their relationships with the Fund
The Board reviewed comparative fees and the costs of
services provided under the Management Agreement. The Board members considered detailed comparative information set forth in an annual report on fees and expenses, including, among other things, data (based on analyses conducted by an independent
organization) showing a comparison of the Fund’s expenses with median expenses paid by funds in its comparative peer universe, as well as data showing the Fund’s contribution to Columbia Threadneedle’s profitability.
The Board considered the reports of its independent fee
consultant, JDL Consultants, LLC (JDL), which assisted in the Board’s analysis of the Funds’ performance and expenses, the reasonableness of Columbia Threadneedle’s profitability, particularly in comparison to industry competitors,
the reasonableness of the Funds’ fee rates, and JDL’s conclusion that the management fees being charged to the Fund are reasonable. The Board accorded particular weight to the notion that the primary objective of the level of fees is to
achieve a rational pricing model applied consistently across the various product lines in the Fund family, while assuring that the overall fees for each Fund (with certain defined exceptions) are generally in line with the "pricing philosophy"
currently in effect (i.e., that Fund total expense ratios, in general, approximate or are lower than the median expense ratios of funds in the same Lipper comparison universe). The Board took into account that the Fund’s total expense ratio
(after considering proposed expense caps/waivers) was below the peer universe’s median expense ratio shown in the reports. Based on its review, the Board concluded that the Fund’s management fee was fair and reasonable in light of the
extent and quality of services that the Fund receives.
The Board also considered the profitability of Columbia
Threadneedle and its affiliates in connection with Columbia Threadneedle providing management services to the Fund. In this regard, the Independent Trustees referred to their detailed analysis of the Profitability Report, discussing the
profitability to Columbia Threadneedle and Ameriprise Financial from managing, operating and distributing the Funds. The Board considered that in 2018 the Board had concluded that 2017 profitability was reasonable and that the 2019 information shows
that the profitability generated by Columbia Threadneedle in 2018 only slightly increased from 2017 levels. The Board also noted JDL’s report and its conclusion that 2018 Columbia Threadneedle profitability relative to industry competitors was
reasonable. It also took into account the indirect economic benefits flowing to Columbia Threadneedle or its affiliates in connection with managing or distributing the Funds, such as the enhanced ability to offer various other financial products to
Ameriprise Financial customers, soft dollar benefits and overall reputational advantages. The Board noted that the fees paid by the Fund should permit the Investment Manager to offer competitive compensation to its personnel, make necessary
investments in its business and earn an appropriate profit. The Board concluded that profitability levels were reasonable.
Economies of scale to be realized
The Board also considered the economies of scale that might
be realized by the Fund as its net asset level grows and took note of the extent to which Fund shareholders might also benefit from such growth. In this regard, the Board took into account that management fees decline as Fund assets exceed various
breakpoints, all of which have not been surpassed. The Board concluded that the breakpoints in the management fee rate schedule satisfactorily provides for the sharing of economies of scale, as they allow for adequate opportunity for shareholders to
realize benefits (fee breaks) as Fund assets grow.
Based
on the foregoing, the Board, including all of the Independent Trustees, concluded that the management fees were fair and reasonable in light of the extent and quality of services provided. In reaching this conclusion, no single factor was
determinative. On June 19, 2019, the Board, including all of the Independent Trustees, approved the renewal of the Management Agreement.
| 46 | Columbia Emerging Markets Bond Fund | Annual Report 2019 |
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[THIS PAGE INTENTIONALLY LEFT BLANK]
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Columbia Emerging Markets Bond Fund
P.O. Box 219104
Kansas City, MO 64121-9104
Please read and consider the investment objectives, risks,
charges and expenses for any fund carefully before investing. For a prospectus and summary prospectus, which contains this and other important information about the Fund, go to
columbiathreadneedleus.com/investor/. The Fund is distributed by Columbia Management Investment Distributors, Inc., member FINRA, and managed by Columbia Management Investment Advisers, LLC.
columbiathreadneedleus.com/investor/. The Fund is distributed by Columbia Management Investment Distributors, Inc., member FINRA, and managed by Columbia Management Investment Advisers, LLC.
Columbia Threadneedle Investments (Columbia Threadneedle) is
the global brand name of the Columbia and Threadneedle group of companies. All rights reserved.
© 2019 Columbia Management Investment Advisers, LLC.
columbiathreadneedleus.com/investor/
ANN141_08_J01_(10/19)
Table of Contents
Item 2. Code of Ethics.
| (a) |
The registrant has adopted a code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party. |
| (b) |
During the period covered by this report, there were not any amendments to a provision of the code of ethics that applies to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party, and that relates to any element of the code of ethics definition enumerated in paragraph (b) of this Item. |
| (c) |
During the period covered by this report, there were no waivers, including any implicit waivers, from a provision of the code of ethics to the registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the registrant or a third party that relates to one or more of the items set forth in paragraph (b) of this Item. |
Item 3. Audit Committee Financial Expert.
The registrant’s Board of Trustees has determined that Pamela G. Carlton, Anthony M. Santomero, Brian J. Gallagher and Catherine James Paglia, each of whom are members of the registrant’s Board of Trustees and Audit Committee, each qualify as an audit committee financial expert. Ms. Carlton, Mr. Santomero, Mr. Gallagher and Ms. Paglia are each independent trustees, as defined in paragraph (a)(2) of this item’s instructions.
Item 4. Principal Accountant Fees and Services.
Fee information below is disclosed for the one series of the registrant whose report to stockholders is included in this annual filing.
(a) Audit Fees. Aggregate Audit Fees billed by the principal accountant for professional services rendered during the fiscal years ended August 31, 2019 and August 31, 2018 are approximately as follows:
| 2019 | 2018 | |||||
| $ | 29,000 | $ | 41,500 | |||
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Audit Fees include amounts related to the audit of the registrant’s annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years.
(b) Audit-Related Fees. Aggregate Audit-Related Fees billed to the registrant by the principal accountant for professional services rendered during the fiscal years ended August 31, 2019 and August 31, 2018 are approximately as follows:
| 2019 | 2018 | |||||
| $ | 0 | $ | 0 | |||
Audit-Related Fees include amounts for assurance and related services by the principal accountant that are reasonably related to the performance of the audit of the registrant’s financial statements and are not reported in Audit Fees above.
During the fiscal years ended August 31, 2019 and August 31, 2018, there were no Audit-Related Fees billed by the registrant’s principal accountant to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for an engagement that related directly to the operations and financial reporting of the registrant.
(c) Tax Fees. Aggregate Tax Fees billed by the principal accountant to the registrant for professional services rendered during the fiscal years ended August 31, 2019 and August 31, 2018 are approximately as follows:
| 2019 | 2018 | |||||
| $ | 6,700 | $ | 16,400 | |||
Tax Fees include amounts for the review of annual tax returns, the review of required shareholder distribution calculations and typically include amounts for professional services by the principal accountant for tax compliance, tax advice and tax planning.
During the fiscal years ended August 31, 2019 and August 31, 2018, there were no Tax Fees billed by the registrant’s principal accountant to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for an engagement that related directly to the operations and financial reporting of the registrant.
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(d) All Other Fees. Aggregate All Other Fees billed by the principal accountant to the registrant for professional services rendered during the fiscal years ended August 31, 2019 and August 31, 2018 are approximately as follows:
| 2019 | 2018 | |||||
| $ | 0 | $ | 0 | |||
All Other Fees include amounts for products and services provided by the principal accountant, other than the services reported in paragraphs (a) through (c) above.
Aggregate All Other Fees billed by the registrant’s principal accountant to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for an engagement that related directly to the operations and financial reporting of the registrant during the fiscal years ended August 31, 2019 and August 31, 2018 are approximately as follows:
| 2019 | 2018 | |||||
| $ | 225,000 | $ | 225,000 | |||
In fiscal years 2019 and 2018, All Other Fees primarily consists of fees billed for internal control examinations of the registrant’s transfer agent and investment adviser.
(e)(1) Audit Committee Pre-Approval Policies and Procedures
The registrant’s Audit Committee is required to pre-approve the engagement of the registrant’s independent auditors to provide audit and non-audit services to the registrant and non-audit services to its investment adviser (excluding any sub-adviser whose role is primarily portfolio management and is sub-contracted or overseen by another investment adviser (the “Adviser”) or any entity controlling, controlled by or under common control with the Adviser that provides ongoing services to the Fund (a “Control Affiliate”) if the engagement relates directly to the operations and financial reporting of the registrant.
The Audit Committee has adopted a Policy for Engagement of Independent Auditors for Audit and Non-Audit Services (the “Policy”). The Policy sets forth the understanding of the Audit Committee regarding the engagement of the registrant’s independent accountants to provide (i) audit and permissible audit-related, tax and other services to the registrant (“Fund Services”); (ii) non-audit services to the registrant’s Adviser and any Control Affiliates, that relates directly to the operations and financial reporting of a Fund (“Fund-related Adviser Services”); and (iii) certain other audit and non-audit services to the registrant’s Adviser and its Control Affiliates. A service will require specific pre-approval by the Audit Committee if it is to be provided by the Fund’s independent auditor; provided, however, that pre-approval of non-audit services to the Fund, the Adviser or Control Affiliates August be waived if certain de minimis requirements set forth in the SEC’s rules are met.
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Under the Policy, the Audit Committee August delegate pre-approval authority to any pre-designated member or members who are independent board members. The member(s) to whom such authority is delegated must report, for informational purposes only, any pre-approval decisions to the Audit Committee at its next regular meeting. The Audit Committee’s responsibilities with respect to the pre-approval of services performed by the independent auditor August not be delegated to management.
On an annual basis, at a regularly scheduled Audit Committee meeting, the Fund’s Treasurer or other Fund officer shall submit to the Audit Committee a schedule of the types of Fund Services and Fund-related Adviser Services that are subject to specific pre-approval. This schedule will provide a description of each type of service that is subject to specific pre-approval, along with total projected fees for each service. The pre-approval will generally cover a one-year period. The Audit Committee will review and approve the types of services and the projected fees for the next one-year period and August add to, or subtract from, the list of pre-approved services from time to time, based on subsequent determinations. This specific approval acknowledges that the Audit Committee is in agreement with the specific types of services that the independent auditor will be permitted to perform and the projected fees for each service.
The Fund’s Treasurer or other Fund officer shall report to the Audit Committee at each of its regular meetings regarding all Fund Services or Fund-related Adviser Services provided since the last such report was rendered, including a description of the services, by category, with forecasted fees for the annual reporting period, proposed changes requiring specific pre-approval and a description of services provided by the independent auditor, by category, with actual fees during the current reporting period.
*****
(e)(2) 100% of the services performed for items (b) through (d) above during 2019 and 2018 were pre-approved by the registrant’s Audit Committee.
(f) Not applicable.
(g) The aggregate non-audit fees billed by the registrant’s accountant for services rendered to the registrant, and rendered to the registrant’s investment adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the adviser that provides ongoing services to the registrant for the fiscal years ended August 31, 2019 and August 31, 2018 are approximately as follows:
| 2019 | 2018 | |||||
| $ | 231,600 | $ | 241,400 | |||
(h) The registrant’s Audit Committee of the Board of Directors has considered whether the provision of non-audit services that were rendered to the registrant’s adviser (not including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser), and any entity controlling, controlled by, or under common control with the investment adviser that provides ongoing services to the registrant that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X, is compatible with maintaining the principal accountant’s independence.
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Item 5. Audit Committee of Listed Registrants.
Not applicable.
Item 6. Investments
| (a) |
The registrant’s “Schedule I – Investments in securities of unaffiliated issuers” (as set forth in 17 CFR 210.12-12) is included in Item 1 of this Form N-CSR. |
| (b) |
Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
Item 10. Submission of Matters to a Vote of Security Holders.
There were no material changes to the procedures by which shareholders August recommend nominees to the registrant’s board of directors.
Item 11. Controls and Procedures.
| (a) |
The registrant’s principal executive officer and principal financial officer, based on their evaluation of the registrant’s disclosure controls and procedures as of a date within 90 days of the filing of this report, have concluded that such controls and procedures are adequately designed to ensure that information required to be disclosed by the registrant in Form N-CSR is accumulated and communicated to the registrant’s management, including the principal executive officer and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. |
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| (b) |
There was no change in the registrant’s internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable.
Item 13. Exhibits.
(a)(1) Code of ethics required to be disclosed under Item 2 of Form N-CSR attached hereto as Exhibit 99.CODE ETH.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) attached hereto as Exhibit 99.CERT.
(a)(3) Not applicable.
(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) attached hereto as Exhibit 99.906CERT.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
(registrant) Columbia Funds Series Trust II
| By (Signature and Title) | /s/ Christopher O. Petersen | |
| Christopher O. Petersen, President and Principal Executive Officer |
Date October 24, 2019
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By (Signature and Title) | /s/ Christopher O. Petersen | |
| Christopher O. Petersen, President and Principal Executive Officer |
Date October 24, 2019
| By (Signature and Title) | /s/ Michael G. Clarke | |
| Michael G. Clarke, Chief Financial Officer |
Date October 24, 2019